<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 1997
REGISTRATION NO. 333-18791
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GENERAL CIGAR HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2100 13-3922128
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
<TABLE>
<CAPTION>
EDGAR M. CULLMAN, JR., PRESIDENT
AND CHIEF EXECUTIVE OFFICER
387 PARK AVENUE SOUTH GENERAL CIGAR HOLDINGS, INC.
NEW YORK, NEW YORK 10016-8899 387 PARK AVENUE SOUTH
(212) 448-3800 NEW YORK, NEW YORK 10016-8899
(Address, including zip code, and telephone (212) 448-3800
number, including area code, of registrant's (Name, address, including zip code, and telephone number,
principal executive offices) including area code, of agent for service)
<S> <C>
COPIES TO:
R. RONALD HOPKINSON, ESQUIRE STEVEN R. FINLEY, ESQUIRE
LATHAM & WATKINS GIBSON, DUNN & CRUTCHER LLP
885 THIRD AVENUE 200 PARK AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10166
(212) 906-1200 (212) 351-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
FEBRUARY , 1997
6,000,000 SHARES
[LOGO]
GENERAL CIGAR
CLASS A COMMON STOCK
All of the 6,000,000 shares of Class A Common Stock, par value $0.01 per
share (the "Class A Common Stock"), offered hereby (the "Offering") are being
sold by General Cigar Holdings, Inc.
Each share of Class A Common Stock entitles its holder to one vote. Each
share of Class B Common Stock, par value $0.01 per share (the "Class B Common
Stock" and, together with the Class A Common Stock, the "Common Stock"), of the
Company entitles its holder to ten votes. All of the shares of Class B Common
Stock are owned by Culbro Corporation (NYSE:CBO) ("Culbro"). Approximately 50%
of Culbro's common stock is owned by a group of individuals and trusts (the
"Cullman & Ernst Group"). Immediately after consummation of the Offering
(assuming no exercise of the over-allotment option granted to the Underwriters),
Culbro will beneficially own shares of Class B Common Stock representing
approximately 97% of the combined voting power of the outstanding shares of
Common Stock. The Company has agreed, subject to certain conditions, to a merger
with Culbro (the "Merger"), to occur after the closing of the Offering, pursuant
to which Culbro will be merged into the Company and 20,087,182 shares of the
Company's Class B Common Stock (subject to adjustment for options exercised
after the date hereof) will be issued to the shareholders of Culbro. As a result
of the Merger, the Cullman & Ernst Group will beneficially own shares of Class B
Common Stock, (assuming no exercise of the over-allotment option granted to the
Underwriters) representing approximately 48% of the combined voting power of the
outstanding shares of Common Stock.
Prior to the Offering, there has been no public market for the Class A
Common Stock. It is currently estimated that the initial public offering price
per share will be between $14.00 and $16.00. See "Underwriting" for factors to
be considered in determining the initial public offering price.
The Class A Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "MPP", subject to official notice of issuance.
SEE "RISK FACTORS" COMMENCING ON PAGE 10 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE CLASS A COMMON STOCK.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Share................................. $ $ $
Total (3)................................. $ $ $
</TABLE>
(1) SEE "UNDERWRITING" FOR INDEMNIFICATION ARRANGEMENTS WITH THE UNDERWRITERS.
(2) BEFORE DEDUCTING EXPENSES ESTIMATED AT $1,500,000, WHICH WILL BE PAID BY THE
COMPANY.
(3) THE COMPANY HAS GRANTED THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP TO
900,000 ADDITIONAL SHARES AT THE PRICE TO THE PUBLIC LESS UNDERWRITING
DISCOUNTS AND COMMISSIONS, SOLELY TO COVER OVER-ALLOTMENTS, IF ANY. IF SUCH
OPTION IS EXERCISED IN FULL, THE TOTAL PRICE TO THE PUBLIC, UNDERWRITING
DISCOUNTS AND COMMISSIONS, AND PROCEEDS TO THE COMPANY WILL BE $ ,
$ AND $ , RESPECTIVELY. SEE "UNDERWRITING."
The shares are being offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to various prior
conditions, including their right to reject orders in whole or in part. It is
expected that delivery of the share certificates will be made in New York, New
York, on or about February , 1997.
DONALDSON, LUFKIN & JENRETTE SMITH BARNEY INC.
SECURITIES
CORPORATION
<PAGE>
[Photographs of the Company's premium and mass market cigars. Photographs of the
Company's tobacco leaves, along with photographs of men and women rolling and
packaging cigars. Additionally, there is a photograph of Ramon Cifuentes in an
advertisement for the Company's Partagas brand cigars.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE COMBINED FINANCIAL
STATEMENTS OF THE COMPANY AND THE NOTES THERETO CONTAINED ELSEWHERE IN THIS
PROSPECTUS. CERTAIN FINANCIAL AND OPERATING DATA IN THIS PROSPECTUS ARE
PRESENTED ON A PRO FORMA BASIS TO GIVE EFFECT TO THE ACQUISITION (THE "VILLAZON
ACQUISITION") BY THE COMPANY IN JANUARY 1997 OF SUBSTANTIALLY ALL OF THE ASSETS
OF VILLAZON & COMPANY, INC. AND ALL OF THE STOCK OF ITS AFFILIATE, HONDURAS
AMERICAN TABACO, S.A. DE C.V. (COLLECTIVELY REFERRED TO HEREIN AS "VILLAZON").
ALL REFERENCES TO A PARTICULAR FISCAL YEAR REFER TO THE 12 MONTHS ENDED ON THE
SATURDAY NEAREST NOVEMBER 30 OF THE YEAR REFERENCED. UNLESS OTHERWISE INDICATED,
THE INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION. UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL REFERENCES IN
THIS PROSPECTUS TO THE "COMPANY" OR "GENERAL CIGAR" MEAN GENERAL CIGAR HOLDINGS,
INC. AND ITS SUBSIDIARIES. THE COMPANY IS A HOLDING COMPANY WITH NO BUSINESS
OPERATIONS OF ITS OWN. THE COMPANY'S ONLY MATERIAL ASSETS ARE ALL OF THE
OUTSTANDING CAPITAL STOCK OF ITS SUBSIDIARIES, GENERAL CIGAR CO., INC., GCH
TRANSPORTATION, INC., CLUB MACANUDO, INC. AND CLUB MACANUDO (CHICAGO), INC. AND
ALL OF THE OWNERSHIP INTERESTS IN THE COMPANY'S OFFICE BUILDING IN NEW YORK
CITY.
THE COMPANY
Founded in 1906, General Cigar is the largest manufacturer and marketer in
the U.S. in both units and dollar sales of brand name premium cigars (imported,
hand-made or hand-rolled cigars made with long filler and all natural tobacco
leaf). The Company's MACANUDO and PARTAGAS brands are the two top selling
premium cigar brands sold in the U.S. The Company believes that higher priced
branded premium cigars constitute the fastest growing segment of the premium
cigar market. Approximately 80.2% of the Company's premium cigar sales in fiscal
1996 were at suggested retail prices of $3.00 or more per unit. The Company's
unit sales at or above this price point have increased at a 90.2% compound
annual growth rate ("CAGR") during the past four years. The Company, through its
well known brands such as GARCIA Y VEGA, also is a leading participant in the
growing mass market cigar segment. From fiscal 1993 to fiscal 1996, the
Company's net sales increased from $76.8 million to $154.7 million and operating
profit increased from $2.4 million to $20.2 million, representing CAGRs of 26.3%
and 104.2%, respectively. After giving effect to the Villazon Acquisition, on a
pro forma basis, the Company's net sales and operating profit for fiscal 1996
would have been $196.7 million and $32.3 million, respectively.
The Company markets its cigars under a number of well-known brand names. The
Company's premium cigars include the MACANUDO, PARTAGAS, TEMPLE HALL, CANARIA
D'ORO, CIFUENTES and RAMON ALLONES brands. The Company also owns the rights to
market cigars in the U.S. under the names COHIBA and BOLIVAR. The Villazon
Acquisition has added a variety of other brand names to the Company's line of
premium cigars, including PUNCH, HOYO DE MONTERREY and EL REY DEL MUNDO. The
Company, after giving effect to the Villazon Acquisition, owns the U.S.
trademark rights to seven of the top ten traditional premium Cuban brand names
ranked according to 1995 worldwide sales by all cigar marketers. MACANUDO was
rated "best cigar" by ROBB REPORT-Registered Trademark- in 1992, the first year
in which ROBB REPORT rated cigars, and "best cigar" again in 1994 and 1995 (the
category was not included in the 1993 ROBB REPORT). In 1996, ROBB REPORT chose
eight "best cigars," including MACANUDO, PARTAGAS 150 SIGNATURE, HOYO DE
MONTERREY EXCALIBUR NO. 2 and COHIBA. The Company's mass market large cigars
include GARCIA Y VEGA, WHITE OWL, ROBT. BURNS and WM. PENN. The Company's mass
market small cigars include the TIPARILLO and TIJUANA SMALLS brands, as well as
smaller sizes of its other mass market brands. The Company does not participate
in the market for little cigars, which are cigars that resemble cigarettes. The
Company also is the exclusive U.S. distributor of French made DJEEP disposable
lighters, and it operates CLUB MACANUDO, a cigar bar located in New York City.
The Company believes that increasing demand for cigars continues to offer
the Company substantial growth opportunities. Since 1993, cigar smoking has
experienced a resurgence resulting in an increase in consumption and retail
sales of cigars across all major categories, especially in the premium cigar
segment. This growth produced overall retail sales in the U.S. cigar market of
an estimated $1.25 billion in 1996, the
3
<PAGE>
largest dollar sales in the industry's history. Based on industry estimates of
1996 results, unit sales of premium and mass market cigars (excluding little
cigars) in the U.S. have increased at CAGRs of 35.4% and 9.6%, respectively,
from 1993 to 1996, while retail dollar sales of both categories have increased
more rapidly due to price increases. The Company believes that sales of premium
cigars exceeded 270 million units in the U.S. in 1996, an increase of over 60%
from 1995 unit sales.
The Company believes that this increase in cigar consumption and retail
sales is the result of a number of factors, including: (i) the improving image
of cigar smoking resulting from increased publicity, including the success of
CIGAR AFICIONADO and SMOKE magazines and the increased visibility of cigar
smoking by celebrities (such as Arnold Schwarzenegger, Mel Gibson, Demi Moore
and Jack Nicholson); (ii) the emergence of an expanding base of younger, highly
educated, affluent adults age 25 to 35 and the growing interest of this group in
luxury goods, including premium cigars; (iii) the increase in the number of
adults over the age of 40 (a demographic group believed to smoke more cigars
than any other demographic group); and (iv) the proliferation of establishments,
such as restaurants and clubs, where cigar smoking is encouraged, as well as
"cigar smokers" dinners and other special events for cigar smokers.
The Company's pro forma financial results, including the effect of the
Villazon Acquisition, reflect its strong position within the growing cigar
industry. In fiscal 1996, the Company had pro forma net sales of $196.7 million
and pro forma operating profit of $32.3 million. The Company's backorders of
cigars, excluding Villazon backorders, increased from $21.0 million at wholesale
at December 2, 1995 to $78.0 million at wholesale at November 30, 1996. During
1996, the Company discontinued accepting premium cigar orders from its nine
largest customers and currently allocates product to such customers as it
becomes available.
The Company attributes its strong market position to the following
competitive strengths: (i) well-known brand names, which in the premium cigar
market are the leading brands in their categories; (ii) a broad range of product
offerings within both the premium and mass market segments of the U.S. cigar
markets; (iii) its positioning as the only cigar manufacturer that is also a
major grower and supplier of Connecticut Shade wrapper tobacco, one of the most
popular premium wrapper tobaccos in the world; (iv) a commitment to, and
reputation for, manufacturing quality cigars; (v) its marketing expertise; (vi)
its efficient manufacturing operations; and (vii) a highly experienced
management team that includes individuals from families with up to five
generations of experience in the U.S. and Cuban cigar/tobacco businesses.
The Company believes that its competitive strengths, together with the
following strategies, will enable the Company to continue its growth, increase
its profitability and enhance its market share:
/ / INCREASE LEADING MARKET SHARE IN THE U.S. PREMIUM SEGMENT. The Company
intends to capitalize on the rapidly growing premium cigar market by:
(i) continuing to improve awareness and recognition of its premium cigar
brands through extensive advertising, increased penetration of targeted
retail outlets and professional sales management; (ii) developing and
selling more broadly certain new premium cigars that carry well
recognized traditional premium Cuban brand names, such as COHIBA and
BOLIVAR; (iii) developing line extensions in higher price categories,
such as MACANUDO VINTAGE and PARTAGAS LIMITED RESERVE, that leverage the
Company's already established premium brands; and (iv) using the
Company's national sales force and extensive channels of distribution to
increase sales of the products acquired in the Villazon Acquisition.
/ / DEVELOP "PREMIUM" MASS MARKET CIGAR BUSINESS. The Company is seeking to
increase revenues and profits in its mass market cigar business by
extending its well-known mass market brand names into higher price
categories within the mass market segment. The Company believes that the
higher-end mass market segment recently has experienced growth similar
to that of the premium segment. The Company is attempting to capitalize
on this growth by expanding products such as the GARCIA Y VEGA HAND MADE
cigars and by developing similar higher-end cigars under several of its
other mass market brand names, such as the WHITE OWL SELECT, a natural
leaf wrapper mass market cigar.
4
<PAGE>
/ / EXPAND MASS MARKET CIGAR BUSINESS. The Company believes that the
resurgence in the premium segment also has positively affected the
demand for traditional mass market cigars. The Company's leading
high-end mass market brand, GARCIA Y VEGA, experienced a 27.9% increase
in unit growth in 1996 compared to 1995. The Company intends to increase
its sales and production of traditional mass market cigars to capitalize
on the increasing demand in the mass market segment.
/ / EXPAND PRODUCTION CAPACITY AND TOBACCO INVENTORY. The Company intends to
expand manufacturing capacity in order to meet increasing demand for its
products while adhering to its traditionally high quality standards. The
Company recently completed the expansion of its manufacturing facilities
in the Dominican Republic, has begun to expand its facilities in Jamaica
and intends to expand production at the Villazon facilities in Honduras.
In addition, the Company has implemented a unique "training center"
program at its Dominican Republic facility through which it has been
able to train a greater number of cigar rollers in a shorter period of
time and attain a higher rate of completion of the training program than
had been its experience using traditional training methods. The Company
intends to implement a similar program in its Jamaican and Honduran
facilities. The Company also has substantially increased its tobacco
inventory for making premium cigars.
/ / SELECTIVELY BROADEN CIGAR DISTRIBUTION CHANNELS. The Company intends to
broaden its existing customer relationships and actively develop new
channels and methods of distribution. With respect to premium cigars,
the Company is pursuing opportunities in a number of developing
distribution channels, including cigar bars and clubs, hotel shops, wine
shops, restaurants and upscale specialty retail stores (such as Neiman
Marcus and Orvis). With respect to mass market cigars, the Company is
seeking to enhance relations with existing retailers by acting as the
tobacco "category manager," assisting such retailers in increasing their
sales of tobacco products.
/ / EXPAND INTERNATIONAL CIGAR BUSINESS. The Company plans to increase its
international presence, particularly with respect to the MACANUDO brand.
The Company will focus its efforts in the United Kingdom, Germany,
France, Spain, China and certain countries in South America, as well as
duty free markets worldwide. The Company intends to implement this
strategy in a variety of ways, including building on its existing
relationships with major international distributors and entering into
joint ventures.
/ / DEVELOP SALES OF BRANDED SMOKING ACCESSORIES AND LIFESTYLE PRODUCTS. The
Company intends to become a leading marketer and licensor of
high-quality branded smoking accessories, such as humidors and cigar
cutters, and branded luxury lifestyle products, such as leather goods
and apparel. The Company believes such expansion will improve brand
recognition among premium cigar consumers. The Company also may open
additional CLUB MACANUDO locations, including one location in Chicago
expected to open in the spring of 1997. CLUB MACANUDO promotes the
Company's premium brands as well as cigar smoking as part of the luxury
lifestyle. The Winter 1996/97 issue of CIGAR AFICIONADO called CLUB
MACANUDO New York City's "preeminent cigar lounge," and SMOKE magazine
recently said of CLUB MACANUDO, "this place is pure 'cigar.' "
The Company's executive offices are located at 387 Park Avenue South, New
York, New York 10016-8899, and the telephone number is (212) 448-3800. Its
website is http://cigarworld.com.
THE VILLAZON ACQUISITION
On January 21, 1997 the Company acquired Villazon for approximately $81.4
million, including certain direct acquisition costs and net of $9.1 million of
cash. The acquisition was funded in part by the issuance of $24.4 million
aggregate principal amount of notes (the "Seller Notes"). Through the Villazon
Acquisition, the Company acquired facilities in Tampa, Florida, San Pedro Sula
and Danli, Honduras, and Upper Saddle River, New Jersey, as well as the U.S.
trademark rights to several traditional Cuban trademarks and widely recognized
names in the premium cigar industry, including PUNCH, HOYO DE MONTERREY and EL
REY DEL MUNDO.
5
<PAGE>
The acquisition of Villazon gives the Company a broader taste spectrum in
cigars, substantially increases its manufacturing capacity and provides access
to new sources of tobacco for all of its product offerings. The addition of
cigars made in Honduras, one of the fastest-growing countries of origin for
cigars worldwide, complements the Company's Dominican and Jamaican made cigars
in addition to diversifying its manufacturing base across three countries.
Management believes that Villazon's operations complement the Company's and will
enable the Company to leverage, over time, its cost structure, its sales and
distribution networks and its marketing expertise, resulting in improved growth
and profitability.
THE ASSET TRANSFERS, THE DISTRIBUTION AND THE MERGER
Prior to the Offering, Culbro will complete certain asset transfers (the
"Asset Transfers"), pursuant to which (i) all of Culbro's assets and liabilities
relating to the cigar business, including approximately 1,200 acres of land used
in the tobacco growing operations and CLUB MACANUDO, and certain other assets
and liabilities, including Culbro's corporate headquarters, will be transferred
to the Company, and (ii) substantially all of Culbro's non-tobacco related
assets and liabilities, including all of its assets and liabilities relating to
its nursery business and real estate business, together with Culbro's 25%
interest in Centaur Communications Limited ("Centaur") and its interests in The
Eli Witt Company ("Eli Witt") and related liabilities, will be transferred to
Culbro Land Resources, Inc. ("CLR"). Upon consummation of the Asset Transfers,
Culbro will be a holding company with substantially no assets other than its
ownership interests in the Company and CLR. See "The Asset Transfers, the
Distribution and the Merger."
Subsequent to the Offering, Culbro intends to effect a distribution (the
"Distribution") to the shareholders of Culbro of all issued and outstanding
shares of common stock of CLR. The Distribution will be contingent upon either a
tax ruling or an opinion of counsel satisfactory to Culbro that the Distribution
constitutes a tax-free reorganization under Section 355 of the Internal Revenue
Code. The Distribution also will be contingent upon the approval by the holders
of 66 2/3% of Culbro's common stock of the Merger. The Company will be the
surviving corporation in the Merger and will issue to the holders of the common
stock of Culbro 4.44557 shares of Class B Common Stock for each share of the
Culbro common stock outstanding on the date of the Merger, or approximately
20,087,182 shares of Class B Common Stock in the aggregate, subject to
adjustment for any options exercised prior to the Merger. The shareholders of
Culbro will not vote with respect to the adoption of the Merger until April
1997. The members of the Cullman & Ernst Group, however, who collectively hold
approximately 50% of Culbro's common stock, have indicated that they will vote
their shares of Culbro common stock in favor of the Merger and will not sell or
otherwise transfer any of their shares of Culbro common stock prior to the
earlier to occur of 180 days after the date of this Prospectus or the
consummation of the Merger. The Merger has been approved by Culbro as the sole
stockholder of the Company and, consequently, the holders of the Class A Common
Stock offered hereby will not vote in connection with the Merger. The Merger
will not take place until August 1997 without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ").
The pro forma information on pages 21 to 23 hereof gives effect to the Asset
Transfers, the Villazon Acquisition and the Offering. See page 56 for a chart
illustrating the effect of the Distribution and the Merger.
------------------------
Macanudo-Registered Trademark-, Partagas-Registered Trademark-,
Punch-Registered Trademark-, Hoyo De Monterrey-Registered Trademark-,
Cohiba-Registered Trademark-, Excalibur-Registered Trademark-, Ramon
Allones-Registered Trademark-, Temple Hall-Registered Trademark-, El Rey Del
Mundo-Registered Trademark-, Canaria d'Oro-Registered Trademark-,
Cifuentes-Registered Trademark-, Bolivar-Registered Trademark-, Garcia y
Vega-Registered Trademark-, White Owl-Registered Trademark-,
Tiparillo-Registered Trademark-, Robt. Burns-Registered Trademark-, Tijuana
Smalls-Registered Trademark-, Wm. Penn-Registered Trademark-,
Bances-Registered Trademark-, Belinda-Registered Trademark-, Lord
Beaconsfield-Registered Trademark-, Villa De Cuba-TM-, Pedro
Iglesias-Registered Trademark-, Top Stone-Registered Trademark- and Villazon
Deluxe-Registered Trademark- are trademarks of the Company. The Djeep-TM-
trademark included in this Prospectus is owned by Societe Industrielle Du
Briquet Jetable.
6
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THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock offered................. 6,000,000 shares
Common Stock outstanding after the 6,000,000 shares of Class A Common Stock (1)
Offering................................... 20,087,182 shares of Class B Common Stock (2)
26,087,182 total shares of Common Stock
Voting rights................................ The Class A Common Stock and Class B Common
Stock vote as a single class on all matters,
except as otherwise required by law, with
each share of Class A Common Stock entitling
its holder to one vote and each share of
Class B Common Stock entitling its holder to
ten votes. All of the shares of Class B
Common Stock are owned by Culbro. Immediately
after consummation of the Offering, Culbro
will beneficially own shares of Class B
Common Stock representing approximately 97%
of the combined voting power of the
outstanding shares of Common Stock. After
giving effect to the Merger, all shares of
Class B Common Stock will be held by the
holders of the Common Stock of Culbro
(including the Cullman & Ernst Group).
Use of proceeds.............................. The Company intends to use approximately
$67.8 million of the net proceeds from the
Offering to reduce outstanding indebtedness
under the Credit Facility ($67.1 million of
which was incurred in connection with the
closing of the Villazon Acquisition and $0.7
million of which was incurred for general
corporate purposes) and $14.4 million of the
net proceeds will be used to repay a portion
of the Seller Notes. See "Use of Proceeds."
New York Stock Exchange symbol............... MPP (3)
</TABLE>
See "Risk Factors" beginning on page 10 for a discussion of certain risks
that should be considered in connection with an investment in the Class A Common
Stock offered hereby.
- ------------------------
(1) Excludes 3,300,000 shares of Class A Common Stock reserved for issuance
under the 1997 Stock Option Plan, 581,666 of which will be subject to
options issued upon consummation of the Offering and 2,162,818 of which are
reserved for issuance upon exercise of outstanding options under Culbro's
option plans. See "Certain Employee Benefit Matters--1997 Stock Option
Plan."
(2) Each share of Class B Common Stock is convertible at any time into one share
of Class A Common Stock and converts automatically into one share of Class A
Common Stock upon a sale to any person other than a Permitted Transferee (as
defined herein). Issuance of all Class B Common Stock to the shareholders of
Culbro as a result of the Merger is not a transfer but will constitute an
issuance to a Permitted Transferee. See "Description of Capital Stock."
(3) Selected as representative of the Company's MACANUDO, PARTAGAS and PUNCH
brands.
7
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary historical data for fiscal 1992 have been derived from the
unaudited combined financial statements of the Company. The summary historical
data for fiscal 1993 have been derived from the audited combined financial
statements of the Company. The summary historical data for fiscal 1994, fiscal
1995 and fiscal 1996 have been derived from the audited Combined Financial
Statements of the Company included elsewhere in this Prospectus. The summary
unaudited combined pro forma statement of operations data for fiscal 1996 and
the summary pro forma balance sheet data as of November 30, 1996 give effect to
(i) the liability portion of the Asset Transfers pursuant to which the Company
acquired, among other assets, the stock of General Cigar Co. Inc., Club
Macanudo, Inc., 387 PAS Corp., GCH Transportation, Inc. and Club Macanudo
(Chicago), Inc., (ii) the Villazon Acquisition and (iii) the Offering. The pro
forma adjustments are based upon available information and certain assumptions
that the management of the Company believes are reasonable. The summary
unaudited combined pro forma data do not purport to represent the results of
operations or the financial position of the Company that actually would have
occurred had the liability portion of the Asset Transfers, the Villazon
Acquisition and the Offering occurred as of the dates indicated nor do they
project the financial position or results of the Company for any future date.
The following summary historical financial data should be read in conjunction
with "Selected Combined Financial Data," "Unaudited Pro Forma Combined Financial
Statements," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Combined Financial Statements of the Company and
Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996
----------------------
<CAPTION>
PRO
1992 1993 1994 1995 ACTUAL FORMA(1)
--------- --------- --------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................ $ 77,131 $ 76,825 $ 89,538 $ 124,033 $ 154,676 $ 196,694
Cost of goods sold................................... 48,651 49,165 54,285 69,683 86,240 107,650
--------- --------- --------- ---------- ---------- ----------
Gross profit......................................... 28,480 27,660 35,253 54,350 68,436 89,044
Selling, general and administrative expenses......... 27,059 25,282 27,210 36,726 44,593 53,120
Other nonrecurring expense........................... -- -- -- -- 3,600 3,600
--------- --------- --------- ---------- ---------- ----------
Operating profit..................................... 1,421 2,378 8,043 17,624 20,243 32,324
Interest expense..................................... 327 264 607 1,049 951 4,828
Income before income taxes........................... 1,393 2,248 7,413 18,564 20,145 29,028
Net income (loss) (2)................................ 814 (3,049) 4,550 11,324 12,407 17,825
Pro forma earnings per share (3)..................... $ 0.67
Pro forma number of weighted average shares
outstanding (3).................................... 26,528
</TABLE>
FOOTNOTES APPEAR ON THE FOLLOWING PAGE
8
<PAGE>
<TABLE>
<CAPTION>
NOV. 30, 1996
-----------------------------------------
<S> <C> <C> <C>
PRO FORMA
AS ADJUSTED
ACTUAL PRO FORMA (4) (5)
---------- ------------- --------------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....................................................... $ 65,121 $ 9,493 $ 83,863
Total assets.......................................................... 145,042 244,795 244,795
Long-term debt........................................................ 11,079 72,029 64,199
Culbro investment/stockholders' equity................................ 93,719 45,258 127,458
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------------------------------------------
1996
-------------------------
1992 1993 1994 1995 ACTUAL PRO FORMA (1)
--------- --------- ---------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
OTHER DATA:
Gross margin........................................ 36.9% 36.0% 39.4% 43.8% 44.2% 45.3%
Operating margin.................................... 1.8% 3.1% 9.0% 14.2% 13.1% 16.4%
EBITDA (6)(7)....................................... $ 5,541 $ 5,923 $ 11,291 $ 23,163 $ 24,909 $ 40,454
EBITDA margin (7)(8)................................ 7.2% 7.7% 12.6% 18.7% 16.1% 20.6%
Capital expenditures................................ $ 4,435 $ 1,691 $ 1,884 $ 2,841 $ 9,701 $ 10,014
</TABLE>
- ------------------------
(1) As adjusted to give effect to the liability portion of the Asset Transfers,
the Villazon Acquisition and the Offering.
(2) Includes a $4.4 million charge, net of related taxes, to reflect the
adoption of SFAS No. 106 in 1993. Includes a pre-tax gain of $2.6 million in
fiscal 1995 to reflect an insurance settlement.
(3) The pro forma number of weighted average shares outstanding includes all of
the outstanding shares of Class A Common Stock and Class B Common Stock
expected to be outstanding after the Offering. The total number of weighted
average shares outstanding used in the computation of pro forma earnings per
share also includes the dilutive effect of additional shares issuable upon
exercise of all Culbro stock options outstanding at the Offering date. See
"Certain Employee Benefit Matters--Culbro Employee Benefit Plans to be
Assumed by the Company--Culbro Stock Option Plans."
(4) As adjusted to give effect to the liability portion of the Asset Transfers
and the Villazon Acquisition.
(5) As adjusted to give effect to the Offering.
(6) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization. EBITDA is presented because it is a widely
accepted financial indicator used by certain investors and analysts to
analyze and compare companies on the basis of operating performance. EBITDA
is not intended to represent cash flows for the period, nor has it been
presented as an alternative to operating income as an indicator of operating
performance and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally accepted
accounting principles. See the Combined Financial Statements and the Notes
thereto appearing elsewhere in this Prospectus.
(7) In fiscal 1995 the Company had a $2.6 million gain from an insurance
settlement. Excluding this gain, EBITDA would have been $20.6 million and
EBITDA margin would have been 16.6%. In fiscal 1996, the Company had a
nonrecurring expense of $3.6 million. Excluding this expense, EBITDA would
have been $28.5 million ($44.1 million on a pro forma basis) and EBITDA
margin would have been 18.4% (22.4% on a pro forma basis).
(8) EBITDA margin represents EBITDA as a percentage of net sales. EBITDA margin
is presented because it is a widely accepted financial indicator used by
certain investors and analysts to analyze and compare companies on the basis
of operating performance. EBITDA margin should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles. See the Combined
Financial Statements and the Notes thereto appearing elsewhere in this
Prospectus.
9
<PAGE>
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK OFFERED HEREBY SHOULD
CONSIDER CAREFULLY ALL OF THE INFORMATION SET FORTH IN THIS PROSPECTUS AND, IN
PARTICULAR, SHOULD EVALUATE THE FOLLOWING RISKS IN CONNECTION WITH AN INVESTMENT
IN THE CLASS A COMMON STOCK.
DECLINING MARKET FOR CIGARS THROUGH 1993
According to industry sources, the cigar industry experienced declining unit
sales between 1964 and 1993 at a compound annual rate of 3.3%. The Company
experienced similar trends in the unit volume of its cigars during such period.
While the cigar industry has experienced significantly better trends in unit
sales since 1993, there can be no assurance that the recent positive trends will
continue. Management believes that a considerable percentage of the recent
increase in cigar unit sales, especially with respect to premium cigars, is
attributable to new cigar smokers attracted by the improving image of cigar
smoking and the increased visibility of cigar smoking by celebrities. There can
be no assurance that recent increases in cigar unit sales are indicative of
long-term trends or that these new customers will continue to smoke cigars in
the future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Market Overview."
EXTENSIVE AND INCREASING REGULATION OF TOBACCO PRODUCTS
Cigar manufacturers, like other producers of tobacco products, are subject
to regulation at the federal, state and local levels. The recent trend is toward
increasing regulation of the tobacco industry, and the recent increase in
popularity of cigars could lead to an increase in regulation of cigars. A
variety of bills relating to tobacco issues have been introduced in the U.S.
Congress, including bills that would have (i) prohibited the advertising and
promotion of all tobacco products or restricted or eliminated the deductibility
of such advertising expenses, (ii) increased labeling requirements on tobacco
products to include, among other things, addiction warnings and lists of
additives and toxins, (iii) shifted regulatory control of tobacco products and
advertisements from the U.S. Federal Trade Commission (the "FTC") to the U.S.
Food and Drug Administration (the "FDA"), (iv) increased tobacco excise taxes
and (v) required tobacco companies to pay for health care costs incurred by the
federal government in connection with tobacco related diseases. Hearings have
been held on certain of these proposals; however, to date, none of such
proposals have been passed by Congress. Future enactment of such proposals or
similar bills may have an adverse effect on the results of operations or
financial condition of the Company.
In addition, the majority of states restrict or prohibit smoking in certain
public places and restrict the sale of tobacco products to minors. Local
legislative and regulatory bodies also have increasingly moved to curtail
smoking by prohibiting smoking in certain buildings or areas or by requiring
designated "smoking" areas. Further restrictions of a similar nature could have
an adverse effect on the sales or operations of the Company. Numerous proposals
also have been considered at the state and local level restricting smoking in
certain public areas, regulating point of sale placement and promotions and
requiring warning labels.
Although federal law has required health warnings on cigarettes since 1965
and on smokeless tobacco since 1986, there is no federal law requiring that
cigars carry such warnings. California, however, requires "clear and reasonable"
warnings to consumers who are exposed to chemicals determined by the state to
cause cancer or reproductive toxicity, including tobacco smoke and several of
its constituent chemicals. Although similar legislation has been introduced in
other states, no action has been taken. There can be no assurance that such
legislation introduced in other states will not be passed in the future or that
other states will not enact similar legislation. Consideration at both the
federal and state level also has been given to consequences of tobacco smoke on
others who are not currently smoking (so called "second-hand" smoke). There can
be no assurance that regulation relating to second hand smoke will not be
adopted or that such regulation or related litigation would not have a material
adverse effect on the Company's results of operations or financial condition.
10
<PAGE>
Increased cigar consumption and the publicity such increase has received may
increase the risk of additional regulation. There can be no assurance as to the
ultimate content, timing or effect of any additional regulation of tobacco
products by any federal, state, local or regulatory body, and there can be no
assurance that any such legislation or regulation would not have a material
adverse effect on the Company's business. See "Business--The Tobacco
Industry--Regulation."
TOBACCO INDUSTRY LITIGATION
The tobacco industry has experienced and is experiencing significant
health-related litigation involving tobacco and health issues. Plaintiffs in
such litigation have sought and are seeking compensatory and, in some cases,
punitive damages, for various injuries claimed to result from the use of tobacco
products or exposure to tobacco smoke. The Company has in the past been named in
certain health-related litigation. There can be no assurance that there would
not be an increase in health-related litigation against the cigarette and
smokeless tobacco industries or similar litigation in the future against cigar
manufacturers. The costs to the Company of defending prolonged litigation and
any settlement or successful prosecution of any material health-related
litigation against manufacturers of cigars, cigarettes or smokeless tobacco or
suppliers to the tobacco industry could have a material adverse effect on the
Company's results of operations or financial condition. The recent increase in
the sales of cigars and the publicity such increase has received may have the
effect of increasing the probability of legal claims. Also, a recent study
published in the journal SCIENCE reported that a chemical found in tobacco smoke
has been found to cause genetic damage in lung cells that is identical to damage
observed in many malignant tumors of the lung and, thereby, directly links lung
cancer to smoking. The National Cancer Institute also has announced that it will
issue a report in 1997 describing research into cigars and health. This study
and this report could affect pending and future tobacco regulation or
litigation. See "--Extensive and Increasing Regulation of Tobacco Products" and
"Business--The Tobacco Industry--Litigation."
RISKS RELATING TO THE FAILURE TO CONSUMMATE THE MERGER AND THE DISTRIBUTION
The Merger is contingent upon (i) consummation of the Distribution, which in
turn is contingent upon either a tax ruling or an opinion of counsel
satisfactory to Culbro that the Distribution constitutes a tax free
reorganization under Section 355 of the Internal Revenue Code and (ii) the prior
approval of the Merger by the shareholders of Culbro, which approval will not
have been obtained at the time of consummation of the Offering. See "The Asset
Transfers, the Distribution and the Merger." If the Distribution is not
consummated, the Merger will not be consummated. There can be no assurance that
the failure to consummate the Merger and the Distribution would not have a
material adverse effect on the holders of the Class A Common Stock. If the
Merger and the Distribution were not consummated, the Company would continue to
be an approximately 77% owned subsidiary of Culbro, and therefore Culbro would
continue to control approximately 97% of the votes on all matters submitted to
stockholders of the Company. Because Culbro would continue to be a publicly held
company, the market value of the Class A Common Stock offered hereby might be
adversely affected by changes in the market value of Culbro's common stock. The
interests of Culbro may differ substantially from those of the Company's other
stockholders. For example, Culbro would engage in activities that are unrelated
to the cigar business, including CLR, and that could adversely affect the
Company's business or liquidity, and Culbro may cause the Company to adopt
dividend policies (for example, to fund such unrelated activities) that are
different from those that would have been adopted by the Board of Directors of
the Company had the Merger and the Distribution taken place. In addition, there
could be a material adverse effect on the liquidity of the Class A Common Stock
if the Merger and the Distribution are not consummated.
RELATIONS WITH CUBA
Cuba historically has had, and continues to have, the highest reputation for
premium cigars in the world. Many of the Company's premium cigar brand names are
of Cuban origin. The Company acquired
11
<PAGE>
some of these brand names from their Cuban owners in the aftermath of Castro's
revolution and registered others with the U.S. Patent and Trademark Office. The
Company's rights to many of these brand names generally are limited to sales in
the U.S.
It is expected that, if and when normalization of relations between the U.S.
and Cuba occurs, manufacturers of Cuban cigars, either alone or in combination
with other manufacturers or distributors of tobacco products, will attempt to
enter the U.S. market. The entry of Cuban premium cigars into the U.S. market
could increase competition in the Company's core premium cigar market and could
have a material adverse effect on the Company's premium cigar business.
EFFECTS OF INCREASES IN EXCISE TAXES
Cigars have long been subject to federal, state and local excise taxes, and
such taxes frequently have been increased or proposed to be increased, in some
cases significantly, to fund various legislative initiatives. In particular,
there have been proposals by the federal government in the past to reform health
care through a national program to be funded principally through increases in
federal excise taxes on tobacco products. Enactment of new or significant
increases in existing federal, state or local excise taxes could result in
decreased unit sales of cigars which could have a material adverse effect on the
Company's business. See "Business--The Tobacco Industry--Excise Taxes."
RISKS RELATING TO DEMAND FOR CIGARS
The Company's ability to increase its production of premium and mass market
cigars to meet increases in demand has been, and in the future may be,
constrained by a shortage of properly aged and blended tobacco ready for
manufacturing. In general, the aging process for filler tobacco requires that
tobacco be purchased up to three years in advance of actual use in the
manufacturing process. An important part of the manufacturing process for
premium cigars involves blending flavors of different tobacco leaves, a process
that takes approximately 16 weeks. During 1996, the Company discontinued
shipping Macanudo cigars for a two month period as excessive demand led to a
shortage of properly aged and blended tobacco. Accordingly, there can be no
assurance that increases in demand beyond the Company's current expectations
would not result in similar tobacco shortfalls and thereby adversely affect the
Company's ability to manufacture its products.
The Company's ability to increase its production of premium cigars also may
be limited by a shortage of skilled laborers. Although the Company is hiring and
training new skilled laborers, the training process can take up to one year and
not all trainees are able to complete the Company's training program. While the
Company is pursuing measures to increase its production of premium cigars, there
can be no assurance that these measures will enable the Company to meet any
future level of demand for its premium cigars. Any material inability of the
Company to fill its premium cigar orders in a timely manner could have a
material adverse effect on the Company's business, including the loss of sales
by the Company and the potential loss of future sales to other brands which
consumers purchase in the absence of available supplies of the Company's brands.
See "--Social, Political and Economic Risks Associated with Foreign Operations
and International Trade" and "Business--Backorders."
While the cigar industry, including the Company, has experienced increasing
demand for cigars during the last several years, there can be no assurance that
such trends will continue. In the event anticipated industry growth does not
continue or the Company experiences a reduction in demand, the Company may
experience excess inventory or production capacity which could have an adverse
effect on the Company's business or results of operations.
SOCIAL, POLITICAL AND ECONOMIC RISKS ASSOCIATED WITH FOREIGN OPERATIONS AND
INTERNATIONAL TRADE
A substantial portion of the manufacturing operations of the Company
(including all of the Company's manufacturing operations for its premium cigars)
is located in territories and countries outside of
12
<PAGE>
the U.S., including the Dominican Republic, Jamaica and Honduras. In addition,
the Company buys tobacco directly from a large number of suppliers located in
territories and countries outside the U.S., including Brazil, Cameroon, the
Central African Republic, Germany, Italy, Turkey, the Dominican Republic, the
Philippines, Indonesia, Honduras, Ecuador and Mexico. The Company is exposed to
the risk of changes in social, political and economic conditions inherent in
foreign operations and international trade, including changes in the laws and
policies that govern foreign investment and international trade in territories
and countries where it currently has operations and conducts international
trade, as well as, to a lesser extent, changes in U.S. laws and regulations
relating to foreign investment and trade. Any such social, political or economic
changes could pose, among other things, the risk of finished product and raw
material supply interruption or significant increases in finished product and
raw material prices. In particular, political or labor unrest in the Dominican
Republic, Honduras or Jamaica could result in interruptions in production of the
Company's premium cigars, which would cause an immediate halt in shipments by
the Company due to its lack of inventory of manufactured cigars. Accordingly,
there can be no assurance that any such changes in social, political or economic
conditions will not have a material adverse effect on the Company's business.
RESTRICTIONS IMPOSED BY THE TERMS OF THE COMPANY'S INDEBTEDNESS
The terms and conditions of the Credit Facility impose, and the terms and
conditions of future debt instruments of the Company or its subsidiaries may
impose, restrictions on the Company and its subsidiaries that affect, among
other things, their ability to incur debt, pay dividends or make distributions,
make acquisitions, create liens, sell assets, and make certain investments. The
terms of the Credit Facility require General Cigar Co., Inc., the wholly owned
subsidiary of the Company through which the Company conducts its material
operations, to maintain specified financial ratios and satisfy certain tests,
including maximum leverage ratios and minimum interest coverage ratios. In
addition, the Credit Facility restricts the ability of the Company to pay
dividends except under certain circumstances. As of November 30, 1996, after
giving effect to the Offering and the use of proceeds thereof, there would have
been approximately $43.1 million outstanding under the Credit Facility,
excluding $9.1 million of cash acquired in the Villazon Acquisition, a portion
of which would have been available to reduce such borrowings. The Credit
Facility will have a borrowing capacity of approximately $50.0 million following
the Offering. See "Description of the Credit Facility," "Capitalization,"
"Unaudited Pro Forma Combined Financial Statements," "Use of Proceeds" and Note
7 to the Combined Financial Statements.
The ability of the Company and its subsidiaries to comply with the terms of
their respective debt instruments can be affected by events beyond their
control, including events such as changes in prevailing economic conditions,
changes in consumer preferences and changes in the competitive environment,
which could impair the Company's operating performance. There can be no
assurance that the Company and its subsidiaries will be able to comply with the
provisions of their respective debt instruments, including compliance by General
Cigar Co., Inc. with the financial ratios and tests contained in the Credit
Facility. Breach of any of these covenants or the failure to fulfill the
obligations thereunder and the lapse of any applicable grace periods would
result in an event of default under the applicable debt instruments, and the
holders of such indebtedness could declare all amounts outstanding under their
debt instruments to be due and payable immediately. Any such declaration under a
debt instrument is likely to result in an event of default under one of the
other debt instruments of the Company and its subsidiaries. There can be no
assurance that the assets or cash flows of the Company or its subsidiaries would
be sufficient to repay in full borrowings under their respective outstanding
debt instruments, whether upon maturity or in the event of acceleration upon an
event of default, or upon a required repurchase in the event of a change of
control, or that the Company would be able to refinance or restructure the
payments on such indebtedness. See "-- Impact of Holding Company Structure" and
"Description of the Credit Facility."
13
<PAGE>
IMPACT OF HOLDING COMPANY STRUCTURE
The Company is a holding company with no business operations of its own. The
Company's only material assets are all of the outstanding capital stock of its
subsidiaries, General Cigar Co., Inc., GCH Transportation, Inc., Club Macanudo,
Inc. and Club Macanudo (Chicago), Inc., and all of the ownership interests in
the Company's office building in New York City. Accordingly, the Company is
dependent upon the earnings and cash flows of, and dividends and distributions
from, the Company's subsidiaries to pay its expenses and meet its obligations,
and to pay any cash dividends or distributions on the Common Stock that may be
authorized by the Board of Directors of the Company. There can be no assurance
that General Cigar Co., Inc. or any other subsidiary will generate sufficient
earnings and cash flows to pay dividends or distribute funds to the Company to
enable the Company to pay its expenses and meet its obligations or that
applicable state law and contractual restrictions, including negative covenants
contained in the debt instruments of the Company's subsidiaries then in effect,
will permit such dividends or distributions. See "--Restrictions Imposed by the
Terms of the Company's Indebtedness."
RISKS RELATING TO TRADEMARKS
The Company's success and ability to compete are dependent to a significant
degree on its brand names. The Company relies primarily on trademark law to
protect its brand names. Although the Company vigorously defends its trademarks
against infringement by others, including counterfeiters, policing unauthorized
use of the Company's trademarks is difficult. The illegal use of the Company's
trademarks may have an adverse effect on the Company's business, financial
condition and operating results.
The Company has registered its trademarks in the U.S. and certain foreign
countries and will continue to do so as new trademarks are developed or
acquired. The laws of countries outside of the U.S. may afford the Company
little or no effective protection of certain of its trademarks. Moreover, the
Company does not hold the right to use certain of its well-known trademarks and
brand names, including Partagas and Cohiba, in most foreign markets.
The Company in the future may receive notices of claims of infringement of
other parties' trademarks. There can be no assurance that claims for
infringement or invalidity, or claims for indemnification resulting from
infringement claims, will not be asserted or prosecuted against the Company. Any
such claims, with or without merit, could be time-consuming to defend, result in
costly litigation and divert management's attention and resources.
MANAGEMENT OF GROWTH
The Company has experienced rapid growth over the last several years and
plans further production expansion in an effort to meet increases in demand for
premium and mass market cigars. The Company's rapid growth and planned expansion
present numerous operational challenges to the Company's senior management and
employees. The Company faces similar challenges with respect to the integration
of Villazon into the Company's operations. The Company's growth has placed, and
will continue to place, significant demands on the Company's management, working
capital and financial management control systems. The Company also has
contracted to upgrade its information management systems to provide for better
tracking of inventories used in manufacturing. There can be no assurance,
however, that such improvements will be adequate as demand continues to
increase. In addition, the integration of such new systems may cause disruptions
in manufacturing that could adversely affect the Company's business.
RISKS RELATING TO THE DISTRIBUTION AND THE MERGER
Pursuant to the terms of the Distribution Agreement, Tax Sharing Agreement
and Employee Benefits Allocation Agreement, certain liabilities of Culbro are
being assumed by CLR, including liabilities relating to the real estate business
and the nursery business, liabilities relating to Eli Witt (including potential
14
<PAGE>
claims relating to Eli Witt's Chapter 11 filing), certain specified tax
liabilities and liabilities relating to employees of CLR. Although as a result
of the Asset Transfer and the Distribution CLR will assume such liabilities,
Culbro (and the Company following the Merger) may continue to be liable to third
parties with respect to certain of such liabilities and claims.
CONTROL BY CERTAIN STOCKHOLDERS; ANTI-TAKEOVER EFFECTS OF DUAL CLASSES OF STOCK;
OTHER ANTI-TAKEOVER PROVISIONS
Upon consummation of the Offering, 20,087,182 shares of Class B Common
Stock, constituting 77% of the issued and outstanding Common Stock and
approximately 97% of the combined voting power of the outstanding Common Stock,
will be held by Culbro, and 2,237,147 shares of Culbro common stock,
constituting approximately 50% of the issued and outstanding shares of Culbro
common stock, will be held by the Cullman & Ernst Group. Following the Merger,
9,945,393 shares of Class B Common Stock, constituting 38% of the issued and
outstanding Common Stock, will be held by the Cullman & Ernst Group. The Cullman
& Ernst Group has sole voting and investment power with respect to shares of
Culbro common stock held by it and will have sole voting and investment power
with respect to the 9,945,393 shares of Class B Common Stock that it will hold
following the Merger. Each share of Class B Common Stock has ten votes with
respect to matters requiring the approval of the holders of Common Stock, while
each share of the Class A Common Stock, including shares offered hereby, has one
vote on such matters. As a result, the Cullman & Ernst Group will have
substantial control over the Company and may have the power to elect all of its
directors and to approve any action requiring stockholder approval, including
adopting amendments to the Company's certificate of incorporation and approving
mergers or sales of all or substantially all of the Company's assets. The
Schedule 13D filed by the Cullman & Ernst Group with the Securities and Exchange
Commission (the "SEC") with respect to its holdings in Culbro states that there
is no undertaking other than an informal understanding that the members of the
Cullman & Ernst Group will hold and vote their shares together. In the normal
course of business the members of the Cullman & Ernst Group have acted together
with respect to their shares of Culbro common stock. Such control by the Cullman
& Ernst Group, together with certain provisions of the Company's certificate of
incorporation and by-laws as well as certain provisions of the Delaware General
Corporation Law (the "DGCL"), could increase the difficulty of effecting a
change of control of the Company without their approval. See "Description of
Capital Stock."
DILUTION
Purchasers of the Class A Common Stock will experience immediate and
substantial dilution of $12.92 in net tangible book value per share of Common
Stock from the assumed initial public offering price of $15.00. See "Dilution."
NO PRIOR MARKET FOR CLASS A COMMON STOCK; DETERMINATION OF PUBLIC OFFERING PRICE
Prior to the Offering, there has been no public market for the Class A
Common Stock. There can be no assurance as to the development or liquidity of
any trading market for the Class A Common Stock following the Offering or that
investors in the Class A Common Stock will be able to resell their shares at or
above the initial public offering price. The initial public offering price for
the shares of Class A Common Stock will be determined through negotiations
between the Company and the representatives of the Underwriters, and may not be
indicative of the market price of the Class A Common Stock after the Offering.
In addition, the market price of the Class A Common Stock may be affected by the
market price of Culbro's common stock prior to the consummation of the Merger.
See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, 6,000,000 shares of Class A Common Stock
and 4,518,472 shares of Culbro common stock (which are expected to be exchanged
for 20,087,182 shares of Class B Common
15
<PAGE>
Stock in the Merger) will be outstanding. The 6,000,000 shares of Class A Common
Stock sold in the Offering will be freely transferable without restriction under
the Securities Act of 1933, as amended (the "Securities Act"), except for shares
acquired in the Offering by "affiliates" of the Company, as that term is defined
in Rule 144 promulgated under the Securities Act. All of the 4,518,472 shares of
Culbro common stock outstanding are freely transferable without restriction
under the Securities Act, except for shares held by affiliates of Culbro. All of
the 20,087,182 shares of Class B Common Stock that will be outstanding upon
consummation of the Merger will be freely transferable without restriction under
the Securities Act, except for shares held by affiliates of the Company.
Transfers of shares of Common Stock and Culbro common stock by affiliates of the
Company and Culbro, respectively, are subject to the volume restrictions of Rule
144.
Subject to certain exceptions, the Company, the executive officers and
directors of the Company, Culbro and certain stockholders of Culbro (who in the
aggregate hold 2,276,012 shares of Culbro common stock, or 2,685,326 shares,
assuming exercise of outstanding options held by such persons) each have agreed
that they will not, without the prior written consent of DLJ, offer, sell,
contract to sell, grant any option to purchase or otherwise dispose of any
shares of Common Stock or Culbro common stock or any securities convertible into
or exercisable or exchangeable for such Common Stock or Culbro common stock or
in any other manner transfer all or a portion of the economic consequences
associated with the ownership of any such Common Stock or Culbro common stock
for a period of 180 days from the date of this Prospectus.
At the expiration of the 180-day period described above and upon
consummation of the Merger, or earlier with the written consent of DLJ, the
holders of 6,000,000 shares of Class A Common Stock will continue to have, and
holders of 20,087,182 shares of Class B Common Stock for the first time will
have the right to sell such shares without restriction under the Securities Act,
except that transfers by affiliates of the Company will be subject to the volume
limitations of Rule 144.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register the issuance of 3,300,000 shares of Class A Common
Stock reserved for issuance upon the exercise of options, including 581,666
shares of Class A Common Stock issuable upon exercise of options to be issued
upon consummation of the Offering under the 1997 Stock Option Plan and 2,162,818
shares of Class A Common Stock issuable upon exercise of Culbro options
following the Merger. As a result, any shares of Class A Common Stock issued
upon exercise of such stock options will be available, subject to special rules
for affiliates and applicable lock-up arrangements, for resale in the public
market. See "Certain Employee Benefit Matters."
No prediction can be made as to the effect, if any, that future sales of
Common Stock, or the availability of shares for future sale, will have on the
market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Class A Common Stock (including shares issued upon the
exercise of stock options or upon conversion of shares of Class B Common Stock),
or the perception that such sales could occur, could adversely affect prevailing
market prices for the Class A Common Stock.
16
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Class A
Common Stock offered hereby, assuming an initial public offering price of $15.00
per share (the mid-point of the range of initial public offering prices set
forth on the cover page of this Prospectus) and after deducting underwriting
discounts and commissions and estimated offering expenses, are estimated to be
approximately $82.2 million. The Company intends to use approximately $67.8
million of such net proceeds to reduce outstanding indebtedness under the Credit
Facility ($67.1 million of which was incurred in connection with the closing of
the Villazon Acquisition and $0.7 million of which was incurred for general
corporate purposes) and $14.4 million of such net proceeds will be used to repay
a portion of the Seller Notes incurred in connection with the Villazon
Acquisition. The indebtedness to be repaid under the Credit Facility currently
bears interest at a rate of approximately 7.44% (the Eurodollar Rate plus 2%,
adjusted daily) and $60.0 million of such indebtedness matures in January 1998
and is required to be prepaid at the time of, and with a portion of the proceeds
from, the Offering, while the remaining $7.8 million matures in January 2000.
The portion of the Seller Notes to be repaid with the proceeds from the Offering
bears interest at a rate of 8.75% and matures on the earlier of thirty days
following consummation of the Offering or April 2, 1997.
DIVIDEND POLICY
The Company, as a holding company with no business operations of its own, is
dependent on dividends and distributions from its subsidiaries to pay any cash
dividends or distributions on the Common Stock. The terms of the Credit Facility
limit the payment of dividends or distributions by the Company. Subject to such
restrictions, any future declaration of cash dividends will be at the discretion
of the Company's Board of Directors and will be dependent upon the Company's
results of operations, financial condition, contractual restrictions and other
factors deemed relevant by the Board of Directors of the Company. See "Risk
Factors--Restrictions Imposed by the Terms of the Company's Indebtedness" and
"Description of Credit Facility."
The Company has never declared or paid a cash dividend on the Common Stock.
Although Culbro historically has paid cash dividends, the Company currently
intends during 1997 to retain its earnings to fund the development and growth of
its business and, therefore, does not anticipate paying any cash dividends in
1997. Thereafter, the payment of cash dividends will be considered by the Board
of Directors of the Company based upon its results of operations, cash flows,
financial condition and liquidity.
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
November 30, 1996 and the pro forma capitalization of the Company as of November
30, 1996, as adjusted to reflect (i) the Villazon Acquisition and the liability
portion of the Asset Transfers and (ii) the sale by the Company of the 6,000,000
shares of Class A Common Stock offered hereby (at an assumed initial public
offering price of $15.00 per share). This table should be read in conjunction
with the Combined Financial Statements of the Company included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF NOVEMBER 30, 1996
-----------------------------------------
<S> <C> <C> <C>
PRO FORMA
AS ADJUSTED
ACTUAL PRO FORMA (1) (2)
---------- ------------- --------------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash.................................................................. $ 409 $ 9,469(3) $ 9,469(3)
---------- ------------- --------------
---------- ------------- --------------
Short-term debt:
Credit Facility (4)................................................. $ 60,000 $ --
Seller Notes (5).................................................... 14,370 --
Current portion of long-term obligations............................ $ 1,131 1,131 1,131
---------- ------------- --------------
Total short-term debt............................................. $ 1,131 $ 75,501 $ 1,131
---------- ------------- --------------
---------- ------------- --------------
Long-term debt:
Credit Facility (4)................................................. $ 50,950 $ 43,120
Seller Notes (5).................................................... 10,000 10,000
Long-term debt...................................................... $ 11,079 11,079 11,079
---------- ------------- --------------
Total long-term debt.............................................. 11,079 72,029 64,199
---------- ------------- --------------
Culbro investment/stockholders' equity:
Culbro investment................................................... 93,719 45,258
Class A Common Stock, $0.01 par value, 50,000,000 shares authorized,
0 and 6,000,000 shares issued and outstanding actual and pro forma
as adjusted, respectively (6)..................................... 60
Class B Common Stock, $0.01 par value, 25,000,000 shares authorized,
0 and 20,087,182 issued and outstanding actual and pro forma as
adjusted, respectively............................................ 201
Additional paid-in capital.......................................... 127,197
Retained earnings................................................... 0
---------- ------------- --------------
Total Culbro investment/stockholders' equity...................... 93,719 45,258 127,458
---------- ------------- --------------
Total capitalization............................................ $ 104,798 $ 117,287 $ 191,657
---------- ------------- --------------
---------- ------------- --------------
</TABLE>
- ------------------------
(1) Gives effect to the liability assumption portion of the Asset Transfers and
the Villazon Acquisition.
(2) Gives effect to the Offering and the use of the net proceeds thereof. See
"Use of Proceeds."
(3) Gives effect to approximately $9.1 million of cash acquired in the Villazon
Acquisition, a portion of which would have been available to reduce
borrowings under the Credit Facility.
(4) Upon consummation of the Villazon Acquisition, $60.0 million of the
indebtedness under the Credit Facility consisted of borrowings under the
short-term facility and $51.0 million consisted of borrowings under the
revolving credit facility. See "Description of the Credit Facility."
(5) Seller Notes consist of (i) $14.4 million payable to the sellers of Villazon
within 30 days of the closing of the Offering (but no later than April 2,
1997) and (ii) $10.0 million payable to certain sellers of Villazon in 2002.
(6) Excludes 3,300,000 shares of Class A Common Stock reserved for issuance
under the 1997 Stock Option Plan, 581,666 of which will be subject to
options issued upon consummation of the Offering and 2,162,818 of which are
reserved for issuance upon exercise of outstanding options under Culbro's
option plans. See "Certain Employee Benefit Matters--1997 Stock Option
Plan."
18
<PAGE>
DILUTION
As of November 30, 1996, after giving effect to the Asset Transfers and the
Villazon Acquisition, the Company had a pro forma deficit in net tangible book
value of $27.9 million or $1.39 per share of Common Stock. "Pro forma net
tangible book value" per share of Common Stock represents the pro forma total
amount of tangible assets of the Company, less the pro forma total amount of
liabilities of the Company, divided by the number of shares of Class B Common
Stock outstanding. Without taking into account any changes in pro forma net
tangible book value after November 30, 1996, other than to give effect to the
sale by the Company of the shares of Class A Common Stock offered hereby (at an
assumed initial public offering price of $15.00 per share), the pro forma net
tangible book value of the Common Stock as of November 30, 1996 would have been
$54.3 million, or $2.08 per share. This represents an immediate dilution of
$12.92 per share to new stockholders.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share......... $ 15.00
Pro forma net tangible book value per share before the
Offering.............................................. $ (1.39)
Increase per share attributable to new investors........ 3.47
---------
Pro forma net tangible book value per share
after the Offering.................................... $ 2.08
---------
Dilution per share to new investors..................... $ 12.92
---------
---------
</TABLE>
The following table sets forth, on a pro forma basis at November 30, 1996,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
the existing holders of Common Stock and by the new investors, assuming an
initial public offering price of $15.00 per share (the midpoint of the range of
the initial public offering prices as set forth on the front cover of this
Prospectus), before deducting the underwriting discounts and commissions and
estimated offering expenses payable by the Company.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- -------------- ----------- -------------
Existing stockholders............................. 20,087,182 77.0% $ 93,719,000 51.0% $ 4.67
New investors..................................... 6,000,000 23.0 90,000,000 49.0 $ 15.00
------------ ----- -------------- -----
Total......................................... 26,087,182 100.0% $ 183,719,000 100.0%
------------ ----- -------------- -----
------------ ----- -------------- -----
</TABLE>
The foregoing table (i) assumes no exercise of the Underwriters'
over-allotment option and (ii) does not reflect an aggregate of 3,300,000 shares
of Class A Common Stock reserved for issuance under the 1997 Stock Option Plan.
See "Certain Employee Benefit Matters--1997 Stock Option Plan."
19
<PAGE>
SELECTED COMBINED FINANCIAL DATA
The Selected Combined Financial Data for fiscal 1992 have been derived from
the unaudited combined financial statements of the Company. The Selected
Combined Financial Data for fiscal 1993 have been derived from the audited
Combined Financial Statements of the Company. The Selected Combined Financial
Data for fiscal 1994, fiscal 1995 and fiscal 1996 have been derived from the
audited Combined Financial Statements of the Company included elsewhere in this
Prospectus. The following selected financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Combined Financial Statements of the Company and Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................... $ 77,131 $ 76,825 $ 89,538 $ 124,033 $ 154,676
Cost of goods sold...................................... 48,651 49,165 54,285 69,683 86,240
--------- --------- --------- --------- ---------
Gross profit............................................ 28,480 27,660 35,253 54,350 68,436
Selling, general and administrative expenses............ 27,059 25,282 27,210 36,726 44,593
Other nonrecurring expense.............................. -- -- -- -- 3,600
--------- --------- --------- --------- ---------
Operating profit........................................ 1,421 2,378 8,043 17,624 20,243
Gain on insurance settlement............................ -- -- -- 2,586 --
Other nonoperating income (expense)..................... 299 134 (23) (597) 853
Interest expense........................................ 327 264 607 1,049 951
--------- --------- --------- --------- ---------
Income before income taxes.............................. 1,393 2,248 7,413 18,564 20,145
Income tax provision.................................... 579 941 2,863 7,240 7,738
--------- --------- --------- --------- ---------
Income before cumulative effect of accounting change.... 814 1,307 4,550 11,324 12,407
Cumulative effect of accounting change for post-
retirement benefits, net of tax provision............. -- (4,356) -- -- --
--------- --------- --------- --------- ---------
Net income (loss)....................................... $ 814 $ (3,049) $ 4,550 $ 11,324 $ 12,407
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
OTHER DATA:
Gross margin............................................ 36.9% 36.0% 39.4% 43.8% 44.2%
Operating margin........................................ 1.8% 3.1% 9.0% 14.2% 13.1%
EBITDA (1)(2)........................................... $ 5,541 $ 5,923 $ 11,291 $ 23,163 $ 24,909
EBITDA margin (2)(3).................................... 7.2% 7.7% 12.6% 18.7% 16.1%
Capital expenditures.................................... $ 4,435 $ 1,691 $ 1,884 $ 2,841 $ 9,701
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital......................................... $ 35,673 $ 45,001 $ 41,176 $ 43,632 $ 65,121
Total assets............................................ 98,908 104,551 100,974 113,655 145,042
Long-term debt.......................................... 3,292 2,901 6,998 11,352 11,079
Culbro investment....................................... 75,874 78,740 68,160 66,095 93,719
</TABLE>
- ------------------------
(1) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization. EBITDA is presented because it is a widely
accepted financial indicator used by certain investors and analysts to
analyze and compare companies on the basis of operating performance. EBITDA
is not intended to represent cash flows for the period, nor has it been
presented as an alternative to operating income as an indicator of operating
performance and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally accepted
accounting principles. See the Combined Financial Statements and the Notes
thereto appearing elsewhere in this Prospectus.
(2) In fiscal 1995 the Company had a $2.6 million gain from an insurance
settlement. Excluding this gain, EBITDA would have been $20.6 million and
EBITDA margin would have been 16.6%. In fiscal 1996 the Company had a
nonrecurring expense of $3.6 million. Excluding this expense, EBITDA would
have been $28.5 million and EBITDA margin would have been 18.4%.
(3) EBITDA margin represents EBITDA as a percentage of net sales. EBITDA margin
is presented because it is a widely accepted financial indicator used by
certain investors and analysts to analyze and compare companies on the basis
of operating performance. EBITDA margin should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles. See the Combined
Financial Statements and the Notes thereto appearing elsewhere in this
Prospectus.
20
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
In January 1997, Culbro transferred to the Company the stock of General
Cigar Co., Inc., Club Macanudo, Inc., 387 PAS Corp., Club Macanudo (Chicago),
Inc. and GCH Transportation, Inc., and General Cigar Co., Inc. acquired
Villazon. In addition, Culbro transferred approximately 1,200 acres of real
estate holdings in the Connecticut River Valley to the Company. Culbro will
transfer to the Company certain additional assets and operations of Culbro, and
the Company will assume the related obligations of Culbro and substantially all
of its consolidated debt. These asset transfers and debt assumption are referred
to as the Asset Transfers. Related to the Asset Transfers are transfers of the
remaining assets of Culbro (other than the Common Stock) to CLR, the
Distribution and the Merger. See "The Asset Transfers, the Distribution and the
Merger." The Distribution and the Merger do not affect the Unaudited Pro Forma
Combined Financial Statements.
The Unaudited Pro Forma Combined Statement of Operations for fiscal 1996 and
the Unaudited Pro Forma Combined Balance Sheet at November 30, 1996 were
prepared to reflect (i) the liability portion of the Asset Transfers (the
"Liability Assumption"), (ii) the Villazon Acquisition and (iii) the Offering.
The column designated Company Historical reflects the results of operations and
the assets and liabilities, as appropriate, of General Cigar Co., Inc., Club
Macanudo, Inc., 387 PAS Corp., Club Macanudo (Chicago), Inc. and GCH
Transportation, Inc. on an historical combined basis. The "Pro Forma for
Liability Assumption" columns adjust the Company Historical results of
operations or financial condition, as appropriate, for the assumption of debt by
the Company pursuant to the Liability Assumption portion of the Asset Transfers.
The Villazon Historical column includes Villazon's audited results for the ten
months ended October 31, 1996 and its unaudited results for the two months ended
December 31, 1996. The "Pro Forma for Villazon Acquisition" columns adjust for
the Villazon Acquisition. The "Pro Forma As Adjusted for the Offering" columns
give effect to the Offering.
In the opinion of management, all adjustments necessary to fairly present
this pro forma information have been made. The Unaudited Pro Forma Combined
Financial Statements are based upon, and should be read in conjunction with, the
Combined Financial Statements of the Company and Notes thereto included
elsewhere in this Prospectus. The pro forma information does not purport to be
indicative of the results that would have been reported had such events actually
occurred on the dates specified, nor is it indicative of the Company's future
results if the aforementioned transactions are completed. The Company cannot
predict whether the consummation of the Asset Transfers, the Villazon
Acquisition or the Offering will conform to the assumptions used in the
preparation of the Unaudited Pro Forma Combined Financial Statements.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR FISCAL 1996
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
PRO FORMA FOR PRO FORMA FOR FOR THE
LIABILITY ASSUMPTION VILLAZON ACQUISITION OFFERING
COMPANY -------------------------- VILLAZON -------------------------- -------------
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS
----------- ------------- ----------- ----------- ------------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales......................... $ 154,676 $ 154,676 $ 42,018 $ 196,694
Cost of goods sold................ 86,240 86,240 21,410 107,650
----------- ------------- ----------- ----------- ------------- ----------- -------------
Gross profit...................... 68,436 68,436 20,608 89,044
Selling, general and
administrative expenses......... 44,593 44,593 6,004 $ 2,523(3) 53,120
Other nonrecurring expense........ 3,600 3,600 3,600
----------- ------------- ----------- ----------- ------------- ----------- -------------
Operating profit.................. 20,243 20,243 14,604 (2,523) 32,324
Other nonoperating income, net.... 853 853 679 1,532
Interest expense.................. 951 $ 3,258(1) 4,209 552 6,908(4) 11,669 $(6,841)(5)
----------- ------------- ----------- ----------- ------------- ----------- -------------
Income before income taxes........ 20,145 (3,258) 16,887 14,731 (9,431) 22,187 6,841
Income tax provision.............. 7,738 (1,270)(2) 6,468 2,067(2) 8,535 2,668(2)
----------- ------------- ----------- ----------- ------------- ----------- -------------
Net income........................ $ 12,407 $ (1,988) $ 10,419 $ 14,731 $ (11,498) $ 13,652 $ 4,173
----------- ------------- ----------- ----------- ------------- ----------- -------------
----------- ------------- ----------- ----------- ------------- ----------- -------------
Earnings per share................
Number of weighted average shares
outstanding.....................
<CAPTION>
PRO FORMA
-----------
<S> <C>
Net sales......................... $ 196,694
Cost of goods sold................ 107,650
-----------
Gross profit...................... 89,044
Selling, general and
administrative expenses......... 53,120
Other nonrecurring expense........ 3,600
-----------
Operating profit.................. 32,324
Other nonoperating income, net.... 1,532
Interest expense.................. 4,828
-----------
Income before income taxes........ 29,028
Income tax provision.............. 11,203
-----------
Net income........................ $ 17,825
-----------
-----------
Earnings per share................ $ 0.67(6)
Number of weighted average shares
outstanding..................... 26,528(6)
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
21
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF NOVEMBER 30, 1996
<TABLE>
<CAPTION>
PRO FORMA FOR PRO FORMA FOR PRO FORMA
LIABILITY ASSUMPTION VILLAZON ACQUISITION FOR THE OFFERING
COMPANY ------------------------ VILLAZON ------------------------ ------------------------
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash................... $ 409 $ 409 $ 9,060 $ $ 9,469 $ $ 9,469
Accounts receivable,
net.................. 31,295 31,295 6,620 37,915 37,915
Inventories............ 53,702 53,702 5,153 58,855 58,855
Other current assets... 3,673 3,673 876 4,549 4,549
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total current assets... 89,079 89,079 21,709 110,788 110,788
Property and equipment,
net.................. 52,507 52,507 1,350 3,000(8) 56,857 56,857
Intangible assets...... 156 71,196(9) 71,352 71,352
Other assets........... 3,456 3,456 1,342 1,000 (10 5,798 5,798
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total assets........... $ 145,042 $ -- $ 145,042 $ 24,557 $ 75,196 $ 244,795 $ -- $ 244,795
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
LIABILITIES AND CULBRO
INVESTMENT/
STOCKHOLDERS' EQUITY
Accounts payable and
accrued
liabilities.......... $ 22,827 $ 1,534(7) $ 24,361 $ 1,433 $ 25,794 $ 25,794
Current portion of
long-term debt....... 1,131 1,131 $ 74,370 (11 75,501 $ (74,370) 15) 1,131
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total current
liabilities.......... 23,958 1,534 25,492 1,433 74,370 101,295 (74,370) 26,925
Long-term debt......... 11,079 43,800(7) 54,879 4,370 12,780 (12 72,029 (7,830) 15) 64,199
Other noncurrent
liabilities.......... 16,286 3,127(7) 19,413 6,800 (13 26,213 26,213
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total liabilities...... 51,323 48,461 99,784 5,803 93,950 199,537 (82,200) 117,337
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Culbro investment...... 93,719 (48,461)(7) 45,258 18,754 (18,754) 14) 45,258 (45,258) 15)
Common stock........... 261 261
Additional paid in
capital.............. 127,197 (15 127,197
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Culbro
investment/
stockholders'
equity............... 93,719 (48,461) 45,258 18,754 (18,754) 45,258 82,200 127,458
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total liabilities and
Culbro investment/
stockholders'
equity............... $ 145,042 $ -- $ 145,042 $ 24,557 $ 75,196 $ 244,795 $ -- $ 244,795
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
22
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(1) Reflects estimated interest expense on approximately $43.8 million of Culbro
debt that will be assumed by the Company in connection with the Liability
Assumption portion of the Asset Transfers. Interest expense under the
Company's Credit Facility is based on the Eurodollar rate plus 2%, which is
assumed to be 7.44%.
(2) Reflects Federal income tax (35%) and state income tax of approximately 4%,
which is net of Federal tax benefits.
(3) Reflects estimated amortization expense of intangible assets to be recorded
in connection with the Villazon Acquisition and additional depreciation
expense related to the estimated increase in Villazon's property and
equipment as a result of purchase accounting adjustments. Intangible assets
of $71.2 million include trademarks and goodwill, if any, which the Company
anticipates will be amortized over 30 years on a straight line basis. The
additional depreciation expense is based on an increase of $3.0 million to
the historical cost of Villazon's property and equipment, depreciated on a
straight line basis over an average useful life of 20 years. The period used
for goodwill amortization is based on a preliminary estimate of the
reasonable period for which such costs are expected to be recovered and is
based in part on the earnings and history of the entities acquired.
(4) Reflects (i) amortization of fees relating to the Credit Facility and (ii)
(a) estimated interest expense on $91.5 million of indebtedness (consisting
of $24.4 million of Seller Notes and $67.1 million of indebtedness incurred
under the Credit Facility) used to finance the Villazon Acquisition,
excluding (b) interest on $4.4 million of Seller Notes which was previously
included on the Villazon historical balance sheets as long-term debt due to
owners. The Credit Facility and the Seller Notes bear interest at the
Eurodollar rate plus 2% (7.44%) and prime plus 1/2% (8.75%), respectively.
If interest rates on such debt were to increase (decrease) by 1/8 of 1%, net
income would (decrease) increase by less than $0.1 million. See "Description
of the Credit Facility."
(5) Reflects a decrease in interest expense as a result of assumed net proceeds
of $82.2 million from the Offering applied towards the repayment of (i)
$67.8 million of indebtedness under the Credit Facility bearing interest at
the Eurodollar rate plus 2% (7.44%) and (ii) $14.4 million of indebtedness
reflecting a portion of the Seller Notes bearing interest at a rate of prime
plus 1/2% (8.75%). The Credit Facility provides for a reduction of interest
rates on borrowings under the Credit Facility to the Eurodollar rate plus
3/4% upon receiving a minimum of $70.0 million of net proceeds from the
Offering. Accordingly, the assumed interest rate on the remaining $43.1
million of outstanding indebtedness under the Credit Facility would be
reduced from 7.44% to 6.19%.
(6) The pro forma number of weighted average shares outstanding includes all of
the outstanding shares of Class A Common Stock and Class B Common Stock
expected to be outstanding after the Offering. The total number of weighted
average shares outstanding used in the computation of pro forma earnings per
share also includes the dilutive effect of additional shares issuable upon
exercise of all Culbro stock options outstanding at the Offering date. See
"Certain Employee Benefit Matters--Culbro Employee Benefit Plans to be
Assumed by the Company--Culbro Stock Option Plans."
(7) Reflects the assumption of certain liabilities by the Company. The
liabilities include principally the estimated Culbro debt to be assumed,
certain accrued retirement obligations and other items.
(8) Reflects purchase accounting adjustments to increase property and equipment
to its estimated fair value. Based on a preliminary allocation of the
purchase price of $90.5 million (including an estimate of $1.5 million for
acquisition costs), Villazon's historical basis of property and equipment
was increased by $3.0 million representing management's preliminary
determination of estimated fair value which was based upon current prices of
comparable assets.
(9) Reflects the excess of the purchase price paid for Villazon over the fair
value of net assets acquired, primarily trademarks and goodwill, if any. As
these acquisitions were recently finalized the Company has not yet formally
allocated costs between trademarks and goodwill, if any. The Company will
finalize all purchase accounting adjustments as soon as practicable.
(10) Reflects financing fees paid to the Company's banks in connection with the
Credit Facility used to finance the Villazon Acquisition.
(11) Reflects issuance of short-term Seller Notes of $14.4 million, including
the assumption of $4.4 million of long-term debt due to owners as previously
included on Villazon's historical balance sheet and debt of $60.0 million
incurred under the Credit Facility in connection with the Villazon
Acquisition. See Note 4 to the Unaudited Pro Forma Combined Financial
Statements above.
(12) Reflects (i) the issuance of the long-term Seller Notes of $10.0 million,
(ii) borrowings under the Credit Facility of $7.1 million less (iii) the
$4.4 million of long-term debt due to owners previously included on
Villazon's historical balance sheet. See Note 4 to the Unaudited Pro Forma
Combined Financial Statements above.
(13) Reflects deferred taxes related to purchase accounting adjustments to the
historical basis of assets acquired in the Villazon Acquisition.
(14) Reflects elimination of shareholders' equity of Villazon.
(15) Reflects net proceeds of $82.2 million applied towards the repayment of (i)
$74.4 million of short-term term debt consisting of $60.0 million under the
Credit Facility and $14.4 of Seller Notes, and (ii) $7.8 million of long
term debt outstanding under the Credit Facility.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Combined
Financial Statements and the related Notes thereto included elsewhere in this
Prospectus.
OVERVIEW
The Company's results in each of the periods presented include allocations
to the Company of Culbro corporate overhead of $5.5 million, $8.8 million, and
$7.2 million in fiscal 1994, fiscal 1995 and fiscal 1996, respectively. These
allocations may not necessarily reflect the additional expenses the Company
would have incurred as a separate stand-alone entity. The combined financial
statements include interest expense on debt specifically incurred by the
Company. The Company will assume approximately $43.8 million of Culbro debt
prior to the Offering as part of the Culbro obligations to be assumed under the
liability portion of the Asset Transfers. This debt was not an obligation of the
Company in earlier periods and the Company generally has been a net cash
provider to Culbro. Accordingly, this debt and related interest expense were not
part of the Company's capital structure in the combined financial statements for
any of the periods presented. These results therefore should be read in
conjunction with the unaudited combined pro forma results of operations in Note
4 of the Combined Financial Statements and the Unaudited Pro Forma Combined
Financial Statements included elsewhere in this Prospectus.
Since 1993, cigar smoking has experienced a resurgence resulting in an
increase in consumption and retail sales of cigars across all major categories,
especially in the premium cigar segment. This growth produced overall retail
sales in the U.S. cigar market of an estimated $1.25 billion in 1996, the
largest dollar sales in the industry's history. Industry unit sales of premium
and mass market cigars have increased at CAGRs of 35.4% and 9.6%, respectively,
from 1993 to 1996, while retail dollar sales in both categories have increased
more rapidly due to price increases. The Company believes that sales of premium
cigars exceeded 270 million units in the U.S. in 1996, an increase of over 60%
from 1995 unit sales.
RESULTS OF OPERATIONS
The discussion set forth below relates to the financial condition and
results of operations of the Company as of and for fiscal 1996, fiscal 1995 and
fiscal 1994.
Following are certain data related to the results of operations of the
Company, calculated as a percentage of net sales:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
Net sales..................................................... 100.0% 100.0% 100.0%
Cost of goods sold............................................ 60.6 56.2 55.8
Gross profit.................................................. 39.4 43.8 44.2
Selling, general and administrative expenses.................. 30.4 29.6 28.8
Other nonrecurring expense.................................... -- -- 2.3
Operating profit.............................................. 9.0 14.2 13.1
Interest expense.............................................. 0.7 0.8 0.6
Income before income tax...................................... 8.3 15.0 13.0
Net income.................................................... 5.1 9.1 8.0
</TABLE>
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales increased 24.7%, or $30.6 million, to $154.7 million in fiscal
1996 compared to $124.0 million in fiscal 1995. This increase in net sales
reflected principally higher unit sales of premium cigars, and
24
<PAGE>
higher prices in all cigar categories. Continued strong sales and prices of
premium cigars, and higher prices in the mass market cigar category more than
offset slightly lower unit volume in certain brands of mass market cigars.
Nearly all of such increase resulted from increased sales to existing customers.
In response to a shortage of properly aged and blended tobacco caused by
excessive demand, the Company elected to stop shipping MACANUDO cigars for two
months in fiscal 1996 rather than risk compromising its quality standards.
Management believes that volume in mass market cigars was adversely affected by
repositioning and renaming certain brand names.
Gross profit increased 25.9%, or $14.1 million, to $68.4 million in fiscal
1996 compared to $54.4 million in fiscal 1995. Gross margin increased to 44.2%
in fiscal 1996 from 43.8% in fiscal 1995. The increase in gross margin reflected
higher prices, benefits from mix due to relatively higher sales of premium
cigars, and lower fixed costs per unit due to the higher volume and improved
manufacturing efficiencies.
Selling, general and administrative expenses increased 21.4%, or $7.9
million, to $44.6 million in fiscal 1996 from $36.7 million for fiscal 1995.
Selling, general and administrative expenses in fiscal 1996 include
approximately $1.9 million of legal expenses incurred in connection with certain
legal proceedings. See "Legal Proceedings--Other Litigation." As a percentage of
net sales, selling, general and administrative expenses decreased to 28.8% in
fiscal 1996, from 29.6% in fiscal 1995. The decrease in selling, general and
administrative expenses as a percentage of net sales in fiscal 1996 is due
principally to these expenses increasing at a lower rate than the increase in
sales.
Other nonrecurring expense of $3.6 million in fiscal 1996 includes the
allocation to the Company of charges recorded by Culbro in connection with the
termination of a management long-term incentive compensation plan which was
based on Culbro's stock price, and the acceleration of the vesting of benefits
under the plan in anticipation of the Offering. Additionally, the other
nonrecurring expense item includes accruals for severance and related expenses
in connection with a headcount reduction at the Culbro corporate office. The
Company's allocable share of these expenses was determined substantially on the
same basis as the allocation of Culbro's general and administrative expenses and
is considered to be reasonable. See Note 5 to the Combined Financial Statements
of the Company included elsewhere herein.
Operating profit increased 14.9%, or $2.6 million, to $20.2 million for
fiscal 1996 from $17.6 million for fiscal 1995. Including the effect of the
other nonrecurring expense referred to above, operating margin decreased to
13.1% during fiscal 1996 from 14.2% during fiscal 1995.
Net income increased 9.6%, or $1.1 million, to $12.4 million in fiscal 1996
from $11.3 million in fiscal 1995. Income in fiscal 1995 included $2.6 million
of pre-tax income from an insurance settlement.
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales in fiscal 1995 increased 38.5%, or $34.5 million, to $124.0
million compared to $89.5 million in fiscal 1994. This increase reflected higher
unit volume and higher prices in all cigar categories. The increase in premium
cigar sales was higher than the increase in the mass market category and
accounted for approximately 53.0% of the Company's total increase in sales in
fiscal 1995. Nearly all of such increase resulted from increased sales to
existing customers.
Gross profit increased 54.2%, or $19.1 million, in fiscal 1995 to $54.4
million compared to $35.3 million in fiscal 1994. Gross margin increased to
43.8% from 39.4% in fiscal 1994. The increase in gross profit and margin
reflected higher unit sales and prices, a more favorable mix due to relatively
higher sales of premium cigars, and lower fixed cost per unit due to the higher
volume.
Selling, general and administrative expenses increased 35.0%, or $9.5
million, to $36.7 million in fiscal 1995, from $27.2 million in fiscal 1994. As
a percentage of net sales, selling, general and administrative expenses
decreased from 30.4% in fiscal 1994 to 29.6% in fiscal 1995. The decrease was
primarily due to selling, general and administrative expenses increasing at a
lower rate relative to the increase in net sales.
25
<PAGE>
Operating profit increased 119.1%, or $9.6 million, to $17.6 million in
fiscal 1995 compared to $8.0 million in fiscal 1994. Operating margin increased
to 14.2% during fiscal 1995 from 9.0% in fiscal 1994.
Net income increased 148.9%, or $6.8 million, to $11.3 million in fiscal
1995 from $4.6 million in fiscal 1994. Income in fiscal 1995 included
approximately $2.6 million of pre-tax income resulting from the collection on an
insurance claim in connection with a fire at a Connecticut tobacco warehouse and
administrative office in 1994, partially offset by other nonoperating expenses.
Higher interest expense in fiscal 1995 related to interest under a mortgage on
387 Park Avenue South. The mortgage was incurred in fiscal 1995.
PRO FORMA FISCAL 1996 COMPARED TO ACTUAL FISCAL 1995
The Unaudited Pro Forma Combined Statement of Operations reflects higher
sales and operating profit from Villazon, partially offset by higher interest
expense from the acquisition debt and debt assumed from Culbro remaining
outstanding after the application of the net proceeds from the Offering. The
Unaudited Pro Forma Combined Balance Sheet reflects the effects of the Villazon
Acquisition, principally the acquisition of trademarks and goodwill, if any, and
the capitalization of the Company with the equity from the Offering, as well as
debt incurred under the Credit Facility and the Seller Notes.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows used in operating activities were $4.9 million for fiscal
1996 compared to net cash flows provided by operating activities of $9.5 million
in fiscal 1995. The use of cash in fiscal 1996 compared to cash flow generated
in fiscal 1995 reflected substantially higher inventory purchases to meet the
current demand for cigars and to secure certain tobacco supplies to meet the
anticipated future demand for cigars, and a greater reduction in accounts
payable due to the timing of the payment dates of certain liabilities. The
Company anticipates purchasing and carrying increased levels of tobacco
inventory over the next several years. Net cash flows provided by operating
activities were $12.7 million in fiscal 1994. In fiscal 1995, cash flows
provided by operations were lower compared to fiscal 1994 due to the net
increase in working capital related to the higher sales. The increase in working
capital in fiscal 1995 partially offset benefits of higher net income.
The Company will fund its capital projects using internal cash flow and, if
needed, borrowings under the Credit Facility. The capital expenditures in fiscal
1994 and fiscal 1995 relate primarily to investments in cigar manufacturing
equipment and are part of the normal replacement and upgrading of the Company's
manufacturing equipment and facilities. The capital expenditures in fiscal 1996
primarily relate to investment in the Company's manufacturing facilities to meet
the increased demand for the Company's premium cigars. In order to increase
production to meet demand, the Company recently completed expansion of its
manufacturing facilities in the Dominican Republic, has begun to expand its
facilities in Jamaica and expects to increase production at its facilities in
Honduras. The Company expects that it will make capital expenditures of
approximately $10.3 million in fiscal 1997, $5.0 million of which will be made
in connection with the expansion of these facilities. The Company has increased
substantially its inventory of long filler tobacco needed for making premium
cigars.
Cash flow provided by financing activities in fiscal 1996 was $14.7 million,
and in fiscal 1995 and fiscal 1994 cash flow used in financing activities was
$9.1 million and $10.9 million, respectively. In each fiscal year, the cash
flows from financing activities reflected principally the transfer of the
Company's net cash flow to Culbro or net cash transfers from Culbro to fund the
Company's operations. The net cash transfers from Culbro in fiscal 1996
reflected the Culbro funding of the increased tobacco purchases.
During each of the fiscal years presented in the accompanying combined
financial statements, the cash management and treasury activities of the Company
were integrated with those of Culbro. The Company's
26
<PAGE>
cash receipts were transferred daily into Culbro's cash account and the
Company's cash disbursement accounts were reimbursed by Culbro on a daily basis.
Culbro maintained credit facilities which it utilized to finance
transactions relating to the Company and Culbro's other subsidiaries. The
Company did not maintain its own separate credit facilities and the accompanying
financial statements do not reflect any allocation of Culbro's debt to the
Company. The Company maintained an intercompany account with Culbro in which its
net cash flow and other intercompany transactions with Culbro were recorded. See
Note 5 to the Combined Financial Statements. The intercompany account with
Culbro and the Company's retained earnings and historical capital accounts are
included in the Combined Financial Statements as "Culbro Investment."
On January 21, 1997, the Company entered into the Credit Facility to finance
the Villazon Acquisition, to fund the estimated $43.8 million of debt which will
be included in the Liability Assumption portion of the Asset Transfers and to
fund working capital and other general business requirements. The Company
intends to fund its working capital requirements and capital expenditures with
cash flow from operations and borrowings under the Credit Facility. Management
believes that expected net cash flows from future operations and the
availability of borrowings, when necessary, will be sufficient to fund its
working capital and capital expenditures for the foreseeable future. As of
November 30, 1996, after giving effect to the Offering and the use of proceeds
therefrom, there would have been $6.9 million available under the Credit
Facility, excluding $9.1 million of cash acquired in the Villazon Acquisition, a
portion of which would have been available to reduce borrowings under the Credit
Facility. There can be no assurance, however, that the Company's estimate of
cash flows prior to the consummation of the Offering will be realized;
accordingly, the actual amount available under the Credit Facility upon
consummation of the Offering may vary from the projected availability.
BACKORDERS
The increased demand for premium cigars has caused the Company's backorders
of premium cigars, exclusive of Villazon, to increase from $21.0 million at
wholesale at December 2, 1995 to $78.0 million at wholesale at November 30,
1996. Currently, the Company does not accept orders from its nine largest
customers for premium cigars, but instead allocates to each of them a portion of
its production. Therefore, the Company's backorder figure at November 30, 1996
excludes any orders from its nine largest premium cigar customers, although the
figure at December 2, 1995 includes such customers' orders. The Company believes
that a portion of the backorders reflects the practice of certain customers to
order more premium cigars than needed in anticipation of a reduction in the
number of cigars included in the order when filled due to short supplies.
Accordingly, backorder figures may not reflect actual lost sales for any of the
periods shown. Although the Company has taken measures to reduce the amount of
backorders for its cigars, there can be no assurance that such measures will be
adequate.
INFLATION
The Company has historically been able to pass inflationary increases for
raw materials and other costs onto its customers through price increases and
anticipates that it will be able to do so in the future.
SEASONALITY
The Company's business is generally not seasonal. Cigar unit volume,
however, is usually higher in the fourth quarter during the Christmas shopping
season and slightly lower in the first quarter following the Christmas season.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." This
27
<PAGE>
Statement requires that long-lived assets and certain intangibles held and used
by a business entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company continually reviews its long-lived assets and
intangible assets, considering future performance of those assets in assessing
the need for adjustments to their carrying values. The Company will perform such
reviews in the future in accordance with the methods prescribed by SFAS No. 121.
In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation." This Statement establishes a fair value method of
accounting for, or disclosing, stock-based compensation plans. The Company
intends to adopt the disclosure provisions of this standard which require
disclosing the pro forma effect on net income and earnings per share of the fair
value method of accounting for stock-based compensation. The adoption of the
disclosure provisions will not affect combined financial condition, results of
operations or cash flows.
28
<PAGE>
BUSINESS
GENERAL
Founded in 1906, General Cigar is the largest manufacturer and marketer in
the U.S. in both units and dollar sales of brand name premium cigars (imported,
hand-made or hand-rolled cigars made with long filler and all natural tobacco
leaf). The Company's MACANUDO and PARTAGAS brands are the two top selling
premium cigar brands sold in the U.S. The Company believes that higher priced
branded premium cigars constitute the fastest growing segment of the premium
cigar market. Approximately 80.2% of the Company's premium cigar sales in fiscal
1996 were at suggested retail prices of $3.00 or more per unit. The Company's
unit sales at or above this price point have increased at a 90.2% CAGR during
the past four years. The Company, through its well known brands such as GARCIA Y
VEGA, also is a leading participant in the growing mass market cigar segment.
From fiscal 1993 to fiscal 1996, the Company's net sales increased from $76.8
million to $154.7 million and operating profit increased from $2.4 million to
$20.2 million, representing CAGRs of 26.3% and 104.2%, respectively. After
giving effect to the Villazon Acquisition, on a pro forma basis, the Company's
net sales and operating profit for 1996 would have been $196.7 million and $32.3
million, respectively.
In 1906, the Company's direct predecessor, United Cigar Manufacturers
("UCM"), incorporated, sold its stock to the public and listed on the New York
Stock Exchange. The public offering notice with respect to that offering listed
the expert appraiser of UCM's cigar tobacco leaf as Joseph Cullman, the
grandfather and great grandfather, respectively, of the Company's current
Chairman and President. The Cullman family's interest and expertise in tobacco
and the cigar industry have developed for over a century and continue today.
The Company markets its cigars under a number of well-known brand names. The
Company's premium cigars include the MACANUDO, PARTAGAS, TEMPLE HALL, CANARIA
D'ORO, CIFUENTES and RAMON ALLONES brands. The Company also owns the rights to
market cigars in the U.S. under the names COHIBA and BOLIVAR. The Villazon
Acquisition has added a variety of other brand names to the Company's line of
premium cigars, including PUNCH, HOYO DE MONTERREY and EL REY DEL MUNDO. The
Company, after giving effect to the Villazon Acquisition, owns the U.S.
trademark rights to seven of the top ten traditional premium Cuban brand names
ranked according to 1995 worldwide sales by all cigar marketers. MANCANUDO was
rated "best cigar" by ROBB REPORT in 1992, the first year in which ROBB REPORT
rated cigars, and "best cigar" again in 1994 and 1995 (the category was not
included in the 1993 ROBB REPORT). In 1996, ROBB REPORT chose eight "best
cigars," including MACANUDO, PARTAGAS 150 SIGNATURE, HOYO DE MONTERREY EXCALIBUR
NO. 2 and COHIBA. The Company's mass market large cigars include GARCIA Y VEGA,
WHITE OWL, ROBT. BURNS and WM. PENN. The Company's mass market small cigars
include the TIPARILLO and TIJUANA SMALLS brands, as well as smaller sizes of its
other mass market brands. The Company does not participate in the market for
little cigars, which are cigars that resemble cigarettes. The Company also is
the exclusive U.S. distributor of French made DJEEP disposable lighters, and it
operates CLUB MACANUDO, a cigar bar located in New York City.
MARKET OVERVIEW
The cigar market is divided into three principal categories: premium cigars,
mass market cigars (large and small) and little cigars. After declining from its
peak in 1964, unit sales of cigars in the U.S. increased to 4.4 billion units in
1996 from 3.4 billion units in 1993. Unit sales of premium cigars, which had
remained essentially flat since 1981 despite continued declines in mass market
cigar unit sales, increased at a CAGR of approximately 35.4% from 1993 to 1996.
Led by growth in premium cigars, the U.S. cigar market has grown at a CAGR of
8.7% from 1993 to 1996, while retail dollar sales have grown at a CAGR of 19.9%
over the same period.
The Company believes that this increase in cigar consumption and retail
sales is the result of a number of factors, including: (i) the improving image
of cigar smoking resulting from increased publicity, including
29
<PAGE>
the success of CIGAR AFICIONADO and SMOKE magazines and the increased visibility
of cigar smoking by celebrities (such as Arnold Schwarzenegger, Mel Gibson, Demi
Moore and Jack Nicholson); (ii) the emergence of an expanding base of younger,
highly educated, affluent adults age 25 to 35 and the growing interest of this
group in luxury goods, including premium cigars; (iii) the increase in the
number of adults over the age of 40 (a demographic group believed to smoke more
cigars than any other demographic group); and (iv) the proliferation of
establishments, such as restaurants and clubs, where cigar smoking is
encouraged, as well as "cigar smokers" dinners and other special events for
cigar smokers.
CATEGORIES OF CIGARS
PREMIUM CIGARS. Premium cigars are imported, hand-made or hand-rolled cigars
made with long filler and all natural tobacco leaf. Unit sales of premium cigars
in the U.S. increased by 10.7% in 1993, by 14.5% in 1994, by 30.5% in 1995 and
by an estimated 66.2% in 1996. The Dominican Republic, Honduras and Jamaica
collectively accounted for approximately 84.0% of premium cigars imported into
the U.S. in 1995. Many of the finest premium cigars sold in the U.S. trace their
roots to pre-Castro Cuba and the Cuban emigres who continued making premium
cigars in Jamaica, the Dominican Republic, Honduras and Florida. See "--Making a
General Cigar Premium Cigar."
MASS MARKET CIGARS. Mass market cigars generally are domestic, machine-made
cigars that use less-expensive short filler tobacco and are made with
homogenized tobacco binders and either homogenized sheet wrappers or natural
leaf wrappers. Unit sales of mass market cigars in the U.S. decreased by 4.3% in
1993, increased by 9.0% in 1994, increased by 8.6% in 1995 and increased by an
estimated 11.4% in 1996. Unit sales of more expensive mass market cigars, using
natural leaf wrappers, grew by 12.9% in 1995, as consumers appear to have
migrated to more expensive, higher quality mass market cigars.
LITTLE CIGARS. Little cigars are the lowest priced cigars. Little cigars
weigh less than three pounds per 1,000, are similar in size to cigarettes and
typically have filters. Little cigars are domestic, machine made cigars that use
short filler tobacco and homogenized sheet wrapper. Little cigars are not made
with binders. Unit sales of little cigars in the U.S. decreased by 1.1% in 1993,
increased by 6.1% in 1994, increased by 2.2% in 1995 and increased by an
estimated 3.8% in 1996. The Company does not participate in the market for
little cigars.
The following table sets forth certain data with respect to U.S. cigar unit
sales and retail sales for the premium, mass market and little cigar markets for
the periods shown:
<TABLE>
<CAPTION>
1993 1994 1995 1996E CAGR
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS)
Unit sales:
Premium.................................................. 110.0 125.9 164.3 273.0 35.4%
Mass market.............................................. 2,028.0 2,211.1 2,400.7 2,673.3 9.6
Little cigars............................................ 1,288.0 1,367.0 1,397.0 1,450.5 4.0
--------- --------- --------- ---------
Total.................................................. 3,426.0 3,704.0 3,962.0 4,396.8 8.7
--------- --------- --------- ---------
--------- --------- --------- ---------
Retail sales............................................... $ 725.0 $ 898.0 $ 1,054.0 $ 1,250.0 19.9%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
- ------------------------
Source: Bureau of Alcohol, Tobacco and Firearms; Cigar Association of America
("CAA") Annual Survey of Cigars. 1996 figures are based on CAA
estimates. Retail sales are based in part on the Company's estimate of
sales of little cigars. Data for 1996 are based in part on the Company's
estimates.
30
<PAGE>
CIGAR TOBACCOS
Tobacco is grown around the world, but production of the finest cigar
tobaccos is concentrated in the Tropics, especially Cuba, Cameroon, Central West
Africa, the Dominican Republic, Ecuador, Honduras, Indonesia, Mexico and
Nicaragua. The Connecticut River Valley, however, produces some of the finest
wrapper tobacco in the world. Connecticut Shade wrapper tobacco is grown under a
gauze shade to produce a finer, thinner leaf with smaller veins than that of
sun-grown tobaccos. Some wrapper tobacco, as well as all high-quality binder and
filler tobacco, is exposed to the full strength of the sun throughout the
growing season, producing a thicker leaf with stronger flavors and darker
colors. Premium binder and long filler tobaccos sell for approximately $4 to $7
per pound, while premium cigar wrapper tobaccos sell for approximately $20 to
$40 per pound and the best Connecticut Shade wrapper tobaccos sell for
approximately $42 to $44 per pound.
Tobacco is grown from seeds that are germinated in greenhouses in raised
seedbeds. After six weeks, the healthiest seedlings are transplanted to fields.
Commencing six weeks after transplanting, the leaves are picked, starting with
the bottom of the stalk, three leaves at a time, once a week over a six week
period. Once harvested, the tobacco goes through a period of curing and
fermentation. In the curing stage, the wrapper tobacco is hung in tobacco sheds
for approximately five weeks to remove moisture and cause the green leaves to
turn into the desired golden brown color. In the fermentation stage, workers
carefully build slightly moistened tobacco into piles weighing approximately
3,000 pounds known as "bulks." Temperatures inside the bulks reach as high as
120 DEG.F as the tobacco "sweats" in the early stages of fermentation. The
tobacco is turned multiple times before fermentation is complete. Workers then
sort the tobacco, first according to color and clarity and then according to
size. Sorted leaves are then tied into "hands," each consisting of 40 leaves.
The hands are then "mulled," or softly fermented in cases weighing up to 130
pounds, and packed in bales, usually surrounded by burlap, to age. Premium cigar
tobaccos generally age for approximately one to three years, although "vintage"
premium tobaccos may age for up to ten years.
The Company purchases premium cigar wrapper tobacco from growers throughout
the world, including Cameroon (for use in making the PARTAGAS and RAMON ALLONES
cigars), Ecuador (for use in making the PUNCH and HOYO DE MONTERREY cigars) and
Mexico (for use in making the CANARIA D'ORO cigar). The Company is a grower and
supplier of Connecticut Shade tobacco used in making the MACANUDO and TEMPLE
HALL cigars. The Connecticut Shade tobacco used for wrapper on the Company's
cigars is sent to the Dominican Republic from Connecticut for curing and
fermentation, after which it is shipped back to the U.S. for aging in a process
known as a "winter sweat." After aging for one year, the bales of Connecticut
Shade are returned to the Dominican Republic for an additional period of
fermentation, and are then sent back to the U.S. a second time for additional
aging before being shipped to the Company's cigar manufacturing facilities in
the Dominican Republic and Jamaica.
The Company purchases all of its binder and long filler tobaccos from
growers throughout the world, primarily the Dominican Republic, Mexico and other
countries. The binder tobacco is purchased in leaf form, while the long filler
tobacco is purchased in "frog" strip form, with half of the stem removed. The
Company procures commitments for binder and long filler tobacco two years in
advance of delivery. These tobaccos grow for one year and are fermented for one
year, after which they are baled and delivered to warehouses in Pennsylvania for
aging. Binder and long filler tobacco generally is aged from one to two years.
Throughout the growing and fermenting process, representatives of the Company
periodically inspect tobacco for which the Company has received a sale
commitment.
MAKING A GENERAL CIGAR PREMIUM CIGAR
To assure that its premium cigars are consistently of the highest quality,
the Company employs a painstaking, labor-intensive process, requiring the
skilled judgment of experienced master cigar-makers and numerous intricate steps
on the part of trained craftsmen. A tobacco leaf used in the manufacture of
31
<PAGE>
any of the Company's premium cigars may be touched as many as 100 times before
it is smoked as part of a finished cigar.
THE WRAPPER. After sufficient aging, baled wrapper tobacco is opened and
examined for quality. The hands of wrapper tobacco are moistened in a process
known as "casing." Then each individual tobacco leaf is "stripped" to remove the
stem, and the half leaves are selected according to the length appropriate for
each cigar size. Finally, the sorted half leaves are counted into "pads" of 50
and sent to the cigar floor.
THE BINDER AND LONG FILLER. After aging, the binder and long filler tobacco
leaves are sent to one of the Company's cigar factories. There, the binder
tobacco is cased, stripped, sized and sorted into pads of 50 in a process
similar to that used in preparing the wrapper tobacco and is then sent to the
cigar floor. The long filler leaves are placed in a moistening hot room in order
to separate the individual leaves. The long filler leaves are then blended by
hand by placing leaf upon leaf and boxing them in cedar boxes for storage in
cedar storage rooms for three to five weeks in a process designed to marry the
various aromas of the leaves in order to create a uniform taste. Following this
blending process, the long filler tobacco is sent to the cigar floor.
MAKING THE CIGAR. Bunchers, working side by side with wrapper-rollers, take
leaves from filler boxes and, taking care to maintain the appropriate mixture of
light and heavy tobaccos, roll them by hand inside a dark, supple binder leaf.
The bunch is then placed in a wooden mold that shapes it to the specific length
and ring gauge of a particular cigar size. After approximately 30 minutes, the
bunch is removed from the mold for wrapping. The wrapper-roller places the
wrapper leaf upside down on a cutting board so that the smooth, unveined side of
the leaf will appear on the outside of the cigar and uses a "Cuban knife" to
trim each wrapper to the correct shape for a particular cigar size. The
wrapper-roller then wraps the shaped bunch in the wrapper and seals the head of
the cigar with a natural, flavorless gum from the tragacanth tree.
The finished cigars are then "bundled" in lots of 50 and inspected for
weight and firmness, as well as size, density, uniformity and texture. Finished
cigars are aged for three to 12 weeks in a cedar room. Trained selectors arrange
the finished cigars in separate groups chosen by subtle color differences.
Master cigar-makers smoke samples to assure quality. Cigars then are
individually banded and cellophaned or tubed and placed in handcrafted cigar
boxes to be shipped to the Company's customers.
BUSINESS STRATEGY
The Company believes that its competitive strengths, together with the
following strategies, will enable the Company to continue its growth, increase
its profitability and enhance its market share:
/ / INCREASE LEADING MARKET SHARE IN THE U.S. PREMIUM SEGMENT. The Company
intends to capitalize on the rapidly growing premium cigar market by:
(i) continuing to improve awareness and recognition of its premium
cigar brands through extensive advertising, increased penetration of
targeted retail outlets and professional sales management; (ii)
developing and selling more broadly certain new premium cigars that
carry well recognized traditional premium Cuban brand names, such as
COHIBA and BOLIVAR; (iii) developing line extensions in higher price
categories, such as MACANUDO VINTAGE and PARTAGAS LIMITED RESERVE, that
leverage the Company's already established premium brands; and (iv)
using the Company's national sales force and extensive channels of
distribution to increase sales of the products acquired in the Villazon
Acquisition.
/ / DEVELOP "PREMIUM" MASS MARKET CIGAR BUSINESS. The Company is seeking to
increase revenues and profits in its mass market cigar business by
extending its well-known mass market brand names into higher price
categories within the mass market segment. The Company believes that
the higher-end mass market segment recently has experienced growth
similar to that of the premium segment. The Company is attempting to
capitalize on this growth by expanding products such as the GARCIA Y
VEGA
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<PAGE>
HAND MADE cigars and by developing similar higher-end cigars under
several of its other mass market brand names, such as the WHITE OWL
SELECT, a natural leaf wrapper mass market cigar.
/ / EXPAND MASS MARKET CIGAR BUSINESS. The Company believes that the
resurgence in the premium segment also has positively affected the
demand for traditional mass market cigars. The Company's leading
high-end mass market brand, GARCIA Y VEGA, experienced a 27.9% increase
in unit growth in 1996 compared to 1995. The Company intends to
increase its sales and production of traditional mass market cigars to
capitalize on the increasing demand in the mass market segment.
/ / EXPAND PRODUCTION CAPACITY AND TOBACCO INVENTORY. The Company intends
to expand manufacturing capacity in order to meet increasing demand for
its products while adhering to its traditionally high quality
standards. The Company recently completed the expansion of its
manufacturing facilities in the Dominican Republic, has begun to expand
its facilities in Jamaica and intends to expand production at the
Villazon facilities in Honduras. In addition, the Company has
implemented a unique "training center" program at its Dominican
Republic facility through which it has been able to train a greater
number of cigar rollers in a shorter period of time and attain a higher
rate of completion of the training program than had been its experience
using traditional training methods. The Company intends to implement a
similar program in its Jamaican and Honduran facilities. The Company
also has substantially increased its tobacco inventory for making
premium cigars.
/ / SELECTIVELY BROADEN CIGAR DISTRIBUTION CHANNELS. The Company intends to
broaden its existing customer relationships and actively develop new
channels and methods of distribution. With respect to premium cigars,
the Company is pursuing opportunities in a number of developing
distribution channels, including cigar bars and clubs, hotel shops,
wine shops (excluding jurisdictions where selling tobacco products in
businesses possessing retail liquor licenses is prohibited by law),
restaurants and upscale specialty retail stores (such as Neiman Marcus
and Orvis). With respect to mass market cigars, the Company is seeking
to enhance relations with existing retailers by acting as the tobacco
"category manager," assisting such retailers in increasing their sales
of tobacco products.
/ / EXPAND INTERNATIONAL CIGAR BUSINESS. The Company plans to increase its
international presence, particularly with respect to the MACANUDO
brand. The Company will focus its efforts in the United Kingdom,
Germany, France, Spain, China and certain countries in South America,
as well as duty free markets worldwide. The Company intends to
implement this strategy in a variety of ways, including building on its
existing relationships with major international distributors and
entering into joint ventures.
/ / DEVELOP SALES OF BRANDED SMOKING ACCESSORIES AND LIFESTYLE
PRODUCTS. The Company intends to become a leading marketer and licensor
of high-quality branded smoking accessories, such as humidors and cigar
cutters, and branded luxury lifestyle products, such as leather goods
and apparel. The Company believes such expansion will improve brand
recognition among premium cigar consumers. The Company also may open
additional CLUB MACANUDO locations, including one location in Chicago
expected to open in the spring of 1997. CLUB MACANUDO promotes the
Company's premium brands as well as cigar smoking as part of the luxury
lifestyle. The Winter 1996/97 issue of CIGAR AFICIONADO called CLUB
MACANUDO New York City's "preeminent cigar lounge," and SMOKE magazine
recently said of CLUB MACANUDO, "this place is pure 'cigar.' "
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<PAGE>
BACKORDERS
The increased demand for premium cigars has caused the Company's backorders
of premium cigars, exclusive of Villazon, to increase from $21.0 million at
wholesale at December 2, 1995 to $78.0 million at wholesale at November 30,
1996. Currently, the Company does not accept orders from its nine largest
customers for premium cigars, but instead allocates to each of them a portion of
its production. Therefore, the Company's backorder figure at November 30, 1996
excludes any orders from its nine largest premium cigar customers, although the
figure at December 2, 1995 includes such customers' orders. The Company believes
that a portion of the backorders reflects the practice of certain customers to
order more premium cigars than needed in anticipation of a reduction in the
number of cigars included in the order when filled due to short supplies.
Accordingly, backorder figures may not reflect actual lost sales for any of the
periods shown. Although the Company has taken measures to reduce the amount of
backorders for its cigars, there can be no assurance that such measures will be
adequate. See "Risk Factors--Constraints on Ability to Satisfy Demand."
SALES AND MARKETING
The Company believes that it is recognized as one of the most successful
marketers of cigars in the U.S., having achieved ADVERTISING AGE's 1996 "Top
Marketing 100" award for the MACANUDO brand. The Company believes that it spends
considerably more on consumer advertising than its nearest competitor, even in
times when it is experiencing significant backorders.
The Company sells its cigar products throughout the U.S. to over 1,300
customers, consisting of wholesale distributors, direct buying chains (including
food, drug, mass merchant and convenience store chains), tobacconists, specialty
retailers (such as Neiman Marcus and Orvis) and consumer catalogue retailers. No
single customer accounts for more than 10% of the Company's total sales.
The Company recently has created a full-time, in-house sales analysis group,
which reviews cigar industry consumption reports prepared by national sales
audit firms, as well as sales information provided by retailers with respect to
which the Company acts as category manager. The Company also employs a direct
sales force to develop and service its sales to wholesalers, distributors,
direct buying chains and tobacconists. The Company's sales force, which has
increased by 60% since 1994, is composed of two groups, one group responsible
for the sale of all the Company's products and a separate group of "premium
specialists" focusing on the sale and promotion of premium cigars with
tobacconists, cigar clubs, restaurants, premium cigar distributors and other
specialty retailers. Both sales groups utilize a fact-based approach to category
selling designed to optimize category performance for the Company's retail
customers and improve the performance of the Company's brands. The Company
believes that the utilization of a separate premium selling group positions it
to maintain a high degree of focus on its premium product category while
enabling the sales force to serve a broad mass market customer base. The
Company's sales force operates nationally with account coverage structured
geographically to provide for close relationships with local customers.
The Company actively pursues innovative outlets for marketing its premium
cigars to the luxury goods consumer, such as golf pro shops and upscale wine
shops. The Company also has developed a program through which it markets cigars
and cigar menus directly to restaurants. With respect to its mass market brands,
the Company has adopted a program to promote its brands with certain retailers,
such as CVS and Walmart/McLane, by acting as tobacco "category manager." The
Company also provides a wide variety of cigar merchandising fixtures and
point-of-sales support to its retailers. These fixtures help to maintain an
attractive in-store product presentation and to improve shelf space and
positioning of the Company's brands.
The Company advertises its premium cigar products in magazines, such as
CIGAR AFICIONADO and SMOKE, as well as magazines targeted to an upscale audience
such as ROLLING STONE, FORBES and GOLF DIGEST and in newspapers and on radio.
The Company advertises its mass market cigar products primarily through
34
<PAGE>
newspapers, sports magazines and similar publications. In addition, the
Company's website, "cigarworld.com," was selected as the best cigar product
website by YAHOO magazine. The Company has substantially increased its marketing
and advertising expenditures in order to continue to build the brand recognition
of its leading premium cigar brands, as well as to support new product
introductions. Since 1993, the Company has brought to market a broad array of
new products and brand extensions primarily in connection with its
brand-oriented cigar marketing, including limited edition cigars under the
PARTAGAS 150 and multi-year MACANUDO VINTAGE offerings, MACANUDO and PARTAGAS
branded fashion apparel and branded cigar smoking accessories.
Sales of the Company's cigar products outside of the U.S. currently are not
material, although the Company plans to increase its international presence,
particularly with respect to the MACANUDO brand. The Company will focus its
efforts in the United Kingdom, Germany, France, Spain, China and certain
countries in South America, as well as duty free markets worldwide. The Company
recently became the only U.S. cigar maker to receive approval from the
government of China to market and sell its products in that country. The Company
already has begun distributing premium and mass market cigars in China.
TRADEMARKS
The Company's success and ability to compete are dependent to a significant
degree on its trademarks. The Company generally owns the trademarks under which
its products are sold. The Company has registered its trademarks in the U.S. and
many other countries and will continue to do so as new trademarks are developed
or acquired. The Company holds the right to use the MACANUDO trademark and brand
name for cigars in many countries worldwide. The Company does not, however, hold
or own the right to use certain of its well-known trademarks and brand names,
including PARTAGAS and COHIBA, in certain foreign markets. The Company's ability
to expand into such markets by capitalizing on the strength of its brand names
in the U.S. may be limited by its inability to use or acquire such brand names
in those foreign markets. The Company pays royalties to the prior owners of
certain of its trademarks. Such payments are not material. The Company owns the
U.S. trademarks listed below:
<TABLE>
<CAPTION>
PREMIUM CIGAR BRANDS MASS MARKET CIGAR BRANDS
- ------------------------------------- -------------------------------------
<S> <C>
MACANUDO GARCIA Y VEGA
PARTAGAS WHITE OWL
PUNCH TIPARILLO
HOYO DE MONTERREY ROBT. BURNS
COHIBA TIJUANA SMALLS
EXCALIBUR WM. PENN
RAMON ALLONES LORD BEACONSFIELD
TEMPLE HALL VILLA DE CUBA
EL REY DEL MUNDO PEDRO IGLESIAS
CANARIA D'ORO TOP STONE
CIFUENTES VILLAZON DELUXE
BOLIVAR
BELINDA
BANCES
</TABLE>
The Company vigorously defends its trademarks from their improper use by
others, including the manufacturers of counterfeit cigars.
35
<PAGE>
RAW MATERIALS
The Company has strong relationships with tobacco suppliers and is expanding
its commercial and technical ties with local growers to secure a variety of
sources for raw materials, ensure the quality of its raw materials and maximize
cost savings.
The most important material in the manufacture of cigars is properly aged
tobacco. Arrangements for the procurement of tobacco typically are made at the
time the tobacco is planted, approximately three to four years before the
tobacco will be manufactured into cigars. The Company buys tobacco directly from
a large number of suppliers worldwide and does not believe that it is dependent
on any single source for tobacco. During 1996, the Company discontinued shipping
MACANUDO cigars for a two month period as excessive demand led to a shortage of
properly aged and blended tobacco. The Company has experienced shortages in
Cameroon-grown natural wrapper tobacco, which is used in making PARTAGAS cigars,
due to the increase in demand for high quality natural wrapped cigars. Because
the Company is a leading grower and supplier of Connecticut Shade tobacco, which
is used in making MACANUDO cigars, the Company has not experienced similar
shortages with respect to Connecticut Shade. The increase in demand has caused
the price of natural wrapper and premium cigar tobaccos to increase. The Company
has an extensive seed development program to improve the wrapper tobacco
characteristics. The Company lost certain seed samples and records in a fire in
1994. See "Risk Factors--Constraints on Ability to Satisfy Demand," "Risk
Factors--Social, Political and Economic Risks Associated with Foreign Operations
and International Trade" and "--Backorders."
COMPETITION
The Company is the largest manufacturer and marketer in the U.S. in both
units and dollar sales of brand name premium cigars. The Company's main
competitors in the branded and private label premium markets include Davidoff,
Fuente, Consolidated Cigar Holdings Inc. and Nestor Plasencia. In addition, the
increased demand for cigars and the relatively low barriers to entry have led to
many new entrants in the premium cigar manufacturing business. The Company's
main competitors in the mass market cigar market are Swisher International Group
Inc., Consolidated Cigar Holdings, Inc., and Havatampa/Phillies Cigar
Corporation.
THE TOBACCO INDUSTRY
REGULATION
Cigar manufacturers, like other producers of tobacco products, are subject
to regulation at the federal, state and local levels. Federal law has recently
required states, in order to receive full funding for federal substance abuse
block grants, to establish a minimum age of 18 years for the purchase of tobacco
products, together with an appropriate enforcement program. The recent trend is
toward increasing regulation of the tobacco industry, and the recent increase in
popularity of cigars could lead to an increase in regulation of cigars. A
variety of bills relating to tobacco issues have been introduced in the U.S.
Congress, including bills that would have (i) prohibited the advertising and
promotion of all tobacco products or restricted or eliminated the deductibility
of such advertising expenses, (ii) increased labeling requirements on tobacco
products to include, among other things, addiction warnings and lists of
additives and toxins, (iii) shifted regulatory control of tobacco products and
advertisements from the FTC to the FDA, (iv) increased tobacco excise taxes and
(v) required tobacco companies to pay for health care costs incurred by the
federal government in connection with tobacco related diseases. Hearings have
been held on certain of these proposals; however, to date, none of such
proposals have been passed by Congress. Future enactment of such proposals or
similar bills may have an adverse effect on the results of operations or
financial condition of the Company.
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<PAGE>
In August 1996, the FDA published a final rule on tobacco in the Federal
Register. Specifically, the rule prohibits a variety of activities relating to
the sale of cigarettes and smokeless tobacco, including the distribution of
non-tobacco items, such as hats and tee shirts, that carry cigarette logos.
These regulations are not currently applicable to cigars; however, there can be
no assurance that these regulations will not be extended to include cigars in
the future. A significant portion of the Company's Djeep lighter sales is to
cigarette manufacturers who sell or give away such lighters with their
cigarettes. These regulations, if effective in this respect despite numerous
court challenges, would have a material adverse effect on the Company's Djeep
lighter business.
In addition, the majority of states restrict or prohibit smoking in certain
public places and restrict the sale of tobacco products to minors. Local
legislative and regulatory bodies also have increasingly moved to curtail
smoking by prohibiting smoking in certain buildings or areas or by requiring
designated "smoking" areas. Further restrictions of a similar nature could have
an adverse effect on the sales or operations of the Company. Numerous proposals
also have been considered at the state and local level restricting smoking in
certain public areas, regulating point of sale placement and promotions and
requiring warning labels.
California, for example, requires "clear and reasonable" warnings to
consumers who are exposed to chemicals determined by the state to cause cancer
or reproductive toxicity, including tobacco smoke and several of its constituent
chemicals. In addition, legislation recently introduced in Massachusetts would,
if enacted, require warning labels on cigar boxes. Although similar legislation
has been introduced in other states, no action has been taken. Although federal
law has required health warnings on cigarettes since 1965 and on smokeless
tobacco since 1986, there is no federal law requiring that cigars carry such
warnings. There can be no assurance that such legislation introduced in other
states will not be passed in the future or that other states will not enact
similar legislation. Consideration at both the federal and state level also has
been given to consequences of tobacco smoke on non-smokers (so called
"second-hand" smoke). There can be no assurance that regulations relating to
second-hand smoke will not be adopted or that such regulations or related
litigation would not have a material adverse effect on the Company's results of
operations or financial condition. The Company has received complaints from
neighbors with respect to cigar smoke emanating from its Club Macanudo
establishment in New York City. There can be no assurance that such complaints
will not lead to fines, regulation and/or litigation that could adversely affect
Club Macanudo.
The U.S. Environmental Protection Agency (the "EPA") published a report in
January 1993 with respect to the respiratory health effects of second-hand
smoke, which concluded that widespread exposure to environmental tobacco smoke
presents a serious and substantial public health concern. Issuance of the
report, which is based primarily on studies of passive cigarette smokers, may
lead to further legislation designed to protect non-smokers. Also, a study
recently published in the journal SCIENCE reported that a chemical found in
cigarette smoke has been found to cause genetic damage in lung cells that is
identical to damage observed in many malignant tumors of the lung and, thereby,
directly links lung cancer to smoking. The National Cancer Institute also has
announced that it will issue a report in 1997 describing research into cigars
and health. The study and these reports could affect pending and future tobacco
regulation and litigation. See "--Litigation."
Increased cigar consumption and the publicity such increase has received may
increase the risk of additional regulation. There can be no assurance as to the
ultimate content, timing or effect of any additional regulation of tobacco
products by any federal, state, local or regulatory body, and there can be no
assurance that any such legislation or regulation would not have a material
adverse effect on the Company's business.
LITIGATION
Historically, the cigar industry has experienced less health-related
litigation than the cigarette and smokeless tobacco industries have experienced.
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Litigation against the cigarette industry historically has been brought by
individual cigarette smokers. In 1992, the United States Supreme Court in
Cipollone v. Liggett Group, Inc. ruled that federal legislation relating to
cigarette labeling requirements preempts claims based on failure to warn
consumers about the health hazards of cigarette smoking, but does not preempt
claims based on express warranty, misrepresentation, fraud or conspiracy. To
date, individual cigarette smokers' claims against the cigarette industry
generally have been unsuccessful. A jury in Florida, however, recently
determined that a cigarette manufacturer was negligent in the production and
sale of its cigarettes and sold a product that was unreasonably dangerous and
defective, awarding the plaintiffs a total of $750,000 in damages.
Current tobacco litigation generally falls within one of three categories:
class actions, individual actions or actions brought by individual states
generally to recover Medicaid costs allegedly attributable to tobacco-related
illnesses. The pending actions allege a broad range of injuries resulting from
the use of tobacco products or exposure to tobacco smoke and seek various
remedies, including compensatory and, in some cases, punitive damages together
with certain types of equitable relief such as the establishment of medical
monitoring funds and restitution. The major tobacco companies vigorously are
defending these actions.
In May 1996, the Fifth Circuit Court of Appeals in Castano v. American
Tobacco, et al. reversed a Louisiana district court's certification of a
nationwide class consisting essentially of nicotine dependent cigarette smokers.
Notwithstanding the dismissal, new class actions asserting claims similar to
those in Castano recently have been filed in certain states. To date, two
pending class actions against major cigarette manufacturers have been certified.
The first case is limited to Florida citizens allegedly injured by their
addiction to cigarettes; the other is limited to flight attendants allegedly
injured through exposure to secondhand smoke. See "--Legal Proceedings."
EXCISE TAXES
Cigars long have been subject to federal, state and local excise taxes, and
such taxes frequently have been increased or proposed to be increased, in some
cases significantly, to fund various legislative initiatives. The federal excise
tax rate on large cigars (weighing more than three pounds per thousand cigars)
is 12.75% of the manufacturer's selling price, net of the federal excise tax and
certain other exclusions, capped at $30.00 per thousand cigars.
In the past, there have been various proposals by the federal government to
fund legislative initiatives through increases in federal excise taxes on
tobacco products. In 1993, the Clinton Administration proposed a significant
increase in excise taxes on cigars, pipe tobacco, cigarettes and other tobacco
products to fund the Clinton Administration's health care reform program. The
Company believes that the volume of cigars sold would have been dramatically
reduced if excise taxes were enacted as originally proposed as part of the
Clinton Administration's health care reform program. Future enactment of
significant increases in excise taxes, such as those initially proposed by the
Clinton Administration or other proposals not linked specifically to health care
reform, would have a material adverse effect on the business of the Company. The
Company is unable to predict the likelihood of the passage or the enactment of
future increases in tobacco excise taxes.
Tobacco products also are subject to certain state and local taxes. Deficit
concerns at the state level continue to exert pressure to increase tobacco
taxes. The number of states that impose excise taxes on cigars is 42. State
cigar excise taxes are not subject to caps similar to the federal cigar excise
tax. From time to time, the imposition of state and local taxes has had some
impact on sales regionally. The enactment of new state excise taxes and the
increase in existing state excise taxes are likely to have an adverse effect on
regional sales as cigar consumption generally declines.
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<PAGE>
LEGAL PROCEEDINGS
TOBACCO LITIGATION
The Company is a party to lawsuits incidental to its business. The Company,
together with a variety of other tobacco product manufacturers and retailers,
has been named in seven suits in Florida since 1995; however, it has been served
in only four of these lawsuits and in each case was voluntarily dismissed as a
defendant (without prejudice in each case). One of the suits in which the
Company has been named but not served is a putative class action, filed on or
about August 30, 1996, brought against the Company and 13 other defendants on
behalf of Florida residents alleged to be addicted to nicotine and injured as a
result of smoking cigarettes. In addition, the Company and 13 others were named
as defendants in two "form" complaints that identified no plaintiffs, filed in
August 1996, apparently in contemplation of filing additional complaints on
behalf of individual plaintiffs. The Company has not been served with complaints
in any such cases. The Company believes that the outcome of such legal
proceedings as are pending will not in the aggregate have a material adverse
effect on the Company's consolidated financial position. The Company carries
general liability insurance but has no health hazard policy, which, to the best
of the Company's knowledge, is consistent with industry practice. There can be
no assurance, however, that there will not be an increase in health-related
litigation against the cigarette and smokeless tobacco industries or similar
litigation in the future against cigar manufacturers. The costs to the Company
of defending prolonged litigation and any settlement or successful prosecution
of any material health-related litigation against manufacturers of cigars,
cigarettes or smokeless tobacco or suppliers to the tobacco industry could have
a material adverse effect on the Company's business. The recent increase in the
consumption of cigars and the publicity such increase has received may have the
effect of increasing the probability of legal claims.
OTHER LITIGATION
In the spring of 1995, the Company discovered and immediately notified U.S.
Customs officials that packages of marijuana were passing through its Dothan,
Alabama plant, apparently secreted by persons still unknown in cigar shipping
cartons originating from the Company's Kingston, Jamaica plant. The Company has
since fully cooperated with U.S. Customs and other federal and state officials
throughout their investigation of this alleged drug trafficking.
As a result of investigating the drug shipments, the Company uncovered
information which led to the conviction of one of its senior managers on 25
counts of mail fraud. The employee is awaiting sentencing and his accomplices
now are serving prison sentences. The employee brought suit for wrongful
termination and alleged a number of illegal activities by General Cigar Co.,
Inc., including payments to officials of foreign governments, pricing practices
and election campaign contribution violations. The alleged improper campaign
contributions, aggregating $11,000, have been refunded by such campaigns and the
Company is seeking a conciliation agreement with respect thereto with the
Federal Election Commission. Subsequently, General Cigar Co., Inc. was served
with a U.S. Grand Jury subpoena in Connecticut relating to the allegations in
the lawsuit filed by the former employee. This investigation has since been
terminated.
In May 1995, the SEC began an informal investigation into trading in Culbro
common stock in the period prior to Culbro's announcement of an agreement in
principle to sell a 51% interest in General Cigar Co., Inc. The SEC staff was
provided with numerous documents they requested and they interviewed several
officers of Culbro and the Company. The Company does not know the status of the
investigation, but it has received no communication from the SEC in several
months.
Pursuant to the terms of a Distribution Agreement between Culbro and CLR,
CLR will acquire Culbro's 50.1% interest in Eli Witt. In November 1996, Eli Witt
filed for protection under Chapter 11 of the Federal Bankruptcy Law. Prior to
February 1993, Eli Witt was a wholly-owned subsidiary of Culbro and filed
consolidated tax returns with Culbro. Culbro, Eli Witt and other parties engaged
in two complex
39
<PAGE>
acquisitions and reorganizations in 1993 and 1994, pursuant to which Culbro
received significant distributions from Eli Witt to repay Culbro debt, including
substantial amounts Culbro had previously borrowed from unaffiliated third
parties to fund Eli Witt's business. Culbro subsequently loaned $5 million to
Eli Witt. It is anticipated that these transactions will be reviewed by Eli Witt
creditors and other parties in interest in connection with the Chapter 11 case.
The Company believes that any such proceedings are not likely to have a material
adverse effect on the Company's business, financial condition or results of
operations.
EMPLOYEES
The Company employs approximately 5,000 persons, which includes 1,000
seasonal employees. At present, employees at the Company's Kingston, Jamaica
location are represented by two unions, the Trade Union Congress ("TUC"), which
represents production and maintenance workers, and the Bustamante International
Trade Union ("BITU"), which represents supervisors and office and clerical
employees. The Company's contract with TUC expires in March 1999, and its
contract with BITU expires in December 1997. On occasion, work stoppages have
occurred during the negotiation of new union contracts in Jamaica, and there can
be no assurance that such a stoppage will not occur in connection with the
negotiation of any new contract. In addition, employees at the Company's Tampa,
Florida facility are represented by the Cigar Makers' Union Local 533 of the
Retail, Wholesale and Department Store Union AFL-CIO-CLC. No other employees of
the Company are represented by unions. The Company believes that its relations
with its employees are satisfactory. Recently, the increased demand for cigars
has led to increased demand for cigar rollers, and a number of these employees
have taken advantage of employment opportunities with competitors and new market
entrants.
PROPERTIES
LAND HOLDINGS
The Company owns approximately 1,200 acres of land in the Connecticut River
Valley used in its tobacco growing operations. In addition, the Company will
lease for a ten-year period approximately 500 acres of arable land in
Connecticut. CLR at its option may terminate the lease as to 100 acres annually.
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PRINCIPAL PROPERTIES
As of February 4, 1997, the principal properties owned or leased by the
Company for use in its business included:
<TABLE>
<CAPTION>
OWNED LEASE
OR EXPIRATION APPROXIMATE
LOCATION LEASED DATE NATURE OF OPERATION FLOOR SPACE(1)
- ------------------------------ ---------- ------------- ------------------------------ ----------------------
<S> <C> <C> <C> <C>
New York, New York Owned N/A Executive Offices 210,000(2)
-New York Headquarters
New York, New York Leased 8/31/05 Club Macanudo 5,000
-Cigar Bar
Kingston, Jamaica, W.I. Owned N/A Cigar Manufacturing 119,000
Dothan, Alabama Leased(3 ) 11/1/01 Cigar Manufacturing & 165,000
Warehousing
Hatfield, Massachusetts Owned N/A Tobacco Warehouse 81,000
Santiago, Dominican Leased(4 ) 10/31/01 Tobacco Processing, Cigar 384,243
Republic Manufacturing & Storage
Dominican Republic Leased 9/15/01 Tobacco Growing 80 acres
Bloomfield, Connecticut Leased 8/30/06 General Cigar Co., Inc. 11,137
Executive Offices
Bloomfield, Connecticut Leased 10/17/06 General Cigar Co., Inc. 12,500
Bloomfield Headquarters
Bloomfield, Connecticut Leased 11/30/97 Warehouse 11,644
Ellington, Connecticut Owned N/A Tobacco Growing 202 acres
Granby, Connecticut Owned N/A Tobacco Growing 449.3 acres
Suffield, Connecticut Owned N/A Tobacco Growing 204.8 acres
San Pedro Sula, Owned N/A Manufacturing & 6.9 acres(7)
Honduras Distribution
San Pedro Sula, Leased 3/31/99 Offices 421 square meters
Honduras
Danli, Honduras Owned N/A Manufacturing & 5,500 square meters
Distribution
Tampa, Florida Owned N/A Executive Offices, 57,500
Manufacturing &
Distribution
Upper Saddle River, New Jersey Leased(5 ) 12/31/00 Sales & Distribution 21,500
Chicago, Illinois Leased 9/30/01(6) Club Macanudo 11,000
-Cigar Bar
</TABLE>
- ------------------------
(1) In square feet, except where indicated.
(2) The Company uses approximately 25,000 square feet. The balance is leased or
available for lease.
(3) Industrial Revenue Bond financing lease. The Company owns a 52,500 square
foot warehouse in Dothan, Alabama that is leased to a third party.
(4) The Company leases property in Santiago, Dominican Republic for its cigar
manufacturing, tobacco processing and tobacco warehousing operations. These
operations are conducted in several different facilities which are subject
to 11 different leases. The leases have expiration dates ranging from 1998
to 2001 and each is subject to a renewal option. The Company subleases
70,000 square feet of these facilities to Shade Leaf Processors.
(5) Subject to a two-year renewal at the Company's option. The Company also has
agreed to lease an additional 6,000 square feet at this facility, on the
same terms as the premises currently leased, from the earlier of July 22,
1997 and departure of the current tenant of such additional space.
(6) Subject to a five-year renewal at the Company's option.
(7) Entire area of site.
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In addition, the Company is planning to construct a new warehouse in
Bloomfield, Connecticut.
The Company believes that its existing manufacturing facilities and
distribution centers are adequate for the current level of the Company's
operations. The Company is, however, in the process of expanding its operations
to meet increasing demand. The Company recently completed the expansion of its
manufacturing space at its Dominican Republic facilities, and has begun to
expand its manufacturing space in Jamaica, through a combination of new
construction and reconfirguration of existing space at those facilities to
increase the overall square footage devoted to the manufacturing process. The
Company expects that it will make capital expenditures of approximately $5.0
million in fiscal 1997 in connection with the expansion of these facilities. As
a result of these measures, as well as additional training and the introduction
of double-shifting at certain facilities, the Company believes that its
manufacturing facilities will be capable of meeting expected demand for cigars
by the end of 1997. The Company believes that additional facilities, if
necessary, would be readily available on a timely basis on commercially
reasonable terms. Further, the Company believes that the leased space that
houses its existing manufacturing and distribution facilities is not unique and
could be readily replaced, if necessary, at the end of the terms of its existing
leases on commercially reasonable terms.
The Company believes that its facilities are well maintained and in
substantial compliance with environmental laws and regulations.
42
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Company's executive officers, directors and certain other key employees.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --------- --------------------------------------------------------------------------
<S> <C> <C>
Edgar M. Cullman 79 Chairman of the Board and Director
Edgar M. Cullman, Jr. 50 President, Chief Executive Officer and Director
Jay M. Green 49 Executive Vice President, Chief Financial Officer and Treasurer
Austin T. McNamara 42 Executive Vice President and Chief Operating Officer
A. Ross Wollen 53 General Counsel, Senior Vice President and Secretary
Joseph C. Aird 52 Senior Vice President--Controller
Robert Loftus 46 Vice President and Assistant Controller
Alfons Mayer 70 Senior Vice President of Tobacco of General Cigar Co., Inc.
Benjamin F. Menendez 60 Senior Vice President of Premium Special Projects of General Cigar Co.,
Inc.
Angel Daniel Nunez 45 Senior Vice President of Tobacco Growing and Processing of General Cigar
Co., Inc.
John M. Rano 50 Senior Vice President of Marketing and Product Development of General
Cigar Co., Inc.
Frank Fina, Jr. 54 Senior Vice President of New Business Development of General Cigar Co.,
Inc.
Raymond Hansen 47 Senior Vice President of Operations of General Cigar Co., Inc.
W. Brent Currier 36 Vice President of Sales and Field Marketing of General Cigar Co., Inc.
Bruce A. Barnet 51 Director
John L. Bernbach 52 Director
John L. Ernst 56 Director
Thomas C. Israel 52 Director
Dan W. Lufkin 65 Director
Graham V. Sherren 59 Director
Peter J. Solomon 58 Director
Francis T. Vincent, Jr. 58 Director
</TABLE>
EDGAR M. CULLMAN has been the Chairman of the Board of the Company since
December 1996. From 1962 to 1996 he served as Chief Executive Officer of Culbro.
Mr. Cullman has served as a Director of Culbro since 1961 and has been Chairman
of Culbro since 1975. He also is a Director of Centaur Communications Limited,
Bloomingdale Properties, Inc. and Eli Witt. Eli Witt filed for relief from its
creditors under Chapter 11 of the Federal Bankruptcy Code in November 1996.
Edgar M. Cullman is the father of Edgar M. Cullman, Jr. and the uncle of John L.
Ernst.
EDGAR M. CULLMAN, JR. is the President and Chief Executive Officer of both
Culbro and the Company, and he also is a Director of both Culbro and the
Company. Mr. Cullman was elected President and Chief Executive Officer of the
Company in December 1996. He was elected Chief Executive Officer of Culbro in
43
<PAGE>
1996 after serving as the Chief Operating Officer of Culbro for 12 years. He has
been President of Culbro since 1984 and has been a Director of Culbro since
1982. In 1992, 1993 and 1995 he was President of Culbro Land Resources, Inc. Mr.
Cullman is also a Director of First Financial Caribbean Corporation,
Bloomingdale Properties, Inc. and Eli Witt. Eli Witt filed for relief from its
creditors under Chapter 11 of the Federal Bankruptcy Code in November 1996.
JAY M. GREEN is the Executive Vice President, Chief Financial Officer and
Treasurer of both the Company and Culbro. He was appointed to this position with
the Company in December 1996 and has served in the same capacity with Culbro
since 1988. Mr. Green is a director of Players International, Inc. and Eli Witt.
Eli Witt filed for relief from its creditors under Chapter 11 of the Federal
Bankruptcy Code in November 1996.
AUSTIN T. MCNAMARA has been the Executive Vice President and Chief Operating
Officer of the Company since December 1996 and has been the President of General
Cigar Co., Inc. since 1994. He was the Senior Vice President of Sales and
Marketing of General Cigar Co., Inc. from 1993 to 1994. Prior to joining General
Cigar Co., Inc. in 1993, he was the Group Vice President, General Manager in the
Process Foods Division of Chiquita Brands International and held several Brand
Management positions at Procter & Gamble.
A. ROSS WOLLEN is the General Counsel, the Senior Vice President and
Secretary of both the Company and Culbro. He was elected in this capacity at the
Company in December 1996 and has served Culbro as General Counsel since 1980, as
Senior Vice President since 1983 and as Secretary since 1987.
JOSEPH C. AIRD is the Senior Vice President--Controller of both the Company
and Culbro. He was named to that position at the Company in December 1996, and
he assumed that office with Culbro in 1995. Mr. Aird has served as a Vice
President of Culbro since 1987. He also is a director of Eli Witt. Eli Witt
filed for relief from its creditors under Chapter 11 of the Federal Bankruptcy
Code in November 1996.
ROBERT LOFTUS has been the Vice President and Assistant Controller of the
Company since December 1996. He has been the Vice President, Finance of General
Cigar Co., Inc. since 1993. From 1988 until 1993 Mr. Loftus served as the
Controller of General Cigar Co., Inc.
ALFONS MAYER is the Senior Vice President of Tobacco of General Cigar Co.,
Inc. Throughout his 44 year tenure with General Cigar Co., Inc., he has held
positions of increasing responsibility, mostly related to the world-wide
purchasing and processing of tobacco for which he has received industry-wide
recognition, including being named Tobacco Personality of the year by the
Tobacco Journal International in 1992. Prior to his employment with General
Cigar Co., Inc., he participated in a family-owned tobacco leaf processing
company in Argentina (1945-1952).
BENJAMIN F. MENENDEZ is the Senior Vice President of Premium Special
Projects at General Cigar Co., Inc. He has held his office at General Cigar Co.,
Inc. since July 1995. Previously Mr. Menendez had served as Vice President of
Caribbean Group Operations division of General Cigar Co., Inc. from 1994 to 1995
and as Vice President of Premium Cigar Manufacturing from 1985 to 1994. Mr.
Menendez is a member of the well-known cigar family of Menendez and Garcia, the
producers of Montecristo and H. Upmann cigars in Cuba prior to Castro's
revolution. After leaving Cuba he lived in the Canary Islands and Brazil and
continued to manufacture cigars.
ANGEL DANIEL NUNEZ was appointed Senior Vice President of Tobacco Growing
and Processing of General Cigar Co., Inc. in 1992. Mr. Nunez began his tenure
with General Cigar Co., Inc. in 1980 as Manager of Culbro Vega Leaf Tobacco in
the Dominican Republic. In 1986, he was transferred to General Cigar Dominicana
(a division of the Company) as Assistant to the General Manager, assumed the
title of Assistant General Manager in 1988, and was promoted to General Manager
in 1989. He was promoted in 1990 to Vice President of Operations for the
Dominican Republic facility.
JOHN M. RANO is the Senior Vice President of Marketing and Product
Development for General Cigar Co., Inc. He was appointed to his post at General
Cigar Co., Inc. in November 1994. Previously, Mr. Rano
44
<PAGE>
had served as Vice President of Marketing General Cigar Co., Inc. from 1992 to
1994 and as Sales Development Manager from 1984 to 1992.
FRANK FINA, JR. is the Senior Vice President of New Business Development for
General Cigar Co., Inc. He has served in his capacity at General Cigar Co., Inc.
since January 1994. Mr. Fina previously served as Vice President of Domestic
Sales at General Cigar Co., Inc. from 1982 to 1994. He has been with the Company
since 1963.
RAYMOND HANSEN was appointed Senior Vice President of Operations of General
Cigar Co., Inc. in September of 1996. Mr. Hansen is responsible for General
Cigar Co., Inc.'s Operations Department, including cigar manufacturing
operations in Alabama, Jamaica and the Dominican Republic, as well as purchasing
and facilities engineering. Prior to joining General Cigar Co., Inc., Mr. Hansen
was the Senior Vice President of Corporate Operations at ADVO, Inc., where he
had responsibility for nationwide operations. In addition, Mr. Hansen worked as
a senior executive for Mission Foods, Van DeKamp's Holland Dutch Bakers, Lamour
Corporation, Max Factor & Company and Clairol, Inc.
W. BRENT CURRIER is the Vice President of Sales and Field Marketing of
General Cigar Co., Inc. He has been in his current position at General Cigar
Co., Inc. since June 1994. Prior to joining General Cigar Co., Inc., Mr. Currier
served as Vice President--Eastern Zone for E.J. Brach Corporation from 1988 to
1994, where he managed direct and broker sales forces in 17 states.
BRUCE A. BARNET is a Director of both the Company and Culbro. He has been a
Director of the Company since December 1996 and a Director of Culbro since 1990.
He is the President and Chief Executive Officer of Cahners Publishing Company, a
magazine publishing company. He was the President and Chief Executive Officer of
Cowles Enthusiast Media from March 1993 until March 1996, and was a private
investor from 1991 to 1992. Mr. Barnet is also a director of Reed Elsevier,
Inc., Batteries, Batteries Inc., Mainspring Communications and the American
Business Press.
JOHN L. BERNBACH is a Director of both the Company and Culbro. He has been a
Director of the Company since December 1996 and a Director of Culbro since 1988.
He has been the Chairman and Chief Executive Officer of The Bernbach Group,
Inc., a consulting company, since 1994. Mr. Bernbach was the Chairman and Chief
Executive Officer of North American Television, Inc. (television production and
distribution) from August 1995 to August 1996 and still serves as Non-executive
Chairman and Director. Mr. Bernbach was Vice-Chairman of DDB Needham Worldwide,
Inc., an advertising agency, from October 1993 to June 1994 and also was its
President and a director from 1986 to 1993. He is Chairman of the Board of
Avenue China, Inc. and is a director of Northbridge Programming, Inc. and an
Advisor to the Board of Wemco, Inc.
JOHN L. ERNST is a Director of both the Company and Culbro. He has been a
Director of the Company since December 1996 and a Director of Culbro since 1983.
He is the Chairman of the Board and President of Bloomingdale Properties, Inc.,
an investment and real estate company. Mr. Ernst also is a director of First
Financial Caribbean Corporation.
THOMAS C. ISRAEL is a Director of both the Company and Culbro. He has been a
Director of the Company since December 1996 and a Director of Culbro since 1989.
Mr. Israel is a director and Chairman of A.C. Israel Enterprises, Inc., an
investment company, as well as a director of Glenayre Technologies, Inc.
DAN W. LUFKIN is a Director of both the Company and Culbro. He has been a
Director of the Company since December 1996 and a Director of Culbro since 1976.
Mr. Lufkin also is a private investor and a director of Syratech, Inc.
GRAHAM V. SHERREN is a Director of both the Company and Culbro. He has been
a Director of the Company since December 1996 and a Director of Culbro since
1987. Mr. Sherren is Chairman and Chief Executive Officer of Centaur
Communications Limited, as well as a director of each of Hundred Acre Securities
Ltd., InType Ltd., Gieves Group Ltd. and Stace-Barr Holdings Ltd.
45
<PAGE>
PETER J. SOLOMON is a Director of both the Company and Culbro. He has been a
Director of the Company since December 1996 and a Director of Culbro since 1980.
Mr. Solomon also is Chairman of Peter J. Solomon Company Limited and Peter J.
Solomon Securities Company Limited. In addition, he is a director of Centennial
Cellular Corporation, Century Communications Corporation, Charrette Corporation,
Monro Muffler Brake, Inc., Office Depot, Inc. and Phillips-Van Heusen
Corporation.
FRANCIS T. VINCENT, JR. is a Director of both the Company and Culbro. He has
been a Director of the Company since December 1996 and a Director of Culbro
since 1992. Mr. Vincent currently runs Vincent Enterprises and is a private
investor. He was senior advisor to Peter J. Solomon Company Limited from 1993 to
1994 and the Commissioner of Major League Baseball from 1989 to 1992. Mr.
Vincent is a director of Horizon Group, Inc., Oakwood Homes Corp. and Time
Warner, Inc.
EXECUTIVE COMPENSATION
The Company was incorporated in December 1996. Accordingly, no compensation
was paid to any of its executive officers for fiscal 1996 or prior years. Each
of the named executive officers has, however, been employed by an affiliate of
the Company. The following table sets forth the annual and long-term
compensation for the Company's Chief Executive Officer and the four highest-paid
executive officers (the "Named Executive Officers"), as well as the total
compensation paid to each individual during the last three calendar years, in
connection with such employment.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------------- ----------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING
NAME AND PRINCIPAL POSITION(1) YEAR SALARY BONUS COMPENSATION(2) AWARDS OPTIONS(5)
- ------------------------------------------- --------- --------- --------- ---------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Edgar M. Cullman........................... 1996 $ 400,000 $ -- $ 17,256 -- --
Chairman of the Board 1995 375,000 -- 13,689 -- --
1994 360,000 -- 23,628 -- --
Edgar M. Cullman, Jr....................... 1996 400,000 -- 30,012 -- 100,000
President and 1995 367,000 1,164,400(3) 29,871 -- --
Chief Executive Officer 1994 352,000 -- 33,716 -- --
Jay M. Green............................... 1996 355,000(4) 65,000 1,128,068 -- --
Executive Vice President, 1995 355,000 666,607(3) 24,912 -- --
Chief Financial Officer and Treasurer 1994 340,000 -- 26,714 -- 125,000
Austin T. McNamara......................... 1996 250,000 148,025 319,915 -- 10,000
Executive Vice President 1995 200,000 375,629(3) 15,712 -- 15,000
and Chief Operating Officer 1994 190,000 158,603 15,510 -- 12,400
A. Ross Wollen............................. 1996 225,000 55,000 25,589 -- 5,000
Senior Vice President, 1995 205,000 377,501(3) 109,879 -- 15,000
General Counsel and Secretary 1994 176,925 -- 30,182 -- 11,500
</TABLE>
- ------------------------------
(1) Each of the executive officers identified was employed by Culbro during each
of the last three years, except for Austin T. McNamara, who was employed by
General Cigar Co., Inc. during such period. Until April 1996, Edgar M.
Cullman was the Chief Executive Officer of Culbro. Amounts shown exclude
$778,778, $621,960 and $655,872 to be paid over three years beginning in
1997 to Messrs. Cullman, Jr., Green and Wollen, respectively, as a result of
the termination and payout of benefits under Culbro's 1995-1997 Long Term
Performance Plan. See "Certain Employee Benefit Matters--Culbro Long Term
Performance Plan."
(2) Amounts shown include matching contributions made by Culbro under its
Savings Plan and other miscellaneous cash benefits, but do not include
funding for or receipt of retirement plan benefits. No executive officer who
would otherwise have been includable in such table resigned or terminated
employment during 1996. The amounts shown in 1996 for Messrs. Green and
McNamara include value realized upon exercise of options of $1,102,163 and
$303,169, respectively.
(3) Annual and long-term bonuses were paid in 1996 with respect to performance
in 1995 and the 1993-95 cycle, respectively.
(4) All but $46,664 of such compensation was deferred pursuant to the Company's
Deferred Incentive Compensation Plan.
(5) Numbers shown are in shares of Culbro common stock. Upon consummation of the
Merger, each option will be exercisable for such number of shares of Class A
Common Stock as is equal to 4.44557 multiplied by the number of Culbro
shares shown.
46
<PAGE>
COMPENSATION OF DIRECTORS
Directors who do not receive compensation as officers or employees of the
Company or any of its affiliates will be paid an annual retainer fee of $20,000
and a fee of $900 for each meeting of the Board of Directors or any committee
thereof they attend, plus reasonable out-of-pocket expenses.
CERTAIN EMPLOYEE BENEFIT MATTERS
1997 STOCK OPTION PLAN
Prior to the consummation of the Offering, the Company has adopted a new
Stock Option Plan (the "1997 Stock Option Plan"), pursuant to which 3,300,000
shares of Class A Common Stock are available for issuance. Options granted under
the 1997 Stock Option Plan will be incentive stock options or nonqualified
options. The 1997 Stock Option Plan contains a limitation on the dollar amount
of incentive stock options which may be granted to any employee and restrictions
pertaining to any grant to an employee who beneficially owns 10% or more of the
outstanding Common Stock. Prior to the Offering the Company plans to grant
options with respect to substantially all shares of Class A Common Stock
available for issuance pursuant to the 1997 Stock Option Plan. Such options will
become exercisable with respect to one-third of the underlying shares on each of
the third, fourth and fifth anniversaries after the date of the grant and will
terminate not more than ten years following the date of the grant. The exercise
price of options granted pursuant to the 1997 Stock Option Plan will be the
price to the public of the shares of Class A Common Stock offered hereby.
Pursuant to the 1997 Stock Option Plan, options to purchase a number of shares
of Class A Common Stock (based on a per share exercise price equal to the price
per share to the public in the Offering) at an aggregate exercise price of $1.0
million will be granted to certain persons employed by Villazon pursuant to the
Villazon Acquisition. See "--Employment and Consulting Agreements of Frank
Llaneza, Daniel Blumenthal and Constantino Gonzalez."
CULBRO EMPLOYEE BENEFIT PLANS TO BE ASSUMED BY THE COMPANY
The following is a summary of certain of Culbro's employee benefit plans and
awards pursuant thereto that the Company has assumed or will assume, as of the
date of the Asset Transfers, the date of Distribution or the date of the Merger,
as the case may be, as described below. Assumption of the Culbro plans will be
effected pursuant to the Benefits and Employment Matters Allocation Agreement to
be entered into prior to the Distribution.
CULBRO STOCK OPTION PLANS
Culbro maintains three employee stock option plans (collectively, the
"Culbro Employee Stock Option Plans") under which unexercised options currently
are outstanding: (i) the Culbro Corporation 1991 Employees Incentive Stock
Option Plan (the "1991 Plan"); (ii) the Culbro Corporation 1992 Stock Plan (the
"1992 Plan"); and (iii) the Culbro Corporation 1996 Stock Plan (the "1996
Plan"). As of December 31, 1996 options for 46,114 shares, 196,400 shares, and
100,000 shares of Culbro common stock were outstanding under the 1991 Plan, the
1992 Plan and the 1996 Plan, respectively. The Culbro Employee Stock Option
Plans currently are administered by the Compensation Committee of the Board of
Directors of Culbro (the "Culbro Compensation Committee"). Options granted under
the Culbro Employee Stock Option Plans are intended to be incentive stock
options or nonqualified options. Options granted under the 1991 Plan and the
1992 Plan are not exercisable until three years after the date of grant and
terminate eight years from the date of the grant. Options granted under the 1996
Plan are exercisable in equal installments over five years beginning on the
third anniversary of the date of grant at increasing exercise prices. See
"--Culbro Stock Option Information."
Culbro maintains two stock option plans for its non-employee Directors, the
1993 Stock Option Plan for Non-Employee Directors (the "1993 Director Plan") and
the 1996 Stock Option Plan for Non-Employee Directors (the "1996 Director
Plan"). Under the 1993 Director Plan, options to purchase 2,000 shares of Culbro
common stock were granted to each non-employee Director of Culbro in each of
1993,
47
<PAGE>
1994 and 1995. In total, options exercisable with respect to 42,000 shares of
Culbro common stock were granted under the 1993 Director Plan, of which options
exercisable with respect to 36,000 shares were outstanding as of December 31,
1996. Options granted under the 1993 Director Plan have exercise prices between
$14.38 and $19.50 per share. No further options will be granted pursuant to the
1993 Director Plan. Under the 1996 Director Plan, options exercisable for 1,000
shares of Culbro common stock will be granted annually to non-employee Directors
of Culbro. There are a total of 25,000 shares of Culbro common stock reserved
for issuance under the 1996 Director Plan, of which options exercisable for
7,000 shares were granted in April 1996 at an exercise price of $63.81.
Pursuant to the Benefits and Employment Matters Allocation Agreement, as of
the date of the Distribution, each current holder of an option to acquire shares
of Culbro common stock pursuant to the 1991 Plan, the 1992 Plan, the 1996 Plan,
the 1993 Director Plan or the 1996 Director Plan (together, the "Culbro Stock
Option Plans") will receive in exchange therefor two separately exercisable
options, one option to purchase shares of Culbro common stock (a "Culbro
Option") and one option to purchase shares of CLR common stock (a "CLR Option"),
each containing terms substantially equivalent in the aggregate to those of such
holder's pre-Distribution option. The number of shares with respect to which
each Culbro Option and each CLR Option are exercisable, and the exercise price
for each Culbro Option and each CLR Option, will be set so as to preserve the
Exercise Ratio (as defined below) and the aggregate exercise price attributed to
options currently outstanding, such determination to be based on the respective
trading prices of CLR common stock and Culbro common stock following the
Distribution. The "Exercise Ratio" of the Culbro Option and the CLR Option,
respectively, shall be set such that on a share by share basis, the ratio of the
exercise price of the Culbro Option and the CLR Option to the value of Culbro
common stock or CLR common stock, respectively, shall be equal to the ratio of
the pre-Distribution exercise price to the pre-Distribution value of stock
subject to the option.
Upon consummation of the Merger, each Culbro Option will be converted into
an option to purchase Class A Common Stock (a "Company Option"). The number of
shares with respect to which the Company Option is exercisable and the exercise
price for the Company Option will be subject to adjustment based on the ratio of
the number of shares of Class A Common Stock issuable in the Merger with respect
to each share of Culbro common stock. The Culbro Options will not be exercisable
for Class A Common Stock until the Merger has been consummated. In order to
assure that the exercise of Culbro Options between the consummation of the
Offering and the consummation of the Merger does not result in disproportionate
dilution to the Culbro shareholders, Culbro will pay to the Company the amount
of the exercise price received upon the exercise of such Culbro Option and in
exchange therefor the Company will provide to Culbro a number of shares of Class
A Common Stock equal to the number of shares of Culbro common stock issued upon
exercise of such Culbro Option multiplied by 4.44557.
48
<PAGE>
CULBRO STOCK OPTION INFORMATION
The following table sets forth the number of stock options granted to each
of the Named Executive Officers during fiscal 1996.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL
------------------------------------ RATES OF STOCK
NUMBER OF PERCENTAGE OF TOTAL PRICE APPRECIATION
SECURITIES OPTIONS FOR TEN YEAR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION --------------------
NAME GRANTED(#)(1) 1996 FISCAL YEAR ($/SHARE) DATE 5% 10%
- ------------------------------------------ ------------- --------------------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Edgar M. Cullman, Jr...................... 100,000 74.4% (2) 1/16/04 $2,633,368 $8,422,455
A. Ross Wollen............................ 1,500 1.1% $ 59.38 2/21/04 $ 56,016 $ 141,954
A. Ross Wollen............................ 3,500 2.6% $ 46.75 1/16/04 $ 102,903 $ 260,776
Austin T. McNamara........................ 10,000 7.4% $ 59.38 2/21/04 $ 373,438 $ 946,364
</TABLE>
- ------------------------------
(1) Upon consummation of the Distribution, each holder of an option to acquire
shares of Culbro common stock as set forth herein will receive in exchange
therefor two separately exercisable options: a Culbro Option and a CLR
Option. See "--Culbro Stock Option Plans."
(2) 40,000 of such options are exercisable at $66.00 per share, 40,000 of such
options are exercisable at $72.60 per share and 20,000 of such options are
exercisable at $80.00 per share.
Edgar M. Cullman did not hold any options at 1996 fiscal year end. The
following table presents the value of options exercised in fiscal 1996 and the
value of unexercised options held by the other Named Executive Officers at
November 30, 1996.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-
UNDERLYING OPTIONS MONEY OPTIONS AT
SHARES VALUE HELD AT FISCAL YEAR END(#) FISCAL YEAR END (1)
ACQUIRED ON REALIZED -------------------------- --------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------- ------------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Edgar M. Cullman, Jr. .......... -- -- -- 100,000 $ 0 $ 0
Jay M. Green.................... 24,300 $1,102,163 85,200 75,000 $3,913,825 $ 3,975,000
A. Ross Wollen.................. 12,697 $ 676,115 19,003 31,500 $ 774,249 $ 1,184,375
Austin T. McNamara.............. 6,900 $ 303,169 3,000 37,400 $ 120,750 $ 1,185,850
</TABLE>
- ------------------------------
(1) The amounts presented in this column have been calculated based upon the
difference between the fair market value of $57.00 of Culbro's common stock
on November 30, 1996 and the exercise price of each stock option. See
"--Culbro Stock Option Plans."
CULBRO ANNUAL INCENTIVE COMPENSATION PLAN
The Culbro Compensation Committee meets during the first quarter of each
year to assess the performance during the preceding fiscal year of the officers
of Culbro and senior officers of its subsidiaries and to recognize and reward
meritorious performance by payment of incentive compensation with respect to
such year. Pursuant to a plan approved for 1996 by the Culbro Board of
Directors, such annual incentive compensation was based upon predetermined
percentages of each recipient's annual salary and depended upon the achievement
of specified financial and strategic goals. Incentive compensation is payable in
cash subject to deferral under Culbro's Deferred Incentive Compensation Plan.
Culbro's 1996 annual plan resulted in the payments to Culbro executives set
forth under "Management--Executive Compensation." Culbro employees who do not
participate in the incentive compensation plan may be eligible for annual bonus
payments depending upon operating unit results. Following the consummation of
the Asset Transfer, the Company intends to assume and continue the Annual
Incentive Compensation Plan, subject to any adjustments necessary to reflect the
Distribution and the Merger. In addition, it is currently contemplated that
Company employees who do not participate in the incentive compensation plan may
be eligible to receive annual bonus payments depending on Company results.
49
<PAGE>
CULBRO LONG TERM PERFORMANCE PLAN
In 1988, the Culbro Compensation Committee and the Culbro Board of Directors
approved the Long Term Performance Plan (the "Performance Plan") which is
intended to provide additional cash compensation to certain officers of Culbro
and senior officers of its subsidiaries selected by the Culbro Compensation
Committee. Payments under the Performance Plan are based on the financial
performance of the subsidiaries and Culbro over three-year performance cycles,
which began in 1989 and every other year thereafter. The third three-year
performance cycle which began with fiscal year 1993 resulted in the payments set
forth under "Management--Executive Compensation." The Performance Plan was
amended for the three-year performance period 1995-1997. Certain senior officers
of General Cigar Co., Inc. and certain other subsidiaries are eligible to
receive rewards based upon the return on net assets for the applicable business
unit.
In late 1996, the Culbro Board of Directors, on the recommendation of the
Compensation Committee, approved the full vesting and termination of the
1995-1997 Performance Plan as it pertains to Culbro corporate executives. These
awards total approximately $3.4 million and will be paid in installments from
1997 to 1999. See "Management--Executive Compensation."
Following the consummation of the Asset Transfers, the Company intends to
assume and continue the Performance Plan with respect to participants employed
by General Cigar Co., Inc., subject to any adjustments necessary to reflect the
Distribution and the Merger. Employees of subsidiaries other than General Cigar
Co., Inc. will be eligible to receive the portion of their award, if any, earned
through the date of the Asset Transfers, and all such employees will cease to
participate in the Performance Plan following the date of the Asset Transfers.
Determination and payment of any award under the Performance Plan with respect
to participants other than participants employed by General Cigar Co., Inc. will
be made as soon as practicable following the date of the Asset Transfers by the
subsidiary for which the employee was employed.
CULBRO DEFERRED INCENTIVE COMPENSATION PLAN
In 1982, the Culbro Board of Directors adopted the Deferred Incentive
Compensation Plan to be administered by the Culbro Compensation Committee,
pursuant to which recipients of incentive compensation and directors' fees may
elect to defer receipt thereof under a defined contribution arrangement. Amounts
deferred earn interest, compounded quarterly, at the prime rate less 1%. Such
amounts are not intended to be recognized for tax purposes until received.
Participating recipients may designate the amount and the time periods of
deferral. Participants have no vested rights in deferred amounts credited to
their accounts and are general creditors of Culbro until such amounts actually
are paid. Following the consummation of the Asset Transfers, the Company intends
to assume and continue the Deferred Incentive Compensation Plan, subject to any
adjustments necessary to reflect the Distribution and the Merger. Upon the
assumption of the Deferred Incentive Compensation Plan by the Company,
participants will become general creditors of the Company until deferred amounts
credited to their accounts are paid.
CULBRO SAVINGS PLAN
The Culbro Board of Directors adopted a Savings Plan in 1982 (the "Savings
Plan"). The Savings Plan covers salaried and hourly employees of Culbro and its
participating subsidiaries who are employed in the U.S., are over age 21 and
have six months of service. In 1996, a participating employee could have (i)
saved up to 5% of annual base salary through payroll deductions, with Culbro
contributing $0.40 on each dollar contributed and (ii) saved an additional 10%
of annual base salary without receiving any matching contributions. Highly
compensated employees are limited to an additional 3% of annual base salary
without receiving any matching contributions. Contributions made in 1996 through
payroll deductions not in excess of $9,500 per employee may have been
accumulated as pre-tax savings pursuant to Section 401(k) of the Internal
Revenue Code. Participants are permitted to choose to allocate their
contributions among several alternative investment options. Pursuant to the
Asset Transfers, CLR will be responsible for any amounts under the Savings Plan
due to its employees as of the date of the Asset Transfers.
50
<PAGE>
During fiscal 1996, Culbro's matching contributions under the Savings Plan
for the accounts of the Named Executive Officers are included in the Summary
Compensation Table set forth under "Management--Executive Compensation."
Effective as of the date of the Distribution, Savings Plan participants
employed by CLR will cease to be eligible to participate in the Savings Plan.
Following the Distribution, Culbro will continue to maintain the Savings Plan.
Upon the consummation of the Merger, the Company will assume and continue to
maintain the Savings Plan.
CULBRO RETIREMENT PLAN
Retirement benefits are payable under Culbro's Employees Retirement Plan
(the "Retirement Plan") for officers and other employees of Culbro and its
participating subsidiaries. Directors who are not employees do not participate.
Benefits are accrued under the Plan on a career-average earnings basis and
through 1996, the pension credit is 1.1% for annual compensation up to the
individual's covered compensation as determined from published Social Security
tables and 1.65% for annual compensation above said amounts. Compensation is the
base rate of earnings as of the first business day of each Plan Year payable for
service during the Plan Year excluding overtime, bonuses, incentive compensation
or other additional compensation. The estimated annual benefits payable as a
life annuity upon retirement at normal retirement age, which assumes service
will continue until age 65 at 1996 base salaries, for Messrs. Cullman, Jr.,
Green, Wollen and McNamara are $101,991, $56,641, $65,324 and $59,044,
respectively. The retirement benefit of $165,544, subject to certain inflation
adjustments, for Edgar M. Cullman reflects the fact that he deferred receipt
since age 65 from 1983 to 1989.
Effective as of the Distribution, the benefits of all Retirement Plan
participants employed by CLR following the Distribution will be frozen, and such
participants will cease to accrue further benefits under the Retirement Plan.
All such participants will be fully vested in any benefits accrued through the
date of the Distribution. Following the Distribution, Culbro will continue to
maintain the Retirement Plan. Upon the consummation of the Merger, the Company
will assume and continue to maintain the Retirement Plan, and participants,
other than those employed by CLR following the Distribution, will continue to
accrue benefits in the Retirement Plan in accordance with its terms.
CULBRO INSURANCE AND HEALTH PROGRAMS
Culbro maintains a variety of employee welfare benefit plans providing life,
hospitalization, medical and long-term disability insurance for its salaried and
certain hourly paid employees. In addition Culbro provides life, hospitalization
and medical insurance for certain of its retired employees. Culbro's aggregate
contributions for such employee welfare benefit plans in fiscal 1996 amounted to
approximately $3.3 million. It is contemplated that following the Asset
Transfers, Culbro will continue to maintain such welfare benefit plans and
insurance arrangements for all eligible pre-Asset Transfers employees, and that
upon the consummation of the Merger, the Company will assume and continue such
welfare benefit plans and insurance arrangements. Any such plan or arrangement
benefiting persons employed by CLR following the Asset Transfer Date will be
subject to certain fee sharing arrangements with CLR.
In 1976, Culbro adopted an Executive Life Insurance Program (the "Program")
pursuant to which insurance was purchased for middle and senior level officers
and employees. Insurance coverage of $20,000 was provided for each $10,000
salary increment in excess of $50,000 and additional coverage of $10,000 was
provided for each $10,000 salary increment in excess of $100,000 up to a maximum
insurance coverage of $250,000. As of July 1, 1988 the Program was suspended and
all benefits remain as they were as of that date. No new participants have been
offered benefits under this Program since its suspension. The aggregate face
amount of such coverage through November 30, 1996 was approximately $2.8
million. The amounts paid by Culbro in fiscal 1996 as premiums totaled
approximately $80,000, which was paid in part from a loan against the cash value
of said insurance and the balance in cash.
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<PAGE>
EMPLOYMENT AGREEMENT OF JAY M. GREEN
In 1994, Culbro entered into an employment agreement with Jay M. Green,
Culbro's Chief Financial Officer (the "Employment Agreement"). The Employment
Agreement provides that Mr. Green be employed as Executive Vice
President--Finance and Administration and Treasurer for a period of five years
from April 1994 to April 1999 at a base salary of $340,000 (subject to increase
annually as determined by the Culbro Compensation Committee). If Mr. Green is
terminated by Culbro without cause, he will be entitled to receive a cash
severance payment of 150% of his annual salary. The Employment Agreement also
provides for a grant of an option (the "Option") to purchase 125,000 shares of
Culbro's common stock at an exercise price of $4 per share.
The Option vests and becomes exercisable with respect to 20% of the
underlying common stock per year, on each of the five anniversaries of the date
of the grant. The Option expires (a) on the tenth anniversary date of the date
it becomes exercisable, or (b) after the date Mr. Green ceases to be an employee
of Culbro or its subsidiaries, (i) within one year following Mr. Green's death
or disability, (ii) within three months following a voluntary termination and
(iii) immediately upon a termination for cause. The Option shall become
immediately exercisable with respect to all shares covered thereby in the event
of a termination without cause after the first 30 months of the Employment
Agreement; provided that the Option shall expire within three months of such
termination. Additionally, in the event that the Cullman & Ernst Group owns less
than 40% of Culbro's common stock (or the Common Stock, following the assumption
of the Employment Agreement by the Company), the Option shall become exercisable
in its entirety. Mr. Green may not be permitted to exercise such number of
options in any year which would result in his total compensation exceeding the
$1.0 million income tax deduction cap of Section 162(m), unless such exercises
are approved by the Section 162(m) Subcommittee of the Board of Directors of
Culbro Corporation, and the Culbro Compensation Committee and would not require
further approval of the shareholders of Culbro. Such limitation may not apply in
the final year of the Option.
The Company assumed Culbro's obligations under the Employment Agreement
pursuant to the Asset Transfers. Upon consummation of the Distribution, Mr.
Green will receive, in exchange for his Option, two separately exercisable
options: one Culbro Option and one CLR Option. Upon consummation of the Merger,
Mr. Green's Culbro Option will be converted into a Company Option. The number of
shares with respect to which the Company Option is exercisable, and the exercise
price for the Company Option, will be subject to adjustment based on the ratio
of Class A Common Stock to Culbro common stock in the Merger. See "--Culbro
Stock Option Plans."
EMPLOYMENT AND CONSULTING AGREEMENTS OF FRANK LLANEZA, DANIEL BLUMENTHAL AND
CONSTANTINO GONZALEZ
Simultaneously with the consummation of the Villazon Acquisition, General
Cigar Co., Inc. entered into employment and consulting agreements (the
"Consulting Agreements") with Frank Llaneza, Daniel Blumenthal and Constantino
Gonzalez, officers of Villazon (the "Villazon Officers"). The Consulting
Agreements provide that the Villazon Officers will act as principal executives
of General Cigar Co., Inc. and will continue to discharge the duties
historically associated with their positions at Villazon. The Villazon Officers
will serve in such positions until January 31, 2000. Each of Mr. Llaneza's and
Mr. Blumenthal's salary will be $250,000 per year, while Mr. Gonzalez's salary
will be $200,000 per year. No other payments will be made under the Consulting
Agreements. The Villazon Officers will serve as consultants with respect to all
aspects of the business, including product development and customer and supplier
relations, from February 1, 2000 until January 31, 2001. Thereafter, the
Villazon Officers will advise General Cigar Co., Inc. from time to time, until
January 31, 2002.
Upon consummation of the Offering, the Villazon Officers will be entitled to
receive options pursuant to the 1997 Stock Option Plan. Mr. Llaneza and Mr.
Blumenthal each will be entitled to receive options for a number of shares of
Class A Common Stock with an exercise price equal to $360,000, while Mr.
Gonzalez shall be entitled to receive options for a number of shares of Class A
Common Stock with an exercise price equal to $280,000, in each case at an
exercise price per share equal to the price to the public in the Offering. See
"1997 Stock Option Plan."
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<PAGE>
THE ASSET TRANSFERS, THE DISTRIBUTION AND THE MERGER
GENERAL
The Company, Culbro and CLR are parties to a Distribution Agreement (the
"Distribution Agreement") and other related agreements. The Distribution
Agreement provides for (i) consummation of the Asset Transfers, (ii) the
Distribution of CLR common stock to the existing shareholders of Culbro
following consummation of the Offering and (iii) the merger of Culbro with and
into the Company following the Distribution.
THE ASSET TRANSFERS
Pursuant to the Distribution Agreement, Culbro transferred to the Company
all of the common stock of General Cigar Co., Inc., Club Macanudo, Inc., Club
Macanudo (Chicago), Inc. and all of Culbro's interest in the building located at
387 Park Avenue South, New York, New York. In addition, Culbro transferred to
General Cigar Co., Inc. approximately 1,200 acres of its real estate holdings in
the Connecticut River Valley used to cultivate cigar wrapper tobacco. In
connection with these transfers, the Company will receive all licenses, permits,
accounts receivable, prepaid expenses, reserves and other current assets related
to the cigar business. The Distribution Agreement also provides for the transfer
to CLR of substantially all the non-tobacco related assets of Culbro, including:
(i) all of the common stock of Imperial Nurseries, Inc., a wholly-owned
subsidiary of Culbro; (ii) approximately 5,500 acres of land in Connecticut and
Florida, as well as several nursery wholesale and retail centers; (iii) Culbro's
interests in Eli Witt and assets previously owned by Eli Witt; (iv) its 25%
interest in Centaur; and (v) all licenses, permits, accounts receivable, prepaid
expenses, reserves and other current assets (other than cash) related to the
real estate and nursery business. Pursuant to the Distribution Agreement, CLR
will be allocated $7.0 million in cash.
The Distribution Agreement also provides for the assumption by the Company
of all liabilities relating to the cigar business and the assets transferred to
the Company and General Cigar Co., Inc. These liabilities include all of
Culbro's retained indebtedness, including bank and corporate debt, all expenses
related to the Asset Transfers, the Offering, the Distribution and the Merger
and certain other contingent liabilities, other than those liabilities related
to the assets transferred to CLR. Similarly, CLR will assume all liabilities
relating to the real estate business and the nursery business and relating to
the assets transferred to CLR. These liabilities include all of CLR's assumed
and retained indebtedness, including bank and corporate debt, other liabilities
relating to the assets transferred to CLR and certain additional tax
liabilities.
As a result of the Asset Transfers, Culbro will be a holding company,
substantially all of the assets of which will be the stock of the Company and
CLR. Pursuant to the terms of the Distribution Agreement, from and after the
Offering Date, each of the Company and CLR will operate independently of the
other.
The Distribution Agreement also contains general indemnities between Culbro
(or the Company, following the Merger) and CLR and the procedures by which
indemnification may be claimed. The Distribution Agreement provides for, on the
one hand, Culbro and the Company to indemnify CLR for any losses, liabilities or
damages (including attorneys fees) in connection with any claim or action in
respect of any of the liabilities to be assumed or retained by Culbro and the
Company and, on the other hand, CLR to similarly indemnify Culbro and the
Company in connection with any claim or action in respect of any liabilities
retained or assumed by CLR. In each instance, indemnities are limited by
insurance proceeds recovered by the indemnified party that reduce the amount of
the loss, liability or damage. In addition, the Distribution Agreement contains
provisions for the administration of insurance policies shared by the parties
and provisions for the sharing of information and related services among the
parties. Upon consummation of the Merger, Culbro's obligations with respect to
such indemnities will become the obligations of the Company. With respect to
corporate governance, the Distribution Agreement requires the resignation of all
CLR directors and officers from any positions they previously held
53
<PAGE>
with Culbro, the Company or General Cigar Co., Inc., and each of their
respective subsidiaries, except that Edgar M. Cullman, Edgar M. Cullman, Jr. and
John L. Ernst will retain their seats on the CLR board of directors
notwithstanding their various positions at Culbro and the Company, and Edgar M.
Cullman will be the Chairman of the Board of CLR.
Culbro intends to effect the Distribution because it believes that it is in
the best interests of Culbro and the Company to separate the cigar business from
the unrelated businesses of Culbro. By effecting the Distribution, Culbro
believes that shareholders will benefit by allowing its cigar business and
non-tobacco related businesses to be evaluated on a stand-alone basis.
RELATED AGREEMENTS
Pursuant to the Distribution Agreement, Culbro and CLR will enter into
certain agreements described below.
TAX SHARING AGREEMENT
Prior to the Distribution, Culbro and CLR will enter into a tax sharing
agreement (the "Tax Sharing Agreement") that will define the parties' rights and
obligations with respect to filing of returns, payments, deficiencies and
refunds of federal, state and other income or franchise taxes relating to
Culbro's business for tax years prior to and including the Distribution. In
general, with respect to periods ending on or before the last day of the taxable
year in which the Distribution occurs, Culbro is responsible for (i) filing both
consolidated federal tax returns for the Culbro affiliated group and combined or
consolidated state tax returns for any group that includes a member of the
Culbro affiliated group, including in each case CLR and its subsidiaries for the
relevant periods of time that such companies were members of the applicable
group and (ii) paying the taxes relating to such returns. Generally, any
subsequent adjustments resulting from the redetermination of such tax
liabilities by the applicable taxing authorities will be paid by the member or
affiliated group to which the adjustment relates, with CLR assuming
responsibility for all adjustments relating to Culbro and its affiliates other
than the Company and its subsidiaries. CLR is responsible for filing returns and
paying taxes relating to any member of the CLR affiliated group for periods that
begin before and end after the Distribution and for periods that begin after the
Distribution. Culbro and CLR have agreed to cooperate with each other and to
share information in preparing such tax returns and in dealing with other tax
matters.
SERVICES AGREEMENT
Prior to the Distribution, Culbro and CLR will enter into a services
agreement (the "Services Agreement") pursuant to which Culbro will agree to
provide a number of administrative and other services to CLR for a period of at
least one year. These services include administration of CLR insurance policies,
internal audit, preparation of tax returns, transportation and general in-house
legal services. CLR will make an annual payment of approximately $550,000 to,
and will reimburse out-of-pocket expenses incurred by, Culbro and its
subsidiaries, in connection with such services. Culbro will make the above
services available to CLR on an as-needed basis for a period of at least one
year following the Distribution.
BENEFITS AND EMPLOYMENT MATTERS ALLOCATION AGREEMENT
Prior to the Distribution, Culbro and CLR will enter into the Benefits and
Employment Matters Allocation Agreement which will provide for the assumption by
the Company of certain Culbro employee benefit plans and the conversion of
outstanding options and other accrued benefits into outstanding options and
awards of the Company and CLR. For a discussion of the allocations to be made
pursuant to the Benefits and Employment Matters Allocation Agreement, see
"Certain Employee Benefit Matters."
54
<PAGE>
LEASES
Prior to the Distribution, CLR as lessor and General Cigar Co., Inc. as
lessee will enter into leases for (i) certain agricultural real property in
Connecticut and Massachusetts (the "Agricultural Lease") and (ii) certain
commercial space in Connecticut (the "Commercial Lease"). The Agricultural Lease
will be for approximately 500 acres of arable land allocated to CLR for possible
commercial development in the long-term, but which will provide the Company with
an important short-term source of Connecticut Shade wrapper tobacco. General
Cigar Co., Inc.'s use of the land will be limited to the cultivation of cigar
wrapper tobacco. The Agricultural Lease will have an initial term of ten years
and will provide for the extension of the lease for additional periods
thereafter. In addition, at CLR's option the Agricultural Lease may be
terminated with respect to 100 acres of such land annually upon one year's prior
notice. The rent payable by General Cigar Co., Inc. under the Agricultural Lease
will be principally equal to the aggregate amount of all taxes and other
assessments payable by CLR attributable to the land leased. The Commercial Lease
will be for approximately 25,000 square feet of office space in the Griffin
Center South office complex in Bloomfield, Connecticut. The Commercial Lease
will have an initial term of ten years and provides for the extension of the
lease for additional annual periods thereafter. The rent payable by General
Cigar Co., Inc. under the Commercial Lease will be at market rates.
THE DISTRIBUTION
The Distribution Agreement also provides for the PRO RATA distribution by
Culbro to the shareholders of Culbro of all issued and outstanding shares of
common stock of CLR. The Distribution will occur subsequent to the Offering and
will be contingent upon (i) either a tax ruling or an opinion of counsel
satisfactory to Culbro that the Distribution constitutes a tax free
reorganization under Section 355 of the Internal Revenue Code and (ii) approval
of the Merger by the Culbro shareholders.
THE MERGER
Approximately 180 days following the consummation of the Offering (but no
sooner than 180 days after the Offering without the consent of DLJ) and subject
to (i) the completion of the Distribution and (ii) approval of the Merger by the
shareholders of Culbro, Culbro will be merged with and into the Company,
pursuant to an Agreement and Plan of Merger that has been approved and adopted
by the Company and by the Board of Directors of Culbro. The shareholders of
Culbro will not vote with respect to the adoption of the Merger until April
1997; however, the members of the Cullman & Ernst Group have indicated that they
will vote their shares of Culbro common stock in favor of the Merger. The Merger
has been approved by Culbro as sole stockholder of the Company prior to the
Offering and, consequently, the holders of the Class A Common Stock offered
hereby will not vote in connection with the Merger. The Company will be the
surviving corporation in the Merger and will issue to the holders of the common
stock of Culbro 4.44557 shares of Class B Common Stock for each share of the
Culbro common stock outstanding on the date of the Merger, or approximately
20,087,182 shares of Class B Common Stock in the aggregate, subject to
adjustment for any Culbro stock options exercised prior to the Merger. Each
option to purchase Culbro common stock outstanding prior to the Merger will be
converted into an option to acquire Class A Common Stock. See "Certain Employee
Benefit Matters--Culbro Benefit Plans to be Assumed by the Company--Culbro Stock
Option Plans."
55
<PAGE>
The following chart illustrates the effect of the Distribution and the
Merger.
[CHART SHOWING THE STRUCTURE OF THE COMPANY AND THE PARENT FOLLOWING THE
OFFERING]
[CHART SHOWING THE STRUCTURE OF THE COMPANY AND CLR FOLLOWING THE DISTRIBUTION
AND THE MERGER]
56
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since December 1, 1995, Frederick M. Danziger, a member of the Cullman &
Ernst Group and the husband of Lucy C. Danziger, has been Of Counsel to the law
firm of Latham & Watkins. During Culbro's 1996 fiscal year, such firm received
fees and disbursements of approximately $1.5 million from Culbro for services
rendered. See "Principal Stockholders."
The interior design firm of Cullman & Kravis, which is part-owned by a
member of the Cullman & Ernst Group, provided interior design services for Club
Macanudo, Inc. and for renovations to Culbro's New York City facilities. In
1996, a total of approximately $526,000 was paid to such firm in reimbursement
for the purchase of furniture, fabrics and painting and for fees and
commissions.
The Company recently entered into an agreement with John L. Bernbach, a
Director of the Company, pursuant to which Mr. Bernbach will provide consulting
services to the Company with respect to its international operations, for which
the Company will pay Mr. Bernbach a fee of $75,000 per year.
Messrs. Cullman are members of the Board of Directors of Bloomingdale
Properties, Inc. of which Mr. Ernst is Chairman and President. Edgar M. Cullman
is a member of the Board of Directors of Centaur, of which Mr. Sherren is Chief
Executive Officer.
Mr. Solomon is Chairman of Peter J. Solomon Company Limited ("PJSC"), an
investment banking firm. Such firm provides Culbro with strategic and financial
advisory services as well as specific transaction-related advisory services
pursuant to an engagement letter. In 1995, PJSC was paid a retainer of $75,000
for providing such advisory services. In 1996, PJSC was paid a retainer of
$140,625 for such advisory services and was paid a transaction fee of $825,000
for services rendered as financial advisor in connection with the sale of
Culbro's CMS Gilbreth Packaging Systems, Inc. division. In addition, Culbro
reimbursed PJSC for certain expenses incurred in connection with the rendering
of such services. In connection with the Offering, at the request of the
Company, the Underwriters have agreed to pay Peter J. Solomon Securities Company
Limited, an affiliate of PJSC, a fee of $700,000. See "Underwriting."
Real estate management and advisory services have been provided to Culbro by
an affiliate of Bloomingdale Properties, Inc., with which members of the Cullman
& Ernst Group are associated. A fee of approximately $199,000 was paid by Culbro
in 1995 for management of Culbro's New York office building and for other real
estate advisory services.
PRINCIPAL STOCKHOLDERS
Culbro beneficially owns 20,087,182 shares of Class B Common Stock,
constituting all of the outstanding shares of Class B Common Stock. No shares of
Class A Common Stock will be outstanding prior to consummation of the Offering.
Following the Offering and before giving effect to the Merger, Culbro will
continue to own 20,087,182 shares of Class B Common Stock, constituting 77% of
the outstanding Common Stock and 97% of the voting power of the outstanding
Common Stock. Pursuant to the Merger, each of the 4,518,472 outstanding shares
of Culbro common stock will be converted into the right to receive 4.44557
shares of Class B Common Stock, subject to adjustment for any Culbro stock
options exercised prior to the Merger, and each share of Class B Common Stock
owned by Culbro will be canceled. As a result, the holders of Culbro common
stock immediately preceding the Merger will own 20,087,182 shares of Class B
Common Stock, constituting 77% of the outstanding Common Stock and 97% of the
voting power of the outstanding Common Stock, following the Merger. For
information regarding the Merger, see "The Asset Transfers, the Distribution and
the Merger." For a description of the Class A Common Stock and the Class B
Common Stock, see "Description of Capital Stock."
The following table sets forth certain information regarding beneficial
ownership of the (i) Culbro common stock as of February 4, 1997 and (ii) the
Common Stock as of December 31, 1996, after giving effect to the Merger, in each
case, by each person who is known by the Company to beneficially own more than
5% of the outstanding shares of Common Stock, each director and Named Executive
Officer of the
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<PAGE>
Company and all directors and executive officers of the Company as a group.
Unless otherwise indicated, all shares of Common Stock shown represent Class B
Common Stock. Unless otherwise indicted, the address of each person named in the
table below is Culbro Corporation, 387 Park Avenue South, New York, New York
10016.
<TABLE>
<CAPTION>
CULBRO COMMON STOCK COMMON STOCK OF THE
COMPANY
PRIOR TO THE MERGER FOLLOWING THE MERGER
------------------------ ------------------------
SHARES PERCENT SHARES PERCENT
BENEFICIALLY OF BENEFICIALLY OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) TOTAL OWNED TOTAL
- --------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Edgar M. Cullman (2)................................................. 974,874 21.6% 4,333,870 16.6%
Edgar M. Cullman, Jr. (2)............................................ 891,658 19.7 3,963,927 15.2
Louise B. Cullman (2)(3)............................................. 834,347 18.5 3,709,147 14.2
Susan R. Cullman (2)(3).............................................. 784,529 17.4 3,487,678 13.4
Lucy C. Danziger (2)(3).............................................. 1,051,264 23.3 4,673,467 17.9
John L. Ernst (2).................................................... 420,271 9.3 1,868,343 7.2
B. Bros. Realty Limited Partnership (4).............................. 233,792 5.2 1,039,338 4.0
Gabelli Funds, Inc. (5).............................................. 1,021,300 22.6 4,540,260 17.4
Dimensional Fund Advisors, Inc. (6).................................. 297,200 6.6 1,321,223 5.1
Dan W. Lufkin........................................................ 14,000(7) * 62,237(7) *
Thomas C. Israel..................................................... 9,000(8) * 40,010(8) *
Peter J. Solomon..................................................... 5,000(8) * 22,227(8) *
Francis T. Vincent, Jr............................................... 5,000(8) * 22,227(8) *
John L. Bernbach..................................................... 2,600(7) * 11,558(7) *
Graham V. Sherren.................................................... 2,500(7) * 11,113(7) *
Bruce A. Barnet...................................................... 4,100(8) * 18,226(8) *
Jay M. Green......................................................... 110,900(9) 2.4 493,013(9) 1.9
Austin T. McNamara................................................... 15,400(10) * 68,461(10) *
A. Ross Wollen....................................................... 43,368(11) * 192,795(11) *
All officers and directors as a group (14 persons)(12)............... 1,692,542 37.5 7,524,313 28.0
</TABLE>
- ------------------------
* Less than 1%
(1) This information reflects the definition of beneficial ownership adopted by
the SEC. Beneficial ownership shown reflects sole investment and voting
power, except as reflected in footnote 2. Where more than one person shares
investment and voting power in the same shares such shares may be shown more
than once. Such shares are reflected only once, however, in the total for
all directors and officers. Includes options exercisable within 60 days
granted to directors pursuant to the Stock Option Plans for Non-employee
Directors and options exercisable within 60 days held by each Named
Executive Officer. Excluded are shares held by charitable foundations and
trusts of which members of the Cullman and Ernst Group are officers and
directors. As of December 20, 1996, a group consisting of Messrs. Cullman,
direct members of their families and trusts for their benefit, Mr. Ernst,
his sister and direct members of their families and trusts for their
benefit, a partnership in which members of the Cullman and Ernst families
hold substantial direct and indirect interests and charitable foundations
and trusts of which members of the Cullman and Ernst families are directors
or trustees, owned an aggregate of approximately 2,237,147 shares of
Culbro's common stock (approximately 50% of the outstanding shares of Culbro
common stock). Among others, Messrs. Cullman and Mr. Ernst hold investment
and voting power or shared investment and voting power over such shares.
Certain of such shares are pledged as security for loans payable under
standard pledge arrangements. A form filed with the SEC on behalf of the
Cullman & Ernst Group states that there is no formal agreement governing the
group's holding and voting of such shares but that there is an informal
understanding that the persons and entities included in the group will hold
and vote together the shares owned by each of them in each case subject to
any applicable fiduciary responsibilities. Louise B. Cullman is the wife of
Edgar M. Cullman. Susan R. Cullman and Lucy C. Danziger are the daughters of
Edgar M. Cullman and Louise B. Cullman.
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<PAGE>
(2) Included within the Culbro shares shown as beneficially owned by Edgar M.
Cullman are 863,576 shares in which he holds shared investment and/or voting
power; included within the shares shown as beneficially owned by Mr. Ernst
are 411,321 shares in which he holds shared investment and/or voting power;
and included within the shares shown as beneficially owned by Edgar M.
Cullman, Jr. are 751,490 shares in which he holds shared investment and/or
voting power. Included within the shares shown as beneficially owned by
Louise B. Cullman are 730,937 shares in which she holds shared investment
and/or voting power; included within the shares shown as beneficially owned
by Susan R. Cullman are 690,042 shares in which she holds shared investment
and/or voting power; included within the shares shown as beneficially owned
by Lucy C. Danziger are 969,422 shares in which she holds shared investment
and/or voting power. Excluded in each case are shares held by charitable
foundations and trusts in which such persons or their families or trusts for
their benefit are officers and directors. Messrs. Cullman, Ernst and
Cullman, Jr. disclaim beneficial interest in all shares over which there is
shared investment and/or voting power and in all excluded shares.
(3) The address of each of Louise B. Cullman, Susan R. Cullman and Lucy C.
Danziger is c/o 641 Lexington Avenue, New York, New York.
(4) The address of B. Bros. Realty Limited Partnership is 641 Lexington Avenue,
New York, New York.
(5) The address of such person is Gabelli Funds, Inc., One Corporate Center,
Rye, New York, NY 10580. A form filed with the SEC in September 1991 by
Gabelli Funds, Inc. as subsequently amended indicates that the securities
have been acquired by Gabelli Funds, Inc. and its wholly-owned subsidiaries
on behalf of their investment advisory clients. Culbro has been informed
that no individual client of Gabelli Funds, Inc. has ownership of more than
5% of Culbro's common stock.
(6) Based on a form filed with the SEC in February 1996 Dimensional Fund
Advisors Inc. ("Dimensional"), a registered investment advisor, is deemed to
have beneficial ownership of 297,200 shares of Culbro's common stock
(approximately 7%) as of December 31, 1996, all of which shares are held in
portfolios of DFA Investment Dimensions Group Inc., a registered open-end
investment company, or in series of the DFA Investment Trust Company, a
Delaware business trust, or the DFA Group Trust and DFA Participation Group
Trust, a registered open-end investment company, or in series of the DFA
Investment Trust Company, a Delaware business trust, or the DFA Group Trust
and DFA Group Trust and DFA Participation Group Trust, investment vehicles
for qualified employee benefit plans, all of which Dimensional Fund Advisors
Inc. serves as investment manager. Dimensional disclaims beneficial
ownership of all such shares.
(7) 2,000 of such shares reflect options which, upon consummation of the
Merger, will be exercisable for 8,891 shares of Class A Common Stock.
(8) 4,000 of such shares reflect options which, upon consummation of the
Merger, will be exercisable for 17,782 shares of Class A Common Stock.
(9) 110,200 of such shares reflect options which, upon consummation of the
Merger, will be exercisable for 489,901 shares of Class A Common Stock.
(10) All of such shares reflect options which, upon consummation of the Merger,
will be exercisable for 68,461 shares of Class A Common Stock.
(11) 30,503 of such shares reflect options which, upon consummation of the
Merger, will be exercisable for 135,603 shares of Class A Common Stock.
(12) Excluding shares held by certain charitable foundations the officers and/or
directors of which include certain officers and directors of the Company.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 50,000,000 shares of
Class A Common Stock, 25,000,000 shares of Class B Common Stock and 20,000,000
shares of preferred stock, par value $0.01 per share (the "Preferred Stock"), of
which 20,087,182 shares of Class B Common Stock are outstanding. The following
summary description of the capital stock of the Company is qualified in its
entirety by reference to the form of Amended and Restated Certificate of
Incorporation of the Company (the "Amended Certificate") and By-Laws of the
Company (the "By-Laws"), a copy of each of which is filed as an exhibit to the
Registration Statement (as defined herein) of which this Prospectus forms a
part.
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
The Amended Certificate provides for two classes of common stock, Class A
Common Stock and Class B Common Stock, which are substantially identical, except
for disparity in voting power. See "Risk Factors--Control by Certain
Stockholders; Anti-Takeover Effects of Dual Classes of Stock; Other Anti-
Takeover Provisions."
Each share of Class A Common Stock entitles the holder of record to one vote
and each share of Class B Common Stock entitles the holder of record to ten
votes at each annual or special meeting of stockholders, in the case of any
written consent of stockholders, and for all other purposes. The holders of
Class A Common Stock and Class B Common Stock vote as a single class on all
matters submitted to a vote of the stockholders, except as otherwise provided by
law. Neither the holders of Class A Common Stock nor the holders of Class B
Common Stock have cumulative voting or preemptive rights. The Company, as a
condition to counting the votes cast by any holder of Class B Common Stock at
any annual or special meeting of stockholders, in the case of any written
consent of stockholders, or for any other purpose, may require the furnishing of
such affidavits or other proof as it may reasonably request to establish that
the Class B Common Stock held by such holder has not been converted, by virtue
of the provisions of the Amended Certificate, into Class A Common Stock.
The holders of the Class A Common Stock and Class B Common Stock are
entitled to receive dividends and other distributions as may be declared thereon
by the Board of Directors of the Company out of assets or funds of the Company
legally available therefor, subject to the rights of the holders of any series
of Preferred Stock and any other provision of the Amended Certificate. The
Amended Certificate provides that if at any time a dividend or other
distribution in cash or other property is paid on Class A Common Stock or Class
B Common Stock, a like dividend or other distribution in cash or other property
also will be paid on Class B Common Stock or Class A Common Stock, as the case
may be, in an equal amount, except that voting securities paid on the Class B
Common Stock may have ten times the number of votes per share as voting
securities paid on the Class A Common Stock. In the case of any split,
subdivision, combination or reclassification of Class A Common Stock or Class B
Common Stock, the shares of Class A Common Stock or Class B Common Stock, as the
case may be, also will be split, subdivided, combined or reclassified so that
the number of shares of Class A Common Stock and Class B Common Stock
outstanding immediately following such split, subdivision, combination or
reclassification will bear the same relationship to each other as that which
existed immediately prior thereto.
In the event of any liquidation, dissolution or winding up of the Company,
the holders of Class A Common Stock and the holders of Class B Common Stock are
entitled to receive the assets and funds of the Company available for
distribution after payments to creditors and to the holders of any Preferred
Stock of the Company that may at the time be outstanding, in proportion to the
number of shares held by them, respectively, without regard to class.
In the event of any corporate merger, consolidation, purchase or acquisition
of property or stock, or other reorganization in which any consideration is to
be received by the holders of Class A Common Stock or the holders of Class B
Common Stock, the holders of Class A Common Stock and the holders of Class B
Common Stock will receive the same consideration on a per share basis; except
that, if such consideration
60
<PAGE>
shall consist in any part of voting securities (or of options or warrants to
purchase, or of securities convertible into or exchangeable for, voting
securities), the holders of Class B Common Stock may receive, on a per share
basis, voting securities with ten times the number of votes per share as those
voting securities to be received by the holders of Class A Common Stock (or
options or warrants to purchase, or securities convertible into or exchangeable
for, voting securities with ten times the number of votes per share as those
voting securities issuable upon exercise of the options or warrants to be
received by the holders of the Class A Common Stock, or into which the
convertible or exchangeable securities to be received by the holders of the
Class A Common Stock may be converted or exchanged).
The Amended Certificate provides that no person holding record or beneficial
ownership of shares of Class B Common Stock (a "Class B Holder") may transfer,
and the Company will not register the transfer of, such shares of Class B Common
Stock, except to a Permitted Transferee. For purposes of the foregoing, the
issuance of shares of Class B Common Stock to holders of Culbro common stock as
a result of the Merger will not be deemed to be a transfer. A transfer to a
Permitted Transferee generally means a transfer to an affiliate of the Class B
Holder, which may include transfers into estates, from trusts to their
beneficiaries and from owners into trusts. In certain circumstances set forth in
the Amended Certificate, the change in ownership or control of a record or
beneficial holder of Class B Common Stock will also result in the conversion of
such holder's Class B Common Stock into Class A Common Stock. Notwithstanding
the foregoing, any holder of Class B Common Stock may pledge shares of Class B
Common Stock as collateral for any indebtedness or other obligations without
triggering a conversion of such Class B Common Stock into Class A Common Stock.
The Amended Certificate also provides that the Company will not register the
transfer of any shares of Class B Common Stock unless the transferee and the
transferor of such Class B Common Stock have furnished such affidavits and other
proof as the Company reasonably may request to establish that such proposed
transferee is a Permitted Transferee. In addition, upon any purported transfer
of shares of Class B Common Stock not permitted under the Amended Certificate,
including as a result of a foreclosure upon shares of Class B Common Stock
subject to a pledge, all shares of Class B Common Stock purported to be so
transferred will be deemed to be converted into shares of Class A Common Stock,
and stock certificates formerly representing such shares of Class B Common Stock
will be deemed to represent such number of shares of Class A Common Stock as
equals the number of shares of Class A Common Stock into which such shares of
Class B Common Stock could be converted pursuant to the terms of the Amended
Certificate.
PREFERRED STOCK
The Board of Directors, without further stockholder authorization, is
authorized to issue, from time to time, Preferred Stock in one or more series,
to establish the number of shares to be included in any such series and to fix
the designations, powers, preferences and rights of the shares of each such
series and any qualifications, limitations or restrictions thereof, including
dividend rights and preferences over dividends on the Common Stock, conversion
rights, voting rights, redemption rights, the terms of any sinking fund therefor
and rights upon liquidation. The ability of the Board of Directors of the
Company to issue Preferred Stock, while providing flexibility in connection with
financing, acquisitions and other corporate purposes, could have the effect of
discouraging, deferring or preventing a change in control of the Company or an
unsolicited acquisition proposal, since the issuance of Preferred Stock could be
used to dilute the share ownership of a person or entity seeking to obtain
control of the Company. In addition, because the Board of Directors of the
Company has the power to establish the preferences, powers and rights of the
shares of any such series of Preferred Stock, it may afford the holders of any
Preferred Stock preferences, powers and rights (including voting rights) senior
to the rights of the holders of Common Stock, which could adversely affect the
rights of holders of Common Stock.
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<PAGE>
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 ("Section 203") of the General Corporation Law of the State of
Delaware (the "DGCL") provides, in general, that a stockholder acquiring more
than 15% of the outstanding voting stock of a corporation subject to Section 203
(an "Interested Stockholder") but less than 85% of such stock may not engage in
certain Business Combinations (as defined in Section 203) with the corporation
for a period of three years subsequent to the date on which the stockholder
became an Interested Stockholder unless (i) prior to such date the corporation's
board of directors approved either the Business Combination or the transaction
in which the stockholder became an Interested Stockholder or (ii) the Business
Combination is approved by the corporation's board of directors and authorized
by a vote of at least 66 2/3% of the outstanding voting stock of the corporation
not owned by the Interested Stockholder. The Amended Certificate contains a
provision electing not to be governed by Section 203.
LIMITATIONS ON DIRECTORS' LIABILITY
The Amended Certificate contains a provision which eliminates the personal
liability of a director to the Company and its stockholders for certain breaches
of his or her fiduciary duty of 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 SEC 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 DGCL.
TRANSFER AGENT AND REGISTRAR
Chemical Mellon Shareholder Services, LLC is the transfer agent and
registrar for the Common Stock.
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DESCRIPTION OF THE CREDIT FACILITY
On January 21, 1997, General Cigar Co., Inc. entered into a Credit Agreement
with certain lenders and The Chase Manhattan Bank ("Chase"), as administrative
agent, which provides for credit facilities (collectively, the "Credit
Facility") comprised of $60.0 million in term loans and a revolving credit
facility aggregating $60.0 million.
Net proceeds of the Offering of up to $70.0 million are required to be
applied to pay the term loan and to reduce the commitment under the revolving
credit facility, provided that the revolving credit facility will not be reduced
to less than $50.0 million.
At present, indebtedness under the Credit Facility is guaranteed by Culbro,
CLR, Imperial Nurseries, Inc., 387 PAS Corp., GCH Transporation, Inc., Villazon
& Company, Inc. and Club Macanudo, Inc. and is secured by the stock of such
subsidiaries of Culbro. Upon the consummation of the Offering, Culbro, CLR and
Imperial Nurseries, Inc. will be released from their guarantees and all
collateral will be released.
Prior to the consummation of the Offering, borrowings under the Credit
Facility will initially bear interest at a rate equal to 2.0% above the rate at
which eurodollar deposits for one, two, three or six months (at the Company's
option) are offered to Chase in the interbank eurodollar market (the "Eurodollar
Rate"), or 1.0% above the "ABR Rate," which is defined as the higher of (i) the
rate of interest publicly announced by Chase as its prime rate in effect at its
principal office in New York City (the "Prime Rate") and (ii) the federal funds
effective rate from time to time plus 0.5%. Following consummation of the
Offering, the rate will be the ABR Rate or 0.75% above the Eurodollar Rate.
The Credit Facility includes financial and ratio covenants, including fixed
charge coverage, current ratio and tangible net worth and maximum leverage
tests. The Credit Facility also will include negative covenants including
limitations on indebtedness, liens, guarantee obligations, mergers,
consolidations, liquidations and dissolutions, sales of assets, leases,
dividends and other payments in respect of capital stock, capital expenditures,
investments, loans and advances, optional payments and modifications of
subordinated and other debt instruments, transactions with affiliates, sale and
leasebacks, changes in fiscal year, negative pledge clauses and changes in lines
of business.
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SHARES ELIGIBLE FOR FUTURE SALE
Immediately after consummation of the Offering, the Company will have
outstanding 6,000,000 shares of Class A Common Stock and 20,087,182 shares of
Class B Common Stock, assuming no exercise of the over-allotment option granted
to the Underwriters. Of these shares, the 6,000,000 shares of Class A Common
Stock sold in the Offering (or a maximum of 6,900,000 shares if the
over-allotment option is exercised in full) will be freely tradeable without
restrictions or further registration under the Securities Act, unless purchased
by "affiliates" of the Company (as that term is defined under the Securities
Act). All of the Class B Common Stock will be owned by Culbro and, following the
Merger, such shares of Class B Common Stock will be held directly by the former
shareholders of Culbro.
Immediately after consummation of the Offering, 581,666 shares of Class A
Common Stock (2,744,484 shares following consummation of the Merger) will be
subject to outstanding options. The Company intends to file a registration
statement on Form S-8 under the Securities Act to register the sale of 3,300,000
shares of Class A Common Stock reserved for issuance under the 1997 Stock Option
Plan, including 581,666 shares issuable upon exercise of options issued at the
time of the consummation of Offering and 2,162,818 shares of Class A Common
Stock issuable upon exercise of Culbro Options following the Merger. As a
result, any shares of Class A Common Stock issued upon exercise of such stock
options will be available, subject to special rules for affiliates, for resale
in the public market, subject to applicable lock-up arrangements.
In general, under Rule 144, as currently in effect, (i) a person (or persons
whose shares are required to be aggregated) who has beneficially owned shares of
Class A Common Stock as to which at least two years have elapsed since such
shares were sold by the Company or by an affiliate of the Company in a
transaction or chain of transactions not involving a public offering
("restricted securities") or (ii) an affiliate of the Company who holds shares
of Class A Common Stock that are not restricted securities may sell, within any
three-month period, a number of such shares that does not exceed the greater of
1% of the Class A Common Stock then outstanding or the average weekly trading
volume in the Class A Common Stock during the four calendar weeks preceding the
date on which notice of such sale required under Rule 144 was filed. Sales under
Rule 144 also are subject to certain provisions relating to the manner and
notice of sale and availability of current public information about the Company.
Affiliates of the Company must comply with the requirements of Rule 144,
including the two-year holding period requirement, to sell shares of Class A
Common Stock that are restricted securities. Furthermore, if a period of at
least three years has elapsed from the date restricted securities were acquired
from the Company or an affiliate of the Company, a holder of such restricted
securities who is not an affiliate of the Company at the time of the sale and
has not been an affiliate of the Company at any time during the three months
prior to such sale would be entitled to sell such shares without regard to the
volume limitation and other conditions described above.
All shares of Class B Common Stock and all shares of Class A Common Stock
issuable upon conversion of such shares of Class B Common Stock will be eligible
for sale in the public market immediately after consummation of the Merger;
provided, that all of such shares held by the members of the Cullman & Ernst
Group may be resold only pursuant to, and in accordance with, the volume, manner
of sale and other conditions of Rule 144 described above. The Company has agreed
that it will not effect the Merger without the prior written consent of DLJ on
behalf of the Underwriters for a period of 180 days after the date of this
Prospectus. See "Underwriting."
Prior to the Offering, there has been no public market for the Class A
Common Stock. Although the Company can make no prediction as to the effect, if
any, that sales of shares of Class A Common Stock by the Cullman & Ernst Group
would have on the market price prevailing from time to time, sales of
substantial amounts of Class A Common Stock or the availability of such shares
for sale could adversely affect prevailing market prices.
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The SEC has proposed reducing the required two-year holding period under
Rule 144 to one year, and reducing the required three-year holding period under
Rule 144(k) to two years. The Company can make no prediction as to when, if at
all, such proposals will be adopted. If adopted, such modifications would have a
material effect on the times when shares of the Company's Class A Common Stock
become eligible for resale in the public market.
Subject to certain exceptions, the Company, the executive officers and
directors of the Company, Culbro and certain stockholders of Culbro (who in the
aggregate hold 2,276,012 shares of Culbro common stock, or 2,685,326 shares,
assuming exercise of outstanding options held by such person) each have agreed
that they well not, without the prior written consent of DLJ, offer, sell,
contract to sell, grant any option to purchase or otherwise dispose of any
shares of Common Stock or Culbro common stock or any securities convertible into
or exercisable or exchangeable for such Common Stock or Culbro common stock or
in any other manner transfer all or a portion of the economic consequences
associated with the ownership of any such Common Stock or Culbro common stock
for a period of 180 days from the date of this Prospectus.
UNDERWRITING
Subject to certain conditions contained in the Underwriting Agreement, a
syndicate of underwriters named below (the "Underwriters"), for whom DLJ and
Smith Barney Inc. are acting as representatives (the "Representatives"), have
severally agreed to purchase from the Company an aggregate of 6,000,000 shares
of Class A Common Stock. The number of shares of Class A Common Stock that each
Underwriter has agreed to purchase is set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation..................................................
Smith Barney Inc.....................................................................................
----------
Total................................................................................................ 6,000,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase the shares of Class A Common Stock offered hereby are
subject to approval of certain legal matters by their counsel and to certain
other conditions. If any of the shares of Class A Common Stock are purchased by
the Underwriters pursuant to the Underwriting Agreement, the Underwriters are
obligated to purchase all such shares (other than those covered by the
over-allotment option described below).
Of the shares of Class A Common Stock offered hereby, 300,000 shares have
been reserved (the "Reserved Shares") for sale to certain individuals, including
employees of the Company and members of their families. The Reserved Shares will
be sold at a price per share equal to the Price to the Public set forth on the
cover page of this Prospectus. The number of shares available to the general
public will be reduced to the extent those persons purchase Reserved Shares. Any
shares not so purchased will be offered in the Offering at the price to the
public set forth on the cover page of this Prospectus.
Prior to this Offering, there has been no established trading market for the
Class A Common Stock. The initial price to the public for the Class A Common
Stock set forth on the cover page of this Prospectus
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has been determined by negotiation between the Company and the Representatives.
The principal factors considered in determining the initial price to the public
were the information set forth in this Prospectus and otherwise available to the
Representatives, the history and prospects for the industry in which the Company
competes, the ability of the Company's management, the past and present
operations of the Company, the historical results of operations, the prospects
for future earnings of the Company, the present state of the Company's
development, the general condition of the securities markets at the time of the
offering and the recent market prices and the demand for publicly traded common
stock of generally comparable companies.
The Company has been advised by the Underwriters that they propose to offer
the shares of Class A Common Stock to the public initially at the price to the
public set forth on the cover page of this Prospectus and to certain dealers
(who may include the Underwriters) at such price, less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
re-allow, a concession not in excess of $ per share to certain other
dealers. After the initial public offering, the price to the public, the
concession and the discount to dealers may be changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 900,000 additional
shares of Class A Common Stock at the initial price to the public less
underwriting discounts and commissions, solely to cover over-allotments. To the
extent that the Underwriters exercise such option, each of the Underwriters will
be committed, subject to certain conditions, to purchase a number of option
shares proportionate to such Underwriter's initial commitment as indicated in
the preceding table.
In the Underwriting Agreement, the Company and the Underwriters have agreed
to indemnify each other against certain liabilities, including liabilities under
the Securities Act.
Subject to certain exceptions, the Company, the executive officers and
directors of the Company, Culbro and certain stockholders of Culbro each have
agreed that they will not, without the prior written consent of DLJ, offer,
sell, contract to sell, grant any option to purchase or otherwise dispose of any
shares of Common Stock or Culbro common stock or any securities convertible into
or exercisable or exchangeable for such Common Stock or Culbro common stock or
in any other manner transfer all or a portion of the economic consequences
associated with the ownership of any such Common Stock or Culbro common stock
for a period of 180 days from the date of this Prospectus.
From time to time in the ordinary course of their businesses, affiliates of
certain of the Underwriters have engaged and may in the future engage in general
financing and banking transactions with the Company and its affiliates.
Furthermore, it is possible that more than 10% of the net proceeds of the
Offering, not including underwriting compensation, will be received by lenders
to the Company under the Credit Facility that are affiliated with members of the
National Associations of Securities Dealers, Inc. ("NASD") who are participating
in the Offering. As a result, the Offering will be made in accordance with Rule
2710(c)(8) of the Conduct Rules of the NASD.
At the request of the Company, the Underwriters have agreed to pay Peter J.
Solomon Securities Company Limited a fee of $700,000 related to its acting as a
financial advisor to the Company in connection with the Offering. Peter J.
Solomon, a Director of the Company, is the Chairman of Peter J. Solomon
Securities Company Limited.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Latham & Watkins, New York, New York. Frederick M. Danziger, Of
Counsel to Latham & Watkins, is a Director and shareholder of Culbro and a
member of the Cullman & Ernst Group. See "Certain Relationships and Related
Transactions." Certain legal matters will be passed upon for the Underwriters by
Gibson, Dunn & Crutcher LLP, New York, New York.
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EXPERTS
The Combined Financial Statements of General Cigar Holdings, Inc. as of
December 2, 1995 and November 30, 1996 and for each of the fiscal years ended
December 3, 1994, December 2, 1995 and November 30, 1996 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The Consolidated Financial Statements of Villazon & Company, Inc. and
Subsidiary as of December 31, 1995 and October 31, 1996 and for each of the
years ended December 31, 1994 and 1995 and the ten months ended October 31, 1996
included in this Prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent certified public accountants, given on the
authority of said firm as experts in auditing and accounting.
The Financial Statements of Honduras American Tabaco, S.A. de C.V. as of
December 31, 1995 and October 31, 1996, and for each of the years ended December
31, 1994 and 1995 and the ten months ended October 31, 1996 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the SEC, Washington, D.C. 20549, a Registration
Statement on Form S-1 under the Securities Act with respect to the shares of
Common Stock offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and such
Common Stock, reference is made to the Registration Statement and to the
exhibits and schedules filed therewith. Statements contained in this Prospectus
as to the contents of any contract or other document referred to are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document as filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. A copy of
the Registration Statement may be inspected by anyone without charge at the
SEC's principal office in Washington D.C., at the regional offices of the SEC
located at 7 World Trade Center, New York, New York 10048 and 500 West Madison
Street, Chicago, Illinois 60661 and through the SEC's internet site at
www.sec.gov. Copies of all or any part of the Registration Statement may be
obtained from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of certain fees prescribed by the SEC.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
GENERAL CIGAR HOLDINGS, INC.
Report of Independent Accountants.......................................................................... F-2
Combined Balance Sheet as of December 2, 1995 and November 30, 1996........................................ F-3
Combined Statement of Operations for the Fiscal Years Ended December 3, 1994, December 2, 1995 and November
30, 1996................................................................................................. F-4
Combined Statement of Cash Flows for the Fiscal Years Ended December 3, 1994, December 2, 1995 and November
30, 1996................................................................................................. F-5
Notes to Combined Financial Statements..................................................................... F-6
VILLAZON & COMPANY, INC. AND SUBSIDIARY
Report of Independent Certified Public Accountants......................................................... F-21
Consolidated Balance Sheets as of December 31, 1995 and October 31, 1996................................... F-22
Consolidated Statements of Income for the Years Ended December 31, 1994 and 1995 and for the Ten Months
Ended October 31, 1996................................................................................... F-23
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1994 and 1995
and for the Ten Months Ended October 31, 1996............................................................ F-24
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994 and 1995 and for the Ten Months
Ended October 31, 1996................................................................................... F-25
Notes to Consolidated Financial Statements................................................................. F-26
HONDURAS AMERICAN TABACO, S.A. DE C.V.
Report of Independent Accountants.......................................................................... F-33
Balance Sheets as of December 31, 1995 and October 31, 1996................................................ F-34
Statements of Operations and Retained Earnings for the Years Ended December 31, 1994 and 1995 and for the
Ten Months Ended October 31, 1996........................................................................ F-35
Statements of Cash Flows for the Years Ended December 31, 1994 and 1995 and for the Ten Months Ended
October 31, 1996......................................................................................... F-36
Notes to Financial Statements.............................................................................. F-37
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
of General Cigar Holdings, Inc.
In our opinion, the accompanying combined balance sheet and the related
combined statements of operations and of cash flows present fairly, in all
material respects, the combined financial position of General Cigar Holdings,
Inc. (a wholly-owned subsidiary of Culbro Corporation) at December 2, 1995 and
November 30, 1996 and the results of their combined operations and their
combined cash flows for each of the fiscal years ended December 3, 1994,
December 2, 1995 and November 30, 1996 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
January 28, 1997
F-2
<PAGE>
GENERAL CIGAR HOLDINGS, INC.
COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 2, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash................................................................................. $ 322 $ 409
Accounts receivable, less allowance of $465 and $482................................. 23,840 31,295
Inventories.......................................................................... 37,843 53,702
Other current assets................................................................. 3,312 3,673
------------ ------------
Total current assets................................................................. 65,317 89,079
Property and equipment, net.......................................................... 46,492 52,507
Other assets......................................................................... 1,846 3,456
------------ ------------
Total assets......................................................................... $ 113,655 $ 145,042
------------ ------------
------------ ------------
LIABILITIES AND CULBRO INVESTMENT
CURRENT LIABILITIES
Accounts payable and accrued liabilities............................................. $ 20,740 $ 22,827
Current portion of long-term debt.................................................... 945 1,131
------------ ------------
Total current liabilities............................................................ 21,685 23,958
Long-term debt....................................................................... 11,352 11,079
Accrued retirement benefits.......................................................... 12,100 12,525
Deferred income taxes................................................................ 2,121 1,057
Other noncurrent liabilities......................................................... 302 2,704
------------ ------------
Total liabilities.................................................................... 47,560 51,323
Commitments and contingencies (See Note 13).......................................... -- --
Culbro Investment.................................................................... 66,095 93,719
------------ ------------
Total liabilities and Culbro Investment.............................................. $ 113,655 $ 145,042
------------ ------------
------------ ------------
</TABLE>
See Notes to Combined Financial Statements.
F-3
<PAGE>
GENERAL CIGAR HOLDINGS, INC.
COMBINED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED,
--------------------------------------
<S> <C> <C> <C>
DECEMBER 3, DECEMBER 2, NOVEMBER 30,
1994 1995 1996
----------- ----------- ------------
Net sales............................................................... $ 89,538 $ 124,033 $ 154,676
Cost of goods sold...................................................... 54,285 69,683 86,240
----------- ----------- ------------
Gross profit............................................................ 35,253 54,350 68,436
Selling, general and administrative expenses............................ 27,210 36,726 44,593
Other nonrecurring expense.............................................. -- -- 3,600
----------- ----------- ------------
Operating profit........................................................ 8,043 17,624 20,243
Gain on insurance settlement............................................ -- 2,586 --
Other nonoperating (expense) income..................................... (23) (597) 853
Interest expense........................................................ 607 1,049 951
----------- ----------- ------------
Income before income taxes.............................................. 7,413 18,564 20,145
Income tax provision.................................................... 2,863 7,240 7,738
----------- ----------- ------------
Net income.............................................................. $ 4,550 $ 11,324 $ 12,407
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
See Notes to Combined Financial Statements.
F-4
<PAGE>
GENERAL CIGAR HOLDINGS, INC.
COMBINED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED,
--------------------------------------
<S> <C> <C> <C>
DECEMBER 3, DECEMBER 2, NOVEMBER 30,
1994 1995 1996
----------- ----------- ------------
OPERATING ACTIVITIES:
Net income.............................................................. $ 4,550 $ 11,324 $ 12,407
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization......................................... 3,271 3,550 3,813
Gain on insurance settlement.......................................... -- (2,586) --
Deferred income taxes................................................. 43 (236) (1,064)
Changes in assets and liabilities which increase (decrease) cash:
Accounts receivable................................................. 302 (10,600) (7,492)
Inventories......................................................... 1,571 (733) (15,859)
Other current assets................................................ (212) (1,204) (361)
Accounts payable and accrued liabilities............................ 2,000 9,834 2,087
Accrued retirement benefits......................................... 453 843 425
Other, net............................................................ 705 (656) 1,125
----------- ----------- ------------
Net cash provided by (used in) operating activities..................... 12,683 9,536 (4,919)
----------- ----------- ------------
INVESTING ACTIVITIES:
Additions to property and equipment..................................... (1,884) (2,841) (9,701)
Proceeds from insurance settlement...................................... 500 2,225 --
----------- ----------- ------------
Net cash used in investing activities................................... (1,384) (616) (9,701)
----------- ----------- ------------
FINANCING ACTIVITIES:
Net transactions with Culbro............................................ (15,131) (13,389) 15,217
Increase in debt........................................................ 5,000 5,000 476
Repayment of indebtedness............................................... (734) (673) (563)
Class A Common Stock issuance costs..................................... -- -- (423)
----------- ----------- ------------
Net cash (used in) provided by financing activities..................... (10,865) (9,062) 14,707
----------- ----------- ------------
Net increase (decrease) in cash......................................... 434 (142) 87
Cash at beginning of period............................................. 30 464 322
----------- ----------- ------------
Cash at end of period................................................... $ 464 $ 322 $ 409
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
See Notes to Combined Financial Statements.
F-5
<PAGE>
GENERAL CIGAR HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. CERTAIN TRANSACTIONS
The accompanying combined financial statements include the accounts of
General Cigar Holdings, Inc. (the "Company")(See Note 3--Basis of Presentation),
and reflect its financial position, results of operations and cash flows after
elimination of intercompany accounts and transactions. The Company, a
wholly-owned subsidiary of Culbro Corporation ("Culbro"), was formed on December
12, 1996 and holds all of the outstanding stock of General Cigar Co., Inc.
("General Cigar"). The Company has no business operations of its own and its
principal asset is all of the outstanding stock of General Cigar. In January
1997, in addition to the transfer of all of the outstanding Common Stock of
General Cigar Co., Inc., certain other assets, including principally 1,200 acres
of land, all of the outstanding common stock of 387 PAS Corp. ("387 PAS"), Club
Macanudo, Inc., Club Macanudo (Chicago), Inc. and GCH Transportation, Inc. were
transferred to the Company (the "Additional Asset Transfers") and the Company
assumed certain related liabilities and substantially all of the debt of Culbro
in accordance with the terms of a Distribution Agreement (the "Distribution
Agreement") among the Company, Culbro and Culbro Land Resources, Inc. ("CLR").
The Additional Asset Transfers are reflected in the accompanying combined
financial statements at Culbro's historical cost. The Additional Asset
Transfers, the transfer of General Cigar Stock and the assumption by the Company
of the liabilities and debt of Culbro referred to above are herein collectively
referred to as the "Asset Transfers." The Distribution Agreement also provides
for the assumption of employee benefit arrangements of Culbro by the Company,
for a tax sharing agreement and for a potential distribution of the stock (the
"Distribution") of CLR to Culbro's shareholders. Following the Distribution,
subject to certain conditions, Culbro will be merged (the "Merger") with and
into the Company. Such transactions are not reflected in the accompanying
combined financial statements.
2. VILLAZON ACQUISITION
On January 21, 1997, the Company completed its acquisition of two affiliated
companies, Villazon and Company, Inc., a U.S. corporation, and Honduras American
Tabaco, S.A. de C.V., a Honduran corporation (collectively "Villazon"), for
approximately $81.4 million consisting of $90.5 million of purchase price and
direct acquisition costs, less $9.1 million of cash acquired. $64.6 million of
cash was paid at closing and $24.4 million aggregate principal amount of seller
notes were issued (the "Villazon Acquisition"). Both companies are engaged in
the cigar business. The Villazon Acquisition will be accounted for using the
purchase method of accounting. Cost in excess of the fair value of net assets
acquired, primarily trade names and other intangible assets, is expected to be
approximately $71 million. The Company secured a loan to finance the
acquisition, and anticipates that the loan will be repaid either entirely or
partially, with the proceeds from the expected Offering. (See Notes 4 and 7)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying combined financial statements of the Company include the
accounts of General Cigar, Club Macanudo, Inc. ("Club Macanudo") and 387 PAS.
Club Macanudo was incorporated in 1995 and operates a cigar bar in New York
City, which opened on May 1, 1996. 387 PAS holds Culbro's corporate headquarters
which is approximately 80% leased to unrelated commercial tenants. Club Macanudo
and 387 PAS were not material to the Company's results of operations in any of
the periods presented. Subsequent to November 30, 1996, the Company formed Club
Macanudo (Chicago), Inc., which will operate a cigar bar in Chicago and GCH
Transportation, Inc., a non operating entity which owns certain of the Company's
transportation equipment.
F-6
<PAGE>
GENERAL CIGAR HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The combined financial statements have been presented as if the Company had
operated as an independent stand-alone entity for all periods presented. Such
financial statements may not necessarily present the financial position, results
of operations and cash flows the Company would have reported had it actually
operated as a stand-alone entity. See Note 4 for unaudited combined condensed
pro forma financial information.
FISCAL YEAR
The Company's fiscal year ends on the Saturday nearest November 30. Fiscal
1994, 1995 and 1996 ended on December 3, 1994, December 2, 1995 and November 30,
1996, respectively. Fiscal 1994 contained 53 weeks and fiscal 1995 and 1996
contained 52 weeks.
RECLASSIFICATION
Certain amounts in the prior years financial statements have been
reclassified to conform to the current year's presentation.
INVENTORIES
The Company's inventories are stated at the lower of cost or market using
the first-in, first-out ("FIFO") method. Raw materials include tobacco in the
process of aging, a substantial amount of which will not be used or sold within
one year. It is industry practice to include such inventories in current assets.
Raw materials also include tobacco in bond which is subject to customs duties
payable upon withdrawal from bond. Following industry practice, the Company does
not include such duties in inventories until paid.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is determined on a
straight-line basis over the estimated useful asset lives for financial
reporting purposes and principally on accelerated methods for tax purposes.
REVENUE RECOGNITION
Sales and the related cost of sales are recognized upon shipment of
products.
ADVERTISING AND PROMOTION EXPENSE
Advertising and promotion costs are expensed when incurred. Production costs
of future media advertising are deferred until the advertising first occurs.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The amounts included in the financial statements for accounts receivable,
accounts payable and accrued liabilities reflect their fair values because of
the short-term maturity of these instruments. The fair values of the Company's
other financial instruments are discussed in Note 7.
F-7
<PAGE>
GENERAL CIGAR HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
The Company is a wholly-owned subsidiary of Culbro and its historical
capital structure does not permit a meaningful presentation of earnings per
share. Accordingly, earnings per share are not presented herein.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." This Statement requires that long-lived
assets and certain intangibles held and used by a business entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company continually
reviews its long-lived assets and intangible assets, considering future
performance of those assets in assessing the need for adjustments to their
carrying values. The Company will perform such reviews in the future in
accordance with the methods prescribed by SFAS No. 121.
In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation." This Statement establishes a fair value method of
accounting for, or disclosing, stock-based compensation plans. The Company
intends to adopt the disclosure provisions of this standard which require
disclosing the pro forma effect on net income and earnings per share of the fair
value method of accounting for stock-based compensation. The adoption of the
disclosure provisions will not affect combined financial condition, results of
operations, or cash flows.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenue and expenses during the period reported. Actual results
could differ from those estimates. Estimates are used when accounting for
allowance for uncollectible accounts receivable, depreciation and amortization,
employee benefit plans, taxes, and contingencies, among others.
4. COMBINED CONDENSED PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following combined condensed unaudited pro forma financial information
reflects the Company as if the liability portion of the Asset Transfers had
occurred and the Villazon Acquisition had been consummated. The unaudited pro
forma combined condensed statement of operations assumes that the transactions
took place at the beginning of fiscal 1996. The unaudited pro forma combined
condensed balance sheet assumes that the items discussed above occurred at the
balance sheet date. The unaudited pro forma financial information presented
herein may not necessarily reflect the results of operations and financial
position had these items discussed above actually taken place on these dates.
The pro forma financial information reflects the elimination of intercompany
accounts.
F-8
<PAGE>
GENERAL CIGAR HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. COMBINED CONDENSED PRO FORMA FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
COMBINED CONDENSED PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED) (DOLLARS IN
THOUSANDS)
<TABLE>
<CAPTION>
NOVEMBER 30,
1996
------------
<S> <C>
Net sales....................................................................... $ 196,694
------------
Operating profit................................................................ 32,324
Other nonoperating income, net.................................................. 1,532
Interest expense................................................................ 11,669
------------
Income before income taxes...................................................... 22,187
Income tax provision............................................................ 8,535
------------
Net income...................................................................... $ 13,652
------------
------------
</TABLE>
COMBINED CONDENSED PRO FORMA BALANCE SHEET (UNAUDITED) (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOVEMBER 30,
1996
------------
<S> <C>
Current assets.................................................................. $ 110,788
Property and equipment, net..................................................... 56,857
Intangible assets............................................................... 71,352
Other assets.................................................................... 5,798
------------
Total assets.................................................................... $ 244,795
------------
------------
Current liabilities............................................................. $ 101,295
Long-term debt.................................................................. 72,029
Other noncurrent liabilities.................................................... 26,213
------------
Total liabilities............................................................... 199,537
Culbro Investment............................................................... 45,258
------------
Total liabilities and Culbro Investment......................................... $ 244,795
------------
------------
</TABLE>
5. RELATED PARTY TRANSACTIONS
CULBRO INVESTMENT
The Company maintained an intercompany account with Culbro in which the
intercompany transactions including cash transfers and the liability for benefit
and insurance costs and allocated general and administrative expenses described
below were recorded. The balance in the intercompany account at the end of each
period presented has been included in Culbro Investment in the combined balance
sheet. The
F-9
<PAGE>
GENERAL CIGAR HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
Culbro Investment account also includes the cumulative net earnings of the
Company and its capital stock. The changes in the Culbro Investment account are
summarized as follows:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
Balance, November 27, 1993................................ $ 78,741
<S> <C>
Net income.............................................. 4,550
Culbro Investment activity.............................. (15,131)
-------
Balance, December 3, 1994................................. 68,160
Net income.............................................. 11,324
Culbro Investment activity.............................. (13,389)
-------
Balance, December 2, 1995................................. 66,095
Net income.............................................. 12,407
Culbro Investment activity.............................. 15,217
-------
Balance, November 30, 1996................................ $ 93,719
-------
-------
</TABLE>
TREASURY
Through the date of the expected Offering, the Company's treasury activities
will remain integrated into Culbro's cash management system. The Company's cash
receipts are transferred daily into Culbro's cash account and the Company's cash
disbursement accounts are reimbursed by Culbro on a daily basis. The difference
between cash transferred by the Company to Culbro and reimbursements by Culbro
to the Company's disbursement accounts has been reflected in Culbro Investment
in the combined balance sheet.
INTERCOMPANY ACTIVITIES
The Company's employees participate in certain benefit programs which are
sponsored and administered by Culbro. See Note 8 for discussion of employee
benefit plan costs. The Company's risk insurance and employee medical coverage
are provided through insurance policies and programs purchased by Culbro on
behalf of the Company and Culbro's other subsidiaries. The cost of these items
was allocated based on the specific insurance data related to each subsidiary.
All direct charges relating to the Company for these services, and the Company's
participation in these plans have been charged to the Company by Culbro, and
included in the Company's combined financial statements.
A substantial amount of Culbro management time and resources were related to
the operations of the Company, and Culbro also performed certain specific
administrative functions for the Company, including legal, tax, treasury, human
resources and internal audit. In addition to the direct charges above for
employee benefits and risk insurance, the combined statement of operations
reflects general and administrative expenses of $5.5 million, $8.8 million and
$7.2 million for 1994, 1995 and 1996, respectively, allocated by Culbro to the
Company for these services. These charges were based principally on an
evaluation of the Company's share of expenses relating to the Culbro corporate
activities associated with the Company's operations and are considered by
management to be reasonable. These amounts may not necessarily be indicative of
the additional general and administrative expenses the Company would have
incurred had it operated independently during the years presented.
F-10
<PAGE>
GENERAL CIGAR HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
No interest has been charged or paid to Culbro on the net investment
account, and accordingly intercompany interest expense has not been included in
the combined statements of operations. See Notes 4 and 7.
OTHER RELATED PARTY TRANSACTIONS
During 1996, the Company entered into transactions in the ordinary course of
business, with entities with which certain stockholders and board of directors
members of Culbro are associated. In 1996 the aggregate cost of such services to
these firms was approximately $2.3 million.
6. INTERCOMPANY INCOME TAXES
All current tax liabilities were paid by Culbro and accordingly the
Company's current tax liabilities are reflected in the Culbro Investment
account.
Historically, the combined results of operations of the Company were
included in Culbro's consolidated U.S. federal income tax returns, and will be
included in such returns until the Distribution and Merger are consummated. The
income tax provisions and deferred tax liabilities have been calculated in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109
"Accounting for Income Taxes" as if the Company had filed separate tax returns.
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal........................................................ $ 2,374 $ 6,435 $ 7,647
State and local................................................ 446 1,041 1,155
Deferred, principally federal.................................... 43 (236) (1,064)
--------- --------- ---------
$ 2,863 $ 7,240 $ 7,738
--------- --------- ---------
--------- --------- ---------
</TABLE>
The reasons for the difference between the United States statutory income
tax rate and the effective rates are shown in the following table:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Tax expense at statutory rates................................... $ 2,520 $ 6,497 $ 7,051
State and local income taxes..................................... 294 677 751
Other............................................................ 49 66 (64)
--------- --------- ---------
$ 2,863 $ 7,240 $ 7,738
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-11
<PAGE>
GENERAL CIGAR HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. INTERCOMPANY INCOME TAXES (CONTINUED)
The significant components of net deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Depreciation............................................................ $ 7,094 $ 7,015
Postretirement benefit liabilities...................................... (2,303) (2,367)
Pension liabilities..................................................... (1,826) (1,901)
Other................................................................... (844) (1,690)
--------- ---------
$ 2,121 $ 1,057
--------- ---------
--------- ---------
</TABLE>
In connection with the expected Offering, Culbro and the Company will enter
into a Tax Sharing Agreement which will provide, among other things, for the
allocation between CLR and the Company of federal, state, local and foreign tax
liabilities for all periods through the Distribution and Merger. With respect to
the consolidated tax returns filed by Culbro, the Tax Sharing Agreement will
provide that the Company will be liable for any amounts that it would have been
required to pay with respect to any deficiencies assessed, generally as if it
had filed separate tax returns.
7. LONG-TERM DEBT
Long-term debt includes:
<TABLE>
<CAPTION>
DECEMBER 2, NOVEMBER 30,
1995 1996
----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Building mortgage................................................. $ 5,000 $ 5,000
Equipment loan.................................................... 4,488 4,218
Capital leases.................................................... 2,809 2,992
----------- ------------
Total............................................................. 12,297 12,210
Less: due within one year......................................... 945 1,131
----------- ------------
Total long-term debt.............................................. $ 11,352 $ 11,079
----------- ------------
----------- ------------
</TABLE>
As of November 30, 1996, the annual payment requirements under the terms of
the building mortgage and equipment loan, for the years 1997 through 2001 are
$0.3 million, $0.4 million, $5.4 million, $0.4 million and $0.4 million,
respectively. The building mortgage is on the 387 PAS corporate office building
which had a net book value of $29.5 million at November 30, 1996. The mortgage,
which bears interest at 2.0% above LIBOR, matures in March 1999 and requires
periodic payments of only interest until maturity. The equipment loan was
entered into in January 1994, and bears interest at 7.25% per annum and has a
term of ten years, with a balloon payment of $1.2 million due at maturity. The
equipment had a net book value of $3.0 million at November 30, 1996.
On January 21, 1997, the Company entered into a Credit Agreement with
certain banks which provided financing of $120.0 million for the Villazon
Acquisition, for repayment of the Culbro debt obligation assumed by the Company
in the liability portion of the Asset Transfers and for general working capital
purposes. The Credit Agreement includes a $60.0 million term loan, due on
January 20, 1998 that is required to be prepaid at the time of and with a
portion of the proceeds from the expected Offering, and a revolving credit
facility of $60.0 million, which expires in January 2000. Proceeds from the
expected
F-12
<PAGE>
GENERAL CIGAR HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM DEBT (CONTINUED)
Offering will be used to repay the term loan and reduce amounts outstanding
under the revolving credit facility. In accordance with the terms of the Credit
Agreement, during the period prior to the completion of the expected Offering,
the borrowings under the term loan and revolving credit facility will bear
interest, at the Company's option, of either (1) 1% above the Alternate Base
Rate ("ABR"), which is defined as the greater of the Prime Rate or the Federal
Funds Effective Rate plus 0.5%, (2) the Eurodollar rate plus 2%, or (3) a
combination thereof. After completion of the expected Offering, provided that
the Offering generates proceeds of at least $70.0 million, the borrowings under
the revolving credit facility will bear interest, at the Company's option, of
either (1) the ABR, (2) the Eurodollar rate plus 0.75% or (3) a combination
thereof. The Company will pay a commitment fee of 3/8 of 1% on the unused
portion of the revolving credit facility prior to the expected Offering and 1/4
of 1% after the expected Offering provided the Offering generates proceeds of at
least $70 million. The Credit Agreement includes limitations on indebtedness,
investments and other significant transactions, as defined.
The Company expects to assume approximately $43.8 million of Culbro debt
prior to the Offering as part of the Culbro obligations assumed under the
liability portion of the Asset Transfers. This debt was not an obligation of the
Company in earlier periods and the Company generally has been a net cash
provider to Culbro. Accordingly, this debt and its related interest expense were
not part of the Company's capital structure in the combined financial statements
for any of the periods presented.
Management believes that the amounts reflected on the balance sheet for debt
obligations reflect their current market values based on market interest rates
for comparable risks, maturities and collateral.
F-13
<PAGE>
GENERAL CIGAR HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
8. RETIREMENT BENEFITS
PENSION PLAN
The Company's employees participate in Culbro's noncontributory defined
benefit pension plan, which covers substantially all employees of Culbro and its
subsidiaries. The plan's benefits are based on employees' years of service and
compensation. Contributions to the plan are made in accordance with the
provisions of the Employee Retirement Income Security Act. Pension expense of
$0.6 million, $0.4 million and $0.7 million for 1994, 1995 and 1996,
respectively, included in the combined statement of operations reflects the
Company's proportionate share of Culbro's consolidated pension expense based on
the benefit costs attributable to its employees, as determined by the plan's
actuaries. Pension expense in 1996 included $0.3 million related to early
retirement of certain of the Company's employees.
The Company intends to maintain this plan and will be directly responsible
for all of the pension obligations of the plan, including those relating to its
employees and its former employees, as well as all vested employees of Culbro
and its subsidiaries under the plan. The Company expects to continue to provide
its current employees with the existing level of benefits under the plan; all
other Culbro employees will cease to be active participants in the plan. In
connection with the Distribution and Merger, the Company and CLR will enter into
an Employee Benefits Administration Agreement for the purpose of defining the
responsibilities for the administration of the plan. As of November 30, 1996,
the Plan was overfunded and Culbro has not made any contributions to the plan in
the past five years. The pro forma unaudited financial information in Note 4
reflects the effect of the Company's assumption of the Culbro Plan assets and
obligations as if it had occurred on the dates noted therein.
The status of the Culbro pension plan as determined by the plan's actuaries
at December 2, 1995 and November 30, 1996 was as follows (dollars in thousands):
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Present value of benefits earned by participants including vested
benefits of $53,730 and $52,095 at December 2, 1995 and November
30, 1996, respectively............................................. $ 54,274 $ 52,668
--------- ---------
--------- ---------
Plan assets at fair value, primarily equities........................ $ 64,639 $ 70,711
Present value of projected benefit obligations....................... 56,882 54,759
--------- ---------
Plan assets in excess of projected benefit obligations............... 7,757 15,952
Amount included on Culbro balance sheet.............................. 5,993 6,697
--------- ---------
Unrecognized net asset............................................... $ 13,750 $ 22,649
--------- ---------
--------- ---------
Unrecognized net asset includes:
Net gain from experience differences and assumption changes.......... $ 14,190 $ 23,101
Less: Changes due to plan amendments................................. (203) (321)
Net pension obligation at adoption of SFAS No. 87............... (237) (131)
--------- ---------
Unrecognized net asset............................................... $ 13,750 $ 22,649
--------- ---------
--------- ---------
</TABLE>
Discount rates of 7.50% and 7.75% were used to compute the present value of
pension benefits at December 2, 1995 and November 30, 1996, respectively. A 5%
rate of increase in future compensation levels was used to estimate the
projected pension obligations at both December 2, 1995 and November 30, 1996.
The expected rate of return on pension plan assets in 1994, 1995 and 1996 was
estimated at 9% representing the average long-term rate expected from the
investment of plan assets.
F-14
<PAGE>
GENERAL CIGAR HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
8. RETIREMENT BENEFITS (CONTINUED)
OTHER POSTRETIREMENT BENEFITS
Through the date of the Offering, the Company's employees will participate
in Culbro's postretirement benefits program, which provides principally health
and life insurance benefits to certain of its retired employees. The cost of
such benefits attributable to the Company's employees under the plan's benefit
formula was $0.5 million in fiscal 1994 and in fiscal 1995, respectively, and
$0.4 million in fiscal 1996.
The Company's proportionate share of the present value of the liabilities
for accumulated postretirement benefits, as determined by the Plan's actuaries,
is shown below. None of these liabilities have been funded at December 2, 1995
and November 30, 1996.
<TABLE>
<CAPTION>
1995 1996
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Retirees................................................................ $ 3,678 $ 3,434
Fully eligible active participants...................................... 1,474 1,530
Other active participants............................................... 608 361
Unrecognized net gain from experience differences and
assumption changes.................................................... 308 907
--------- ---------
Liability for other postretirement benefits............................. $ 6,068 $ 6,232
--------- ---------
--------- ---------
</TABLE>
The Company expects that it will continue to provide its employees with the
same level of retiree medical benefits as those provided under the Culbro
program. Additionally, the Company will assume approximately $1.1 million of
retiree medical benefits related to former Culbro employees.
Discount rates of 7.50% and 7.75% were used to compute the accumulated
postretirement benefit obligations at December 2, 1995 and November 30, 1996,
respectively. Because the Company's obligation for retiree medical benefits is
fixed, any increase in the medical cost trend would have no effect on the
accumulated postretirement benefit obligation, service cost or interest cost.
The adoption of SFAS No. 106 in 1993 has not had an adverse effect on cash
flows because postretirement benefits are funded as incurred.
9. STOCK OPTION PLANS
Upon consummation of the Merger and Distribution, the Company intends to
convert all employee stock options outstanding under Culbro's stock option plans
into options to purchase shares of common stock of the Company and shares of
common stock of CLR. The number of outstanding options and exercise prices would
be adjusted to preserve the value of the options. The combined financial
statements of the Company do not reflect any effects that these plans have had
in Culbro's consolidated financial statements. The status of, and transactions
in, the Culbro stock option plans for the periods presented are as summarized
below:
EMPLOYEES STOCK OPTION PLANS
The Culbro 1996 Stock Plan (the "1996 Plan"), the 1992 Stock Plan (the "1992
Plan") and the 1991 Employees Incentive Stock Option Plan (the "1991 Plan") for
officers and key employees, made available 500,000, 300,000 and 210,000 shares
of common stock, respectively, for purchase at prices equal to the fair market
value at date of grant. A portion of the options outstanding under these plans
may be exercised as incentive stock options, which under current tax laws do not
provide any tax deductions to Culbro.
F-15
<PAGE>
GENERAL CIGAR HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTION PLANS (CONTINUED)
Options are not exercisable until three years from the date of grant and may
be exercised over a period ending not later than ten years from the date of
grant. The exercise period for each grant was determined by Culbro's
Compensation Committee.
At November 30, 1996, a total of 400,000 and 40,300 shares under the 1996
Plan and 1992 Plan, respectively, were available for future grant. There are no
shares available for future grant under the 1991 Plan. None of the options
outstanding at November 30, 1996 may be exercised as stock appreciation rights.
Transactions under the 1996, 1992 and 1991 Plans are summarized as follows:
<TABLE>
<S> <C>
Options outstanding at November 27, 1993.................................. 280,700
Granted during 1994....................................................... 88,300
Expired, canceled and exercised........................................... (33,400)
-----------
Options outstanding at December 3, 1994................................... 335,600
Granted during 1995....................................................... 68,000
Expired, canceled and exercised........................................... (92,200)
-----------
Options outstanding at December 2, 1995................................... 311,400
Granted during 1996....................................................... 134,400
Expired, canceled and exercised........................................... (103,286)
-----------
Options outstanding at November 30, 1996.................................. 342,514
-----------
-----------
Option prices range between:......................................... $12.25 and $80.00
Options exercisable:
December 3, 1994.......................................................... 109,000
December 2, 1995.......................................................... 86,100
November 30, 1996......................................................... 78,114
Expiration of the 1991 Plan............................................... 2001
Expiration of the 1992 Plan............................................... 2002
Expiration of the 1996 Plan............................................... 2006
Number of option holders at November 30, 1996............................. 13
</TABLE>
CULBRO NONEMPLOYEE DIRECTORS STOCK OPTION PLAN
Options granted under the 1996 Stock Option Plan for Nonemployee Directors
(the "1996 Non-employee Plan") and the 1992 Stock Option Plan for Nonemployee
Directors (the "1992 Nonemployee Plan") will also be converted, after adjustment
for dilution, into options to purchase common shares of the Company. Under these
plans 70,000 options have been made available to purchase shares of Culbro
common stock for purchase at prices equal to the fair market value at date of
grant. Options canceled become available for future grant. Options are not
exercisable until three years from the date of grant and may be exercised over a
period ending not later than eight years from the date of grant. As of November
30, 1996, 18,000 options remained available for future grant under the 1996
Nonemployee Plan and 3,000 options remained available for future grant under the
1992 Nonemployee Plan. None of the options outstanding at December 2, 1995 may
be exercised as stock appreciation rights.
F-16
<PAGE>
GENERAL CIGAR HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTION PLANS (CONTINUED)
Transactions under the 1996 and 1992 Nonemployee Plans are as follows:
<TABLE>
<S> <C>
Options outstanding at November 27, 1993.................................. 14,000
Granted during 1994....................................................... 14,000
-----------
Options outstanding at December 3, 1994................................... 28,000
Granted during 1995....................................................... 14,000
-----------
Options outstanding at December 2, 1995................................... 42,000
Granted during 1996....................................................... 7,000
Exercised during 1996..................................................... (6,000)
-----------
Options outstanding at November 30, 1996.................................. 43,000
-----------
-----------
Options prices range between......................................... $14.38 and $63.81
Number of option holders at November 30, 1996............................. 7
</TABLE>
EMPLOYMENT AGREEMENT
Upon consummation of the Distribution and Merger, an employment agreement
entered into in May 1994 between Culbro and an officer of Culbro will become an
obligation of the Company. The agreement provides for the issuance of 125,000
Culbro stock options, exercisable at the rate of 25,000 per year from 1995
through 1999 at an option price of $4.00 per share. These options will become
options to purchase shares of the Company, and the option price will be adjusted
to reflect the dilutive effect referred to above. Through November 30, 1996,
15,000 of these options had been exercised under this agreement. The annual
compensation expense for this agreement is $267,000 through April 1999
reflecting the amortization of the difference between the option price and the
quoted market price at the date of grant.
10. LEASES
The Company has the following noncancelable leases relating principally to a
manufacturing facility and vehicles.
CAPITAL LEASES
Future minimum lease payments under capital leases and the present value of
such payments as of November 30, 1996 were:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
1997............................................................................. $ 1,124
1998............................................................................. 907
1999............................................................................. 707
2000............................................................................. 430
2001............................................................................. 286
-----------
Total minimum lease payments..................................................... 3,454
Less: Amounts representing interest.............................................. 462
-----------
Present value of minimum lease payments (a)...................................... $ 2,992
-----------
-----------
</TABLE>
- ------------------------
(a) Includes current portion of $0.8 million on November 30, 1996.
F-17
<PAGE>
GENERAL CIGAR HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
10. LEASES (CONTINUED)
At December 2, 1995 and November 30, 1996, buildings, machinery and
equipment included capital leases amounting to $3.9 million and $4.2 million,
respectively, which is net of accumulated depreciation of $3.1 million and $3.4
million, respectively. Depreciation expense relating to capital leases was $0.7
million in 1994, 1995 and 1996.
OPERATING LEASES
Future minimum rental payments under noncancellable leases as of November
30, 1996 were:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
1997............................................................................. $ 802
1998............................................................................. 771
1999............................................................................. 735
2000............................................................................. 687
2001............................................................................. 544
Later years...................................................................... 2,175
-----------
Total minimum lease payments..................................................... $ 5,714
-----------
-----------
</TABLE>
Total rental expense for all operating leases in 1994, 1995 and 1996 was
$0.1 million, $0.1 million and $0.6 million, respectively.
11. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
NET SALES
Excise taxes paid on cigar sales of $5.5 million, $7.0 million and $7.9
million for 1994, 1995 and 1996, respectively, are included in net sales and
cost of goods sold.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Included in selling, general and administrative expenses were advertising
expenses of $1.0 million, $2.8 million and $4.4 million for 1994, 1995 and 1996,
respectively.
OTHER NONRECURRING EXPENSE
Other nonrecurring expense in 1996 includes the allocation to the Company of
charges recorded by Culbro in connection with the termination of a management
long-term incentive compensation plan which was based on Culbro's stock price,
and the acceleration of the vesting of benefits under the plan, in anticipation
of the expected Offering. Additionally, the other nonrecurring expense item
includes accruals for severance and related expenses in connection with a
headcount reduction at the Culbro corporate office. The Company's allocable
share of these expenses was determined substantially on the same basis as the
allocation of Culbro's general and administrative expenses referred to in Note 5
and is considered to be reasonable.
GAIN ON INSURANCE SETTLEMENT
The gain on insurance settlement in the 1995 statement of operations
reflects the settlement of a property insurance claim related to a 1994 fire
that destroyed an administration and warehouse facility
F-18
<PAGE>
GENERAL CIGAR HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
11. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION (CONTINUED)
owned and operated by General Cigar. The gain reflected total proceeds of $2.7
million less the book value of the destroyed building.
OTHER NONOPERATING INCOME (EXPENSE)
Other nonoperating income (expense) includes principally the net results of
leasing activity in the 387 PAS office building. In 1995, the net expense
included a breakup fee paid and certain other expenses incurred by General Cigar
to terminate a proposed agreement to sell approximately fifty percent of its
business.
INVENTORIES
Inventories consists of:
<TABLE>
<CAPTION>
DECEMBER 2, NOVEMBER 30,
1995 1996
----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies........................................ $ 30,640 $ 43,704
Work-in-process................................................... 2,633 4,529
Finished goods.................................................... 4,570 5,469
----------- ------------
$ 37,843 $ 53,702
----------- ------------
----------- ------------
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment consist of:
<TABLE>
<CAPTION>
DECEMBER 2, NOVEMBER 30, ESTIMATED
1995 1996 USEFUL LIVES
----------- ------------ ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Land........................................... $ 2,542 $ 2,534
Buildings and improvements..................... 54,592 58,225 10 to 40 years
Machinery and equipment........................ 27,830 33,470 3 to 7 years
----------- ------------
84,964 94,229
Accumulated depreciation....................... (38,472) (41,722)
----------- ------------
$ 46,492 $ 52,507
----------- ------------
----------- ------------
</TABLE>
Included in land and buildings is the Company's New York City headquarters
building, which had a cost of $39.5 million and accumulated depreciation of
$10.0 million at November 30, 1996.
Total depreciation expense was $3.2 million, $3.5 million and $3.7 million
for 1994, 1995, and 1996, respectively.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities include trade payables of $8.0
million and $11.5 million for 1995 and 1996, respectively, accrued salaries,
wages and other compensation of $5.8 million and $4.5 million for 1995 and 1996,
respectively, and other accrued liabilities of $7.0 million and $6.8 million for
1995 and 1996, respectively, primarily accrued workers compensation and general
liability insurance.
F-19
<PAGE>
GENERAL CIGAR HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
11. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION (CONTINUED)
SUPPLEMENTAL CASH FLOW INFORMATION
Tax payments were made by Culbro on behalf of the Company. General Cigar has
been included in Culbro's consolidated federal income tax returns (see Note 6).
Accordingly, tax payments made by Culbro are reflected in net transactions with
Culbro on the combined statement of cash flows. Interest paid by the Company was
$0.6 million, $1.0 million and $1.0 million for 1994, 1995 and 1996,
respectively.
12. BUSINESS SEGMENT INFORMATION
The Company's operations are conducted within one business segment
comprising the manufacturing and marketing of cigars, sold primarily in the
United States, and related activities including the distribution of lighters,
and the operation of a cigar bar. The Company's export sales are not material.
13. COMMITMENTS AND CONTINGENCIES
A portion of the insurance claims related to the loss of an administration
and warehouse facility owned and operated by General Cigar was settled in 1995
(see Note 11), but certain claims remain outstanding. The amounts, if any, for
which these claims will be settled cannot be evaluated at this time.
In connection with the sale of a former subsidiary by Culbro, the Company
remains liable on a machinery lease obligation of approximately $3.0 million
assumed by the purchaser of that former subsidiary.
At November 30, 1996 the Company has entered into firm commitments for
capital expenditures of approximately $5.7 million for the expansion of its
manufacturing and distribution facilities and the addition of machinery and
equipment.
F-20
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Directors
of Culbro Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Villazon & Company, Inc. and Subsidiary at December 31, 1995 and at October 31,
1996, and the results of their operations and their cash flows for years ended
December 31, 1994 and 1995 and the ten months ended October 31, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As disclosed in the consolidated financial statements, the Company has extensive
transactions and relationships with related parties. Because of these
relationships, it is possible that the terms of these transactions are not the
same as those that would result from transactions among wholly unrelated
parties.
PRICE WATERHOUSE LLP
Tampa, Florida
December 20, 1996
F-21
<PAGE>
VILLAZON & COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $5,132,784 $ 9,121,536
Accounts receivable:
Trade--less allowance for uncollectible accounts of $3,477 and $0................ 3,951,477 6,372,234
Related party receivables........................................................ 17,587 411,300
Insurance claim receivable....................................................... 104,110 --
Inventories...................................................................... 4,053,521 4,220,111
Advances to suppliers............................................................ -- 593,949
Prepaid expenses................................................................. 203,607 260,106
------------ ------------
Total current assets........................................................... 13,463,086 20,979,236
Cash surrender value of insurance on lives of officers, net of policy loans of
$55,027 and $0..................................................................... 867,186 1,084,949
Available-for-sale securities........................................................ 41,121 46,261
Property, plant and equipment, net................................................... 996,658 926,744
Trademarks, at cost, less amortization of $38,886, and $33,139....................... 99,736 151,504
------------ ------------
Total assets................................................................... $15,467,787 $ 23,188,694
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Debt due within one year........................................................... $ 479,736 $ 194,590
Accounts payable................................................................... 1,247,268 1,323,496
Related party payables............................................................. 12,662 1,287,223
Income taxes payable............................................................... 34,303 175,978
Accrued liabilities:
Bonuses, vacation, salaries and wages............................................ 196,294 428,543
Contribution to profit-sharing plan.............................................. 224,099 186,749
Other............................................................................ 1,423 72,743
------------ ------------
Total current liabilities...................................................... 2,195,785 3,669,322
------------ ------------
Excess of fair market value over cost of net assets acquired......................... 170,635 161,747
Long-term debt....................................................................... 3,267,205 5,396,729
Minority interest.................................................................... 290,636 344,765
------------ ------------
Total liabilities.............................................................. 5,924,261 9,572,563
------------ ------------
Commitments and contingencies (Notes 8, 9 and 11).................................... -- --
Stockholders' equity:
Common stock, $50 par value: authorized 10,000 shares; issued and outstanding 4,264
shares........................................................................... 213,200 213,200
Capital in excess of par value..................................................... 223,659 223,659
Unrealized gains on securities..................................................... 41,121 46,261
Retained earnings.................................................................. 9,065,546 13,133,011
------------ ------------
Total stockholders' equity..................................................... 9,543,526 13,616,131
------------ ------------
Total liabilities and stockholders' equity..................................... $15,467,787 $ 23,188,694
------------ ------------
------------ ------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F-22
<PAGE>
VILLAZON & COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS
DECEMBER 31, ENDED
---------------------------- OCTOBER 31,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net sales........................................................... $ 22,464,641 $ 27,241,820 $ 34,674,257
------------- ------------- -------------
Costs and expenses:
Cost of sales..................................................... 14,184,218 17,030,427 20,785,924
Selling, general and administrative............................... 4,656,384 5,102,164 4,607,815
------------- ------------- -------------
18,840,602 22,132,591 25,393,739
------------- ------------- -------------
Operating income.................................................... 3,624,039 5,109,229 9,280,518
------------- ------------- -------------
Other income (expense):
Interest income................................................... 32,222 135,937 172,823
Interest expense.................................................. (279,817) (455,815) (475,384)
Other............................................................. 60,276 41,224 94,524
------------- ------------- -------------
(187,319) (278,654) (208,037)
------------- ------------- -------------
Income from continuing operations before income taxes and minority
interest.......................................................... 3,436,720 4,830,575 9,072,481
------------- ------------- -------------
Income taxes:
Current........................................................... 89,758 129,220 276,160
Deferred.......................................................... (3,987) 7,643 --
------------- ------------- -------------
Total income taxes.................................................. 85,771 136,863 276,160
------------- ------------- -------------
Income before minority interest in earnings......................... 3,350,949 4,693,712 8,796,321
Minority interest share of earnings of consolidated subsidiary...... (16,172) (32,652) (54,129)
------------- ------------- -------------
Net income.......................................................... $ 3,334,777 $ 4,661,060 $ 8,742,192
------------- ------------- -------------
------------- ------------- -------------
Earnings per share.................................................. $ 782.08 $ 1,093.12 $ 2,050.23
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F-23
<PAGE>
VILLAZON & COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994 AND 1995,
AND TEN MONTHS ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN TOTAL
----------------------- EXCESS OF UNREALIZED RETAINED STOCKHOLDERS'
SHARES AMOUNT PAR VALUE GAINS EARNINGS EQUITY
----------- ---------- ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993.................. 4,264 $ 213,200 $ 223,659 $ -- $ 5,685,093 $ 6,121,952
Net income for the year 1994................ 3,334,777 3,334,777
Distributions to stockholders............... (1,314,685) (1,314,685)
----- ---------- ---------- ----------- ------------- -------------
Balance at December 31, 1994.................. 4,264 213,200 223,659 7,705,185 8,142,044
Change in unrealized gains on
available-for-sale securities............. 41,121 41,121
Net income for the year 1995................ 4,661,060 4,661,060
Distributions to stockholders............... (3,300,699) (3,300,699)
----- ---------- ---------- ----------- ------------- -------------
Balance at December 31, 1995.................. 4,264 213,200 223,659 41,121 9,065,546 9,543,526
Change in unrealized gains on
available-for-sale securities............. 5,140 5,140
Net income for the ten months ended October
31, 1996.................................. 8,742,192 8,742,192
Distributions to stockholders............... (4,674,727) (4,674,727)
----- ---------- ---------- ----------- ------------- -------------
Balance at October 31, 1996................... 4,264 $ 213,200 $ 223,659 $ 46,261 $ 13,133,011 $ 13,616,131
----- ---------- ---------- ----------- ------------- -------------
----- ---------- ---------- ----------- ------------- -------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F-24
<PAGE>
VILLAZON & COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS
DECEMBER 31, ENDED
-------------------------- OCTOBER 31,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................................. $ 3,334,777 $ 4,661,060 $ 8,742,192
Adjustments to reconcile net income to net cash provided by operating
activities:
Gain on sale of assets.................................................... (21,000) -- --
Depreciation and amortization............................................. 123,370 143,910 144,840
Provision for deferred income taxes....................................... (3,987) 7,643 --
Minority interest in earnings............................................. 16,172 32,652 54,129
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable--trade.............................................. (535,237) (575,468) (2,420,757)
Accounts receivable--related parties.................................... 24,650 (2,586) (393,713)
Insurance claims receivable............................................. -- (104,110) 104,110
Inventories............................................................. 1,052,671 136,697 (166,590)
Advances to suppliers................................................... -- -- (593,949)
Prepaid expenses........................................................ 56,153 (54,300) (56,499)
Trademarks.............................................................. (29,296) (34,069) (60,764)
Increase (decrease) in liabilities:
Accounts payable........................................................ 306,319 178,439 76,228
Related party payables.................................................. (690,458) (77,500) 1,274,561
Income taxes payable.................................................... 10,989 9,346 141,675
Accrued liabilities..................................................... (8,484) 16,198 266,219
------------ ------------ ------------
Net cash provided by operating activities................................... 3,636,639 4,337,912 7,111,682
------------ ------------ ------------
INVESTING ACTIVITIES:
Decrease (increase) in cash surrender value of insurance on lives of
officers.................................................................. 96,546 (51,655) (217,763)
Purchase of property, plant and equipment................................... (46,290) (558,320) (74,818)
Proceeds from sale of property, plant and equipment......................... 21,000 -- --
------------ ------------ ------------
Net cash provided by (used in) investing activities......................... 71,256 (609,975) (292,581)
------------ ------------ ------------
FINANCING ACTIVITIES:
Net payments on related party debt.......................................... (9,219) (45,334) (285,146)
Net proceeds from long-term debt............................................ 367,844 686,052 2,129,524
Distributions to stockholders............................................... (1,314,685) (3,300,699) (4,674,727)
------------ ------------ ------------
Net cash used by financing activities....................................... (956,060) (2,659,981) (2,830,349)
------------ ------------ ------------
Net increase in cash........................................................ 2,751,835 1,067,956 3,988,752
Cash and cash equivalents at beginning of year.............................. 1,312,993 4,064,828 5,132,784
------------ ------------ ------------
Cash and cash equivalents at end of year.................................... $ 4,064,828 $ 5,132,784 $ 9,121,536
------------ ------------ ------------
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURES:
Cash paid for income taxes.................................................. $ 67,217 $ 121,228 $ 133,168
------------ ------------ ------------
------------ ------------ ------------
Cash paid for interest...................................................... $ 278,395 $ 455,770 $ 434,704
------------ ------------ ------------
------------ ------------ ------------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Available-for-sale securities received as a result of demutualization of
insurance company......................................................... $ -- $ 41,121 $ 5,140
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F-25
<PAGE>
VILLAZON & COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Villazon & Company, Inc. (the "Company") is a Florida corporation based in
Tampa, Florida. The Company manufactures and sells cigars and related products.
The manufacturing operations are located in Tampa, Florida. The distribution
operations are based in Upper Saddle River, New Jersey. The principal markets
for the Company are within the United States. Approximately 80% of the labor
force is covered by a collective bargaining agreement which expires in March
1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts of
the Company and its majority-owned (79.01%) subsidiary, James B. Russell, Inc.
("JBR"), a New Jersey corporation based in Upper Saddle River, New Jersey. All
material intercompany accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on deposit in time deposit accounts
which mature within 90 days of purchase.
INVENTORIES
Supplies, work in process and finished goods are valued at the lower of cost
(using the first-in, first-out method) or market. Leaf tobacco is valued at the
lower of cost (using the specific identification method) or market.
Leaf tobacco includes tobacco in the process of aging, a substantial amount
of which may not be used within one year. It is industry practice to include
such inventories as current assets. Leaf tobacco also includes tobacco in bond
which is subject to customs duties upon withdrawal from bond. Following industry
practice, the Company does not include such duties in inventories until paid.
AVAILABLE-FOR-SALE SECURITIES
Management determines the appropriate classification of securities at the
time of acquisition and re-evaluates such designation as of each balance sheet
date. Marketable equity securities are classified as available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses reported in a separate component of stockholders' equity.
Available-for-sale securities at December 31, 1995, and October 31, 1996 are
equity securities in an insurance company issued at the time of conversion from
a mutual to a stock company with zero cost basis and estimated fair value of
$41,121 and $46,261, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and depreciated using
accelerated methods. Maintenance and repairs are charged to expense as incurred.
TRADEMARKS
Trademarks consist of registered tradenames of cigars or other tobacco
brands, and are initially capitalized at acquisition cost. Costs associated with
renewal of trademark registrations are also capitalized. Trademarks are being
amortized on a straight line basis over 5 to 15 years. Related amortization
expense of $4,343, $10,339 and $8,996 for the years ended December 31, 1994 and
1995 and the ten months ended October 31, 1996, respectively, is included in
selling, general and administrative expenses.
F-26
<PAGE>
VILLAZON & COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EXCESS OF FAIR MARKET VALUE OVER THE COST OF NET ASSETS ACQUIRED
The excess of the fair market value over the cost of net assets acquired
(negative goodwill) resulted from the acquisition of certain JBR stock and is
being amortized on the straight-line basis over 20 years. The related
amortization of $10,665, $10,665 and $8,888 for the years ended December 31,
1994 and 1995 and the ten months ended October 31, 1996, respectively, is
included as a reduction of selling, general and administrative expenses.
REVENUE RECOGNITION
Sales and the related costs of sales are recognized primarily upon shipment
of products. Excise taxes for the years ended December 31, 1994 and 1995, and
for the ten months ended October 31, 1996, were approximately $1,005,000,
$1,149,000 and $1,232,000, respectively, and are included in net sales and cost
of sales in the consolidated statements of income.
EARNINGS PER SHARE
Earnings per share of common stock is computed by dividing net income by the
weighted average number of common shares outstanding during the period. Primary
and fully diluted earnings per share are equivalent.
ESTIMATES
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements. Actual results could
differ from the estimates.
FINANCIAL INSTRUMENTS
The Company's financial instruments include cash and cash equivalents,
accounts receivable, advances to suppliers, cash surrender value of insurance on
lives of officers, available-for-sale securities, notes payable, accounts
payable and long-term debt. In the opinion of management, the carrying amount of
these financial instruments approximates their fair value.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of accounts receivable. The Company's customers
are geographically dispersed but are concentrated in the tobacco industry. The
Company historically has had no material losses on its accounts receivable from
customers in excess of allowances provided. The Company's two largest customers
accounted for approximately $3,516,139 (16%) and $3,136,208 (14%), $4,048,250
(15%) and $3,633,613 (13%), and $7,292,041 (21%) and $3,848,001 (11%) of net
sales for the years ended December 31, 1994 and 1995, and for the ten months
ended October 31, 1996, respectively.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Leaf tobacco..................................................... $ 502,959 $ 917,842
Work in process.................................................. 899,229 1,010,458
Finished goods................................................... 2,218,363 1,832,677
Supplies......................................................... 432,970 459,134
------------ ------------
$4,053,521 $ 4,220,111
------------ ------------
------------ ------------
</TABLE>
F-27
<PAGE>
VILLAZON & COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. ADVANCES TO SUPPLIERS
Advances to suppliers at October 31, 1996 consist of the following:
<TABLE>
<S> <C>
Advances to tobacco grower........................................ $ 390,000
Advances--other................................................... 203,949
---------
$ 593,949
---------
---------
</TABLE>
During 1996, the Company, under a three year verbal agreement with a tobacco
supplier, advanced $390,000 to finance the growing, harvesting, curing and
sorting of tobacco. The Company will be reimbursed for its advances from annual
proceeds from the sale of crop. In addition, annual net income, if any, of the
supplier during the term of the arrangement will be divided equally between the
supplier and the financiers of the tobacco growing venture. The Company will
have the right of first refusal to purchase its proportionate share of tobacco
grown during the term of the arrangement. The Company is at risk for potential
crop loss. As of October 31, 1996, no tobacco has been purchased by the Company
from the supplier.
The Company has also advanced approximately $204,000 to two tobacco
suppliers in South America and Mexico during 1996 as a deposit on future
purchases.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment and related accumulated depreciation and
amortization of capital leases are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1995 1996
------------- -------------
<S> <C> <C>
Land............................................................ $ 51,526 $ 51,526
Buildings and improvements...................................... 434,145 434,145
Machinery and equipment......................................... 555,244 550,960
Transportation equipment........................................ 543,423 543,423
Office furniture and equipment.................................. 489,576 518,694
Leasehold improvements.......................................... 205,752 201,130
Ground lease rights............................................. 132,214 132,214
------------- -------------
2,411,880 2,432,092
Less accumulated depreciation................................... (1,415,222) (1,505,348)
------------- -------------
$ 996,658 $ 926,744
------------- -------------
------------- -------------
</TABLE>
Depreciation is determined on the straight-line and accelerated methods
using estimated useful lives as follows:
<TABLE>
<S> <C>
5--31 1/2
Buildings and improvements.................................... years
Machinery and equipment....................................... 4--15 years
Transportation equipment...................................... 3--12 years
Office furniture and equipment................................ 5--10 years
Leasehold improvements........................................ 5--10 years
</TABLE>
Ground lease rights, including land and building, were acquired in a 1980
acquisition of a cigar company with 72 years of the original 99 year lease term
remaining. The portion of the purchase price related to the building is included
in buildings and improvements above. The lease rights related to the land are
amortized based on the straight-line method over the remaining life of the lease
which is 72 years.
Depreciation expense was $129,692 and $144,236 in 1994 and 1995,
respectively and $144,732 for the ten months ended October 31, 1996.
F-28
<PAGE>
VILLAZON & COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. DEBT
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Prime plus 1/2% (8.75% at October 31, 1996) unsecured demand notes payable to related
parties............................................................................ $ 461,352 $ 182,649
Prime plus 1/2% (8.75% at October 31, 1996) unsecured notes payable to officers and
stockholders, due in 1999 or payable 13 months after notice........................ 3,256,370 5,394,043
12.07% capital lease obligation on vehicles due $1,203 per month through 1997........ 18,685 9,165
10.38% capital lease obligation on UPS manifest system, due $1,912 per quarter
through 1997....................................................................... 10,534 5,462
------------ ------------
3,746,941 5,591,319
Less amount due within one year...................................................... (479,736) (194,590)
------------ ------------
Long-term debt due after one year.................................................... $3,267,205 $ 5,396,729
------------ ------------
------------ ------------
</TABLE>
Total interest expense to related parties was $267,634 in 1994, $445,180 in 1995
and $469,569 for the ten months ended October 31, 1996.
The maturities of long-term debt at October 31, 1996 are as follows:
<TABLE>
<S> <C>
1997............................................................ $ 194,590
1998............................................................ --
1999............................................................ 5,396,729
---------
$5,591,319
---------
---------
</TABLE>
7. RELATED PARTY TRANSACTIONS
The Company has had transactions in the normal course of business with
various other corporations, certain of whose directors or officers are also
directors of the Company.
HATSA
Certain stockholders of the Company hold a 45% interest in Honduras American
Tabaco, S.A. ("HATSA"). The Company purchases cigars, boxes and tobacco leaf
from HATSA, and the Company sells tobacco and other supplies purchased from
third parties to HATSA. Purchases and sales are netted, resulting in a net
receivable or payable to HATSA. The net receivable (payable) was approximately
$17,587 at December 31, 1995 and ($1,287,223) at October 31, 1996. Payments to
HATSA are made when requested by HATSA. Approximately $5,668,000 in purchases
were made in 1994, $7,450,000 in 1995 and $9,637,000 as of October 31, 1996, and
approximately $1,590,000 in sales were made in 1994, $2,141,000 in 1995 and
$2,618,000 as of October 31, 1996.
NATSA
Nicaragua American Tabaco, S.A. ("NATSA") was formed in 1996 and is owned by
parties related to the Company including a minority stockholder and an employee.
The Company began purchasing cigars from NATSA in 1996 and, at October 31, 1996,
is the only customer. The Company has advanced money to NATSA for future
purchases and sells tobacco purchased from other suppliers to NATSA, resulting
in a net receivable from NATSA of approximately $411,300.
MANUFACTURERS BANK
Certain stockholders and members of the Company's Board of Directors are
also stockholders and members of the Board of Directors of The Manufacturers
Bank of Florida. The Company uses banking
F-29
<PAGE>
VILLAZON & COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. RELATED PARTY TRANSACTIONS (CONTINUED)
services provided by and purchases certificates of deposit issued by The
Manufacturers Bank of Florida. Fees paid to The Manufacturers Bank of Florida
were immaterial.
TINDER BOX INTERNATIONAL
A major stockholder of the Company owns 37.5% of Tinder Box International,
Ltd. ("TBI"). In August 1989, the Company entered into a ten-year license
agreement with TBI which provides the Company the right to sell and distribute
specialized products. In consideration of the license granted, the Company
remits a royalty to TBI based on a percentage of net sales of the products sold
under the license. The license agreement provides for a 6% royalty percentage
which will increase to 7% or 8% if related sales during any twelve-month period
exceed $3,000,000 or $5,000,000, respectively. Prior to 1994, the license
agreement was verbally amended to reduce the royalty percentage to 3% on sales
$3,000,000 and less. Royalty expense for the years ended December 31, 1994 and
1995 was approximately $37,000 and $43,000, respectively, and was $51,000 for
the ten months ended October 31, 1996 (at 3% of the related sales).
The terms of the license agreement also contain certain covenants whereby at
the option of the licensee or licensor, the license agreement may be terminated.
These terms include the sale of majority ownership of the Company or a sale of
all or a substantial portion of the Company's stock. Additionally, the Company
has agreed that if TBI is sold, the Company will terminate its ownership of
Tinderbox Wholesale Division which was originally purchased from TBI. TBI shall
purchase all of the Company's inventories of Tinder Box Products, at licensee's
cost, and all of the equipment, fixtures and supplies which the Company
purchased from TBI at the lesser of market value or depreciated cost.
OTHER
Rentals paid to related parties were approximately $302,500 in 1994 and
1995, and $246,500 for the ten months ended October 31, 1996. See Note 11 for
related party leases.
See Note 6 for related party debt.
8. STOCK PURCHASE AGREEMENT AND PROPOSED SALE
Under an agreement between the Company and its stockholders, any stockholder
desiring to pledge, encumber or otherwise dispose of his stock in the Company
during his lifetime shall first obtain the written consent of the Company and
the stockholders. Stock may be sold, however, if the stock is first offered to
the Company and the nonselling stockholders at the same price and on the same
terms and conditions as those offered to the third party. The offered shares may
be sold to any other person if both the Company and the remaining stockholders
do not exercise their rights. Under terms of the agreement, the purchase price
of each share of stock purchased in a transfer upon death shall be $3,517.82
unless redetermined by agreement of the Company and the stockholders.
The stock purchase agreement also calls for the Company to maintain life
insurance policies to insure or partially insure its obligations under the
agreement. Additionally, in the event a stockholder sells all of his stock in
the Company, the stockholder shall have the right to purchase from the Company
the insurance policies on his life for a price equal to the cash surrender value
and accumulated dividends, less the balance of any outstanding loans.
F-30
<PAGE>
VILLAZON & COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. EMPLOYEE BENEFITS
All factory employees are participants in the Cigar Makers' Union Local 533,
Retail, Wholesale and Department Store Union Plan which is a multi-employer
defined benefit plan. The Company's contribution is based on the rate of $0.70
per hour for the first 40 hours per week per employee in 1994, 1995 and 1996.
Under the Employee Retirement Income Security Act of 1974, as amended by the
Multi-employer Pension Plan Amendments Act of 1980, an employer is liable for a
proportionate part of the plan's unfunded vested benefits. The relative position
of each employer with respect to actuarial present value of accumulated benefits
and net assets available for benefits, however, is not available to the Company.
Profit-sharing plans cover nonunion employees who meet certain eligibility
requirements. The plans are funded by discretionary contributions from the
Company and JBR. Contributions to the profit-sharing plans were $216,584 and
$224,099 in 1994 and 1995, respectively, and $186,749 for the ten months ended
October 31, 1996.
The expenses of these plans are as follows:
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS
DECEMBER 31, ENDED
---------------------- OCTOBER 31,
1994 1995 1996
---------- ---------- -----------
<S> <C> <C> <C>
Union plan charge to cost of sales........................................... $ 128,976 $ 143,234 $ 117,000
Profit-sharing plan charged to selling, general and administrative
expenses................................................................... 216,584 224,099 186,749
---------- ---------- -----------
$ 345,560 $ 367,333 $ 303,749
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
10. INCOME TAXES
The Company has elected by unanimous consent of its stockholders to be taxed
under the provisions of Subchapter S of the Internal Revenue Code. Under those
provisions, the Company generally does not pay federal corporate income taxes on
its taxable income. Instead, the stockholders are liable for individual federal
income taxes on their respective share of the Company's taxable income. Certain
states do not recognize the Subchapter S election and, accordingly, require the
payment of taxes by the Company.
JBR is subject to income tax under Subchapter C of the Internal Revenue
Code. No significant differences exist between book and taxable income and,
accordingly, JBR's effective tax rate approximates the combined state and
federal statutory rate.
The provision (benefit) for income taxes for the years ended December 31,
1994 and 1995, respectively, and the ten months ended October 31, 1996 consisted
of the following:
<TABLE>
<CAPTION>
TEN MONTHS
YEARS ENDED ENDED
DECEMBER 31, OCTOBER
--------------------- 31,
1994 1995 1996
--------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal.................................................. $ 43,716 $ 62,107 $ 142,307
State.................................................... 46,042 67,113 133,853
Deferred................................................... (3,987) 7,643 --
--------- ---------- ----------
$ 85,771 $ 136,863 $ 276,160
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
F-31
<PAGE>
VILLAZON & COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company occupies premises in Upper Saddle River, New Jersey. The
building is owned by Glordiane Realty, a partnership of the principals of the
Company. A ten year lease, effective December 1, 1984, provided for rent of
approximately $24,000 per month effective July 1, 1985 plus a proportionate
share of any increase in realty taxes and expenses. The lease was renewed for an
additional five years under the same terms and conditions as of December 1, 1994
and expires on December 1, 1999.
Future minimum rental commitments for all noncancelable operating leases are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, TOTAL
- ---------------------------------------------------------------------------------- ----------
<S> <C>
1997.............................................................................. $ 314,500
1998.............................................................................. 292,500
1999.............................................................................. 292,500
</TABLE>
LITIGATION
The Company is party to litigation in the normal course of business. While
the result of litigation cannot be predicted with certainty, the Company
believes that the final outcome of all litigation will not have a material
adverse effect on the Company's consolidated financial condition.
ENVIRONMENTAL CLAIM
In May 1995, the Company and other parties were notified by the Metropolitan
Dade Environmental Resource Management Office of alleged environmental
contamination on a parcel of land of which Villazon is a lessee/sub-lessor. The
Company contends that they are not the cause of the contamination at this site.
The ultimate resolution of this matter is not known at this time.
12. SUBSEQUENT EVENT
On November 25, 1996, the Company entered into a preliminary agreement to
sell substantially all of the assets of the Company to General Cigar Co., Inc.
The purchase agreement and related terms have not been finalized.
F-32
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of
Culbro Corporation
In our opinion, the accompanying balance sheets and the related statements of
operations and retained earnings and of cash flows present fairly, in all
material respects, the financial position of Honduras American Tabaco, S.A. de
C.V. at December 31, 1995, and October 31, 1996 and the results of its
operations and its cash flows for the years ended December 31, 1994 and 1995 and
the ten months ended October 31, 1996 in conformity with generally accepted
accounting principles in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in the financial statements, the Company has extensive transactions
and relationships with related parties. Because of these relationships, it is
possible that the terms of these transactions are not the same as those that
would result from transactions among wholly unrelated parties.
PRICE WATERHOUSE
Tegucigalpa, Honduras
December 20, 1996
F-33
<PAGE>
HONDURAS AMERICAN TABACO, S.A. DE C.V.
BALANCE SHEETS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash............................................................................... $ 611,512 $ 579,423
Accounts receivable--trade......................................................... 115,314 110,712
Related party receivables.......................................................... -- 1,287,823
Inventories........................................................................ 3,670,742 4,296,294
Prepaid expenses................................................................... 14,424 47,365
------------ ------------
Total current assets............................................................. 4,411,992 6,321,617
Property, plant and equipment, net................................................. 395,808 561,381
Other assets....................................................................... 6,000 6,000
------------ ------------
Total assets..................................................................... $4,813,800 $ 6,888,998
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities........................................... $ 83,020 $ 678,877
Related party payables............................................................. 280,623 102,237
Dividends payable.................................................................. -- 374,960
------------ ------------
Total current liabilities........................................................ 363,643 1,156,074
------------ ------------
Commitments (Note 9)................................................................. -- --
STOCKHOLDERS' EQUITY
Common stock....................................................................... 2,105,328 2,105,328
Retained earnings.................................................................. 2,344,829 3,627,596
------------ ------------
Total stockholders' equity....................................................... 4,450,157 5,732,924
------------ ------------
Total liabilities and stockholders' equity....................................... $4,813,800 $ 6,888,998
------------ ------------
------------ ------------
</TABLE>
The accompanying notes to financial statements are an integral part
of these financial statements.
F-34
<PAGE>
HONDURAS AMERICAN TABACO, S.A. DE C.V.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS
DECEMBER 31, ENDED
--------------------------- OCTOBER 31,
1994 1995 1996
------------ ------------- -------------
<S> <C> <C> <C>
Net sales............................................................. $ 5,832,953 $ 7,282,830 $ 10,197,501
------------ ------------- -------------
Cost and expenses
Cost of goods sold.................................................. 3,818,682 5,249,450 6,758,968
Administrative expenses............................................. 168,099 202,965 214,444
------------ ------------- -------------
Operating profit...................................................... 1,846,172 1,830,415 3,224,089
Other income (expense)................................................ 9,048 (2,045) (35,490)
Foreign currency losses............................................... (344,818) (337,799) (54,643)
------------ ------------- -------------
Net income............................................................ 1,510,402 1,490,571 3,133,956
Retained earnings--beginning of the period............................ 1,562,881 2,302,035 2,344,829
Distribution to stockholders.......................................... (771,248) (1,447,777) (1,851,189)
------------ ------------- -------------
Retained earnings--end of the period.................................. $ 2,302,035 $ 2,344,829 $ 3,627,596
------------ ------------- -------------
------------ ------------- -------------
Earnings per share.................................................... $ 7.55 $ 7.45 $ 15.67
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
The accompanying notes to financial statements are an integral part
of these financial statements.
F-35
<PAGE>
HONDURAS AMERICAN TABACO, S.A. DE C.V.
STATEMENTS OF CASH FLOWS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS
DECEMBER 31, ENDED
---------------------------- OCTOBER 31,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income......................................................... $ 1,510,402 $ 1,490,571 $ 3,133,956
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation....................................................... 78,900 78,359 72,991
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable--trade....................................... 66,124 (32,426) 4,602
Related party receivables........................................ 930,820 77,500 (1,287,823)
Inventories...................................................... (840,352) (608,206) (625,552)
Prepaid expenses................................................. 7,503 (4,485) (32,941)
Increase (decrease) in liabilities:
Related party payables........................................... 23,050 107,438 (178,386)
Accounts payable and accrued liabilities......................... (248,452) (38,105) 595,857
------------- ------------- -------------
Net cash provided by operating activities............................ 1,527,995 1,070,646 1,682,704
------------- ------------- -------------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment.......................... (290,381) (76,672) (238,564)
------------- ------------- -------------
Net cash used in investing activities................................ (290,381) (76,672) (238,564)
------------- ------------- -------------
FINANCING ACTIVITIES:
Paid in capital.................................................... -- 475,698 --
Distributions to stockholders...................................... (771,248) (1,447,777) (1,476,229)
------------- ------------- -------------
Net cash used in financing activities................................ (771,248) (972,079) (1,476,229)
------------- ------------- -------------
Net (decrease) increase in cash...................................... 466,366 21,895 (32,089)
Cash at beginning of the period...................................... 123,251 589,617 611,512
------------- ------------- -------------
Cash at end of the period............................................ $ 589,617 $ 611,512 $ 579,423
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes to financial statements are an integral part
of these financial statements.
F-36
<PAGE>
HONDURAS AMERICAN TABACO, S.A. DE C.V.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Honduras American Tabaco, S.A. de C.V. (the "Company") manufactures and
sells cigars and related tobacco products. The Company sells approximately 95%
of its production to Villazon & Company, Inc., a related party company located
in the United States.
The Company's maximum authorized fully paid common stock is L 10,000,000
(Honduran Lempiras (L)) (equivalent to $2,105,328 at October 31, 1996)
represented by 200,000 shares of par value L 50 each.
2. SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies adopted by the Company, in
accordance with generally accepted accounting principles in the United States,
are summarized as follows:
TRANSLATION OF FINANCIAL STATEMENTS INTO U.S. DOLLARS
The Company's records are maintained in Honduran Lempiras (L), consequently
a translation into U.S. dollars has been applied to the local currency prepared
financial statements in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 52, "Foreign Currency Translation." The U.S. dollar has
been established as the functional currency for purposes of the translation.
Monetary assets and liabilities are translated at year-end exchange rates and
non-monetary items are translated at historical rates. Income and expense
accounts are translated at the average rates in effect during the year, except
for depreciation and cost of product sales which are translated at historical
rates. Gains and losses from changes in exchange rates are recognized in income
in the year of occurrence.
INVENTORIES
Supplies, work in process and finished goods are stated at the lower of cost
or market using the first-in, first-out method. Leaf tobacco is valued at the
lower of cost or market using the specific identification method. Leaf tobacco
includes tobacco in the process of aging, a substantial amount of which may not
be used within one year. It is industry practice to include such inventories as
current assets.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation is
determined on a straight-line basis over the estimated useful asset lives for
financial statement reporting purposes. Expenditures for maintenance and repairs
are charged to expense when incurred.
REVENUE RECOGNITION
Sales and the related costs of sales are recognized primarily upon shipment
of products. Sales are presented net of goods returned by customers.
EARNINGS PER SHARE
Earnings per share of common stock is computed by dividing net income by the
number of common shares outstanding during the period.
F-37
<PAGE>
HONDURAS AMERICAN TABACO, S.A. DE C.V.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ESTIMATES
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements. Actual results could
differ from the estimates.
FINANCIAL INSTRUMENTS
The Company's financial instruments include cash, accounts receivable and
accounts payable. In the opinion of management, the carrying amount of these
financial instruments approximates their fair value.
CONCENTRATION OF CREDIT RISKS
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of accounts receivable. The Company
historically has had no material losses on its accounts receivable in excess of
allowances provided. The Company's largest customer is Villazon & Company, Inc.
which accounted for approximately 92%, 95% and 92% of net sales for the years
ended December 31, 1994, 1995 and the ten months ended October 31, 1996,
respectively.
SEVERANCE COMPENSATION
Accrued severance compensation for employees under the terms of the Honduran
Labor Code may be payable to them in the event of dismissal. A definite
liability in this respect exists at October 31, 1996 in the amount of $147,038.
This amount is included in the accounts payable and accrued liabilities balance.
It is the Company's policy to pay this compensation to its employees regardless
of dismissal events at year-end.
ADJUSTMENTS AND RECLASSIFICATIONS
Certain adjustments and reclassifications in the financial statements have
been made to comply with accounting principles generally accepted in the United
States.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Leaf tobacco...................................................... $ 2,747,267 $ 2,646,532
Work in process................................................... -- 38,143
Finished goods.................................................... -- 293,022
Supplies.......................................................... 914,982 1,031,464
Leaf tobacco in transit........................................... -- 241,165
Goods in transit.................................................. 8,493 45,968
------------ ------------
$ 3,670,742 $ 4,296,294
------------ ------------
------------ ------------
</TABLE>
F-38
<PAGE>
HONDURAS AMERICAN TABACO, S.A. DE C.V.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment and related accumulated depreciation are
summarized as follows:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Land.............................................................. $ 36,595 $ 157,835
Building and improvements......................................... 422,731 451,427
Machinery and equipment........................................... 486,496 564,702
Transportation equipment.......................................... 127,967 127,966
Office furniture and equipment.................................... 91,128 101,551
------------ ------------
1,164,917 1,403,481
Less--Accumulated depreciation.................................... (769,109) (842,100)
------------ ------------
$ 395,808 $ 561,381
------------ ------------
------------ ------------
</TABLE>
Depreciation is determined on the straight-line method using estimated
useful lives as follows:
<TABLE>
<S> <C>
Buildings and improvements........................................ 10 years
Machinery and equipment........................................... 4-5 years
Transportation equipment.......................................... 5 years
Office furniture and equipment.................................... 4-5 years
</TABLE>
5. RELATED PARTY TRANSACTIONS
Certain stockholders of the Company have a combined 92.5% ownership interest
in Villazon & Company, Inc. ("Villazon"). The Company purchases tobacco, boxes
and other supplies used in production from Villazon and from Oliva Tobacco
Company through Villazon. The Company also sells cigars, boxes and tobacco leaf
to Villazon. Balances of receivable and payables with related parties are
presented as follows:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Receivable:
Villazon & Company, Inc......................................... $ -- $ 1,287,823
------------ ------------
------------ ------------
Payables:
Villazon & Company, Inc......................................... $ 17,587 $ --
Compania Agricola La Venta S.A.................................. 52,497 16,248
Tabacalera Rio Jagua S.A........................................ 30,272 24,841
Procesadora de Tabaco S.A....................................... -- 39,381
Officials and employees......................................... 180,267 21,767
------------ ------------
$ 280,623 $ 102,237
------------ ------------
------------ ------------
</TABLE>
Payments from Villazon are made when requested by the Company. Approximately
$5,668,000, $7,450,000 and $9,637,000 in sales were made in 1994, 1995 and as of
October 31, 1996, respectively to Villazon, and approximately $1,590,000,
$2,141,000 and $2,618,000 in purchases were made in 1994, 1995 and as of October
31, 1996, respectively from Villazon. Also, purchases from Oliva Tobacco Company
amounted to approximately $2,081,000, $2,531,000 and $2,648,000 for 1994, 1995
and as of October 31, 1996, respectively.
F-39
<PAGE>
HONDURAS AMERICAN TABACO, S.A. DE C.V.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. STOCK PURCHASE AGREEMENT AND PROPOSED SALE
Under an agreement between the Company and its stockholders, any stockholder
desiring to pledge, encumber or otherwise dispose of his stock in the Company
during his lifetime shall first obtain the written consent of the Company and
the stockholders. Stock may be sold, however, if the stock is first offered to
the nonselling stockholders at the same price and on the same terms and
conditions as those offered to the third party. The offered shares may be sold
to any other person if both the Company and the remaining stockholders do not
exercise their rights. Under terms of the agreement, no purchase price has been
predetermined for each share of stock purchased in a transfer upon death.
7. TAX BENEFITS
The Company is eligible to benefit from the Temporary Import Regime (RIT)
through resolutions issued by the Ministry of Economy, which expire in the year
1998. Tax benefits include:
a) Exemption from payment of certain taxes and customs duties on imports of
equipment and raw materials used in the production and exportation of
cigars and related products.
b) Exemption from payment of income tax, for a 10 year period, on profits
generated by cigars and related products exports to foreign countries,
excluding the Central American region.
8. OPERATING LEASES
Future minimum rental payments under a noncancellable lease agreement with a
related party as of October 31, 1996 are:
<TABLE>
<S> <C>
1996.............................................................. $ 6,000
1997.............................................................. 45,000
1998.............................................................. 48,000
1999.............................................................. 12,000
---------
$ 111,000
---------
---------
</TABLE>
Total rental expenses for operating leases were approximately $12,000,
$16,000 and $27,800 in 1994, 1995 and 1996, respectively.
9. COMMITMENTS
On November 25, 1996, the Company's shareholders entered into a preliminary
agreement to sell all of their stock of the Company to General Cigar Co., Inc.
for $20 million. The purchase agreement and related terms have not been
finalized.
F-40
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THAT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SHARES BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 10
Use of Proceeds................................. 17
Dividend Policy................................. 17
Capitalization.................................. 18
Dilution........................................ 19
Selected Combined Financial Data................ 20
Unaudited Pro Forma Combined Financial
Statements.................................... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 24
Business........................................ 29
Management...................................... 43
Certain Employee Benefit Matters................ 47
The Asset Transfers, The Distribution and The
Merger........................................ 53
Certain Relationships and Related
Transactions.................................. 57
Principal Stockholders.......................... 57
Description of Capital Stock.................... 60
Description of the Credit Facility.............. 63
Shares Eligible for Future Sale................. 64
Underwriting.................................... 65
Legal Matters................................... 66
Experts......................................... 67
Additional Information.......................... 67
Financial Statements............................ F-1
</TABLE>
--------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENT OR
SUBSCRIPTIONS.
6,000,000 SHARES
[LOGO]
GENERAL CIGAR
CLASS A COMMON STOCK
-----------------
PROSPECTUS
-----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SMITH BARNEY INC.
FEBRUARY , 1997
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses expected to be incurred in
connection with the issuance and distribution of Common Stock registered hereby,
all of which expenses, except for the Securities and Exchange Commission
registration fee, the National Association of Securities Dealers, Inc. filing
fee and the New York Stock Exchange listing application fee, are estimates:
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
- ------------------------------------------------------------------------------------------------- ---------------
<S> <C>
Securities and Exchange Commission registration fee.............................................. $ 36,590.91
National Association of Securities Dealers, Inc. filing fee...................................... 12,575
New York Stock Exchange listing application fee.................................................. 195,000
Legal fees and expenses.......................................................................... 350,000
Accounting fees and expenses..................................................................... 600,000
Printing and engraving fees and expenses......................................................... 250,000
Blue sky fees and expenses....................................................................... 3,000
Transfer agent fees and expenses................................................................. 2,000
Miscellaneous expenses........................................................................... 50,834.09
---------------
Total........................................................................................ 1,500,000
---------------
---------------
</TABLE>
- ------------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is a Delaware corporation. Reference is made to Section
102(b)(7) of the Delaware General Corporation Law (the "DGCL"), which enables a
corporation in its original certificate of incorporation or an amendment thereto
to eliminate or limit the personal liability of a director for violations of the
director's fiduciary duty, except (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) pursuant to Section 174 of the DGCL (providing for liability of
directors for unlawful payments of dividends of unlawful stock purchase or
redemptions) or (iv) for any transaction from which a director derived an
improper personal benefit.
Reference is also made to Section 145 of the DGCL, which provides that a
corporation may indemnify any person, including an officer or director, who is,
or is threatened to be made, party to any threatened, pending or completed legal
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person was an officer, director, employee or agent
of such corporation or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided such officer,
director, employee or agent acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the corporation's best interest and, for
criminal proceeding, had no reasonable cause to believe that his conduct was
unlawful. A Delaware corporation may indemnify any officer or director in any
action by or in the right of the corporation under the same conditions, except
that no indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses that
such officer or director actually and reasonably incurred.
II-1
<PAGE>
Article VII of the Bylaws of the Company (filed as Exhibit 3.2) provides for
indemnification of the officers and directors to the full extent permitted by
applicable law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
1,000 shares (the "Original Shares") of common stock, par value $0.01 per
share, were issued to Culbro Corporation on December 20, 1996. On February 3,
1997, pursuant to the Amended and Restated Certificated of Incorporation of the
Company, each Original Share was exchanged for one share of Class B Common
Stock. Immediately following such exchange, the Company effected a stock
dividend pursuant to which Culbro received 20,086.182 additional shares of Class
B Common Stock for each share held by Culbro.
ITEM 16. EXHIBITS.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement among General Cigar Holdings, Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and Smith Barney Inc.
2.1 Form of Distribution Agreement among Culbro Corporation, Culbro Land Resources, Inc. and General Cigar
Holdings, Inc.
2.2 Form of Merger Agreement among Culbro Corporation and General Cigar Holdings, Inc.
3.1 Certificate of Incorporation of General Cigar Holdings, Inc.
3.2 Bylaws of General Cigar Holdings, Inc.
*5.1 Opinion of Latham & Watkins regarding the legality of the securities being issued
10.1 Asset Purchase Agreement, dated as of December 20, 1996, among General Cigar Co., Inc., Villazon &
Company, Inc. and the Stockholders (as defined therein)
10.2 Stock Purchase Agreement, dated as of December 23, 1996, among General Cigar Co., Inc., Honduras
American Tabaco, S.A. de C.V., and the Sellers (as defined therein), as amended
*10.3 Form of Tax Sharing Agreement among Culbro Corporation, Culbro Land Resources, Inc. and General Cigar
Holdings, Inc.
10.4 Form of Benefits and Employment Matters Allocation Agreement among Culbro Corporation, Culbro Land
Resources, Inc. and General Cigar Holdings, Inc.
10.5 Form of Services Agreement among Culbro Corporation, Culbro Land Resources, Inc. and General Cigar
Holdings, Inc.
10.6 Form of Agricultural Lease between Culbro Land Resources, Inc. and General Cigar Holdings, Inc.
10.7 Employment Agreement between Culbro Corporation and Jay M. Green, dated as of April 8, 1994 and as
amended on January 11, 1997
10.8 Form of 1997 Stock Option Plan of General Cigar Holdings, Inc.
10.9 1996 Stock Plan of Culbro Corporation, dated as of March 15, 1996 (incorporated by reference to the
definitive proxy statement of Culbro Corporation, dated March 15, 1996, for its Annual Meeting of
Shareholders held on April 11, 1996)
10.10 1992 Stock Plan of Culbro Corporation, dated December 10, 1993 (incorporated by reference to the
definitive proxy statement of Culbro Corporation, dated March 3, 1993, for its Annual Meeting of
Shareholders held on April 8, 1993)
10.11 Stock Option Plan for Non-employee Directors of Culbro Corporation, dated December 10, 1993
(incorporated by reference to the definitive proxy statement of Culbro Corporation, dated March 3,
1993, for its Annual Meeting of Shareholders held on April 8, 1993)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.12 1991 Employees Incentive Stock Option Plan of Culbro Corporation, dated as of January 31, 1991 and as
amended on February 12, 1985 (incorporated by reference to the definitive proxy statement of Culbro
Corporation, dated April 9, 1991, for its Annual Meeting of Shareholders held on May 9, 1993)
10.13 Annual Incentive Compensation Plan of Culbro Corporation, dated as of December 7, 1995
10.14 Annual Incentive Compensation Plan of General Cigar Co., Inc., dated as of December 7, 1995
10.15 Long Term Performance Plan of Culbro Corporation for the three-year period 1995-1997
10.16 Deferred Incentive Compensation Plan of Culbro Corporation, dated as of December 13, 1982 and as
amended on February 12, 1985
10.17 Credit Agreement dated as of January 21, 1997 among General Cigar Co., Inc. as Borrower; General Cigar
Holdings, Inc., 387 PAS Corp., Club Macanudo, Inc., GCH Transportation, Inc. and Villazon & Company,
Inc., as Guarantors; the Lenders from time to time parties thereto; and Chase Securities as arranger,
with the Chase Manhattan Bank as Administrative Agent
10.18 Employment and Consulting Agreement between General Cigar Co., Inc. and Frank Llaneza, dated as of
January 21, 1997
10.19 Employment and Consulting Agreement between General Cigar Co., Inc. and Daniel Blumenthal, dated as of
January 21, 1997
10.20 Employment and Consulting Agreement between General Cigar Co., Inc. and Constantino Gonzalez, dated as
of January 21, 1997
21.1 Subsidiaries of General Cigar Holdings, Inc.
23.1 Consent of Price Waterhouse LLP regarding the combined financial statements of the Company
23.2 Consent of Price Waterhouse LLP regarding the consolidated financial statements of Villazon & Company,
Inc. and Subsidiary
23.3 Consent of Price Waterhouse regarding the financial statements of Honduras American Tabaco, S.A. de
C.V.
*23.4 Consent of Latham & Watkins (included in the opinion filed as Exhibit 5.1 hereto)
**24.1 Powers of Attorney (included on the signature page hereto)
*27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
(b) Financial Statement Schedule
None.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes to the Underwriters at the
closing specified in the Underwriting Agreement, to deliver certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission,
II-3
<PAGE>
such indemnification is against public policy as expressed in the Act and is,
therefor, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be a part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein,, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of New York, State of New
York on February 4, 1997.
GENERAL CIGAR HOLDINGS, INC.
BY: /S/ EDGAR M. CULLMAN, JR.
-----------------------------------------
Edgar M. Cullman, Jr.
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ EDGAR M. CULLMAN, JR. President Director
- ------------------------------ February 4, 1997
Edgar M. Cullman, Jr.
* Executive Vice President,
- ------------------------------ Chief Financial Officer February 4, 1997
Jay M. Green and Treasurer
* Senior Vice President--
- ------------------------------ Controller February 4, 1997
Joseph C. Aird
* Director
- ------------------------------ February 4, 1997
Edgar M. Cullman
* Director
- ------------------------------ February 4, 1997
John L. Bernbach
* Director
- ------------------------------ February 4, 1997
John L. Ernst
* Director
- ------------------------------ February 4, 1997
Thomas C. Israel
* Director
- ------------------------------ February 4, 1997
Dan W. Lufkin
By: /s/ EDGAR M. CULLMAN,
JR.
- ------------------------------
Edgar M. Cullman, Jr.
ATTORNEY-IN-FACT
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement among General Cigar Holdings, Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and Smith Barney Inc.
2.1 Form of Distribution Agreement among Culbro Corporation, Culbro Land Resources, Inc. and General Cigar
Holdings, Inc.
2.2 Form of Merger Agreement among Culbro Corporation and General Cigar Holdings, Inc.
3.1 Certificate of Incorporation of General Cigar Holdings, Inc.
3.2 Bylaws of General Cigar Holdings, Inc.
*5.1 Opinion of Latham & Watkins regarding the legality of the securities being issued
10.1 Asset Purchase Agreement, dated as of December 20, 1996, among General Cigar Co., Inc., Villazon &
Company, Inc. and the Stockholders (as defined therein)
10.2 Stock Purchase Agreement, dated as of December 23, 1996, among General Cigar Co., Inc., Honduras
American Tabaco, S.A. de C.V., and the Sellers (as defined therein), as amended
*10.3 Form of Tax Sharing Agreement among Culbro Corporation, Culbro Land Resources, Inc. and General Cigar
Holdings, Inc.
10.4 Form of Benefits and Employment Matters Allocation Agreement among Culbro Corporation, Culbro Land
Resources, Inc. and General Cigar Holdings, Inc.
10.5 Form of Services Agreement among Culbro Corporation, Culbro Land Resources, Inc. and General Cigar
Holdings, Inc.
10.6 Form of Agricultural Lease between Culbro Land Resources, Inc. and General Cigar Holdings, Inc.
10.7 Employment Agreement between Culbro Corporation and Jay M. Green, dated as of April 8, 1994 and as
amended on January 11, 1997
10.8 Form of 1997 Stock Option Plan of General Cigar Holdings, Inc.
10.9 1996 Stock Plan of Culbro Corporation, dated as of March 15, 1996 (incorporated by reference to the
definitive proxy statement of Culbro Corporation, dated March 15, 1996, for its Annual Meeting of
Shareholders held on April 11, 1996)
10.10 1992 Stock Plan of Culbro Corporation, dated December 10, 1993 (incorporated by reference to the
definitive proxy statement of Culbro Corporation, dated March 3, 1993, for its Annual Meeting of
Shareholders held on April 8, 1993)
10.11 Stock Option Plan for Non-employee Directors of Culbro Corporation, dated December 10, 1993
(incorporated by reference to the definitive proxy statement of Culbro Corporation, dated March 3,
1993, for its Annual Meeting of Shareholders held on April 8, 1993)
10.12 1991 Employees Incentive Stock Option Plan of Culbro Corporation, dated as of January 31, 1991 and as
amended on February 12, 1985 (incorporated by reference to the definitive proxy statement of Culbro
Corporation, dated April 9, 1991, for its Annual Meeting of Shareholders held on May 9, 1993)
10.13 Annual Incentive Compensation Plan of Culbro Corporation, dated as of December 7, 1995
10.14 Annual Incentive Compensation Plan of General Cigar Co., Inc., dated as of December 7, 1995
10.15 Long Term Performance Plan of Culbro Corporation for the three-year period 1995-1997
10.16 Deferred Incentive Compensation Plan of Culbro Corporation, dated as of December 13, 1982 and as
amended on February 12, 1985
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.17 Credit Agreement dated as of January 21, 1997 among General Cigar Co., Inc. as Borrower; General Cigar
Holdings, Inc., 387 PAS Corp., Club Macanudo, Inc., GCH Transportation, Inc. and Villazon & Company,
Inc., as Guarantors; the Lenders from time to time parties thereto; and Chase Securities as arranger,
with the Chase Manhattan Bank as Administrative Agent
10.18 Employment and Consulting Agreement between General Cigar Co., Inc. and Frank Llaneza, dated as of
January 21, 1997
10.19 Employment and Consulting Agreement between General Cigar Co., Inc. and Daniel Blumenthal, dated as of
January 21, 1997
10.20 Employment and Consulting Agreement between General Cigar Co., Inc. and Constantino Gonzalez, dated as
of January 21, 1997
21.1 Subsidiaries of General Cigar Holdings, Inc.
23.1 Consent of Price Waterhouse LLP regarding the combined financial statements of the Company
23.2 Consent of Price Waterhouse LLP regarding the consolidated financial statements of Villazon & Company,
Inc. and Subsidiary
23.3 Consent of Price Waterhouse regarding the financial statements of Honduras American Tabaco, S.A. de
C.V.
*23.4 Consent of Latham & Watkins (included in the opinion filed as Exhibit 5.1 hereto)
**24.1 Powers of Attorney (included on the signature page hereto)
*27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed
<PAGE>
Exhibit 1.1
_____________ Shares
GENERAL CIGAR HOLDINGS, INC.
GENERAL CIGAR COMPANY, INC.
Class A Common Stock
UNDERWRITING AGREEMENT
__________, 1997
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SMITH BARNEY INC.
As representatives of the
several underwriters
named in Schedule I hereto
277 Park Avenue
New York, New York 10172
Dear Sirs:
General Cigar Holdings, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell ____________ shares of its Class A Common Stock, par
value $0.01 per share (the "Firm Shares"), to the several underwriters named in
Schedule I hereto (the "Underwriters"). The Company also proposes to issue and
sell to the several Underwriters not more than _______ additional shares of its
Class A Common Stock, par value $0.01 per share (the "Additional Shares"), if
requested by the Underwriters as provided in Section 2 hereof. The Firm Shares
and the Additional Shares are herein collectively called the Shares. The shares
of Class A Common Stock of the Company to be outstanding after giving effect to
the sales contemplated hereby are hereinafter referred to as the Class A Common
Stock and, together with the Company's outstanding Class B Common Stock, par
value $0.01 per share, are hereinafter referred to as the Common Stock. The
Company intends to contribute substantially all of the net proceeds of the sale
of the Shares to its wholly-owned subsidiary, General Cigar Company, Inc.,
a____________ corporation ("General Cigar"), to be used in substantial part to
repay indebtedness incurred in connection with the acquisition of Villazon &
Company, Inc. and Honduras American Tabaco, S.A. de C.V. (collectively referred
to as "Villazon").
1. Registration Statement and Prospectus. The Company has prepared and
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and
<PAGE>
regulations of the Commission thereunder (collectively called the "Act"), a
registration statement on Form S-1 including a prospectus relating to the
Shares, which may be amended. The registration statement as amended at the time
when it becomes effective, including a registration statement (if any) filed
pursuant to Rule 462(b) under the Act increasing the size of the offering
registered under the Act and information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Act, is hereinafter referred to as the Registration Statement; and the
prospectus in the form first used to confirm sales of Shares is hereinafter
referred as the Prospectus.
2. Agreements to Sell and Purchase. On the basis of the
representations and warranties contained in this Agreement, and subject to its
terms and conditions, the Company agrees to issue and sell, and each Underwriter
agrees, severally and not jointly, to purchase from the Company at a price per
share of $______ (the "Purchase Price") the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to issue
and sell the Additional Shares and the Underwriters shall have the right to
purchase, severally and not jointly, up to _______ Additional Shares from the
Company at the Purchase Price. Additional Shares may be purchased solely for the
purpose of covering over-allotments made in connection with the offering of the
Firm Shares. The Underwriters may exercise their right to purchase Additional
Shares in whole or in part from time to time by giving written notice thereof to
the Company within 30 days after the date of this Agreement. You shall give any
such notice on behalf of the Underwriters and such notice shall specify the
aggregate number of Additional Shares to be purchased pursuant to such exercise
and the date for payment and delivery thereof. The date specified in any such
notice shall be a business day (i) no earlier than the Closing Date (as
hereinafter defined), (ii) no later than ten business days after such notice has
been given and (iii) no earlier than two business days after such notice has
been given. If any Additional Shares are to be purchased, each Underwriter,
severally and not jointly, agrees to purchase from the Company the number of
Additional Shares (subject to such adjustments to eliminate fractional shares as
you may determine) which bears the same proportion to the total number of
Additional Shares to be purchased from the Company as the number of Firm Shares
set forth opposite the name of such Underwriter in Schedule I bears to the total
number of Firm Shares.
The Company hereby agrees, and concurrently with the execution of this
Agreement the Company shall deliver an agreement executed by (i) each of the
directors and officers of the Company and (ii) each stockholder listed on Annex
I hereto pursuant to which each such person agrees, not to offer, sell,
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contract to sell, grant any option to purchase, or otherwise dispose of any
Common Stock of the Company or the common stock, par value $1.00 par value per
share (the "Culbro Stock"), of Culbro Corporation, a New York corporation
("Culbro"), or any securities convertible into or exercisable or exchangeable
for such Common Stock or Culbro Stock or in any other manner transfer all or a
portion of the economic consequences associated with the ownership of any such
Common Stock or Culbro Stock, except to the Underwriters pursuant to this
Agreement, for a period of 180 days after the date of the Prospectus without the
prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation.
Notwithstanding the foregoing, during such period the Company may (i) grant
stock options pursuant to the Company's existing stock option plan and (ii)
issue shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof.
3. Terms of Public Offering. The Company is advised by you that the
Underwriters propose (i) to make a public offering of their respective portions
of the Shares as soon after the effective date of the Registration Statement as
in your judgment is advisable and (ii) initially to offer the Shares upon the
terms set forth in the Prospectus.
4. Delivery and Payment. Delivery to the Underwriters of and payment
for the Firm Shares shall be made at 10:00 A.M., New York City time, on the
third or fourth business day (unless otherwise permitted by the Commission
pursuant to Rule 15c6-1 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (the "Closing Date") following the date of the initial public
offering, at such place as you shall designate. The Closing Date and the
location of delivery of and the form of payment for the Firm Shares may be
varied by agreement between you and the Company.
Delivery to the Underwriters of and payment for any Additional Shares
to be purchased by the Underwriters shall be made at such place as you shall
designate at 10:00 A.M., New York City time, on the date specified in the
applicable exercise notice given by you pursuant to Section 2 (an "Option
Closing Date"). Any such Option Closing Date and the location of delivery of and
the form of payment for such Additional Shares may be varied by agreement
between you and the Company.
Certificates for the Shares shall be registered in such names and
issued in such denominations as you shall request in writing not later than two
full business days prior to the Closing Date or an Option Closing Date, as the
case may be. Such certificates shall be made available to you for inspection not
later than 9:30 A.M., New York City time, on the business day next preceding the
Closing Date or the applicable Option Closing Date, as the case may be.
Certificates in definitive form evidencing the Shares shall be delivered to you
on the Closing Date or the applicable Option Closing Date, as the case may be,
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with any transfer taxes thereon duly paid by the Company, for the respective
accounts of the several Underwriters, against payment of the Purchase Price
therefor by wire transfer of same day funds to the order of the Company.
5. Agreements of the Company. The Company agrees with you:
(a) To use its best efforts to cause the Registration Statement to
become effective at the earliest possible time.
(b) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) when the Registration Statement has become effective
and when any post-effective amendment to it becomes effective, (ii) of any
request by the Commission for amendments to the Registration Statement or
amendments or supplements to the Prospectus or for additional information,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the suspension of
qualification of the Shares for offering or sale in any jurisdiction, or
the initiation of any proceeding for such purposes and (iv) of the
happening of any event during the period referred to in paragraph (e) below
which makes any statement of a material fact made in the Registration
Statement or the Prospectus untrue or which requires the making of any
additions to or changes in the Registration Statement or the Prospectus in
order to make the statements therein not misleading. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to
obtain the withdrawal or lifting of such order at the earliest possible
time.
(c) To furnish to you, without charge, three signed copies of the
Registration Statement as first filed with the Commission and of each
amendment to it, including all exhibits, and to furnish to you and each
Underwriter designated by you such number of conformed copies of the
Registration Statement as so filed and of each amendment to it, without
exhibits, as you may reasonably request.
(d) Not to file any amendment or supplement to the Registration
Statement, whether before or after the time when it becomes effective, or
to make any amendment or supplement to the Prospectus (of which you shall
not previously have been advised or to which you shall reasonably object;
and to prepare and file with the Commission, promptly upon your reasonable
request, any amendment to the Registration Statement or supplement to the
Prospectus which may be necessary or advisable in connection with the
distribution of the Shares by you, and to use its best efforts to cause the
same to become promptly effective.
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(e) Promptly after the Registration Statement becomes effective, and
from time to time thereafter for such period as in the opinion of counsel
for the Underwriters a prospectus is required by law to be delivered in
connection with sales by an Underwriter or a dealer, to furnish to each
Underwriter and dealer as many copies of the Prospectus (and of any
amendment or supplement to the Prospectus) as such Underwriter or dealer
may reasonably request.
(f) If during the period specified in paragraph (e) any event shall
occur as a result of which, in the opinion of counsel for the Underwriters
it becomes necessary to amend or supplement the Prospectus in order to make
the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if it is
necessary to amend or supplement the Prospectus to comply with any law,
forthwith to prepare and file with the Commission an appropriate amendment
or supplement to the Prospectus so that the statements in the Prospectus,
as so amended or supplemented, will not in the light of the circumstances
when it is so delivered, be misleading, or so that the Prospectus will
comply with law, and to furnish to each Underwriter and to such dealers as
you shall specify, such number of copies thereof as such Underwriter or
dealers may reasonably request.
(g) Prior to any public offering of the Shares, to cooperate with you
and counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters
and by dealers under the state securities or Blue Sky laws of such
jurisdictions as you may request, to continue such qualification in effect
so long as required for distribution of the Shares and to file such
consents to service of process or other documents as may be necessary in
order to effect such registration or qualification.
(h) To mail and make generally available to its stockholders as soon
as reasonably practicable an earnings statement covering a period of at
least twelve months after the effective date of the Registration Statement
(but in no event commencing later than 90 days after such date) which shall
satisfy the provisions of Section 11(a) of the Act, and to advise you in
writing when such statement has been so made available.
(i) During the period of five years after the date of this Agreement,
(i) to mail as soon as reasonably practicable after the end of each fiscal
year to the record holders of its Common Stock a financial report of the
Company and its subsidiaries on a consolidated basis (and a similar
financial report of all unconsolidated subsidiaries, if any), all such
financial reports to include a consolidated balance sheet, a consolidated
statement of
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operations, a consolidated statement of cash flows and a consolidated
statement of shareholders' equity as of the end of and for such fiscal
year, together with comparable information as of the end of and for the
preceding year, certified by independent certified public accountants and
(ii) to mail and make generally available as soon as practicable after the
end of each quarterly period (except for the last quarterly period of each
fiscal year) to such holders a consolidated balance sheet, a consolidated
statement of operations and a consolidated statement of cash flows (and
similar financial reports of all unconsolidated subsidiaries, if any) as of
the end of and for such period, and for the period from the beginning of
such year to the close of such quarterly period, together with comparable
information for the corresponding periods of the preceding year.
(j) During the period referred to in paragraph (i), to furnish to you
as soon as available a copy of each report or other publicly available
information of the Company mailed to the holders of Common Stock or filed
with the Commission and such other publicly available information
concerning the Company and its subsidiaries as you may reasonably request.
(k) To pay all costs, expenses, fees and taxes incident to (i) the
preparation, printing, filing and distribution under the Act of the
Registration Statement (including financial statements and exhibits), each
preliminary prospectus and all amendments and supplements to any of them
prior to or during the period specified in paragraph (e), (ii) the printing
and delivery of the Prospectus and all amendments or supplements to it
during the period specified in paragraph (e), (iii) the printing and
delivery of this Agreement, the Preliminary and Supplemental Blue Sky
Memoranda and all other agreements, memoranda, correspondence and other
documents printed and delivered in connection with the offering of the
Shares (including in each case any disbursements of counsel for the
Underwriters relating to such printing and delivery), (iv) the registration
or qualification of the Shares for offer and sale under the securities or
Blue Sky laws of the several states (including in each case the fees and
disbursements of counsel for the Underwriters relating to such registration
or qualification and memoranda relating thereto), (v) filings and clearance
with the National Association of Securities Dealers, Inc. in connection
with the offering, (vi) the listing of the Shares on the New York Stock
Exchange and (vii) furnishing such copies of the Registration Statement,
the Prospectus and all amendments and supplements thereto as may be
requested for use in connection with the offering or sale of the Shares by
the Underwriters or by dealers to whom Shares may be sold.
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<PAGE>
(l) To use its best efforts to maintain the listing of such Common
Stock on the New York Stock Exchange for a period of five years after the
effective date of the Registration Statement.
(m) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company
prior to the Closing Date or any Option Closing Date, as the case may be,
and to satisfy all conditions precedent to the delivery of the Shares.
(n) To use its best efforts to complete the merger of Culbro with and
into the Company (the "Merger"), with the Company issuing _____ shares of
Class B Common Stock for each share of Culbro Stock outstanding on the date
of Merger, as described in the Registration Statement and the Prospectus
under the caption "The Asset Transfers, the Distribution and the Merger" at
the time and in the manner contemplated therein.
6. Representations and Warranties of the Company and General Cigar.
The Company and General Cigar jointly and severally represent and warrant to
each Underwriter that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect;
and no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) Each part of the Registration Statement, when such part became
effective, did not contain and each such part, as amended or supplemented,
if applicable, will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; (ii) the Registration Statement
and the Prospectus comply and, as amended or supplemented, if applicable,
will comply in all material respects with the Act; and (iii) the Prospectus
does not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph (b) do not apply
to statements or omissions in the Registration Statement or the Prospectus
based upon information relating to any Underwriter furnished to the Company
in writing by such Underwriter through you expressly for use therein.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the
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Act, and each Registration Statement filed pursuant to Rule 462(b) under
the Act, if any, complied when so filed in all material respects with the
Act, and did not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading.
(d) The Company and each of its subsidiaries (which term, unless the
context otherwise requires, for all purposes shall include General Cigar,
Club Macanudo, Inc., 387 PAS Corp., 387 PAS Enterprises, Villazon &
Company, Inc. and subsidiary and Honduras American Tabaco, S.A. de C.V.)
has been duly incorporated, is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation and has the
corporate power and authority to carry on its business as it is currently
being conducted and to own, lease and operate its properties, and each is
duly qualified and is in good standing as a foreign corporation authorized
to do business in each jurisdiction in which the nature of its business or
its ownership or leasing of property requires such qualification, except
where the failure to be so qualified would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(e) All of the outstanding shares of capital stock of, or other
ownership interests in, each of the Company's subsidiaries have been duly
authorized and validly issued and are fully paid and non-assessable, and
are owned by the Company, free and clear of any security interest, claim,
lien, encumbrance or adverse interest of any nature (except that Culbro is
the owner of a 1% equity interest in 387 PAS Enterprises).
(f) All the outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid, non-assessable
and not subject to any preemptive or similar rights and are owned by Culbro
free and clear of any security interest, claim, lien, encumbrance or
adverse interest of any nature; and the Shares have been duly authorized
and, when issued and delivered to the Underwriters against payment therefor
as provided by this Agreement will be, validly issued, fully paid and
non-assessable, and the issuance of such Shares will not be subject to any
preemptive or similar rights.
(g) The authorized capital stock of the Company, including the Common
Stock, conforms as to legal matters to the description thereof contained in
the Prospectus.
(h) Neither the Company nor any of its subsidiaries is in violation of
its respective charter or by-laws or in default in the performance of any
obligation, agreement or
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condition contained in any bond, debenture, note or any other evidence of
indebtedness or in any other agreement, indenture or instrument material to
the conduct of the business of the Company and its subsidiaries, taken as a
whole, to which the Company or any of its subsidiaries is a party or by
which it or any of its subsidiaries or their respective property is bound.
(i) The execution, delivery and performance of this Agreement,
compliance by the Company and General Cigar with all the provisions hereof
and the consummation of the transactions contemplated hereby will not
require any consent, approval, authorization or other order of any court,
regulatory body, administrative agency or other governmental body (except
as such may be required under the securities or Blue Sky laws of the
various states) and will not conflict with or constitute a breach of any of
the terms or provisions of, or a default under, the charter or by-laws of
the Company, General Cigar or any of their subsidiaries or any agreement,
indenture or other instrument to which any of them or any of their
subsidiaries is a party or by which any of them or any of their
subsidiaries or their respective property is bound, or violate or conflict
with any laws, administrative regulations or rulings or court decrees
applicable to the Company, General Cigar any of their subsidiaries or their
respective property.
(j) Except as otherwise set forth in the Prospectus, there are no
material legal or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any of their respective
property is the subject, and, to the best of the Company's knowledge, no
such proceedings are threatened or contemplated. No contract or document of
a character required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement is
not so described or filed as required.
(k) Neither the Company nor any of its subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the
protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("Environmental
Laws"), nor any federal or state law relating to discrimination in the
hiring, promotion or pay of employees nor any applicable federal or state
wages and hours laws, nor any provisions of the Employee Retirement Income
Security Act or the rules and regulations promulgated thereunder, which in
each case might result in any material adverse change in the business,
prospects, financial condition or results of operation of the Company and
its subsidiaries, taken as a whole.
(l) The Company and each of its subsidiaries has such permits,
licenses, franchises and authorizations of
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<PAGE>
governmental or regulatory authorities ("permits"), including without
limitation under any applicable Environmental Laws, as are necessary to
own, lease and operate its respective properties and to conduct its
business; the Company and each of its subsidiaries has fulfilled and
performed all of its material obligations with respect to such permits and
no event has occurred which allows, or after notice or lapse of time would
allow, revocation or termination thereof or results in any other material
impairment of the rights of the holder of any such permit; and, except as
described in the Prospectus, such permits contain no restrictions that are
materially burdensome to the Company or any of its subsidiaries.
(m) In the ordinary course of its business, the Company conducts a
periodic review of the effect of Environmental Laws on the business,
operations and properties of the Company and its subsidiaries, in the
course of which it identifies and evaluates associated costs and
liabilities (including without limitation any capital or operating
expenditures required for clean-up, closure of properties or compliance
with Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties). On the basis of such review, the Company has reasonably concluded
that such associated costs and liabilities would not, singly or in the
aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(n) Except as otherwise set forth in the Prospectus or such as are not
material to the business, prospects, financial condition or results of
operation of the Company and its subsidiaries taken as a whole, the Company
and each of its subsidiaries has good and marketable title, free and clear
of all liens, claims, encumbrances and restrictions, except liens for taxes
not yet due and payable, to all property and assets described in the
Registration Statement as being owned by it. All leases to which the
Company or any of its subsidiaries is a party are valid and binding and no
default has occurred or is continuing thereunder, which might result in any
material adverse change in the business, prospects, financial condition or
results of operation of the Company and its subsidiaries taken as a whole,
and the Company and its subsidiaries enjoy peaceful and undisturbed
possession under all such leases to which any of them is a party as lessee
with such exceptions as do not materially interfere with the use made by
the Company or such subsidiary.
(o) The Company and each of its subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in
such amounts as are customary in the business in which they are engaged.
All
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policies of insurance and fidelity or surety bonds insuring the Company or
any of its subsidiaries or their respective businesses, assets, employees,
officers and directors are in full force and effect; the Company and its
subsidiaries are in compliance with the terms of such policies and
instruments in all material respects and there are no claims by the Company
or any of its subsidiaries under any such policy or instrument as to which
any insurance company is denying liability or defending under a reservation
of rights clause.
(p) Price Waterhouse LLP are independent public accountants with
respect to the Company and its subsidiaries as required by the Act.
(q) The Company's combined financial statements, together with related
schedules and notes forming part of the Registration Statement and the
Prospectus (and any amendment or supplement thereto), present fairly the
combined financial position, results of operations and changes in financial
position of the Company and its subsidiaries on the basis stated in the
Registration Statement at the respective dates or for the respective
periods to which they apply; the consolidated financial statements of
Villazon & Company, Inc. and Subsidiary, together with related schedules
and notes forming part of the Registration Statement and the Prospectus
(and any amendment or supplement thereto), present fairly the consolidated
financial position, results of operations and changes in financial position
of Villazon & Company, Inc. and Subsidiary on the basis stated in the
Registration Statement at the respective dates or for the respective
periods to which they apply; the financial statements of Honduras American
Tabaco, S.A. de C.V., together with related schedules and notes forming
part of the Registration Statement and the Prospectus (and any amendment or
supplement thereto), present fairly the financial position, results of
operations and changes in financial position of Honduras American Tabaco,
S.A. de C.V. on the basis stated in the Registration Statement at the
respective dates or for the respective periods to which they apply; all
such statements and related schedules and notes have been prepared in
accordance with generally accepted accounting principles consistently
applied throughout the periods involved, except as disclosed therein; and
the other financial and statistical information and data set forth in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) is, in all material respects, accurately presented and prepared on
a basis consistent with such financial statements and the books and records
of the Company.
(r) The Company's pro forma combined financial statements and notes
forming part of the Registration
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Statement and the Prospectus (and any amendment or supplement thereto) (i)
were derived from audited historical financial statements appearing in the
Registration Statement and the Prospectus and (ii) are based on assumptions
that provide a reasonable basis for presenting the significant effects
directly attributable to the Liability Assumption portion of the Asset
Transfers, the Villazon Acquisition and the Offering (as such terms are
defined in the Registration Statement); the related pro forma adjustments
give appropriate effect to such assumptions; and the pro forma columns
reflect the proper allocation of such adjustments to the audited historical
financial statements.
(s) The Company is not, and after giving effect to the sale of the
Shares will not be, an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of
1940, as amended.
(t) No holder of any security of the Company has any right to require
registration of shares of Common Stock or any other security of the
Company.
(u) The Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida).
(v) The Company has filed a registration statement pursuant to Section
12(b) of the Exchange Act to register the Common Stock, has filed an
application to list the Shares on the New York Stock Exchange and has
received notification that the listing has been approved, subject to notice
of issuance of the Shares.
(w) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens related to or
entitling any person to purchase or otherwise to acquire any shares of the
capital stock of, or other ownership interest in, the Company or any
subsidiary thereof except as otherwise disclosed in the Registration
Statement.
(x) The Company and each of its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance
that: (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
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(y) The Distribution (as defined in the Registration Statement) has
been duly authorized by all necessary corporate action on the part of
Culbro and the Company. Subject to the approval of the holders of
two-thirds of the Culbro Stock entitled to vote thereon, the Merger (as
defined in the Registration Statement) has been duly authorized by all
necessary corporate action on the part of Culbro and the Company.
Consummation of the Distribution and the Merger, as described in
Registration Statement, will not require any consent, approval,
authorization or other order of any court, regulatory body, administrative
agency or other governmental body and will not conflict with or constitute
a breach of any of the terms or provisions of, or a default under, the
charter or by-laws of Culbro, the Company, General Cigar or any of their
subsidiaries or any agreement, indenture or other instrument to which any
of them is a party or by which any of them or their respective property is
bound, or violate or conflict with any laws, administrative regulations or
rulings or court decrees applicable to Culbro, the Company, General Cigar
or any of their subsidiaries or their respective property.
7. Indemnification. (a) The Company and General Cigar jointly and
severally agree to indemnify and hold harmless each Underwriter and each person,
if any, who controls any Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act from and against any and all losses, claims,
damages, liabilities and judgments caused by any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
the Prospectus (as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) or any preliminary prospectus, or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or judgments are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information relating to any Underwriter furnished in writing
to the Company by or on behalf of such Underwriter through you expressly for use
therein.
(b) In case any action shall be brought against any Underwriter or any
person controlling such Underwriter, based upon any preliminary prospectus, the
Registration Statement or the Prospectus or any amendment or supplement thereto
and with respect to which indemnity may be sought against the Company or General
Cigar, such Underwriter shall promptly notify the Company and General Cigar in
writing and the Company and General Cigar shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such indemnified
party and payment of all fees and expenses. Any Underwriter or any such
controlling person shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at
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the expense of such Underwriter or such controlling person unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the Company and General Cigar, (ii) the Company and General Cigar shall have
failed to assume the defense and employ counsel or (iii) the named parties to
any such action (including any impleaded parties) include both such Underwriter
or such controlling person and the Company and General Cigar and such
Underwriter or such controlling person shall have been advised by such counsel
that there may be one or more legal defenses available to it which are different
from or additional to those available to the Company and General Cigar (in which
case the Company and General Cigar shall not have the right to assume the
defense of such action on behalf of such Underwriter or such controlling person,
it being understood, however, that the Company and General Cigar shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel) for all such
Underwriters and controlling persons, which firm shall be designated in writing
by Donaldson, Lufkin & Jenrette Securities Corporation and that all such fees
and expenses shall be reimbursed as they are incurred). The Company and General
Cigar shall not be liable for any settlement of any such action effected without
the written consent of the Company and General Cigar, but if settled with their
written consent the Company and General Cigar agree to indemnify and hold
harmless any Underwriter and any such controlling person from and against any
loss or liability by reason of such settlement. Notwithstanding the immediately
preceding sentence, if in any case where the fees and expenses of counsel are at
the expense of the indemnifying party and an indemnified party shall have
requested the indemnifying party to reimburse the indemnified party for such
fees and expenses of counsel as incurred, such indemnifying party agrees that it
shall be liable for any settlement of any action effected without its written
consent if (i) such settlement is entered into more than ten business days after
the receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall have failed to reimburse the indemnified party in
accordance with such request for reimbursement prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement and any person controlling the Company within the meaning
of
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Section 15 of the Act or Section 20 of the Exchange Act, to the same extent as
the foregoing indemnity from the Company and General Cigar to each Underwriter,
but only with reference to information relating to such Underwriter furnished in
writing by or on behalf of such Underwriter through you expressly for use in the
Registration Statement, the Prospectus or any preliminary prospectus. In case
any action shall be brought against the Company, any of its directors, any such
officer or any person controlling the Company based on the Registration
Statement, the Prospectus or any preliminary prospectus and in respect of which
indemnity may be sought against any Underwriter, the Underwriter shall have the
rights and duties given to the Company (except that if the Company shall have
assumed the defense thereof, such Underwriter shall not be required to do so,
but may employ separate counsel therein and participate in the defense thereof
but the fees and expenses of such counsel shall be at the expense of such
Underwriter), and the Company, its directors, any such officers and any person
controlling the Company shall have the rights and duties given to the
Underwriter, by Section 7(b) hereof.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party in respect of any losses, claims, damages,
liabilities or judgments referred to therein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities and judgments (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company and General Cigar on the
one hand and the Underwriters on the other hand from the offering of the Shares
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company and General Cigar on the one hand and the Underwriters on the other
hand in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Company and
General Cigar on the one hand and the Underwriters on the other hand shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company, and the total underwriting
discounts and commissions received by the Underwriters, bear to the total price
to the public of the Shares, in each case as set forth in the table on the cover
page of the Prospectus. The relative fault of the Company and General Cigar on
the one hand and the Underwriters on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the Company or the Underwriters and the parties'
relative intent, knowledge, access
15
<PAGE>
to information and opportunity to correct or prevent such statement or omission.
The Company, General Cigar and the Underwriters agree that it would
not be just and equitable if contribution pursuant to this Section 7(d) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 7, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Shares underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 7(d) are several in proportion to the respective number
of Shares purchased by each of the Underwriters hereunder and not joint.
8. Conditions of Underwriters' Obligations. The several obligations of
the Underwriters to purchase the Firm Shares under this Agreement are subject to
the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company and General
Cigar contained in this Agreement shall be true and correct on the Closing
Date with the same force and effect as if made on and as of the Closing
Date.
(b) The Registration Statement shall have become effective not later
than 5:00 P.M. (and in the case of a Registration Statement filed under
Rule 462(b) of the Act, not later than 10:00 P.M.), New York City time, on
the date of this Agreement or at such later date and time as you may
approve in writing, and at the Closing Date no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission.
(c) (i) Since the date of the latest balance sheet included in the
Registration Statement and the Prospectus,
16
<PAGE>
there shall not have been any material adverse change, or any development
involving a prospective material adverse change, in the condition,
financial or otherwise, or in the earnings, affairs or business prospects,
whether or not arising in the ordinary course of business, of the Company
and its subsidiaries taken as a whole, (ii) since the date of the latest
balance sheet included in the Registration Statement and the Prospectus
there shall not have been any change, or any development involving a
prospective material adverse change, in the capital stock or in the
long-term debt of the Company and its subsidiaries from that set forth in
the Registration Statement and Prospectus, (iii) the Company and its
subsidiaries shall have no liability or obligation, direct or contingent,
which is material to the Company and its subsidiaries, taken as a whole,
other than those reflected in the Registration Statement and the Prospectus
and (iv) on the Closing Date you shall have received a certificate dated
the Closing Date, signed by Edgar M. Cullman, Jr. and Jay M. Green, in
their capacities as the President and Chief Executive Officer, and
Executive Vice President, Chief Financial Officer and Treasurer, of the
Company confirming the matters set forth in Section 8(a), 8(b) and 8(c).
(d) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing
Date, of Latham & Watkins, counsel for the Company, to the effect that:
(i) the Company and each of its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation and has the
corporate power and authority required to carry on its business as it
is currently being conducted and to own, lease and operate its
properties;
(ii) the Company and each of its subsidiaries is duly qualified
and is in good standing as a foreign corporation authorized to do
business in each jurisdiction in which the nature of its business or
its ownership or leasing of property requires such qualification,
except where the failure to be so qualified would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole;
(iii) all of the outstanding shares of capital stock of, or other
ownership interests in, each of the Company's subsidiaries have been
duly and validly authorized and issued and are fully paid and
non-assessable, and are owned by the Company, free and clear of any
security interest, claim, lien, encumbrance or adverse interest of any
nature (except
17
<PAGE>
that Culbro is the owner of a 1% equity interest in 387 PAS
Enterprises);
(iv) all the outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid, non-assessable and
not subject to any preemptive or similar rights and are owned by
Culbro free and clear of any security interest, claim, lien,
encumbrance or adverse interest of any nature;
(v) the Shares have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor as provided by
this Agreement, will have been validly issued and will be fully paid
and non-assessable, and the issuance of the Shares is not subject to
any preemptive or similar rights;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company and General Cigar and is a valid and binding
agreement of each of the Company and General Cigar enforceable in
accordance with its terms (except as rights to indemnity and
contribution hereunder may be limited by applicable law);
(vii) the authorized capital stock of the Company, including the
Common Stock, conforms as to legal matters to the description thereof
contained in the Prospectus;
(viii) the Registration Statement has become effective under the
Act, no stop order suspending its effectiveness has been issued and no
proceedings for that purpose are, to the knowledge of such counsel,
pending before or contemplated by the Commission;
(ix) the statements under the captions "Certain Employee Benefit
Matters", "The Asset Transfers, The Distribution and The Merger",
"Description of Capital Stock", "Description of Credit Facility" and
"Underwriting" in the Prospectus and Items 14 and 15 of Part II of the
Registration Statement insofar as such statements constitute a summary
of legal matters documents or proceedings referred to therein, fairly
present the information called for with respect to such legal matters,
documents and proceedings;
(x) neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws and, to the best of
such counsel's knowledge after due inquiry, neither the Company nor
any of its subsidiaries is in default in the performance of any
obligation, agreement or condition contained in any bond, debenture,
note or any other evidence of
18
<PAGE>
indebtedness or in any other agreement, indenture or instrument
material to the conduct of the business of the Company and its
subsidiaries taken as a whole, to which the Company or any of its
subsidiaries is a party or by which it or any of its subsidiaries or
their respective property is bound;
(xi) the execution, delivery and performance of this Agreement by
the Company and General Cigar, compliance by the Company and General
Cigar with all the provisions hereof and the consummation of the
transactions contemplated hereby will not require any consent,
approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body (except as such may
be required under the Act or other securities or Blue Sky laws) and
will not conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the charter or by-laws of the
Company, General Cigar or any of their subsidiaries, or any agreement,
indenture or other instrument to which any of them, or any of their
subsidiaries is a party or by which any of them or any of their
subsidiaries or their respective properties are bound, or violate or
conflict with any laws, administrative regulations or rulings or court
decrees applicable to the Company, General Cigar or any of their
subsidiaries or their respective properties;
(xii) after due inquiry, such counsel does not know of any legal
or governmental proceeding pending or threatened to which the Company
or any of its subsidiaries is a party or to which any of their
respective property is subject which is required to be described in
the Registration Statement or the Prospectus and is not so described,
or of any contract or other document which is required to be described
in the Registration Statement or the Prospectus or is required to be
filed as an exhibit to the Registration Statement which is not
described or filed as required;
(xiii) to the best of such counsel's knowledge, after due
inquiry, neither the Company nor any of its subsidiaries has violated
any Environmental Laws, nor any federal or state law relating to
discrimination in the hiring, promotion or pay of employees nor any
applicable federal or state wages and hours laws, nor any provisions
of the Employee Retirement Income Security Act or the rules and
regulations promulgated thereunder, which in each case might result in
any material adverse change in the business, prospects, financial
condition or results of operation of the Company and its subsidiaries
taken as a whole;
19
<PAGE>
(xiv) the Company and each of its subsidiaries has such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("permits"), including without limitation under any
applicable Environmental Laws, as are necessary to own, lease and
operate its respective properties and to conduct its business in the
manner described in the Prospectus; to the best of such counsel's
knowledge, after due inquiry, the Company and each of its subsidiaries
has fulfilled and performed all of its material obligations with
respect to such permits and no event has occurred which allows, or
after notice or lapse of time would allow, revocation or termination
thereof or results in any other material impairment of the rights of
the holder of any such permit, subject in each case to such
qualification as may be set forth in the Prospectus; and, except as
described in the Prospectus, such permits contain no restrictions that
are materially burdensome to the Company or any of its subsidiaries;
(xv) the Company is not, and after giving effect to the sale of
the Shares will not be, an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended;
(xvi) to the best of such counsel's knowledge, after due inquiry,
no holder of any security of the Company has any right to require
registration of shares of Common Stock or any other security of the
Company;
(xvii) The Distribution has been duly authorized by all necessary
corporate action on the part of Culbro and the Company; subject to the
approval of the holders of two-thirds of the Culbro Stock entitled to
vote thereon, the Merger has been duly authorized by all necessary
corporate action on the part of Culbro and the Company. Consummation
of the Distribution and the Merger, as described in Registration
Statement, will not require any consent, approval, authorization or
other order of any court, regulatory body, administrative agency or
other governmental body and will not conflict with or constitute a
breach of any of the terms or provisions of, or a default under, the
charter or by-laws of Culbro, the Company, General Cigar or any of
their subsidiaries or any agreement, indenture or other instrument to
which any of them is a party or by which any of them or their
respective property is bound, or violate or conflict with any laws,
administrative regulations or rulings or court decrees applicable to
Culbro, the Company, General Cigar or any of their subsidiaries or
their respective property.
20
<PAGE>
(xviii) (1) the Registration Statement (including any
Registration Statement filed under Rule 462(b) of the Act, if any) and
the Prospectus and any supplement or amendment thereto (except for
financial statements as to which no opinion need be expressed) comply
as to form in all material respects with the Act, and (2) such counsel
believes that (except for financial statements, as aforesaid) the
Registration Statement and the prospectus included therein at the time
the Registration Statement became effective did not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and that the Prospectus, as amended or supplemented, if
applicable (except for financial statements, as aforesaid) does not
contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading;
In giving such opinion with respect to the matters covered by clause
(xviii), such counsel may state that their opinion and belief are based upon
their participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto and review and discussion
of the contents thereof, but are without independent check or verification
except as specified.
The opinion of Latham & Watkins described in Section 8(d) shall be
rendered to you at the request of the Company and shall so state therein.
(e) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Gibson, Dunn & Crutcher LLP, counsel for the Underwriters,
as to the matters referred to in clauses (v), (vi), (viii), (ix) (but only
with respect to the statements under the caption "Description of Capital
Stock" and "Underwriting") and (xviii) of the foregoing Section 8(d). In
giving such opinion with respect to the matters covered by clause (xviii),
such counsel may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto and review and
discussion of the contents thereof, but are without independent check or
verification except as specified.
(f) You shall have received a letter on and as of the Closing Date, in
form and substance satisfactory to you, from Price Waterhouse LLP,
independent public accountants, with respect to the financial statements
and certain financial information contained in the Registration Statement
and the Prospectus and substantially in the form
21
<PAGE>
and substance of the letter delivered to you by Price Waterhouse LLP on the
date of this Agreement.
(g) The Company shall have delivered to you the agreements specified
in Section 2.
(h) Neither the Company nor General Cigar shall have failed at or
prior to the Closing Date to perform or comply with any of the agreements
herein contained and required to be performed or complied with by them at
or prior to the Closing Date.
The several obligations of the Underwriters to purchase any Additional Shares
hereunder are subject to the delivery to you on the applicable Option Closing
Date of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of such Additional
Shares and other matters related to the issuance of such Additional Shares.
9. Effective Date of Agreement and Termination. This Agreement shall
become effective upon the later of (i) execution of this Agreement and (ii) when
notification of the effectiveness of the Registration Statement has been
released by the Commission.
This Agreement may be terminated at any time prior to the Closing Date
by you by written notice to the Company if any of the following has occurred:
(i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any adverse change or development
involving a prospective adverse change in the condition, financial or otherwise,
of the Company or any of its subsidiaries or the earnings, affairs, or business
prospects of the Company or any of its subsidiaries, whether or not arising in
the ordinary course of business, which would, in your judgment, make it
impracticable to market the Shares on the terms and in the manner contemplated
in the Prospectus; (ii) any outbreak or escalation of hostilities or other
national or international calamity or crisis or change in economic conditions or
in the financial markets of the United States or elsewhere that, in your
judgment, is material and adverse and would, in your judgment, make it
impracticable to market the Shares on the terms and in the manner contemplated
in the Prospectus; (iii) the suspension or material limitation of trading in
securities on the New York Stock Exchange, the American Stock Exchange or the
Nasdaq National Market or limitation on prices for securities on any such
exchange or the Nasdaq National Market; (iv) the enactment, publication, decree
or other promulgation of any federal or state statute, regulation, rule or order
of any court or other governmental authority which in your opinion materially
and adversely affects, or will materially and adversely affect, the business or
operations of the Company or any Subsidiary; (v) the declaration of a banking
moratorium by either federal or New York State
22
<PAGE>
authorities; or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in your
opinion has a material adverse effect on the financial markets in the United
States.
If on the Closing Date or on an Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase the
Firm Shares or Additional Shares, as the case may be, which it or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused to
purchase is not more than one-tenth of the total number of Shares to be
purchased on such date by all Underwriters, each non-defaulting Underwriter
shall be obligated severally, in the proportion which the number of Firm Shares
set forth opposite its name in Schedule I bears to the total number of Firm
Shares which all the non-defaulting Underwriters, as the case may be, have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused to
purchase on such date; provided that in no event shall the number of Firm Shares
or Additional Shares, as the case may be, which any Underwriter has agreed to
purchase pursuant to Section 2 hereof be increased pursuant to this Section 9 by
an amount in excess of one-ninth of such number of Firm Shares or Additional
Shares, as the case may be, without the written consent of such Underwriter. If
on the Closing Date or on an Option Closing Date, as the case may be, any
Underwriter or Underwriters shall fail or refuse to purchase Firm Shares, or
Additional Shares, as the case may be, and the aggregate number of Firm Shares
or Additional Shares, as the case may be, with respect to which such default
occurs is more than one-tenth of the aggregate number of Shares to be purchased
on such date by all Underwriters and arrangements satisfactory to you and the
Company for purchase of such Shares are not made within 48 hours after such
default, this Agreement will terminate without liability on the part of any
non-defaulting Underwriter and the Company. In any such case which does not
result in termination of this Agreement, either you or the Company shall have
the right to postpone the Closing Date or the applicable Option Closing Date, as
the case may be, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or
any other documents or arrangements may be effected. Any action taken under this
paragraph shall not relieve any defaulting Underwriter from liability in respect
of any default of any such Underwriter under this Agreement.
10. Miscellaneous. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (a) if to the Company or General Cigar,
to General Cigar Holdings, Inc., 387 Park Avenue South, New York, New York
10016; and (b) if to any Underwriter or to you, to you c/o Donaldson,
23
<PAGE>
Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York, New York
10172, Attention: Syndicate Department, or in any case to such other address as
the person to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, General Cigar and their
respective officers and directors and of the several Underwriters set forth in
or made pursuant to this Agreement shall remain operative and in full force and
effect, and will survive delivery of and payment for the Shares, regardless of
(i) any investigation, or statement as to the results thereof, made by or on
behalf of any Underwriter or by or on behalf of the Company or General Cigar,
the officers or directors of Company or General Cigar or any controlling person
of the Company or General Cigar, (ii) acceptance of the Shares and payment for
them hereunder and (iii) termination of this Agreement.
If this Agreement shall be terminated by the Underwriters because of
any failure or refusal on the part of the Company or General Cigar to comply
with the terms or to fulfill any of the conditions of this Agreement, the
Company and General Cigar jointly and severally agree to reimburse the several
Underwriters for all out-of-pocket expenses (including the fees and
disbursements of counsel) reasonably incurred by them.
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, General Cigar,
the Underwriters, any controlling persons referred to herein and their
respective successors and assigns, all as and to the extent provided in this
Agreement, and no other person shall acquire or have any right under or by
virtue of this Agreement. The term "successors and assigns" shall not include a
purchaser of any of the Shares from any of the several Underwriters merely
because of such purchase.
This Agreement shall be governed and construed in accordance with the
laws of the State of New York, without giving effect to the conflict of law
rules thereof.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
24
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company, General Cigar and the several Underwriters.
Very truly yours,
GENERAL CIGAR HOLDINGS, INC.
By __________________________________________
Title:
GENERAL CIGAR COMPANY, INC.
By __________________________________________
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SMITH BARNEY INC.
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By ___________________________________
25
<PAGE>
SCHEDULE I
Number of Firm
U.S. Underwriters Shares to be Purchased
- ----------------- ----------------------
Donaldson, Lufkin & Jenrette
Securities Corporation
Smith Barney Inc.
-------------
Total =============
<PAGE>
- -------------------------------------------------------------------------------
DISTRIBUTION AGREEMENT
AMONG
CULBRO CORPORATION,
CULBRO LAND RESOURCES, INC.
AND
GENERAL CIGAR HOLDINGS, INC.
-----------------------
FEBRUARY , 1997
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS
Section 1.01 GENERAL....................................................... 1
Section 1.02 TERMS DEFINED ELSEWHERE IN AGREEMENT.......................... 8
ARTICLE II
TRANSFER OF ASSETS
Section 2.01 TRANSFER OF REAL ESTATE TO GENERAL CIGAR...................... 9
Section 2.02 TRANSFER OF REAL ESTATE TO CLR................................ 9
Section 2.03 TRANSFER OF ASSETS TO HOLDINGS................................ 9
Section 2.04 TRANSFER OF ASSETS TO CLR..................................... 10
Section 2.05 RELATED AGREEMENTS; MERGER AGREEMENT.......................... 10
Section 2.06 TRANSFERS NOT EFFECTED PRIOR TO THE DISTRIBUTION.............. 10
Section 2.07 NO REPRESENTATIONS OR WARRANTIES; CONSENTS.................... 11
Section 2.08 CONVEYANCING AND ASSUMPTION INSTRUMENTS....................... 11
Section 2.09 BUSINESS OPERATIONS........................................... 12
ARTICLE III
ASSUMPTION AND SATISFACTION OF LIABILITIES
Section 3.01 ASSUMPTION AND SATISFACTION OF LIABILITIES.................... 13
ARTICLE IV
THE DISTRIBUTION
Section 4.01 COOPERATION PRIOR TO THE DISTRIBUTION......................... 13
Section 4.02 CULBRO BOARD ACTION; CONDITIONS PRECEDENT TO THE DISTRIBUTION. 14
Section 4.03 THE DISTRIBUTION.............................................. 14
ARTICLE V
INDEMNIFICATION
Section 5.01 INDEMNIFICATION BY CULBRO..................................... 14
Section 5.02 INDEMNIFICATION BY CLR........................................ 15
Section 5.03 INSURANCE PROCEEDS............................................ 15
Section 5.04 PROCEDURE FOR INDEMNIFICATION................................. 15
Section 5.05 REMEDIES CUMULATIVE........................................... 17
Section 5.06 SURVIVAL OF INDEMNITIES....................................... 17
ARTICLE VI
CERTAIN ADDITIONAL MATTERS
Section 6.01 CLR BOARD..................................................... 17
Section 6.02 RESIGNATIONS.................................................. 17
Section 6.03 CERTIFICATE AND BYLAWS........................................ 18
ARTICLE VII
POST-DISTRIBUTION TRANSFERS
Section 7.01 MERGER........................................................ 18
i
<PAGE>
PAGE
Section 7.02 CERTAIN POST-DISTRIBUTION TRANSACTIONS........................ 18
ARTICLE VIII
ACCESS TO INFORMATION AND SERVICES
Section 8.01 PROVISION OF CORPORATE RECORDS................................ 19
Section 8.02 ACCESS TO INFORMATION......................................... 19
Section 8.03 PRODUCTION OF WITNESSES....................................... 19
Section 8.04 REIMBURSEMENT................................................. 20
Section 8.05 RETENTION OF RECORDS.......................................... 20
Section 8.06 CONFIDENTIALITY............................................... 20
Section 8.07 PRIVILEGED MATTERS............................................ 20
ARTICLE IX
INSURANCE
Section 9.01 POLICIES AND RIGHTS INCLUDED WITHIN THE CLR ASSETS............ 22
Section 9.02 POST-ASSET TRANSFER DATE CLAIMS............................... 22
Section 9.03 ADMINISTRATION................................................ 22
Section 9.04 AGREEMENT FOR WAIVER OF CONFLICT AND SHARED DEFENSE........... 23
ARTICLE X
MISCELLANEOUS
Section 10.01 COMPLETE AGREEMENT; CONSTRUCTION.............................. 23
Section 10.02 EXPENSES...................................................... 23
Section 10.03 GOVERNING LAW................................................. 23
Section 10.04 NOTICES....................................................... 23
Section 10.05 AMENDMENTS.................................................... 23
Section 10.06 SUCCESSORS AND ASSIGNS........................................ 24
Section 10.07 TERMINATION................................................... 24
Section 10.08 SUBSIDIARIES.................................................. 24
Section 10.09 NO THIRD-PARTY BENEFICIARIES.................................. 24
Section 10.10 TITLES AND HEADINGS........................................... 24
Section 10.11 EXHIBITS AND SCHEDULES........................................ 24
Section 10.12 LEGAL ENFORCEABILITY.......................................... 24
Section 10.13 CONSENT OF PARTIES............................................ 24
ii
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LIST OF SCHEDULES AND EXHIBITS
Schedule 1.01(a) CLR Financing Obligations
Schedule 1.01(b) Culbro Financing Obligations
Schedule 1.01(c) Commercial Real Estate
Schedule 1.01(d) Nursery Real Estate
Schedule 1.01(e) Tobacco Real Estate
Schedule 1.01(f) Shared Policies
Schedule 2.08 Conveyance and Assumption Instruments
Schedule 4.01 Required Consents
Exhibit A Culbro Pro Forma Consolidated Balance Sheet
Exhibit B CLR Pro Forma Consolidated Balance Sheet
Exhibit C Form of CLR Bylaws
Exhibit D Form of CLR Certificate of Incorporation
Exhibit E Form of Agriculture Lease between CLR and General Cigar
Exhibit F Form of Benefits and Employment Matters Allocation
Agreement between Culbro and CLR
Exhibit G Form of Services Agreement between Culbro and CLR
Exhibit H Form of Tax Sharing Agreement between Culbro and CLR
Exhibit I Form of Merger Agreement between Culbro and Holdings
iii
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DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT (this "Agreement") is made this ___ day of
February, 1997 among Culbro Corporation, a New York corporation ("Culbro"),
Culbro Land Resources, Inc., a Delaware corporation and a wholly-owned
subsidiary of Culbro ("CLR"), and General Cigar Holdings, Inc., a Delaware
corporation and a wholly-owned subsidiary of Culbro ("Holdings").
RECITALS
WHEREAS, Culbro, directly and through subsidiaries, (i) manufactures
and markets cigars and grows, processes and sells cigar wrapper tobacco (the
"Cigar Business"), (ii) cultivates for sale container and field grown nursery
products principally to nursery centers and mass merchandisers, and owns and
operates wholesale nursery sales and service centers (the "Nursery Business")
and (iii) owns, builds and manages commercial and industrial properties and
develops residential subdivisions on real estate in Connecticut and
Massachusetts (the "Real Estate Business") (which Nursery Business and Real
Estate Business are more specifically defined herein as the "CLR Business");
WHEREAS, the Board of Directors of Culbro has determined that it is in
the best interests of Culbro to separate the Cigar Business on the one hand, and
the CLR Business on the other hand, and, in order to effect such separation, to
transfer to CLR the stock of certain Culbro subsidiaries principally engaged in
the CLR Business and certain other assets relating principally to the CLR
Business (as more specifically defined herein, the "Asset Transfers"), and
thereafter to distribute all of the outstanding shares of common stock of CLR to
the holders of Culbro common stock (the "Distribution");
WHEREAS, subsequent to the Asset Transfers and prior to the
Distribution, Holdings intends to consummate an initial public offering of its
shares of common stock, par value $0.01 per share.
WHEREAS, following the Distribution, subject to certain conditions set
forth herein, Culbro intends to merge with and into Holdings (the "Merger").
WHEREAS, in connection with the Distribution, Culbro and CLR have
determined that it is necessary and desirable to set forth the principal
corporate transactions required to effect the Asset Transfers, the Distribution
and the Merger, and to set forth the agreements that will govern certain matters
following the Distribution and the Merger.
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
01 GENERAL. As used in this Agreement, the following terms shall
have the following meanings:
387 PAS: 387 PAS Corporation, a New York corporation and holder of a
99% interest in 387 PAS Enterprises.
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387 PAS ENTERPRISES: 387 PAS Enterprises, a partnership organized
under the laws of the State of New York.
387 PAS MINORITY INTEREST: Culbro's 1% interest in 387 PAS
Enterprises.
ACTION: Any action, claim, suit, arbitration, inquiry, proceeding or
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
AFFILIATE: With respect to any specified Person, means any other
Person directly or indirectly controlling or controlled by, or under direct or
indirect common control with, such specified Person. For purposes of this
definition, "control," when used with respect to any Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" shall have meanings correlative to
the foregoing. Notwithstanding the foregoing, (i) the Affiliates of Culbro
shall not include CLR, the CLR Subsidiaries or any other Person that would be an
Affiliate of Culbro by reason of Culbro's ownership of the capital stock of CLR
prior to the Distribution or the fact that any officer or director of CLR or any
of the CLR Subsidiaries shall also serve as an officer or director of Culbro or
any of the Retained Subsidiaries, and (ii) the Affiliates of CLR shall not
include Culbro, the Retained Subsidiaries or any other Person that would be an
Affiliate of CLR by reason of Culbro's ownership of the capital stock of CLR
prior to the Distribution or the fact that any officer or director of CLR or any
of the CLR Subsidiaries shall also serve as an officer or director of Culbro or
any of the Retained Subsidiaries.
AGENT: The distribution agent appointed by Culbro to distribute the
CLR Common Stock pursuant to the Distribution.
AGRICULTURE LEASE: The Agriculture Lease between CLR and General
Cigar, which agreement shall be entered into on or before the Asset Transfer
Date, substantially in the form of Exhibit E attached hereto.
AIRPLANE: That certain Israel Astra 1125, FAA registration number
N387PAS, owned by Culbro prior to the Asset Transfers.
ASSET TRANSFER DATE: The date all of the Asset Transfers set forth in
Sections 2.01 through 2.04 herein have been completed, which date shall be prior
to the Consummation of the IPO.
CENTAUR: Centaur Communications Limited, a company incorporated under
the laws of England and Wales, a privately held publisher of business magazines
in the United Kingdom.
CENTAUR INTEREST: Culbro's ownership of 4,928,194 ordinary shares of
Centaur, representing a 25% equity interest in Centaur.
CLR BALANCE SHEET: The Pro Forma Consolidated Balance Sheet for CLR
as of November 30, 1996 (the end of its most recent fiscal year) attached hereto
as Exhibit B.
CLR BOARD: The Board of Directors of CLR.
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CLR BOOKS AND RECORDS: The books and records (including computerized
records, ledgers, files and software) of CLR and the CLR Subsidiaries and all
books and records owned by Culbro and its Subsidiaries that relate to the CLR
Business or are necessary to operate the CLR Business including, without
limitation, all such books and records relating to CLR Employees, all files
relating to any Action being assumed by CLR as part of the CLR Liabilities,
original corporate minute books, stock ledgers and certificates and corporate
seals, and all licenses, leases, agreements and filings relating to CLR, the CLR
Subsidiaries or the CLR Business (but not including the Culbro Books and
Records, provided that CLR shall have access to, and have the right to obtain
duplicate copies of, the Culbro Books and Records in accordance with the
provisions of Article VIII).
CLR BUSINESS: The businesses conducted by CLR and the CLR
Subsidiaries and the businesses conducted pursuant to or utilizing the CLR
Assets, including the Nursery Business and the Real Estate Business and the
ownership of the Centaur Interest (but excluding the ownership and operation of
387 PAS Enterprises).
CLR BYLAWS: The Bylaws of CLR, substantially in the form of Exhibit C
attached hereto, to be in effect at the Distribution Date.
CLR CERTIFICATE: The Certificate of Incorporation of CLR,
substantially in the form of Exhibit D attached hereto, to be in effect at the
Distribution Date.
CLR COMMON STOCK: The common stock, par value $1.00 per share, of
CLR.
CLR EMPLOYEES: The persons employed by the CLR Group on the Asset
Transfer Date; provided that no Retained Employee who performs services for the
CLR group after the Asset Transfer Date pursuant to the CLR Services Agreement
shall be deemed to be a CLR Employee.
CLR FINANCING OBLIGATIONS: The Financing Obligations to be assumed or
retained by the CLR Group set forth on Schedule 1.01(a) hereto.
CLR GROUP: CLR and the CLR Subsidiaries, collectively.
CLR INITIAL CASH BALANCE: $7,000,000.
CLR LIABILITIES: (i) All of the Liabilities of the CLR Group under,
or to be retained or assumed by CLR or any of the CLR Subsidiaries pursuant to,
this Agreement or any of the Related Agreements, including without limitation
all liabilities retained or assumed pursuant to the Tax Sharing Agreement and
the Employee Benefits Allocation Agreement, (ii) all Liabilities under the CLR
Financing Obligations, (iii) all Liabilities relating to Eli Witt (including the
bankruptcy proceedings related thereto) and (iv) all other Liabilities arising
out of or in connection with any of the CLR Assets or the CLR Business,
determined on a basis consistent with the determination of the Liabilities of
CLR included on the CLR Balance Sheet.
CLR POLICIES: All Policies, current or past, which are owned or
maintained by or on behalf of Culbro or any of its Affiliates or predecessors,
that relate to the CLR Business but do not relate to the Retained Business, and
which Policies are either maintained by the CLR Group or assignable to the CLR
Group.
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CLR SERVICES AGREEMENT: The Services Agreement, which shall be
entered into between CLR and Culbro on or prior to the Asset Transfer Date,
substantially in the form of Exhibit G attached hereto.
CLR SUBSIDIARIES: The CLR Transferred Subsidiaries, and all direct
and indirect Subsidiaries of CLR and the CLR Transferred Subsidiaries as of the
Asset Transfer Date.
CLR TRANSFERRED SUBSIDIARIES: Imperial, Eli Witt and General Witt
Receivables Corp.
CLR TRANSFERRED SUBSIDIARY STOCK: All of the issued and outstanding
capital stock of the CLR Transferred Subsidiaries owned by Culbro as of the date
of this Agreement.
CLUB MACANUDO: Club Macanudo, Inc., a wholly-owned subsidiary of
Culbro.
CLUB MACANUDO (CHICAGO): Club Macanudo (Chicago), Inc., a wholly-
owned subsidiary of Culbro.
CODE: The Internal Revenue Code of 1986, as amended.
COMMERCIAL REAL ESTATE: The real property set forth on Schedule
1.01(c) hereto.
COMMISSION: The Securities and Exchange Commission.
CONVEYANCING AND ASSUMPTION INSTRUMENTS: Collectively, the various
agreements, instruments and other documents to be entered into to effect the
Asset Transfers and the assumption of Liabilities in the manner contemplated by
this Agreement and the Related Agreements.
CULBRO BOARD: The Board of Directors of Culbro.
CULBRO BOOKS AND RECORDS: The books and records (including
computerized records, ledgers, files and software) of Culbro and the Retained
Subsidiaries and all books and records owned by Culbro and its Subsidiaries
which relate to the Retained Business, are necessary to operate the Retained
Business, or are required by law to be retained by Culbro, including, without
limitation, all such books and records relating to Retained Employees, all files
relating to any Action pertaining to the Retained Liabilities, original
corporate minute books, stock ledgers and certificates and corporate seals, and
all licenses, leases, agreements and filings, relating to Culbro, the Retained
Subsidiaries or the Retained Business (not including the CLR Books and Records,
provided that Culbro shall have access to, and shall have the right to obtain
duplicate copies of, the CLR Books and Records in accordance with the provisions
of Article VIII).
CULBRO COMMON STOCK: The common stock, par value $1.00 per share, of
Culbro.
CULBRO GROUP: Culbro and the Retained Subsidiaries, collectively.
CULBRO BALANCE SHEET: The Pro Forma Consolidated Balance Sheet for
Culbro, after giving effect to the Asset Transfers and the Distribution, as of
November 30, 1996 (the end of its most recent fiscal year) attached hereto as
Exhibit A.
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CULBRO FINANCING OBLIGATIONS: The Financing Obligations to be
retained or assumed by the Culbro Group as set forth on Schedule 1.01(b) hereto.
CULBRO LEASEHOLD: The leasehold for the headquarters of Culbro
located at 387 Park Avenue South, New York, New York, and all improvements
therein.
CULBRO PERSONAL PROPERTY: All personalty owned by Culbro, including
but not limited to all vehicles, all office machinery and equipment located at
the Culbro Leasehold, all office furniture and fixtures located at the Culbro
Leasehold, and all works of art and other non-depreciable assets located at the
Culbro Leasehold.
DISTRIBUTION DATE: The date determined by the Culbro Board as the
date on which the Distribution shall be effected.
DISTRIBUTION RECORD DATE: The date established by the Culbro Board as
the date for taking a record of the Holders of Culbro Common Stock entitled to
participate in the Distribution.
ELI WITT: The Eli Witt Company, a Delaware corporation, in which
Culbro has a 50.1% common stock interest and which has issued certain corporate
debt and mortgaged certain real property to Culbro.
ELI WITT NOTES: Certain indebtedness of Eli Witt to Culbro
representing (i) a junior mortgage note from Eli Witt to Culbro bearing a
principal amount of $2,000,000, plus interest, secured by a mortgage on certain
real property owned by Eli Witt and (ii) an unsecured note bearing a principal
amount of $5,000,000, plus interest, issued by Eli Witt to Culbro, and in both
cases together with all security interests related thereto of any kind.
EMPLOYEE BENEFITS ALLOCATION AGREEMENT: The Benefits and Employment
Matters Allocation Agreement between Culbro and CLR, which agreement shall be
entered into on or prior to the Asset Transfer Date, substantially in the form
of Exhibit F attached hereto.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
FINANCING OBLIGATIONS: All (i) indebtedness for borrowed money, (ii)
obligations evidenced by bonds, notes, debentures or similar instruments, (iii)
obligations under capitalized leases and deferred purchase arrangements, (iv)
reimbursement or other obligations relating to letters of credit or similar
arrangements, and (v) obligations to guarantee, directly or indirectly, any of
the foregoing types of obligations on behalf of others.
GENERAL CIGAR: General Cigar Co., Inc., a Delaware corporation.
HOLDERS: The holders of record of Culbro Common Stock as of the
Distribution Record Date.
HOLDINGS PROPERTY: The Airplane, the Culbro Leasehold and the Culbro
Personal Property.
HOLDINGS TRANSFERRED SUBSIDIARIES: General Cigar, 387 PAS, Club
Macanudo, Club Macanudo (Chicago), Cifuentes Y Cia, Ltd., Cifuentes Free Zone,
Ltd., Gradiaz Annis of Jamaica, Ltd., Gradiaz Annis & Co., Inc., Culbro Tobacco
Sales Corporation, Culbro V.L. Tobacco, S.A., Industrial Buildings
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& Properties Inc., Jose Escalante & Co., Macanudo Cigar Company, Inc., Partagas
Cigar Company, Inc., Culbro International U.K. Ltd., Culbro International, S.A.,
Moll Tool & Plastics Corp. and Helmetta Realty Corp.
HOLDINGS TRANSFERRED SUBSIDIARY STOCK: All of the issued and
outstanding capital stock of the Holdings Transferred Subsidiaries owned by
Culbro as of the date of this Agreement.
HSR ACT: The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
IMPERIAL: Imperial Nurseries, Inc., a Delaware corporation and a
wholly-owned subsidiary of Culbro.
INSURANCE ADMINISTRATION: With respect to each Policy, the accounting
for premiums, retrospectively rated premiums, defense costs, adjuster's fees,
indemnity payments, deductibles and retentions as appropriate under the terms
and conditions of such Policy; and the reporting to excess insurance carriers of
any losses or claims in accordance with Policy provisions, and the distribution
of Insurance Proceeds as contemplated by this Agreement.
INSURANCE PROCEEDS: Those moneys (i) received by an insured from an
insurance carrier or (ii) paid by an insurance carrier on behalf of an insured,
in either case net of any applicable premium adjustment, retrospectively-rated
premium, deductible, retention, cost or reserve paid or held by or for the
benefit of such insured.
INSURED CLAIMS: Those Liabilities that, individually or in the
aggregate, are covered within the terms and conditions of any of the Policies,
whether or not subject to deductibles, co-insurance, uncollectability or
retrospectively rated premium adjustments, but only to the extent that such
Liabilities are within applicable Policy limits, including aggregates.
IPO: The initial public offering of the common stock of Holdings.
IPO COMMENCEMENT DATE: The date the IPO is commenced through
distribution of a "red herring" prospectus.
LIABILITIES: Any and all debts, liabilities and obligations, absolute
or contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising, including all costs and expenses
relating thereto, and including, without limitation, those debts, liabilities
and obligations arising under any law, rule, regulation, Action, threatened
Action, order or consent decree of any governmental entity or any award of any
arbitrator of any kind, and those arising under any contract, commitment or
undertaking.
MERGER AGREEMENT: The Merger Agreement between Culbro and Holdings,
which agreement shall be entered into on or prior to the Distribution Date,
substantially in the form of Exhibit I attached hereto.
NASDAQ: The National Association of Securities Dealers Automated
Quotations System.
NURSERY REAL ESTATE: The real property set forth on Schedule 1.01(d)
hereto.
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PERSON: Any individual, corporation, partnership, association, trust,
estate or other entity or organization, including any governmental entity or
authority.
POLICIES: Insurance policies and insurance contracts of any kind
(each, a "Policy") relating to the CLR Business or the Retained Business as
conducted prior to the Asset Transfer Date, including, without limitation,
primary and excess policies, comprehensive general liability policies, and
automobile and workers' compensation insurance policies, together with the
rights, benefits and privileges thereunder.
PRIVILEGED INFORMATION: All information as to which Culbro, CLR or
any of their Subsidiaries are entitled to assert the protection of a Privilege.
PRIVILEGES: All privileges that may be asserted under applicable law
including, without limitation, privileges arising under or relating to the
attorney-client relationship (including but not limited to the attorney-client
and work product privileges), the accountant-client privilege, and privileges
relating to internal evaluative processes.
RELATED AGREEMENTS: All of the agreements, instruments,
understandings, assignments or other arrangements which are entered into in
connection with the transactions contemplated hereby and which are set forth in
a writing, including, without limitation, the Conveyancing and Assumption
Instruments, the Agriculture Lease, the Employee Benefits Allocation Agreement,
the Tax Sharing Agreement and the Services Agreement.
RETAINED ASSETS: The assets of Culbro other than the CLR Assets,
including without limitation (i) the capital stock of the Retained Subsidiaries,
(ii) assets relating to the Retained Business, determined on a basis consistent
with the determination of assets included on the Culbro Balance Sheet, (iii) all
other assets expressly allocated to Culbro or any of the Retained Subsidiaries
under this Agreement or the Related Agreements, and (iv) any other assets of
Culbro and its Affiliates relating to the Retained Business.
RETAINED BUSINESS: The businesses conducted by Culbro and its
Affiliates other than the CLR Business, including the Cigar Business.
RETAINED EMPLOYEES: All of the persons employed by the Culbro Group
on the Asset Transfer Date, which shall be substantially all of the persons
employed by the Culbro Group immediately prior to the Asset Transfer Date;
provided that no CLR Employee shall be deemed to be a Retained Employee.
RETAINED LIABILITIES: (i) All of the Liabilities arising out of or in
connection with the Retained Assets or the Retained Business determined on a
basis consistent with the determination of the Liabilities of Culbro included on
the Culbro Balance Sheet, (ii) all other Liabilities of Culbro under, or to be
retained or assumed by Culbro or any of the Retained Subsidiaries pursuant to,
this Agreement or any of the Related Agreements, including without limitation
all Liabilities retained or assumed pursuant to the Tax Sharing Agreement and
the Employee Benefits Agreement, (iii) the Culbro Financing Obligations, (iv)
any Liabilities arising out of the settlement of lawsuits relating to the
Distribution (other than those Liabilities that constitute CLR Liabilities), (v)
all expenses relating to consummation of the Asset Transfers, the IPO, the
Distribution and the Merger (including without limitation all transfer taxes,
legal, accounting and investment bank fees and expenses) and (vi) all other
Liabilities of Culbro not constituting CLR Liabilities.
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RETAINED POLICIES: All Policies, current or past, that are owned or
maintained by or on behalf of any member of the Culbro Group (or any of its
predecessors) which relate to the Retained Business but do not relate to the CLR
Business.
RETAINED SUBSIDIARIES: All direct and indirect Subsidiaries of
Culbro, including but not limited to (i) Holdings, (ii) General Cigar, 387 PAS,
Club Macanudo, Club Macanudo (Chicago) and GCH Transportation, Inc., (iii)
Villazon & Co., Inc., Honduras American Tabaco, S.A. de C.V., Cifuentes Y Cia,
Ltd., Cifuentes Free Zone, Ltd., Gradiaz Annis of Jamaica, Ltd., Gradiaz Annis &
Co., Inc., Culbro Tobacco Sales Corporation, Culbro V.L. Tobacco, S.A. and
Industrial Buildings & Properties Inc. and (iv) Jose Escalante & Co., Macanudo
Cigar Company, Inc., Partagas Cigar Company, Inc., Culbro International U.K.
Ltd., Culbro International, S.A., Moll Tool & Plastics Corp., Helmetta Realty
Corp. and Twenty-Seventh & Park, Inc.; PROVIDED, HOWEVER, that "Retained
Subsidiaries" shall exclude CLR and the CLR Subsidiaries.
SECURITIES ACT: The Securities Act of 1933, as amended.
SHARED POLICIES: All Policies, current or past, that are owned or
maintained by or on behalf of Culbro or any of its Subsidiaries or their
respective predecessors that relate to both the Retained Business and the CLR
Business, and all other Policies not constituting Retained Policies or CLR
Policies, in each case including, but not limited to, the Policies specified on
Schedule 1.01(f) hereto.
SUBSIDIARY: With respect to any Person, (a) any corporation of which
at least a majority in interest of the outstanding voting stock (having by the
terms thereof voting power under ordinary circumstances to elect a majority of
the directors of such corporation, irrespective of whether or not at the time
stock of any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the time,
directly or indirectly, owned or controlled by such Person, by one or more
Subsidiaries of such Person, or by such Person and one or more of its
Subsidiaries; PROVIDED that Eli Witt shall not constitute a Subsidiary of Culbro
or any of its affiliates, or (b) any non-corporate entity in which such Person,
one or more Subsidiaries of such Person, or such Person and one or more
Subsidiaries of such Person, directly or indirectly, at the date of
determination thereof, has at least majority ownership interest.
TAX RULING: The private letter ruling to be issued by the Internal
Revenue Service to the effect that the proposed Distribution constitutes a
tax-free spin-off under the Code.
TAX SHARING AGREEMENT: The Tax Sharing Agreement between Culbro and
CLR, which agreement shall be entered into on or prior to the Asset Transfer
Date, substantially in the form of Exhibit H attached hereto.
TOBACCO REAL ESTATE: The real property set forth on Schedule 1.01(e)
hereto.
02 TERMS DEFINED ELSEWHERE IN AGREEMENT.
Each of the following terms is defined in the Section set forth
opposite such term:
TERM SECTION
---- -------
Asset Transfers Recitals
Cigar Business Recitals
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CLR Recitals
CLR Assets 2.04
CLR Indemnifiable Losses 5.01
CLR Indemnitees 5.01
Culbro Recitals
Culbro Indemnifiable Losses 5.02
Culbro Indemnitees 5.02
Distribution Recitals
Form 10 Registration Statement 4.01
Holdings Assets 2.03
Indemnifiable Losses 5.02
Indemnifying Party 5.03
Indemnitee 5.03
Information 8.02
Merger Proxy 4.01
Nursery Business Recitals
Real Estate Business Recitals
Required Consents 4.01
Third-Party Claim 5.04
ARTICLE II
TRANSFER OF ASSETS
03 TRANSFER OF REAL ESTATE TO GENERAL CIGAR. Prior to the IPO
Commencement Date, Culbro shall take or cause to be taken all actions necessary
to cause the transfer, assignment, delivery and conveyance to General Cigar or
any subsidiary thereof of all of Culbro's and its Subsidiaries' right, title and
interest in the Tobacco Real Estate.
04 TRANSFER OF REAL ESTATE TO CLR. Prior to the IPO Commencement
Date, Culbro shall take or cause to be taken all actions necessary to cause the
transfer, assignment, delivery and conveyance to CLR or any Subsidiary thereof
of all of Culbro's and its Subsidiaries' right, title and interest in the
Nursery Real Estate and in the Commercial Real Estate.
05 TRANSFER OF ASSETS TO HOLDINGS. Prior to the IPO Commencement
Date, Culbro shall take or cause to be taken all actions necessary to cause the
transfer, assignment, delivery and conveyance to Holdings or the Retained
Subsidiaries, as the case may be, of all of Culbro's and its Subsidiaries'
right, title and interest in the Holdings Assets, and Holdings shall take or
cause to be taken all actions necessary to cause the assumption by Holdings or
the Retained Subsidiaries of the Retained Liabilities. The "Holdings Assets"
shall consist of the following assets:
(i) the Holdings Transferred Subsidiary Stock;
(ii) the 387 PAS Minority Interest;
(iii) the Holdings Property;
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(iv) licenses and permits relating to the Retained
Business, to the extent such licenses and permits
are transferable;
(v) all accounts receivable, prepaid expenses,
reserves and other current assets relating to the
Retained Business (except that no cash shall
constitute Holdings Assets except to the extent
provided in Section 2.09 below);
(vi) the Retained Policies and the Shared Policies; and
(vii) all of the other assets to be assigned to Holdings
under this Agreement or the Related Agreements.
06 TRANSFER OF ASSETS TO CLR. Prior to the consummation of the IPO,
Culbro shall take or cause to be taken all actions necessary to cause the
transfer, assignment, delivery and conveyance to CLR or the CLR Subsidiaries of
all of Culbro's and its Subsidiaries' right, title and interest in the CLR
Assets, and CLR shall take or cause to be taken all actions necessary to cause
the assumption by CLR or the CLR Subsidiaries of the CLR Liabilities. The "CLR
Assets" shall consist of the following assets:
(i) the CLR Transferred Subsidiary Stock;
(ii) the Centaur Interest;
(iii) the Eli Witt Notes;
(iv) the CLR Books and Records;
(v) licenses and permits relating to the CLR Business,
to the extent such licenses and permits are
transferable;
(vi) all of the other assets to be assigned to CLR
under this Agreement or the Related Agreements;
(vii) all accounts receivable, prepaid expenses,
reserves and other current assets relating to the
CLR Business (except that no cash shall constitute
CLR Assets except to the extent provided in
Section 2.09 below);
(viii) the CLR Policies; and
(ix) all other assets relating to the CLR Business,
determined on a basis consistent with the
determination of the assets included on the CLR
Balance Sheet.
07 RELATED AGREEMENTS; MERGER AGREEMENT.
On or prior to the Asset Transfer Date, Culbro, Holdings and CLR (or
their respective Subsidiaries, as applicable) shall enter into the Related
Agreements and Culbro and Holdings shall enter into the Merger Agreement.
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08 TRANSFERS NOT EFFECTED PRIOR TO THE DISTRIBUTION.
To the extent that any transfers contemplated by this Article II shall
not have been fully effected on the Asset Transfer Date, the parties shall
cooperate to effect such transfers as promptly as shall be practicable following
the Asset Transfer Date. Nothing herein shall be deemed to require the transfer
of any assets or the assumption of any Liabilities that by their terms or
operation of law cannot be transferred or assumed; PROVIDED, HOWEVER, that
Culbro on the one hand and Holdings or CLR, as the case may be, on the other
hand, and their respective Subsidiaries and Affiliates shall cooperate in
seeking to obtain any necessary consents or approvals for the transfer of all
assets and Liabilities contemplated to be transferred pursuant to this Article
II. In the event that any such transfer of assets or Liabilities has not been
consummated as of the Asset Transfer Date, the party retaining such asset or
Liability shall thereafter hold such asset in trust for the use and benefit of
the party entitled thereto (at the expense of the party entitled thereto) and
retain such Liability for the account of the party by whom such Liability is to
be assumed pursuant hereto, and take such other actions as may be reasonably
required in order to place the parties, insofar as reasonably possible, in the
same position as would have existed had such asset been transferred or such
Liability been assumed as contemplated hereby. As and when any such asset or
Liability becomes transferable, such transfer and assumption shall be effected
forthwith. The parties agree that, except as described in this section, as of
the Asset Transfer Date, each party hereto shall be deemed to have acquired
complete and sole beneficial ownership over all of the assets, together with all
rights, powers and privileges incidental thereto, and shall be deemed to have
assumed in accordance with the terms of this Agreement all of the Liabilities,
and all duties, obligations and responsibilities incidental thereto, which such
party is entitled to acquire or required to assume pursuant to the terms of this
Agreement.
09 NO REPRESENTATIONS OR WARRANTIES; CONSENTS. Each of the parties
hereto understands and agrees that no party hereto is, in this Agreement or in
any other agreement or document contemplated by this Agreement or otherwise,
representing or warranting in any way (i) as to the value or freedom from
encumbrance of, or any other matter concerning, any assets of such party or (ii)
as to the legal sufficiency to convey title to any asset transferred pursuant to
this Agreement or any Related Agreement, including, without limitation, any
Conveyancing or Assumption Instruments. It is also agreed and understood that
there are no warranties, express or implied, as to the merchantability or
fitness of any of the assets either transferred to or retained by the parties,
as the case may be, and all such assets shall be "as is, where is" and "with all
faults", including without limitation all environmental liabilities (provided,
however, that the absence of warranties shall have no effect upon the allocation
of Liabilities under this Agreement). Similarly, each party hereto understands
and agrees that no party hereto is, in this Agreement or in any other agreement
or document contemplated by this Agreement or otherwise, representing or
warranting in any way that the obtaining of any consents or approvals, the
execution and delivery of any amendatory agreements and the making of any
filings or applications contemplated by this Agreement will satisfy the
provisions of any or all applicable laws or judgments or other instruments or
agreements relating to such assets. Notwithstanding the foregoing, the parties
shall use their good faith efforts to obtain all consents and approvals, to
enter into all reasonable amendatory agreements and to make all filings and
applications which may be reasonably required for the consummation of the
transactions contemplated by this Agreement, and shall take all such further
reasonable actions as shall be reasonably necessary to preserve for each of the
Culbro Group and the CLR Group, to the greatest extent feasible, the economic
and operational benefits of the allocation of assets and Liabilities provided
for in this Agreement. In case at any time after the Asset Transfer Date any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
shall take all such necessary or desirable action.
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010 CONVEYANCING AND ASSUMPTION INSTRUMENTS. In connection with the
Asset Transfers and the assumptions of Liabilities contemplated by this
Agreement, the parties shall execute or cause to be executed by the appropriate
entities the Conveyancing and Assumption Instruments in such forms as the
parties shall reasonably agree, including but not limited to the assignment of
franchise rights and the assignment and assumption of existing agreements as set
forth in Schedule 2.08 hereto. The transfer of capital stock shall be effected
by means of delivery of stock certificates and executed stock powers and
notation on the stock record books of the corporation or other legal entities
involved and, to the extent required by applicable law, by notation on public
registries.
011 BUSINESS OPERATIONS.
(a) CASH ALLOCATION ON THE ASSET TRANSFER DATE. To satisfy the
business needs for cash of CLR as of the close of business on the Asset Transfer
Date, (i) CLR shall be allocated, out of all cash bank balances and short-term
investments of Culbro and its Subsidiaries ("Cash"), an amount of Cash equal to
the CLR Initial Cash Balance and (ii) Culbro shall transfer all other Cash to
Holdings. To the extent practicable, the parties shall use their reasonable
best efforts to take all necessary action to cause the Cash balances of CLR and
its Subsidiaries immediately prior to consummation of the Asset Transfers to be
equal to the CLR Initial Cash Balance. In the event the actual Cash balances of
CLR and its Subsidiaries as of the Asset Transfer Date are less than the CLR
Initial Cash Balance, the amount of the deficiency shall be recorded in the
accounts of CLR as of the Asset Transfer Date as a payable from Holdings to CLR
(which payable will be paid as promptly as practicable following the Asset
Transfer Date); and in the event the actual Cash balances of CLR and its
Subsidiaries as of the Asset Transfer Date exceeds the CLR Initial Cash Balance,
the amount of such excess shall be recorded in the accounts of Holdings and CLR
as of the Asset Transfer Date as a payable from CLR to Holdings (which payable
will be paid as promptly as practicable following the time it is determinable).
(b) CASH MANAGEMENT AFTER THE ASSET TRANSFER DATE. CLR shall
separate from Culbro, and establish and maintain a separate cash management
system and accounting records with respect to the CLR Business effective as of
12:01 a.m. on the day following the Asset Transfer Date; thereafter, (i) any
payments by Culbro or its Retained Subsidiaries on behalf of CLR or the CLR
Subsidiaries in connection with the CLR Business shall be recorded in the
accounts of the CLR Group as a payable from the CLR Group to the Culbro Group;
(ii) any payments by CLR or the CLR Subsidiaries on behalf of Culbro or its
Retained Subsidiaries in connection with the Retained Business shall be recorded
in the accounts of the Culbro Group as a payable from the Culbro Group to the
CLR Group; (iii) any cash payments received by Culbro and the Retained
Subsidiaries relating to the CLR Business or the CLR Assets shall be recorded in
the accounts of the Culbro Group as a payable from the Culbro Group to the CLR
Group; (iv) any cash payments received by CLR or the CLR Subsidiaries relating
to the Retained Business or the Retained Assets shall be recorded in the
accounts of the CLR Group as a payable from the CLR Group to the Culbro Group;
(v) CLR and Culbro shall make adjustments for late deposits, checks returned for
not sufficient funds and other post-Asset Transfer Date transactions as shall be
reasonable under the circumstances consistent with the purpose and intent of
this Agreement; and (vi) the net balance due to the Culbro Group or the CLR
Group, as the case may be, in respect of the aggregate amounts of clauses (i),
(ii), (iii), (iv) and (v) shall be paid by CLR or Culbro, as appropriate, as
promptly as practicable. For purposes of this Section 2.09(b), the parties
contemplate that the Retained Business and the CLR Business, including but not
limited to the administration of accounts payable and accounts receivable, will
be conducted in the normal course.
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(c) SEPARATE OPERATIONS. From and after the Asset Transfer Date, the
CLR Business shall be operated as a stand-alone business. Culbro agrees that
unless and until the Distribution is abandoned pursuant to Section 10.07 below,
Culbro will not cause CLR to make any distribution, in cash or otherwise, to
Culbro.
(d) AUDIT AND DISPUTES. All transactions contemplated in this
Section 2.09 shall be subject to audit by the parties, and any dispute
thereunder shall be resolved by an independent firm of certified public accounts
mutually acceptable to Culbro and CLR, whose decision shall be final and
unappealable.
ARTICLE III
ASSUMPTION AND SATISFACTION OF LIABILITIES
012 ASSUMPTION AND SATISFACTION OF LIABILITIES. Except as set forth
in the Tax Sharing Agreement, the Employee Benefits Allocation Agreement, the
Services Agreement, the Agriculture Lease or other Related Agreements, effective
as of and after the Asset Transfer Date, (a) Holdings shall, and/or shall cause
the Holdings Transferred Subsidiaries to, assume, pay, perform, and discharge in
due course all of the Retained Liabilities and (b) CLR shall, and/or shall cause
the CLR Subsidiaries to, assume, pay, perform, and discharge in due course all
of the CLR Liabilities.
ARTICLE IV
THE DISTRIBUTION
013 COOPERATION PRIOR TO THE DISTRIBUTION.
(a) Culbro and CLR shall prepare, and CLR shall file with the
Commission, a Form 10 registration statement with respect to the registration
under the Exchange Act of the CLR Common Stock (the "Form 10 Registration
Statement").
(b) Each of Culbro, Holdings and CLR shall cooperate in preparing,
filing with the Commission and causing to become effective any registration
statements or amendments thereto which are appropriate to reflect the
establishment of, or amendments to, any employee benefit plans and other plans
contemplated by this Agreement.
(c) Culbro shall file a "no-action" letter with the Commission with
respect to the Distribution, shall use its best efforts to receive a no-action
position from the Commission that the Distribution will not require registration
under the Securities Act and shall take all other action as may be necessary and
appropriate (including registration of the CLR Common Stock under the Securities
Act) to obtain approval under federal securities laws for the Distribution.
(d) Culbro shall prepare and file with the Commission a registration
statement on Form S-4 and related proxy materials (collectively, the "Merger
Proxy") with respect to effectuating the Merger, and shall take all other action
as may be necessary to consummate the Merger.
(e) Each of Culbro, Holdings and CLR shall take all such action as
may be necessary or appropriate under the securities or blue sky laws of states
or other political subdivisions of the United States in connection with the
transactions contemplated by this Agreement and the Related Agreements.
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(f) Culbro and CLR shall prepare, and CLR shall file and pursue, an
application to permit the listing of CLR Common Stock on NASDAQ.
(g) Culbro, Holdings and CLR, as the case may be, shall make any
requisite filings under the HSR Act.
(h) Each of Culbro, Holdings and CLR shall use all reasonable efforts
to obtain any third-party consents or approvals necessary or desirable in
connection with the transactions contemplated hereby, including without
limitation the consents or approvals set forth on Schedule 4.01 hereto
(collectively, the "Required Consents").
(i) Each of Culbro, Holdings and CLR shall use all reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary or desirable under applicable law, to consummate the
transactions contemplated under this Agreement.
S1 CULBRO BOARD ACTION; CONDITIONS PRECEDENT TO THE DISTRIBUTION.
The Culbro Board shall, in its discretion, establish the Distribution Record
Date and the Distribution Date and any appropriate procedures in connection with
the Distribution. In no event shall the Distribution occur unless the following
conditions shall have been satisfied:
(i) the Tax Ruling shall have been granted in form and substance
satisfactory to the Culbro Board, in its sole discretion, or the Culbro Board
shall have received an opinion of Latham & Watkins (or, in the event of a
conflict, of another national law firm mutually acceptable to the parties
hereto) in form and substance satisfactory to it in its sole discretion to the
effect that the proposed Distribution constitutes a tax-free spin-off under the
Code.
(ii) Culbro and Holdings shall have entered into the Merger
Agreement and the Holders of Culbro Common Stock shall have approved the Merger;
(iii) Culbro and CLR shall have obtained all approvals from
government authorities (including the Commission), the failure of which to
obtain would, in the determination of the Culbro Board, have a material adverse
effect on Culbro or CLR; and
(iv) Culbro and CLR shall have entered into the Related
Agreements;
PROVIDED, HOWEVER, that (i) any such condition may be waived by the Culbro Board
in its sole discretion upon the advice of counsel and (ii) the satisfaction of
such conditions shall not create any obligation on the part of Culbro or any
other party hereto to effect the Distribution or in any way limit Culbro's power
of termination set forth in Section 10.07 or alter the consequences of any such
termination from those specified in such Section.
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015 THE DISTRIBUTION. On the Distribution Date, subject to the
conditions and rights of termination set forth in this Agreement, Culbro shall
deliver to the Agent a share certificate representing all of the then
outstanding shares of CLR Common Stock owned by Culbro and shall instruct the
Agent to distribute, on or as soon as practicable following the Distribution
Date, such CLR Common Stock to the Holders. CLR agrees to provide all share
certificates that the Agent shall require in order to effect the Distribution.
ARTICLE V
INDEMNIFICATION
016 INDEMNIFICATION BY CULBRO.
Except as otherwise expressly set forth in a Related Agreement, Culbro
and Holdings shall indemnify, defend and hold harmless CLR and each of the CLR
Subsidiaries, and each of their respective directors, officers, employees,
agents and Affiliates and each of the heirs, executors, successors and assigns
of any of the foregoing (the "CLR Indemnitees") from and against the Retained
Liabilities and any and all losses, Liabilities, damages, including, without
limitation, the costs and expenses of any and all Actions, threatened Actions,
demands, assessments, judgments, settlements and compromises relating thereto
and attorneys' fees and any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any such Actions or threatened
Actions (collectively, "CLR Indemnifiable Losses" and, individually, a "CLR
Indemnifiable Loss") of the CLR Indemnitees arising out of or due to the failure
or alleged failure of Culbro or any of its Affiliates to (i) pay, perform or
otherwise discharge in due course any of the Retained Liabilities or (ii) comply
with the provisions of Section 5.04.
017 INDEMNIFICATION BY CLR. Except as otherwise expressly set forth
in a Related Agreement, CLR shall indemnify, defend and hold harmless Culbro and
each of the Retained Subsidiaries, and each of their directors, officers,
employees, agents and Affiliates and each of the heirs, executors, successors
and assigns of any of the foregoing (the "Culbro Indemnitees") from and against
the CLR Liabilities and any and all losses, Liabilities, damages, including,
without limitation, the costs and expenses of any and all Actions, threatened
Actions, demands, assessments, judgments, settlements and compromises relating
thereto and attorneys' fees and any and all expenses whatsoever reasonably
incurred in investigating, preparing or defending against any such Actions or
threatened Actions (collectively, "Culbro Indemnifiable Losses" and,
individually, a "Culbro Indemnifiable Loss") of the Culbro Indemnitees arising
out of or due to the failure or alleged failure of CLR or any of its Affiliates
to (i) pay, perform or otherwise discharge in due course any of the CLR
Liabilities or (ii) comply with the provisions of Section 5.04. The "CLR
Indemnifiable Losses" and the "Culbro Indemnifiable Losses" are collectively
referred to as the "Indemnifiable Losses."
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018 INSURANCE PROCEEDS. The amount that any party (an "Indemnifying
Party") is or may be required to pay to any other Person (an "Indemnitee")
pursuant to Section 5.01 or Section 5.02 shall be reduced (including, without
limitation, retroactively) by any Insurance Proceeds or other amounts actually
recovered by or on behalf of such Indemnitee in reduction of the related
Indemnifiable Loss. If an Indemnitee shall have received the payment required
by this Agreement from an Indemnifying Party in respect of an Indemnifiable Loss
and shall subsequently actually receive Insurance Proceeds, or other amounts in
respect of such Indemnifiable Loss as specified above, then such Indemnitee
shall pay to such Indemnifying Party a sum equal to the amount of such Insurance
Proceeds or other amounts actually received.
019 PROCEDURE FOR INDEMNIFICATION.
(a) Except as may be set forth in a Related Agreement, if an
Indemnitee shall receive notice or otherwise learn of the assertion by a Person
(including, without limitation, any governmental entity) who is not a party to
this Agreement or to any of the Related Agreements of any claim or of the
commencement by any such Person of any Action (a "Third-Party Claim") with
respect to which an Indemnifying Party may be obligated to provide
indemnification pursuant to this Agreement, such Indemnitee shall give such
Indemnifying Party written notice thereof promptly after becoming aware of such
Third-Party Claim; PROVIDED, that the failure of any Indemnitee to give notice
as required by this Section 5.04 shall not relieve the Indemnifying Party of its
obligations under this Article V, except to the extent that such Indemnifying
Party is prejudiced by such failure to give notice. Such notice shall describe
the Third-Party Claim in reasonable detail, and shall indicate the amount
(estimated if necessary) of the Indemnifiable Loss that has been or may be
sustained by such Indemnitee.
(b) An Indemnifying Party may elect to defend or to seek to settle or
compromise, at such Indemnifying Party's own expense and by such Indemnifying
Party's own counsel, any Third-Party Claim, provided that the Indemnifying Party
must confirm in writing that it agrees that Indemnitee is entitled to
indemnification hereunder in respect of such Third-Party Claim. Within 30 days
of the receipt of notice from an Indemnitee in accordance with Section 5.04(a)
(or sooner, if the nature of such Third-Party Claim so requires), the
Indemnifying Party shall notify the Indemnitee of its election whether to assume
responsibility for such Third-Party Claim (provided that if the Indemnifying
Party does not so notify the Indemnitee of its election within 30 days after
receipt of such notice from the Indemnitee, the Indemnifying Party shall be
deemed to have elected not to assume responsibility for such Third-Party Claim),
and such Indemnitee shall cooperate in the defense or settlement or compromise
of such Third-Party Claim. After notice from an Indemnifying Party to an
Indemnitee of its election to assume responsibility for a Third-Party Claim,
such Indemnifying Party shall not be liable to such Indemnitee under this
Article V for any legal or other expenses (except expenses approved in advance
by the Indemnifying Party) subsequently incurred by such Indemnitee in
connection with the defense thereof; PROVIDED, that if the defendants in any
such claim include both the Indemnifying Party and one or more Indemnitees and
in such Indemnitees' reasonable judgment a conflict of interest between such
Indemnitees and such Indemnifying Party exists in respect of such claim, such
Indemnitees shall have the right to employ separate counsel and in that event
the reasonable fees and expenses of such separate counsel (but not more than one
separate counsel reasonably satisfactory to the Indemnifying Party) shall be
paid by such Indemnifying Party. If an Indemnifying Party elects not to assume
responsibility for a Third-Party Claim (which election may be made only in the
event of a good faith dispute that a claim was inappropriately tendered under
Section 5.01 or 5.02, as the case may be) such Indemnitee may defend or (subject
to the following sentence) seek to compromise or settle such Third-Party Claim.
Notwithstanding the foregoing, an Indemnitee may not settle or compromise any
claim without prior written notice to the
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Indemnifying Party, which shall have the option within ten days following the
receipt of such notice (i) to disapprove the settlement and assume all past and
future responsibility for the claim, including reimbursing the Indemnitee for
prior expenditures in connection with the claim, or (ii) to disapprove the
settlement and continue to refrain from participation in the defense of the
claim, in which event the Indemnifying Party shall have no further right to
contest the amount or reasonableness of the settlement if the Indemnitee elects
to proceed therewith, or (iii) to approve the amount of the settlement,
reserving the Indemnifying Party's right to contest the Indemnitee's right to
indemnity, or (iv) to approve and agree to pay the settlement. In the event the
Indemnifying Party makes no response to such written notice from the Indemnitee,
the Indemnifying Party shall be deemed to have elected option (ii) above.
(c) If an Indemnifying Party chooses to defend or to seek to
compromise any Third-Party Claim, the Indemnitee shall make available to such
Indemnifying Party any personnel and any books, records or other documents
within its control or which it otherwise has the ability to make available that
are necessary or appropriate for such defense.
(d) Notwithstanding anything else in this Section 5.04 to the
contrary, an Indemnifying Party shall not settle or compromise any Third-Party
Claim unless such settlement or compromise contemplates as an unconditional term
thereof the giving by such claimant or plaintiff to the Indemnitee of a written
release from all liability in respect of such Third-Party Claim (and provided
further that such settlement may not provide for any non-monetary relief by
Indemnitee without the written consent of Indemnitee). In the event the
Indemnitee shall notify the Indemnifying Party in writing that such Indemnitee
declines to accept any such settlement or compromise, such Indemnitee may
continue to contest such Third-Party Claim, free of any participation by such
Indemnifying Party, at such Indemnitee's sole expense. In such event, the
obligation of such Indemnifying Party to such Indemnitee with respect to such
Third-Party Claim shall be equal to (i) the costs and expenses of such
Indemnitee prior to the date such Indemnifying Party notifies such Indemnitee of
the offer to settle or compromise (to the extent such costs and expenses are
otherwise indemnifiable hereunder) PLUS (ii) the lesser of (A) the amount of any
offer of settlement or compromise which such Indemnitee declined to accept or
(B) the actual out-of-pocket amount such Indemnitee is obligated to pay
subsequent to such date as a result of such Indemnitee's continuing to pursue
such Third-Party Claim.
(e) Any claim on account of an Indemnifiable Loss which does not
result from a Third-Party Claim shall be asserted by written notice given by the
Indemnitee to the applicable Indemnifying Party. Such Indemnifying Party shall
have a period of 15 days after the receipt of such notice within which to
respond thereto. If such Indemnifying Party does not respond within such 15-day
period, such Indemnifying Party shall be deemed to have refused to accept
responsibility to make payment. If such Indemnifying Party does not respond
within such 15-day period or rejects such claim in whole or in part, such
Indemnitee shall be free to pursue such remedies as may be available to such
party under applicable law or under this Agreement.
(f) In addition to any adjustments required pursuant to Section 5.03,
if the amount of any Indemnifiable Loss shall, at any time subsequent to the
payment required by this Agreement, be reduced by recovery, settlement or
otherwise, the amount of such reduction, less any expenses incurred in
connection therewith, shall promptly be repaid by the Indemnitee to the
Indemnifying Party.
(g) In the event of payment by an Indemnifying Party to any
Indemnitee in connection with any Third-Party Claim, such Indemnifying Party
shall be subrogated to and shall stand in the place of such Indemnitee as to any
events or circumstances in respect of which such Indemnitee may have any right
or
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claim relating to such Third-Party Claim against any claimant or plaintiff
asserting such Third-Party Claim. Such Indemnitee shall cooperate with such
Indemnifying Party in a reasonable manner, and at the cost and expense of such
Indemnifying Party, in prosecuting any subrogated right or claim.
020 REMEDIES CUMULATIVE. The remedies provided in this Article V
shall be cumulative and shall not preclude assertion by any Indemnitee of any
other rights or the seeking of any and all other remedies against any
Indemnifying Party.
021 SURVIVAL OF INDEMNITIES. The obligations of each of CLR and
Culbro under this Article V shall survive the Merger and the sale or other
transfer by it of any assets or businesses or the assignment by it of any
Liabilities, with respect to any Indemnifiable Loss of the other related to such
assets, businesses or Liabilities.
ARTICLE VI
CERTAIN ADDITIONAL MATTERS
022 CLR BOARD. CLR and Culbro shall take all actions which may be
required to constitute, effective as of the Distribution Date, the following
persons as the directors of CLR: Edgar Cullman, Sr., Edgar Cullman, Jr.,
Frederick M. Danziger, John L. Ernst and John Fletcher.
023 RESIGNATIONS.
(a) CLR shall cause all of its directors and all CLR Employees to
resign, effective as of the Distribution Date, from all boards of directors or
similar governing bodies of Culbro or any of its Retained Subsidiaries on which
they serve, and from all positions as officers or employees of Culbro or any of
its Retained Subsidiaries in which they serve, except (i) Edgar M. Cullman, Sr.
shall serve as Chairman of the Board of Culbro and of Holdings and as Chairman
of the Board of CLR, (ii) Edgar M. Cullman, Jr. shall serve as a director and as
President and Chief Executive Officer of Culbro and of Holdings and as a
director of CLR, (iii) John L. Ernst shall serve as a director of Culbro and of
Holdings and as a director of CLR and (iv) as set forth in the Services
Agreement. Culbro shall cause all of its directors and the Retained Employees
to resign from all boards of directors or similar governing bodies of CLR and of
any of its Subsidiaries on which such directors and Retained Employees serve,
and from all positions as officers or employees of CLR or any of its
Subsidiaries in which they serve, except to the extent specified in the
preceding sentence.
024 CERTIFICATE AND BYLAWS. On or prior to the Distribution Date,
CLR shall adopt the CLR Certificate and the CLR Bylaws, and shall file the CLR
Certificate with the Secretary of State of the State of Delaware.
ARTICLE VII
POST-DISTRIBUTION TRANSFERS
025 MERGER. Following the Distribution, and as promptly as
practicable after the date six months following consummation of the IPO (or such
earlier date as determined by the Culbro Board after receiving the consent of
Donaldson, Lufkin & Jenrette Securities Corporation and the approval of the
merger by the Culbro stockholders), Culbro and Holdings shall consummate the
Merger in accordance
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with the Merger Agreement. From and after the Merger, all rights and
obligations of Culbro hereunder shall survive and shall be vested in Holdings.
026 CERTAIN POST-DISTRIBUTION TRANSACTIONS.
(a) CLR. CLR shall, and shall cause each of the CLR Subsidiaries to,
comply with each representation and statement made, or to be made, to any taxing
authority in connection with any ruling obtained, or to be obtained, by Culbro,
Holdings and CLR acting together, from any such taxing authority with respect to
any transaction contemplated by this Agreement; and until the second anniversary
of the Distribution Date, neither CLR nor any of the CLR Subsidiaries shall take
or omit any action inconsistent therewith, unless (i) required to do so by law,
(ii) permitted to do so by the prior written consent of Culbro, (iii) pursuant
to a favorable supplemental ruling letter reasonably satisfactory to Culbro that
such act or omission would not adversely affect the tax consequences of the
Distribution to Culbro or to the stockholders of Culbro, as set forth in any
ruling issued by any taxing authority or (iv) pursuant to an opinion of Latham &
Watkins (or, in the event of a conflict, of another national law firm mutually
acceptable to the parties hereto) reasonably satisfactory to Culbro that such
act or omission would not adversely affect the tax consequences of the
Distribution to Culbro or to the stockholders of Culbro. Neither CLR nor any of
the CLR Subsidiaries has a present intention to take or omit any such action.
(b) CULBRO. Culbro shall, and shall cause each of the Retained
Subsidiaries to, comply with each representation and statement made, or to be
made, to any taxing authority in connection with any ruling obtained, by Culbro,
Holdings and CLR acting together, from any such taxing authority with respect to
any transaction contemplated by this Agreement; and until the second anniversary
of the Distribution Date, neither Culbro nor any of the Retained Subsidiaries
shall take or omit any action inconsistent therewith, unless (i) required to do
so by law, (ii) permitted to do so by the prior written consent of CLR, (iii)
pursuant to a favorable supplemental ruling letter reasonably satisfactory to
CLR that such act or omission would not adversely affect the tax consequences of
the Distribution to CLR or to the stockholders of CLR, as set forth in any
ruling issued by any taxing authority or (iv) pursuant to an opinion of Latham &
Watkins (or, in the event of a conflict, of another national law firm mutually
acceptable to the parties hereto) reasonably satisfactory to Culbro that such
act or omission would not adversely affect the tax consequences of the
Distribution to Culbro or to the stockholders of Culbro. Neither Culbro nor any
of the Retained Subsidiaries has a present intention to take or omit any such
action.
ARTICLE VIII
ACCESS TO INFORMATION AND SERVICES
027 PROVISION OF CORPORATE RECORDS.
(a) Except as may otherwise be provided in a Related Agreement,
Culbro shall arrange as soon as practicable following the Distribution Date, to
the extent not previously delivered in connection with the transactions
contemplated in Article II, for the transportation to CLR of the CLR Books and
Records in its possession, except to the extent such items are already in the
possession of CLR or a CLR Subsidiary. Such CLR Books and Records shall be the
property of CLR, but shall be available to Culbro for review and duplication
until Culbro shall notify CLR in writing that such records are no longer of use
to Culbro.
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(b) Except as otherwise provided in a Related Agreement, CLR shall
arrange as soon as practicable following the Distribution Date, to the extent
not previously delivered in connection with the transactions contemplated in
Article II, for the transportation to Culbro of the Culbro Books and Records in
its possession, except to the extent such items are already in the possession of
Culbro. The Culbro Books and Records shall be the property of Culbro, but shall
be available to CLR for review and duplication until CLR shall notify Culbro in
writing that such records are no longer of use to CLR.
028 ACCESS TO INFORMATION.
Except as otherwise provided in a Related Agreement, from and after
the Distribution Date, Culbro shall afford to CLR and its authorized
accountants, counsel and other designated representatives reasonable access
(including using reasonable efforts to give access to persons or firms
possessing information) and duplicating rights during normal business hours to
all records, books, contracts, instruments, computer data, software and systems
and other data and information relating to pre-Distribution operations
(collectively, "Information") within Culbro's possession insofar as such access
is reasonably required by CLR for the conduct of its business, subject to
appropriate restrictions for classified or Privileged Information. Similarly,
except as otherwise provided in a Related Agreement, CLR shall afford to Culbro
and its authorized accountants, counsel and other designated representatives
reasonable access (including using reasonable efforts to give access to persons
or firms possessing information) and duplicating rights during normal business
hours to Information within CLR's possession, insofar as such access is
reasonably required by Culbro for the conduct of its business, subject to
appropriate restrictions for classified or Privileged Information. Information
may be requested under this Article VIII for the legitimate business purposes of
either party, including without limitation, audit, accounting, claims (including
claims for indemnification hereunder), litigation and tax purposes, as well as
for purposes of fulfilling disclosure and reporting obligations and for
performing this Agreement and the transactions contemplated hereby.
029 PRODUCTION OF WITNESSES. At all times from and after the
Distribution Date, each of Culbro and CLR shall use reasonable efforts to make
available to the others, upon written request, its and its subsidiaries'
officers, directors, employees and agents as witnesses to the extent that such
persons may reasonably be required in connection with any Action.
030 REIMBURSEMENT. Except to the extent otherwise contemplated in
any Related Agreement, a party providing Information or witness services to the
other party under this Article VIII shall be entitled to receive from the
recipient, upon the presentation of invoices therefor, payments of such amounts,
relating to supplies, disbursements and other out-of-pocket expenses (at cost)
and direct and indirect expenses of employees who are witnesses or otherwise
furnish assistance (at cost), as may be reasonably incurred in providing such
Information or witness services.
031 RETENTION OF RECORDS. Except as otherwise required by law or
agreed to in a Related Agreement or otherwise in writing, each of Culbro and CLR
may destroy or otherwise dispose of any of the Information (including
information that is material Information and is not contained in other
Information retained by Culbro or CLR, as the case may be) at any time after the
tenth anniversary of this Agreement, provided that, prior to such destruction or
disposal, (a) it shall provide no less than 90 or more than 120 days prior
written notice to the other, specifying in reasonable detail the Information
proposed to be destroyed or disposed of and (b) if a recipient of such notice
shall request in writing prior to the scheduled date for such destruction or
disposal that any of the Information proposed to be destroyed or disposed of be
delivered to such requesting party, the party proposing the destruction or
disposal shall
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promptly arrange for the delivery of such of the Information as was requested at
the expense of the party requesting such Information.
032 CONFIDENTIALITY. Each of Culbro and its Subsidiaries on the one
hand, and CLR and its Subsidiaries on the other hand, shall hold, and shall
cause its consultants and advisors to hold, in strict confidence, all
Information concerning the other in its possession or furnished by the other or
the other's representatives pursuant to this Agreement (except to the extent
that such Information has been (i) in the public domain through no fault of such
party or (ii) later lawfully acquired from other sources by such party), and
each party shall not release or disclose such Information to any other person,
except its auditors, attorneys, financial advisors, rating agencies, bankers and
other consultants and advisors, unless compelled to disclose by judicial or
administrative process or, as reasonably advised by its counsel, by other
requirements of law, or unless such Information is reasonably required to be
disclosed in connection with (x) any litigation with any third-parties or
litigation between the Culbro Group and the CLR Group, (y) any contractual
agreement to which the Culbro Group or the CLR Group are currently parties or
(z) in exercise of either parties' rights hereunder.
033 PRIVILEGED MATTERS. Culbro and CLR recognize that legal and
other professional services that have been and will be provided prior to the
Distribution Date have been and will be rendered for the benefit of both the
Culbro Group and the CLR Group and that both the Culbro Group and the CLR Group
should be deemed to be the client for the purposes of asserting all Privileges.
To allocate the interests of each party in the Privileged Information, the
parties agree as follows:
(a) Culbro shall be entitled, in perpetuity, to control the assertion
or waiver of all Privileges in connection with Privileged Information which
relates solely to the Retained Business, whether or not the Privileged
Information is in the possession of or under the control of Culbro or CLR.
Culbro shall also be entitled, in perpetuity, to control the assertion or waiver
of all Privileges in connection with Privileged Information that relates solely
to the subject matter of any claims constituting Retained Liabilities, now
pending or which may be asserted in the future, in any lawsuits or other
proceedings initiated against or by Culbro, whether or not the Privileged
Information is in the possession of or under the control of Culbro or CLR.
(b) CLR shall be entitled, in perpetuity, to control the assertion or
waiver of all Privileges in connection with Privileged Information which relates
solely to the CLR Business, whether or not the Privileged Information is in the
possession of or under the control of Culbro or CLR. CLR shall also be
entitled, in perpetuity, to control the assertion or waiver of all Privileges in
connection with Privileged Information which relates solely to the subject
matter of any claims constituting CLR Liabilities, now pending or which may be
asserted in the future, in any lawsuits or other proceedings initiated against
or by CLR, whether or not the Privileged Information is in the possession of CLR
or under the control of Culbro or CLR.
(c) Culbro and CLR agree that they shall have a shared Privilege,
with equal right to assert or waive, subject to the restrictions in this Section
8.07, with respect to all Privileges not allocated pursuant to the terms of
Sections 8.07(a) and (b). (All Privileges relating to any claims, proceedings,
litigation, disputes, or other matters which involve both Culbro and CLR in
respect of which Culbro and CLR retain any responsibility or liability under
this Agreement, shall be subject to a shared Privilege.)
(d) No party may waive any Privilege which could be asserted under
any applicable law, and in which the other party has a shared Privilege, without
the consent of the other party, except to the extent
21
<PAGE>
reasonably required in connection with any litigation with third-parties or as
provided in subsection (e) below. Consent shall be in writing, or shall be
deemed to be granted unless written objection is made within twenty (20) days
after notice upon the other party requesting such consent.
(e) In the event of any litigation or dispute between a member of the
Culbro Group and a member of the CLR Group, either party may waive a Privilege
in which the other party has a shared Privilege, without obtaining the consent
of the other party, provided that such waiver of a shared Privilege shall be
effective only as to the use of Information with respect to the litigation or
dispute between the Culbro Group and the CLR Group, and shall not operate as a
waiver of the shared Privilege with respect to third-parties.
(f) If a dispute arises between the parties regarding whether a
Privilege should be waived to protect or advance the interest of either party,
each party agrees that it shall negotiate in good faith, shall endeavor to
minimize any prejudice to the rights of the other party, and shall not
unreasonably withhold consent to any request for waiver by the other party.
Each party specifically agrees that it will not withhold consent to waiver for
any purpose except to protect its own legitimate interests.
(g) Upon receipt by any party of any subpoena, discovery or other
request which arguably calls for the production or disclosure of Information
subject to a shared Privilege or as to which the other party has the sole right
hereunder to assert a Privilege, or if any party obtains knowledge that any of
its current or former directors, officers, agents or employees have received any
subpoena, discovery or other requests which arguably calls for the production or
disclosure of such Privileged Information, such party shall promptly notify the
other party of the existence of the request and shall provide the other party a
reasonable opportunity to review the Information and to assert any rights it may
have under this Section 8.07 or otherwise to prevent the production or
disclosure of such Privileged Information.
(h) The transfer of the CLR Books and Records and the Culbro Books
and Records and other Information between Culbro and its Subsidiaries and CLR
and its Subsidiaries, is made in reliance on the agreement of Culbro and CLR, as
set forth in Sections 8.06 and 8.07, to maintain the confidentiality of
Privileged Information and to assert and maintain all applicable Privileges.
The access to information being granted pursuant to Sections 8.01 and 8.02
hereof, the agreement to provide witnesses and individuals pursuant to Section
8.03 hereof and the transfer of Privileged Information between Culbro and its
Subsidiaries and CLR and its Subsidiaries pursuant to this Agreement shall not
be deemed a waiver of any Privilege that has been or may be asserted under this
Agreement or otherwise.
22
<PAGE>
ARTICLE IX
INSURANCE
034 POLICIES AND RIGHTS INCLUDED WITHIN THE CLR ASSETS. Without
limiting the generality of the definition of the CLR Assets set forth in Section
2.04 or the effect of Section 2.04, the CLR Assets shall include (a) any and all
rights of an insured party under each of the Shared Policies, specifically
including rights of indemnity and the right to be defended by or at the expense
of the insurer, with respect to all injuries, losses, liabilities, damages and
expenses incurred or claimed to have been incurred on or prior to the Asset
Transfer Date by any party in or in connection with the conduct of the CLR
Business or, to the extent any claim is made against CLR or any of its
subsidiaries, the Retained Business, and which injuries, losses, liabilities,
damages and expenses may arise out of insured or insurable occurrences or events
under one or more of the Shared Policies; PROVIDED, HOWEVER, that nothing in
this clause shall be deemed to constitute (or to reflect) the assignment of the
Shared Policies, or any of them, to CLR and (b) the CLR Policies.
035 POST-ASSET TRANSFER DATE CLAIMS. If, subsequent to the Asset
Transfer Date, any person, corporation, firm or entity shall assert a claim
against CLR or any CLR Subsidiary with respect to any injury, loss, liability,
damage or expense incurred or claimed to have been incurred prior to the Asset
Transfer Date in or in connection with the conduct of the CLR Business or, to
the extent any claim is made against CLR or any of its Subsidiaries or the CLR
Business, and which injury, loss, liability, damage or expense may arise out of
insured or insurable occurrences or events under one or more of the Shared
Policies, Culbro shall at the time such claim is asserted be deemed to assign,
without need of further documentation, to CLR any and all rights of an insured
party under the applicable Shared Policy with respect to such asserted claim,
specifically including rights of indemnity and the right to be defended by or at
the expense of the insurer; PROVIDED, HOWEVER, that nothing in this sentence
shall be deemed to constitute (or to reflect) the assignment of the Shared
Policies, or any of them, to CLR.
036 ADMINISTRATION.
(a) INSURANCE PREMIUMS. Culbro shall have the right but not the
obligation to pay the premiums, to the extent that CLR does not pay premiums
with respect to CLR Liabilities (retrospectively-rated or otherwise), with
respect to Shared Policies and the Retained Policies, as required under the
terms and conditions of the respective Policies, whereupon CLR shall forthwith
reimburse Culbro for that portion of such premiums paid by Culbro as are
attributable to the CLR Liabilities. Unless otherwise agreed by the parties
hereto, Culbro shall purchase (subject to a 50% reimbursement by CLR within 15
days of its receipt of invoice) continued coverage under its director and
officer liability insurance policy for a period no longer than 180 days
following the Asset Transfer Date for claims relating to periods prior to the
Asset Transfer Date.
(b) ALLOCATION OF INSURANCE PROCEEDS. Insurance Proceeds received
with respect to claims, costs and expenses under the Policies shall be paid to
CLR with respect to the CLR Liabilities and to Culbro with respect to the
Retained Liabilities. Payment of the allocable portions of indemnity costs of
Insurance Proceeds resulting from the liability policies will be made to the
appropriate party upon receipt from the insurance carrier. In the event that
the aggregate limits on any Shared Policies are exceeded, the parties agree to
provide an equitable allocation of Insurance Proceeds received after the Asset
Transfer Date based upon their respective bona fide claims. The parties agree
to use their best efforts to cooperate with respect to insurance matters.
23
<PAGE>
037 AGREEMENT FOR WAIVER OF CONFLICT AND SHARED DEFENSE. In the
event that Insured Claims of both CLR and Culbro exist relating to the same
occurrence, CLR and Culbro agree to jointly defend and to waive any conflict of
interest necessary to the conduct of that joint defense. Nothing in this
paragraph shall be construed to limit or otherwise alter in any way the
indemnity obligations of the parties to this Agreement, including those created
by this Agreement, by operation of law or otherwise.
ARTICLE X
MISCELLANEOUS
038 COMPLETE AGREEMENT; CONSTRUCTION. This Agreement, including the
Schedules and Exhibits and the Related Agreements and other agreements and
documents referred to herein, shall constitute the entire agreement between the
parties with respect to the subject matter hereof and thereof and shall
supersede all previous negotiations, commitments and writings with respect to
such subject matter. Notwithstanding any other provisions in this Agreement to
the contrary, in the event and to the extent that there shall be a conflict
between any provision of this Agreement and any provision of a Related
Agreement, then the provision in the applicable Related Agreement shall control.
039 EXPENSES. All costs and expenses in connection with the
preparation, execution, delivery and implementation of this Agreement, the
Distribution, the Merger, the IPO and the Asset Transfers and with the
consummation of the transactions contemplated thereby shall be paid by Culbro.
040 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without regard to the
principles of conflicts of laws thereof.
041 NOTICES. All notices and other communications hereunder shall be
in writing and shall be delivered by hand or mailed by registered or certified
mail (return receipt requested) to the parties at the following addresses (or at
such other addresses for a party as shall be specified by like notice) and shall
be deemed given on the date on which such notice is received:
To Culbro and Holdings:
Culbro Corporation / General Cigar Holdings, Inc.
387 Park Avenue South
New York, New York 10016-8899
Attention: Edgar M. Cullman, Jr.
To CLR:
Culbro Land Resources, Inc.
8 Griffin Road North
Windsor, Connecticut 06095-1569
Attention: Frederick M. Danziger
042 AMENDMENTS. This Agreement may not be modified or amended except
by an agreement in writing signed by the parties.
24
<PAGE>
043 SUCCESSORS AND ASSIGNS. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties and their
respective successors and permitted assigns, and from and after the Merger,
Holdings shall succeed to all of Culbro's rights and obligations under this
Agreement and the Related Agreements.
044 TERMINATION. This Agreement may be terminated and the
Distribution abandoned at any time prior to the Distribution Date by and in the
sole discretion of the Culbro Board without the approval of CLR. In the event
of such termination, no party shall have any liability to any other party
pursuant to this Agreement.
045 SUBSIDIARIES. Each of the parties hereto shall cause to be
performed, and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein to be performed by any Subsidiary of such party
which is contemplated to be a Subsidiary of such party on and after the
Distribution Date.
046 NO THIRD-PARTY BENEFICIARIES. Except for the provisions of
Article V relating to Indemnities, this Agreement is solely for the benefit of
the parties hereto and their respective Subsidiaries and Affiliates and should
not be deemed to confer upon third-parties any remedy, claim, Liability,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
047 TITLES AND HEADINGS. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
048 EXHIBITS AND SCHEDULES. The Exhibits and Schedules shall be
construed with and as an integral part of this Agreement to the same extent as
if the same had been set forth verbatim herein.
049 LEGAL ENFORCEABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. Without prejudice to
any rights or remedies otherwise available to any party hereto, each party
hereto acknowledges that damages would be an inadequate remedy for any breach of
the provisions of this Agreement and agrees that the obligations of the parties
hereunder shall be specifically enforceable.
050 CONSENT OF PARTIES. The Parties hereby consent to the
jurisdiction of the New York Supreme Court, Nassau County, or the United States
District Court for the Eastern District of New York, for all purposes.
25
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
CULBRO CORPORATION
By:
------------------------------------
Name:
Title:
CULBRO LAND RESOURCES, INC.
By:
------------------------------------
Name:
Title:
GENERAL CIGAR HOLDINGS, INC.
By:
------------------------------------
Name:
Title:
26
<PAGE>
SCHEDULE 1.01(a)
CLR Financing Obligations
3. Promissory note and mortgage to First Union Bank, as successor to Center
Bank, with respect to certain parcels of land and improvements thereon
located in the State of Connecticut.
4. Promissory note and mortgage to ______________ with respect to certain
parcels of land and improvements thereon located in the State of
Connecticut.
<PAGE>
SCHEDULE 1.01(b)
Culbro Financing Obligations
5.Leasehold for office space at 387 Park Avenue South, New York, New York,
dated October 20, 1983.
6.Leasehold for office and hangar space at Teterboro Airport, 233
Industrial Avenue, Teterboro, New Jersey, dated July 1, 1996.
7.Promissory note and mortgage to General Electric Capital Corporation with
respect to the Airplane.
8.Promissory note and mortgage to The Chase Manhattan Bank, as successor to
Manufacturers Hanover Trust Company, with respect to the land and
improvements located at 387 Park Avenue South, New York, New York.
9.Capital lease of Moll Tool & Plastics Corp., dated December 23, 1988.
10.Guarantee of capital lease of Moll Tool & Plastics Corp., dated December
23, 1988.
11.Guarantee of leasehold of Club Macanudo at 26 East 63rd Street, New
York, New York, dated August 7, 1995.
12.Guarantee of leasehold of Club Macanudo (Chicago) at 60 East Walton
Street, Chicago, Illinois, dated October 1, 1996.
13.Reserves held in escrow with respect to that certain Environmental Fund
and Security Agreement, dated as of November 14, 1990, among Brown &
Williamson Tobacco Corporation, Culbro, General Cigar and The Chase
Manhattan Bank, as successor to Manufacturers Hanover Trust Company.
<PAGE>
SCHEDULE 1.01(c)
Commercial Real Estate
14.Approximately 0.83 acres situated in one parcel located at 434 Tunxis
Avenue, Bloomfield, Connecticut, 06002.
15.Approximately 45.35 acres situated in one parcel located at 29 Griffin
Road North, Bloomfield, Connecticut, 06002.
16.Approximately 11.98 acres historically known as "Home Dubon" and
situated in one parcel located at West Newberry Road, Bloomfield,
Connecticut, 06002.
17.Approximately 43.20 acres historically known as "Home Dubon" and
situated in one parcel located at Lot #1, 393 Tunxis Avenue, Bloomfield,
Connecticut, 06002.
18.Approximately 4.00 acres historically known as "Home Dubon" and
situated in one parcel located at 406 Tunxis Avenue, Bloomfield,
Connecticut, 06002.
19.Approximately 7.50 acres historically known as "Home Dubon" and
situated in one parcel located at Prospect Hill, Tunxis Avenue, Bloomfield,
Connecticut, 06002.
20.Approximately 11.80 acres historically known as "Home Dubon" and
situated in one parcel located at Adams Road, Bloomfield, Connecticut,
06002.
21.Approximately 5.0 acres historically known as "Home Dubon" and
situated in one parcel located at Bear Ridge, Adams Road, Bloomfield,
Connecticut, 06002.
22.Approximately 74.75 acres historically known as "Holcomb Farm" and
situated in two parcels located at Old Iron Ore Road, Bloomfield,
Connecticut, 06002.
23.Approximately 13.25 acres historically known as "Davis Lot #8" and
situated in one parcel located at 1380 Blue Hills Avenue, Bloomfield,
Connecticut, 06002.
24.Approximately 19.9 acres historically known as "Indianhead Farm" and
situated in one parcel at 103 & 105 Hartford Avenue, East Granby,
Connecticut, 06026.
25.Approximately 15.0 acres historically known as "Indianhead Farm" and
situated in one parcel at Russelton Avenue, East Granby, Connecticut,
06026.
26.Approximately 275.37 acres historically known as "Floydville" and
situated in two parcels located at Lots 1, 2 & 18, Wolcott Road and
"Lordship", East Granby, Connecticut, 06026.
27.Approximately 117.10 acres historically known as "Floydville" and
situated in twelve parcels located at Lots 1, 8, 11, 13, 17 and 18,
Floydville Road, East Granby, Connecticut, 06026.
28.Approximately 36.90 acres historically known as "Hazelwood" and situated
in one parcel at Lot #44, Seymour Road, East Granby, Connecticut, 06026.
<PAGE>
SCHEDULE 1.01(c)(continued)
29.Approximately 82.90 acres historically known as "Spoonville" and
situated in one parcel at Spoonville Road, East Granby, Connecticut, 06026.
30.Approximately 262.69 acres historically known as "Imperial Farm" and
situated in two parcels at 35-40 Floydville Road, Granby, Connecticut,
06035.
31.Approximately 4.00 acres historically known as "Imperial Corporate
Headquarters" and situated in one parcel at 90 Salmon Brook Street, Granby,
Connecticut, 06035.
32.Approximately 11.84 acres historically known as "Manitook Camp" and
situated in four parcels at 456, 456A, 456B and 462 Salmon Brook Street,
Granby, Connecticut, 06035.
33.Approximately 15.00 acres historically known as "Meadows Lots" and
situated in one parcel at 268 272 Hungary Road, Granby, Connecticut,
06035.
34.Approximately 79.00 acres historically known as "Consolidated Lots" and
situated in two parcels at 69 85 and 115R Hartford Avenue, Granby,
Connecticut, 06035.
35.Approximately 9.79 acres historically known as "Airport Lot" and
situated in one parcel at 80 Wolcott Road, Simsbury, Connecticut, 06070.
36.Approximately 2.80 acres historically known as "Asparagus Lot" and
situated in one parcel at 352 Firetown Road, Simsbury, Connecticut, 06070.
37.Approximately 271.35 acres historically known as "Asparagus Lot" and
situated in one parcel at L-5 Hostkins Road, Simsbury, Connecticut, 06070.
38.Approximately 45.80 acres historically known as "Bed Lot" and situated
in one parcel at 80 Firetown Road, Simsbury, Connecticut, 06070.
39.Approximately 195.92 acres historically known as "Hall Ketchen Lot"
and situated in one parcel at Hoskins Road and Country Road, Simsbury,
Connecticut, 06070.
40.Approximately 101.50 acres historically known as "Hall Ketchen Lot"
and situated in three parcels at 1503 Hopmeadow Street, Simsbury,
Connecticut, 06070.
41.Approximately 60.40 acres historically known as "Hoskins Lot" and
situated in two parcels at 45 & 49 Hoskins Road, Simsbury, Connecticut,
06070.
42.Approximately 47.20 acres historically known as "Moses Lot" and situated
in two parcels at 376 Firetown Road, Simsbury, Connecticut, 06070.
43.Approximately 14.25 acres historically known as "Railroad Lots" and
situated in two parcels at 56 & 85 Wolcott Road, Simsbury, Connecticut,
06070.
<PAGE>
SCHEDULE 1.01(c)(continued)
44.Approximately 109.84 acres historically known as "Westerberg Lot" and
situated in four parcels at Hopmeadow Street, Simsbury, Connecticut, 06070.
45.Approximately 103.00 acres historically known as "Rye Street" and
situated in two parcels at 199 Rye Street, South Windsor, Connecticut,
06074.
46.Approximately 53.98 acres situated in one parcel located at Copper Hill
Road, Suffield, Connecticut, 06078.
47.Approximately 78.20 acres situated in two parcels located at Quarry
Road, Suffield, Connecticut, 06078.
48.Approximately 176.55 acres situated in three parcels located at 3683 and
4011 Phelps Road, Suffield, Connecticut, 06078.
49.Approximately 44.30 acres situated in one parcel located at Halladay
Avenue, Suffield, Connecticut, 06078.
50.Approximately 258.00 acres situated in two parcels located at 911 and
1239 Rainbow Road, Windsor, Connecticut, 06095.
51.Approximately 159.84 acres situated in six parcels located at 380, 490,
872, 890, 957 and 976 Stone Road, Windsor, Connecticut, 06095.
52.Approximately 130.09 acres situated in five parcels located at 1, 21,
25T, 29 and 40 Griffin Road North, Windsor, Connecticut, 06095.
53.Approximately 14.54 acres situated in one parcel located at 4 Sumatra
Drive, Windsor, Connecticut, 06095.
54.Approximately 30.07 acres situated in one parcel located at 40 Hilltop
Road, Windsor, Connecticut, 06095.
55.Approximately 1.82 acres situated in two parcels located at 1995 and
2000 Blue Hills Avenue, Windsor, Connecticut, 06095.
56.Approximately 10.07 acres situated in three parcels located at 20, 30
and 40 Griffin Road South, Windsor, Connecticut, 06095.
57.Approximately 286.07 acres situated in six parcels located at 1T, 2T,
3T, 4T, 998T and 999T International Drive (Road), Windsor, Connecticut,
06095.
58.Approximately 0.63 acres situated in one parcel located at 126 Birchwood
Road, Windsor, Connecticut, 06095.
<PAGE>
SCHEDULE 1.01(c)(continued)
59.Approximately 20.14 acres situated in three parcels located at 660, 691
and 825 Prospect Hill Road, Windsor, Connecticut, 06095.
60.Approximately 38.43 acres situated in three parcels located at 2600,
2619 and 2630 Day Hill Road, Windsor, Connecticut, 06095.
61.Approximately 169.20 acres situated in one parcel located at 801 Day
Hill Road, Windsor, Connecticut, 06095.
62.Approximately 29.70 acres situated in one parcel located at 701 Marshall
Phelps Road, Windsor, Connecticut, 06095.
63.Approximately 75.60 acres situated in two parcels located at 701 and 712
Pigeon Hill Road, Windsor, Connecticut, 06095.
64.Approximately 249.54 acres historically known as "Dibble Farm" and
situated in two parcels located at 56 & 59 North Longyard Road, Southwick,
Massachusetts, 01077.
65.Approximately 76.66 acres historically known as "Hudson/Matus Farm" and
situated in three parcels located at 66R, 66 & 68 Feeding Hills Road,
Southwick, Massachusetts, 01077.
66.Approximately 99.00 acres historically known as "Moriarti Farm" and
situated in one parcel located at 686 College Highway, Southwick,
Massachusetts, 01077.
67.Approximately 1.28 acres situated in one parcels located at Point Grove
Road and Hudson Drive, Southwick, Massachusetts, 01077.
<PAGE>
SCHEDULE 1.01(d)
Nursery Real Estate
68.Approximately ______ acres situated in ___ parcels located at 713 Pigeon
Hill Road, Windsor, Connecticut, 06095, as such parcels are more
specifically described by metes and bounds in a warranty deed dated as of
_____________, to "General Cigar Co., Inc.," the predecessor of Culbro
Corporation covering the same.
69.Approximately 1212.1 acres situated in six parcels located at Federal
and Atlanta Streets, Quincy, Florida 32351, as such parcels are more
specifically described by metes and bounds in a warranty deed dated as of
June 4, 1968, to "General Cigar Co., Inc.," the predecessor of Culbro
Corporation covering the same.
70.Approximately 152.8 acres situated in one parcel located at Federal and
Atlanta Streets, Quincy, Florida 32351, as such parcel is more specifically
described by metes and bounds in a corrective warranty deed dated as of
June 14, 1977, to "Culbro Corporation" covering the same.
71.Approximately 152.8 acres situated in one parcel located at Federal and
Atlanta Streets, Quincy, Florida 32351, as such parcel is more specifically
described by metes and bounds in a warranty deed dated as of June 7, 1977,
to "Culbro Corporation" covering the same.
72.Approximately 24.183 acres situated in one parcel located at 4410
Broadway Boulevard, Monroeville, Pennsylvania, 15146, as such parcel is
more specifically described by metes and bounds in a warranty deed dated as
of January 5, 1988, to "Culbro Corporation" covering the same.
73.Approximately 16.55 acres situated in one parcel located at 1129 Concord
Road, Aston, Pennsylvania, 19014, as such parcel is more specifically
described by metes and bounds in a warranty deed dated as of December 6,
1982, to "Culbro Corporation" covering the same.
74.Approximately _______ acres situated in one parcel located at 360 Bilmar
Drive, Pittsburgh, Pennsylvania, 15205, as such parcel is more specifically
described by metes and bounds in a warranty deed dated as of
________________ to "Culbro Corporation" covering the same.
75.Approximately 15.0996 acres situated in one parcel located at 8309
Quarry Road, Manassas, Virginia, 22110, and appurtenant easement, as such
parcel and easement are more specifically identified by plat described in a
warranty deed dated as of September 12, 1985, to "Imperial Nurseries, a
Division of Culbro Corporation" covering the same.
76.Approximately 6.42346 acres situated in one parcel located at 8309
Quarry Road, Manassas, Virginia, 22110, as such parcel is more specifically
described by metes and bounds in a warranty deed dated as of May 16, 1990,
to "Imperial Nurseries, a division of Culbro Corporation" covering the
same.
77.Approximately 2.700 acres situated in one parcel located at 4877 Vulcan
Avenue, Columbus, Ohio, as such parcel is more specifically described by
metes and bounds in a warranty deed dated as of April 20, 1987, to
"Imperial Nurseries, Division of Culbro Corporation" covering the same.
<PAGE>
SCHEDULE 1.01(d) (continued)
78.Approximately 10.728 acres situated in one parcel located at 11245
Mosteller Road, Cincinnati, Ohio, 45241, as such parcel is more
specifically described by metes and bounds in a warranty deed dated as of
December 28, 1987, to "Culbro Corporation" covering the same.
79.Approximately 19.788 acres situated in one parcel located at 5801
Stevens Road, White Marsh, Maryland 31162, as such parcel is more
specifically described by metes and bounds in a warranty deed dated as of
July 15, 1986, to "Culbro Corporation" covering the same.
<PAGE>
SCHEDULE 1.01(e)
Tobacco Real Estate
80.Approximately 449.30 acres historically known as "Indianhead Farm" and
situated in three parcels located at Lot #50, Hartford Avenue, East Granby,
Connecticut, 06026.
81.Approximately 202.95 acres historically known as "Kelly Farm" and
situated in two parcels located at 71 Abbot Road, Ellington, Connecticut,
06029 and 78 Abbot Road, Ellington, Connecticut, 06029.(1)
82.Approximately 204.80 acres historically known as "Southwick Farm" and
situated in three parcels located at 642 Babbs Road, Suffield, Connecticut,
06078.(2)
- -----------------------
(1) CLR owns approximately 1.3 acres situated in a single parcel located
at 168 Pinney Street, Ellington, Connecticut, 06029, which is adjacent
to the Kelly Farm properties described in item 2 above. CLR will
transfer this parcel to General Cigar independently of the Asset
Transfers.
(2) For the avoidance of doubt, the approximately 254.51 acres
historically known as "Southwick Farm" and situated in two parcels
located at 95 South Longyard Road, Southwick, Massachusetts, 01077,
and 129R South Longyard Road, Southwick, Massachusetts, 01077, which
together comprise part of the Southwick Farm referred to in item 3
above, were owned directly by General Cigar prior to the Asset
Transfers.
<PAGE>
SCHEDULE 1.01(f)
Shared Policies
83.Liberty Mutual General Liability Account: 00 42 32
Sub Account: 2096
Policy No.: RG2-621-004232-116
Office: New York City (202)
Contact: Tomao (8844)
84.Liberty Mutual Automobile Liability Account: 00 42 32
Sub Account: 2096
Policy No.: AS2-621-004232-196
Office: New York City (202)
Contact: Tomao (8844)
85.Liberty Mutual Workers' Compensation Account: 00 42 32
Sub Account: 2096
Policy Nos.: WA2-62D-004232-186
WC2-621-004232-026
Office: New York City (202)
Contact: Tomao (8844)
86.Liberty Mutual Workers' Compensation Account: 00 42 32
Excess Indemnity Sub Account: 2096
Policy No.: EH2-621-004232-216
Office: New York City (202)
Contact: Tomao (8844)
87.Arkwright Mutual Property Damage/ Policy No.: 230552
Business Interruption Contact: Bodick
88.Arkwright Mutual Fidelity & Crime Policy No.: 230552
Contact: Bodick
89.AIU Insurance Commercial Umbrella Policy No.: BE 932-36-38
Broker: Johnson & Higgins
<PAGE>
SCHEDULE 2.08
Conveyancing and Assumption Instruments
90.Stock Power by Culbro to Holdings for General Cigar, 387 PAS, Club
Macanudo and Club Macanudo (Chicago), and appropriate stock certificates
registered in the name of Holdings, as available.
91.Stock Power by Culbro to General Cigar for Cifuentes Y Cia, Ltd.,
Cifuentes Free Zone, Ltd., Gradiaz Annis of Jamaica, Ltd., Gradiaz Annis &
Co., Inc., Culbro Tobacco Sales Corporation, Industrial Buildings &
Properties Inc., Culbro V.L. Tobacco, S.A., Jose Escalante & Co., Macanudo
Cigar Company, Inc., Partagas Cigar Company, Inc., Culbro International U.K.
Ltd., Culbro International, S.A., Moll Tool & Plastics Corp. and Helmetta
Realty Corp., and appropriate stock certificates registered in the name of
General Cigar, as available.
92.Stock Power by Culbro to CLR for Imperial, Eli Witt, the Centaur Interest
and General Witt Receivables Corp., and appropriate stock certificates
registered in the name of CLR, as available.
93.Assignment by Culbro to Holdings of the 387 PAS Minority Interest;
94.Quit-claim deed by Culbro to CLR or any CLR Subsidiary covering all
Commercial Real Estate.
95.Quit-claim deed by Culbro to Imperial covering all Nursery Real Estate.
96.Quit-claim deed by Culbro to General Cigar covering all Tobacco Real
Estate.
97.Quit-claim deed by CLR to General Cigar for certain real property
described in Note (1) on Schedule 1.01(e).
98.Omnibus bill of sale by Culbro to General Cigar covering all Holdings
Personal Property.
99.FAA Civil Aviation Registry AC Form 8050-1, Aircraft Registration
Application and accompanying FAA Bill of Sale to effect transfer of title in
the Airplane and registration of GCH Transportation, Inc. as owner of the
Airplane with the FAA Registry.
100.UCC-1 Financing Statements to be filed in New York and New Jersey with
respect to GECC's security interest in the Airplane after transfer to GCH
Transportation, Inc.
101.Assignment of the Eli Witt Notes by Culbro to CLR.
102.Assignment of mortgage and promissory note of Eli Witt, as mortgagor, in
favor of Culbro, as mortgagee, by Culbro to CLR, as mortgagee.
103.Assignment of escrow account by Culbro to Holdings with respect to that
certain Environmental Fund and Security Agreement, dated as of November 14,
1990, among Brown & Williamson Tobacco Corporation, Culbro, General Cigar and
The Chase Manhattan Bank, as successor to Manufacturers Hanover Trust
Company.
<PAGE>
SCHEDULE 2.08 (continued)
104.Assignment of lease between 387 PAS Corp. (lessor) and Culbro (lessee),
dated as of October 20, 1983, in favor of Holdings as lessee.
105.Assignment of lease between Atlantic Aviation Corporation (lessor) and
Culbro (lessee), dated as of July 1, 1996, in favor of GCH Transportation,
Inc., as lessee.
106.Assumption of mortgage and promissory note by GCH Transportation, Inc.,
as mortgagor, and release of Culbro as mortgagor, with respect to that
certain aircraft chattel mortgage, dated as of December 30, 1993, between
Culbro and GECC, as mortgagee, and the accompanying mortgage note.
107.Assumption of guarantee by Holdings in favor of Leonori Investment
Associates, as lessor, and release of Culbro as guarantor, with respect to
that certain lease, dated as of August 7, 1995, between Club Macanudo and
lessor.
108.Assumption of guarantee by Holdings in favor of Chicago Title and Trust
Company, as lessor, and release of Culbro as guarantor, with respect to that
certain lease, dated as of October 1, 1996, between Club Macanudo (Chicago)
and lessor.
109.Omnibus assumption of liabilities by CLR (including but not limited to
(i) accounts payable to vendors, (ii) amounts reported on a balance sheet as
accrued, reserved, or otherwise attributable to liabilities relating to
taxes, insurance, salaries, employee benefits and pensions, (iii) liabilities
relating to the capital stock of CLR, if any, and (iv) all miscellaneous
liabilities that appear on the CLR Balance Sheet).
110.Omnibus assumption of liabilities by Holdings (including but not limited
to (i) accounts payable to vendors, (ii) amounts reported on a balance sheet
as accrued, reserved, or otherwise attributable to liabilities relating to
taxes, insurance, salaries, employee benefits and pensions, (iii) liabilities
relating to the capital stock of Culbro or Holdings, if any, and (iv) all
miscellaneous liabilities that appear on the Culbro Balance Sheet).
111.Proof of Claim by CLR for Eli Witt bankruptcy proceedings.
112.Change of name on account to effect transfer of cash on hand/bank
accounts to Holdings.
113.Entry of an account payable on the consolidated balance sheet of the
Culbro Group in favor of CLR in an amount equal to the CLR Initial Cash
Balance.
114.Change of name on Policies to name the CLR Group, as appropriate, as the
insured and as beneficiary under the CLR Policies.
115.Change of name on Policies to name both the CLR Group and Culbro Group,
as appropriate, as the insured and as beneficiaries under the Shared
Policies.
<PAGE>
SCHEDULE 4.01
Required Consents
116.The consent of each of 387 PAS and The Chase Manhattan Bank ("Chase") is
required for the transfer of the headquarters lease at 387 PAS from Culbro
Corporation to Holdings. A lease between 387 PAS Corp. (lessor) and Culbro
(lessee) dated as of October 20, 1983, had an initial term of 10 years and
two 5-year renewal terms. Pursuant to Article 11 of the lease, the lease
cannot be assigned without the prior written consent of the lessor. Lessee
must submit to lessor a written request for lessor's consent, whereupon
lessor can either terminate the lease or consent to the assignment. If the
lessor consents, lessee will reimburse lessor for any costs incurred by
lessor in connection with the assignment. Lessee also will give lessor a
copy of the assignment within 10 days of its execution, and the assignee must
execute and deliver to lessor an agreement, in recordable form, whereby
assignee agrees unconditionally to be personally bound by the lease.
Notwithstanding assignment of the lease, the lessee (Culbro) will remain
joint and severally liable on the lease for rent. The lessor assigned the
lease to the Manufacturers Hanover Trust Company, the survivor of which is
Chase, which holds a mortgage on the property at 387 PAS. Pursuant to this
assignment, Chase has been assigned all of lessor's rights and power to
modify the lease or to waive or release the tenants under any lease from any
obligation on the leases. The assignment expires upon repayment of the
mortgage, which remains outstanding.
117.The consent of Chase is required for the transfer of the 387 PAS Minority
Interest. The mortgage between 387 PAS Enterprises and Chase described in
item 1 above, dated as of October 20, 1983, covers the building at 387 Park
Avenue South. Pursuant to paragraph 9 of the mortgage, it is an event of
default if there is any change in the "identity of the partners in Mortgagor
or the controlling shareholders in any partner in Mortgagor unless consented
to in writing by the Mortgagee, which consent shall not be unreasonably
withheld or delayed." Because a partner in Mortgagor is being changed to
Holdings upon transfer of the 387 PAS Minority Interest, and because the
controlling shareholder of 387 PAS Corp. will become Holdings, Chase must
consent to avoid an event of default under the mortgage.
118.The consent of General Electric Capital Corporation ("GECC") is required
for the transfer of the airplane. Culbro owns an airplane that will be
transferred to GCH Transportation, Inc. as part of the Asset Transfers. GECC
is the mortgagee under a mortgage on the airplane.
119.The consent of Leonori Investment Associates is required for a change in
guarantor. Culbro is a guarantor of the lease for the property used by Club
Macanudo. Leonori Investment Associates must release Culbro as guarantor on
the lease in exchange for a guarantee by Holdings. To that end, (i) Culbro
must inform the landlord of the transfer of Club Macanudo to Holdings, (ii)
Holdings must execute a guarantee in substantially the same form as that
executed by Culbro and (iii) Culbro must obtain a written release from its
guarantee from Leonori Investment Associates.
120.The consent of Chicago Title and Trust Company is required for a change
in guarantor. Culbro is a guarantor of the lease for the property used by
Club Macanudo (Chicago). Chicago Title and Trust Company must release Culbro
as guarantor on the lease in exchange for a guarantee by Holdings. To that
end, (i) Culbro must inform the landlord of the transfer of Club Macanudo
(Chicago) to Holdings, (ii) Holdings must execute a guarantee in
substantially the same
<PAGE>
form as that executed by Culbro and (iii) Culbro must obtain a written
release from its guarantee from Chicago Title and Trust Company.
121.For the avoidance of doubt, the consent of GECC IS NOT required for a
change in guarantor. Culbro is a guarantor of a certain capital lease, dated
as of December 23, 1988, between GECC and Moll Tool & Plastics Corp., a
subsidiary of Culbro ("Moll Tool"). Moll Tool subsequently sold its assets
to an unrelated third party which forwards payments to GECC through Moll
Tool. The capital lease expires in 2000, and it is not contemplated that
GECC will release Culbro as guarantor of the lease.
<PAGE>
Exhibit 2.2
AGREEMENT AND PLAN OF MERGER
OF
Culbro Corporation
(a New York Corporation)
INTO
General Cigar Holdings, Inc.
(a Delaware corporation)
AGREEMENT AND PLAN OF MERGER (this "Agreement"), entered into as of
this ____ day of _______________, 19__, made by and between Culbro Corporation,
a New York corporation ("Culbro"), and General Cigar Holdings, Inc., a
Delaware corporation ("Holdings").
WHEREAS, Holdings is in the process of consummating an initial
public offering of Class A Common Stock (the "Offering"). Immediately
following the Offering, Holdings will have ____________ outstanding shares of
Class A Common Stock, par value $______ per share, and _______________
outstanding shares of Class B Common Stock, par value $______per share.
WHEREAS, Culbro has ______________________ shares of common stock
outstanding and _______________________ shares of common stock issuable upon
the exercise of outstanding options as of the date of this Agreement.
WHEREAS, the Board of Directors of Culbro and Holdings,
respectively, deem it advisable and generally to the advantage and welfare of
the two corporate parties and their respective shareholders that Culbro merge
with Holdings under and pursuant to the provisions of the Business
Corporation Law of the State of New York and of the General Corporation Law
of the State of Delaware (the "Merger").
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained and of the mutual benefits hereby provided, it is
agreed by and between the parties hereto as follows:
1. MERGER. Culbro shall be merged into Holdings effective as of
the Effective Time (as defined below).
2. EFFECTIVE TIME. The Effective Time shall be a date mutually
agreed to by the parties (the "Effective Time"), which date shall be as soon
as practicable following the satisfaction of the following conditions: (i)
the completion of the Distribution (as defined in the Distribution Agreement
between Culbro and Culbro Land Resources, Inc. ("CLR")); and (ii) the
approval of the Merger by the shareholders of Culbro, provided that in no
event shall the Effective Time occur earlier than 180 days after the
consummation of the Offering without the consent of Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ"). At the Effective Time, the parties
shall cause the Merger to be consummated by filing a Certificate of Merger
with the Secretaries of State of the State of New York and the State of
Delaware, the forms of which are attached hereto as Exhibits A and B.
<PAGE>
3. SURVIVING CORPORATION. Holdings shall survive the Merger
herein contemplated and shall continue to be governed by the laws of the
State of Delaware, but the separate corporate existence of Culbro shall cease
forthwith upon the occurrence of the Effective Time.
4. AUTHORIZED CAPITAL. The authorized capital stock of Holdings
following the Effective Time shall be shares of Class A
Common Stock, par value $ per share, and shares of
Class B Common Stock, par value $ per share, unless and until the same
shall be changed in accordance with the laws of the State of Delaware.
5. CERTIFICATE OF INCORPORATION. The Certificate of Incorporation
of Holdings as it exists at the Effective Time shall be the Certificate of
Incorporation of Holdings following the Effective Time unless and until the
same shall be amended or repealed in accordance with the provisions thereof,
which power to amend or repeal is hereby expressly reserved and all rights or
powers of whatsoever nature conferred in such Certificate of Incorporation or
herein upon any stockholder or director or officer of Holdings or upon any
other persons whomsoever are subject to the reserved power.
6. BYLAWS. The Bylaws of Holdings as they exist at the Effective
Time shall be the Bylaws of Holdings following the Effective Time unless and
until the same shall be amended or repealed in accordance with the provisions
thereof.
7. BOARD OF DIRECTORS AND OFFICERS. The members of the Board of
Directors and the officers of Holdings immediately after the Effective Time
shall be those persons who were the members of the Board of Directors and the
officers, respectively, of Holdings immediately prior to the Effective Time,
and such persons shall serve in such offices, respectively, for the terms
provided by law or in the Bylaws, or until their respective successors are
elected and qualified.
8. FURTHER ASSURANCE OF TITLE. If at any time Holdings shall
consider or be advised that any acknowledgements or assurances in law or
other similar actions are necessary or desirable in order to acknowledge or
confirm in and to Holdings any right, title, or interest of Culbro held
immediately prior to the Effective Time, Culbro and its proper officers and
directors shall and will execute and deliver all such acknowledgements or
assurances in law and do all things necessary or proper to acknowledge or
confirm such right, title, or interest in Holdings as shall be necessary to
carry out the purposes of this Agreement, and Holdings and the proper
officers and directors thereof are fully authorized to take any and all such
action in the name of Culbro or otherwise.
9. CONVERSION OF HOLDINGS COMMON STOCK. Each share of Class A
Common Stock, par value $ per share, of Holdings issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, remain an issued and
outstanding share of Class A Common Stock, par value $ per share, of
Holdings immediately following the Merger.
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<PAGE>
10. CONVERSION OF OUTSTANDING STOCK OF CULBRO. Forthwith upon the
occurrence of the Effective Time, each issued and outstanding share of
common stock, par value $ per share, of Culbro and all rights in respect
thereof shall be converted into ____ fully paid and nonassessable shares of
Class B Common Stock of Holdings, and each certificate nominally representing
shares of common stock of Culbro shall for all purposes be deemed to evidence
the ownership of ____ shares of Class B Common Stock of Holdings. The
holders of such certificates shall not be required immediately to surrender
the same in exchange for certificates of Class B Common Stock of Holdings,
but, as certificates nominally representing shares of common stock of Culbro
are surrendered for transfer, Holdings will cause to be issued certificates
representing shares of Class B Common Stock of Holdings, and, at any time
upon surrender by any holder of certificates nominally representing shares of
common stock of Culbro, Holdings will cause to be issued therefor
certificates for a proportionate number of shares of Class B Common Stock of
Holdings.
11. CONVERSION OF OUTSTANDING STOCK OPTIONS OF CULBRO. Forthwith
upon the occurrence of the Effective Time, each outstanding option for Culbro
common stock, and all rights in respect thereof shall be converted into ____
options for Class B Common Stock of Holdings, as set forth in the Benefits
and Employment Matters Allocation Agreement between Culbro and CLR.
12. ADJUSTMENT OF SHARES OF HOLDINGS ISSUED TO CULBRO. Any
outstanding Culbro stock option exercised after the date of this Agreement,
but prior to the Effective Time, will adjust the number of shares of Class B
Common Stock issued by Holdings to Culbro pursuant to the Benefits and
Employment Matters Allocation Agreement between Culbro and CLR.
13. RIGHTS AND LIABILITIES OF HOLDINGS. At and after the Effective
Time, Holdings shall succeed to and possess, without further act or deed, all
of the estate, rights, privileges, powers, and franchises, both public and
private, and all of the property, real, personal, and mixed, of each of the
parties hereto; all debts due to Culbro or whatever account shall be vested
in Holdings; all claims, demands, property, rights, privileges, powers and
franchises and every other interest of either of the parties hereto shall be
as effectively the property of Holdings as they were of the respective
parties hereto; the title to any real estate vested by deed or otherwise in
Culbro shall not revert or be in any way impaired by reason of the merger,
but shall be vested in Holdings; all rights of creditors and all liens upon
any property of either of the parties hereto shall be preserved unimpaired,
limited in lien to the property affected by such lien at the Effective Time;
all debts, liabilities, and duties of the respective parties hereto shall
thenceforth attach to Holdings and may be enforced against it to the same
extent as if such debts, liabilities, and duties had been incurred or
contracted by it; and Holdings shall indemnify and hold harmless the officers
and directors of each of the parties hereto against all such debts,
liabilities and duties and against all claims and demands arising out of the
merger.
14. SERVICE OF PROCESS ON HOLDINGS. Holdings agrees that it may be
served with process in the State of New York in any proceeding for
enforcement of any
3
<PAGE>
obligations of Culbro as well as for the enforcement of any obligation of
Holdings arising from the merger, including any suit or other proceeding to
enforce the right of any shareholder as determined in appraisal proceedings
pursuant to the provisions of Section 907(e)(2)(E) of the New York Business
Corporation Law. Holdings hereby irrevocably appoints the Secretary of State
of the State of New York as its agent to accept service of process in any
proceeding referred to in the preceding sentence.
15. EXPENSES AND RIGHTS OF DISSENTING SHAREHOLDERS. Notwithstanding
anything to the contrary in this Agreement, shares of Culbro common stock
(the "Dissenting Shares") issued and outstanding immediately prior to the
Effective Time that are held by holders (if any) that have not voted in favor
of the Merger or consented thereto in writing and that have demanded
appraisal rights with respect to their shares of Culbro common stock in
accordance with the applicable provisions of New York law and, as of the
Effective Time, shall not have failed to perfect (or shall not have
effectively withdrawn or lost) their rights to appraisal and payment under
applicable provisions of New York law shall not be converted into the right
to receive Class B Common Stock of Holdings, but holders of Dissenting Shares
shall be entitled to receive a cash payment in the amount of the appraised
value of such shares (the "Appraised Share Value") in accordance with the
provisions of applicable New York law, except that any Dissenting Shares held
by a holder that has failed to perfect or shall have effectively withdrawn or
lost its right to appraisal and payment under applicable provisions of New
York law shall be converted into the right to receive Class B Common Stock of
Holdings. Culbro shall give Holdings (i) prompt notice of any written
demands for appraisal of any shares, attempted withdrawals of such demands,
and any other instruments served pursuant to the applicable New York law
received by Culbro relating to stockholders' rights of appraisal, and (ii)
the opportunity to direct all negotiations and proceedings with respect to
demands for appraisal under the applicable New York law. Culbro shall not,
except with the prior written consent of Holdings, voluntarily make any
payment with respect to any demands for appraisals of capital stock of
Culbro, offer to settle or settle any such demands or approve any withdrawal
of any such demands. None of the shares of common stock that would have been
issued pursuant to Paragraph 10 of this Agreement in exchange for Dissenting
Shares if such Dissenting Shares had been converted into Class B Common Stock
of Holdings will be issued to any holder of Culbro common stock or any other
person or entity. Holdings shall pay all expenses of carrying this Agreement
into effect and of accomplishing the Merger, including amounts, if any, to
which dissenting shareholders of Culbro may be entitled by reason of this
Merger.
16. TERMINATION. This Agreement may be terminated by Culbro or
Holdings if the conditions set forth in Paragraph 2 of this Agreement,
determining the Effective Time of the Merger, are not satisfied prior to
January 1, 1988.
IN WITNESS WHEREOF each of the corporate parties hereto, pursuant to
authority duly granted by the Board of Directors, has caused this Agreement
to be executed by its President and attested by its Secretary and its
corporate seal to be hereunto affixed.
ATTEST: CULBRO CORPORATION
4
<PAGE>
_________________________ BY:____________________________
Secretary
Corporate Seal
ATTEST: GENERAL CIGAR HOLDINGS, INC.
_________________________ BY:_____________________________
Secretary
Corporate Seal
5
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
GENERAL CIGAR HOLDINGS, INC.
General Cigar Holdings, Inc. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "DGCL"), does hereby certify as follows:
1. The present name of the Corporation is General Cigar Holdings,
Inc. The Corporation was originally incorporated under the name "General
Cigar Holdings, Inc." and its original certificate of incorporation was filed
with the office of the Secretary of State of the State of Delaware on
December 12, 1996.
2. This Amended and Restated Certificate of Incorporation was duly
adopted by the Board of Directors of the Corporation (the "Board") and by the
sole stockholder of the Corporation in accordance with Sections 228, 242, and
245 of the DGCL.
3. This Amended and Restated Certificate of Incorporation restates
and integrates and amends the certificate of incorporation of the
Corporation, as heretofore amended, supplemented and/or restated (the
"Certificate of Incorporation").
4. Upon the filing (the "Effective Time") of this Certificate of
Incorporation pursuant to the DGCL, each share of the Corporation's Common
Stock, $0.01 par value per share, issued and outstanding immediately prior to
the Effective Time (the "Old Common Stock") shall be reclassified as and
changed into one validly issued, fully paid, and non-assessable share of
Class B Common Stock authorized by subparagraph (a) of Article FOURTH of the
Certificate of Incorporation (totaling 1,000 shares of Class B Common Stock),
without any action by the holder thereof (the "Reclassification"). Each
certificate that theretofore represented a share or shares of Old Common
Stock shall thereafter represent that number of shares of Class B Common
Stock into which the share or shares of Old Common Stock represented by such
certificate shall have been reclassified.
5. The text of the Certificate of Incorporation is amended and
restated in its entirety as follows:
FIRST: The name of the Corporation is General Cigar Holdings, Inc.
SECOND: The address of the registered office of the Corporation in
the State of Delaware is 1209 Orange Street, Wilmington, Delaware 19801, in
the City of Wilmington, County of New Castle. The name of its registered
agent at that address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which a corporation may be organized under the DGCL.
<PAGE>
FOURTH: (a) Authorized Capital Stock. The Corporation is authorized
to issue 95 million shares of capital stock, of which 50 million shares shall
be shares of Class A Common Stock, $0.01 par value ("Class A Common Stock"),
25 million shares shall be shares of Class B Common Stock, $0.01 par value
("Class B Common Stock" and, together with the Class A Common Stock, the
"Common Stock"), and 20 million shares shall be shares of Preferred Stock,
$0.01 par value ("Preferred Stock").
(b) Common Stock. The powers, preferences and rights, and the
qualifications, limitations and restrictions of each class of the Common
Stock are as follows:
(1) Voting. (i) At each annual or special meeting of stockholders,
in the case of any written consent of stockholders in lieu of a meeting and
for all other purposes, each holder of record of shares of Class A Common
Stock on the relevant record date shall be entitled to one (1) vote for each
share of Class A Common Stock standing in such person's name on the stock
transfer records of the Corporation, and each holder of record of Class B
Common Stock on the relevant record date shall be entitled to ten (10) votes
for each share of Class B Common Stock standing in such person's name on the
stock transfer records of the Corporation. Except as otherwise required by
law and subject to the rights of holders of any series of Preferred Stock of
the Corporation that may be issued from time to time, the holders of shares
of Class A Common Stock and of shares of Class B Common Stock shall vote as a
single class on all matters with respect to which a vote of the stockholders
of the Corporation is required under applicable law, the Certificate of
Incorporation of the Corporation, or the By-Laws of the Corporation, or on
which a vote of stockholders is otherwise duly called for by the Corporation,
including, but not limited to, the election of directors, matters concerning
the sale, lease or exchange of all or substantially all of the property and
assets of the Corporation, mergers or consolidations with another entity or
entities, dissolution of the Corporation and amendments to the Certificate of
Incorporation of the Corporation. Except as provided in this Article FOURTH
or by applicable law, whenever applicable law, the Certificate of
Incorporation of the Corporation or the By-Laws of the Corporation provide
for the necessity of an affirmative vote of the stockholders entitled to cast
at least a majority (or any other greater percentage) of the votes which all
stockholders are entitled to cast thereon, or a "majority (or any other
greater percentage) of the voting stock," or language of similar effect, any
and all such language shall mean that the holders of shares of Class A Common
Stock and the holders of shares of Class B Common Stock shall vote as one
class and that a majority (or any other greater percentage) consists of a
majority (or such other greater percentage) of the total number of votes
entitled to be cast in accordance with the provisions of this Article FOURTH,
including the disproportionate vote of the Class B Common Stock in relation
to the Class A Common Stock.
(ii) Neither the holders of shares of Class A Common Stock nor the
holders of shares of Class B Common Stock shall have cumulative voting rights.
(iii) The Corporation may, as a condition to counting the votes cast
by any holder of shares of Class B Common Stock at any annual or special
meeting of stockholders, in the case of any written consent of stockholders
in lieu of a meeting, or for any other purpose, require
2
<PAGE>
the furnishing of such affidavits or other proof as it may reasonably request
to establish that the shares of Class B Common Stock held by such holder have
not, by virtue of the provisions of subparagraphs (b)(6) or (7) of this
Article FOURTH, been converted into shares of Class A Common Stock.
(2) Dividends; Stock Splits. Subject to the rights of the holders
of shares of any series of Preferred Stock, and subject to any other
provisions of the Certificate of Incorporation of the Corporation, holders of
shares of Class A Common Stock and shares of Class B Common Stock shall be
entitled to receive such dividends and other distributions in cash, stock or
property of the Corporation as may be declared thereon by the Board from time
to time out of assets or funds of the Corporation legally available therefor.
If at any time a dividend or other distribution in cash or other property
(other than dividends or other distributions payable in shares of Common
Stock or other voting securities or options or warrants to purchase shares of
Common Stock or other voting securities or securities convertible into or
exchangeable for shares of Common Stock or other voting securities) is paid
on the shares of Class A Common Stock or shares of Class B Common Stock, a
like dividend or other distribution in cash or other property shall also be
paid on shares of Class B Common Stock or shares of Class A Common Stock, as
the case may be, in an equal amount per share. If at any time a dividend or
other distribution payable in shares of Common Stock or options or warrants
to purchase shares of Common Stock or securities convertible into or
exchangeable for shares of Common Stock is paid on shares of Class A Common
Stock or Class B Common Stock, a like dividend or other distribution shall
also be paid on shares of Class B Common Stock or Class A Common Stock, as
the case may be, in an equal amount per share (except that voting securities
paid on the Class B Common Stock may have ten (10) times the number of votes
per share as voting securities paid on the Class A Common Stock). In the
case of any split, subdivision, combination or reclassification of shares of
Class A Common Stock or Class B Common Stock, the shares of Class B Common
Stock or Class A Common Stock, as the case may be, shall also be split,
subdivided, combined or reclassified so that the number of shares of Class A
Common Stock and Class B Common Stock outstanding immediately following such
split, subdivision, combination or reclassification shall bear the same
relationship to each other as did the number of shares of Class A Common
Stock and Class B Common Stock outstanding immediately prior to such split,
subdivision, combination or reclassification.
(3) Liquidation, Dissolution, etc. In the event of any
liquidation, dissolution or winding up (either voluntary or involuntary) of
the Corporation, the holders of shares of Class A Common Stock and the
holders of shares of Class B Common Stock shall be entitled to receive the
assets and funds of the Corporation available for distribution, after
payments to creditors and to the holders of any Preferred Stock of the
Corporation that may at the time be outstanding, in proportion to the number
of shares held by them, respectively, without regard to class.
(4) Mergers, etc. In the event of any corporate merger,
consolidation, purchase or acquisition of property or stock, or other
reorganization in which any consideration is to be received by the holders of
shares of Class A Common Stock or the holders of
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<PAGE>
shares of Class B Common Stock, the holders of shares of Class A Common Stock
and the holders of shares of Class B Common Stock shall receive the same
consideration on a per share basis; provided that, if such consideration
consists in any part of voting securities (or of options or warrants to
purchase, or of securities convertible into or exchangeable for, voting
securities), the holders of shares of Class B Common Stock may receive, on a
per share basis, voting securities with ten (10) times the number of votes
per share as those voting securities to be received by the holders of shares
of Class A Common Stock (or options or warrants to purchase, or securities
convertible into or exchangeable for, voting securities with ten (10) times
the number of votes per share as those voting securities issuable upon
exercise of the options or warrants to be received by the holders of the
shares of Class A Common Stock, or into which the convertible or exchangeable
securities to be received by the holders of the shares of Class A Common
Stock may be converted or exchanged).
(5) No Preemptive or Subscription Rights. No holder of shares of
Class A Common Stock or Class B Common Stock shall be entitled to preemptive
or subscription rights.
(6) Transfer Restriction; Change of Control of Holders.
(i) Except as provided in subparagraph (b)(6)(iv) of this Article
FOURTH, no person holding record ownership of shares of Class B Common Stock
(hereinafter called a "Class B Holder") may transfer, and the Corporation
shall not register the transfer of, such shares of Class B Common Stock,
except to a Permitted Transferee of such Class B Holder. For the purposes
hereof, a "Permitted Transferee" shall mean:
(A) In the case of a Class B Holder who is a natural person, such
Class B Holder's "Permitted Transferee" means (x) the present or former
spouse of such Class B Holder, a lineal descendant of such Class B Holder or
any ancestor of any such lineal descendent, or a lineal descendant of the
present or former spouse of such Class B Holder, or (y) the trustee of a
trust (including a voting trust) principally for the benefit of such Class B
Holder and/or persons who are Permitted Transferees of such Class B Holder;
provided that such trust may grant a general or special power of appointment
to such Class B Holder and/or any persons who are Permitted Transferees of
such Class B Holder, and may permit trust assets to be used to pay taxes,
legacies and other obligations of the trust or the estate of such Class B
Holder and/or any persons who are Permitted Transferees of such Class B
Holder, payable by reason of the death of such Class B Holder and/or any
persons who are Permitted Transferees of such Class B Holder, and (z) the
executor, administrator, guardian or personal representative of the estate of
such Class B Holder.
(B) In the case of any Class B Holder, such Class B Holder's
"Permitted Transferee" means, in addition to any other Permitted Transferee
hereunder, (x) a corporation, limited liability company or partnership
controlled by such Class B Holder and/or persons who are Permitted
Transferees of such Class B Holder; provided that if control of such a
corporation, limited liability company or partnership (or of any survivor of
a merger or consolidation of such a corporation, limited liability company or
partnership) is acquired by any person who is not within such class of
persons, each share of Class B Common Stock then held by such
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corporation, limited liability company or partnership, as the case may be,
shall be deemed, without further act on the part of the holder thereof or the
Corporation, to be converted into one share of Class A Common Stock, and
stock certificates formerly representing each share of Class B Common Stock
shall thereupon and thereafter be deemed to represent such number of shares
of Class A Common Stock as equals the number of shares of Class A Common
Stock into which such shares of Class B Common Stock could be converted
pursuant to the terms hereof, and (y) the estate of a bankrupt or insolvent
Class B Holder.
(C) In the case of a Class B Holder which is a trustee pursuant to a
trust, such Class B Holder's "Permitted Transferee" means (x) the person who
contributed the shares of Class B Common Stock in question to such trust
(provided that there has been no change in control of such person other than
to a Permitted Transferee of such person), and (y) a Permitted Transferee of
the person (provided that there has been no change in control of such person
other than to a Permitted Transferee of such person) who contributed the
shares of Class B Common Stock in question to such trust and (z) the
beneficiaries of any trust which is in existence and which holds the Class B
Common Stock on the date of the Reclassification or the date of the merger of
the Corporation with Culbro Corporation.
(D) In the case of a Class B Holder which is a corporation or
limited liability company, such Class B Holder's "Permitted Transferee" means
any (x) direct or indirect controlling stockholder of such corporation or
member of such limited liability company (but not any other stockholder of
such corporation or member of such limited liability company), and (y) any
Permitted Transferee of such controlling stockholder or member (as if such
controlling stockholder or member were a Class B Holder), and the survivor of
any merger or consolidation of such corporation or limited liability company;
provided that, if control of such a corporation or limited liability company
(or of any survivor of a merger or consolidation of such a corporation or
limited liability company) is acquired by any person who is not a Permitted
Transferee pursuant to clauses (x) and (y) of this paragraph (D), whether as
a result of a merger or consolidation or otherwise, each share of Class B
Common Stock then held by such corporation or limited liability company shall
be deemed, without further act on the part of the holder thereof or the
Corporation, to be converted into one share of Class A Common Stock, and
stock certificates formerly representing such shares of Class B Common Stock
shall thereupon and thereafter be deemed to represent such number of shares
of Class A Common Stock as equals the number of shares of Class A Common
Stock into which such shares of Class B Common Stock could be converted
pursuant to the terms hereof.
(E) In the case of a Class B Holder which is a partnership, such
Class B Holder's "Permitted Transferee" means (x) any direct or indirect
controlling partner of such partnership or person or group who could by
operation of existing rights become a part of such a controlling group (but
not any other partner of such partnership), and any Permitted Transferee of
such controlling partner or member of a controlling group (as if such
controlling partner were a Class B Holder), and (y) the survivor of a merger
or consolidation of such partnership; provided that if control of such a
partnership (or of any survivor of a merger or consolidation of such a
partnership) is acquired by any person who is not a Permitted Transferee
pursuant to clauses (x)
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and (y) of this paragraph (E), whether as a result of a merger or
consolidation or otherwise, each share of Class B Common Stock then held by
such partnership shall be deemed, without further act on the part of the
holder thereof or the Corporation, to be converted into one share of Class A
Common Stock, and stock certificates formerly representing each share of
Class B Common Stock shall thereupon and thereafter be deemed to represent
such number of shares of Class A Common Stock as equals the number of shares
of Class A Common Stock into which such shares of Class B Common Stock could
be converted pursuant to the terms hereof.
(F) In the case of a Class B Holder which is the estate of a
deceased Class B Holder, or which is the estate of a bankrupt or insolvent
Class B Holder, such Class B Holder's "Permitted Transferee" means a
Permitted Transferee of such deceased, bankrupt or insolvent Class B Holder.
(G) In the case of any Class B Holder, such Class B Holder's
"Permitted Transferee" means, without limitation of the foregoing, any direct
or indirect Permitted Transferee of a Permitted Transferee of such Class B
Holder.
(ii) Notwithstanding anything to the contrary set forth herein, but
subject to the provisions of subparagraph (b)(6)(iv) of this Article FOURTH,
in the event of any direct or indirect transfer of beneficial ownership of
any shares of Class B Common Stock which, had such transfer also been a
transfer of record ownership of such shares of Class B Common Stock, would
not have been to a Permitted Transferee, each share of Class B Common Stock
transferred shall be deemed, without further act on the part of the holder
thereof or the Corporation, to be converted into one share of Class A Common
Stock, and stock certificates formerly representing each share of Class B
Common Stock shall thereupon and thereafter be deemed to represent such
number of shares of Class A Common Stock as equals the number of shares of
Class A Common Stock into which such shares of Class B Common Stock could be
converted pursuant to the terms hereof.
(iii) Notwithstanding anything to the contrary set forth herein, any
event which would result in the automatic conversion of shares of Class B
Common Stock into shares of Class A Common Stock shall not result in such
conversion if, after such event, the record holder of such shares of Class B
Common Stock is a corporation, limited liability company or partnership as to
which, with respect to the shares of Class B Common Stock held by such
corporation, limited liability company or partnership, any Permitted
Transferee of the Class B Holder prior to such event has, directly or
indirectly, both investment power (which includes the power to dispose, or
direct the disposition of, such shares of Class B Common Stock) and voting
power (which includes the power to vote, or direct the voting of, such shares
of Class B Common Stock); provided that no transaction or event intended to
avoid the automatic conversion provision of this subparagraph (b)(6) of
Article FOURTH shall in any event be entitled to the benefit of this
subparagraph (b)(6)(iii) of Article FOURTH.
(iv) Notwithstanding anything to the contrary set forth herein, any
Class B Holder may pledge such Class B Holder's shares of Class B Common
Stock to a pledgee pursuant to
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a bona fide pledge of such shares as collateral security for any indebtedness
or other obligation of any person; provided that, even if such shares are
registered in the name of the pledgee or its nominee (which registration is
hereby expressly permitted and shall not be considered a transfer hereunder),
such shares shall remain subject to the provisions of this subparagraph
(b)(6) of Article FOURTH. In the event that such pledged shares of Class B
Common Stock (the "Pledged Stock") are foreclosed upon, each share of such
Pledged Stock shall be deemed, without further act on the part of the holder
thereof or the Corporation, to be converted into one share of Class A Common
Stock, and stock certificates formerly representing one share of Class B
Common Stock shall thereupon and thereafter be deemed to represent such
number of shares of Class A Common Stock as equals the number of shares of
Class A Common Stock into which such shares of Class B Common Stock could be
converted pursuant to the terms hereof upon the earlier of (i) if the pledgor
is contesting the foreclosure on such shares of Pledged Stock, 30 days after
the date on which the foreclosure on such Pledged Stock becomes final and
non-appealable or (ii) if the pledgor is not contesting the foreclosure on
such shares of Pledged Stock, 30 days after the date on which such Pledged
Stock is foreclosed upon; provided that the Pledged Stock shall not be
automatically converted as provided in this subparagraph (b)(6)(iv) of
Article FOURTH hereof as a result of such foreclosure if, prior to expiration
of either such 30-day period, the Pledged Stock shall be transferred by the
pledgee or the purchaser in such foreclosure to a Class B Holder or one or
more Permitted Transferees of a Class B Holder.
(v) Notwithstanding anything to the contrary herein, the Corporation
shall not register the transfer of any shares of Class B Common Stock unless
the transferee and the transferor of such Class B Common Stock have furnished
such affidavits and other proof as the Corporation may reasonably request to
establish that such proposed transferee is a Permitted Transferee. In
addition, upon any purported transfer of shares of Class B Common Stock not
permitted hereunder, each share of Class B Common Stock purported to be so
transferred shall be deemed, without further act on the part of the holder
thereof or the Corporation, to be converted into one share of Class A Common
Stock, and stock certificates formerly representing one share of Class B
Common Stock shall thereupon and thereafter be deemed to represent such
number of shares of Class A Common Stock as equals the number of shares of
Class A Common Stock into which such shares of Class B Common Stock could be
converted pursuant to the terms hereof, and the Corporation shall register
such shares of Class A Common Stock in the name of the person to whom such
shares of Class B Common Stock were purported to be transferred.
(vi) The Corporation shall include on the certificates for shares of
Class B Common Stock a legend referring to the restrictions on transfer and
registration of transfer imposed by this subparagraph (b)(6) of Article
FOURTH.
(7) Voluntary Conversion. Each share of Class B Common Stock shall
be convertible, at the option of its record holder, into one validly issued,
fully paid and non-assessable share of Class A Common Stock at any time. At
the time of a voluntary conversion, the record holder of shares of Class B
Common Stock shall deliver to the principal office of the Corporation or any
transfer agent for shares of the Class A Common Stock (i) the
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certificate or certificates representing the shares of Class B Common Stock
to be converted, duly endorsed in blank or accompanied by proper instruments
of transfer, and (ii) written notice to the Corporation specifying the number
of shares of Class B Common Stock to be converted into shares of Class A
Common Stock and stating the name or names (with addresses) and denominations
in which the certificate or certificates representing the shares of Class A
Common Stock issuable upon such conversion are to be issued and including
instructions for the delivery thereof. Conversion shall be deemed to have
been effected at the time when delivery is made to the Corporation of both
such written notice and the certificate or certificates representing the
shares of Class B Common Stock to be converted or such later time as may be
specified in such written notice, and as of such time each person named in
such written notice as the person to whom a certificate representing shares
of Class A Common Stock is to be issued shall be deemed to be the holder of
record of the number of shares of Class A Common Stock to be evidenced by
that certificate. Delivery of such certificates and such written notice shall
obligate the Corporation to issue such shares of Class A Common Stock, and
thereupon the Corporation or its transfer agent shall promptly issue and
deliver at such stated address to such record holder of shares of Class A
Common Stock a certificate or certificates representing the number of shares
of Class A Common Stock to which such record holder is entitled by reason of
such conversion, and shall cause such shares of Class A Common Stock to be
registered in the name of such record holder.
(8) Unconverted Shares; Notice Required. In the event of the
conversion of less than all of the shares of Class B Common Stock evidenced
by a certificate surrendered to the Corporation in accordance with the
procedures of subparagraphs (b)(6) or (7) of this Article FOURTH hereof, the
Corporation shall execute and deliver to or upon the written order of the
holder of such unconverted shares, without charge to such holder, a new
certificate evidencing the number of shares of Class B Common Stock not
converted.
(9) Reservation. The Corporation hereby reserves and shall at all
times reserve and keep available, out of its authorized and unissued shares
of Class A Common Stock, for the purposes of effecting conversions, such
number of duly authorized shares of Class A Common Stock as shall from time
to time be sufficient to effect the conversion of all outstanding shares of
Class B Common Stock. The Corporation covenants that all of the shares of
Class A Common Stock so issuable shall, when so issued, be duly and validly
issued, fully paid and non-assessable, and free from liens and charges. The
Corporation shall take all action as may be necessary to ensure that all such
shares of Class A Common Stock may be so issued without violation of any
applicable law or regulation, or of any requirements of any national
securities exchange upon which the shares of Class A Common Stock are or may
be listed, or of any inter-dealer quotation system of a registered national
securities association upon which the shares of Class A Common Stock are or
may be listed.
(10) Power to Sell and Purchase Shares. Subject to applicable law,
the Corporation shall have the power to issue and sell all or any part of any
shares of any class of stock herein or hereafter authorized to such persons,
and for such consideration, as the Board shall from time to time, in its
discretion, determine, whether or not greater consideration could
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be received upon the issue or sale of the same number of shares of another
class, and as otherwise permitted by law. Subject to the requirements of
applicable law, the Corporation shall have the power to purchase any shares
of any class of stock herein or hereafter authorized from such persons, and
for such consideration, as the Board shall from time to time, in its
discretion, determine, whether or not less consideration could be paid upon
the purchase of the same number of shares of another class, and as otherwise
permitted by law.
(11) Rights Otherwise Identical. Except as expressly set forth
herein, the rights of the holders of Class A Common Stock and the rights of
the holders of Class B Common Stock shall be in all respects identical.
(12) Certain Relationships and Definitions. For purposes of this
Article FOURTH:
(i) The relationship of any person that is derived by or through
legal adoption shall be considered a natural one.
(ii) Each joint owner of shares of Class B Common Stock shall be
considered a "Class B Holder" of such shares.
(iii) A minor for whom shares of Class B Common Stock are held
pursuant to a Uniform Gifts to Minors Act or similar law shall be considered
a "Class B Holder" of such shares.
(iv) The term "beneficial ownership" (including, with a correlative
meaning, the term "beneficially own"), shall have the meaning assigned such
term in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as
amended, except that a person shall be deemed to have "beneficial ownership"
of all shares that such person has the right to acquire, whether such right
is exercisable immediately or only after the passage of time.
(v) Unless otherwise specified, the term "person" means both natural
persons and legal entities.
(vi) The term "transfer" means any direct or indirect transfer
(including by sale, assignment, gift, bequest, appointment or otherwise), and
shall also include, with respect to any Class B Holder, any direct or
indirect change in control of such person.
(vii) The term "control" (including, with correlative meanings, the
terms "controlling," "controlled by" and "under common control with"), as
applied to any person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of that
person or entity, whether through the ownership of voting securities, by
contract or otherwise.
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(c) Preferred Stock. The Board is expressly authorized to provide
for the issuance of all or any shares of the Preferred Stock in one or more
classes or series, and to fix for each such class or series such voting
powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, optional or other special rights and
such qualifications, limitations or restrictions thereof, as shall be stated
and expressed in the resolution or resolutions adopted by the Board providing
for the issuance of such class or series, including, without limitation, the
authority to provide that any such class or series may be (i) subject to
redemption at such time or times and at such price or prices; (ii) entitled
to receive dividends (which may be cumulative or non-cumulative) at such
rates, on such conditions, and at such times, and payable in preference to,
or in such relation to, the dividends payable on any other class or classes
or any other series; (iii) entitled to such rights upon the dissolution of,
or upon any distribution of the assets of, the Corporation; or (iv)
convertible into, or exchangeable for, shares of any other class or classes
of stock, or of any other series of the same or any other class or classes of
stock, of the Corporation at such price or prices or at such rates of
exchange and with such adjustments; all as may be stated in such resolution
or resolutions.
FIFTH: The following provisions are inserted for the management of
the business and the conduct of the affairs of the Corporation, and for
further definition, limitation and regulation of the powers of the
Corporation and of its directors and stockholders:
(a) The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors.
(b) The directors shall have concurrent power with the stockholders
to adopt, amend, or repeal the By-Laws of the Corporation.
(c) The number of directors of the Corporation shall be as from time
to time fixed by, or in the manner provided in, the By-Laws of the
Corporation. Election of directors need not be by written ballot unless the
By-Laws so provide.
(d) No director shall be personally liable to the Corporation or any
of its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) pursuant to Section 174 of the DGCL or (iv) for any
transaction from which the director derived an improper personal benefit. If
the DGCL is amended hereafter to authorize the further elimination or
limitation of liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent authorized
by the DGCL, as so amended. Any repeal or modification of this Article FIFTH
by the stockholders of the Corporation shall not adversely affect any right
or protection of a director of the Corporation existing at the time of such
repeal or modification with respect to acts or omissions occurring prior to
such repeal or modification.
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(e) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised
or done by the Corporation, subject, nevertheless, to the provisions of the
DGCL, this Certificate of Incorporation and any By-Laws adopted by the
stockholders; provided, however, that no By-Laws hereafter adopted by the
stockholders shall invalidate any prior act of the directors which would have
been valid if such By-Laws had not been adopted.
(f) The Corporation expressly elects not to be governed by Section
203 of the DGCL.
SIXTH: Meetings of stockholders may be held within or without the
State of Delaware, as the By-Laws may provide. The books of the Corporation
may be kept (subject to any provision contained in the DGCL) outside the
State of Delaware at such place or places as may be designated from time to
time by the Board or in the ByLaws.
SEVENTH: The Corporation shall indemnify its directors and officers
to the fullest extent authorized or permitted by law, as now or hereafter in
effect, and such right to indemnification shall continue as to a person who
has ceased to be a director or officer of the Corporation and shall inure to
the benefit of his or her heirs, executors and personal and legal
representatives; provided, however, that, except for proceedings to enforce
rights to indemnification, the Corporation shall not be obligated to
indemnify any director or officer (or his or her heirs, executors or personal
or legal representatives) in connection with a proceeding (or part thereof)
initiated by such person unless such proceeding (or part thereof) was
authorized or consented to by the Board of Directors. The right to
indemnification conferred by this Article SEVENTH shall include the right to
be paid by the Corporation the expenses incurred in defending or otherwise
participating in any proceeding in advance of its final disposition.
The Corporation may, to the extent authorized from time to time by
the Board of Directors, provide rights to indemnification and to the
advancement of expenses to employees and agents of the Corporation similar to
those conferred in this Article SEVENTH to directors and officers of the
Corporation.
The rights to indemnification and to the advance of expenses
conferred in this Article SEVENTH shall not be exclusive of any other right
which any person may have or hereafter acquire under this Certificate of
Incorporation, the By-Laws, any statute, agreement, vote of stockholders or
disinterested directors or otherwise.
Any repeal or modification of this Article SEVENTH by the
stockholders of the Corporation shall not adversely affect any rights to
indemnification and to the advancement of expenses of a director or officer
of the Corporation existing at the time of such repeal or modification with
respect to any acts or omissions occurring prior to such repeal or
modification.
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EIGHTH: The Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of Incorporation, in
the manner now or hereafter prescribed in this Certificate of Incorporation,
the By-Laws or the laws of the State of Delaware, and all rights herein
conferred upon stockholders are granted subject to such reservation.
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IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be duly executed this day of
February 3, 1997.
GENERAL CIGAR HOLDINGS, INC.
By: /s/ Edgar M. Cullman, Jr.
____________________________
Name: Edgar M. Cullman, Jr.
Title: President
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Exhibit 3.2
BY-LAWS
OF
GENERAL CIGAR HOLDINGS, INC.
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ARTICLE I
Offices
Section 1.1. Registered Offices. The registered office shall be in
the City of Wilmington, County of New Castle, State of Delaware.
Section 1.2. Other Offices. The corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
<PAGE>
ARTICLE II
Stockholders
Section 2.1. Annual Meetings. An annual meeting of stockholders
shall be held for the election of directors at such date, time and place, either
within or without the State of Delaware, as may be designated by resolution of
the Board of Directors from time to time. Any other proper business may be
transacted at the annual meeting.
Section 2.2. Special Meetings. Special meetings of stockholders for
any purpose or purposes may be called at any time by the Board of Directors, but
such special meetings may not be called by any other person or persons.
Section 2.3. Notice of Meetings. Whenever stockholders are required
or permitted to take any action at a meeting, a written notice of the meeting
shall be given that shall state the place, date and hour of the meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the certificate of incorporation or
these by-laws, the written notice of any meeting shall be given not less than
ten nor more than sixty days before the date of the meeting to each stockholder
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
given when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation.
Section 2.4. Adjournments. Any meeting of stockholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 2.5. Quorum. Except as otherwise provided by law, the
certificate of incorporation or these by-laws, at each meeting of stockholders
the presence in person or by proxy of the holders of a majority in voting power
of the outstanding shares of stock entitled to vote at the meeting shall be
necessary and sufficient to constitute a quorum. In the absence of a quorum, the
stockholders so present may, by a majority in voting power thereof, adjourn the
meeting from time to time in the manner provided in Section 2.4 of these by-laws
until a quorum shall attend. Shares of its own stock belonging to the
corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the corporation, shall neither be entitled to vote nor be counted
for quorum purposes, provided, however, that the foregoing shall not limit the
right of the corporation or any subsidiary of the corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary capacity.
Section 2.6. Organization. Meetings of stockholders shall be
presided over by the Chairman of the Board, if any, or in his absence by the
Vice Chairman of the Board, if any, or in his absence by the President, or in
his absence by a Vice President, or in the absence of the foregoing persons by a
chairman designated by the Board of Directors, or in the absence of such
designation by
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a chairman chosen at the meeting. The Secretary shall act as secretary of the
meeting, but in his absence the chairman of the meeting may appoint any person
to act as secretary of the meeting.
Section 2.7. Voting; Proxies. Except as otherwise provided by the
certificate of incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
him which has voting power upon the matter in question. Each stockholder
entitled to vote at a meeting of stockholders or to express consent or dissent
to corporate action in writing without a meeting may authorize another person or
persons to act for him by proxy, but no such proxy shall be voted or acted upon
after three years from its date, unless the proxy provides for a longer period.
A proxy shall be irrevocable if it states that it is irrevocable and if, and
only as long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A stockholder may revoke any proxy which is not irrevocable
by attending the meeting and voting in person or by filing an instrument in
writing revoking the proxy or by delivering a proxy in accordance with
applicable law bearing a later date to the Secretary of the corporation. Voting
at meetings of stockholders need not be by written ballot. At all meetings of
stockholders for the election of directors a plurality of the votes cast shall
be sufficient to elect. All other elections and questions shall, unless
otherwise provided by law, the certificate of incorporation or these by-laws, be
decided by the affirmative vote of the holders of a majority in voting power of
the shares of stock which are present in person or by proxy and entitled to vote
thereon.
Section 2.8. Fixing Date for Determination of Stockholders of
Record. 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 a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors, and which record date: (1) in the case of determination
of stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than sixty nor
less than ten days before the date of such meeting; (2) in the case of
determination of stockholders entitled to express consent to corporate action in
writing without a meeting, shall not be more than ten days from the date upon
which the resolution fixing the record date is adopted by the Board of
Directors; and (3) in the case of any other action, shall not be more than sixty
days prior to such other action. If no record date is fixed: (1) the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; (2) the record date
for determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action of the Board of Directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation in accordance with applicable law, or, if prior action by the Board
of Directors is required by law, shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action; and
(3) the record date for determining stockholders for any other purpose shall be
at the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
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Section 2.9. List of Stockholders Entitled to Vote. The Secretary
shall prepare and make, at least ten days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten 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. Upon the willful
neglect or refusal of the directors to produce such a list at any meeting for
the election of directors, they shall be ineligible for election to any office
at such meeting. Except as otherwise provided by law, the stock ledger shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list of stockholders or the books of the corporation, or to vote in
person or by proxy at any meeting of stockholders.
Section 2.10. Action By Written Consent of Stockholders. Unless
otherwise restricted by the certificate of incorporation, any action required or
permitted to be taken at any annual or special meeting of the stockholders may
be taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
shall be delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or an officer or agent
of the corporation having custody of the book in which proceedings of minutes of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall, to the extent required by law, be given to
those stockholders who have not consented in writing.
Section 2.11. Inspectors of Election. The corporation may, and shall
if required by law, in advance of any meeting of stockholders, appoint one or
more inspectors of election, who may be employees of the corporation, to act at
the meeting or any adjournment thereof and to make a written report thereof. The
corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. In the event that no inspector so appointed or
designated is able to act at a meeting of stockholders, the person presiding at
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his or her duties, shall take
and sign an oath to execute faithfully the duties of inspector with strict
impartiality and according to the best of his or her ability. The inspector or
inspectors so appointed or designated shall (i) ascertain the number of shares
of capital stock of the corporation outstanding and the voting power of each
such share, (ii) determine the shares of capital stock of the corporation
represented at the meeting and the validity of proxies and ballots, (iii) count
all votes and ballots, (iv) determine and retain for a reasonable period a
record of the disposition of any challenges made to any determination by the
inspectors, and (v) certify their determination of the number of shares of
capital stock of the corporation represented at the meeting and such inspectors'
count of all votes and ballots. Such certification and report shall specify such
other information as may be required by law. In determining the validity and
counting of proxies and ballots cast at any meeting of stockholders of the
corporation, the inspectors may consider such information as is permitted by
applicable law. No person who is a candidate for an office at an election may
serve as an inspector at such election.
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Section 2.12. Conduct of Meetings. The date and time of the opening
and the closing of the polls for each matter upon which the stockholders will
vote at a meeting shall be announced at the meeting by the person presiding over
the meeting. The Board of Directors of the corporation may adopt by resolution
such rules and regulations for the conduct of the meeting of stockholders as it
shall deem appropriate. Except to the extent inconsistent with such rules and
regulations as adopted by the Board of Directors, the chairman of any meeting of
stockholders shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are appropriate for the proper conduct of the meeting. Such rules,
regulations or procedures, whether adopted by the Board of Directors or
prescribed by the chairman of the meeting, may include, without limitation, the
following: (i) the establishment of an agenda or order of business for the
meeting; (ii) rules and procedures for maintaining order at the meeting and the
safety of those present; (iii) limitations on attendance at or participation in
the meeting to stockholders of record of the corporation, their duly authorized
and constituted proxies or such other persons as the chairman of the meeting
shall determine; (iv) restrictions on entry to the meeting after the time fixed
for the commencement thereof; and (v) limitations on the time allotted to
questions or comments by participants. Unless and to the extent determined by
the Board of Directors or the chairman of the meeting, meetings of stockholders
shall not be required to be held in accordance with the rules of parliamentary
procedure.
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ARTICLE III
Board of Directors
Section 3.1. Number; Qualifications. The Board of Directors shall
consist of one or more members, the number thereof to be determined from time to
time by resolution of the Board of Directors. Directors need not be
stockholders.
Section 3.2. Election; Resignation; Vacancies. The Board of
Directors shall initially consist of the persons named as directors in the
statement of sole incorporator, and each director so elected shall hold office
until the first annual meeting of stockholders or until his successor is elected
and qualified. At the first annual meeting of stockholders and at each annual
meeting thereafter, the stockholders shall elect directors each of whom shall
hold office for a term of one year or until his successor is elected and
qualified. Any director may resign at any time upon written notice to the
corporation. Any newly created directorship or any vacancy occurring in the
Board of Directors for any cause may be filled by a majority of the remaining
members of the Board of Directors, although such majority is less than a quorum,
or by a plurality of the votes cast at a meeting of stockholders, and each
director so elected shall hold office until the expiration of the term of office
of the director whom he has replaced or until his successor is elected and
qualified.
Section 3.3. Compensation of Directors. Unless otherwise restricted
by the Certificate of Incorporation or these Bylaws, the Board of Directors
shall have the authority to fix the compensation of directors. The directors may
be paid their expenses, if any, of attendance at each meeting of the Board of
Directors and may be paid a fixed sum for attendance at each meeting of the
Board of Directors or a stated salary as director. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
Section 3.4. Regular Meetings. Regular meetings of the Board of
Directors may be held at such places within or without the State of Delaware and
at such times as the Board of Directors may from time to time determine, and if
so determined notices thereof need not be given.
Section 3.5. Special Meetings. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware whenever called by the President, any Vice President, the Secretary, or
by any member of the Board of Directors. Notice of a special meeting of the
Board of Directors shall be given by the person or persons calling the meeting
at least twenty-four hours before the special meeting.
Section 3.6. Telephonic Meetings Permitted. Members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting thereof by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
by-law shall constitute presence in person at such meeting.
Section 3.7. Quorum; Vote Required for Action. At all meetings of
the Board of Directors a majority of the whole Board of Directors shall
constitute a quorum for the transaction of business. Except in cases in which
the certificate of incorporation, these by-laws or applicable law otherwise
provides, the vote of a majority of the directors present at a meeting at which
a quorum is present shall be the act of the Board of Directors.
6
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Section 3.8. Organization. Meetings of the Board of Directors shall
be presided over by the Chairman of the Board, if any, or in his absence by the
Vice Chairman of the Board, if any, or in his absence by the President, or in
their absence by a chairman chosen at the meeting. The Secretary shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 3.9. Action by Written Consent of Directors. Unless
otherwise restricted by the certificate of incorporation or these by-laws, any
action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereof, may be taken without a meeting if all
members of the Board of Directors or such committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors or such committee.
7
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ARTICLE IV
Committees
Section 4.1. Committees. The Board of Directors may designate one or
more committees, each committee to consist of one or more of the directors of
the corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of the committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent permitted by law and to the extent provided in the resolution of
the Board of Directors, 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.
Section 4.2. Committee Rules. Unless the Board of Directors
otherwise provides, each committee designated by the Board of Directors may
make, alter and repeal rules for the conduct of its business. In the absence of
such rules each committee shall conduct its business in the same manner as the
Board of Directors conducts its business pursuant to Article III of these
by-laws.
8
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ARTICLE V
Officers
Section 5.1. Executive Officers; Election; Qualifications; Term of
Office; Resignation; Removal; Vacancies. The Board of Directors shall elect a
President and Secretary, and it may, if it so determines, choose a Chairman of
the Board and a Vice Chairman of the Board from among its members. The Board of
Directors may also choose one or more Vice Presidents, one or more Assistant
Secretaries, a Treasurer and one or more Assistant Treasurers. Each such officer
shall hold office until the first meeting of the Board of Directors after the
annual meeting of stockholders next succeeding his election, and until his
successor is elected and qualified or until his earlier resignation or removal.
Any officer may resign at any time upon written notice to the corporation. The
Board of Directors may remove any officer with or without cause at any time, but
such removal shall be without prejudice to the contractual rights of such
officer, if any, with the corporation. Any number of offices may be held by the
same person. Any vacancy occurring in any office of the corporation by death,
resignation, removal or otherwise may be filled for the unexpired portion of the
term by the Board of Directors at any regular or special meeting.
Section 5.2. Powers and Duties of Executive Officers. The officers
of the corporation shall have such powers and duties in the management of the
corporation as may be prescribed in a resolution by the Board of Directors and,
to the extent not so provided, as generally pertain to their respective offices,
subject to the control of the Board of Directors. The Board of Directors may
require any officer, agent or employee to give security for the faithful
performance of his duties.
Section 5.3. Compensation. The rates and method of compensation of
all officers of the corporation shall be fixed by the Board of Directors or a
committee thereof.
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ARTICLE VI
Stock
Section 6.1. Certificates. Every holder of stock shall be entitled
to have a certificate signed by or in the name of the corporation by the
Chairman or Vice Chairman of the Board of Directors, if any, or the President or
a Vice President, and by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary, of the corporation certifying the number of
shares owned by him in the corporation. Any of or all the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent, or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent, or registrar at the date of issue.
Section 6.2. Lost, Stolen or Destroyed Stock Certificates; Issuance
of New Certificates. The corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the corporation may require the owner of the lost,
stolen or destroyed certificate, or his legal representative, to give the
corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 6.3. Legends. If the corporation shall be authorized to
issue more than one class of stock or more than one series of any class, the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualification,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided in section 202 of the General Corporation Law
of the State of Delaware, in lieu of the foregoing requirements, there may be
set forth on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative, participating, optional or other
special rights or each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
Section 6.4. Transfer of Stock. Upon surrender to the corporation or
the transfer agent of the corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. Upon receipt of proper transfer instructions from
the registered owner of uncertificated shares such uncertificated shares shall
be canceled and issuance of new equivalent uncertificated shares or certificated
shares shall be made to the person entitled thereto and the transaction shall be
recorded upon the books of the corporation.
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ARTICLE VII
Indemnification
Section 7.1. Right to Indemnification. The corporation shall
indemnify and hold harmless, to the fullest extent permitted by applicable law
as it presently exists or may hereafter be amended, any person (an "Indemnitee")
who was or is made or is threatened to be made a party or is otherwise involved
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "Proceeding"), by reason of the fact that he, or a person for
whom he is the legal representative, is or was a director or officer of the
corporation or, while a director or officer of the corporation, is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or nonprofit entity, including service with respect to employee
benefit plans, against all liability and loss suffered and expenses (including
attorneys' fees) reasonably incurred by such Indemnitee. Notwithstanding the
preceding sentence, except as otherwise provided in Section 7.3, the corporation
shall be required to indemnify an Indemnitee in connection with a Proceeding (or
part thereof) commenced by such Indemnitee only if the commencement of such
Proceeding (or part thereof) by the Indemnitee was authorized by the Board of
Directors of the corporation.
Section 7.2. Prepayment of Expenses. The corporation shall pay the
expenses (including attorneys' fees) incurred by an Indemnitee in defending any
Proceeding in advance of its final disposition, provided, however, that, to the
extent required by law, such payment of expenses in advance of the final
disposition of the Proceeding shall be made only upon receipt of an undertaking
by the Indemnitee to repay all amounts advanced if it should be ultimately
determined that the Indemnitee is not entitled to be indemnified under this
Article VII or otherwise.
Section 7.3. Claims. If a claim for indemnification or payment of
expenses under this Article VII is not paid in full within sixty days after a
written claim therefor by the Indemnitee has been received by the corporation,
the Indemnitee may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expense of
prosecuting such claim. In any such action the corporation shall have the burden
of proving that the Indemnitee is not entitled to the requested indemnification
or payment of expenses under applicable law.
Section 7.4. Nonexclusivity of Rights. The rights conferred on any
Indemnitee by this Article VII shall not be exclusive of any other rights which
such Indemnitee may have or hereafter acquire under any statute, provision of
the certificate of incorporation, these by-laws, agreement, vote of stockholders
or disinterested directors or otherwise.
Section 7.5. Other Sources. The corporation's obligation, if any, to
indemnify or to advance expenses to any Indemnitee who was or is serving at its
request as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, enterprise or nonprofit entity shall be
reduced by any amount such Indemnitee may collect as indemnification or
advancement of expenses from such other corporation, partnership, joint venture,
trust, enterprise or non-profit enterprise.
Section 7.6. Amendment or Repeal. Any repeal or modification of the
foregoing provisions of this Article VII shall not adversely affect any right or
protection hereunder of any
11
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Indemnitee in respect of any act or omission occurring prior to the time of such
repeal or modification.
Section 7.7. Other Indemnification and Prepayment of Expenses. This
Article VII shall not limit the right of the corporation, to the extent and in
the manner permitted by law, to indemnify and to advance expenses to persons
other than Indemnitees when and as authorized by appropriate corporate action.
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ARTICLE VIII
Miscellaneous
Section 8.1. Dividends. Dividends upon the capital stock of the
corporation subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 8.2. Reserves. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the directors shall think conducive to the interest of
the corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Section 8.3. Fiscal Year. The fiscal year of the corporation shall
be determined by resolution of the Board of Directors.
Section 8.4. Seal. The corporate seal shall have the name of the
corporation inscribed thereon and shall be in such form as may be approved from
time to time by the Board of Directors.
Section 8.5. Waiver of Notice of Meetings of Stockholders, Directors
and Committees. Any written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at nor the purpose of any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.
Section 8.6. Interested Directors; Quorum. No contract or
transaction between the corporation and one or more of its directors or
officers, or between the corporation and any other corporation, partnership,
association, or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or committee
thereof which authorizes the contract or transaction, or solely because his or
their votes are counted for such purpose, if: (1) the material facts as to his
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (2) the material facts as to
his relationship or interest and as to the contract or transaction are disclosed
or are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders;
or (3) the contract or transaction is fair as to the corporation as of the time
it is authorized, approved or ratified, by the Board of Directors, a committee
thereof, or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
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Section 8.7. Form of Records. Any records maintained by the
corporation in the regular course of its business, including its stock ledger,
books of account, and minute books, may be kept on, or be in the form of, punch
cards, magnetic tape, photographs, microphotographs, or any other information
storage device, provided that the records so kept can be converted into clearly
legible form within a reasonable time.
Section 8.8. Amendment of By-Laws. These by-laws may be altered or
repealed, and new by-laws made, by the Board of Directors, but the stockholders
may make additional by-laws and may alter and repeal any by-laws whether adopted
by them or otherwise.
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ASSET PURCHASE AGREEMENT
dated as of December 20, 1996
Between
GENERAL CIGAR CO., INC.
VILLAZON & COMPANY, INC.
and
THE STOCKHOLDERS
(as defined)
<PAGE>
TABLE OF CONTENTS
Page
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ARTICLE I PURCHASE AND SALE OF ASSETS
1.1 Transfer of Assets........................................... 1
1.2 Assumption of Liabilities.................................... 1
1.3 Excluded Liabilities......................................... 2
1.4 Purchase Price............................................... 2
1.5 Issuance of Stockholder Loan Notes........................... 2
1.6 Closing Date Consolidated Balance Sheets; Post-Closing
Adjustment................................................. 3
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER AND
STOCKHOLDERS
2.1 Organization of Seller....................................... 5
2.2 Ownership.................................................... 5
2.3 Capitalization............................................... 6
2.4 Authorization................................................ 6
2.5 Intellectual Property........................................ 7
2.6 Absence of Certain Changes or Events......................... 9
2.7 Material Contracts........................................... 9
2.8 No Conflict or Violation..................................... 11
2.9 Consents and Approvals....................................... 11
2.10 Financial Statements......................................... 12
2.11 Litigation................................................... 12
2.12 Liabilities.................................................. 12
2.13 Compliance with Law.......................................... 13
2.14 No Brokers................................................... 13
2.15 Labor and Employment Matters................................. 13
2.16 Transactions with Certain Persons............................ 14
2.17 Employee Benefits............................................ 14
2.18 Real Property; Tangible Assets............................... 15
2.19 Tax Matters.................................................. 17
2.20 Environmental Compliance..................................... 18
2.21 Insurance.................................................... 19
2.22 Performance Bonds and Letters of Credit...................... 19
2.23 Nature of Business........................................... 20
ARTICLE III ACTIONS BY SELLER, STOCKHOLDERS AND BUYER PRIOR TO THE
CLOSING
3.1 Conduct of Business.......................................... 20
3.2 Investigation by Buyer....................................... 24
3.3 Consents and Best Efforts.................................... 24
3.4 No Continuing Negotiations................................... 24
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Page
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Organization of Buyer........................................ 25
4.2 Authorization................................................ 25
4.3 Consents and Approvals....................................... 25
4.4 No Brokers................................................... 25
4.5 No Conflict or Violation..................................... 26
4.6 Litigation................................................... 26
4.7 Compliance with Law.......................................... 26
4.8 Parent's Financial Statements................................ 26
4.9 Status of Parent............................................. 26
ARTICLE V CLOSING
5.1 Closing...................................................... 27
5.2 Documents to be Delivered.................................... 27
ARTICLE VI CONDITIONS TO SELLER'S AND STOCKHOLDERS' OBLIGATIONS
6.1 Representations, Warranties and Covenants.................... 29
6.2 Consents..................................................... 29
6.3 No Governmental or Other Proceeding or Litigation............ 29
6.4 Opinion of Counsel........................................... 29
6.5 Certificates................................................. 30
6.6 HSR Act...................................................... 30
6.7 Employment Agreements........................................ 30
6.8 Contemporaneous and Contingent Transactions.................. 30
6.9 Net Worth of Parent. ....................................... 30
6.10 Further Payment.............................................. 30
ARTICLE VII CONDITIONS TO BUYER'S OBLIGATIONS
7.1 Representations, Warranties and Covenants.................... 31
7.2 Net Worth.................................................... 31
7.3 Consents..................................................... 31
7.4 No Governmental or Other Proceeding or Litigation............ 31
7.5 Opinion of Counsel........................................... 31
7.6 The Non-Competition Agreements............................... 31
7.7 No Material Degradation of Assets............................ 32
7.8 Stockholder Loan Notes....................................... 32
7.9 Receipt of Audit Report..................................... 32
7.10 Employment Agreements........................................ 32
7.11 Other Divestitures........................................... 32
7.12 New Jersey Facility Lease.................................... 32
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Page
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7.13 Contemporaneous and Contingent Transactions.................. 32
7.14 HSR Act...................................................... 32
7.15 Multiemployer Plan........................................... 33
7.16 Certificates................................................. 33
ARTICLE VIII ACTIONS BY SELLER, STOCKHOLDERS AND BUYER AFTER THE
CLOSING
8.1 Books and Records............................................ 33
8.2 Further Assurances........................................... 33
8.3 Litigation Support........................................... 33
8.4 Change of Names of Seller.................................... 34
8.5 Employees.................................................... 34
ARTICLE IX RISK OF LOSS
ARTICLE X INDEMNIFICATION
10.1 Agreement to Indemnify....................................... 35
10.2 Survival of Representations, Warranties and Covenants........ 35
10.3 Claims for Indemnification................................... 36
10.4 Defense of Claims............................................ 37
10.5 Offset Rights................................................ 37
10.6 Limitation on Indemnification................................ 38
10.7 Responsibility for Products.................................. 39
10.8 Contribution Towards Expenses................................ 40
10.9 Further Limitations.......................................... 40
ARTICLE XI MISCELLANEOUS
11.1 Termination.................................................. 40
11.2 Assignment................................................... 41
11.3 Notices...................................................... 41
11.4 Choice of Law................................................ 43
11.5 Entire Agreement; Amendments and Waivers..................... 43
11.6 Counterparts................................................. 43
11.7 Invalidity................................................... 44
11.8 Headings..................................................... 44
11.9 Expenses..................................................... 44
11.10 Publicity.................................................... 44
11.11 Supplemental Schedules....................................... 44
ARTICLE XII DEFINITIONS
12.1 Defined Terms................................................ 44
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Page
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12.2 Other Defined Terms................................................ 54
EXHIBITS
A-1 Interim Balance Sheet of Seller
A-2 Interim Balance Sheet of HATSA
B Terms of Installment Notes
C Terms of Stockholder Loan Notes
D Financial Statements
E Form of Non-Competition Agreement
F Form of Employment Agreement
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SCHEDULES
DISCLOSURE SCHEDULE
Section 2.2 Ownership of Stock
Section 2.5 Intellectual Property
Section 2.6 Certain Changes or Events
Section 2.7 Scheduled Contracts
Section 2.8 Conflicts or Violations
Section 2.9 Consents and Approvals
Section 2.11 Litigation
Section 2.12 Liabilities
Section 2.13 Compliance with Law
Section 2.16 Transactions with Certain Persons
Section 2.17 Employee Benefits/Matters
Section 2.18 Real Property
Section 2.19 Tax Matters
Section 2.20 Environmental Compliance
Section 2.21 Insurance
Section 2.22 Performance Bonds and Letters of Credit
OTHER SCHEDULE
12 Excluded Assets
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Asset Purchase Agreement
This Asset Purchase Agreement dated as of December 20, 1996, among General
Cigar Co., Inc., ("General Cigar"), a corporation duly organized and existing
under the laws of the State of Delaware (General Cigar is hereinafter sometimes
referred to as the "Buyer"), Villazon & Company, Inc. ("Villazon"), a
corporation duly organized and existing under the laws of the State of Florida,
(Villazon is hereinafter sometimes referred to as the "Seller"), Frank Llaneza
("Mr. Llaneza"), Daniel Blumenthal ("Mr. Blumenthal") and Constantino Gonzalez
("Mr. Gonzalez") (Mr. Llaneza, Mr. Blumenthal and Mr. Gonzalez are hereinafter
sometimes collectively referred to as the "Stockholders").
W I T N E S S E T H:
WHEREAS, the defined terms have the meanings ascribed to them in Article
XII or as set forth elsewhere in this Agreement.
WHEREAS, Buyer desires to acquire, and Seller desires to transfer to Buyer,
substantially all of the properties and assets of Seller in exchange for the
Purchase Price set forth in Article I and the assumption by Buyer of certain of
the liabilities and obligations of Seller upon the terms and conditions set
forth herein;
NOW THEREFORE, IT IS AGREED:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 Transfer of Assets. Upon the terms and subject to the conditions
contained herein, at the Closing, Seller will sell, convey, transfer, assign and
deliver to Buyer, and Buyer will acquire from Seller, the Assets, free and clear
of all Encumbrances.
1.2 Assumption of Liabilities. Upon the terms and subject to the conditions
contained herein, at the Closing, Buyer shall assume the following, and only the
following, Liabilities of Seller (the "Assumed Liabilities"): Liabilities
accrued for on the Interim
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Balance Sheet of Seller attached hereto as Exhibit A-1 (other than Liabilities
in respect of Excluded Assets), the Stockholder Loan Notes, Liabilities of
Seller incurred between October 31, 1996 and the Closing in the ordinary course
of business and in accordance with Section 3.1 and Liabilities under the
Scheduled Contracts relating to future performance.
1.3 Excluded Liabilities. Notwithstanding any other provision of this
Agreement, except for the Assumed Liabilities, Buyer shall not assume, or
otherwise be responsible for, any Liabilities of Seller, whether liquidated or
unliquidated, or known or unknown, whether arising out of occurrences prior to,
or at the Closing Date ("Excluded Liabilities").
1.4 Purchase Price. At the Closing, upon the terms and subject to the
conditions set forth herein, in exchange for the sale, transfer, assignment,
conveyance and delivery of the Assets, Buyer shall issue to Villazon two
promissory notes having substantially the rights set forth in Exhibit B
("Installment Notes") each having a face value of Five Million Dollars
($5,000,000) and shall pay to Seller the aggregate amount of Thirty Eight
Million, Four Hundred and Fifty Thousand Dollars ($38,450,000) (the "First
Closing Purchase Price"), by wire transfer of immediately available funds to
accounts designated by Seller and shall assume the Assumed Liabilities pursuant
to this Agreement (including the Stockholder Loan Notes to be issued in
accordance with Section 1.5 below). The Purchase Price shall be allocated among
the Assets of Seller in the manner required by Section 1060 of the Code and
regulations thereunder and shall be agreed upon between the parties, acting
commercially reasonably.
1.5 Issuance of Stockholder Loan Notes. In addition to the Purchase Price,
the Stockholders shall be entitled to receive a distribution of the Net Income
of Seller for calendar year 1996 and to be repaid all indebtedness of Seller to
the Stockholders as reflected on the Interim Balance Sheet of Seller. The
indebtedness on the Interim Balance Sheet of Seller is $5,394,043, of which
Seller shall repay to the Stockholders the principal amount of approximately
$1,025,000, plus accrued but unpaid interest thereon, prior to December 31, 1996
and the balance of approximately $4,370,000 (plus accrued but unpaid interest
thereon) shall be added to the undistributed Estimated Net Income described
below and shall be exchanged for promissory notes to be issued to the
Stockholders as of December 31, 1996, having substantially the features set
forth on Exhibit C (the
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"Stockholder Loan Notes"). Seller estimates the Net Income of Seller for the
calendar year 1996 to be $11,000,000 (the "Estimated Net Income of Seller") of
which Seller shall distribute $1,000,000 to the Stockholders prior to December
31, 1996, provided that after such distribution Seller shall have sufficient
cash for working capital requirements in the ordinary course of its Business.
The balance of the Estimated Net Income of Seller, being $10,000,000, shall be
added to the unpaid balance of the stockholder indebtedness of approximately
$4,370,000 described above and shall be evidenced by Stockholder Loan Notes with
an aggregate face value of $14,370,000. Seller and the Stockholders agree that,
except as set forth in this Section 1.5, from October 31, 1996 through the
Closing Date, Seller shall not (i) create or pay any additional indebtedness
with respect to the Stockholders or (ii) distribute any other cash or other
property to the Stockholders with respect to their stock ownership in Seller.
1.6 Closing Date Consolidated Balance Sheets; Post-Closing Adjustment.
(a) Buyer and its accountants shall take such steps as shall be
necessary to prepare a balance sheet of Seller and a balance sheet of HATSA,
each as of December 31, 1996 (the "Closing Date Balance Sheets") and a statement
of income of Seller and a statement of income of HATSA, each for the year ending
December 31, 1996 (the "1996 Income Statements"). The Closing Date Balance
Sheets and the calculation of the Net Worth based on the Closing Date Balance
Sheets shall be prepared on a basis consistent with the Interim Balance Sheet of
Seller, the Interim Balance Sheet of HATSA and with the Accounting Principles.
The 1996 Income Statements and the calculation of the Net Income of Seller and
HATSA for the year ending December 31, 1996 based on the 1996 Income Statements
shall be prepared in accordance with Accounting Principles.
(b) The Closing Date Balance Sheets, the calculation of Net Worth
based on the Closing Date Balance Sheets, the 1996 Income Statements and the
calculation of the Net Income of Seller and HATSA for the year ending December
31, 1996 based on the 1996 Income Statements shall be submitted to Seller on or
before the 75th day after the Closing Date. If Seller and the accountants for
Buyer do not reach agreement with respect to the Closing Date Balance Sheets and
the calculation of Net Worth or the 1996 Income Statements and the calculation
of the Net Income of Seller and HATSA for the year ending December 31, 1996 on
or before 30 days after the submission to Seller of Buyer's proposed
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Closing Date Balance Sheets and 1996 Income Statements and it is apparent that
no agreement will be reached, another independent accounting firm of national
reputation shall be selected and retained by Seller and Buyer and such firm will
make a determination of those matters with respect to which Seller and the
accountants for Buyer do not agree, which determination shall be binding on the
parties. Such determination shall be made by such other accounting firm on or
before the 45th day after such other accounting firm has been notified. The fees
of such other accounting firm will be borne 1/2 by Buyer and 1/2 by Seller.
Buyer and Seller shall bear the fees and expenses of their respective
accountants.
(c) Net Worth as calculated based upon the Closing Date Balance Sheets
shall be final and binding on the parties hereto. If Net Worth as calculated
based upon the Closing Date Balance Sheets is less than Four Million, Six
Hundred Thirty Five Thousand Dollars ($4,635,000), Seller shall pay such
difference to Buyer within 5 Business Days after the date on which the Closing
Date Balance Sheets are agreed upon as provided for above (such difference is
the "Post-Closing Adjustment"). No payment shall be made if the Post Closing
Adjustment is less than One Hundred Thousand Dollars ($100,000).
(d) Net Income of Seller for the year ending December 31, 1996 as
determined based upon the 1996 Income Statement of Seller shall be final and
binding on the parties hereto. If Net Income of Seller for the year ending
December 31, 1996 is less than the Estimated Net Income of Seller, the
Stockholders shall cause Seller to pay Buyer, in cash, within 5 Business Days
after the date on which the Net Income of Seller and HATSA for the year ending
December 31, 1996 is agreed upon as provided above, an amount equal to any such
shortfall. If Net Income of Seller for the year ending December 31, 1996 exceeds
the Estimated Net Income, Buyer shall pay to the Seller, in cash, within 5
Business Days after the date on which the Net Income of Seller and HATSA for the
year ending December 31, 1996 is agreed upon as provided above, an amount equal
to the amount by which the Net Income of Seller for the year ended December 31,
1996 exceeds the Estimated Net Income.
(e) The "Purchase Price" shall be the First Closing Purchase Price, as
adjusted by the Post-Closing Adjustment.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER AND STOCKHOLDERS
Subject to the limitations set forth in Article X, Seller and the
Stockholders, jointly and severally, hereby represent and warrant to Buyer as
follows:
2.1 Organization of Seller. Seller is duly incorporated and validly
existing as a corporation in good standing under the laws of its jurisdiction of
incorporation and has full corporate power to conduct the Business as it is
presently being conducted and to own and lease the Assets.
2.2 Ownership.
(a) Except as set forth on Disclosure Schedule Section 2.2, the
Stockholders own of record and beneficially all of the shares of capital stock
of the Seller, free of Encumbrances, including without limitation any agreement,
understanding or restriction affecting the transfer, voting rights or other
incidents of record or beneficial ownership pertaining to such capital stock.
The Stockholders are not a party to any option, warrant, subscription,
commitment or any other contract that could require the Stockholders to sell,
transfer or otherwise dispose of any capital stock of Seller or any agreement or
understanding providing rights of first refusal or similar rights with respect
to any capital stock of Seller. Except as set forth on Disclosure Schedule
Section 2.2, the Stockholders are not parties to any voting trust, proxy or
other agreement or understanding with respect to the voting of any capital stock
of Seller.
(b) The execution of this Agreement by the Stockholders and the
Company satisfies the reuirement of Article I of the Stock Restriction and
Retirement Agreement referred to in Disclosure Schedule Section 2.2 and Sellers
and the Company acknowledge that such agreement's provisions (including without
limitation Article II) are subordinate to the terms and conditions of this
Agreement.
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2.3 Capitalization.
(a) The authorized capital stock of Seller consists of 10,000 shares
of common stock, $50 par value, of which 4,264 shares are issued and outstanding
and no shares are held in the treasury of Seller. All of the outstanding capital
stock of Seller has been duly authorized, and is validly issued, fully paid and
non-assessable. Except as set forth on Disclosure Schedule Section 2.2, there
are no outstanding or authorized options, warrants, subscriptions, calls,
commitments, preemptive rights, securities convertible into or exchangeable for
capital stock, or other rights that could require Seller to issue, sell, or
otherwise cause to become outstanding any capital stock, or any agreement or
understanding providing rights of first refusal or similar rights with respect
to any capital stock of Seller. There are no outstanding or authorized stock
appreciation, phantom or similar rights with respect to Seller.
(b) Disclosure Schedule Section 2.2 correctly sets forth the
Stockholders and their respective ownership of Seller.
2.4 Authorization.
(a) Seller has the corporate power to execute and deliver this
Agreement and to consummate the transactions contemplated hereby, and all
requisite corporate action has been taken by the Board of Directors of Seller to
authorize the execution, delivery, and performance of this Agreement by Seller.
This Agreement has been duly executed and delivered by Seller and the
Stockholders and, assuming the due authorization, execution and delivery of this
Agreement by Buyer is a valid and binding obligation of Seller and the
Stockholders, except as enforceability may be limited by bankruptcy, insolvency
or other similar laws affecting creditors' rights generally and except where
enforceability is subject to the application of equitable principles or
remedies.
(b) There is no contract, agreement or understanding with any person,
firm or corporation which would interfere with the obligations of Seller and
Stockholders hereunder.
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(c) The Stockholders have each approved and adopted this Agreement and
have taken all requisite action to approve and consent to this Agreement and the
performance of the transactions contemplated hereby.
2.5 Intellectual Property.
(a) Disclosure Schedule Section 2.5(a) sets forth a complete and
correct list and summary description of all trademarks, tradenames, service
marks, service names, brand names, registrations thereof and applications
therefor, applicable to or used in the Business (collectively referred to
hereinafter as the "Intellectual Property"), together with a complete list of
all licenses granted by or to Seller or other agreements with respect to any of
the Intellectual Property. The Intellectual Property constitutes all the
intellectual property used in the Business other than trade secrets and
copyrights, if any. Seller holds no patents.
(b) The Intellectual Property is valid and subsisting and is
enforceable.
(c) Except as set forth on Disclosure Schedule Section 2.5(c), Seller
has sole, full and clear title to the Intellectual Property, free and clear of
all claims, liens, encumbrances, mortgages, licenses (either as licensee or
licensor), including claims or rights of employees, agents, consultants or other
parties involved in the development or creation of such Intellectual Property
and no other person or entity has or shall have any claim of ownership with
respect to the Intellectual Property whatsoever.
(d) Except as set forth in any license or other agreements set forth
on Disclosure Schedule Section 2.5(d) hereto, the Seller owns and/or has the
right and/or license to use, sublicense, assign, modify and transfer the
Intellectual Property free and clear of any limitations or encumbrances, and
Buyer will own and/or may use all Intellectual Property after the closing of the
transaction contemplated hereof to the same extent as the Seller owned and/or
used them prior to the sale, without encumbrances of third parties.
(e) Except as set forth on Disclosure Schedule Section 2.5(e), Seller
is not and no officers, stockholders or directors of Seller are currently in
receipt of any notice of
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any violation of, and to the Knowledge of Seller or the Stockholders, Seller is
not violating or infringing upon and have not for the last six years violated or
infringed, the rights of any other person or entity in any trademark, trade
name, service mark, copyright, mask work, trade secret, know-how, patent or
other intangible property right or asset, and has not conducted any acts of
unfair competition.
(f) Except as set forth on Disclosure Schedule Section 2.5(f), to the
Knowledge of Seller or the Stockholders, no person or entity is infringing any
intellectual property rights of Seller with respect to the Intellectual
Property.
(g) Except as set forth on Disclosure Schedule Section 2.5(g), Seller
has not during the three years preceding the date of this Agreement been a party
to any Proceeding that involved or may involve a claim of infringement by any
Person (including any Government Authority) of any intellectual property rights
of such Person or a claim of infringement by Seller with respect to the
Intellectual Property. Except as set forth on Disclosure Schedule Section
2.5(g), no intellectual property right with respect to the Intellectual Property
is subject to any outstanding order, judgement, decree, stipulation or agreement
restricting the use thereof by Seller, or restricting the licensing thereof by
Seller to any person, and there are no claims, judgments or settlements to be
paid out by Seller relating to the Intellectual Property.
(h) Disclosure Schedule Section 2.5(h) sets forth a list of all
license fees, rents, royalties or other charges that Seller is required or
obligated to pay with respect to the Intellectual Property. Except as set forth
on Disclosure Schedule Section 2.5(h), none of the Intellectual Property has
been incorporated into or made a part of any other intellectual property and
none of the Intellectual Property is dependent on any other intellectual
property in order to freely operate or be utilized in the manner in which it is
intended.
(i) Seller shall keep confidential and not disclose to any third party
any trade secrets among the Intellectual Property, except such of said trade
secrets as now are or hereinafter become published or otherwise available to the
public other than through the direct or indirect actions of Seller; even after
any trade secrets become available to the public, Seller shall not disclose,
without Buyer's prior written approval, the fact that such
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trade secrets were furnished to Buyer by the Seller or originated with the
Seller. Seller shall advise its employees and other personnel who at any time
have access to such trade secrets of the obligations assumed hereunder by
Seller.
2.6 Absence of Certain Changes or Events. Except as set forth on Disclosure
Schedule Section 2.6, since June 30, 1996, the Business has been conducted in
the ordinary course and there has not been any event, occurrence, state of
circumstances or facts or change in Seller or in the Business that has had or
that may be reasonably expected to have, either alone or together, a Material
Adverse Effect.
2.7 Material Contracts.
(a) Disclosure Schedule Section 2.7(a) sets forth a complete list of
the following Contracts (collectively, the "Scheduled Contracts"):
(i) each Contract between Seller and another Person in which the
dollar volume of sales or services for products sold to such Person
exceeded in 1995, or during the first six months of 1996, One Hundred
Thousand Dollars ($100,000);
(ii) each Contract of Seller that requires payment or incurrence of
Liabilities, or the rendering of services or the sale of goods, by Seller,
subsequent to the date of this Agreement of more than One Hundred Thousand
Dollars ($100,000) or otherwise material to the Business or Assets and not
cancelable (without Liability) within 30 days;
(iii) all Contracts relating to, or evidences of, or guarantees of, or
providing security for, Indebtedness for Borrowed Money or the deferred
purchase price of property (whether incurred, assumed, guaranteed or
secured by any Asset);
(iv) all license, sale, distribution, commission, marketing, agent,
franchise, technical assistance or similar contracts relating to or
providing for the marketing and/or sale of the products to which Seller is
a party or by which any of them is otherwise bound;
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(v) all partnership, joint venture, teaming arrangements or other
similar Contracts;
(vi) all Contracts not made in the ordinary course of business;
(vii) all employment Contracts and severance agreements, including
without limitation Contracts (A) to employ or terminate executive officers
or other personnel and other contracts with present or former officers,
directors or stockholders of Seller or (B) that will result in the payment
by, or the creation of any Liability to pay on behalf of Buyer or Seller
any severance, termination, "golden parachute," or other similar payments
to any present or former personnel following termination of employment or
otherwise as a result of the consummation of the transactions contemplated
by this Agreement;
(viii) all labor or union Contracts;
(ix) Contracts containing covenants limiting the freedom of Seller or
any officer, director, shareholder or affiliate of Seller, to engage in any
line of business or compete with any person;
(x) Any Contract with the United States, state or local government or
any agency or department thereof;
(xi) Leases of personal property not cancelable (without Liability)
within 60 calendar days and having an annual rental exceeding Fifty
Thousand Dollars ($50,000); and
(xii) other Contracts the failure of performance of which could have a
Material Adverse Effect.
(b) The Seller has made true and correct copies of all Contracts
required to be disclosed pursuant to Section 2.7(a) above available to Buyer.
Except as disclosed in Disclosure Schedule Section 2.7(a), to the Knowledge of
Seller or the Stockholders, each Contract is a legal, valid and binding
obligation of Seller and each other party thereto,
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enforceable against each such party thereto in accordance with its terms, and
Seller is not and, to the Knowledge of Seller or the Stockholders, no other
party thereto, is in material default thereunder. Disclosure Schedule Section
2.7(b) sets forth a description of all oral agreements and understandings which,
had they been in writing, would have been required to have been disclosed on
Disclosure Schedule Section 2.7(a) other than (i) oral agreements with employees
which may be terminated by Seller "at will" with no penalty and (ii) oral
agreements for the purchase of tobacco by Seller.
(c) Disclosure Schedule Section 2.7(c) sets forth a list (by name,
address and persons to contact) of the 10 largest customers of the Seller, for
the 10-month period ended October 31, 1996 together with the approximate dollar
amount of sales to such Persons during said period and a summary description of
the products sold.
(d) Except as set forth on Disclosure Schedule Section 2.7(c), (i)
neither Seller nor the Stockholders have Knowledge of any pending or threatened
claim of breach of, or default under, any Contract with any Person listed in
Disclosure Schedule Section 2.7(c); and (ii) neither Seller nor the Stockholders
are, to their Knowledge, aware of any intention on the part of any Person to
terminate or materially reduce purchases from or supplies to the Business in a
manner that would result in a Material Adverse Effect.
2.8 No Conflict or Violation. Except as set forth on Disclosure Schedule
Section 2.8, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated by this Agreement will (a)
conflict with or result in any breach or default under any term or provision of
any Scheduled Contract, or result in or give to any person the right or power to
cause the termination or acceleration of any Scheduled Contract or prevent
Seller from consummating the transactions contemplated by this Agreement, (b)
result in the creation or imposition of any Lien on any of the Assets of Seller,
(c) result in any violation of the provisions of the charter or other
organizational document or by-laws of Seller or (d) to the Knowledge of Seller
or the Stockholders result in any violation by Seller of any statute, order,
rule, regulation, ordinance, code, judgment, writ, injunction, decree or award.
2.9 Consents and Approvals. Except (a) for the filing of premerger
notification reports under the HSR Act and filings under the New Jersey
Industrial Site Recovery Act
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(which such filings have already been made by the parties), and (b) as set forth
on Disclosure Schedule Section 2.9, no Permit from any Governmental Authority or
any other Person is required to be made or obtained by Seller in connection with
the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby.
2.10 Financial Statements.
(a) Attached hereto as Exhibits A and D are true and complete copies
of the Financial Statements.
(b) The Financial Statements have been prepared in a manner consistent
with prior periods, based on the books and records of the Seller and fairly
reflect the financial condition, results of operations and statements of cash
flow of Seller as of the dates indicated or the periods indicated.
2.11 Litigation. Except as set forth on Disclosure Schedule Section 2.11,
(i) there are no actions, suits, claims, hearings, arbitrations, proceedings
(public or private) or governmental investigations that have been brought by any
Governmental Authority or by or against any other Person (collectively,
"Proceedings") pending or, to the Knowledge of Seller or the Stockholders,
threatened, against or involving Seller or the Business; (ii) there are no
Proceedings pending or, to the Knowledge of Seller or the Stockholders,
threatened which seek to enjoin or rescind the transactions contemplated by this
Agreement; and (iii) there are no existing orders, judgments or decrees of any
Governmental Authority naming Seller as an affected party.
2.12 Liabilities. Except as set forth on Disclosure Schedule Section 2.12,
Seller is not liable for, directly or indirectly, any indebtedness, liability,
claim, loss, damage, deficiency, obligation or responsibility, fixed or unfixed,
choate or inchoate, liquidated or unliquidated, secured or unsecured, accrued or
unaccrued, joint, several, joint and several, due or to become due, vested or
unvested, executory, determined, determinable, absolute, contingent or
otherwise, whether or not required by GAAP to be set forth in a financial
statement (each a "Liability" and collectively, "Liabilities") except (i)
Liabilities set forth on the Interim Balance Sheet of Seller and (ii)
Liabilities incurred since October 31, 1996
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in the ordinary course of business that, individually or when combined with all
other Liabilities, have not had, do not and will not have a Material Adverse
Effect.
2.13 Compliance with Law. To the Knowledge of Seller and the Stockholders,
Seller is and, for the period of the applicable statute of limitations, as
extended, has been in compliance in all material respects with all Applicable
Laws, except as set forth on Disclosure Schedule Section 2.13.
2.14 No Brokers. Neither Seller, nor any Stockholder and none of their
respective Affiliates or Associates has entered into or will enter into any
contract, agreement, arrangement or understanding with any Person which will
result in the obligation of Buyer, Seller or any Stockholder to pay any finder's
fee, brokerage commission or similar payment in connection with the transactions
contemplated hereby.
2.15 Labor and Employment Matters.
(a) Except as set forth on Disclosure Schedule Section 2.17, no
collective bargaining agreement exists that is binding on Seller and, except as
described in Disclosure Schedule Section 2.17, no petition has been filed or
Proceedings instituted by an employee or group of employees with any labor
relations board seeking recognition of a bargaining representative, nor, to the
Knowledge of Seller or the Stockholders, has there been any union organizing
effort by any union or group of employees in the last five years at any of the
facilities operated by Seller. Disclosure Schedule Section 2.17 describes any
organizational effort currently being made or threatened by or on behalf of any
labor union to organize any employees of Seller.
(b) Except as set forth on Disclosure Schedule Section 2.17, (i) there
is no labor strike, dispute, slow down or stoppage pending or threatened,
against or directly affecting Seller; (ii) no grievance or arbitration
Proceeding arising out of or under any collective bargaining agreement is
pending, and no claims therefor exist; and (iii) except for routine claims for
benefits under the employee benefit plans disclosed in Disclosure Schedule
Section 2.17 neither Seller, the Stockholders, nor any of their Affiliates has
received any notice or has any Knowledge of any threatened labor or civil rights
dispute, controversy or grievance or any other unfair labor practice, Proceeding
or breach of
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contract claim with respect to claims of, or obligations to, any employee or
group of employees of Seller.
(c) To the Knowledge of Seller and the Stockholders, Seller has
complied and is currently complying, in respect of all employees of Seller, with
all Applicable Laws respecting employment and employment practices and the
protection of the health and safety of employees, from whatever source such law
may be derived, including, without limitation, statutes, ordinances, laws,
rules, regulations, policies, standards, judicial or administrative precedents,
judgments, orders, decrees, awards, citations, licenses, official
interpretations and guidelines, except for such instances which are not, in the
aggregate, material.
(d) Disclosure Schedule Section 2.17 sets forth all individuals who
are independent contractors of Seller or tobacco brokers for material sales of
Seller's products, together with a description of any arrangements with such
Persons. Seller has delivered to Buyer true copies of all Contracts with any
such Persons.
2.16 Transactions with Certain Persons.
Except as set forth on the Disclosure Schedule Section 2.16, no
officer or director of Seller nor any Associate of Seller is presently a party
to any transaction with Seller (other than employment agreements and salaries,
bonuses or benefits for services as officers, directors or employees of Seller)
including, without limitation, any contract, agreement or other arrangement (i)
providing for the furnishing of material services by, or the purchase of
supplies of material quantities of tobacco or other goods from such Person or an
Associate of any such Person, (ii) providing for the rental of material real or
personal property, from or to any such Person or an Associate of any such
Person, or (iii) otherwise requiring material payments from or to any such
Person or an Associate of any such Person.
2.17 Employee Benefits.
Disclosure Schedule Section 2.17 is a Culbro Corporation memorandum
dated October 24, 1996 which describes employee compensation and employee
benefit plans for
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Seller's employees working in or out of the Tampa Factory and the New Jersey
Facility being, collectively, all of the employees of Seller. The Disclosure
Schedule Section 2.17 is true and correct in all material respects and does not
omit any material employee compensation or employee benefit information on the
subjects covered in Disclosure Schedule Section 2.17.
Except as set forth on Disclosure Schedule Section 2.17;
(a) Seller has no ERISA qualified benefit plan;
(b) Neither Seller nor any ERISA Affiliate is contributing to or has
an obligation to contribute to, or has in the last five years contributed to or
had an obligation to contribute to, a Multiemployer Plan;
(c) Seller does not maintain or sponsor any Pension Plan which is
qualified under the Section 401(a) of the Code;
(d) Except as would not result in any material liability of Seller,
neither the execution nor delivery of this Agreement or other related agreements
by Seller nor the Closing will result in the acceleration or creation of any
rights of any Person to any benefits under any employee benefit plan of Seller;
and
(e) As of the date of this Agreement, Seller does not have any post
retirement benefit obligations.
2.18 Real Property; Tangible Assets.
(a) Disclosure Schedule Section 2.18(a) sets forth a true and complete
list of all real property owned by Seller (the "Owned Real Property"), such list
setting forth the location and legal description of each parcel of Owned Real
Property, the record owner thereof and a brief description of the nature of the
activities of Seller on such Owned Real Property. At the Closing, Seller has and
will transfer to Buyer good and marketable fee simple title to the manufacturing
plant located at 3104 N. Armenia Avenue, Tampa, Florida and all appurtenances
thereto (the "Tampa Factory") free and clear of all Encumbrances
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(other than Encumbrances to the extent set forth on the title report of the
Tampa Factory to be delivered to Buyer and Seller prior to Closing). Seller
enjoys peaceful and undisturbed possession of all Owned Real Property.
(b) Disclosure Schedule Section 2.18(b) sets forth all real property
leases and licenses (true copies of each of which have been delivered to Buyer)
to which the Seller is a party or by which it is bound or that are used for the
conduct of the Business in substantially the same manner as the Business has
heretofore been conducted (the "Leased Real Property" and together with the
Owned Real Property, the "Real Property"). Except as set forth on Disclosure
Schedule Section 2.18(b), there are no leases, subleases, licenses, occupancy
agreements, options, rights, concessions or other agreements or arrangements,
written or oral, granting to any Person the right to purchase, use or occupy any
Real Property in connection with the Business or any portion thereof or interest
in any such property. With respect to such Leases, there exist no defaults by
Seller or, to the Knowledge of Seller or the Stockholders, any default or
threatened default by any third party thereunder, that has affected or could
reasonably be expected to affect the rights and privileges thereunder of Seller
and have a Material Adverse Effect. With respect to each Lease of Real Property,
Seller has and will transfer to Buyer at the Closing an unencumbered interest in
the Leasehold Estate. Seller enjoys peaceful and undisturbed possession of all
Leased Real Property.
(c) Except as set forth on Disclosure Schedule Section 2.18(c), to the
Knowledge of Seller and the Stockholders, all material buildings and structures
located at the Tampa Factory and the leased facility located at Upper Saddle
River, New Jersey (the "New Jersey Facility") are in all material respects
structurally sound.
(d) To the Knowledge of Seller and the Stockholders, except as set
forth on Disclosure Schedule Section 2.18(d), with respect to the Tampa Factory
or the New Jersey Facility, there exists no applicable restrictive covenant,
zoning ordinance, building code, use or occupancy restriction, or any violation
of any such ordinance, code or restriction, or any condemnation Proceeding with
respect thereto, that will interfere with the use for its current use thereof by
Buyer following the Closing.
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(e) Except as disclosed on Disclosure Schedule Section 2.18(e), to the
Knowledge of Seller and the Stockholders, none of the material buildings and
structures located at the Tampa Factory or the New Jersey Facility nor any
appurtenances thereto or equipment thereon, nor the operation or maintenance
thereof for its current use, violates any restrictive covenants or encroaches on
any property owned by others nor does any building or structure of third parties
encroach upon such Real Property. To the Knowledge of Seller or the Stockholders
no condemnation Proceeding is pending or threatened, which would preclude or
impair the use of the Tampa Factory or the New Jersey Facility for the use for
which it is currently being used.
(f) All appropriate certificates of occupancy and all Permits required
for current operations have been or will be obtained, are or will be in full
force and effect and will not be violated by this Agreement or the transactions
contemplated hereby and will be assigned by Seller to Buyer at the Closing.
(g) Excluding the Owned Real Property and the Leased Real Property,
Seller has and will transfer good and marketable title to the Assets and upon
the consummation of the transactions contemplated hereby, Buyer will acquire
good and marketable title to all of the Assets, free and clear of any
Encumbrances. The Assets include without limitation all assets reflected on the
Interim Balance Sheet (other than Excluded Assets) or used for the conduct of
the Business. All tangible assets and properties which are part of the Assets
and material to the conduct of the Business are in good operating condition and
repair and are usable in the ordinary course of business and, to the Knowledge
of Seller and the Stockholders, conform in all material respects to all
Applicable Laws relating to their construction, use and operation.
2.19 Tax Matters.
(a) All returns, statements, reports and forms required to be filed
with any Governmental Authority responsible for the imposition of any Tax (a
"Taxing Authority") on or before the Closing Date with respect to any Tax of
Seller, including any return of an affiliated or combined group that includes
Seller (collectively, the "Returns"), have been or will be timely filed, except
as set forth on Disclosure Schedule Section 2.19(a).
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(b) Except as set forth on Disclosure Schedule Section 2.19(b), all
Taxes of Seller or of any Stockholder theretofore shown as due and payable on
the Returns that have been filed have been timely paid.
(c) There are no liens or encumbrances related to Taxes on any of the
assets of Seller (other than for current Taxes not yet due and payable).
(d) Seller has withheld all Taxes required to have been withheld and
paid by it on its behalf in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third party,
and such withheld Taxes have either been duly paid to the proper Governmental
Authority or set aside in accounts for such purpose.
2.20 Environmental Compliance.
(a) Except as set forth on Disclosure Schedule Section 2.20(a) or as
would not have a Material Adverse Effect, to the Knowledge of Seller and the
Stockholders, Seller has obtained all Permits from all Governmental Authorities,
or from any other Person, that are required under any Environmental Law.
Disclosure Schedule Section 2.20(a) sets forth all Permits issued under any
Environmental Law of Seller relating to Seller or the Business.
(b) Except as set forth on Disclosure Schedule Section 2.20(b) or as
would not have a Material Adverse Effect, to the Knowledge of Seller and the
Stockholders, Seller is and has been in compliance since January 1, 1994, with
all terms and conditions of all Permits of all Governmental Authorities (and all
other Persons) required under all Environmental Laws and used in the Business or
that relate to Seller. To the Knowledge of Seller and the Stockholders, Seller
is and has been in compliance with all other limitations, restrictions,
conditions, standards, requirements, schedules and timetables required or
imposed under all Environmental Laws.
(c) To the Knowledge of Seller and the Stockholders, except as set
forth on Disclosure Schedule Section 2.20(c), there are no present or past
events, conditions, circumstances, incidents, actions or omissions relating to
or in any way affecting Seller or
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the Business that violate or violated any Environmental Law or may violate any
Environmental Law after the Closing or that may give or have given rise to any
Environmental Liability, or otherwise form the basis of any claim, action,
demand, suit, Proceeding, hearing, study or investigation (i) under any
Environmental Law or (ii) based on or related to the manufacture, processing,
distribution, use, treatment, storage (including without limitation underground
storage tanks), disposal, transport or handling, or the emission, discharge,
release or threatened release of any Hazardous Substance.
2.21 Insurance. Disclosure Schedule Section 2.21 sets forth a list of each
insurance policy (respectively, an "Insurance Policy") currently, or to the
Knowledge of Seller and the Stockholders (after reasonable investigation,
including contact with Seller's insurance brokers), at any time, held by or on
behalf of or providing insurance coverage to Seller (or its directors, officers,
salespersons, agents or employees) or the Assets, including without limitation
any "occurrence based" liability policies regardless of the periods to which
they relate. Each Insurance Policy which is designated as a "Current Policy" on
Disclosure Schedule Section 2.21 is, and at the Closing Date will be, in full
force and effect, without any material amendments or modifications having been
made thereto and with all premiums having been paid through the expiration dates
specified therein. Seller has not received any written notice of non-renewal or
notice of violation in connection with any Current Policy set forth on
Disclosure Schedule Section 2.21 or any written notice or request from the
insurance company which issued any Current Policy set forth on Disclosure
Schedule Section 2.21 or any board of fire underwriters requesting any work or
alteration with respect to the Real Property or any personal property owned or
used by Seller. Disclosure Schedule Section 2.21 also sets forth for each
Current Policy the type of coverage, the name of the insured, the insurer, the
premium, the expiration date, the period to which it relates, the deductibles
and loss retention amounts and the amounts of coverage.
2.22 Performance Bonds and Letters of Credit. Disclosure Schedule Section
2.22 sets forth all letters of credit and performance bonds to which Seller is a
party or under which Seller is obligated relating to the Business. Disclosure
Schedule Section 2.22 also sets forth all letters of credit and performance
bonds that relate to properties or assets of Seller relating to the Business to
which Seller is a party or under which Seller is bound.
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2.23 Nature of Business. Seller has never engaged in the manufacture, sale
or distribution of cigarettes. Russell does not engage in the manufacture of
cigars.
ARTICLE III
ACTIONS BY SELLER, STOCKHOLDERS AND BUYER PRIOR TO THE CLOSING
Seller, the Stockholders and Buyer covenant as follows for the period from
the date hereof through the Closing Date:
3.1 Conduct of Business. From the date hereof until the Closing Date, the
Stockholders shall use their commercially reasonable best efforts to cause
Seller to conduct the Business in the ordinary course and shall use their
commercially reasonable best efforts to cause Seller to preserve intact the
business organizations and relationships and goodwill with third parties and
keep available the services of the present officers, employees, agents and other
personnel of Seller. Without limiting the generality of the foregoing, from the
date hereof until the Closing Date:
(a) except as required by Section 3.1(b) below, the Stockholders
will not, without the Buyer's prior consent, permit Seller to or to agree
to:
(i) purchase or otherwise acquire assets from any other
Person other than in the ordinary course of business;
(ii) sell, assign, lease, license, transfer or otherwise
dispose of, or mortgage, pledge or encumber (other than with
Permitted Liens), any Real Property or amend, terminate or renew
any Lease thereof;
(iii) subject to clause (ii) above, sell, assign, lease,
license, transfer or otherwise dispose of, or mortgage, pledge or
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encumber (other than with Permitted Liens), any of its assets
except in the ordinary course of business;
(iv) incur any Liability, except indebtedness to
Stockholders in respect of the 1996 Income of Seller (as
described in Section 1.5) or Liabilities incurred in the ordinary
course of business;
(v) amend or modify in any material respect or terminate any
Scheduled Contract or any other Contract entered into by Seller
after the date hereof which, if in existence on the date hereof,
would be required to be set forth on Disclosure Schedule Section
2.7(a) as a Scheduled Contract (each, a "Subsequent Material
Contract");
(vi) make or commit to make any capital expenditure, or
group of related capital expenditures, in excess of Fifty
Thousand Dollars ($50,000) for Seller other than capital
expenditures expressly required under any Scheduled Contract;
(vii) create, incur, assume or guarantee any Indebtedness
for Borrowed Money;
(viii) (1) increase the rate or terms of compensation
payable or to become payable to its directors, officers or
employees, (2) pay or agree to pay any pension, retirement
allowance or other employee benefit not set forth on Disclosure
Schedule Section 2.17, (3) commit itself to any additional
pension, profit sharing, bonus, incentive, deferred compensation,
stock purchase, stock option, stock appreciation right,
insurance, severance pay, continuation pay, termination pay,
retirement or other employee benefit plan, agreement or
arrangement, or increase the rate or terms of any of the employee
benefit plans set forth on Disclosure Schedule
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Section 2.17 (4) enter into any employment agreement with or for
the benefit of any Person (except pursuant hereto), or (5)
increase the rate of compensation under or otherwise change the
terms of any employment agreement;
(ix) make any change in its accounting methods or in the
manner of keeping its books and records (except as requested by
Buyer); or
(x) issue or commit to issue any shares of capital stock or
obligations or securities convertible into or exchangeable for
capital stock.
(b) The Stockholders will use commercially reasonable best
efforts to cause Seller to:
(i) (1) maintain the Assets in the ordinary course of
business in good operating order and condition, reasonable wear
and tear, damage by fire and other casualty excepted, (2)
promptly repair, restore or replace any Assets in the ordinary
course of business and (3) upon any damage, destruction or loss
to any of the Assets, apply any and all insurance proceeds
received with respect thereto to the prompt repair, replacement
and restoration thereof to the condition of such Assets before
such event;
(ii) use commercially reasonable best efforts to comply in
all material respects with all material Applicable Laws;
(iii) use its commercially reasonable best efforts to
obtain, prior to the Closing Date, all Required Consents;
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(iv) use its commercially reasonable best efforts to take
all actions necessary to be in compliance with all material
respects with, and to maintain the effectiveness of, all Permits;
(v) file on a timely basis (taking into account all
applicable extensions) all Returns which relate to Seller or its
operations;
(vi) notify the Buyer in writing of any action, event,
condition or circumstance, or group of actions, events,
conditions or circumstances that results in, or could reasonably
be expected to result in, a Material Adverse Effect, other than
changes in general economic or industry-related conditions, such
notification to be provided to the Buyer promptly after the
occurrence of any such action, event, condition or circumstances,
or group thereof;
(vii) notify the Buyer in writing of the commencement of any
Proceeding by or against Seller or of becoming aware of any
threat, claim, action, suit, inquiry, proceeding, notice of
violation, demand letter, subpoena, government audit or
disallowance that could reasonably be expected to result in a
Proceeding, such notification to be provided to the Buyer
promptly after such commencement or Seller becoming aware
thereof;
(viii) notify the Buyer in writing of the occurrence of any
breach of Seller of any representation or warranty, or any
covenant or agreement, contained in this Agreement, promptly
after Seller becomes aware of any such breach;
(ix) pay accounts payable and pursue collection of its
accounts receivable in the ordinary course of business; and
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(x) cause Seller to maintain its status as a corporation
qualified under Sub Chapter S of the Code.
3.2 Investigation by Buyer. From the date hereof until the Closing Date,
Seller shall provide to Buyer's Representatives during regular business hours
reasonable access to the business, officers, properties, books and records of
(or relating to) Seller, as Buyer reasonably deems necessary or advisable.
Seller will furnish to Buyer's Representatives such financial and operating data
and other information relating to Seller as Buyer may reasonably request and
will instruct the directors, officers, key employees, counsel, auditors and
financial advisors of Seller to cooperate with Buyer's Representatives in their
investigation of Seller.
3.3 Consents and Best Efforts. Buyer and Seller will each furnish all
information as may be required by any state regulatory agency properly asserting
jurisdiction or by the Federal Trade Commission and the United States Department
of Justice under the HSR Act in order that the requisite approvals of the
transactions contemplated hereby, be obtained or to cause any applicable waiting
periods to expire.
3.4 No Continuing Negotiations. Until the earlier of the Closing or the
termination of this Agreement pursuant hereto, neither the Stockholders, nor
Seller nor any Affiliate, Associate or Representative of any of the foregoing,
shall initiate, solicit or entertain any proposals or offers from any Person
relating to, or enter into or participate in any negotiations with, or enter
into any agreement or understanding with, or provide any confidential
information to (including, without limitation, by way of furnishing any
non-public information concerning, or afford any access to, the business,
offices, properties or assets, or the books, records, officers, directors,
employees, agents or Representatives of the Stockholders or Seller), any Person
in connection with the sale of any shares of capital stock or other securities
of Seller or of all or substantially all of the assets of Seller (or any
interest therein), or any investment in Seller or any merger, consolidation or
other similar transaction involving Seller (each of the foregoing is referred to
as a "Third Party Transaction"). If the Stockholders or Seller shall receive any
written proposal regarding a Third Party Transaction, the Stockholders or
Seller, as the case may be, shall within three Business Days notify Buyer of
such proposal regarding a Third Party Transaction and shall, in any such notice
to Buyer, indicate in reasonable detail the identity of the offeror and the
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general terms of such proposal. No information of any nature shall be furnished
to any Person other than Representatives of Buyer during such period with
respect to Affiliates of Seller.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller and the Stockholders as
follows:
4.1 Organization of Buyer. Buyer is duly incorporated and validly existing
as a corporation in good standing under the laws of the State of Delaware and
has full corporate power to conduct its business as it is presently being
conducted and to own and lease its properties.
4.2 Authorization. Buyer has the corporate power to execute and deliver
this Agreement and to consummate the transactions contemplated hereby, and all
requisite corporate action has been taken by the Board of Directors of Buyer to
authorize the execution, delivery and performance of this Agreement by Buyer.
This Agreement has been duly executed and delivered by Buyer and, assuming the
due execution of this Agreement by Seller and the Stockholders, is a valid and
binding obligation of Buyer except as enforceability may be limited by
bankruptcy, insolvency or other similar laws affecting creditors' rights
generally and except where enforceability is subject to the application of
equitable principles or remedies.
4.3 Consents and Approvals. No consent, approval or authorization of any
governmental or regulatory authority or any other Person is required to be made
or obtained by Buyer or any of its Affiliates in connection with the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby other than any filings required under the HSR
Act or the New Jersey Industrial Site Recovery Act.
4.4 No Brokers. Neither Buyer nor any Affiliate of Buyer has entered into
or will enter into any contract, agreement, arrangement or understanding with
any Person
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which will result in the obligation of Seller or Buyer to pay any finder's fee,
brokerage commission or similar payment in connection with the transactions
contemplated hereby.
4.5 No Conflict or Violation. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
result in (a) a violation of or a conflict with any provision of the charter or
bylaws of Buyer, (b) a breach of, or a default under, any term or provision of
any contract or agreement to which Buyer is a party, which breach or default
would prevent Buyer from consummating the transactions contemplated hereby or
(c) a violation by Buyer of any statute, rule, regulation, ordinance, code,
order, judgment, writ, injunction, decree or award, which violation would
prevent Buyer from consummating the transactions contemplated hereby.
4.6 Litigation. (i) There are no Proceedings pending or, to the Knowledge
of Buyer, threatened, against or involving Buyer which seek to enjoin or rescind
the transactions contemplated by this Agreement; and (ii) there are no existing
orders, judgments or decrees of any Governmental Authority naming Buyer as an
affected party which would, in either case, prevent Buyer from performing its
obligations under this Agreement.
4.7 Compliance with Law. To its Knowledge, Buyer is and, for the period of
the applicable statute of limitations, as extended, has been in compliance in
all material respects with all Applicable Laws, except where non-compliance
would not prevent Buyer from performing its obligations under this Agreement.
4.8 Parent's Financial Statements. At least ten (10) days prior to the
Closing Date, Buyer shall deliver to Seller Parent's Financial Statements, which
shall be prepared in a manner consistent with prior periods, based on the books
and records of Parent and shall fairly reflect the consolidated financial
condition, consolidated results of operations and statements of consolidated
cash flow of Parent, including Buyer, as of the dates indicated or the periods
indicated.
4.9 Status of Parent. The Parent is a recently-incorporated wholly-owned
subsidiary of Culbro Corporation. Immediately prior to the proposed initial
public offering of common stock of Parent, it will hold all of the common stock
of Buyer. Parent will be the entity that will issue common stock in the initial
public offering.
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ARTICLE V
CLOSING
5.1 Closing. The closing of the transactions contemplated herein (the
"Closing") shall be held at 9:00 a.m. local time on the Closing Date at the
offices of Latham & Watkins, 885 Third Avenue, New York, New York 10022, or at
such other place and time as the parties may agree. Buyer, Seller and the
Stockholders agree that, subject to the terms and conditions of this Agreement,
each of Buyer, Seller and the Stockholders shall use its reasonable best efforts
to cause the Closing to occur on January 15, 1997 or as promptly thereafter as
practicable.
5.2 Documents to be Delivered.
(a) At the Closing, Seller and the Stockholders (as applicable) will
deliver the following to Buyer:
(i) one or more deeds, in form and substance satisfactory to
Buyer and is counsel, conveying good and marketable fee simple title to all
Owned Real Property included in the Assets to Buyer or its designee;
(ii) one or more bills of sale, in form and substance
satisfactory to Buyer and its counsel, conveying in the aggregate all of
Seller's owned personal property included in the Assets;
(iii) assignments of Leases in form and substance satisfactory to
Buyer and its counsel;
(iv) the Required Consents and assignments of Contract Rights,
each in form and substance satisfactory to Buyer and its counsel;
(v) assignments of Intellectual Property (including an assignment
of all of Seller's rights, title and interest in the trademarks set forth on
Disclosure Schedule
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Section 2.5(a), and all variations thereof) each in form and substance
satisfactory to Buyer and its counsel, in recordable form to the extent
necessary to assign such rights;
(vi) all cash and cash equivalents of the Business;
(vii) the non-competition agreements Seller and Russell in
substantially the form attached hereto as Exhibit E (the "Non-Competition
Agreements");
(viii) the employment agreements with the Stockholders with an
annual salary of $250,000 in the case of Mr. Llaneza and Mr. Blumenthal and
$200,000 in the case of Mr. Gonzalez as shall be reasonably agreed between the
relevant Stockholder and Buyer and otherwise substantially in the form attached
hereto as Exhibit F (the "Employment Agreements") The Employment Agreements
shall contain terms setting forth the duties of the Stockholders and termination
provisions as agreed by them prior to the Closing;
(ix) a lease on terms to be reasonably agreed between the parties
and at market rent on an "arm's length" basis of the New Jersey Facility; and
(x) such other instruments as shall be requested by Buyer to vest
in Buyer title in and to the Assets in accordance with the provisions hereof.
(b) At the Closing, Buyer will deliver the following to Seller:
(i) an instrument of assumption in form and substance
satisfactory to Seller and its counsel, evidencing Buyer's assumption, pursuant
to Section 1.2, of the Assumed Liabilities (the "Instrument of Assumption");
(ii) the First Closing Purchase Price (including the Installment
Notes representing part thereof);
(iii) the Stockholder Loan Notes;
(iv) counterparts of the Non-Competition Agreement;
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(v) counterparts of the Employment Agreements; and
(vi) a counterpart of the lease of the New Jersey Facility.
ARTICLE VI
CONDITIONS TO SELLER'S AND STOCKHOLDERS' OBLIGATIONS
The obligations of Seller and the Stockholders to consummate the
transaction contemplated hereby on the Closing Date are subject, in the
discretion of Seller and the Stockholders, to the satisfaction or waiver, on or
prior to the Closing Date, of each of the following conditions:
6.1 Representations, Warranties and Covenants. All representations and
warranties of Buyer contained in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing Date as
if such representations and warranties were made at and as of the Closing Date,
and Buyer shall have performed in all material respects all agreements and
covenants required hereby to be performed by it prior to or at the Closing Date.
6.2 Consents. All consents, approvals and waivers from Governmental
Authorities and other parties necessary to permit Seller to consummate the
transactions contemplated hereby shall have been obtained.
6.3 No Governmental or Other Proceeding or Litigation. No Proceeding by any
Governmental Authority or other Person shall be pending or threatened which (i)
questions the validity or legality of the transactions contemplated hereby, or
(ii) could reasonably be expected to cause any of the transactions contemplated
by this Agreement to be rescinded following consummation.
6.4 Opinion of Counsel. Buyer shall have delivered to Seller and
Stockholders an opinion or opinions of counsel to Buyer, on terms reasonably
acceptable to Seller and the Stockholders.
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6.5 Certificates. Buyer shall have delivered to Seller and the Stockholders
such certificates of Buyer signed by its officers to evidence compliance with
the conditions set forth in this Article VI as may be reasonably requested by
Seller and the Stockholders.
6.6 HSR Act. The applicable waiting period, including any extension
thereof, under the HSR Act shall have expired or otherwise been terminated.
6.7 Employment Agreements. Buyer shall have delivered the Employment
Agreements to the Stockholders, duly executed.
6.8 Contemporaneous and Contingent Transactions. The closing of the
purchase by Buyer of the outstanding capital stock of HATSA pursuant to the
HATSA Agreement is contingent upon and shall occur concurrently with the
Closing. Except insofar as the closing of the HATSA Agreement is contingent upon
the Closing, the Closing is contingent upon and shall occur concurrently with
the closing of the purchase by Buyer of the outstanding capital stock of HATSA
pursuant to the HATSA Agreement.
6.9 Net Worth of Parent. Buyer shall have delivered to Seller the Parent
Financial Statements showing a consolidated net worth (excluding the Assets) of
Parent on a pro forma basis of not less than $70,000,000 as at August 31, 1996.
6.10 Further Payment. Buyer and Messrs. Blumenthal and Llaneza and Mr. John
Oliva shall, prior to the Closing, enter into a tax reimbursement agreement
providing for reimbursement by Buyer of certain taxes payable by such
individuals provided that the maximum payment thereunder shall be $2,000,000 and
in any event payment of such sum by Buyer shall satisfy this condition.
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ARTICLE VII
CONDITIONS TO BUYER'S OBLIGATIONS
The obligations of Buyer to consummate the transactions contemplated hereby
are subject, in the discretion of Buyer, to the satisfaction or waiver, on or
prior to the Closing Date, of each of the following conditions:
7.1 Representations, Warranties and Covenants. All representations and
warranties of Seller and the Stockholders contained in this Agreement shall be
true and correct in all material respects as of the date of this Agreement and
as of the Closing Date as if such representations and warranties were made at
and as of the Closing Date and Seller and the Stockholders shall have performed
in all material respects all agreements and covenants required hereby to be
performed by Seller and the Stockholders prior to or at the Closing Date. There
shall be delivered to Buyer certificates to the foregoing effect.
7.2 Net Worth. Net Worth as at the Closing shall be at least $4,635,000.
7.3 Consents. All Required Consents from Governmental Authorities and the
Required Consents from other necessary parties shall have been obtained.
7.4 No Governmental or Other Proceeding or Litigation. No Proceeding by any
Governmental Authority or other Person shall be pending or threatened which (i)
questions the validity or legality of the transactions contemplated hereby, (ii)
could reasonably be expected to have a Material Adverse Effect, or (iii) could
reasonably be expected to cause any of the transactions contemplated by this
Agreement to be rescinded following consummation.
7.5 Opinion of Counsel. Seller and the Stockholders shall have delivered to
Buyer an opinion or opinions of counsel for Seller and the Stockholders,
reasonably acceptable to Buyer.
7.6 The Non-Competition Agreements. The Non-competition Agreements shall
have been duly authorized, executed and delivered by each of the parties
thereto.
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7.7 No Material Degradation of Assets. Since the date of this Agreement,
there shall have been no change in condition of the Assets except for such
changes which, in the aggregate, have not had and will not have a Material
Adverse Effect.
7.8 Stockholder Loan Notes. The Stockholders shall have exchanged all
indebtedness owed to them by Seller for the Stockholder Loan Notes in accordance
with Section 1.5;
7.9 Receipt of Audit Report. Buyer shall have received the report of its
independent public accountants in form satisfactory to file a Form S1
Registration Statement under the Securities Act of 1933, as amended, which
report shall confirm that the Financial Statements were prepared in accordance
with Accounting Principles and were complete and correct.
7.10 Employment Agreements. The Stockholders shall have delivered the
Employment Agreements to Buyer, duly executed.
7.11 Other Divestitures. The Stockholders and all Associates thereof shall
have divested all their respective interests in Nicaragua American Tobacco, S.A.
to John E. Oliva and/or J.R. Tobacco or its Associates.
7.12 New Jersey Facility Lease. Glordiane Realty, a New Jersey general
partnership, shall deliver the lease of the New Jersey Facility to Buyer, duly
executed.
7.13 Contemporaneous and Contingent Transactions. The closing of the
purchase by Buyer of the outstanding capital stock of HATSA pursuant to the
HATSA Agreement shall occur concurrently with the Closing. Except insofar as the
closing of the HATSA Agreement is contingent upon the Closing, the Closing is
contingent upon and shall occur concurrently with the closing of the purchase by
Buyer of the outstanding capital stock of HATSA pursuant to the HATSA Agreement.
7.14 HSR Act. The applicable waiting period, including any extension
thereof, under the HSR Act shall have expired or otherwise been terminated.
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7.15 Multiemployer Plan. Buyer shall have received an accounting of the
financial condition of the union-sponsored multiemployer pension plan to which
Seller contributes which shall be satisfactory to Buyer, in its discretion.
7.16 Certificates. Seller shall furnish Buyer with such certificates of
Seller signed by its officers to evidence compliance with the conditions set
forth in this Article VII and stating that Seller is not a foreign person
pursuant to section 1445(b)(2) of the Code as may be reasonably requested by
Buyer.
ARTICLE VIII
ACTIONS BY SELLER, STOCKHOLDERS AND BUYER AFTER THE CLOSING
8.1 Books and Records. Seller, the Stockholders and Buyer agree that for a
period of five (5) years after the Closing Date, each party (at its expense)
shall have the right to inspect and to make copies of any books, records and
files relating to the business, properties, assets or operations of Seller, to
the extent that they pertain to the operations of Seller prior to the Closing
Date and remain in existence and available, at any time during business hours
for any proper purpose.
8.2 Further Assurances. On and after the Closing Date, Seller, the
Stockholders and Buyer will take all appropriate action and execute all
documents, instruments or conveyances of any kind which may be reasonably
necessary or advisable to carry out any of the provisions hereof, including
without limitation, putting Buyer in possession and operating control of the
Business.
8.3 Litigation Support. In the event and for so long as any party hereto or
their respective successors or assigns is contesting or defending against any
Proceeding in connection with (i) any transaction contemplated by this Agreement
or (ii) any fact, situation, circumstance, status, condition, activity,
practice, plan, occurrence, event, incident, action, failure to act, or
transaction on or prior to the Closing Date involving Seller, the other party or
parties hereto, Seller and the Stockholders (and their respective successors and
assigns) will cooperate with such party or Seller and its counsel in the contest
or
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defense, make available their personnel, and provide such testimony and access
to their books and records as shall be necessary, in connection with the contest
or defense, all at the sole cost and expense of the contesting or defending
party (unless the contesting or defending party is entitled to indemnification
thereof under this Agreement).
8.4 Change of Names of Seller. Immediately following the Closing, Seller
and the Stockholders shall take all necessary action to cause the name of Seller
to be changed to a name specified in writing delivered to the Buyer at least 10
days prior to the Closing. Following the Closing, neither Seller nor the
Stockholders shall have any rights to the name "Villazon" or any variant thereof
or any trademark, service mark, trade dress, logo or trade name owned or used by
them (including the names "Villazon," "Danby-Palicio" or "Villco") or any names
similar thereto.
8.5 Employees. Buyer agrees to use its best efforts to enter into mutually
acceptable employment agreements with certain employees of Seller located in the
Tampa Factory and the New Jersey Facility.
ARTICLE IX
RISK OF LOSS
From the date hereof through the Closing Date, all risk of loss or damage
to the property included in the Assets shall be borne by Seller, and thereafter
shall be borne by Buyer. If any portion of the Assets is destroyed or damaged by
fire or any other cause on or prior to the Closing Date, other than use, wear or
loss in the ordinary course of business, Seller shall give written notice to
Buyer as soon as practicable after, but in any event within five (5) calendar
days of, discovery of such damage or destruction, the amount of insurance, if
any, covering such Assets and the amount, if any, which Seller is otherwise
entitled to receive as a consequence. Prior to the Closing, Buyer shall have the
option, which shall be exercised by written notice to Seller within ten (10)
calendar days after receipt of Seller's notice or if there is not ten (10)
calendar days prior to the Closing Date, as soon as practicable prior to the
Closing Date, of (a) accepting such Assets in their destroyed or damaged
condition in which event Buyer shall be entitled to the proceeds of any
insurance
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or other proceeds payable with respect to such loss and the full Purchase Price
shall be paid, (b) excluding such Assets from this Agreement, in which event the
Purchase Price shall be reduced by the reasonable value allocated to such
Assets, as mutually agreed between the parties or (c) terminating this Agreement
in accordance with Section 11.1. If Buyer accepts such Assets, then after the
Closing, any insurance or other proceeds shall belong, and shall be assigned to,
Buyer; otherwise, such insurance proceeds shall belong to Seller.
ARTICLE X
INDEMNIFICATION
10.1 Agreement to Indemnify.
(a) Buyer and each Affiliate of Buyer, (Buyer and each such Affiliate
is a "Buyer Indemnitee") shall be indemnified and held harmless to the extent
set forth in this Article X (including Section 10.9) by Seller and the
Stockholders, jointly and severally (but subject to Section 10.9) in respect of
any and all Losses in connection with, arising out of, or as a result of any
inaccuracy or misrepresentation in or breach of any representation, warranty,
covenant or agreement made in this Agreement by Seller or any Stockholder.
(b) Seller and Stockholders and each Affiliate thereof (Seller,
Stockholders and each such Affiliate is a "Seller Indemnitee") shall be
indemnified and held harmless to the extent set forth in this Article X by Buyer
in respect of any and all Losses in connection with, arising out of, or as a
result of: (i) any inaccuracy or misrepresentation in or breach of any
representation, warranty, covenant or agreement made in this Agreement by Buyer
or (ii) payment by Seller or Stockholders of any Assumed Liability or any other
Liability of Buyer incurred after the Closing Date.
10.2 Survival of Representations, Warranties and Covenants.
(a) Except as hereinafter provided in this Section 10.2 or in Section
10.7 and 10.8, all representations, warranties, covenants, agreements and
obligations of each of
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Buyer, Seller and the Stockholders (each, an "Indemnifying Party") contained
herein and all claims of any Buyer Indemnitee or Seller Indemnitee (each, an
"Indemnitee") in respect of any breach of any representation, warranty,
covenant, agreement or obligation of any Indemnifying Party contained in this
Agreement, shall survive the Closing and shall expire two years after the
Closing Date.
(b) Each of the following representations, warranties, covenants,
agreements and obligations of Seller and Stockholders as Indemnifying Parties
shall survive the Closing Date until the expiration of thirty (30) days
following any applicable statute of limitations, including extensions thereof:
(i) the inaccuracy or misrepresentation in or breach of any representation,
warranty, covenant or agreement made by Seller or any Stockholder any time in
this Agreement arising out of fraud, or willful misconduct; (ii) any inaccuracy
or misrepresentation in or breach of any representation or warranty made in any
representation as to Taxes regardless of whether or not such inaccuracy or
misrepresentation or breach arises out of fraud, gross negligence or willful
misconduct; and (iii) the breach or failure to perform by Seller or any
Stockholder after the Closing Date of any of the covenants, agreements or
obligations of Seller or the Stockholders contained in this Agreement.
(c) The termination of the representations and warranties provided
herein shall not affect the rights of any Buyer Indemnitee or Seller Indemnitee
(as applicable) in respect of any claim for indemnity made by such Indemnitee in
a writing received by the Indemnifying Party prior to the expiration of the
applicable survival period provided herein.
10.3 Claims for Indemnification. If any Buyer Indemnitee or Seller
Indemnitee (as applicable) shall believe that such Indemnitee is entitled to
indemnification pursuant to this Article X in respect of any Losses, such
Indemnitee shall give the appropriate Indemnifying Party prompt written notice
thereof. Any such notice shall set forth in reasonable detail and to the extent
then known the basis for such claim for indemnification. The failure of such
Indemnitee to give notice of any claim for indemnification promptly shall not
adversely affect such Indemnitee's right to indemnity hereunder except to the
extent that such failure adversely affects the right of the Indemnifying Parties
to assert any reasonable defense to such claim. Each such claim for indemnity
shall expressly state that the Indemnifying Party shall have only the twenty
(20) Business Day period referred to in
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the next sentence to dispute or deny such claim. The Indemnifying Party shall
have twenty (20) Business Days following its receipt of such notice either (y)
to acquiesce in such claim by giving such Indemnitee written notice of such
acquiescence or (z) to object to the claim by giving such Indemnitee written
notice of the objection. If the Indemnifying Party does not object thereto
within such twenty (20) Business Day period, such Indemnitee shall be entitled
to be indemnified for all Losses reasonably incurred by such Indemnitee in
respect of such claim.
10.4 Defense of Claims. In connection with any claim which may give rise to
indemnity under this Article X resulting from or arising out of any claim or
Proceeding against an Indemnitee by a Person that is not a party hereto, the
Indemnifying Party may (unless such Indemnitee elects not to seek indemnity
hereunder for such claim), upon written notice to the relevant Indemnitee,
assume the defense of any such claim or Proceeding if the Indemnifying Party
with respect to such claim or Proceeding acknowledges in writing to the
Indemnitee the Indemnitee's right to indemnity pursuant hereto in respect of the
entirety of such claim (as such claim may have been modified through written
agreement of the Indemnitee(s) and the Indemnifying Party) and provide
assurances, satisfactory to such Indemnitee, that the Indemnifying Party will be
financially able to satisfy such claim in full if such claim or Proceeding is
decided adversely. If the Indemnifying Party assumes the defense of any such
claim or Proceeding, the Indemnifying Party shall select counsel reasonably
acceptable to such Indemnitee to conduct the defense of such claim or
Proceeding, shall take all steps necessary in the defense or settlement thereof
and shall at all times diligently and promptly pursue the resolution thereof.
10.5 Offset Rights. Anything in this Agreement to the contrary
notwithstanding, Buyer may withhold and set off against the Installment Notes,
any amount as to which Buyer reasonably believes Seller or any Stockholder is
obligated to indemnify any Buyer Indemnitee pursuant to this Article X. With
respect to any amount as to which Buyer claims a right of set-off hereunder (a
"Set-Off Amount"), Buyer shall be entitled to cease making payments to the
holders of the Installment Notes to the extent of the Set-Off Amount hereunder
upon commencement of such indemnification claim and shall instead pay when due
any such amounts due under such Installment Notes to an escrow account or as
otherwise directed by a court of competent jurisdiction until such time as the
parties have agreed, or a court of competent jurisdiction has determined, the
amount of the
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Stockholders' or Seller's indemnification obligations hereunder. The escrow
agent shall be selected by Buyer and shall be reasonably satisfactory to the
Stockholders. The escrow account shall be established on terms such that
Payments may only be made from such escrow account in accordance with an order
of a court of competent jurisdiction or upon the joint authority of the
Stockholders and Buyer. Each party shall execute and deliver to the other
parties such documentation acknowledging their obligations under this Section
10.5 as the other parties shall reasonably require.
10.6 Limitation on Indemnification. The indemnification obligations of
Seller, the Stockholders and Buyer pursuant to Sections 10.1(a) and 10.7(c)
hereof and Section 9.1(a) of the HATSA Agreement or Section 10.1(b)(i) hereof
and Section 9.1(b) of the HATSA Agreement (as applicable) shall not be effective
until the aggregate dollar amount of all Losses which would otherwise be
indemnifiable pursuant to Sections 10.1(a) and 10.7(c) hereof and Section 9.1(a)
of the HATSA Agreement or Section 10.1(b)(i) hereof and Section 9.1(b) of the
HATSA Agreement, as the case may be, exceeds Two Hundred Fifty Thousand Dollars
($250,000) and then such indemnification obligation shall apply only to Losses
in excess of $250,000, provided, however, that any trade payable of Seller
incurred in the ordinary course of business but not reflected on the Closing
Date Balance Sheet and which, had it been so reflected, would not have reduced
the Net Worth below $4,635,000, shall not be treated as a Loss for the purpose
of this Section 10.6. The indemnification obligations pursuant to Sections
10.1(a) and 10.7(c) hereof and Section 9.1(a) of the HATSA Agreement shall be
limited to an aggregate amount of Five Million Dollars ($5,000,000) and the
indemnification obligations set forth in Section 10.1(b)(i) hereof and Section
9.1(b) of the HATSA Agreement shall be limited to an aggregate amount of Five
Million Dollars ($5,000,000). The limitations on the indemnification
obligations, as set forth in this Section 10.6, shall not apply to (i) any
breach of a representation or warranty which arises as a result of fraud or
failure to close the transactions the subject of this Agreement(except pursuant
to the terms of this Agreement) by the Indemnifying Party, or (ii) for any
breach of the representations and warranties set forth in Sections 2.1, 2.2.,
2.3, 2.4, 2.14, the second sentence of Section 2.18(a), the fourth sentence of
Section 2.18(b), the first two sentences of Section 2.18(g), Sections 2.19,
2.23, 4.1, 4.2 or 4.4; or (iii) the indemnification obligations set forth in
Section 10.7, other than Section 10.7(c).
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10.7 Responsibility for Products.
(a) Any claim against Seller alleging adverse health effects from
smoking cigars manufactured or distributed by Seller at any time that is
initiated after the Closing Date shall be defended by Buyer and Buyer shall
indemnify and hold harmless Seller and the Stockholders from all expenses
(subject to Section 10.8 below) and liabilities with respect thereto
notwithstanding the fact that the Person alleged to have incurred such adverse
effects is alleged to have used such products prior to the Closing Date.
(b) The obligations of Buyer, Seller and the Stockholders set forth in
this Section 10.7 may be undertaken on their behalf by their respective
insurance carriers (or carriers) and/or counsel selected by such carriers
provided that such undertaking does not diminish the indemnity, obligation to
pay or any other right otherwise afforded the other parties hereby.
(c) Section 10.7(a) relates only to claims made generally with respect
to any alleged adverse health effects from smoking cigars, and does not relate
to claims which relate to specific product defects, such as staleness, foreign
objects, manufacturing deficiencies (including improper or adulterated
ingredients or additives) or the like (such claims being, collectively,
"Excluded Claims"). Subject to Section 10.6, Seller and the Stockholders shall
defend, indemnify and hold all Buyer Indemnitees harmless from all Losses with
respect to Excluded Claims initiated against any Buyer Indemnitee that are
related to any products manufactured by Seller at any time prior to Closing.
(d) Buyer, Seller and the Stockholders agree that the provisions of
this Section 10.7 are exclusively for the benefit of the parties hereto and
shall be treated as confidential information and not disclosed to any third
party (other than counsel and insurance carriers directly involved in any
action) without the previous written consent of the other party unless so
ordered by the order of a court of competent jurisdiction.
(e) Indemnification claims pursuant to Section 10.7 shall survive the
Closing indefinitely.
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10.8 Contribution Towards Expenses. If, within five years of the Closing
Date, Buyer shall become a party to any Proceedings relating to any cigars
manufactured or sold by the Seller, the Stockholders hereby agree, jointly and
severally, to reimburse the Buyer for half of the costs and expenses (including,
without limitation, legal expenses and experts fees) incurred by the Buyer in
connection with such Proceedings up to a maximum aggregate reimbursement of One
Million Dollars ($1,000,000); provided that such reimbursement obligation shall
not be applied toward the $5,000,000 indemnity limitation or the $250,000
deductible amount set forth in Section 10.6.
10.9 Further Limitations. Notwithstanding anything else to the contrary in
this Agreement:
(a) Mr. Llaneza and Mr. Blumenthal shall each be liable (jointly and
severally) for 100% of the indemnification obligations of Seller and the
Stockholders hereunder (including obligations to contribute towards expenses, as
set forth in Section 10.8). Notwithstanding anything else to the contrary in
this Agreement, the liability of Mr. Gonzalez to indemnify any Buyer Indemnitee
under this Agreement (or to contribute towards expenses, as set forth in Section
10.8) shall be limited to seven and one half percent (7.5%) of any Losses
indemnified against hereunder. Buyer hereby agrees to take commercially
reasonable steps to pursue any claim hereunder against both Mr. Llaneza and Mr.
Blumenthal.
(b) The representations and warranties set forth in Section 2.2 of the
Agreement shall be given by each Stockholder severally and not jointly.
ARTICLE XI
MISCELLANEOUS
11.1 Termination. This Agreement may be terminated at any time prior to the
Closing:
(a) by mutual written agreement of Buyer and Seller; or
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(b) by Buyer or Seller, if the Closing shall not have occurred prior
to February 1, 1997 (the "Termination Date", as extended as provided below);
provided that (i) if the date of execution of this Agreement is after December
13, 1996, such Termination Date shall be extended to a date 45 days following
the date hereof and (ii) if the applicable waiting period, including any
extensions thereof, under the HSR Act shall not have expired by such date, then
the Termination Date shall be extended to a date 5 Business Days following
expiration of any such applicable waiting period.
Time shall be of the essence in this Agreement. In the event of
termination of this Agreement as provided in this Section 11.1, this Agreement
shall forthwith become void and there shall be no liability on the part of any
party hereto except (i) as set forth in Sections 11.9 and 11.10 of this
Agreement and (ii) that nothing herein shall relieve any party from liability
for any wilful breach hereof. No party shall have a right to terminate this
Agreement if the Closing shall not have occurred because of a breach by such
party of its obligations hereunder.
11.2 Assignment. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by Seller without the prior written
consent of Buyer, or by Buyer (other than to the Parent) without the prior
written consent of Seller. Subject to the foregoing, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, and no other Person shall have any right, benefit or
obligation hereunder.
11.3 Notices. Unless otherwise provided herein, any notice, request,
instruction or other documents to be given hereunder by any party to the others
shall be in writing and effective when delivered in person or by courier (with a
receipt obtained therefor), telegraphed, telexed or by facsimile transmission,
if a facsimile number is set forth in respect of such party below, (with an
executed copy mailed as described below), or effective on the date receipt is
acknowledged when mailed by certified mail, postage prepaid, return receipt
requested, as follows:
If to Buyer: General Cigar Co., Inc.
c/o Culbro Corporation
387 Park Avenue South
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New York, New York 10016-8899
Attention: A. Ross Wollen, Esq.
Senior Vice President and General Counsel
Facsimile No.: (212) 561-8791
With a copy to: Latham & Watkins
885 Third Avenue
New York, New York 10027
Attention: Frederick M. Danziger, Esq.
Facsimile No.: (212) 751-4864
If to Seller: Villazon & Company, Inc.
3104 N. Armenia Avenue
Tampa, Florida 33607
Attention: Frank Llaneza
Facsimile (813) 878 2446
With a copy to: Fowler, White, Gillen, Boggs, Villareal
and Banker, PA
501 East Kennedy Boulevard (Suite 1700)
Tampa, Florida 33601
Attention: Mark T. Tate, Jr., Esq.
Facsimile (813) 229-8313
and to: Braverman & Lester
374 Main Street
Hackensack, NJ 07601
Attention: Gordon Braverman
Facsimile: (201) 487-4026
If to Stockholders: Daniel Blumenthal
80 Chestnut Ridge Road
Saddle River, New Jersey 07453
Frank Llaneza
5122 San Jose Street
Tampa, Florida 33629
Constantino Gonzalez
2702 Aileen Street
Tampa, Florida 33607
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With a copy to: Fowler, White, Gillen, Boggs, Villareal
and Banker, PA
501 East Kennedy Boulevard (Suite 1700)
Tampa, Florida 33601
Attention: Mark T. Tate, Jr., Esq.
Facsimile (813) 229-8313
and to: Braverman & Lester
374 Main Street
Hackensack, NJ 07601
Attention: Gordon Braverman
Facsimile: (201) 487-4026
or to such other place and with such other copies as any party may designate as
to itself by written notice to the others.
11.4 Choice of Law. This Agreement shall be construed, interpreted and the
rights of the parties determined in accordance with the internal laws of the
State of New York, without regard to the conflict of law principles thereof
except with respect to matters of law concerning the internal corporate affairs
of any corporate entity which is a party to or the subject of this Agreement,
and as to those matters the law of the jurisdiction under which the respective
entity derives its powers shall govern.
11.5 Entire Agreement; Amendments and Waivers. This Agreement together with
the Confidentiality Agreements, constitutes the entire agreement between the
parties pertaining to the subject matter hereof and supersedes all prior or
contemporaneous agreements, understanding, negotiations and discussions, whether
oral or written, of the parties. No supplement, modification or waiver of this
Agreement shall be binding unless executed in writing by all parties. No waiver
of any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provision hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver unless otherwise expressly provided.
11.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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11.7 Invalidity. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect after Closing, such invalidity, illegality, or unenforceability shall
not affect any other provision of this Agreement or any other such instrument.
11.8 Headings. The headings of the articles and Sections herein are
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
11.9 Expenses. Seller, the Stockholders and Buyer shall each be liable for
their own costs and expenses incurred in connection with the negotiation,
preparation, execution or performance of this Agreement. Buyer shall be
responsible for payment of sales tax or other similar taxes imposed as a result
of the sale of the Assets.
11.10 Publicity. The parties agree to notify each other prior to issuing
any press release or making any public statement regarding the transactions
contemplated hereby, and will attempt to obtain the reasonable approval of the
other parties prior to making such release or statement, and the parties hereto
shall issue a mutually acceptable press release as soon as practicable after the
Closing Date.
11.11 Supplemental Schedules. The Seller may provide and/or supplement the
schedules required hereby until December 31, 1996; provided, however, that any
material disclosures made after the date hereof shall constitute a condition to
Buyer's obligation to close under Article VII.
ARTICLE XII
DEFINITIONS
12.1 Defined Terms. As used herein, the terms below shall have the
following meanings:
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"Accounting Principles" means GAAP applied on a consistent basis with the
past practice of Seller and HATSA (as applicable); provided that FASB 52
relating to currency translations shall not be observed or reflected with
respect to HATSA.
"Affiliate" shall mean a Person that directly or indirectly through one or
more intermediaries controls, is controlled by, or is under common control with
the Person specified.
"Agreement" shall mean this Asset Purchase Agreement, together with the
Disclosure Schedule and all exhibits referenced herein.
"Annual Financial Statements" shall mean the balance sheet as of December
31, 1995 and December 31, 1994 of Seller and the related statements of
operations, stockholders' equity and cash flows for the years ended December 31,
1995 and December 31, 1994 of Seller prepared in accordance with the Accounting
Principles.
"Applicable Law or Laws" shall mean, with respect to any Person, any
domestic, foreign, federal, state or local statute, law, ordinance, rule,
regulation, order, writ, injunction, directive, judgment, decree or other
requirement, all as in effect as of the Closing, of any Governmental Authority
(including any Environmental Law) applicable to such Person or any of its
Affiliates or any of their respective properties, assets, officers, directors,
employees, consultants or agents (in connection with such officer's, director's,
employee's, consultant's or agent's activities on behalf of such Person or any
of its Affiliates).
"Assets" shall mean all of the right, title and interest in and to the
business, properties, assets and rights of any kind, whether tangible or
intangible, real or personal and constituting, or used or useful in connection
with, or related to, the Business owned by Seller or in which Seller has any
interest, including without limitation all of Seller's right, title and interest
in the following:
(a) all accounts and notes receivable (whether current or noncurrent),
refunds, deposits, prepayments or prepaid expenses (including without limitation
any prepaid insurance premiums) of Seller;
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(b) all cash and cash equivalents held by Seller;
(c) all Contract Rights;
(d) all Leases;
(e) all Owned Real Property;
(f) all Leasehold Estates;
(g) all Leasehold Improvements;
(h) all fixtures and equipment;
(i) all inventory;
(j) all books and records;
(k) all Intellectual Property, goodwill associated therewith, licenses
and sublicenses granted and obtained with respect thereto, and rights
thereunder, remedies against infringements thereof, and rights to protection of
interests therein under the laws of all jurisdictions;
(l) all Permits;
(m) all computers and software;
(n) all Insurance Policies;
(o) all available supplies, sales literature, promotional literature,
customer, supplier and distributor lists, art work, display units, telephone and
fax numbers and purchasing records related to the Business;
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(p) all rights under or pursuant to all warranties, representations
and guarantees made by suppliers in connection with the Assets or services
furnished to Seller pertaining to the Business or affecting the Assets, to the
extent such warranties, representations and guarantees are assignable;
(q) all deposits and prepaid expenses of Seller;
(r) all claims, causes of action, choses in action, rights of recovery
and rights of set-off of any kind, against any person or entity, including
without limitation any liens, security interests, pledges or other rights to
payment or to enforce payment in connection with products delivered by Seller on
or prior to the Closing Date; and
(s) all assets reflected on the Interim Balance Sheet.
Notwithstanding anything to the contrary in this Agreement, the Assets
shall not include any Excluded Assets.
"Associate" shall mean, when used to indicate a relationship with any
Person, (a) any other Person of which such Person is an officer or partner or
is, directly or indirectly, the beneficial owner of ten percent (10%) or more of
any class of equity securities issued by such other Person, (b) any trust or
other estate in which such Person has a substantial beneficial interest or as to
which such Person serves as trustee or in a similar fiduciary capacity, and (c)
any relative or spouse of such Person, or any relative of such spouse who has
the same home as such Person or who is a director or officer of such Person or
any Affiliate thereof.
"Business" shall mean the business as currently conducted by Seller,
including without limitation the business of manufacturing and marketing cigars
and associated products.
"Business Day" shall mean any day other than a Saturday, a Sunday or a day
on which commercial banking institutions in New York, New York are authorized or
obligated by law or executive order to be closed.
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"Closing Date" shall mean January 15, 1997 or, if later, the fifth Business
Day following the date on which all conditions set forth in Article VI and VII
hereof shall have been satisfied or waived, provided however that the Closing
shall be deemed effective as of 12.01 a.m. New York City time on January 1,
1997.
"Code" shall mean the Internal Revenue Code of 1986, as it may be amended
from time to time.
"Confidentiality Agreements" shall mean the confidentiality agreements
between Culbro Corporation and Villazon dated August 26, 1996 and October 14,
1996.
"Contract" shall mean any written agreement, understanding, arrangement,
contract, note, loan, evidence of indebtedness, purchase, order, letter of
credit, indenture, security or pledge agreement, franchise agreement,
undertaking, practice, covenant not to compete, employment agreement, license,
instrument, obligation or commitment to which Seller is a party or is bound and
which relates to the Business or the Assets.
"Contract Rights" shall mean all of Seller's rights and obligations under
the Contracts listed on Disclosure Schedule Section 2.7 and under any Contracts
not so listed which Buyer, in its sole discretion, elects to accept and assume.
"Disclosure Schedule" shall mean a schedule attached hereto and delivered
by Seller to Buyer which sets forth exceptions to the representations and
warranties contained herein and other provisions of this Agreement.
"Encumbrance" shall mean, with respect to any asset, any Lien, adverse
claim, easement, right of way, zoning or building restriction, or any other
right of others or other adverse interest of any kind, including without
limitation any lease, chattel mortgage, conditional sales contract, collateral
security arrangement and other title or interest retention arrangement, with the
exception of Permitted Liens.
"Environmental Laws" shall mean all Applicable Laws relating to the
protection of human health or the environment including, without limitation: (i)
all requirements pertaining to reporting, licensing, permitting, controlling,
investigating or remediating
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emissions, discharges, releases or threatened releases of Hazardous Substances,
chemical substances, pollutants, contaminants or toxic substances, materials or
wastes, whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land; (ii) all requirements relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transports or
handling of Hazardous Substances, chemical substances, pollutants, contaminants
or toxic substances, materials or wastes, whether solid, liquid or gaseous in
nature; and (iii) the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the Clean Air Act, the
Water Pollution Control Act, the Safe Drinking Water Act, the Toxic Substances
Control Act and all requirements promulgated pursuant to any of these or
analogous state or local statutes.
"Environmental Liabilities" shall mean all Liabilities of a Person (whether
such Liabilities are owed by such Person to Governmental Authorities, third
parties or otherwise) whether currently in existence or arising hereafter which
arise under or relate to any Environmental Law.
"ERISA Affiliate" shall mean any entity which is (or at any relevant time
was) a member of a "controlled group of corporations" with, under "common
control" with, or a member of an "affiliated service group" with, Seller as
defined in Section 414(b), (c), (m) or (o) of the Code, or under "common
control" with Seller, within the meaning of Section 4001(b)(1) of ERISA.
"Excluded Assets" shall mean those assets and properties of Seller set
forth on Schedule 12.
"Financial Statements" shall mean the Annual Financial Statements and the
Interim Financial Statements.
"GAAP" shall mean generally accepted accounting principles in the United
States as in effect on the date hereof.
"Governmental Authority" shall mean any foreign, domestic, federal, state
or local governmental authority, quasi-governmental authority, instrumentality,
court, government or self-regulatory organization, commission, tribunal or
organization or any regulatory,
49
<PAGE>
administrative or other agency, or any political or other subdivision,
department or branch of any of the foregoing.
"HATSA" shall mean Honduras American Tabaco S.A. de C.V.
"HATSA Agreement" shall mean the stock purchase agreement among Buyer,
HATSA, Mr. Blumenthal and Mr. Llaneza.
"Hazardous Substances" shall mean any substance or material: (i) the
presence of which requires remediation under any Environmental Law; or (ii) the
generation, storage, treatment, transportation, disposal, remediation, removal,
handling or management of which is regulated by any Environmental Law; or (iii)
that is defined as a "hazardous waste" or "hazardous substance" under any
Environmental Law; or (iv) that is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic or mutagenic or otherwise hazardous and is
regulated under any Environmental Law; or (v) without limitation, that contains
gasoline, diesel fuel or other petroleum hydrocarbons, polychlorinated biphenols
(PCBs) or asbestos.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and all applicable regulations promulgated thereunder.
"Indebtedness for Borrowed Money" of any Person shall mean, at any date,
without duplication, (i) any obligation of such Person for borrowed money,
properly recordable under generally accepted accounting principles as a
liability on the financial statements of such Person, (ii) all obligations of
such Person, properly recordable under GAAP as a liability on the financial
statements of such Person, evidenced by bonds, debentures, notes, or other
similar instruments, (iii) all Indebtedness for Borrowed Money (as defined in
clauses (i) and (ii) above) of others secured by a lien on any asset of such
Person, whether or not such Indebtedness for Borrowed Money is assumed by such
Person provided that leases for automobiles shall not be so included, and (iv)
all Indebtedness for Borrowed Money (as defined in clauses (i) and (ii) above)
of others guaranteed by such Person.
50
<PAGE>
"Insurance Policies" shall mean the insurance policies related to the
Assets listed on Disclosure Schedule Section 2.21.
"Interim Balance Sheet of HATSA" shall mean the balance sheet prepared by
Price Waterhouse LLP of HATSA as of October 31, 1996 attached hereto as Exhibit
A-2.
"Interim Financial Statements" shall mean the unaudited balance sheet as of
October 31, 1996 of the Seller attached hereto as Exhibit A-1 (the "Interim
Balance Sheet of Seller") and the related statement of operations, stockholders'
equity and cash flows for the period ended October 31, 1996 of Seller.
"Knowledge" shall mean, with respect to any Person, the knowledge of such
Person (after reasonable inquiry), if an individual, or if the knowledge of
Seller, the knowledge of each or any of Mr. Llaneza, Mr. Blumenthal, Mr.
Gonzalez, Agnes McKee, Rob Hudson, Frank Perez, Sherwin Seltzer, Ms. Mones and
Ms. Llaneza-Jones.
"Leasehold Estates" shall mean all of Seller's rights and obligations as
Lessee under the Leases
"Leasehold Improvements" shall mean all leasehold improvements situated in
or on the Leased Real Property and owned by Seller.
"Leases" shall mean all of the existing Leases or licenses of real or
personal property of Seller set forth on Disclosure Schedule Section 2.7 or
2.18, and leases with respect to personal property of Seller which are not
required to be set forth on Disclosure Schedule 2.7.
"Lien" shall mean with respect to any Asset, any mortgage, title defect or
objection, lien, pledge, option, security interest or hypothecation,
restriction, encumbrance or charge of any kind in respect of such asset.
"Losses" shall mean, in respect of any obligation to indemnify any Person
pursuant to Article X of this Agreement, any and all actual losses, damages,
liabilities, obligations, judgments, settlements, awards, and offsets which the
Indemnified Party may suffer or incur
51
<PAGE>
(together, "Damages"), and reasonable out-of-pocket costs, expenses and
attorneys' fees relating to Damages (including any such reasonable costs,
expenses and attorneys' fees incurred in enforcing such right of indemnification
against any Indemnifying Party or with respect to any appeal) plus interest on
such out-of-pocket costs, expenses and attorneys' fees at the interest rate set
forth in the Stockholder Loan Notes, from the date paid by the Indemnitee until
the date on which the indemnity payment for such out-of-pocket costs, expenses
and attorneys' fees is received, and penalties, fines or punitive or exemplary
damages, if any.
"Material Adverse Effect" shall mean a material adverse effect on the
financial condition, results of operations, business or assets of Seller taken
as a whole.
"Multiemployer Plan" shall mean any "multiemployer plan," as defined in
Section 4001(a)(3) or Section (3)(37) of ERISA, (A) which Seller or any ERISA
Affiliate maintains, administers, contributes to or is required to contribute
to, or, after September 25, 1980, maintained, administered, contributed to or
was required to contribute to, or under which Seller or any ERISA Affiliate may
incur any liability and (B) which covers any employee or former employee of
Seller or any ERISA Affiliate (with respect to their relationship with such
entities)
"Net Income" shall mean the net income of the relevant entity for the
period specified, determined in accordance with Accounting Principles, as set
forth on the income statement(s) of such entity for such period.
"Net Worth" shall mean the aggregate of the net worth of HATSA as set forth
on the HATSA Closing Date Balance Sheet plus the Assets less the Assumed
Liabilities of the Seller as set forth on the Seller's Closing Date Balance
Sheet, determined in accordance with the Accounting Principles; provided however
that (i) the Stockholder Loan Notes shall be included in the calculation of Net
Worth, valued at their face amount; (ii) no Asset shall be revalued such that
its book value is increased as compared with the Interim Financial Statements;
(iii) no Excluded Asset or Excluded Liability shall be included in the
calculation of Net Worth, and (iv) all indebtedness of HATSA to its stockholders
under the promissory notes to be issued pursuant to Section 1.3 of the HATSA
Agreement shall be included in the calculation of Net Worth.
52
<PAGE>
"Parent" shall mean General Cigar Holdings, Inc.
"Parent's Financial Statements" shall mean the audited consolidated balance
sheet as of December 2, 1995 and December 1, 1994 of Parent and the related
statements of operations, stockholders' equity and cash flows for the years
ended December 2, 1995 and December 1, 1994 of Parent prepared on a consolidated
basis in accordance with GAAP together with the unaudited consolidated pro forma
balance sheet of Parent as of August 31, 1996 and the related unaudited pro
forma statement of operations, stockholders' equity and cash flows for the eight
months ended August 31, 1996 of the Parent, prepared on a consolidated basis.
"Pension Plan" shall mean any "employee pension benefit plan" as defined in
Section 3(2) of ERISA (other than a Multiemployer Plan) (A) which Seller or any
ERISA Affiliate maintains, administers, contributes to or is required to
contribute to, or, within the five years prior to the Closing Date, maintained,
administered, contributed to or was required to contribute to, or under which
Seller or any ERISA Affiliate may incur any liability and (B) which covers any
employee or former employee of Seller or any ERISA Affiliate (with respect to
their relationship with such entities).
"Person" shall mean an individual, a partnership, a corporation, a trust,
an unincorporated organization, a government or any department or agency thereof
or any other entity.
"Permits" shall mean all licenses, permits, orders, consents, approvals,
registrations, authorization, qualifications and filings with and under all
federal, state or local laws and governmental or regulatory bodies and all
industry or other nongovernmental self-regulatory organization, necessary or
desirable for the past or present conduct of, or relating to the operation of,
the Business.
"Permitted Liens" shall mean (i) mechanics, materialmen's and similar Liens
with respect to any amounts incurred in the ordinary course of business which
are either not yet due and payable or which are being contested in good faith
through appropriate proceedings, (ii) Liens for Taxes not yet due and payable or
Liens for Taxes (A) which are being contested in good faith through appropriate
proceedings and (B) and for which
53
<PAGE>
adequate reserves have been established in accordance with GAAP, (iii) Liens
securing rental payments under capital lease agreements, (iv) easements,
covenants, conditions and other restrictions on Owned Real Property that do not
materially interfere with the present uses of such real property.
"Representative" shall mean any officer, director, principal, attorney,
accountants, auditor, agent, employee, financial advisors or other
representative.
"Required Consents" shall mean the consents so designated on the Disclosure
Schedule.
"Russell" shall mean James B. Russell, Inc.
"Tax" shall mean all taxes imposed of any nature including federal, state,
local or foreign net income tax, alternative or add-on minimum tax, profits or
excess profits tax, franchise tax, gross income, adjusted gross income or gross
receipts tax, employment related tax (including employee withholding or employer
payroll tax, FICA or FUTA), sales or use tax, excise tax, stamp tax or duty, any
withholding or back up withholding tax, value added tax, severance tax,
prohibited transaction tax, premiums tax, occupation tax, together with any
interest or any penalty, addition to tax or additional amount imposed by a
Governmental Authority responsible for the imposition of any such tax but
excluding any real or personal property taxes.
12.2 Other Defined Terms. The following terms have the meanings defined for
such terms in the Sections set forth below:
Terms Section
----- -------
Assumed Liabilities 1.2
Buyer Recitals
Buyer Indemnitee 10.1(a)
Closing 5.1
Closing Date Balance Sheets 1.6(a)
Damages 12.1 "Losses"
54
<PAGE>
Employment Agreements 5.2(a)
Estimated Net Income of Seller 1.5
Excluded Claims 10.7(c)
Excluded Liabilities 1.3
First Closing Purchase Price 1.4
General Cigar Recital
Indemnifying Party 10.2(a)
Indemnitee 10.2(a)
Installment Notes 1.4
Instrument of Assumption 5.2(b)
Insurance Policy 2.21
Intellectual Property 2.5(a)
Interim Balance Sheet of Seller 12.1 "Interim Financial Statements"
Leased Real Property 2.18(b)
Liability; Liabilities 2.12
Mr. Blumenthal Recitals
Mr. Gonzalez Recitals
Mr. Llaneza Recitals
New Jersey Facility 2.18(c)
1996 Income Statements 1.6(a)
Non Competition Agreements 5.2(a)
Owned Real Property 2.18
Post-Closing Adjustment 1.6(c)
Proceedings 2.11
Purchase Price 1.6(e)
Real Property 2.18(b)
Returns 2.19(a)
Scheduled Contracts 2.7(a)
Seller Indemnitee 10.1(b)
Seller Recitals
Set-Off Amount 10.5
Stockholder Loan Notes 1.5
Stockholders Recitals
Subsequent Material Contract 3.1(a)
55
<PAGE>
Tampa Factory 2.18(a)
Taxing Authority 2.19
Termination Date 11.1(b)
Third Party Transaction 3.4
Villazon Recitals
56
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on their respective behalf by their respective officers thereunto
duly authorized, as of the date and year first above written.
GENERAL CIGAR CO., INC. VILLAZON & COMPANY, INC.
By: /s/ A. ROSS WOLLEN By: /s/ DANIEL BLUMENTHAL
-------------------------- ---------------------------------
Secretery Daniel Blumenthal, Chairman
A. Ross Wollen
STOCKHOLDERS
Frank Llaneza
/s/ FRANK LLANEZA
---------------------------------
Daniel Blumenthal
/s/ DANIEL BLUMENTHAL
---------------------------------
Constantino Gonzalez
/s/ CONSTANTINO GONZALEZ
---------------------------------
ah/apa
57
<PAGE>
EXHIBIT A-1
See pages F-26 through F-37 of the S-1 Registration Statement filed
on December 24, 1996.
<PAGE>
EXHIBIT A-2
See pages F-38 through F-45 of the S-1 Registration Statement filed
on December 24, 1996.
<PAGE>
<TABLE>
<CAPTION>
HONDURAS AMERICAN TABACO S.A. AGREED NET FASB52
INCOME OF ADJUSTED
BALANCE SHEETS HATSA ON 10/31/96
WITHOUT FASB52
Balance Balance Balance
as of as of as of
10.31.96 10.31.96 10.31.96
---------- ---------- ----------
Lps. US$ US$
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and banks 7,318,971 580,917 579,423 1,494
Receivable 1,376,065 109,220 110,712 (1,492)
Related parties receivable 16,225,276 1,287,823 1,287,823 (0)
Inventories 49,152,991 3,901,341 4,296,294 (394,953)
Prepaid expenses 596,853 47,373 47,365 8
Other current assets 0 0
---------- ---------- ---------- ----------
Total current assets 74,670,156 5,926,673 6,321,617 (394,944)
Property, plant and equipment, net 5,357,796 425,256 561,381 (136,125)
Other assets 12,000 952 6,000 (5,048)
---------- ---------- ---------- ----------
Total assets 80,039,952 6,352,881 6,888,998 (536,117)
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable 0 0 0 0
Accrued liabilities 7,690,518 610,407 602,400 8,007
Affiliates payable 1,288,089 102,237 102,237 0
Dividends 4,724,128 374,961 374,960 1
Taxes payable 862,747 68,477 68,477 0
---------- ---------- ---------- ----------
Total current liabilities 14,565,482 1,156,082 1,148,074 8,008
Stockholders' Equity
Common stock 10,000,000 793,714 2,105,328 (1,311,614)
Retained earnings 55,474,470 4,403,085 3,635,596 767,489
---------- ---------- ---------- ----------
Total stockholders' equity 65,474,470 5,196,799 5,740,924 (544,125)
---------- ---------- ----------
Total liabilities and stockholders' equity 80,039,952 6,352,881 6,888,998
========== ========== ==========
</TABLE>
HONDURAS AMERICAN TABACO S.A.
Statement of Operations and Retained Earnings
<TABLE>
<CAPTION>
October 31, October 31, October 31,
1996 1996 1996
------------- ------------- -------------
L. US$ US$
(10 months)
<S> <C> <C> <C> <C>
Net sales and other revenue 119,406,470 10,293,661 10,197,501 96,160
----------- ---------- ----------
Cost and expenses
Cost of goods sold 71,428,588 6,157,663 6,754,968 (597,305)
Selling, general and administrative expenses 2,508,406 216,242 210,444 5,798
----------- ---------- ----------
Operating profit 45,469,175 3,919,757 3,232,089
Other income (expense) (391,722) (33,769) (35,490) 1,721
----------- ---------- ----------
45,077,454 3,885,987 3,196,599
Translation gain (loss) 1,409,054 (54,643) 54,643
----------- ---------- ----------
Net income applicable to common shareholders 46,486,508 3,885,987 3,141,956 744,031
Retained earnings - beginning of year 30,901,175 2,344,829
</TABLE>
<PAGE>
EXHIBIT B
Terms of Installment Notes
Principal Amount: $10,000,000 divided into two notes of $5,000,000 each
Interest Rate: Prime plus 0.5%, adjusted semi-annually
Interest payments: Quarterly in arrears
Issuer: Buyer or General Cigar Holdings, Inc.
Ranking: Subordinated to all Indebtedness for Borrowed Money of
issuer
Transfer by Holder: Non-assignable by Holder except as to $5,000,000 to
Daniel Blumenthal and $5,000,000 to Frank Llaneza
Transfer by Issuer: Assignable to General Cigar Holdings, Inc. without the
prior consent of the Holder and otherwise with the prior
consent of Holder, not to be unreasonably withheld
Security: Unsecured; cross acceleration to principal Indebtedness
for Borrowed Money of issuer
Maturity: The earlier to occur of (i) death of holder, (ii) 5
years from the Closing Date, (iii) cross acceleration as
provided above, (iv) bankruptcy of issuer and (v) other
events to be agreed payable within 90 days, provided,
however, that if the initial public offering of the
Parent's common stock has not taken place, payment need
not be made until 15 months after the Closing Date.
Principal Payments: None until maturity
Offset Rights: As provided in Section 10.5 of the Agreement
Financial Statements Buyer to deliver copies of financial
statements to Holder and other documents as they are
made available generally to Shareholders.
Guaranty: Obligations to be guaranteed by entity owning Assets, if
not the issuer.
Other customary provisions to be agreed.
<PAGE>
EXHIBIT C
Terms of Stockholder Loan Notes
Principal Amount: To be determined in accordance with Sections 1.5 and 1.6
of the Agreement
Interest Rate: Prime plus 0.5%
Interest Payments: On maturity only
Issuer: Villazon
Ranking: Subordinated to all Indebtedness for Borrowed Money of
Buyer
Transfer by Holder: Non-assignable by Holder
Transfer by Issuer: Transferrable to Buyer without restriction. Otherwise
same restrictions as for Installment Note.
Security: Unsecured
Maturity: the earlier to occur of the 30th day following the
consummation of an initial public offering of Buyer's
common stock or April 2, 1997
Principal Payments: Repayable at any time at option of Buyer
Guaranty: Obligations to be guaranteed by entity owning Assets, if
not the issuer.
Other customary provisions to be agreed.
<PAGE>
EXHIBIT D
See pages F-26 through F-37 of the S-1 Registration Statement filed
on December 24, 1996.
<PAGE>
EXHIBIT E
NON-COMPETITION AGREEMENT
This Non-Competition Agreement is executed and delivered by Villazon &
Company, Inc., a Florida corporation (collectively with any and all
subsidiaries, the "Seller"), for the benefit of General Cigar Co., Inc., a
Delaware corporation ("Buyer"), this ___ day of January 1997. This
Non-Competition Agreement is made in connection with the closing under that
certain Asset Purchase Agreement, dated as of December __, 1996, between Buyer
and seller (the "Purchase Agreement"), and capitalized terms used herein and not
defined herein shall have the meanings given them in the Asset Purchase
Agreement.
RECITALS
A. Concurrently with the execution and delivery hereof, Buyer and
Seller are consummating the closing under the Purchase Agreement.
B. To protect the value of the Assets being purchased by Buyer and the
value of the Restricted Business (as defined below), Buyer desires that Seller
enter into, and Seller is willing to enter into, the agreements set forth below.
AGREEMENT
NOW, THEREFORE, as a material inducement to Buyer to purchase the
Assets in accordance with the Asset Purchase Agreement and to consummate the
other transactions contemplated thereby, the undersigned hereby agree as
follows:
1. Subject only to the exceptions set forth in Section 2 below, for a
period of three (3) years following the Closing Date, the Seller shall not
engage in the Restricted Business. For purposes of the foregoing, "Restricted
Business" shall mean the manufacture and/or sale of cigars of all categories,
sizes and prices, whether branded, unbranded or private label, smokers'
accessories, cigarettes, pipes, pipe tobacco and the sale of any and all
products carrying the trademarked brand names owned by, or licensed to, Seller
as carried on by the Seller as of the Closing.
2. Notwithstanding the foregoing, Seller and its subsidiaries shall
not be prohibited from (a) investing in any entity which is directly or
indirectly engaged in the Restricted Business, as long as, based upon
information available to Seller, less than 25% of the revenues of such entity
are attributable to the Restricted Business or (b) investing in equity
securities of any publicly traded business organization whose primary business
is in the Restricted Business (but without otherwise participating in such
business) if such investment in any class of such securities does not exceed 1%
of the issued and outstanding shares of such class. In addition, the limitations
of Section 1 shall not apply to any
<PAGE>
- 2 -
investment by Seller and its subsidiaries in equity securities of Buyer or an
Affiliate of Buyer.
3. This Agreement shall be binding on any Person who acquires all or
substantially all of the Stock of Seller whether through a sale, merger,
consolidation or otherwise.
4. The undersigned acknowledge and agree that the time, scope and
other provisions of this Non-Competition Agreement have been specifically
negotiated by sophisticated, commercial parties and specifically hereby agree
that such time, scope and other provisions are reasonable under the
circumstances. The undersigned further agree that if, at any time, despite the
express agreement of the parties hereto, a court of competent jurisdiction holds
that any portion of this Non-Competition Agreement is unenforceable because any
of the restrictions herein are unreasonable, or for any other reason, the
maximum restrictions of time or scope reasonable under the circumstances, as
determined by such court, will be substituted for any such restrictions held
unenforceable. In the event of breach by any of the undersigned of any provision
of this Non-Competition Agreement, the undersigned acknowledge that such breach
could cause irreparable damage to Buyer and each of its Affiliates, the exact
amount of which may be difficult or impossible to ascertain, and that each of
its remedies at law for any such breach may be inadequate. Accordingly, Buyer
and each of its Affiliates shall be entitled, in addition to any other rights or
remedies existing in its favor, to seek, without the necessity for any bond or
other security, specific performance and/or injunctive relief in order to
enforce or prevent breach of any such provision.
5. This Non-Competition Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York.
<PAGE>
- 3 -
IN WITNESS WHEREOF, each of the undersigned has executed and delivered
this Non-Competition Agreement as of the date first above written.
GENERAL CIGAR CO., INC.
By:_______________________
Name:
Title:
VILLAZON & COMPANY, INC.
By:_______________________
Name:
Title:
<PAGE>
EXHIBIT F
EMPLOYMENT AND CONSULTING AGREEMENT
EMPLOYMENT AND CONSULTING AGREEMENT made as of January __, 1997 by and
among General Cigar Co., Inc., a Delaware corporation ("GCC") with offices at
__________________ and __________________ ("Executive") c/o Villazon & Company,
Inc., 25 Parkway, Upper Saddle River, NJ 07458
W I T N E S S E T H:
WHEREAS, GCC simultaneously with the execution of this Agreement is
acquiring all of the assets of Villazon, pursuant to an Asset Purchase Agreement
dated as of December __, 1996 (the "Purchase Agreement");
WHEREAS, capitalized terms not otherwise defined herein shall have the
meanings ascribed thereto in the Purchase Agreement;
WHEREAS, Villazon is, and has for many years been, engaged in the Business;
WHEREAS, Executive has been ____________ of Villazon, a principal
shareholder of Villazon, has unique experience in all aspects of the Business
and is ____________ of the ____________ of Villazon (the "Position");
WHEREAS, GCC desires to continue the services of Executive in connection
with the Business; and
WHEREAS, Executive is willing to continue to act in the capacities provided
for herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter contained, the parties agree as follows:
1. Services. (a) During the Initial Term (hereinafter defined) GCC hereby
engages Executive and Executive hereby accepts such engagement, to act as a
principal executive of GCC with respect to the Business and to continue to
discharge the duties of his Position. During the Initial Term Executive's
services shall cover all aspects of the Business relating to his Position and he
shall serve on a full time basis as such principal executive subject to the
direction of the Board of Directors of GCC.
(b) Services during Consulting Term. During the Consulting Term
(hereinafter defined) Executive shall consult with respect to all aspects of the
Business including product development and customer and supplier relations. He
shall also at the reasonable request and expense of GCC attend GCC and industry
meetings and trade shows. Executive in connection with his duties during the
<PAGE>
Consulting Term shall not be required to be away from his principal residence
for more than __ days a year.
(c) Services during Non-Competition Term. During the Non- Competition Term
(hereinafter defined) Executive shall provide such advice as shall be required
by GCC from time to time and shall on the request of GCC participate not more
than __ days a year in the aggregate at trade shows. During the Non-Competition
Term Executive's services other than at trade shows shall not require him to
travel without his consent.
2. Term. (a) The Initial Term of this Agreement ("Initial Term") and the
engagement of Executive hereunder shall commence as of the date hereof and shall
continue (unless sooner terminated as hereinafter provided) for the period from
the date hereof to and including the final day of January, 2000. The Consulting
Term shall commence the following day and end the final day of January, 2002.
The Non-Competition Term shall commence the following day and end the final day
of January, 2002, provided, however, that the non-competition obligation hereof
shall terminate if there is a default on the Installment Note held by Executive.
Term shall mean the period from the date hereof to the final day of January,
2002.
3. Exclusivity of Services/Trade Secrets. (a) During the Initial Term,
Executive will render his services to GCC on an exclusive basis. During the Term
Executive shall devote his best efforts to his activities hereunder. During the
Initial Term his services hereunder shall require his full time participation at
the principal office and manufacturing locations of GCC and Villazon and
temporarily at such other locations as GCC may request. Thereafter during the
Consulting Term Executive shall devote such time as may be required to fulfill
the services required as specified in Section l(b). During the Non-Competition
Term the sole required services to be performed shall be those specified in
Section 1(c) hereof.
(b) Executive shall not, directly or indirectly, during the Term enter into
or in any manner take part in or lend his name, counsel or assistance to any
venture, business or endeavor, either as proprietor, principal, partner,
consultant, advisor, agent or independent contractor or in any other capacity
whatsoever including investing in or receiving a royalty or share of the profits
or compensation of any nature from any such venture for a purpose competitive
with the Business or, to his knowledge, any Affiliate, as defined in the
Securities Act of 1933, (an "Affiliate") of GCC during the Term. Ownership,
including beneficial ownership by him or his family, of less than 1% of any
class of the capital stock of a corporation whose securities are regularly
traded on a national securities exchange or in the over-the-counter market
provided that no services are rendered to such corporation shall not be deemed
to violate this provision.
(c) Except (i) as specifically authorized in writing by GCC or (ii) in
accordance with the proper performance of his duties
2
<PAGE>
hereunder Executive agrees that he will not at any time during the Term or
thereafter disclose or use any secrets or any confidential and/or proprietary
information, knowledge or data pertaining to the Business or other enterprise or
business with which he would be prohibited from competing hereunder, including,
without limitation, the Business processes, trade secrets, tobacco purchasing
sources, methods, customer lists, know-how, machines, manufacturing procedures,
tobacco blends or flavorings of GCC or the Business.
(d) Executive shall not at any time during the Term or thereafter seek to
hire for any purpose any person employed by Villazon or GCC within the last 36
months or at any time during the Term.
(e) It is the intention of GCC to make the covenants of this Agreement
binding only to the extent that it may be lawfully done under existing
applicable laws. In the event that any part of any covenants contained in this
Agreement is determined by a court of law to be overly broad, thereby making the
covenants unenforceable, the parties hereto agree, and it is their desire that
such court shall substitute a reasonable judicially enforceable limitation in
place of the offensive part of the covenant, and that as so modified the
covenant shall be as fully enforceable as set forth herein by the parties
themselves in the modified form.
(f) Executive consents and agrees to the enforcement of this Agreement by
GCC, upon determination of a breach hereof, by means of a temporary and/or
permanent injunction and/or decree of specific performance issued by any court
having jurisdiction thereof. The undertakings and agreements by Executive herein
shall not be construed as any limitation upon the enforcement of this Agreement
and such remedies, including damage awards, shall be cumulative and in addition
to any other rights or remedies which GCC may have at law or in equity.
4. Compensation. During the Initial Term GCC shall pay Executive,
bi-weekly, $250,000 per year [$200,000 Mr. Gonzalez]. For purposes of this
Agreement such amount shall be treated, although actually paid as provided in
the first sentence of this Section, as earned as follows: $_______ per year
during the Initial Term and the first two years of the Consulting Term for
services, and ___ per year for the remainder of the Term. In addition, Executive
shall receive $_________ per year for the entire Term for the Section 3
restriction provided herein. No other payments shall be due hereunder. Executive
upon appropriate accounting shall be reimbursed for his reasonable expenses in
providing services hereunder.
5. Options. Executive shall be entitled to receive options for a number of
shares of common stock of GCC with an exercise price equal to [% of $1 million].
The terms and conditions of such opinions, including exercise price and vesting
date, shall be the same as the options granted to other GCC officers.
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6. Representations and Warranties. GCC represents and warrants to Executive
that this Agreement has been duly authorized, executed and delivered by GCC and
constitutes a legal, valid and binding obligation of GCC.
7. Representations, Warranties and Agreements of Executive. Executive
represents and warrants to GCC that this Agreement has been duly authorized,
executed and delivered by Executive and constitutes a legal, valid and binding
obligation of Executive. Executive represents and warrants that neither the
execution and delivery of this Agreement, nor his performance hereunder will
violate any agreement, arrangement or duty to which he is subject, and agrees to
hold GCC harmless from any loss, cost or expense arising from any litigation or
threatened litigation relating to his engagement hereunder.
8. Termination of Employment. Executive's employment hereunder may be
terminated for (i) death or incapacity to provide full services hereunder either
for a consecutive three-month period or for an aggregate of four months in any
nine-month period; (ii) material breach of fidelity or loyalty to GCC, or
dishonesty in any material transaction with GCC; (iii) failure or refusal to
perform expected functions of a principal executive on behalf of GCC during the
Initial Term including all services or duties provided for pursuant to Section
1(a) or his reduced duties during the rest of the Term; and (iv) the knowing and
willful engaging by Executive in material misconduct injurious to GCC monetarily
or otherwise. Termination of this Agreement pursuant to this Section shall
result in the forfeiture by Executive of all compensation not paid hereunder as
of the date of termination and such other damages and other remedies as may be
appropriate. All duties of Executive under Section 3 hereof shall survive any
termination of this Agreement.
9. Waivers and Modifications. No waiver by any of the parties hereto of any
breach by the other of any provision hereof shall be deemed to be a waiver of
any later or other breach hereof, or as a waiver of any such or other provision
of this Agreement. This Agreement sets forth all of the terms of the
understandings among the parties with reference to the subject matter set forth
herein and may not be waived, changed, discharged or terminated orally or by any
course of dealing among the parties, but only by an instrument in writing signed
by the party against whom any waiver, change, discharge or termination is
sought.
10. Employee Benefits. Executive shall be entitled to continue to receive
such employee benefits and perquisites as currently received by him. Executive
shall also participate in GCC's stock option plan as set forth in paragraph 5
hereof, incentive compensation plan and such other employee benefit plans as may
be generally available to executives of GCC.
11. Binding Effect. This Agreement shall inure to the benefit of, and be
binding upon, each of the parties hereto and his
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or its successors and assigns. The rights, duties and obligations of Executive
hereunder may not be assigned under any circumstances.
12. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York and all parties
hereto consent to jurisdiction in the New York State Courts and to service of
process by certified mail.
13. Miscellaneous. The headings of the Sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute a part
hereof or to affect the meaning thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written.
[EXECUTIVE]
By:__________________________________
GENERAL CIGAR CO., INC.
By:__________________________________
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STOCK PURCHASE AGREEMENT
dated as of December 23, 1996
Between
GENERAL CIGAR CO., INC.
HONDURAS AMERICAN TABACO, S.A. de C.V.
and
THE SELLERS
(as defined)
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I PURCHASE AND SALE OF STOCK.................................. 2
1.1 Transfer of Stock.................................... 2
1.2 Purchase Price....................................... 2
1.3 Repayment of Indebtedness; Net Income................ 2
1.4 Post-Closing Adjustment.............................. 3
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLERS................... 3
2.1 Organization of the Company.......................... 3
2.2 Ownership............................................ 4
2.3 Capitalization....................................... 4
2.4 Authorization........................................ 5
2.5 Intellectual Property................................ 5
2.6 Absence of Certain Changes or Events................. 7
2.7 Material Contracts................................... 7
2.8 No Conflict or Violation............................. 10
2.9 Consents and Approvals............................... 10
2.10 Financial Statements................................. 10
2.11 Litigation........................................... 11
2.12 Liabilities.......................................... 11
2.13 Compliance with Law.................................. 11
2.14 No Brokers........................................... 12
2.15 Labor and Employment Matters......................... 12
2.16 Transactions with Certain Persons.................... 13
2.17 Employee Benefits.................................... 14
2.18 Real Property; Tangible Assets....................... 14
2.19 Tax Matters.......................................... 16
2.20 Environmental Compliance............................. 17
2.21 Insurance............................................ 18
2.22 Performance Bonds and Letters of Credit.............. 19
2.23 Utilities............................................ 19
2.24 Political Contributions.............................. 19
ARTICLE III ACTIONS BY THE COMPANY AND BUYER PRIOR TO THE CLOSING....... 20
3.1 Conduct of Business.................................. 20
3.2 Investigation by Buyer............................... 23
3.3 No Continuing Negotiations........................... 24
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER..................... 24
4.1 Organization of Buyer................................ 24
4.2 Authorization........................................ 25
4.3 Consents and Approvals............................... 25
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Page
----
4.4 No Brokers........................................... 25
4.5 No Conflict or Violation............................. 25
4.6 Litigation........................................... 25
4.7 Compliance with Law.................................. 26
ARTICLE V CLOSING..................................................... 26
5.1 Closing.............................................. 26
5.2 Documents to be Delivered............................ 26
ARTICLE VI CONDITIONS TO SELLERS' OBLIGATIONS.......................... 27
6.1 Representations, Warranties and Covenants............ 27
6.2 Consents............................................. 27
6.3 No Governmental or Other Proceeding or Litigation.... 27
6.4 Opinion of Counsel................................... 28
6.5 Certificates......................................... 28
6.6 Contemporaneous and Contingent Transactions.......... 28
6.7 Additional Shareholders.............................. 28
ARTICLE VII CONDITIONS TO BUYER'S OBLIGATIONS........................... 28
7.1 Representations, Warranties and Covenants............ 28
7.2 Consents............................................. 29
7.3 No Governmental or Other Proceeding or Litigation.... 29
7.4 Opinion of Counsel................................... 29
7.5 No Material Degradation of Assets.................... 29
7.6 Receipt of Audit Report.............................. 29
7.7 Tax Matters.......................................... 29
7.8 Contemporaneous and Contingent Transactions.......... 30
7.9 Certificates......................................... 30
ARTICLE VIII ACTIONS BY SELLERS AND BUYER AFTER THE CLOSING.............. 30
8.1 Books and Records.................................... 30
8.2 Further Assurances................................... 30
8.3 Litigation Support................................... 31
ARTICLE IX INDEMNIFICATION............................................. 31
9.1 Agreement to Indemnify............................... 31
9.2 Survival of Representations, Warranties and Covenants 32
9.3 Claims for Indemnification........................... 33
9.4 Defense of Claims.................................... 33
9.5 Tax Indemnification and Other Matters................ 34
9.6 Offset Rights........................................ 34
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Page
----
9.7 Limitation on Indemnification........................ 35
9.8 Responsibility for Products.......................... 35
ARTICLE X MISCELLANEOUS............................................... 36
10.1. Termination.......................................... 36
10.2 Assignment........................................... 36
10.3 Notices.............................................. 37
10.4 Choice of Law........................................ 38
10.5 Entire Agreement; Amendments and Waivers............. 38
10.6 Counterparts......................................... 38
10.7 Invalidity........................................... 39
10.8 Headings............................................. 39
10.9 Expenses............................................. 39
10.10 Publicity............................................ 39
10.11 Authority of Sellers................................. 40
10.12 Tax Filing........................................... 40
10.13 Supplemental Schedules............................... 40
ARTICLE XI DEFINITIONS................................................. 40
11.1 Defined Terms........................................ 40
11.2 Other Defined Terms.................................. 47
iii
<PAGE>
EXHIBITS
A Stockholders
B Financial Statements
C Letters from Other Stockholders
DISCLOSURE SCHEDULES
2.1 Organization of the Company
2.5 Intellectual Property
2.7 Scheduled Contracts
2.8 Conflicts or Violations
2.9 Consents and Approvals
2.11 Litigation
2.12 Liabilities
2.13 Compliance with Law
2.15 Employment Matters
2.16 Transactions with Certain Persons
2.17 Employee Benefits
2.18 Real Property
2.19 Tax Matters
2.20 Environmental Compliance
2.21 Insurance
2.22 Performance Bonds and Letters of Credit
iv
<PAGE>
Stock Purchase Agreement
This Stock Purchase Agreement, dated as of December 23, 1996, among General
Cigar Co., Inc. ("General Cigar"), a corporation duly organized and existing
under the laws of the State of Delaware (General Cigar is hereinafter sometimes
referred to as the "Buyer"), Honduras American Tabaco S.A. de C.V., a
corporation duly organized and existing under the laws of Honduras (the
"Company" or "HATSA") and Frank Llaneza ("Mr. Llaneza") and Daniel Blumenthal
("Mr. Blumenthal"). Mr. Llaneza and Mr. Blumenthal are hereinafter sometimes
collectively referred to as the "Sellers."
W I T N E S S E T H:
WHEREAS, the defined terms have the meanings ascribed to them in Article XI
or as set forth elsewhere in this Agreement.
WHEREAS, the Sellers and Persons (other than the Sellers) set forth in
Exhibit A hereto (collectively, the "Other Stockholders") have executed and
delivered to Buyer and Sellers the letters attached hereto as Exhibit C.
WHEREAS, Buyer desires to purchase from Sellers and the Other Stockholders,
and Sellers and the Other Stockholders desire to transfer to Buyer, all of the
Stock, subject to the terms and conditions of this Agreement.
NOW THEREFORE, IT IS AGREED:
<PAGE>
ARTICLE I
PURCHASE AND SALE OF STOCK
1.1 Transfer of Stock. Upon the terms and subject to the conditions
contained herein, the Sellers will sell, convey, transfer, assign and deliver to
Buyer, and Buyer will acquire on the Closing Date, all of the Sellers' shares of
Stock and Sellers will deliver the shares of Stock held by the Other
Stockholders to Buyer pursuant to the letters from the Other Stockholders
attached hereto as Exhibit C.
1.2 Purchase Price. At the Closing, upon the terms and subject to the
conditions set forth herein, Buyer shall pay to the Sellers, on behalf of the
Stockholders, the aggregate amount of Twenty Million Dollars ($20,000,000) (the
"Purchase Price") by wire transfer of immediately available funds to accounts
designated by the Sellers.
1.3 Repayment of Indebtedness; Net Income. In addition to the Purchase
Price, the Sellers shall be entitled to receive, on behalf of the Stockholders,
a distribution of the Net Income of the Company for calendar year 1996 (the
"1996 Net Income"). The Sellers, on behalf of the Stockholders, estimate the
1996 Net Income of HATSA to be $4,200,000 (the "Estimated Net Income"), none of
which has been distributed to any Person. As of December 31, 1996, the Company
shall issue to the Sellers, on behalf of the Stockholders, promissory notes with
a face value equal to the Estimated Net Income which note shall be repaid by the
Company, at its face value, upon the Closing, by wire transfer as set forth in
Section 1.2 above. The Sellers shall ensure that, except as set forth in this
Section 1.3, from October 31, 1996, through the Closing Date, the Company shall
not (i) create or pay any additional indebtedness with respect to the
Stockholders or (ii) distribute any cash or other property to the Stockholders
with respect to their stock ownership in the Company except for the distribution
made in November 1996 to Stockholders in the aggregate amount of $527,218 (none
of which represents 1996 Net Income).
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1.4 Post-Closing Adjustment. Net Income of HATSA as determined based upon
the 1996 Income Statement of HATSA, prepared and agreed pursuant to Section 1.6
of the Villazon Agreement, shall be final and binding on Buyer and the
Stockholders. If the Net Income of HATSA is less than the Estimated Net Income
of HATSA, the Sellers, on behalf of the Stockholders shall pay such difference
to Buyer in cash in immediately available funds within 5 Business Days after the
date on which the 1996 Income Statements are agreed upon as provided for in the
Villazon Agreement, such payment to be made by them pro rata to the proportion
of the Purchase Price paid to each of them. If the Net Income of HATSA exceeds
the Estimated Net Income of HATSA, Buyer shall pay such difference to the
Sellers, on behalf of the Stockholders, pro-rata to the proportion of the
Purchase Price paid to each of them, within 5 Business Days after the date on
which the 1996 Income Statements are agreed upon as provided for in the Villazon
Agreement. For purposes of calculating the 1996 Net Income of HATSA, FASB 52
shall not be taken into consideration in accordance with the principle set forth
in that certain letter dated December 23, 1996 from Buyer to John Oliva. For the
purposes of calculating the Net Worth of HATSA, FASB 52 shall not be taken into
consideration in accordance with the Balance Sheet attached hereto as Exhibit
B-1.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLERS
Subject to the limitations set forth in Article IX, the Sellers, jointly
and severally, hereby represent and warrant to Buyer as follows:
2.1 Organization of the Company. The Company is duly incorporated and
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and has full corporate power and authority to
conduct its Business as it is presently being conducted and to own and lease its
properties and assets. The Company is duly qualified and in good standing in
each jurisdiction where, by virtue of its business carried on or properties
owned, it is required to be so qualified and the failure to be so qualified
would have, individually or in the aggregate, a Material Adverse Effect. Each
such jurisdiction is set forth on Disclosure Schedule Section 2.1. The Sellers
have delivered to
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Buyer (or Buyer's Representatives) true and complete copies of the Articles of
Incorporation and By-laws of the Company (as amended to date).
2.2 Ownership. (a) Except as set forth in Note 6 of the Financial
Statements, Sellers and, to the Knowledge of Sellers, the Other Stockholders,
own of record and beneficially all of the shares of Stock set forth against
their names in Exhibit A, free of Encumbrances, including without limitation any
agreement, understanding or restriction affecting the transfer, voting rights or
other incidents of record or beneficial ownership pertaining to such Stock.
Except as set forth in Note 6 to the Financial Statements, Sellers and, to the
Knowledge of Sellers, the Other Stockholders are not a party to any option,
warrant, subscription, commitment or any other contract that could require the
Stockholders to sell, transfer or otherwise dispose of any capital stock of any
Stockholder or any agreement or understanding providing rights of first refusal
or similar rights with respect to any capital stock of the Company. Except as
set forth in Note 6 of the Financial Statements, Sellers, and, to the Knowledge
of Sellers, the Other Stockholders, are not parties to any voting trust, proxy
or other agreement or understanding with respect to the voting of any capital
stock of the Company.
(b) The Stockholders have taken all necessary action pursuant to the
Stockholders Agreement among them described in Note 6 of the Financial
Statements, to permit the sale of the Stock to Buyer on the terms hereof.
2.3 Capitalization.
(a) The authorized capital Stock of the Company consists of 200,000
shares of common stock, 50 Lempiras par value, all of which shares are issued
and outstanding and no shares are held in the treasury of the Company. All of
the outstanding capital Stock has been duly authorized, and is validly issued,
fully paid and non-assessable. Except as set forth in Note 6 of the Financial
Statements, there are no outstanding or authorized options, warrants,
subscriptions, calls, commitments, preemptive rights, securities convertible
into or exchangeable for capital Stock, or other rights that could require the
Company to issue, sell, or otherwise cause to become outstanding any capital
Stock, or any agreement or
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understanding providing rights of first refusal or similar rights with respect
to any capital Stock. There are no outstanding or authorized stock appreciation,
phantom or similar rights with respect to the Company.
(b) Exhibit A hereto correctly sets forth the Stockholders and their
respective ownership of the Company.
2.4 Authorization.
(a) This Agreement has been duly executed and delivered by the Sellers
and the Company, and, assuming the due authorization, execution and delivery of
this Agreement by Buyer is a valid and binding obligation of the Sellers and the
Company except as enforceability may be limited by bankruptcy, insolvency or
other similar laws affecting creditors' rights generally and except where
enforceability is subject to the application of equitable principles or
remedies.
(b) The Sellers have taken all requisite action to approve and consent
to this Agreement and the performance of the transactions contemplated hereby.
2.5 Intellectual Property
To the Knowledge of Sellers and the Company:
(a) Disclosure Schedule Section 2.5 sets forth a complete and correct
list and summary description of all trademarks, tradenames, service marks,
service names, brand names, registrations thereof and applications therefor held
by the Company (collectively referred to hereinafter as the "Intellectual
Property"), together with a complete list of all licenses granted by or to the
Company or other agreements with respect to any of the Intellectual Property.
The Intellectual Property constitutes all the intellectual property used in the
Business other than trade secrets and copyrights, if any. The Company holds no
patents.
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(b) The Intellectual Property is valid and subsisting and is
enforceable.
(c) Except as set forth on Disclosure Schedule Section 2.5, the
Company has sole, full and clear title to the Intellectual Property, free and
clear of all claims, liens, encumbrances, mortgages, licenses (either as
licensee or licensor), including claims or rights of employees, agents,
consultants or other parties involved in the development or creation of such
Intellectual Property and no other person or entity has or shall have any claim
of ownership with respect to the Intellectual Property whatsoever.
(d) Except as set forth in any license or other agreements set forth
on Disclosure Schedule Section 2.5 hereto, the Company owns and/or has the right
and/or license to use, sublicense, assign, modify and transfer the Intellectual
Property free and clear of any limitations or encumbrances.
(e) Except as set forth on Disclosure Schedule Section 2.5, neither
the Company nor any officers, stockholders or directors of the Company are
currently in receipt of any notice of any violation of, and the Company is not
violating or infringing upon and has not for the last six years violated or
infringed, the rights of any other person or entity in any trademark, trade
name, service mark, copyright, mask work, trade secret, know-how, patent or
other intangible property right or asset, and has not conducted any acts of
unfair competition.
(f) Except as set forth on Disclosure Schedule Section 2.5 no person
or entity is infringing any intellectual property rights of the Company with
respect to the Intellectual Property.
(g) Except as set forth on Disclosure Schedule Section 2.5, the
Company has not during the three years preceding the date of this Agreement been
a party to any Proceeding that involved or may involve a claim of infringement
by any Person (including any Governmental Authority) of any intellectual
property rights of such Person or a claim of infringement by the Company with
respect to the Intellectual Property. Except as set forth on Disclosure Schedule
Section 2.5, no intellectual property right with respect to the
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Intellectual Property is subject to any outstanding order, judgment, decree,
stipulation or agreement restricting the use thereof by the Company, or
restricting the licensing thereof by the Company to any person, and there are no
claims, judgments or settlements to be paid out by the Company relating to the
Intellectual Property.
(h) Disclosure Schedule Section 2.5 sets forth a list of all license
fees, rents, royalties or other charges that the Company is required or
obligated to pay with respect to the Intellectual Property. Except as set forth
on Disclosure Schedule Section 2.5(h), none of the Intellectual Property has
been incorporated into or made a part of any other intellectual property and
none of the Intellectual Property is dependent on any other intellectual
property in order to freely operate or be utilized in the manner in which it is
intended.
(i) The Sellers and the Company shall keep confidential and not
disclose to any third party any trade secrets among the Intellectual Property,
except such of said trade secrets as now are or hereinafter become published or
otherwise generally available to the public other than through the direct or
indirect actions of the Sellers or the Company; even after any trade secrets
become generally available to the public, neither the Sellers nor the Company
shall disclose, without Buyer's prior written approval, the fact that such trade
secrets were furnished to Buyer by the Sellers or the Company or originated with
the Sellers or the Company. The Company shall advise its employees and other
personnel who at any time have access to such trade secrets of the obligations
assumed hereunder by the Company.
2.6 Absence of Certain Changes or Events. Since October 31, 1996 the
Business has been conducted in the ordinary course and there has not been any
event, occurrence, state of circumstances or facts or change in the Company or
in the Business that has had or that, to the Knowledge of the Sellers or the
Company, may be reasonably expected to have, either alone or together, a
Material Adverse Effect.
2.7 Material Contracts.
To the Knowledge of Sellers and the Company:
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(a) Disclosure Schedule Section 2.7 sets forth a complete list of the
following Contracts (collectively, the "Scheduled Contracts"):
(i) each Contract between the Company and another Person whose dollar
volume of sales or services for products sold to such Person exceeded in
1995, or during the first six months of 1996, One Hundred Thousand Dollars
($100,000);
(ii) each Contract of the Company that requires payment or incurrence
of Liabilities, or the rendering of services or the sale of goods, by the
Company, subsequent to the date of this Agreement of more than One Hundred
Thousand Dollars ($100,000) or otherwise material to the Business and not
cancelable (without Liability) within 30 days;
(iii) all Contracts relating to, or evidences of, or guarantees of, or
providing security for, Indebtedness for Borrowed Money or the deferred
purchase price of property (whether incurred, assumed, guaranteed or
secured by any asset);
(iv) all license, sale, distribution, commission, marketing, agent,
franchise, technical assistance or similar contracts relating to or
providing for the marketing and/or sale of the products to which the
Company is a party or by which it is otherwise bound;
(v) all partnership, joint venture, teaming arrangements or other
similar Contracts;
(vi) all Contracts not made in the ordinary course of business;
(vii) all employment Contracts and severance agreements, including
without limitation Contracts (A) to employ or terminate executive officers
or other personnel and other contracts with present or former officers,
directors or stockholders of the Company or (B) that will result in the
payment by, or the creation of any Liability to pay on behalf of the
Company any severance, termination, "golden parachute," or
8
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other similar payments to any present or former personnel following
termination of employment or otherwise as a result of the consummation of
the transactions contemplated by this Agreement;
(viii) all labor or union Contracts;
(ix) Contracts containing covenants limiting the freedom of the
Company or any officer, director, shareholder or affiliate of the Company,
to engage in any line of business or compete with any person;
(x) Any Contract with the United States, state or local government or
any agency or department thereof;
(xi) Leases of personal property not cancelable (without Liability)
within 60 calendar days and having an annual rental exceeding Fifty
Thousand Dollars ($50,000);
(xii) all powers of attorney;
(xiii) other Contracts the failure of performance of which could have
a Material Adverse Effect.
(b) The Company has made true and correct copies of all Contracts
required to be disclosed pursuant to Section 2.7 above available to Buyer (or
Buyer's Representatives). Except as disclosed in Disclosure Schedule Section
2.7, each Contract is a legal, valid and binding obligation of the Company and
each other party thereto, enforceable against each such party thereto in
accordance with its terms, and neither the Company nor any other party thereto,
is in material default thereunder. Disclosure Schedule Section 2.7 sets forth a
description of all oral agreements or understandings which, had they been in
writing, would have been required to have been disclosed on Disclosure Schedule
Section 2.7 other than oral agreements for the purchase of tobacco by the
Company.
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(c) Except as set forth on Disclosure Schedule Section 2.7, (i) there
is no pending or threatened claim of breach of, or default under, any Contract
with any Person listed in Disclosure Schedule Section 2.7; and (ii) the Company
is not aware of any intention on the part of any Person to terminate or
materially reduce purchases from or supplies to the Company in a manner that
would result in a Material Adverse Effect.
2.8 No Conflict or Violation. To the Knowledge of Sellers and the Company,
except as set forth on Disclosure Schedule Section 2.8, neither the execution
and delivery of this Agreement nor the consummation of the transactions
contemplated by this Agreement will (a) conflict with or result in any breach or
default under any term or provision of any Scheduled Contract, or result in or
give to any person the right or power to cause the termination or acceleration
of any Scheduled Contract or prevent the Company from consummating the
transactions contemplated by this Agreement, (b) result in the creation or
imposition of any Lien on any of the property or assets of the Company, or (c)
result in any violation by the Company of any statute, order, rule, regulation,
ordinance, code, judgment, writ, injunction, decree or award. Neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated by this Agreement will result in any violation of the
provisions of the charter or other organizational document or by-laws of the
Company.
2.9 Consents and Approvals. To the Knowledge of the Sellers and Company,
except as set forth on Disclosure Schedule Section 2.9, no Permit from any
Governmental Authority or any other Person, is required to be made or obtained
by the Company in connection with the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby.
2.10 Financial Statements.
(a) Attached hereto as Exhibit B are true and complete copies of the
Financial Statements.
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(b) The Financial Statements have been based on the books and records
of the Company and reflect the financial condition, results of operations and
statements of cash flow of the Company as of the dates indicated or the periods
indicated as and to the extent represented in a representation letter from the
Company to Price Waterhouse L.L.P., a copy of which has been delivered to the
Buyer.
2.11 Litigation. To the Knowledge of Sellers and the Company, except as set
forth on Disclosure Schedule Section 2.11, (i) there are no actions, suits,
claims, hearings, arbitrations, proceedings (public or private) or governmental
investigations that have been brought by any Governmental Authority or by or
against any other Person (collectively, "Proceedings") pending or threatened
against or involving the Company or the Business; (ii) there are no Proceedings
pending or, to the Knowledge of the Company or the Stockholders, threatened
which seek to enjoin or rescind the transactions contemplated by this Agreement;
and (iii) there are no existing orders, judgments or decrees of any Governmental
Authority naming the Company as an affected party.
2.12 Liabilities. To the Knowledge of Sellers and the Company, except as
set forth on Disclosure Schedule Section 2.12, the Company is not liable for,
directly or indirectly, any indebtedness, liability, claim, loss, damage,
deficiency, obligation or responsibility, fixed or unfixed, choate or inchoate,
liquidated or unliquidated, secured or unsecured, accrued or unaccrued, joint,
several, joint and several, due or to become due, vested or unvested, executory,
determined, determinable, absolute, contingent or otherwise, whether or not
required by GAAP to be set forth in a financial statement (each a "Liability"
and collectively, "Liabilities") except (i) Liabilities set forth on the Interim
Balance Sheet of HATSA and (ii) Liabilities of the Company incurred since
October 31, 1996 in the ordinary course of business that, individually or when
combined with all other Liabilities, have not had, do not and will not have a
Material Adverse Effect.
2.13 Compliance with Law. To the Knowledge of Sellers and the Company, the
Company is and, for the period of the applicable statute of limitations, as
extended, has been in compliance in all material respects with all Applicable
Laws, including without limitation
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Applicable Laws relating to the employment of minors, except as set forth on
Disclosure Schedule Section 2.13.
2.14 No Brokers. Neither the Company, nor any Seller and none of their
respective Affiliates or Associates has entered into and nor, to Sellers' or the
Company's Knowledge, have the Other Stockholders entered into any contract,
agreement, arrangement or understanding with any Person which will result in the
obligation of Buyer, the Company or any Stockholder to pay any finder's fee,
brokerage commission or similar payment in connection with the transactions
contemplated hereby.
2.15 Labor and Employment Matters.
(a) Except as set forth on Disclosure Schedule Section 2.15, no
collective bargaining agreement exists that is binding on the Company and,
except as described in Disclosure Schedule Section 2.15, to the Knowledge of the
Company and Sellers, no petition has been filed or Proceedings instituted by an
employee or group of employees with any labor relations board seeking
recognition of a bargaining representative, nor, to the Knowledge of the Company
or the Sellers, has there been any union organizing effort by any union or group
of employees in the last five years at any of the facilities operated by the
Company. Disclosure Schedule Section 2.15 describes any organizational effort
currently being made or threatened by or on behalf of any labor union to
organize any employees of the Company.
(b) Except as set forth on Disclosure Schedule Section 2.15, (i) there
is no labor strike, dispute, slow down or stoppage pending or, to the Knowledge
of the Company and Sellers, threatened, against or directly affecting the
Company; (ii) no grievance or arbitration Proceeding arising out of or under any
collective bargaining agreement is pending, and no claims therefor exist; and
(iii) neither the Company nor any of the Sellers nor any of their respective
Affiliates has received any notice or has any Knowledge of any threatened labor
or civil rights dispute, controversy or grievance or any other unfair labor
practice, Proceeding or breach of contract claim or action with respect to
claims of, or obligations to, any employee or group of employees of the Company.
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(c) To the Knowledge of the Company and Sellers, the Company has
complied and is currently complying, in respect of all employees of the Company,
with all Applicable Laws respecting employment and employment practices and the
protection of the health and safety of employees, from whatever source such law
may be derived, including, without limitation, statutes, ordinances, laws,
rules, regulations, policies, standards, judicial or administrative precedents,
judgments, orders, decrees, awards, citations, licenses, official
interpretations and guidelines, except for such instances which are not, in the
aggregate, material.
(d) To the Knowledge of the Company and Sellers, Disclosure Schedule
Section 2.15 sets forth all individuals who are independent contractors of the
Company or tobacco brokers for material sales of the Company's products,
together with a description of any arrangements with such Persons. The Sellers
have delivered to Buyer true copies of all Contracts with any such Persons.
2.16 Transactions with Certain Persons.
(a) Except with respect to the Lease of Real Property described in
Section 2.18, no Seller, nor, to the Knowledge of Sellers or the Company, any
officer or director of the Company nor any Associate of any Seller or the
Company is presently a party to any transaction with the Company (other than
employment agreements and salaries, bonuses or benefits for services as
officers, directors or employees of the Company) including, without limitation,
any contract, agreement or other arrangement (i) providing for the furnishing of
material services by, or the purchase of supplies of material quantities of
tobacco or other goods from such Person or an Associate of any such Person, (ii)
providing for the rental of material real or personal property, from or to any
such Person or an Associate of any such Person, or (iii) otherwise requiring
material payments from or to any such Person or an Associate of any such Person.
(b) There is no indebtedness of any nature owed by the Company to any
of the Stockholders other than the promissory note described in Section 1.3.
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2.17 Employee Benefits.
Except to the minimum extent required under Honduras law or otherwise
disclosed on Disclosure Schedule Section 2.17, there are no employee benefit
plans or arrangements for employees of the Company, including without
limitation, pension benefits, severance arrangements or life or health insurance
arrangements. Except as set forth on Disclosure Schedule Section 2.17, to the
Knowledge of Sellers and the Company:
(a) Except as would not result in any material liability of the
Company, neither the execution nor delivery of this Agreement or other related
agreements by the Company nor the Closing will result in the acceleration or
creation of any rights of any Person to any benefits of the Company; and
(b) As of the date of this Agreement, the Company does not have any
post retirement benefit obligation.
2.18 Real Property; Tangible Assets.
(a) True copies of all deeds and title documents relating to real
property owned by the Company ("Owned Real Property") have been delivered to
Buyer (or Buyer's Representatives) by the Company. The Company is the record
owner of and has good and marketable fee simple title to all Owned Real Property
free and clear of all Encumbrances. The Company enjoys peaceful and undisturbed
possession of all Owned Real Property.
(b) The only real property lease or licenses to which the Company is a
party or by which it is bound or that are used for the conduct of the Business
is the lease of 421 sq. meters of office space in San Pedro Sula, Honduras dated
April 1, 1996 (the "Leased Real Property" and together with the Owned Real
Property, the "Real Property"). Except for the Leased Real Property, there are
no leases, subleases, licenses, occupancy agreements, options, rights,
concessions or other agreements or arrangements, written or oral, granting to
any Person the right to purchase, use or occupy any Real Property in connection
with the
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Business or any portion thereof or interest in any such property. With respect
to such Leases, to the Knowledge of Sellers and the Company, there exist no
defaults by the Company or any default or threatened default by any third party
thereunder, that has affected or could reasonably be expected to affect the
rights and privileges thereunder of the Company and have a Material Adverse
Effect. With respect to each Lease of real property, the Company has an
unencumbered interest in the Leasehold Estate. The Company enjoys peaceful and
undisturbed possession of all Leased Real Property. The transfer of the Stock
contemplated by this Agreement will not result in any default, penalty or
modification to any Lease to which the Company is a party. The Company has made
a true and correct copy of the Lease of Real Property available to Buyer (or
Buyer's Representatives).
(c) Except as set forth on Disclosure Schedule Section 2.18, to the
Knowledge of the Company and Sellers, all material buildings and structures
located on any Real Property are in all material respects structurally sound.
(d) To the Knowledge of the Company and Sellers, except as set forth
on Disclosure Schedule Section 2.18, with respect to any Real Property, there
exists no applicable restrictive covenant, constitutional or agrarian law
restrictions regarding foreigners or foreign shareholders, zoning ordinance,
building code, use or occupancy restriction, or any violation of any such
ordinance, code or restriction, or any condemnation action or proceeding with
respect thereto, that will interfere with the use for its current use thereof by
the Company following the Closing.
(e) Except as disclosed on Disclosure Schedule Section 2.18 to the
Knowledge of the Company and Sellers, none of the material buildings and
structures located on any Real Property nor any appurtenances thereto or
equipment thereon, nor the operation or maintenance thereof for its current use,
violates any restrictive covenants or encroaches on any property owned by others
nor does any building or structure of third parties encroach upon any Real
Property. To the Knowledge of the Company and Sellers, no condemnation
Proceeding is pending or threatened, which would preclude or impair the use of
Real Property for the use for which it is currently being used.
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(f) All appropriate certificates of occupancy and all Permits required
for current operations have been or will be obtained, are or will be in full
force and effect and will not be violated by this Agreement or the transactions
contemplated hereby. To the Knowledge of Sellers and the Company, the Company is
not in violation of any Applicable Laws relating to the ownership of Real
Property by foreign entities or by local entities owned by foreign entities.
(g) Excluding the Owned Real Property and the Leased Real Property,
the Company has good and marketable title to the assets of the Company, free and
clear of any Encumbrances. Such assets include without limitation all assets
reflected on the Interim Balance Sheet of HATSA or used for the conduct of the
Business. All tangible assets and properties are in good operating condition and
repair and are usable in the ordinary course of business and, to the Knowledge
of the Company and Sellers, conform in all material respects to all Applicable
Laws relating to their construction, use and operation.
2.19 Tax Matters. (a) To the Knowledge of Sellers and the Company, (i) the
Company is eligible to benefit from and is in compliance with the Temporary
Import Regime (RIT) through resolutions issued by the Ministry of Economy, which
expire in the year 1998; (ii) its current permit relating to such regime is in
good standing and (iii) such tax benefits include exemption from payment of
taxes and customs duties on imports of equipment and raw materials used in the
production and exportation of cigars and related products and exemption from
payment of income tax, for a 10 year period ending in 1998, on profits generated
by cigars and related products exports to foreign countries, excluding the
Central American region.
(b) The Company and Sellers have no Knowledge of any action to repeal
or diminish the tax benefits described above in this Section 2.19.
(c) To the Knowledge of Sellers and the Company, (i) The Company has
timely filed with appropriate taxing authorities all Returns and paid any Taxes
required to be filed or paid through the date hereof and will timely file any
such Returns and pay any Taxes
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required to be filed or paid on or prior to the Closing Date and (ii) the
Returns filed are complete and accurate in all material respects.
(d) To the Knowledge of Sellers and the Company, (i) no deficiencies
for Taxes have been claimed, proposed or assessed by any Governmental Authority
against the Company; (ii) there are no pending or threatened audits,
investigations or claims for or relating to any liability in respect of Taxes
and (iii) the Company (x) is not engaged in a United States trade or business
for federal income tax purposes and (y) is not a passive foreign investment
company within the meaning of the Code.
(e) To the Knowledge of Sellers and the Company, (i) the Company has
complied to date with all provisions regarding the Honduran temporary import
regime (regimen de importacion temporal) and all previous regimes relating to
tax benefits and (ii) its current Permit relating to such regime is in good
standing.
(f) To the Knowledge of Sellers and the Company, the Company has paid
to date all municipal fees and taxes regarding real estate, production, services
and delivers herewith the original certificates of compliance and permits to
operate issued by each of the municipal authorities in which the Company
operates.
(g) To the Knowledge of Sellers and the Company, the Company has
complied to date with all withholdings on employee salaries relative to income
tax, municipal tax, social security, training (INFOP), housing (RAP-FOSOVI) and
all other withholding mandated by law.
2.20 Environmental Compliance.
(a) Except as set forth on Disclosure Schedule Section 2.20 or as
would not have a Material Adverse Effect, to the Knowledge of the Company and
Sellers, the Company has obtained all Permits from all Governmental Authorities,
or from any other Person, that are required under any Environmental Law.
Disclosure Schedule Section 2.20 sets forth all
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Permits issued under any Environmental Law of the Company relating to the
Company or the Business.
(b) Except as set forth on Disclosure Schedule Section 2.20 or as
would not have a Material Adverse Effect, to the Knowledge of the Company and
Sellers, the Company is and has been in compliance since January 1, 1994, with
all terms and conditions of all Permits of all Governmental Authorities (and all
other Persons) required under all Environmental Laws and used in the Business or
that relate to the Company. To the Knowledge of the Company and Sellers, the
Company is and has been in compliance with all other limitations, restrictions,
conditions, standards, requirements, schedules and timetables required or
imposed under all Environmental Laws.
(c) To the Knowledge of the Company and Sellers, except as set forth
on Disclosure Schedule Section 2.20, there are no present or past events,
conditions, circumstances, incidents, actions or omissions relating to or in any
way affecting either the Company or the Business that violate or violated any
Environmental Law or may violate any Environmental Law after the Closing or that
may give or have given rise to any Environmental Liability, or otherwise form
the basis of any claim, action, demand, suit, Proceeding, hearing, study or
investigation (i) under any Environmental Law, or (ii) based on or related to
the manufacture, processing, distribution, use, treatment, storage (including
without limitation underground storage tanks), disposal, transport or handling,
or the emission, discharge, release or threatened release of any Hazardous
Substance.
2.21 Insurance. Disclosure Schedule Section 2.21 sets forth a list of each
insurance policy (respectively, an "Insurance Policy") currently or, to the
Knowledge of the Company and Sellers, (after reasonable investigation, including
contact with the Company's insurance brokers) at any time held by or on behalf
of or providing insurance coverage to the Company or, its business, property or
assets (or its directors, officers, salespersons, agents or employees),
including without limitation any "occurrence based" liability policies
regardless of the periods to which they relate. Each Insurance Policy which is
designated as a "Current Policy" on Disclosure Schedule Section 2.21 is, and at
the Closing Date will be, in full force and effect, without any material
amendments or modifications having been made
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thereto and with all premiums having been paid through the expiration dates
specified therein. The Company has not received any written notice of
non-renewal or notice of violation in connection with any Current Policy set
forth on Disclosure Schedule Section 2.21 or any written notice or request from
the insurance company which issued any Current Policy set forth in Disclosure
Schedule Section 2.21 or any board of fire underwriters requesting any work or
alteration with respect to the Real Property or any personal property owned or
used by the Company. Disclosure Schedule Section 2.21 also sets forth for each
Current Policy the type of coverage, the name of the insured, the insurer, the
premium, the expiration date, the period to which it relates, the deductibles
and loss retention amounts and the amounts of coverage.
2.22 Performance Bonds and Letters of Credit. Disclosure Schedule Section
2.22 sets forth all letters of credit and performance bonds to which the Company
is a party or under which the Company is obligated. Disclosure Schedule Section
2.22 also sets forth all letters of credit and performance bonds that relate to
properties or assets of the Company or relating to the Business to which the
Company is a party or under which the Company is bound.
2.23 Utilities. The Company has paid to date all utilities, including all
power company (ENEE), telephone company (HONDUTEL) and water supply charges and
it owes no amounts to the entities providing those services be it for service,
equipment, materials, fines or other matters.
2.24 Political Contributions. The Company has not made any payments to any
government official, political party or organization in Honduras.
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ARTICLE III
ACTIONS BY THE COMPANY AND BUYER PRIOR TO THE CLOSING
The Sellers and Buyer covenant as follows for the period from the date
hereof through the Closing Date:
3.1 Conduct of Business. From the date hereof until the Closing Date, the
Sellers shall join with John Oliva, one of the Other Stockholders ("Mr. Oliva"),
to instruct the Company to use its commercially reasonable best efforts to
conduct the Business in the ordinary course and cause the Company to use its
commercially reasonable best efforts to preserve intact the business
organizations and relationships and goodwill with third parties and keep
available the services of the present officers, employees, agents and other
personnel of the Company. Without limiting the generality of the foregoing, from
the date hereof until the Closing Date:
(a) except as required by Section 3.1(b) below, without the Buyer's
prior consent, the Company shall use commercially reasonable best efforts not
to:
(i) purchase or otherwise acquire assets from any other Person
other than in the ordinary course of business;
(ii) sell, assign, lease, license, transfer or otherwise dispose
of, or mortgage, pledge or encumber (other than with Permitted Liens), any
Real Property or amend, terminate or renew any Lease thereof;
(iii) subject to clause (ii) above, sell, assign, lease, license,
transfer or otherwise dispose of, or mortgage, pledge or encumber (other
than with Permitted Liens), any of its assets except in the ordinary course
of business;
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(iv) incur any Liability, except Liabilities incurred in the
ordinary course of business;
(v) amend or modify in any material respect or terminate any
Scheduled Contract or any other Contract entered into by the Company after
the date hereof which, if in existence on the date hereof, would be
required to be set forth on Disclosure Schedule Section 2.7(a) as a
Scheduled Contract (each, a "Subsequent Material Contract");
(vi) make or commit to make any capital expenditure, or group of
related capital expenditures, in excess of Fifty Thousand Dollars ($50,000)
for the Company, other than capital expenditures expressly required under
any Scheduled Contract;
(vii) enter into or commit or propose to enter into any
Subsequent Material Contract or enter into any Contract or understanding
with an Affiliate;
(viii) create, incur, assume or guarantee any Indebtedness for
Borrowed Money;
(ix) (1) increase the rate or terms of compensation payable or to
become payable to its directors, officers or employees, (2) pay or agree to
pay any pension, retirement allowance or other employee benefit not set
forth in Disclosure Schedule Section 2.17, (3) commit itself to any
pension, profit sharing, bonus, incentive, deferred compensation, stock
purchase, stock option, stock appreciation right, insurance, severance pay,
continuation pay, termination pay, retirement or other employee benefit
plan, agreement or arrangement not set forth in Disclosure Schedule Section
2.17, (4) enter into any employment agreement with or for the benefit of
any Person or (5) increase the rate of compensation under or otherwise
change the terms of any employment agreement;
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(x) make any change in its accounting methods or in the manner of
keeping its books and records (except as requested by Buyer);
(xi) amend its charter or bylaws; or
(xii) issue or commit to issue any shares of capital stock or
obligations or securities convertible into or exchangeable for capital
stock.
(b) the Company shall use commercially reasonable best efforts to:
(i) (1) maintain its assets in the ordinary course of business in
good operating order and condition, reasonable wear and tear, damage by
fire and other casualty excepted, (2) promptly repair, restore or replace
any assets in the ordinary course of business and (3) upon any damage,
destruction or loss to any of such assets, apply any and all insurance
proceeds received with respect thereto to the prompt repair, replacement
and restoration thereof to the condition of such assets before such event;
(ii) use commercially reasonable best efforts to comply in all
material respects with all material Applicable Laws;
(iii) use its commercially reasonable best efforts to obtain,
prior to the Closing Date, all Required Consents;
(iv) use its commercially reasonable best efforts to take all
actions necessary to be in compliance with all material respects with, and
to maintain the effectiveness of, all Permits;
(v) file on a timely basis (taking into account all applicable
extensions) all Returns which relate to the Company or its operations;
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(vi) notify the Buyer in writing of any action, event, condition
or circumstance, or group of actions, events, conditions or circumstances
that results in, or could reasonably be expected to result in, a Material
Adverse Effect, other than changes in general economic or industry-related
conditions, such notification to be provided to the Buyer promptly after
the occurrence of any such action, event, condition or circumstances, or
group thereof;
(vii) notify the Buyer in writing of the commencement of any
Proceeding by or against the Company or of becoming aware of any threat,
claim, action, suit, inquiry, proceeding, notice of violation, demand
letter, subpoena, government audit or disallowance that could reasonably be
expected to result in a Proceeding, such notification to be provided to the
Buyer promptly after such commencement or Sellers or the Company becoming
aware thereof;
(viii) notify the Buyer in writing of the occurrence of any
breach of any representation or warranty, or any covenant or agreement,
contained in this Agreement, promptly after any Seller becomes aware of any
such breach;
(ix) pay accounts payable and pursue collection of its accounts
receivable in the ordinary course of business; and
(x) make any filings necessary to enable the Company to maintain
its current tax holiday status.
3.2 Investigation by Buyer. From the date hereof until the Closing Date,
the Company shall provide to Buyer's Representatives during regular business
hours reasonable access to the business, officers, properties, books and records
of (or relating to) the Company, as Buyer reasonably deems necessary or
advisable. The Company will furnish to Buyer's Representatives such financial
and operating data and other information relating to the Company as Buyer may
reasonably request and will instruct the directors, officers, key employees,
counsel, auditors and financial advisors of the Company to cooperate with
Buyer's Representatives in their investigation of the Company.
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3.3 No Continuing Negotiations. Until the earlier of the Closing, or the
termination of this Agreement pursuant hereto, neither Seller nor the Company,
nor any Affiliate, Associate or Representative of any of the foregoing, shall
initiate, solicit or entertain any proposals or offers from any Person relating
to, or enter into or participate in any negotiations with, or enter into any
agreement or understanding with, or provide any confidential information to
(including, without limitation, by way of furnishing any non-public information
concerning, or afford any access to, the business, offices, properties or
assets, or the books, records, officers, directors, employees, agents or
Representatives of the Company), any Person in connection with the sale of any
shares of capital stock or other securities of the Company or of all or
substantially all of the assets of the Company (or any interest therein), or any
investment in the Company or any merger, consolidation or other similar
transaction involving the Company (each of the foregoing is referred to as a
"Third Party Transaction"). If the Sellers, Mr. Oliva or, to Sellers' Knowledge,
the Company shall receive any written proposal regarding a Third Party
Transaction, the Company or such Seller, as the case may be, shall within three
Business Days notify Buyer of such proposal regarding a Third Party Transaction
and shall, in any such notice to Buyer, indicate in reasonable detail the
identity of the offeror and the general terms of such proposal. No information
of any nature shall be furnished to any Person other than Representatives of
Buyer during such period with respect to Affiliates of the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Sellers as follows:
4.1 Organization of Buyer. Buyer is duly incorporated and validly existing
as a corporation in good standing under the laws of the State of Delaware and
has full corporate power to conduct its business as it is presently being
conducted and to own and lease its properties.
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4.2 Authorization. Buyer has the corporate power to execute and deliver
this Agreement and to consummate the transactions contemplated hereby, and all
requisite corporate action has been taken by the Board of Directors of Buyer to
authorize the execution, delivery and performance of this Agreement by Buyer.
This Agreement has been duly executed and delivered by Buyer and, assuming the
due execution of this Agreement by Sellers and the Company is a valid and
binding obligation of Buyer except as enforceability may be limited by
bankruptcy, insolvency or other similar laws affecting creditors' rights
generally and except where enforceability is subject to the application of
equitable principles or remedies.
4.3 Consents and Approvals. No consent, approval or authorization of any
governmental or regulatory authority or any other Person is required to be made
or obtained by Buyer or any of its Affiliates in connection with the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby.
4.4 No Brokers. Neither Buyer nor any Affiliate of Buyer has entered into
or will enter into any contract, agreement, arrangement or understanding with
any Person which will result in the obligation of Sellers, the Company or Buyer
to pay any finder's fee, brokerage commission or similar payment in connection
with the transactions contemplated hereby.
4.5 No Conflict or Violation. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
result in (a) a violation of or a conflict with any provision of the charter or
bylaws of Buyer, (b) a breach of, or a default under, any term or provision of
any contract or agreement to which Buyer is a party, which breach or default
would prevent Buyer from consummating the transactions contemplated hereby or
(c) a violation by Buyer of any statute, rule, regulation, ordinance, code,
order, judgment, writ, injunction, decree or award, which violation would
prevent Buyer from consummating the transactions contemplated hereby.
4.6 Litigation. (i) There are no Proceedings pending or, to the Knowledge
of Buyer, threatened, against or involving Buyer which seek to enjoin or rescind
the transactions contemplated by this Agreement; and (ii) there are no existing
orders, judgments or
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decrees of any Governmental Authority naming Buyer as an affected party which
would, in either case, prevent Buyer from performing its obligations under this
Agreement.
4.7 Compliance with Law. To its Knowledge, Buyer is and, for the period of
the applicable statute of limitations, as extended, has been in compliance in
all material respects with all Applicable Laws, except where non-compliance
would not prevent Buyer from performing its obligations under this Agreement.
ARTICLE V
CLOSING
5.1 Closing. The closing of the transactions contemplated herein (the
"Closing") shall be held at 9:00 a.m. local time on the Closing Date at the
offices of Latham & Watkins, 885 Third Avenue, New York, New York 10022, or at
such other place and time as the parties may agree. Buyer, Sellers and the
Company agree that, subject to the terms and conditions of this Agreement, they
shall each use their reasonable best efforts to cause the Closing to occur on
January 15, 1997 or as promptly thereafter as practicable.
5.2 Documents to be Delivered.
(a) At the Closing, the Sellers will deliver the following to Buyer:
(i) stock certificates representing all of the Stock, together
with duly executed stock powers;
(ii) all stock books, shareholders' record books, and minute
books of the Company
(iii) all powers of attorney of the Company;
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(iv) such other documents as are required to be delivered
pursuant to Article VII.
(b) At the Closing, Buyer will deliver to the Sellers the Purchase
Price and such documents as are required to be delivered pursuant to Article VI.
ARTICLE VI
CONDITIONS TO SELLERS' OBLIGATIONS
The obligations of Sellers to consummate the transaction contemplated
hereby on the Closing Date are subject, in the discretion of Sellers, to the
satisfaction or waiver, on or prior to the Closing Date, of each of the
following conditions:
6.1 Representations, Warranties and Covenants. All representations and
warranties of Buyer contained in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing Date as
if such representations and warranties were made at and as of the Closing Date,
and Buyer shall have performed in all material respects all agreements and
covenants required hereby to be performed by it prior to or at the Closing Date.
6.2 Consents. All consents, approvals and waivers from Governmental
Authorities and other parties necessary to permit the Sellers to consummate the
transactions contemplated hereby shall have been obtained.
6.3 No Governmental or Other Proceeding or Litigation. No Proceeding by any
Governmental Authority or other Person shall be pending or threatened which (i)
questions the validity or legality of the transactions contemplated hereby, or
(ii) could reasonably be expected to cause any of the transactions contemplated
by this Agreement to be rescinded following consummation.
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6.4 Opinion of Counsel. Buyer shall have delivered to the Sellers an
opinion or opinions of counsel to Buyer on terms reasonably acceptable to the
Sellers.
6.5 Certificates. Buyer shall have delivered to the Sellers such
certificates of Buyer signed by its officers to evidence compliance with the
conditions set forth in this Article VI as may be reasonably requested by the
Sellers.
6.6 Contemporaneous and Contingent Transactions. The closing of the
purchase by Buyer of the assets and business of Villazon, pursuant to the
Villazon Agreement shall occur concurrently with the Closing. Except insofar as
the closing of the Villazon Agreement is contingent upon the Closing, the
Closing is contingent upon and shall occur concurrently with the closing of the
purchase by Buyer of certain assets of Villazon pursuant to the Villazon
Agreement.
6.7 Additional Shareholders. Buyer shall ensure that the Company has at
least five shareholders (including Buyer) immediately following the Closing.
ARTICLE VII
CONDITIONS TO BUYER'S OBLIGATIONS
The obligations of Buyer to consummate the transactions contemplated hereby
are subject, in the discretion of Buyer, to the satisfaction or waiver, on or
prior to the Closing Date, of each of the following conditions:
7.1 Representations, Warranties and Covenants. All representations and
warranties of the Sellers contained in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and as of the Closing
Date as if such representations and warranties were made at and as of the
Closing Date, and the Sellers shall have performed in all material respects all
agreements and covenants required hereby to be performed by them prior to or at
the Closing Date.
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7.2 Consents. All Required Consents from Governmental Authorities and the
Required Consents from other necessary parties shall have been obtained.
7.3 No Governmental or Other Proceeding or Litigation. No Proceeding by any
Governmental Authority or other Person shall be pending or threatened which (i)
questions the validity or legality of the transactions contemplated hereby, (ii)
could reasonably be expected to have a Material Adverse Effect, or (iii) could
reasonably be expected to cause any of the transactions contemplated by this
Agreement to be rescinded following consummation.
7.4 Opinion of Counsel. The Sellers shall have delivered to Buyer an
opinion or opinions of counsel for the Sellers and the Company, reasonably
acceptable to Buyer.
7.5 No Material Degradation of Assets. Since the date of this Agreement,
there shall have been no change in condition of the tangible assets of the
Company except for such changes which, in the aggregate, have not had and will
not have a Material Adverse Effect.
7.6 Receipt of Audit Report. Buyer shall have received the report of its
independent public accountants in form satisfactory to file a Form S1
Registration Statement under the Securities Act of 1933, as amended which report
shall confirm that the Financial Statements were prepared in accordance with
Accounting Principles and were complete and correct.
7.7 Tax Matters.
(a) The Tax benefits described in Section 2.19 shall not have been
rescinded or reduced, nor shall notice of any such action have been received by
the Company.
(b) The Company shall have provided Buyer with all forms, certificates
and/or other instruments reasonably requested by Buyer required by Honduran Tax
law to effect the transfer of the Stock to Buyer.
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(c) The Sellers shall have delivered certificates from relevant
authorities confirming the payment by the Company of all applicable property and
municipal Taxes.
7.8 Contemporaneous and Contingent Transactions. The closing of the
purchase by Buyer of the assets and business of Villazon, pursuant to the
Villazon Agreement shall occur concurrently with the Closing. Except insofar as
the closing of the Villazon Agreement is contingent upon the Closing, the
Closing is contingent upon and shall occur concurrently with the closing of the
purchase by Buyer of certain assets of Villazon pursuant to the Villazon
Agreement.
7.9 Certificates. Sellers shall furnish Buyer with such certificates of
each Seller to evidence compliance with the conditions set forth in this Article
VII as may be reasonably requested by Buyer.
ARTICLE VIII
ACTIONS BY SELLERS AND BUYER AFTER THE CLOSING
8.1 Books and Records. Sellers and the Buyer agree that for a period of
five (5) years after the Closing Date, each party (at its expense) shall have
the right to inspect and to make copies of any books, records and files relating
to the business, properties, assets or operations of the Company, to the extent
that they pertain to the operations of the Company prior to the Closing Date and
remain in existence and available, at any time during business hours for any
proper purpose.
8.2 Further Assurances. On and after the Closing Date, Sellers and Buyer
will take, and Sellers will exercise the powers of attorney given to them by the
Other Stockholders to take, all appropriate action and execute all documents,
instruments or conveyances of any kind which may be reasonably necessary or
advisable to carry out any of the provisions hereof, including without
limitation, putting Buyer in possession and operating control of the Business
and the Company.
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8.3 Litigation Support. In the event and for so long as any party hereto or
their respective successors or assigns is contesting or defending against any
Proceeding in connection with (i) any transaction contemplated by this Agreement
or (ii) any fact, situation, circumstance, status, condition, activity,
practice, plan, occurrence, event, incident, action, failure to act, or
transaction on or prior to the Closing Date involving the Company, the other
party or parties hereto and the Sellers (and their respective successors and
assigns) will cooperate with such party or such Seller and its counsel in the
contest or defense, make available their personnel, and provide such testimony
and access to their books and records as shall be necessary, in connection with
the contest or defense, all at the sole cost and expense of the contesting or
defending party (unless the contesting or defending party is entitled to
indemnification thereof under this Agreement).
ARTICLE IX
INDEMNIFICATION
9.1 Agreement to Indemnify.
(a) Buyer and each Affiliate of Buyer, (Buyer and each such Affiliate
is a "Buyer Indemnitee") shall be indemnified and held harmless to the extent
set forth in this Article IX by the Sellers, jointly and severally in respect of
any and all Losses (other than Losses relating to Taxes which are indemnified as
set forth in Section 9.5 below and Losses relating to product liability which
are indemnified as set forth in Section 9.8) in connection with, arising out of,
or as a result of any inaccuracy or misrepresentation in or breach of any
representation, warranty, covenant or agreement made in this Agreement by any
Seller.
(b) The Sellers (each a "Seller Indemnitee") shall be indemnified and
held harmless to the extent set forth in this Article IX by Buyer in respect of
(i) any and all Losses in connection with, arising out of, or as a result of any
inaccuracy or misrepresentation in or breach of any representation, warranty,
covenant or agreement made
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in this Agreement by Buyer or (ii) payment by Sellers of any Liability of the
Company incurred after the Closing Date.
9.2 Survival of Representations, Warranties and Covenants.
(a) Except as hereinafter provided in this Section 9.2, and except for
indemnification obligations set forth in Section 10.7 of the Villazon Agreement
(which are incorporated herein by reference pursuant to Section 9.8 and survive
without limitation) and expense reimbursement obligations set forth in Section
10.8 of the Villazon Agreement (which are incorporated herein by reference
pursuant to Section 9.8 and survive for a five year period), all
representations, warranties, covenants, agreements and obligations of each of
Buyer and the Sellers (each, an "Indemnifying Party") contained herein and all
claims of any Buyer Indemnitee or Seller Indemnitee (each, an "Indemnitee") in
respect of any breach of any representation, warranty, covenant, agreement or
obligation of any Indemnifying Party contained in this Agreement, shall survive
the Closing and shall expire two years after the Closing Date.
(b) Each of the following representations, warranties, covenants,
agreements and obligations of the Sellers as Indemnifying Parties shall survive
the Closing Date until the expiration of sixty (60) days following any
applicable statute of limitations, including extensions thereof: (i) the
inaccuracy or misrepresentation in or breach of any representation, warranty,
covenant or agreement made by any Seller any time in this Agreement arising out
of fraud, or willful misconduct; (ii) any inaccuracy or misrepresentation in or
breach of any representation or warranty made in any representation as to Taxes
regardless of whether or not such inaccuracy or misrepresentation or breach
arises out of fraud, gross negligence or willful misconduct (which shall be
considered as set forth in Section 9.5 below); and (iii) the breach or failure
to perform by any Seller after the Closing Date of any of the covenants,
agreements or obligations of the Sellers contained in this Agreement.
(c) The termination of the representations and warranties provided
herein shall not affect the rights of any Buyer Indemnitee or Seller Indemnitee
(as applicable) in
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respect of any claim for indemnity made by such Indemnitee in a writing received
by the Indemnifying Party prior to the expiration of the applicable survival
period provided herein.
9.3 Claims for Indemnification. If any Buyer Indemnitee or Seller
Indemnitee (as applicable) shall believe that such Indemnitee is entitled to
indemnification pursuant to this Article IX in respect of any Losses, such
Indemnitee shall give the appropriate Indemnifying Party prompt written notice
thereof. Any such notice shall set forth in reasonable detail and to the extent
then known the basis for such claim for indemnification. The failure of such
Indemnitee to give notice of any claim for indemnification promptly shall not
adversely affect such Indemnitee's right to indemnity hereunder except to the
extent that such failure adversely affects the right of the Indemnifying Parties
to assert any reasonable defense to such claim. Each such claim for indemnity
shall expressly state that the Indemnifying Party shall have only the twenty
(20) Business Day period referred to in the next sentence to dispute or deny
such claim. The Indemnifying Party shall have twenty (20) Business Days
following its receipt of such notice either (y) to acquiesce in such claim by
giving such Indemnitee written notice of such acquiescence or (z) to object to
the claim by giving such Indemnitee written notice of the objection. If the
Indemnifying Party does not object thereto within such twenty (20) Business Day
period, such Indemnitee shall be entitled to be indemnified for all Losses
reasonably incurred by such Indemnitee in respect of such claim.
9.4 Defense of Claims. In connection with any claim which may give rise to
indemnity under this Article IX resulting from or arising out of any claim or
Proceeding against an Indemnitee by a Person that is not a party hereto, the
Indemnifying Party may (unless such Indemnitee elects not to seek indemnity
hereunder for such claim), upon written notice to the relevant Indemnitee,
assume the defense of any such claim or Proceeding if the Indemnifying Party
with respect to such claim or Proceeding acknowledges in writing to the
Indemnitee the Indemnitee's right to indemnity pursuant hereto in respect of the
entirety of such claim (as such claim may have been modified through written
agreement of the Indemnitee(s) and the Indemnifying Party) and provide
assurances, satisfactory to such Indemnitee, that the Indemnifying Party will be
financially able to satisfy such claim in full if such claim or Proceeding is
decided adversely. If the Indemnifying Party assumes the
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defense of any such claim or Proceeding, the Indemnifying Party shall select
counsel reasonably acceptable to such Indemnitee to conduct the defense of such
claim or Proceeding, shall take all steps necessary in the defense or settlement
thereof and shall at all times diligently and promptly pursue the resolution
thereof.
9.5 Tax Indemnification and Other Matters.
Notwithstanding anything to the contrary in the Agreement, each Seller
shall jointly and severally indemnify, save and hold harmless Buyer, the Company
and each Buyer Indemnitee from and against any and all Losses incurred in
connection with, arising out of, resulting from or relating to (i) any fact
inconsistent with, or any untruth or inaccuracy of, any representation or
warranty of any of the Sellers contained in Section 2.19, (ii) any and all Taxes
with respect to all periods ending on or prior to the Closing Date (including
the amount of Taxes which would have been paid but for the application of any
credit or net operating loss or capital loss deduction).
9.6 Offset Rights. Anything in this Agreement to the contrary
notwithstanding, Buyer may withhold and set off against the Installment Notes
any amount as to which Buyer reasonably believes any Seller is obligated to
indemnify any Buyer Indemnitee pursuant to this Article IX. With respect to any
amount as to which Buyer claims a right of set-off hereunder (a "Set-Off
Amount"), Buyer shall be entitled to cease making payments to the holders of the
Installment Notes to the extent of the Set-Off Amount hereunder upon
commencement of such indemnification claim and shall instead pay when due any
such amounts due under such Installment Notes to an escrow account or as
otherwise directed by a court of competent jurisdiction until such time as the
parties have agreed, or a court of competent jurisdiction has determined, the
amount of the Sellers' indemnification obligations hereunder. The escrow agent
shall be selected by Buyer and shall be reasonably satisfactory to the Sellers.
The escrow account shall be established on terms such that Payments may only be
made from such escrow account in accordance with an order of a court of
competent jurisdiction or upon the joint authority of a Seller and Buyer. Each
party shall execute and deliver to the other parties such documentation
acknowledging their obligations under this Section 9.6 as the other parties
shall reasonably require.
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9.7 Limitation on Indemnification. The indemnification obligations of the
Sellers and Buyer pursuant to Section 9.1(a) hereof and Sections 10.1(a) and
10.7(c) of the Villazon Agreement or Section 9.1(b) hereof and Section
10.1(b)(i) of the Villazon Agreement (as applicable) shall not be effective
until the aggregate dollar amount of all Losses which would otherwise be
indemnifiable pursuant to Section 9.1(a) hereof and Sections 10.1(a) and 10.7(c)
of the Villazon Agreement or Section 9.1(b) hereof and Section 10.1(b)(i) of the
Villazon Agreement, as the case may be, exceeds Two Hundred Fifty Thousand
Dollars ($250,000) and then such indemnification obligation shall apply only to
Losses in excess of $250,000 provided, however, that any trade payable of the
Company incurred in the ordinary course of business but not reflected on the
Closing Date Balance Sheet and which, had it been so reflected, would not have
reduced the Net Worth below $4,635,000, shall not be treated as a Loss for the
purpose of this Section 10.6.. The indemnification obligations pursuant to
Sections 9.1(a) hereof and Sections 10.1.(a) and 10.7(c) of the Villazon
Agreement shall be limited to an aggregate amount of Five Million Dollars
($5,000,000) and the indemnification obligations set forth in Section 9.1(b)
hereof and Section 10.1(b)(i) of the Villazon Agreement shall be limited to an
aggregate amount of Five Million Dollars ($5,000,000). The limitations on the
indemnification obligations, as set forth in this Section 9.7, shall not apply
to (i) any breach of a representation or warranty which arises as a result of
fraud or failure to close the transactions the subject of this Agreement (except
pursuant to the terms of this Agreement) by the Indemnifying Party, or (ii) for
any breach of the representations and warranties set forth in Sections 2.1, 2.2,
2.3, 2.4, 2.14, the second sentence of Section 2.18(a), the third and fourth
sentences of Section 2.18(b), the first two sentences of Section 2.18(g) and
Sections 2.19, 4.1, 4.2 or 4.4.
9.8 Responsibility for Products; Contributions Toward Expenses. The terms
of Sections 10.7 and 10.8 of the Villazon Agreement are incorporated by
reference herein and made applicable to Sellers, the Company and Buyer under
this Agreement to the same extent as applied to Stockholders, Sellers and Buyer
under the Villazon Agreement, it being understood that (i) any amounts
indemnified under this Agreement and the Villazon Agreement shall be aggregated
for purposes of calculating the limitation on indemnity set forth in Section 9.7
of this Agreement and Section 10.6 of the Villazon Agreement and (ii)
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any amounts contributed toward expenses with respect to HATSA or Villazon as
provided by Section 10.8 of the Villazon Agreement shall be aggregated for
purposes of determining the $1,000,000 limitation set forth therein.
ARTICLE X
MISCELLANEOUS
10.1. Termination. This Agreement may be terminated at any time prior to
the Closing:
(a) by mutual written agreement of the Buyer and the Sellers; or
(b) by the Buyer or the Sellers, if the Closing shall not have
occurred prior to February 1, 1997 (the "Termination Date", as extended as
provided below); provided that (i) if the date of execution of this Agreement is
after December 13, 1996, such Termination Date shall be extended to a date 45
days following the date hereof and (ii) if the applicable waiting period,
including any extensions thereof, under the HSR Act in respect of the filing
made pursuant to the Villazon Agreement shall not have expired by such date,
then the Termination Date shall be extended to a date 5 Business Days following
expiration of any such applicable waiting period.
Time shall be of the essence in this Agreement. In the event of
termination of this Agreement as provided in this Section 10.1, this Agreement
shall forthwith become void and there shall be no liability on the part of any
party hereto except (i) as set forth in Sections 10.9 and 10.10 of this
Agreement and (ii) that nothing herein shall relieve any party from liability
for any wilful breach hereof. No party shall have a right to terminate this
Agreement if the Closing shall not have occurred because of a breach by such
party of its obligations hereunder.
10.2 Assignment. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by Sellers without the prior written
consent of Buyer, or by
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Buyer (other than to the Parent) without the prior written consent of Sellers.
Subject to the foregoing, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns, and
no other Person shall have any right, benefit or obligation hereunder.
10.3 Notices. Unless otherwise provided herein, any notice, request,
instruction or other documents to be given hereunder by any party to the others
shall be in writing and effective when delivered in person or by courier (with a
receipt obtained therefor), telegraphed, telexed or by facsimile transmission,
if a facsimile number is set forth in respect of such party below (with an
executed copy mailed as described below), or effective on the date receipt is
acknowledged when mailed by certified mail, postage prepaid, return receipt
requested, as follows:
If to Buyer: Culbro Corporation
387 Park Avenue South
New York, New York 10016-8899
Attention: A. Ross Wollen, Esq.
Senior Vice President and General Counsel
Facsimile No.: (212) 561-8791
With a copy to: Latham & Watkins
885 Third Avenue
New York, New York 10027
Attention: Frederick M. Danziger, Esq.
Facsimile No.: (212) 751-4864
If to Sellers: Daniel Blumenthal
80 Chestnut Ridge Road
Saddle River, New Jersey 07453
and to: Frank Llaneza
5122 San Jose Street
Tampa, Florida 33629
With a copy to: Fowler, White, Gillen, Boggs, Villareal and Banker, PA
501 East Kennedy Boulevard (Suite 1700)
Tampa, Florida 33601
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Attention: Mark T. Tate, Jr., Esq.
Facsimile (813) 229-8313
and to: Braverman & Lester
374 Main Street
Hackensack, NJ 07601
Attention: Gordon Braverman
Facsimile: (201) 487-4026
or to such other place and with such other copies as any party may designate as
to itself by written notice to the others.
10.4 Choice of Law. This Agreement shall be construed, interpreted and the
rights of the parties determined in accordance with the internal laws of the
State of New York, without regard to the conflict of law principles thereof
except with respect to matters of law concerning the internal corporate affairs
of any corporate entity which is a party to or the subject of this Agreement,
and as to those matters the law of the jurisdiction under which the respective
entity derives its powers shall govern.
10.5 Entire Agreement; Amendments and Waivers. This Agreement together with
the Confidentiality Agreements, constitutes the entire agreement between the
parties pertaining to the subject matter hereof and supersedes all prior or
contemporaneous agreements, understanding, negotiations and discussions, whether
oral or written, of the parties. No supplement, modification or waiver of this
Agreement shall be binding unless executed in writing by all parties. No waiver
of any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provision hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver unless otherwise expressly provided.
10.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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10.7 Invalidity. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect after Closing, such invalidity, illegality, or unenforceability shall
not affect any other provision of this Agreement or any other such instrument.
10.8 Headings. The headings of the articles and Sections herein are
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
10.9 Expenses. The Sellers and Buyer shall each be liable for their own
costs and expenses incurred in connection with the negotiation, preparation,
execution or performance of this Agreement.
10.10 Publicity. The parties agree to notify each other prior to issuing
any press release or making any public statement regarding the transactions
contemplated hereby, and will attempt to obtain the reasonable approval of the
other parties prior to making such release or statement, and the parties hereto
shall issue a mutually acceptable press release as soon as practicable after the
Closing Date.
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10.11 Authority of Sellers. The Sellers shall have delivered to the Buyer
the letters attached hereto as Exhibit B.
10.12 Tax Filing. Buyer acknowledges that it may be required to make a
filing in early 1997 to preserve the Company's tax status.
10.13 Supplemental Schedules. The Company may provide and/or supplement the
schedules required hereby until December 31, 1996; provided, however, that any
material disclosures made after the date hereof shall constitute a condition to
Buyer's obligation to close under Article VII.
ARTICLE XI
DEFINITIONS
11.1 Defined Terms. As used herein, the terms below shall have the
following meanings:
"Accounting Principles" means GAAP, applied on a consistent basis with the
past practice of the Company; provided that FASB 52 relating to currency
translations shall not be observed or reflected with respect to the Company.
"Affiliate" shall mean a Person that directly or indirectly through one or
more intermediaries controls, is controlled by, or is under common control with
the Person specified.
"Agreement" shall mean this Stock Purchase Agreement, together with the
Disclosure Schedule and all exhibits referenced herein.
"Annual Financial Statements" shall mean the balance sheet as of December
31, 1995 and the related statement of operations, stockholders' equity and cash
flows for the year ended December 31, 1995 of the Company attached hereto as
Exhibit B.
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"Applicable Law or Laws" shall mean, with respect to any Person, any
domestic, foreign, federal, state or local statute, law, ordinance, rule,
regulation, order, writ, injunction, directive, judgment, decree or other
requirement, all as in effect as of the Closing, of any Governmental Authority
(including any Environmental Law) applicable to such Person or any of its
Affiliates or any of their respective properties, assets, officers, directors,
employees, consultants or agents (in connection with such officer's, director's,
employee's, consultant's or agent's activities on behalf of such Person or any
of its Affiliates).
"Associate" shall mean, when used to indicate a relationship with any
Person, (a) any other Person of which such Person is an officer or partner or
is, directly or indirectly, the beneficial owner of ten percent (10%) or more of
any class of equity securities issued by such other Person, (b) any trust or
other estate in which such Person has a substantial beneficial interest or as to
which such Person serves as trustee or in a similar fiduciary capacity, and (c)
any relative or spouse of such Person, or any relative of such spouse who has
the same home as such Person or who is a director or officer of such Person or
any Affiliate thereof.
"Business" shall mean the business as currently conducted by the Company,
including without limitation the business of manufacturing and distributing
cigars and associated products.
"Business Day" shall mean any day other than a Saturday, a Sunday or a day
on which commercial banking institutions in New York New York are authorized or
obligated by law or executive order to be closed
"Closing Date" shall mean January 15, 1997 or, if later, the fifth Business
Day following the date on which all conditions set forth in Article VI and VII
hereof shall have been satisfied or waived, provided however that the Closing
shall be deemed effective as of 12.01 a.m. New York City time on January 1,
1997.
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"Code" shall mean the Internal Revenue Code of 1986, as it may be amended
from time to time.
"Confidentiality Agreements" shall mean the confidentiality agreements
between Culbro Corporation and Villazon dated August 26, 1996 and October 14,
1996.
"Contract" shall mean any written agreement, understanding, arrangement,
contract, note, loan, evidence of indebtedness, purchase, order, letter of
credit, indenture, security or pledge agreement, franchise agreement,
undertaking, practice, covenant not to compete, employment agreement, license,
instrument, obligation or commitment to which the Company is a party or is bound
and which relates to the Business or the Company.
"Disclosure Schedule" shall mean a schedule attached hereto and delivered
by Sellers to Buyer which sets forth exceptions to the representations and
warranties contained herein and other provisions of this Agreement.
"Encumbrance" shall mean, with respect to any asset, any Lien, adverse
claim, easement, right of way, zoning or building restriction, or any other
right of others or other adverse interest of any kind, including without
limitation any lease, chattel mortgage, conditional sales contract, collateral
security arrangement and other title or interest retention arrangement with the
exception of Permitted Liens.
"Environmental Laws" shall mean all Applicable Laws relating to the
protection of human health or the environment including, without limitation: (i)
all requirements pertaining to reporting, licensing, permitting, controlling,
investigating or remediating emissions, discharges, releases or threatened
releases of Hazardous Substances, chemical substances, pollutants, contaminants
or toxic substances, materials or wastes, whether solid, liquid or gaseous in
nature, into the air, surface water, groundwater or land; (ii) all requirements
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transports or handling of Hazardous Substances, chemical substances,
pollutants, contaminants or toxic substances, materials or wastes, whether
solid, liquid or gaseous in nature.
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"Environmental Liabilities" shall mean all Liabilities of a Person (whether
such Liabilities are owed by such Person to Governmental Authorities, third
parties or otherwise) whether currently in existence or arising hereafter which
arise under or relate to any Environmental Law.
"Financial Statements" shall mean the Annual Financial Statements and the
Interim Financial Statements.
"GAAP" shall mean generally accepted accounting principles in the United
States as in effect on the date hereof.
"Governmental Authority" shall mean any foreign, domestic, federal, state
or local governmental authority, quasi-governmental authority, instrumentality,
court, government or self-regulatory organization, commission, tribunal or
organization or any regulatory, administrative or other agency, or any political
or other subdivision, department or branch of any of the foregoing.
"Hazardous Substances" shall mean any substance or material: (i) the
presence of which requires remediation under any Environmental Law; or (ii) the
generation, storage, treatment, transportation, disposal, remediation, removal,
handling or management of which is regulated by any Environmental Law; or (iii)
that is defined as a "hazardous waste" or "hazardous substance" under any
Environmental Law; or (iv) that is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic or mutagenic or otherwise hazardous and is
regulated under any Environmental Law; or (v) without limitation, that contains
gasoline, diesel fuel or other petroleum hydrocarbons, polychlorinated biphenols
(PCBs) or asbestos.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and all applicable regulations promulgated thereunder.
"Indebtedness for Borrowed Money" of any Person shall mean, at any date,
without duplication, (i) any obligation of such Person for borrowed money,
properly recordable
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under generally accepted accounting principles as a liability on the financial
statements of such Person, (ii) all obligations of such Person, properly
recordable under GAAP as a liability on the financial statements of such Person,
evidenced by bonds, debentures, notes, or other similar instruments, (iii) all
Indebtedness for Borrowed Money (as defined in clauses (i) and (ii) above) of
others secured by a lien on any asset of such Person, whether or not such
Indebtedness for Borrowed Money is assumed by such Person provided that leases
for automobiles shall not be so included, and (iv) all Indebtedness for Borrowed
Money (as defined in clauses (i) and (ii) above) of others guaranteed by such
Person.
"Installment Notes" shall have the same meaning as set forth in the
Villazon Agreement.
"Interim Financial Statements" shall mean the unaudited balance sheet as of
October 31, 1996 of the Company attached hereto as Exhibit B (the "Interim
Balance Sheet of HATSA") and the related statement of operations, stockholders'
equity and cash flows for the period ended October 31, 1996 of the Company.
"Knowledge" shall mean, with respect to any Person, the knowledge of such
Person (after reasonable inquiry), if an individual, or if the Knowledge of
Sellers, the knowledge of Mr. Llaneza and Mr. Blumenthal, or if the knowledge of
the Company, the knowledge of Mr. Llaneza, Mr. Blumenthal, Mr. Oliva, Cesar
Lopez, Estelo Padron, Edgardo Dumas Rodriguez and Marcos Lean.
"Leasehold Estates" shall mean, all of the Company's rights and obligations
as Lessee under the Leases.
"Leases" shall mean all of the existing Leases or licenses of real or
personal property of the Company set forth on Disclosure Schedule Section 2.7 or
Section 2.18, and leases with respect to personal property of the Company which
are not required to be set forth on Disclosure Schedule 2.7.
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"Lien" shall mean with respect to any asset of the Company, any mortgage,
title defect or objection, lien, pledge, option, security interest or
hypothecation, restriction, encumbrance or charge of any kind in respect of such
asset.
"Losses" shall mean, in respect of any obligation to indemnify any Person
pursuant to Article IX of this Agreement, any and all actual losses, damages,
liabilities, obligations, judgments, settlements, awards, and offsets which the
Indemnified Party may suffer or incur (together, "Damages"), and reasonable
out-of-pocket costs, expenses and attorneys' fees relating to Damages (including
any such reasonable costs, expenses and attorneys' fees incurred in enforcing
such right of indemnification against any Indemnifying Party or with respect to
any appeal) plus interest on such out-of-pocket costs, expenses and attorneys'
fees at the rate of interest set forth in the Stockholder Loan Notes from the
date paid by the Indemnitee until the date on which the indemnity payment for
such out-of-pocket costs, expenses and attorneys' fees is received, and
penalties, fines or punitive or exemplary damages, if any.
"Material Adverse Effect" shall mean a material adverse effect on the
financial condition, results of operations, business or assets of the Company
taken as a whole.
"Net Income of HATSA" shall mean the net income of the Company for the
period specified determined in accordance with Accounting Principles, as set
forth on the income statement(s) of HATSA for such period.
"Net Worth" shall have the same meaning as set forth in the Villazon
Agreement.
"Parent" shall mean General Cigar Holdings, Inc.
"Person" shall mean an individual, a partnership, a corporation, a trust,
an unincorporated organization, a government or any department or agency thereof
or any other entity.
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"Permits" shall mean all licenses, permits, orders, consents, approvals,
registrations, authorization, qualifications and filings with and under all
federal, state or local laws and governmental or regulatory bodies and all
industry or other nongovernmental self-regulatory organization, necessary or
desirable for the past or present conduct of, or relating to the operation of,
the Business.
"Permitted Liens" shall mean (i) mechanics, materialmen's and similar Liens
with respect to any amounts incurred in the ordinary course of business which
are either not yet due and payable or which are being contested in good faith
through appropriate proceedings, (ii) Liens for Taxes not yet due and payable or
Liens for Taxes (A) which are being contested in good faith through appropriate
proceedings and (B) and for which adequate reserves have been established in
accordance with GAAP, (iii) Liens securing rental payments under capital lease
agreements, (iv) easements, covenants, conditions and other restrictions on
Owned Real Property that do not materially interfere with the present uses of
such real property.
"Representative" shall mean any officer, director, principal, attorney,
accountants, auditor, agent, employee, financial advisors or other
representative.
"Return" shall mean any United States or foreign federal, state, or local
tax return, declaration, report, estimate, information return, statement or
form.
"Required Consents" shall mean the consents so designated on the Disclosure
Schedule.
"Stock" shall mean all of the outstanding capital stock of the Company.
"Stockholder Loan Notes" shall have the same meaning as set forth in the
Villazon Agreement.
"Tax(es)" shall mean all taxes, estimated taxes, withholding taxes,
assessments, levies, imposts, fees and other charges, however denominated,
including any interest,
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penalties, additions to tax or additional amounts that may become payable in
respect thereof, imposed by any foreign, federal, state, or local government,
which taxes shall include, without limitation, all income taxes, payroll and
employee withholding taxes, unemployment insurance, social security, sales and
use taxes, excise taxes, franchise taxes, gross receipts taxes, occupation
taxes, real and personal property taxes, stamp taxes, transfer taxes, workers'
compensation and other obligations of the same or of a similar nature.
"Villazon" shall mean Villazon & Company, Inc.
"Villazon Agreement" shall mean the asset purchase agreement dated as of
December 20, 1996 among Buyer, Villazon, the Sellers and Constantino Gonzalez.
11.2 Other Defined Terms. The following terms have the meanings defined for
such terms in the Sections set forth below:
Terms Section
----- -------
Buyer Recitals
Buyer Indemnitee 9.1
Closing 5.1
Company Recitals
Damages 11.1 "Losses"
Dividends 1.3(b)
Estimated Net Income of HATSA 1.3(b)
General Cigar Recitals
HATSA Recitals
Indemnifying Party 9.2(a)
Indemnitee 9.2(a)
Insurance Policy 2.21
Intellectual Property 2.5(a)
Interim Balance Sheet of HATSA 11.1 "Interim Financial
Statements"
47
<PAGE>
Leased Real Property 2.18(b)
Liability; Liabilities 2.12
Mr. Blumenthal Recitals
Mr. Llaneza Recitals
Mr. Oliva 3.1
1996 Income Statement 1.4
Other Stockholders Recitals
Owned Real Property 2.18(a)
Proceedings 2.11
Purchase Price 1.2
Real Property 2.18(b)
Scheduled Contracts 2.7(a)
Stockholders Recitals
Sellers Recitals
Seller Indemnitee 9.1(b)
Set-Off Amount 9.6
Subsequent Material Contract 3.1(a)
Termination Date 10.1(b)
Third Party Transaction 3.3
48
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on their respective behalf by their respective officers thereunto
duly authorized, as of the date and year first above written.
GENERAL CIGAR CO. INC. Sellers
Frank Llaneza
By: /s/ A. ROSS WOLLEN
---------------------------
SECRETARY /s/ FRANK LLANEZA
A. Ross Wollen -------------------------------
Daniel Blumenthal
/s/ DANIEL BLUMENTHAL
-------------------------------
HONDURAS AMERICAN TABACO, S.A. de C.V.
By: /s/ JOHN E. OLIVA
---------------------------
John E. Oliva
49
<PAGE>
EXHIBIT "A"
Name No. of Shares Purchase Price ($US) Percentage
- ---- ------------- -------------------- ----------
SELLERS:
Frank A. Llaneza 45,000 $ 4,500,000 22.500%
Daniel Blumenthal 45,000 $ 4,500,000 22.500%
OTHER STOCKHOLDERS:
John E. Oliva 42,750 $ 4,275,000 21.375%
Cesar Lopez 33,750 $ 3,375,000 16.875%
Estelo Padron 20,000 $ 2,000,000 10.000%
Edgardo Dumas
Rodriguez 13,500 $ 1,350,000 6.750%
TOTALS: 200,000 $20,000,000 100.000%
<PAGE>
EXHIBIT B
See pages F-38 through F-45 of the S-1 Registration Statement filed
on December 24, 1996.
<PAGE>
EXHIBIT B-1
<TABLE>
<CAPTION>
HONDURAS AMERICAN TABACO S.A. AGREED NET FASB52
INCOME OF ADJUSTED
BALANCE SHEETS HATSA ON 10/31/96
WITHOUT FASB52
Balance Balance Balance
as of as of as of
10.31.96 10.31.96 10.31.96
---------- ---------- ----------
Lps. US$ US$
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and banks 7,318,971 580,917 579,423 1,494
Receivable 1,376,065 109,220 110,712 (1,492)
Related parties receivable 16,225,276 1,287,823 1,287,823 (0)
Inventories 49,152,991 3,901,341 4,296,294 (394,953)
Prepaid expenses 596,853 47,373 47,365 8
Other current assets 0 0
---------- ---------- ---------- ----------
Total current assets 74,670,156 5,926,673 6,321,617 (394,944)
Property, plant and equipment, net 5,357,796 425,256 561,381 (136,125)
Other assets 12,000 952 6,000 (5,048)
---------- ---------- ---------- ----------
Total assets 80,039,952 6,352,881 6,888,998 (536,117)
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable 0 0 0 0
Accrued liabilities 7,690,518 610,407 602,400 8,007
Affiliates payable 1,288,089 102,237 102,237 0
Dividends 4,724,128 374,961 374,960 1
Taxes payable 862,747 68,477 68,477 0
---------- ---------- ---------- ----------
Total current liabilities 14,565,482 1,156,082 1,148,074 8,008
Stockholders' Equity
Common stock 10,000,000 793,714 2,105,328 (1,311,614)
Retained earnings 55,474,470 4,403,085 3,635,596 767,489
---------- ---------- ---------- ----------
Total stockholders' equity 65,474,470 5,196,799 5,740,924 (544,125)
---------- ---------- ----------
Total liabilities and stockholders' equity 80,039,952 6,352,881 6,888,998
========== ========== ==========
</TABLE>
HONDURAS AMERICAN TABACO S.A.
Statement of Operations and Retained Earnings
<TABLE>
<CAPTION>
October 31, October 31, October 31,
1996 1996 1996
------------- ------------- -------------
L. US$ US$
(10 months)
<S> <C> <C> <C> <C>
Net sales and other revenue 119,406,470 10,293,661 10,197,501 96,160
----------- ---------- ----------
Cost and expenses
Cost of goods sold 71,428,588 6,157,663 6,754,968 (597,305)
Selling, general and administrative expenses 2,508,406 216,242 210,444 5,798
----------- ---------- ----------
Operating profit 45,469,175 3,919,757 3,232,089
Other income (expense) (391,722) (33,769) (35,490) 1,721
----------- ---------- ----------
45,077,454 3,885,987 3,196,599
Translation gain (loss) 1,409,054 (54,643) 54,643
----------- ---------- ----------
Net income applicable to common shareholders 46,486,508 3,885,987 3,141,956 744,031
Retained earnings - beginning of year 30,901,175 2,344,829
</TABLE>
<PAGE>
EXHIBIT C
December 16, 1996
Frank A. Llaneza
Daniel Blumenthal
c/o Villazon & Company, Inc.
25 Park Way
Upper Saddle River, NJ 07458
Re: Honduras American Tabaco, S.A. de C.V.
(The "Company")
Gentlemen:
Reference is made to our letter (The "General Letter") of this date
addressed to General Cigar Co., Inc. ("General"), a copy of which is attached to
this letter. Capitalized terms used in the General Letter have the same meanings
when used in this letter.
The purpose of this letter is to confirm your authority, as our representatives,
to deliver our original Stock certificates, which have been duly endorsed in
blank, to General upon the closing of the transaction described in the
agreement, subject only to our receipt of the following funds:
1. The purchase price set forth on Exhibit A to the General Letter; and
2. Our proportionate share, determined according to the percentages set
forth on Exhibit A, of the Company's net income for the year ending
December 31, 1996.
3. This letter is to also confirm that we hereby release you from any
liabilities or other obligations in connection with the sale of the
Stock, subject only to our receipt of the funds set forth in
paragraphs 1 and 2 above in the manner we set forth to you in
writing.
Sincerely,
/s/ Cesar Lopez
--------------------------------
Cesar Lopez
/s/ Estelo Padron
--------------------------------
Estelo Padron
/s/ Edgardo Dumas Rodriguez
--------------------------------
Edgardo Dumas Rodriguez
<PAGE>
December 16, 1996
General Cigar Co., Inc.
387 Park Avenue South
New York, NY 10016
Re: Honduras American Tabaco S.A. de C.V.
("The Company")
Gentlemen:
We refer to that certain stock purchase agreement to be dated as of
December __, 1996 (The "Agreement") between you, the Company and Frank Llaneza
and Dan Blumenthal (The "Seller Representatives"). We hereby confirm that we own
of record and beneficially the number of shares of common stock of the Company
("Stock"), par value 50 Lempiras each, set forth against our names on Exhibit A
hereto, free of any claims of third parties including without limitation any
agreement, understanding or restriction affecting the transfer, voting rights or
other incidents of record or beneficial ownership pertaining to the Stock. None
of us are party to any voting trust, proxy or other agreement or understanding
with respect to the voting of any capital stock of the company. The sale of our
Stock to you will not result in a violation of, or breach under, any agreement
to which any of us is a party, or by which any of us is bound, or by which any
of our properties are affected.
We have delivered to the Seller Representatives certificates representing
the Stock owned by us, duly endorsed in favor of you. Copies of such
certificates are attached to this letter. We hereby authorize the Seller
Representatives, upon receipt by them of not less than $20,000,000 as payment
for the entire capital Stock of the Company, to deliver the same to you on our
behalf. We hereby confirm that receipt by the Seller Representatives of such sum
of shall be good discharge of all your obligations towards us in connection with
your purchase of the Stock.
If the terms of this letter are acceptable to you, please countersign and
deliver a copy to the Seller Representatives on our behalf.
We hereby agree to the sale of the Stock to you (or your nominee) on such
terms as the Seller Representatives, in their discretion shall think fit. We
hereby authorize and instruct the Seller Representatives to sign and deliver, in
our name or in their own names, on our behalf such documents and to do such acts
and things as they consider necessary to sell the Stock to you and to give
effect to the agreement.
We also each deliver herewith an irrevocable power of attorney, executed by us
before a notary in Honduras whose signature is registered in the U.S. Consulate
in Honduras, appointing the Seller Representatives as our attorney.
<PAGE>
This letter shall be construed, interpreted and the rights of the parties
determined, in accordance with the laws of the State of New York without regards
to the conflict of laws principles thereof.
Yours very truly,
J.E. OLIVA
By:
--------------------------------
C. LOPEZ
By: /s/ C. Lopez
-------------------------------
E. PADRON
By: /s/ E. Padron
--------------------------------
E. DUMAS
By: /s/ E. Dumas Rodriguez
--------------------------------
Acknowledged and agreed
GENERAL CIGAR CO., INC.
By:
------------------------
Name:
Title:
<PAGE>
FIRST AMENDMENT TO
STOCK PURCHASE AGREEMENT
Between
GENERAL CIGAR CO., INC.
and
HONDURAS AMERICAN TABACO, S.A. de C.V.
and
THE SELLERS
dated as of
January 21, 1997
<PAGE>
First Amendment To
Stock Purchase Agreement
This First Amendment, dated as of January ___, 1997, among General Cigar
Co., Inc. ("General Cigar"), a corporation duly organized and existing under the
laws of the State of Delaware (General Cigar is hereinafter sometimes referred
to as the "Buyer"), Honduras American Tabaco S.A. de C.V., a corporation duly
organized and existing under the laws of Honduras (the "Company" or "HATSA"),
Frank Llaneza ("Mr. Llaneza"), Daniel Blumenthal ("Mr. Blumenthal") and Llaneza
Enterprises, Ltd., a Florida limited partnership ("Llaneza Enterprises").
W I T N E S S E T H:
WHEREAS, the parties, other than Llaneza Enterprises, have entered into
that certain Stock Purchase Agreement dated as of December 23, 1996 relating to
HATSA (the "Purchase Agreement"). Capitalized terms not otherwise defined herein
shall bear the same meaning as set forth in the Purchase Agreement.
WHEREAS, Mr. Llaneza had transferred his Stock in HATSA to Llaneza
Enterprises effective January 1, 1996, and the parties now wish to amend the
Purchase Agreement to reflect the substitution of Llaneza Enterprises for Mr.
Llaneza as a Seller thereunder.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree to amend the Purchase Agreement as follows:
1. Additional Party.
The Purchase Agreement is hereby amended by adding Llaneza Enterprises as
the owner and Seller of the Stock attributed in the Purchase Agreement to Mr.
Llaneza. All references in the Purchase Agreement to Mr. Llaneza shall be deemed
to refer to Mr. Llaneza and Llaneza Enterprises. It is agreed that Mr. Llaneza
agrees to remain a party to the Purchase Agreement and personally obligated and
responsible with respect thereto with respect to all duties and obligations of
Llaneza Enterprises, including but not limited to, Article II (Representations
and Warranties of Sellers), Article III (Actions by the Company and Buyer Prior
to the Closing) and Article IX (Indemnification).
2. Additional Representations and Warranties.
2.1 The following Section 2.1A is hereby added to the Purchase Agreement
as follows:
"2.1A Organization of Llaneza Enterprises. Llaneza Enterprises is
duly formed and validly existing as a Limited Partnership in good
standing under
1
<PAGE>
the laws of its jurisdiction of formation and has full power and
authority to own and lease its properties and assets. Llaneza
Enterprises is duly qualified and in good standing in each
jurisdiction where, by virtue of its properties owned, it is
required to be so qualified and the failure to be so qualified would
have, individually or in the aggregate, a Material Adverse Effect."
2.2 The following Section 2.2A is hereby added to the Purchase Agreement
as follows:
"2.2A Ownership of Stock of Llaneza Enterprises. (a) Except as set
forth in Note 6 of the Financial Statements, Llaneza Enterprises
owns of record and beneficially the 45,000 shares of Stock set forth
against Frank Llaneza's name in Exhibit A, free of Encumbrances,
including without limitation any agreement, understanding or
restriction affecting the transfer, voting rights or other incidents
of record or beneficial ownership pertaining to such Stock. Except
as set forth in Note 6 to the Financial Statements, Llaneza
Enterprises is not a party to any option, warrant, subscription,
commitment or any other contract that could require Llaneza
Enterprises to sell, transfer or otherwise dispose of any capital
stock of Llaneza Enterprises or any agreement or understanding
providing rights of first refusal or similar rights with respect to
any capital stock of the Company. Except as set forth in Note 6 of
the Financial Statements, Llaneza Enterprises is not party to any
voting trust, proxy or other agreement or understanding with respect
to the voting of any capital stock of the Company."
2.3 The following Section 2.4A is hereby added to the Purchase Agreement
as follows:
"2.4A Authorization of Llaneza Enterprises.
(a) This Agreement has been duly executed and delivered by
Llaneza Enterprises, and, assuming the due authorization, execution
and delivery of this Agreement by Buyer is a valid and binding
obligation of Llaneza Enterprises except as enforceability may be
limited by, bankruptcy, insolvency or other similar laws affecting
creditors' rights generally and except where enforceability is
subject to the application of equitable principles or remedies.
(b) Llaneza Enterprises has taken all requisite action to
approve and consent to this Agreement and the performance of the
transactions contemplated hereby."
3. Conflict with Purchase Agreement. In the event of a conflict between
this First Amendment and the Purchase Agreement, this First Amendment shall
control. Save as
2
<PAGE>
expressly amended and modified hereby, the Purchase Agreement shall continue in
full force and effect.
4. Villazon Agreement. Mr. Llaneza hereby confirms that the existence of
Llaneza Enterprises in no way affects his obligations under the Villazon
Agreement, including without limitation, Section 10.9 thereof.
5. Amendment to Repayment of Indebtedness Provision. The third sentence of
Section 1.3 of the Purchase Agreement shall be deleted and replaced with the
following sentence:
"Upon the Closing, the Company shall pay $4,200,000 (being the
Estimated Net Income) to the Sellers, on behalf of the Stockholders
by wire transfer as set forth in Section 1.2 above."
[Remainder of page intentionally blank]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be duly executed on their respective behalf by their respective officers
thereunto duly authorized, as of the date and year first above written.
GENERAL CIGAR CO. INC.
By: /s/ A. ROSS WOLLEN Frank Llaneza
--------------------
A. Ross Wollen
Secretary
/s/ FRANK LLANEZA
---------------------------------
Daniel Blumenthal
/s/ DANIEL BLUMENTHAL
---------------------------------
Llaneza Enterprises, Ltd.
By: /s/ FRANK LLANEZA
------------------------------
Frank Llaneza
General Partner
HONDURAS AMERICAN TABACO, S.A. de C.V.
By: /s/ JOHN E. OLIVA
------------------------------
John E. Oliva
<PAGE>
BENEFITS AND EMPLOYMENT MATTERS
ALLOCATION AGREEMENT
by and among
CULBRO CORPORATION,
and
CULBRO LAND RESOURCES, INC.
and
GENERAL CIGAR HOLDINGS, INC.
dated as of January __, 1997
<PAGE>
TABLE OF CONTENTS
Page No.
BENEFITS AND EMPLOYMENT MATTERS............................................ 1
RECITALS................................................................... 1
ARTICLE I
DEFINITIONS................................................................ 2
Section 1.1 Definitions.............................................. 2
401(k) Plans......................................................... 2
(i) Holdings 401(k) Plan..................................... 2
(ii) Culbro 401(k) Plan....................................... 2
(iii) CLR 401(k) Plan.......................................... 2
Annual Incentive Compensation Plan................................... 2
(i) Culbro Annual Incentive Compensation Plan (General Cigar) 2
(ii) Culbro Annual Incentive Compensation Plan (Corporate)... 2
(iii) Culbro Annual Incentive Corporation Plan
(Imperial Nurseries)................................... 2
Asset Transfer Date.................................................. 2
CLR 401(k) Plan...................................................... 3
CLR Employee......................................................... 3
CLR Exercise Ratio................................................... 3
CLR Individual....................................................... 3
CLR Option........................................................... 3
CLR Stock............................................................ 3
CLR Stock Plan....................................................... 3
COBRA ............................................................... 3
Code ............................................................... 3
Commission........................................................... 3
Conversion Award..................................................... 3
Cross-over ISO....................................................... 3
Culbro 401(k) Plan................................................... 3
Culbro Employee...................................................... 3
Culbro Exercise Ratio................................................ 4
Culbro Individual.................................................... 4
Culbro Option........................................................ 4
Culbro Retirement Plan............................................... 4
Culbro Terminee...................................................... 4
<PAGE>
Deferred Compensation Plan........................................... 4
Director............................................................. 4
Distribution Date.................................................... 4
Employee............................................................. 4
(i) Holdings Employee........................................ 4
(ii) CLR Employee............................................. 4
(iii) Culbro Employee.......................................... 4
(iv) Culbro Terminee.......................................... 4
(v) Retained Employee........................................ 5
(vi) Transferred Employee..................................... 5
(vii) Group Employee........................................... 5
Employer............................................................. 5
ERISA ............................................................... 5
Existing Stock Plan.................................................. 5
(i) Culbro 1991 Employees Stock Plan......................... 5
(ii) Culbro 1992 Stock Plan................................... 5
(iii) Culbro 1996 Stock Plan................................... 5
(iv) Culbro 1993 Directors Option Plan........................ 5
(v) Culbro 1996 Directors Option Plan........................ 5
Group Employee....................................................... 5
Holdings 401(k) Plan................................................. 6
Holdings Employee.................................................... 6
Holdings Option...................................................... 6
Holdings Stock Plan.................................................. 6
HMO ............................................................... 6
IRS ............................................................... 6
ISO ............................................................... 6
Jay Green Employment Agreement....................................... 6
Medical/Dental Plan.................................................. 6
(i) Holdings Medical/Dental Plans............................ 6
(ii) CLR Medical/Dental Plans................................. 6
(iii) Culbro Medical/Dental Plans.............................. 6
Medical Retirees..................................................... 6
Merger Date.......................................................... 6
Option............................................................... 7
Performance Plan..................................................... 7
Plan ............................................................... 7
Post-Conversion Price................................................ 7
Post-Distribution Transfer........................................... 7
Pre-Distribution Stock Price......................................... 7
<PAGE>
Qualified Beneficiary................................................ 7
(i) Holdings Qualified Beneficiary........................... 8
(ii) CLR Qualified Beneficiary................................ 8
(iii) Culbro Qualified Beneficiary............................. 8
Reformed Culbro Option............................................... 8
Retained Employee.................................................... 8
Retained Individual.................................................. 8
Retiree Medical/Dental Benefits...................................... 8
Service Credit....................................................... 8
Stock ............................................................... 8
(i) Holdings Stock........................................... 8
(ii) CLR Stock................................................ 8
(iii) Culbro Stock............................................. 8
Transferred Employee................................................. 8
Transferred Individual............................................... 9
Welfare Plan......................................................... 9
Section 1.2 Other Terms.............................................. 9
Section 1.3 Certain Constructions.................................... 9
Section 1.4 Sections................................................. 9
Section 1.5 Survival................................................. 9
ARTICLE II
EMPLOYEE BENEFITS.......................................................... 9
Section 2.1 General.................................................. 9
(a) Allocation of Responsibilities on the Asset Transfer Date 9
(b) Assumption of Liabilities on Asset Transfer Date......... 10
(c) Service Credits.......................................... 10
Section 2.2 401(k) Plans............................................. 10
(a) Establishment of the CLR 401(k) Plan..................... 10
(b) Culbro 401(k) Plan....................................... 11
(c) Transfer of Account Balances............................. 11
(d) Regulatory Filings....................................... 11
Section 2.3 Culbro Retirement Plan................................... 12
(a) Transferred Employees.................................... 12
(b) Assumption of Plan by Holdings........................... 12
<PAGE>
Section 2.4 Deferred Compensation Plan............................... 12
(a) Assumption of Plan by Holdings........................... 12
(b) No Termination of Service................................ 13
Section 2.5 Stock Plans.............................................. 13
(a) CLR Stock Plan........................................... 13
(b) Holdings Stock Plan...................................... 13
(c) Existing Stock Plans..................................... 13
(d) Reformation of Existing Awards........................... 13
(e) Exercise Prices of Reformed Options...................... 14
(f) Merger................................................... 14
(g) Anti-Dilution Measures................................... 14
(h) Effect of Post-Distribution Transfer on Conversion Awards 14
Section 2.6 Annual Incentive Compensation Plans...................... 15
Section 2.7 Culbro Long Term Performance Plan........................ 15
Section 2.8 Jay Green Employment Agreement........................... 15
Section 2.9 Holdings Medical/Dental Plans............................ 15
(a) Liability for Claims..................................... 15
(b) Continuation Coverage Administration..................... 16
(c) Continuation Coverage Claims............................. 16
(d) Liability for Medical Retirees........................... 16
Section 2.10 CLR Medical/Dental Plans................................ 16
Section 2.11 Employer Liability under Welfare Plans.................. 17
Section 2.12 Preservation of Right To Amend or Terminate Plans....... 17
Section 2.13 Reimbursement........................................... 17
Section 2.14 Payroll Reporting and Withholding....................... 17
(a) Form W-2 Reporting....................................... 17
(b) Forms W-4 and W-5........................................ 18
(c) Garnishments, Tax Levies, Child Support Orders, and Wage
Assignments.............................................. 18
(d) Authorizations for Payroll Deductions.................... 18
ARTICLE III
LABOR AND EMPLOYMENT MATTERS............................................... 18
Section 3.1 Separate Employers....................................... 19
Section 3.2 Employment Policies and Practices........................ 19
Section 3.3 Matters Concerning Administration........................ 19
<PAGE>
(a) Administrative Services In Connection With The CLR Plans. 19
(b) Allocation of Group Insurance Reserves................... 19
Section 3.4 Notice of Claims......................................... 19
Section 3.5 Assumption of Unemployment Tax Rates..................... 19
Section 3.6 Employees on Leave of Absence............................ 19
Section 3.7 No Third Party Beneficiary Rights........................ 20
Section 3.8 Attorney-Client Privilege................................ 20
ARTICLE IV
DEFAULT.................................................................... 20
Section 4.1 Default.................................................. 20
Section 4.2 Force Majeure............................................ 20
ARTICLE V
MISCELLANEOUS.............................................................. 20
Section 5.1 Access to Information; Cooperation....................... 20
Section 5.2 Assignment............................................... 21
Section 5.3 Headings................................................. 21
Section 5.4 Severability of Provisions............................... 21
Section 5.5 Parties Bound............................................ 21
Section 5.6 Notices.................................................. 21
Section 5.7 Further Action........................................... 22
Section 5.8 Waiver................................................... 22
Section 5.9 Governing Law............................................ 22
Section 5.10 Consent to Jurisdiction................................. 22
Section 5.11 Entire Agreement........................................ 22
<PAGE>
BENEFITS AND EMPLOYMENT MATTERS
ALLOCATION AGREEMENT
THIS BENEFITS AND EMPLOYMENT MATTERS ALLOCATION
AGREEMENT (this "Agreement") is made this ___ day of _________, 199__ by and
among Culbro Corporation, a New York corporation ("Culbro"), Culbro Land
Resources, Inc., a Delaware corporation and a wholly-owned subsidiary of Culbro
("CLR"), and General Cigar Holdings, Inc., a Delaware corporation and a
wholly-owned subsidiary of Culbro ("Holdings") (each, singly, a "Party" and
collectively, the "Parties").
RECITALS
WHEREAS, Culbro, directly and through subsidiaries, (i) manufactures
and markets cigars and grows, processes and sells cigar wrapper tobacco (the
"Cigar Business"), (ii) cultivates for sale container and field grown nursery
products principally to nursery centers and mass merchandisers, and owns and
operates wholesale nursery sales and service centers (the "Nursery Business")
and (iii) owns, builds and manages commercial and industrial properties and
develops residential subdivisions on real estate in Connecticut and
Massachusetts (the "Real Estate Business") (which Nursery Business and Real
Estate Business constitute the "CLR Business");
WHEREAS, the Board of Directors of Culbro has determined that it is
in the best interests of Culbro to separate the Cigar Business on the one hand,
and the CLR Business on the other hand, and, in order to effect such separation,
to transfer to CLR the stock of certain Culbro subsidiaries principally engaged
in the CLR Business and certain other assets relating principally to the CLR
Business (as more specifically defined herein, the "Asset Transfers"), and
thereafter to distribute all of the outstanding shares of common stock, par
value $0.01 per share, of CLR to the holders of Culbro common stock (the
"Distribution");
WHEREAS, subsequent to the Asset Transfers and prior to the
Distribution, Holdings intends to consummate an initial public offering of its
shares of common stock, par value $0.01 per share (the "Offering");
WHEREAS, following the Distribution, subject to certain conditions,
Culbro intends to merge with and into Holdings (the "Merger") pursuant to a
certain merger agreement (the "Merger Agreement");
WHEREAS, in connection with the Distribution, Culbro and CLR have
set forth in a certain distribution agreement (the "Distribution Agreement") the
corporate transactions required to effect the Asset Transfers, the Distribution
and the Merger, and the agreements that will govern certain matters following
the Distribution and the Merger;
1
<PAGE>
WHEREAS, pursuant to the aforesaid Distribution Agreement, Culbro
Holdings, and CLR have agreed to enter into an agreement allocating
responsibilities with respect to employee compensation, benefits, labor and
certain other employment matters pursuant to the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. As used in this Agreement, the following
terms shall have the meanings indicated below:
401(k) Plans: any of the following Plans, as the context indicates,
maintained pursuant to Section 401(a) of the Code:
(i) Holdings 401(k) Plan: the Culbro 401(k) Plan, as renamed amended
and continued following the Distribution Date as described in Section
2.2(b)(i); or
(ii) Culbro 401(k) Plan: The Culbro Companies Incorporated 401(k)
Savings Plan and Trust, as maintained by Culbro immediately prior to the
Distribution Date; or
(iii) CLR 401(k) Plan: the 401(k) Plan and Trust established by CLR
as described in Section 2.2(a) as of the Distribution Date primarily for
the benefit of CLR Employees.
Annual Incentive Compensation Plan: a Plan providing incentive
compensation to eligible Employees based upon achievement of performance
criteria by the Employer, the operating unit of the Employer to which the
Employee is assigned, or otherwise, including the following Plans as in effect
immediately prior to the Asset Transfers:
(i) Culbro Annual Incentive Compensation Plan (General Cigar); and
(ii) Culbro Annual Incentive Compensation Plan (Corporate); and
(iii) Culbro Annual Incentive Corporation Plan (Imperial Nurseries).
Asset Transfer Date: the asset transfer date as set forth in the
Distribution Agreement.
2
<PAGE>
CLR 401(k) Plan: the CLR 401(k) Plan as defined under the definition
of 401(k) Plan contained herein.
CLR Employee: a CLR Employee as defined under the definition of
Employee contained herein.
CLR Exercise Ratio: the ratio of (a) the Post Conversion Price of
CLR Stock to (b) the sum of the Post Conversion Price of CLR Stock and the Post
Conversion Price of Culbro Stock.
CLR Individual: any individual who (i) is a Transferred Employee, or
(ii) a CLR Employee, or (iii) is a dependent or beneficiary of any individual
described in clause (i) or (ii).
CLR Option: an option to purchase CLR Stock under the CLR Stock Plan
pursuant to a substitution of stock option under Section 2.5(d).
CLR Stock: CLR Stock as defined under the definition of Stock
contained herein.
CLR Stock Plan: the 1997 stock option plan of CLR as described in
Section 2.5(a).
COBRA: Code Section 4980B and ERISA Sections 601 through 608,
establishing employer requirements for continuation of health care benefits for
certain current and former employees or dependents thereof.
Code: the Internal Revenue Code of 1986, as amended, or any
successor legislation.
Commission: the Securities and Exchange Commission.
Conversion Award: an award of an Option to reflect the effect of the
Distribution on Culbro Options held immediately prior to the Distribution in
accordance with Section 2.5.
Cross-over ISO: any CLR ISO held by a Culbro Employee or Holdings
Employee, or any Culbro ISO held by a CLR Employee, respectively, following the
Distribution.
Culbro 401(k) Plan: the Culbro 401(k) Plan as defined under the
definition of 401(k) Plan contained herein.
Culbro Employee: a Culbro Employee as defined under the definition
of Employee contained herein.
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Culbro Exercise Ratio: the ratio of (a) the Post-Conversion Price of
Culbro Stock to (b) the sum of the Post Conversion Price of Culbro Stock and the
Post Conversion Price of CLR Stock.
Culbro Individual: any individual who is (i) a Culbro Employee, (ii)
a Culbro Terminee, or (iii) a dependent or beneficiary of any individual
specified in clauses (i) or (ii).
Culbro Option: an option to purchase Culbro Stock pursuant to the
Existing Stock Plans or the Jay Green Employment Agreement.
Culbro Retirement Plan: the Culbro Corporation Employees Retirement
Plan, as amended through January 1, 1994, and as further amended form time to
time thereafter.
Culbro Terminee: a Culbro Terminee as defined under the definition
of Employee contained herein.
Deferred Compensation Plan: The Culbro Deferred Incentive
Compensation Plan, as in existence immediately prior to the Asset Transfers.
Director: a member of the Board of Directors of Holdings, Culbro or
CLR, as the context indicates.
Distribution Date: the date on which the Distribution occurs.
Employee: an individual who is identified as being in any of the
following categories:
(i) Holdings Employee: any individual who is an Employee of
Holdings or any 100% direct or indirect subsidiary of Holdings immediately
prior to the Asset Transfer Date or who becomes an employee of Holdings or
any 100% direct or indirect subsidiary of Holdings on or following the
Asset Transfer Date; or
(ii) CLR Employee: any individual who is an Employee of CLR or
any 100% direct or indirect subsidiary of CLR immediately prior to the
Asset Transfer Date or who becomes an employee of CLR or any 100% direct
or indirect subsidiary of CLR on or following the Asset Transfer Date; or
(iii) Culbro Employee: any individual who is an employee of
Culbro prior to the Asset Transfer Date, but not including individuals who
are employees of (a) CLR or any 100% direct or indirect subsidiary of CLR
prior to the Asset Transfer Date or (b) any business unit of Culbro that
becomes a 100% direct or indirect subsidiary or business unit of CLR
pursuant to the Asset Transfers; or
(iv) Culbro Terminee: any individual formerly employed by
Culbro who terminated such employment prior to the Asset Transfer Date,
including but not
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limited to any Culbro Employee or Director who retired prior to the Asset
Transfer Date; or
(v) Retained Employee: any individual who immediately prior to
the Asset Transfer Date was a Group Employee, and who on or immediately
following the Asset Transfer Date is an Employee of Culbro or Holdings or
any 100% direct or indirect subsidiary of Holdings; or
(vi) Transferred Employee: any individual who immediately
prior to the Asset Transfer Date was a Group Employee, and who on or
immediately following the Asset Transfer Date is an Employee of CLR or any
100% direct or indirect subsidiary of CLR; or
(vii) Group Employee: any individual who immediately prior to
the Asset Transfer Date is an Holdings Employee, a CLR Employee, or a
Culbro Employee.
Employer: Holdings, CLR or Culbro, as the context indicates.
ERISA: the Employee Retirement Income Security Act of 1974, as
amended, or any successor legislation.
Existing Stock Plans: any of the following stock-based compensation
plans which provide for awards of additional compensation to eligible Employees
in the form of stock appreciation rights or nonqualified or incentive options to
purchase Employer Stock, maintained by Culbro prior to the Distribution Date for
eligible Group Employees and eligible Culbro Directors, as the case may be, as
described below:
(i) Culbro 1991 Employees Stock Plan: the Culbro Corporation
1991 Employees Incentive Stock Option Plan, which provides for awards of
non-qualified and incentive Culbro Options to eligible Group Employees.
(ii) Culbro 1992 Stock Plan: the Culbro Corporation 1992 Stock
Plan, which provides for awards of non-qualified and incentive Culbro
Options to eligible Group Employees.
(iii) Culbro 1996 Stock Plan: the Culbro Corporation 1996
Stock Plan, which provides for awards of non-qualified and incentive
Culbro Options to eligible Group Employees.
(iv) Culbro 1993 Directors Option Plan: the Culbro Corporation
1993 Stock Option Plan for Non-Employee Directors which provides for
awards of non-qualified Culbro Options to Culbro's non-employee Directors.
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(v) Culbro 1996 Directors Option Plan: the Culbro Corporation
1996 Stock Option Plan for Non-Employee Directors which provides for
awards of non-qualified Culbro Options to Culbro's non-employee Directors.
Group Employee: a Group Employee as defined under the definition of
Employee contained herein.
Holdings 401(k) Plan: the Holdings 401(k) Plan as defined under the
definition of 401(k) Plan contained herein.
Holdings Employee: a Holdings Employee as defined under the
definition of Employee contained herein.
Holdings Option: an option to purchase Holdings Stock pursuant to
the Holdings Stock Plan, or, following the Merger, pursuant to the Existing
Stock Plans or the Jay Green Employment Agreement.
Holdings Stock Plan: the 1997 stock plan of Holdings, as described
in Section 2.5(b).
HMO: any health maintenance organization organized under 42 U.S.C.
ss.300e-9, or a state health maintenance organization statute that provides
medical services for Retained Individuals or CLR Individuals under any Plan.
IRS: the Internal Revenue Service.
ISO: an option awarded as an incentive stock option under Section
422 of the Code.
Jay Green Employment Agreement: the employment agreement between Jay
M. Green and Culbro, dated as of April 8, 1994.
Medical/Dental Plan: a Welfare Plan providing health benefits to
Employees and their dependents as described below:
(i) Holdings Medical/Dental Plans: the Culbro Medical/Dental
Plans as renamed and continued by Holdings after the Merger pursuant to
Section 2.9; or
(ii) CLR Medical/Dental Plans: the Medical/Dental Plans to be
established by CLR in accordance with Section 2.10; or
(iii) Culbro Medical/Dental Plans: any Medical/Dental Plans
maintained prior to the Merger.
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Medical Retirees: any Culbro Terminee (or dependent or beneficiary
thereof) who was retired or disabled on or before the Asset Transfer Date, and
who was receiving or otherwise entitled to receive Retiree Medical/Dental
Benefits, other than, or in addition to, coverage mandated by COBRA, as a
retiree (or dependent or beneficiary thereof) under any Culbro Medical/Dental
Plan immediately prior to the Asset Transfers.
Merger Date: the date the Merger is consummated.
Option: a nonqualified or incentive option to purchase Stock under
an Existing Stock Plan, the CLR Stock Plan, or the Holdings Stock Plan, as the
context indicates.
Performance Plan: the Culbro Long Term Performance Plan, as in
effect immediately prior to the Asset Transfers.
Plan: any plan, policy, arrangement, contract or agreement providing
compensation benefits for any group of Employees or former Employees or
individual Employee or former Employee, or the dependents or beneficiaries of
any such Employee or former Employee, whether formal or informal or written or
unwritten, and including, without limitation, any means, whether or not legally
required, pursuant to which any benefit is provided by an Employer to any
Employee or former Employee or the beneficiaries of any such Employee or former
Employee, adopted or entered into by a Party prior to, or upon the Distribution.
The term "Plan" as used in this Agreement does not include any contract,
agreement or understanding entered into by Culbro prior to the Asset Transfers,
or any contract, agreement or understanding entered into by Culbro, Holdings or
CLR after the Asset transfers relating to settlement of actual or potential
Employee related litigation claims.
Post-Conversion Price: the average of (i) the per share New York
Stock Exchange closing price of Culbro Stock, or (ii) the mean between the
closing representative bid and asked prices for CLR Stock as reported by NASDAQ
or any successor quotation system, as the context indicates, during the
ten-trading day period immediately following the Distribution Date. If, for any
reason, Culbro Stock is not traded on the New York Stock Exchange on an "ex
dividend" basis with respect to the Distribution on any day during the
ten-trading day period immediately following the Distribution Date, then the
Post-Conversion Price for Culbro Stock on such date shall be equal to the
closing New York Stock Exchange price of Culbro Stock, on such day, less the
mean between the closing representative bid and asked prices for CLR Stock as
reported on NASDAQ or any successor quotation system, on such day.
Post-Distribution Transfer: a transfer of employment where an
employee of one Party leaves the service of such Party to immediately begin
employment with another party occurring on or prior to November 28, 1998.
Pre-Distribution Stock Price: the New York Stock Exchange closing
price per share for Culbro Stock immediately prior to the Distribution Date
(before giving effect to the
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Distribution), trading regular way, with a due bill for the special dividend of
CLR Stock to made in connection with the Distribution.
Qualified Beneficiary: an individual (or dependent thereof) who
either (1) experiences a "qualifying event" (as that term is defined in Code
Section 4980B(f)(3) and ERISA Section 603) while a participant in any
Medical/Dental Plan, or (2) becomes a "qualified beneficiary" (as that term is
defined in Code Section 4980B(g)(1) and ERISA 607(3)) under any Medical/Dental
Plan, and who is included in any one of the following categories:
(i) Holdings Qualified Beneficiary: any Retained Individual
(or dependent thereof) who, prior to the Asset Transfer Date, was a
Qualified Beneficiary under any Culbro Medical/Dental Plan; or
(ii) CLR Qualified Beneficiary: any Transferred Individual (or
dependent thereof) who, prior to the Asset Transfer Date, was a Qualified
Beneficiary under any Culbro Medical/Dental Plan; or
(iii) Culbro Qualified Beneficiary: any Culbro Individual who,
immediately following the Asset Transfer Date, is not a Holdings Qualified
Beneficiary or a CLR Qualified Beneficiary and who, immediately prior to
the Asset Transfer Date, was a Qualified Beneficiary under any Culbro
Medical/Dental Plan.
Reformed Culbro Option: an option to purchase Culbro Stock, issued
pursuant to an Conversion Award.
Retained Employee: a Retained Employee as defined under the
definition of Employee contained herein.
Retained Individual: any individual who (i) is a Retained Employee,
or (ii) is, as of the Asset Transfer Date, a Culbro Terminee whose last
employment with Culbro or subsidiary of Culbro was with a Cigar Business, or
(iii) is a dependent or beneficiary of any individual described in clause (i) or
(ii).
Retiree Medical/Dental Benefits: health, medical and dental benefits
provided to a Culbro Terminee (or a dependent or beneficiary thereof) who is a
retiree under any Culbro Medical/Dental Plan, not including any coverage
mandated by COBRA.
Service Credit: the period taken into account under any Plan for
purposes of determining length of service or plan participation to satisfy
eligibility, vesting, benefit accrual and similar requirements under such Plan.
Stock: the common stock of Culbro, Holdings or CLR, as more
specifically described below:
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(i) Holdings Stock: the Class A common stock, par value $0.01
per share, of Holdings; or
(ii) CLR Stock: the Class A common stock, par value $0.01 per
share, of CLR; or
(iii) Culbro Stock: the common stock, par value $1.00 per
share, of Culbro prior to the Merger Date.
Transferred Employee: a Transferred Employee as defined under the
definition of Employee contained herein.
Transferred Individual: any individual who (i) is a Transferred
Employee or (ii) is, as of the Asset Transfer Date, a Culbro Terminee (x) whose
last employment with Culbro or a subsidiary of Culbro was with a Transferred
Business or (y) whose employment with Culbro was primarily related to a CLR
Business, or (iii) is a dependent or beneficiary of any individual described in
clause (i) or (ii).
Welfare Plan: any Plan which provides medical, health, disability,
accident, life insurance, death, dental or any other welfare benefit, including,
without limitation, any post-employment benefit as described in Section 3(1) of
ERISA or the regulations thereunder.
Section 1.2 Other Terms. Any capitalized terms used herein but not
defined herein shall have the meaning set forth in the Distribution Agreement.
Section 1.3 Certain Constructions. References to the singular in
this Agreement shall refer to the plural and vice-versa and references to the
masculine shall refer to the feminine and vice-versa.
Section 1.4 Sections. References to a "Section" are, unless
otherwise specified, to one of the Sections of this Agreement.
Section 1.5 Survival. Obligations described in this Agreement shall
remain in full force and effect and shall survive the Asset Transfer Date, the
Distribution Date and the Merger Date.
ARTICLE II
EMPLOYEE BENEFITS
Section 2.1 General.
(a) Allocation of Responsibilities on the Asset Transfer Date.
On the Asset Transfer Date CLR shall retain or assume responsibility as
employer for the
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CLR Employees, except to the extent retained or assumed by Holdings, as
the case may be, under this Agreement or any other agreement relating to
the Asset Transfers, Distribution, or Merger. On the Asset Transfer Date
Holdings shall retain or assume responsibility as employer for the
Retained Employees, except to the extent retained or assumed by CLR under
this Agreement or any other agreement relating to the Asset Transfers.
Effective on or after the Asset Transfer Date, Culbro shall not retain or
assume responsibility as employer for any Retained Employees or any CLR
Employees except as specifically provided under this Agreement or any
other agreement relating to the Asset Transfers, Distribution, or Merger.
The assumption or retention of responsibility as employer by Holdings or
CLR described in this Section 2.1 shall not, of itself, constitute a
severance or a termination of employment under any Plan of severance
maintained by Culbro nor shall it constitute a change of control of Culbro
for purposes of any Plan.
(b) Assumption of Liabilities on Asset Transfer Date. Except
as specifically provided in this Agreement, or as otherwise agreed by the
Parties:
(i) Except as provided in Section 2.1(b)(iii),
immediately following the Asset Transfers, Holdings shall assume or
retain, as the case may be, all benefit obligations and all related
rights in connection with any Plan (except with respect to CLR
Employees), and CLR shall have no further liability with respect
thereto; and
(ii) Except as provided in Section 2.1(b)(iii),
immediately following the Asset Transfers, CLR shall assume or
retain, as the case may be, all benefit obligations and all related
rights in connection with any Plan with respect to the CLR
Employees, and Holdings shall have no further liability with respect
thereto.
(iii) Following the Asset Transfers and prior to the
Merger, Culbro shall retain all benefits obligations and related
rights in connection with the exercise of Culbro Options or Reformed
Culbro Options.
(c) Service Credits. In connection with the Asset Transfers,
Distribution and Merger, as the case may be, and for purposes of
determining Service Credits under any Plan, the Parties shall credit each
of their respective Employees and Directors with such Employee's or
Director's Service Credit as reflected in the Culbro payroll system
records as of the date of the Asset Transfers, Distribution, or Merger, as
the case may be. Such Service Credit shall continue to be maintained as
described herein for as long as the Employee or Director does not
terminate employment (or in the case of a Director, does not cease
providing services as a Director).
Section 2.2 401(k) Plans.
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(a) Establishment of the CLR 401(k) Plan. Effective as of the
Distribution Date, CLR shall take, or cause to be taken, all action
necessary and appropriate to establish and administer a new 401(k) Savings
Plan and Trust (the "CLR 401(k) Plan"). As described in Section 2.2(c),
the CLR 401(k) Plan shall receive a plan-to-plan transfer of all
participant account balances or accrued benefits under the Culbro 401(k)
Plan which are attributable to Transferred Employees who, immediately
prior to the Distribution Date, were participants in or otherwise entitled
to benefits under the Culbro 401(k) Plan. CLR shall provide benefits under
such CLR 401(k) Plan after the Distribution for all such Transferred
Employees and (and CLR Employees admitted to participation in such Plan
after the Distribution) subject to the terms and provisions of such Plan.
The CLR 401(k) Plan shall be intended to qualify for tax-favored treatment
under Sections 401(a) and 401(k) of the Code and to comply with the
requirements of ERISA.
(b) Culbro 401(k) Plan.
(i) Transferred Employees. Culbro shall take all actions
necessary and appropriate to provide that all amounts credited to
the account of Transferred Employees participating in the Culbro
401(k) Plan shall be fully nonforfeitable, effective as of the
Distribution. Culbro shall be responsible for making all employer
contributions (including any matching contributions) required
pursuant to the Culbro 401(k) Plan with respect to such Transferred
Employees through the Distribution Date.
(ii) Retained Employees and Culbro Terminees. Except as
provided in Section 2.2(a), following the Distribution Date and
prior to the Merger, Culbro shall retain sole responsibility for all
liabilities and obligations under the Culbro 401(k) Plan, and CLR
shall have no liability or obligation with respect thereto. As soon
as practicable after the Merger Date, Holdings shall take, or cause
to be taken, all action necessary and appropriate to assume and
continue the Culbro 401(k) Plan and to amend and rename the Culbro
401(k) Plan as the General Cigar Holdings, Inc. 401(k) Savings Plan
and Trust.
(c) Transfer of Account Balances. As soon as practicable
following the Distribution, Culbro shall cause the trustees of the Culbro
401(k) Plan to effect a transfer to the trustees or other funding agent of
the CLR 401(k) Plan of the account balances and accrued benefits of all
Transferred Employees which shall be established as account balances or
accrued benefits of such individuals under the CLR 401(k) Plan. Each such
transfer shall comply with Section 414(1) of the Code and the requirements
of ERISA and the regulations promulgated thereunder. CLR shall cause the
trustees or other funding agent of the CLR 401(k) Plan to accept the
plan-to-plan transfer from the Holdings 401(k) Plan trustees, and to
credit the accounts of such Transferred Employees under the CLR 401(k)
Plan with amounts transferred on their behalf.
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(d) Regulatory Filings. CLR and Culbro shall, in connection
with the plan-to-plan transfer described in Section 2.2(c), cooperate in
making any and all appropriate filings required by the Commission or the
IRS, or required under the Code or ERISA or any applicable securities laws
and the regulations thereunder, and take all such action as may be
necessary and appropriate to cause such plan-to-plan transfer to take
place as soon as practicable after the Distribution Date or otherwise when
required by law. Further, CLR shall seek a favorable IRS determination
letter that the CLR 401(k) Plan, as organized, satisfies all qualification
requirements under Section 401(a) of the Code. Notwithstanding the
foregoing, such plan-to-plan transfers shall take place pending issuance
of such favorable determination letter. The Parties shall each make any
necessary amendments on a retroactive basis to the CLR 401(k) Plan or the
Culbro 401(k) Plan, respectively, as required by the IRS to issue the
favorable determination letter described above.
Section 2.3 Culbro Retirement Plan
(a) Transferred Employees. Effective as of the Distribution
Date, the Culbro Board of Directors shall take or cause to be taken all
actions necessary and appropriate to amend the Culbro Retirement Plan to
provide that Transferred Employees will cease to accrue further benefits
under the Culbro Retirement Plan following the Distribution, and to
provide that all benefits accrued by such participants through the date of
the Distribution shall be fully nonforfeitable. Culbro and the Culbro
Retirement Plan shall retain all liabilities and obligations associated
with Transferred Employees accrued prior to the Distribution Date, and CLR
shall not assume any such liabilities or obligations associated with
Transferred Employees. Following the Distribution, Culbro may, at Culbro's
discretion, continue to maintain the Culbro Retirement Plan, as it may be
amended, in accordance with its terms.
(b) Assumption of Plan by Holdings. Effective as of the
Merger, Culbro and Holdings shall take, or cause to be taken, all actions
necessary and appropriate for Holdings to assume and continue sponsorship
and administration of the Culbro Retirement Plan, and Holdings shall
thereupon be solely responsible for all liabilities and obligations
associated with the Culbro Retirement Plan. Upon the consummation of the
Merger, Holdings will assume and may, at Holdings' discretion, continue to
maintain the Retirement Plan, and participants (other than CLR Employees)
shall continue to accrue benefits in the Retirement Plan, as it may be
amended, in accordance with its terms.
Section 2.4 Deferred Compensation Plan.
(a) Assumption of Plan by Holdings. Effective as of the Asset
Transfer Date, Holdings shall assume sole responsibility for all
liabilities and obligations under the Culbro Corporation Deferred
Incentive Compensation Plan, and CLR shall have no liability or obligation
with respect thereto. As soon as practicable
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after the Asset Transfer Date, Holdings shall take, or cause to be taken,
all action necessary and appropriate to amend and rename the Deferred
Incentive Compensation Plan as the General Cigar Holdings, Inc. Deferred
Incentive Compensation Plan. Holdings shall provide future benefits
thereunder accruing after the Asset Transfer Date for all persons who, on
the Asset Transfer Date, were participants in or otherwise entitled to
benefits under the Deferred Incentive Compensation Plan and for any
persons who are admitted to participate therein on or after the Asset
Transfer Date. All accrued benefits, rights and Service Credit shall
continue under the Deferred Incentive Compensation Plan.
(b) No Termination of Service. To the extent permitted by
applicable law, the Parties shall take any and all actions necessary to
provide that the Asset Transfers, Distribution, or Merger, as the case may
be, shall not constitute a termination of any participant's service for
purposes of the Deferred Compensation Plan. Post Distribution Transfers
shall not constitute a separation of any participant's service for
purposes the Deferred Compensation Plan.
Section 2.5 Stock Plans.
(a) CLR Stock Plan. Effective as of the Distribution Date, CLR
shall take, or cause to be taken, all action necessary and appropriate to
establish and administer a new stock-based compensation plan (the "CLR
Stock Plan"), and to provide Conversion Awards of CLR Stock or CLR Options
for all CLR Employees or Culbro Employees and Directors, in accordance
with Section 2.5(d). All awards under the CLR Stock Plan shall be
denominated in CLR Stock. CLR shall assume all obligations with respect
to, and shall administer, all Conversion Awards denominated in CLR Stock
under the CLR Stock Plan under the terms governing such awards of Culbro
Stock or Culbro Options prior to the conversion, except as adjusted or
amended herein.
(b) Holdings Stock Plan. Prior to the Offering, Holdings shall
adopt a new stock option plan (the "Holdings Stock Plan"), which will
provide for the grant of incentive and nonqualified options to certain
Holdings Employees, and, in addition, pursuant to the such Holdings Stock
Plan, options to purchase shares of Holdings Stock with an aggregate
exercise price of $1,000,000 will be granted to certain persons formerly
employed by Villazon & Company, Inc.
(c) Existing Stock Plans. Effective as of the Distribution
Date, except with respect to options reformed as CLR Options, Culbro shall
retain sole responsibility for all liabilities and obligations under the
Existing Stock Plans, and CLR shall have no liability or obligation with
respect thereto. Culbro shall provide future benefits accruing under the
Existing Stock Plans after the Distribution Date for all Retained
Employees and Culbro Directors who, on the Distribution Date, were
participants in or otherwise entitled to benefits under the Existing Stock
Plans and for Culbro Employees and Culbro Directors who are admitted to
participate therein on or after the Distribution Date.
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(d) Reformation of Existing Awards
(i) On the Distribution Date, each nonqualified Culbro
Option shall be reformed as one Reformed Culbro Option and one CLR
Option each, except as described below, with terms identical to
those of the Culbro Option, except with respect to the exercise
price which shall be adjusted as provided in Section 2.5(e).
(ii) On the Distribution Date, each Culbro Option
awarded as an ISO shall be reformed as one Reformed Culbro ISO and
one CLR ISO each, except as described below with terms identical to
the Culbro ISO, except with respect to the exercise price which
shall be adjusted as provided in Section 2.5(e); provided, however,
that any Cross-over ISO not exercised within three months following
the Distribution Date shall thereupon automatically convert into a
nonqualified Option.
(e) Exercise Prices of Reformed Options. The exercise price of
each Reformed Culbro Option shall be equal to the product of the exercise
price of the applicable Culbro Option and the Culbro Exercise Ratio. The
exercise price of each such CLR Option shall be equal to the product of
the exercise price of the applicable Culbro Option and the CLR Exercise
Ratio.
(f) Merger. Adjustments made to any Stock Plan pursuant to the
Merger shall be as set forth in the Merger Agreement.
[(g) Anti-Dilution Measures. With respect to any Culbro
Options exercised after the Offering and prior to the consummation of the
Merger, Culbro shall pay to Holdings any amount received upon the exercise
of a Culbro Option, which relates to the stock of Holdings, and in
exchange therefore, Holdings shall provide to Culbro a number of shares of
Class A Common Stock of Holdings equal to the number of shares of Culbro
Stock issued upon the exercise of such Culbro Option, multiplied by a
fraction, the numerator of which is equal to the number of shares of
Common Stock of Holdings (whether Class A or Class B) held by Culbro at
the time of the Offering, plus the number of shares of Common Stock that
would have been issuable upon exercise of all Culbro Options had such
exercise occurred subsequent to the Merger, and the denominator of which
is equal to the total number of shares of Culbro Stock outstanding prior
to the exercise of such Culbro Option, plus the total number of shares of
Culbro Stock that were subject to Culbro Options immediately prior to the
Offering.]
(h) Effect of Post-Distribution Transfer on Conversion Awards.
Conversion Awards shall be administered with respect to any provisions
relating to continuing employment requirements to give Service Credit for
service with the party employing the grantee as of the Distribution Date.
Solely with respect to such Conversion Awards (and not with respect to new
awards made after the Distribution Date), a Post-Distribution Transfer
shall not be deemed a termination of employment
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for purposes of any provision requiring continued employment; the business
operation or business unit from which such employee terminates employment
shall promptly notify the administrator of the Option Plan of each party
of the occurrence of any termination subject to the provisions of this
Section 2.4(h). Whichever party is the new employer shall inform the
former employer of any termination of employment of such transferred
employee. Any termination of employment other than as described in this
Section 2.4(h) shall be treated by applying the applicable provisions of
the CLR Stock Plan or the Existing Stock Plan relating to terminations of
employment without the modifications described in this Section 2.4(h).
Section 2.6 Annual Incentive Compensation Plans. Effective as of the
Asset Transfer Date, the Parties shall take all actions necessary and
appropriate to provide (i) that Holdings shall assume and be solely responsible
for liabilities under the Culbro Annual Incentive Compensation Plan (Corporate),
and the Culbro Annual Incentive Compensation Plan (General Cigar), and (ii) that
CLR shall assume or retain sole responsibility for liabilities under the Culbro
Annual Incentive Compensation Plan (Imperial Nurseries), except with respect to
individuals specified on Exhibit A-1 hereto.
Section 2.7 Culbro Long Term Performance Plan.
(a) The parties shall take any and all actions necessary to
provide that, effective as of the Asset Transfer Date, Holdings shall
assume the Performance Plan and shall continue, in its own discretion, the
Performance Plan with respect to participants employed by Holdings or any
direct subsidiary of Holdings prior to the Asset Transfers. Holdings shall
assume all liabilities and obligations under the Performance Plan that
were in existence as of the Asset Transfer Date with respect to Culbro
Employees, Culbro Terminees, Holdings Employees or Holdings Terminees.
(b) CLR Employees shall be eligible to receive the portion of
their award, if any, earned through the Asset Transfer Date. Determination
and payment of any award under the Performance Plan shall be made by the
applicable Parties as soon as reasonably practicable after the Asset
Transfer Date, and payment of any award shall be made by Holdings, except
with respect to individuals specified on Exhibit A-2 hereto.
Section 2.8 Jay Green Employment Agreement. Culbro and Holdings
shall take, or cause to be taken, all actions necessary and appropriate to
provide that, effective as of the Asset Transfer Date, Holdings shall assume
Culbro's obligations under the Jay Green Employment Agreement. Each Culbro
Option granted pursuant to the Jay Green Employment Agreement shall be reformed
as one CLR Option and one Holdings Option each, in accordance with Section 2.5
of this Agreement.
Section 2.9 Holdings Medical/Dental Plans.
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(a) Liability for Claims. Except with respect to CLR Employees
as provided in Section 2.10, prior to the Asset Transfers Culbro shall
retain and shall be responsible for, and following the Asset Transfers
Holdings shall assume and be responsible for, or cause the applicable
insurance carriers or HMOs to be responsible for, all liabilities and
obligations related to claims asserted or incurred or premiums owed or due
under any Culbro Medical/Dental Plan.
(b) Continuation Coverage Administration. As of the Asset
Transfer Date, Holdings shall assume or retain and shall be solely
responsible for, or cause its insurance carriers or HMOs to be responsible
for, providing and administering the continuation coverage required by
COBRA as it relates to any Culbro Qualified Beneficiary or Holdings
Qualified Beneficiary, and CLR shall have no liability or obligation with
respect thereto.
(c) Continuation Coverage Claims. As of the Asset Transfer
Date, Holdings shall assume or retain and shall be responsible for, or
cause its insurance carriers or HMOs to be responsible for, all
liabilities and obligations in connection with claims asserted or incurred
or premiums owed through the Asset Transfer Date under any Culbro
Medical/Dental Plan in respect of any Culbro Qualified Beneficiary and
claims asserted or incurred or premiums owed after the Asset Transfer Date
under any Holdings Medical/Dental Plan in respect of any Culbro Qualified
Beneficiary or Holdings Qualified Beneficiary and CLR shall have no
liability or obligation with respect thereto. To the extent required by
COBRA, each Culbro Qualified Beneficiary and each Holdings Qualified
Beneficiary shall, to the extent applicable, for all purposes under any
new Holdings Medical/Dental Plan (i) have coverage which is substantially
comparable to that provided immediately prior to the Distribution Date,
(ii) have no preexisting condition limitation imposed other than that
which is or was already imposed under the applicable existing Plan, and
(iii) be credited with or otherwise have taken into account, to the extent
applicable, the expenses incurred towards deductibles, out-of-pocket
limits, maximum benefit payments, and any benefit usage towards plan
limits credited to such individual as of the Asset Transfer Date under the
terms of the applicable existing Plan as if such expenses and usage had
originally been credited to such individual under a Holdings
Medical/Dental Plan.
(d) Liability for Medical Retirees. As of the Asset Transfer
Date, Holdings shall assume or retain, as the case may be, and shall be
solely responsible for, or cause its insurance carriers or HMOs to be
responsible for, all liabilities and obligations whatsoever in connection
with claims asserted or incurred or premiums owed through or after the
Asset Transfer Date under the retiree coverage provisions of any Culbro
Medical/Dental Plan (or successor thereto) or any Holdings Medical/Dental
Plan in respect of any Medical Retiree, and CLR shall have no liability or
obligation with respect thereto.
Section 2.10 CLR Medical/Dental Plans. Prior to the Asset Transfers
Culbro shall retain and shall be responsible for, and following the Asset
Transfers, CLR shall
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assume and be responsible for, or cause the applicable insurance carriers or
HMOs to be responsible for, all liabilities and obligations related to claims
asserted or incurred or premiums owed or due by any CLR Employee under any
Culbro Medical/Dental Plan, and as of the Asset Transfer Date, CLR shall adopt
Medical/Dental Plans which provide CLR Employees with substantially identical
benefits as are available under the Culbro Medical/Dental Plans immediately
prior to the Asset Transfers; provided, however, that following the Asset
Transfer Date, CLR may, at its discretion, amend, modify or terminate any CLR
Medical/Dental Plan. It is understood that any CLR Medical/Dental Plans may
provide for joint coverage under any Culbro Medical/Dental Plan or insurance
policy in effect as of the Asset Transfer Date, subject to a fee-sharing
arrangement between the Parties. For purposes of any Medical/Dental Plan, the
establishment of any CLR Medical/Dental Plan shall not, of itself, constitute a
severance or a termination of employment for Transferred Employees.
Section 2.11 Employer Liability under Welfare Plans. Except as
otherwise expressly provided herein, Culbro and/or Holdings shall retain all
liabilities accrued though the Asset Transfer Date under all Welfare Plans; CLR
shall be responsible only for liabilities accrued by CLR Employees under such
Welfare Plans following the Asset Transfer Date. Effective as of the Merger,
Holdings and Culbro shall take, or cause to be taken, such actions as are
necessary and appropriate to provide for Holdings to assume and or continue any
Welfare Plans maintained by Culbro as of the Merger Date.
Section 2.12 Preservation of Right To Amend or Terminate Plans.
Except as otherwise expressly provided in this Article II, no provisions of this
Agreement, including, without limitation, the agreement of Culbro, Holdings or
CLR to make a contribution or payment to or under any Plan herein referred to
for any period, shall be construed as a limitation on the right of Culbro
Holdings or CLR to amend such Plan or terminate its participation therein which
Holdings or CLR would otherwise have under the terms of such Plan or otherwise,
and no provision of this Agreement shall be construed to create a right in any
employee or former employee, or dependent or beneficiary of such employee or
former employee under a Plan which such person would not otherwise have under
the terms of the Plan itself; provided, however, that neither Party shall amend
any Plan to the extent that such amendment would have the effect of increasing
the liabilities of the other Party under any Plan of the other Party, without
such other Party's consent.
Section 2.13 Reimbursement. Culbro and CLR acknowledge that
Holdings, on the one hand, and CLR, on the other hand, may incur costs and
expenses, including, but not limited to, contributions to Plans and the payment
of insurance premiums arising from or related to any of the Plans which are, as
set forth in this Agreement, the responsibility of the other Party hereto.
Accordingly, Culbro and/or Holdings and CLR shall reimburse each other, as soon
as practicable, but in any event within thirty (30) days of receipt from the
other Party of appropriate verification, for all such costs and expenses.
Section 2.14 Payroll Reporting and Withholding.
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(a) Form W-2 Reporting. CLR and Culbro and/or Holdings hereby
adopt the "alternative procedure" for preparing and filing IRS Forms W-2
(Wage and Tax Statements), as described in Section 5 of Revenue Procedure
84-77, 1984-2 IRS Cumulative Bulletin 753 ("Rev. Proc. 84-77"). Under this
procedure CLR as the successor employer shall provide all required Forms
W-2 to all Transferred Employees reflecting all wages paid and taxes
withheld by both Culbro as the predecessor and CLR as the successor
employer for the entire year during which the Distribution takes place.
Holdings shall provide all required Forms W-2 to all Retained Employees
reflecting all wages and taxes paid and withheld by Culbro before the
Distribution Date and by Holdings on and after the Distribution Date.
In connection with the aforesaid agreement under Rev. Proc. 84-77,
each business unit or business operation of Culbro shall be assigned to
either Holdings or CLR, depending upon whether it is a Retained Business
or a Transferred Business, and each Retained Employee or Transferred
Employee associated with such business unit or business operation shall be
assigned for payroll reporting purposes to Holdings or CLR, as the case
may be. Holdings and CLR shall be responsible for filing IRS Forms 941 for
their respective Employees.
(b) Forms W-4 and W-5. CLR and Holdings agree to adopt the
alternative procedure of Rev. Proc. 84-77 for purposes of filing IRS Forms
W-4 (Employee's Withholding Allowance Certificate) and W-5 (Earned Income
Credit Advance Payment Certificate). Under this procedure Holdings shall
provide to CLR as the successor employer all IRS Forms W-4 and W-5 on file
with respect to each Transferred Employee, and CLR will honor these forms
until such time, if any, that such Transferred Employee submits a revised
form.
(c) Garnishments, Tax Levies, Child Support Orders, and Wage
Assignments. With respect to Employees with garnishments, tax levies,
child support orders, and wage assignments in effect with Culbro on the
Asset Transfer Date, CLR as the successor employer with respect to each
Transferred Employee shall honor such payroll deduction authorizations and
will continue to make payroll deductions and payments to the authorized
payee, as specified by the court or governmental order which was filed
with Culbro.
(d) Authorizations for Payroll Deductions. Unless otherwise
prohibited by this or another agreement entered into in connection with
the Distribution, or by a Plan document, with respect to Transferred
Employees with authorizations for payroll deductions in effect with Culbro
on the Asset Transfer Date, CLR as the successor employer will honor such
payroll deduction authorizations relating to each Transferred Employee,
and shall not require that such Transferred Employee submit a new
authorization to the extent that the type of deduction by CLR does not
differ from that made by Culbro.
ARTICLE III
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LABOR AND EMPLOYMENT MATTERS
Notwithstanding any other provision of this Agreement or any other
Agreement between CLR and Culbro to the contrary, CLR and Culbro understand and
agree that:
Section 3.1 Separate Employers. On and after the Distribution Date
and the separation of Employees into their respective companies, CLR and Culbro
will be separate and independent employers.
Section 3.2 Employment Policies and Practices. Subject to the
provisions of ERISA and any provision of this Agreement governing Service
Credits or Post-Distribution Transfers, and except as limited by applicable law
or agreement, CLR and Culbro may adopt, continue, modify or terminate such
employment policies, compensation practices, retirement plans, welfare benefit
plans, and other employee benefit plans of any kind or description, as each may
determine, in its sole discretion, are necessary or appropriate.
Section 3.3 Matters Concerning Administration.
(a) Administrative Services In Connection With The CLR Plans.
It is agreed that Culbro (and after the Merger, Holdings) will provide
administrative services to the CLR 401(k) Plan, the CLR Stock Plan, any
CLR Medical/Dental Plan, or any other Plan of CLR, from the Distribution
Date through November 29, 1997 at a reasonable fee to be agreed upon by
Culbro and CLR, which fee shall comply with ERISA and other applicable
law. Such services will be substantially similar to the services provided
by employees of Culbro under existing Culbro Plans. These administrative
services may be extended beyond November 29, 1997, if agreed to by Culbro
and CLR.
(b) Allocation of Group Insurance Reserves. The Parties hereby
agree to divide and allocate any surplus balances and any reserves
relating to any group insurance Plan maintained by Culbro prior to the
Distribution, in accordance with a formula and procedures to be adopted by
the Parties prior to the Distribution Date.
Section 3.4 Notice of Claims. Without limitation to the scope and
application to each Party in the performance of its duties under Section 3.3,
each Party will notify in writing and consult with the other Party prior to
making any settlement of an employee claim, for the purpose of avoiding any
prejudice to such other Party arising from the settlement.
Section 3.5 Assumption of Unemployment Tax Rates. Changes in state
unemployment tax experience from that of Culbro as of the Distribution Date
shall be handled as follows. In the event an option exists to allocate state
unemployment tax experience of Culbro, the Culbro experience shall be
transferred to CLR if this results in the lowest aggregate unemployment tax
costs for both Culbro and CLR combined, and the
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Culbro experience shall be retained by Holdings if this results in the lowest
aggregate unemployment tax costs for Culbro and CLR combined.
Section 3.6 Employees on Leave of Absence. After the Distribution
Date, CLR shall assume responsibility, if any, as employer for all Employees
returning from an approved leave of absence who prior to the Distribution Date
were employed in a CLR Business.
Section 3.7 No Third Party Beneficiary Rights.
(a) Neither this Agreement nor any other intercompany
agreement among CLR, Culbro, and Holdings is intended to nor does it
create any third party contractual or other common law rights. No person
(including any Employee, any beneficiary or dependent thereof) shall be
deemed a third-party beneficiary of the agreements among CLR, Culbro, and
Holdings.
(b) Nothing contained in this Agreement shall confer upon any
Employee any right with respect to continuance of employment by any Party,
nor shall anything herein interfere with the right of any Party to
terminate the employment of any Employee at any time, with or without
cause, or restrict any Party in the exercise of its independent business
judgment in modifying any of the terms and conditions of the employment of
an Employee, except as provided by applicable law.
Section 3.8 Attorney-Client Privilege. Any provisions herein
requiring the Parties to this Agreement to cooperate shall not be deemed to be a
waiver of the attorney/ client privilege for any Party nor shall it require any
Party to waive its attorney/client privilege.
ARTICLE IV
DEFAULT
Section 4.1 Default. If any Party or Parties materially defaults
hereunder, the non-defaulting Party or Parties shall be entitled to all remedies
provided by law or equity (including reasonable attorneys' fees and costs of
suit incurred).
Section 4.2 Force Majeure. The Parties shall incur no liability to
each other due to a default under the terms and conditions of this Agreement
resulting from fire, flood, war, strike, lock-out, work stoppage or slow-down,
labor disturbances, power failure, major equipment breakdowns, construction
delays, accident, riots, acts of God, acts of United States' enemies, laws,
orders or at the insistence or result of any governmental authority or any other
delay beyond each other's reasonable control.
ARTICLE V
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MISCELLANEOUS
Section 5.1 Access to Information; Cooperation. The Parties and
their authorized agents shall be given reasonable access to and may take copies
of all information relating to the subjects of this Agreement (to the extent
permitted by federal and state confidentiality laws) in the custody of any other
Party, including any agent, contractor, subcontractor, agent or any other person
or entity under the contract of such Party. The Parties shall provide one
another with such information within the scope of this Agreement as is
reasonably necessary to administer each Party's Plans. The Parties shall
cooperate with each other to minimize the disruption caused by any such access
and providing of information.
Section 5.2 Assignment. No Party shall, without the prior written
consent of the other, have the right to assign any rights or delegate any
obligations under this Agreement.
Section 5.3 Headings. The headings used in this Agreement are
inserted only for the purpose of convenience and reference, and in no way define
or limit the scope or intent of any provision or part hereof.
Section 5.4 Severability of Provisions. No Party to this Agreement
intends to violate statutory or common law by executing this Agreement. If any
section, sentence, paragraph, clause or combination of provisions in this
Agreement is in violation of any law, such sections, sentences, paragraphs,
clauses or combinations shall be inoperative and the remainder of this Agreement
shall remain in full force and effect and shall be binding upon the Parties.
Section 5.5 Parties Bound. This Agreement shall inure to the benefit
of and be binding upon the Parties hereto and their respective successors and
permitted assigns. Nothing herein, expressed or implied, shall be construed to
give any other person any legal or equitable rights hereunder.
Section 5.6 Notices. All notices, consents, approvals and other
communications given or made pursuant hereto shall be in writing and shall be
deemed to have been duly given when delivered personally or by overnight courier
or three days after being mailed by registered or certified mail (postage
prepaid, return receipt requested) to the named representatives of the Parties
at the following addresses (or at such other address for a Party as shall be
specified by like notice, except that notices of changes of address shall be
effective upon receipt):
(a) if to Culbro:
Culbro Corporation
387 Park Avenue South
New York, New York 10016-8899
Attention: ____________________
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(b) if to CLR:
Culbro Land Resources, Inc.
________________________________
Windsor, CT ______-______
Attention: _____________________
The Parties agree that, upon the request of another Party, the requested Party
will give copies of all of its notices, consents, approvals and other
communications hereunder to any lender to the requesting Party or other person
specified by such requesting Party.
Section 5.7 Further Action. The Parties shall cooperate in good
faith and take such steps and execute such papers as may be reasonably requested
by another Party to implement the terms and provisions of this Agreement.
Section 5.8 Waiver. The Parties agree that the waiver of any default
under any term or condition of this Agreement shall not constitute a waiver of
any subsequent default or nullify the effectiveness of that term or condition.
Section 5.9 Governing Law. All controversies and disputes arising
out of or under this Agreement shall be determined pursuant to the laws of the
State of New York, regardless of the laws that might be applied under applicable
principles of conflicts of laws.
Section 5.10 Consent to Jurisdiction. The Parties irrevocably submit
to the exclusive jurisdiction of (a) the Courts of the State of New York, or (b)
any federal district court where there is federal jurisdiction for the purpose
of any suit, action or other Court proceeding arising out of this Agreement.
Section 5.11 Entire Agreement. This Agreement and the Distribution
Agreement constitute the entire understanding between the Parties hereto, and
supersede all prior written or oral communications, relating to the subject
matter covered by said agreements. To the extent that the terms of this
Agreement and similar terms of the Distribution Agreement are in conflict, the
interpretation given to the conflicting terms of the Distribution Agreement
shall govern the interpretation and performance of this Agreement. No amendment,
modification, extension or failure to enforce any condition of this Agreement by
any Party shall be deemed a waiver of any of its rights herein. This Agreement
shall not be amended except by a writing executed by the Parties.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
duly as of the date first above written.
CULBRO CORPORATION, a New York corporation
By:________________________________________
Name:
Title:
CULBRO LAND RESOURCES, INC., a
Delaware corporation
By:________________________________________
Name:
Title:
GENERAL CIGAR HOLDINGS, INC., a Delaware
corporation
By:________________________________________
Name:
Title:
S-1
<PAGE>
SERVICES AGREEMENT
AGREEMENT, dated as of _______, 1997 between CULBRO CORPORATION, INC., a
Delaware corporation ("Culbro"), and CULBRO LAND RESOURCES, INC., a Delaware
corporation ("CLR").
SUMMARY
WHEREAS pursuant to a Reorganization and Distribution Agreement dated as
of ____________, 1997, (the "Distribution Agreement") between Culbro and CLR,
Culbro is on the date hereof transferring to CLR the CLR Assets and CLR Business
(as such terms are defined in the Distribution Agreement) in anticipation of a
distribution by Culbro of the common stock of CLR to the stockholders of Culbro.
WHEREAS a condition of the closing of the transactions contemplated by the
Distribution Agreement is that Culbro and CLR enter into a services agreement
pursuant to which Culbro shall provide certain services to CLR.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants hereinafter set forth, and intending to be legally bound hereby, the
parties agree as follows:
1. SERVICES.
1.1. Culbro agrees, as agent for CLR, to utilize its employees and
assets to provide certain services ("Services") consistent with the type,
quality and level of such Services provided by Culbro immediately prior to the
date hereof, in connection therewith. The Services to be provided shall include
financial reporting, accounting, data processing/computer, tax, legal, treasury,
credit, office services, insurance, human resources and
engineering/environmental services.
1.2. The Services shall be provided during normal business hours, on
an as-needed basis as CLR shall request, on reasonable notice. CLR shall use
reasonable efforts to ensure that requests for the provision of Services
hereunder shall be scheduled to permit Culbro to effectively manage its
businesses.
1.3. CLR shall pay Culbro such amount for the Services as reflects
the costs incurred by Culbro in providing such Services. Culbro shall, upon
request by CLR, make available to CLR or its representatives such records and
information as are reasonably necessary to enable CLR to verify that such
charges so reflect the costs incurred by Culbro.
1.4. CLR shall reimburse Culbro for out-of-pocket expenses incurred
by Culbro employees in the performance of the Services.
1.5. The Services shall be performed and used in compliance with the
applicable provisions of the Distribution Agreement.
2. AIRCRAFT.
2.1. Culbro shall make available to CLR its "Astra Jet" aircraft
(the "Aircraft"), staffed with all necessary personnel for use by CLR in
connection with its business at such times as CLR
<PAGE>
shall request on reasonable notice; provided however that such use by CLR shall
not unreasonably interfere with use by Culbro of the Aircraft.
2.2. CLR shall pay Culbro $750 per hour, or part thereof, flown by
the Aircraft on CLR business, as recorded in the log maintained by the pilot for
such purpose. CLR business shall include, without limitation, flying hours
logged returning the Aircraft to Peterboro Airport, N.J., on completion of use
by CLR.
3. INVOICE AND PAYMENT. CLR shall invoice once each month for the Services
performed and the use of the Aircraft during the prior month and Culbro shall
pay CLR for such Services and use not later than 30 days from the date of the
invoice.
4. CONTRACTUAL RELATIONSHIP. The relationship between Culbro and CLR under
this Agreement shall be that of principal and agent in respect of the services
to be performed hereunder. In no event is the relationship of CLR intended to be
that of employer and employee and in no event is either party to be deemed or
purported to be the partner or joint venturer of the other for any purpose
whatsoever.
5. TERM. The term of this Agreement shall be one (1) year from the date
hereof.
6. LIMITATION OF LIABILITY. CLR shall have no liability whatsoever to
Culbro or to any third party for any loss, liability, damage, cost or deficiency
(collectively, "Losses"), or for any claim for Losses, including, without
limitation, Losses or claims for personal injury, death or property damage,
warranty, tort or products liability, resulting from, caused by or arising out
of CLR's performance under this Agreement except for claims arising out of the
gross negligence or willful default or breach of CLR hereunder. In no event
shall CLR have liability to Culbro or to any third party for indirect, special
or consequential damages or loss of profits, except with respect to its willful
default or beach, or for punitive damages for any reason whatsoever.
7. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by facsimile
transmission, telexed or mailed by overnight delivery service or by registered
or certified mail (return receipt requested), postage prepaid, to the parties at
the following addresses (or at such other address for a party as shall be
specified by like notice; provided that notices of a change of address shall be
effective only upon receipt thereof):
(a) if to Culbro:
387 Park Avenue South, 6th Floor
New York, New York 10016
Attention: __________________
(b) if to CLR:
______________________________
__________, Connecticut ______
Attention: __________________
8. ASSIGNMENT. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any
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<PAGE>
party hereto without the prior written consent of the other party (other than to
an affiliate of CLR). Any purported assignment in violation of the provisions
hereof shall be void.
9. GOVERNING LAW This Agreement shall be governed by the laws of the State
of New York (regardless of the laws that might otherwise govern under applicable
New York conflict of laws principles) as to all matters, including but not
limited to matters of validity, construction, effect, performance and remedies.
10. SUITS IN NEW YORK. The parties agree that any action or proceeding
relating in any way to this Agreement shall be brought and enforced in the
Supreme Court of the State of New York for Nassau County or the United States
District Court for the Eastern District of New York and the parties hereby waive
any objection to jurisdiction or venue in any such proceeding commenced in such
court.
11. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12. INTERPRETATION. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not in any way affect the meaning or interpretation of
this Agreement.
13. SEVERANCE. In the event that any provision of this Agreement is
declared illegal, invalid or unenforceable or contrary to law, it shall not
affect any other provision in the Agreement.
14. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding of the parties hereto in respect of the subject matter hereof.
This agreement supersedes all prior agreements and understanding between the
parties with respect to the transaction contemplated hereby.
IN WITNESS WHEREOF, each of Culbro and CLR has caused this Agreement to be
executed by its duly authorized officer as of the date first above written.
CULBRO CORPORATION, INC.
By:______________________________________
Name:
Title:
CULBRO LAND RESOURCES, INC.
By:______________________________________
Name:
Title:
3
<PAGE>
Exhibit 10.6
LEASE
THIS INDENTURE made as of _____________, 199_, by and between CULBRO
CORPORATION, a New York corporation having an office in the Town of Granby,
County of Hartford and State of Connecticut (hereinafter called "Lessor"),
and GENERAL CIGAR CO., INC., a Delaware corporation organized and existing
under the laws of the State of Delaware and having a place of business in the
Town of Simsbury, County of Hartford and State of Connecticut (hereinafter
called "Lessee"):
W I T N E S S E T H:
That the Lessor, for and in consideration of the rents and covenants
hereinafter reserved and contained, and to be paid, kept and fulfilled on the
part of the Lessee, has let, and by these presents does grant, let, and
demise unto the said Lessee those various premises described in Exhibit A and
identified on the maps attached hereto, situated in the counties of Hampden
and Hampshire in the Common Wealth of Massachusetts, and in the Counties of
Hartford and Tolland in the State of Connecticut.
TO HAVE AND TO HOLD:
1. Those parcels set forth on Exhibit A and identified on the maps
attached hereto, for the term commencing ___________, 199_ and ending
____________, 199_.
2. Lessee shall pay as rent during the term of this Lease and any
extensions thereof, all real estate taxes, including water and sewer rents,
rates, duties, levies and assessments whatsoever, whether municipal,
legislative or otherwise, charged upon the premises
<PAGE>
to be leased hereunder, which arise in connection with the use, occupancy,
ownership or possession of the premises or improvements thereto. If any
allocation of tax due on the premises hereunder must be made between Lessee
and other divisions or subsidiaries of Lessor by reason of common tax bills
rendered to Lessor on said premises, such allocation shall be made by
[Irving Laevin] on behalf of Lessor and Lessee and such allocation shall be
deemed conclusive. Any additional rent a rising out of any tax increase
shall be determined and fixed on the basis of the yearly tax bills rendered
to Lessor by the appropriate taxing body. If any part of the term of this
Lease is less than the full taxable year, any tax shall be pro-rated on a
daily basis between the parties to the end that Lessee shall only pay the tax
attributable to the portion of the taxable year occurring within the term of
this Lease. All payments to Lessor by Leases as rent shall be due and
payable upon receipt of the tax bills relating to said premises.
3. The Lessee, in consideration of said leasing, agrees:
a. To use the premises for the purpose of growing tobacco for
the business purposes of the Lessee and for such associated purposes
including the holding of land for such purposes and the growing of
cover crops to preserve the integrity and usefulness of said land for
the growing of tobacco. Lessee shall not use such land for any other
object or purpose except upon the written consent of the Lessor.
b. Not to assign this Lease nor sublet the premises or any
portion thereof without the written consent of the Lessor.
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<PAGE>
c. To only use chemicals, pesticides, fertilizers and such
other substances upon crops growing upon the leased premises which
have been approved for such use(s) by the State of Connecticut
Department of Environmental Protection and/or the Federal
Environmental Protection Agency.
d. To indemnify and save the Lessor harmless from any personal
injuries occurring upon the leased premises or damage to the leased
premises or to the property of others (including pollution caused by a
groundwater contamination) arising out of the use of the leased
premises by the Lessee.
e. To indemnify and save the Lessor harmless from any personal
injuries occurring upon the leased premises arising out of the use of
the same by the Lessee.
f. Not to erect or place any structure or buildings on said
leased premises without the written permission of the Lessor.
g. At the termination of this Lease to seed down with a
sufficient cover crop those portions of the leased premises which have
been used by the Lessee during the term of said Lease.
4. The Lessor, in consideration of the agreements of the Lessee
set forth above, represents and agrees as follows:
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<PAGE>
a. That the crop grown upon the leased premises is personal
property and the sole property of the Lessee, that the Lessor shall
acquire no property or other interest in the same, and that the Lessee
shall have the right to remove any and all such stock at any time
during said Lease and shall have the right to remove all of said stock
at the termination of said Lease.
b. That this Lessor is fully empowered to lease the premises on
the terms herein set forth and that said promises may be used by the
Lessee in the manner herein provided without violating any law or any
restrictions on the use of said premises whether or not appearing of
record.
5. The Lessor may, at the request of the Lessee, extend the term
of this Lease with respect to one or more or all of the parcels or parts
thereof on Exhibit A as the Lessee may designate, for another successive
[two (2) year]period, for the purposes stated in Section 3 herein, at a
rental sum to be agreed upon by the parties hereto for the designated
parcels. The Lessee shall notify the Lessor in writing not less than six (6)
months prior to the commencement of such extension period of its request to
extend the term of this Lease.
6. The Lessor may terminate this lease with respect to
acres of such land annually upon one years' prior notice.
7. If default shall be made in any of the covenants herein
contained and thereby kept and fulfilled on the part of the Lessee, then it
shall be lawful for the Lessors at any time after such neglect or default and
after fifteen (15) days written notice of the Lessee, during which fifteen
(15) days the Lessee may cure said default or undertake to cure the same and
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<PAGE>
thereby negate Lessor's right to claim the default, to re-enter and take
possession of said leased premises and such re-entry and taking possession
shall end and terminate this Lease.
8. If at any time a petition to have Lessee adjudicated a
bankrupt, or a petition for reorganization or arrangement under any of the
laws of the United States relating to bankruptcy be filed by Lessee, or be
filed against Lessee and not be dismissed within sixty (60) days from the
date of such filing, or if the assets of Lessee or the business conducted by
Lessee on the leased promises be assumed by any trustee or other person
pursuant to any judicial proceeding, or if Lessee becomes insolvent or fails
in business or makes an assignment for the benefit of creditors, Lessee shall
immediately notify the Lessor and the occurrence of any such contingency or
the failure to give notice of such contingency shall be deemed to constitute
and shall be construed as a repudiation of the obligations of Lessee and a
breach of this Lease. Lessor may, at Lessor's election, terminate this Lease
in the event of the occurrence of any of the events in this paragraph above
described by giving not less than three (3) days written notice to Lessee,
and upon such termination, Lessor may re-enter the leased premises, and this
Lease shall not be treated as an asset of Lessee's estate.
9. At the expiration of the said term or other termination of the
Lease, the said Lessee will quit and surrender the premises hereby demised in
as good state and condition as reasonable use and good husbandry will permit,
damage by the elements excepted and the Lessor shall have the right to enter
said premises for the purposes of showing the same to applicants for hiring
the same at any reasonable time.
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<PAGE>
10. The failure of the Lessor to insist on the strict performance
of the terms, agreements and conditions herein contained, or any of them,
shall not constitute or be considered as a waiver or relinquishment of the
Lessor's right thereafter to enforce any such term, agreement or condition,
but the same shall continue in full force and affect.
11. This Agreement shall be binding upon and inure to the benefit
of the successors and assigns of the parties hereto. Lessee may not assign
this Lease without the prior written consent of Lessor.
12. This Agreement shall be governed by the laws of the State of
New York and shall be the entire agreement between the parties hereto with
respect to the subject premises appearing on Exhibit A hereto.
IN WITNESS WHEREOF, the Parties hereto have hereunto set their hands
and seals the day and year above written.
CULBRO CORPORATION
____________________________ By:______________________________
Witness Name:
Title:
GENERAL CIGAR CO., INC.
____________________________ By:______________________________
Witness Name:
Title:
6
<PAGE>
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
Personally appeared this date ________________, who acknowledged
himself to be the __________________ of Culbro Corporation, and that as such
___________________, being authorized so to do, executed the foregoing
instrument for the purposes therein contained, by signing the name of the
Corporation by himself as _____________________, as his free act and deed and
the free act and deed to the Corporation, before me.
Dated:___________________________
_________________________________
Notary Public
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
Personally appeared this date _____________, who acknowledged
himself to be the _____________ of General Cigar Co., Inc., and that as such
_____________, being authorized so to do, executed the foregoing instrument
for the purposes therein contained, by signing the name of the Corporation by
himself as ____________, as his free act and deed and the free act and deed
to the Corporation, before me.
Dated: ____________________________
___________________________________
Notary Public
7
<PAGE>
Exhibit 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
the 8th day of April, 1994 by and between Culbro Corporation, a New York
corporation ("Culbro"), and Jay M. Green ("Green").
WHEREAS, Green is employed by Culbro in an executive capacity and Culbro
desires to secure the continued services of Green, which are considered by
Culbro to be valuable to it, for an extended period of time upon the terms and
conditions herein provided; and
WHEREAS, Green desires to continue in the full and active employ of Culbro
in accordance with the terms and conditions herein provided.
NOW, THEREFORE, in consideration of the premises and of the respective
covenants and agreements herein contained, the parties hereto hereby covenant
and agree as follows:
1. EMPLOYMENT. Culbro hereby agrees to employ Green, and Green hereby agrees
to remain an employee of Culbro, on the terms and conditions set forth herein,
for the period commencing April 8, 1994 and expiring on April 7, 1999 unless
sooner terminated as hereafter set forth. Subject to the terms of this
Agreement, the period referred to in this Paragraph 1 shall be referred to as
the "Employment Period."
2. POSITION AND DUTIES.
(a) During the Employment Period, Green shall occupy the position and
perform the duties of Executive Vice President - Finance and Administration and
Treasurer of Culbro (which duties shall be of the same general nature as those
performed by the chief financial officer of similarly situated companies and
substantially the same as those previously performed by Green) and shall perform
such other duties not inconsistent with his position as may be assigned to him
from time to time by the Board of Directors of Culbro (the "Board"), including
duties in respect of The Eli Witt Company and any other subsidiary or affiliate
of Culbro.
(b) Green shall devote his best efforts and full business time to the
diligent, faithful, efficient, and competent performance of his duties and
responsibilities hereunder and will not engage in any other ventures or
enterprises (other than certain affiliations of which Culbro is aware which pre-
date the Employment Period) without the consent of the Board.
<PAGE>
3. COMPENSATION.
(a) Base Compensation. Subject to the provisions of Paragraph 5 hereof,
Green shall receive an annual base salary of $340,000, payable in substantially
equal periodic installments. Green's annual base salary shall be reviewed at
least annually by the Compensation Committee of the Board (the "Compensation
Committee") and may be increased in the sole discretion of the Compensation
Committee.
(b) Bonus. In connection with the close of each fiscal year of Culbro
through the fiscal year ending prior to the end of the Employment Period, the
Compensation Committee shall review the services provided by Green and the
performance of Culbro for such fiscal year and shall award Green such bonus, if
any, as the Compensation Committee in its sole discretion shall determine,
provided that the bonus in respect of any fiscal year of Culbro shall not exceed
50% of Green's base salary for such fiscal year.
(c) Benefits. Green shall be entitled to participate in or receive
benefits during the Employment Period under all employee benefit plans or
programs of Culbro, including but not limited to term life insurance,
hospitalization and surgical and major medical coverage, vacations and holidays,
long-term disability, long term performance, pension, 401(k) and other fringe
benefits which are from time to time generally made available to executives of
Culbro, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans or arrangements.
(d) Expenses. During the Employment Period Green shall be entitled to
receive reimbursement for reasonable expenses actually incurred by him in the
performance of his duties (in accordance with past practice and the policies and
procedures established by the Board for executive officers of Culbro), provided
that any such expenses shall be reimbursable only to the extent that Green
properly accounts therefor in accordance with established policy, and further
provided that political contributions shall under no circumstances be
reimbursable.
4. STOCK OPTIONS.
(a) Grant of Option. Culbro hereby grants to Green the option (the
"Option") to purchase 125,000 shares of Culbro's Common Stock ("Common Stock")
at an exercise price of $4.00 per share.
(b) Exercisability. The Option shall become exercisable with respect to
20% of the shares of Common Stock covered thereby on the first anniversary of
the date of this Agreement and with respect to an additional 20% of the shares
of Common Stock covered hereby on each of the next four succeeding
2
<PAGE>
anniversaries of the date of this Agreement; provided, however, that if Green
dies or Culbro terminates his employment as a result of his Disability prior to
the fifth anniversary of the date of this Agreement, a portion of the Option,
prorated to the date of his death or termination, that would otherwise have
become exercisable on the anniversary of the date of this Agreement next
succeeding his death or termination, shall immediately become exercisable. The
portion of the Option which has become exercisable as aforesaid shall be
referred to herein as the "Vested Stock Options". Except as otherwise stated
herein, each Vested Stock Option shall expire and cease to be exercisable on and
after the tenth anniversary of its having becoming exercisable as aforesaid and,
except as provided in Paragraph 5 in each specific case, on or after the date
Green ceases to be an employee of Culbro or its subsidiaries. The Vested Stock
Options may be exercised in whole or in part and from time to time by the
delivery of written notice to the Secretary of Culbro specifying the number of
shares exercised, accompanied by payment in full of the exercise price of such
shares of Common Stock. The exercise price of the shares of Common Stock as to
which the Option is exercised shall be paid to Culbro at the time of exercise in
cash, provided that the Compensation Committee in its sole discretion may permit
Green to pay the exercise price by delivery of outstanding shares of Common
Stock owned by Green and duly endorsed to Culbro or by any other arrangement for
the payment of the exercise price as it deems advisable. As soon as practicable
after receipt of such payment, Culbro shall deliver to Green a certificate or
certificates for the shares of Common Stock so purchased.
(c) The Option is nontransferable and during Green's lifetime maybe
exercised only by Green.
(d) Section 162(m) Disallowance. Green will use his reasonable best
efforts to schedule his exercise of the Option so that the exercise of the
Option will not result in a disallowance of a deduction on Culbro's federal
income tax return for any year under section 162(m) of the Internal Revenue Code
of 1986, as amended (a "Disallowance"). The Option may not be exercised in any
year prior to the last tax year of Culbro in which it is exercisable ("The Last
Year") to the extent that the exercise of the Option would result in a
Disallowance. If Green delivers notice of exercise of the Option in The Last
Year, but exercise of the Option in The Last Year would result in a
Disallowance, then, at Culbro's option, the Option shall not be exercised in The
Last Year and the period during which the Option is exercisable shall be
extended for up to two years, during which years the Options originally sought
to be exercised in The Last Year shall be exercised so as to minimize any
Disallowance. All determinations as to whether an Option would result in a
Disallowance shall be made by the Compensation Committee in its sole discretion
after taking into account all compensation of Green.
3
<PAGE>
(e) Purchase Not for Distribution. At such time or times as Green may
exercise the Option, Culbro may require Green to represent in writing that he is
acquiring shares of Common Stock under the Option for his own account and not
with a view to or for sale in connection with any distribution thereof, and that
Green will not sell or otherwise dispose of any such shares of Common Stock
except in compliance with the Securities Act of 1933 and the rules and
regulations thereunder. Green recognizes that the shares of Common Stock
acquired under the Option may be subject to certain transfer restrictions under
the securities laws of the United States.
(f) Adjustments. In the event of any stock split, dividends (other than
ordinary cash dividends), distribution, combination, reclassification,
recapitalization, merger, consolidation, liquidation or other similar change or
transaction of or by Culbro which changes the character or amount of the shares
of Common Stock while the Option is outstanding but unexercised, the Board shall
make such adjustments in the exercise price of Common Stock subject to the
Option as shall be equitable and appropriate in order to make the Option, as
nearly as may be practicable, equivalent to the Option immediately prior to such
change.
(g) Additional Options; Previously Acquired Options. Other than the
Option described above, during the Employment Period Green shall not receive any
compensatory awards of Common Stock or Options to purchase Common Stock under
any other plan or arrangement maintained or hereafter adopted by Culbro;
however, any option to purchase Common Stock granted to Green prior to the date
of this Agreement shall remain outstanding in accordance with its terms.
(h) Change in Control. In the event that the group consisting of the
Cullman and Ernst families and trusts for their benefit, partnerships in which
members of the Cullman and Ernst families hold substantial direct and indirect
interests, and charitable foundations and trusts of which members of the Cullman
and Ernst families are directors or trustees (the "Cullman Group") own less than
40% of Culbro's Common Stock, then the Option shall become exercisable in its
entirety notwithstanding Paragraph 4(b) of this Agreement.
5. TERMINATION.
(a) Death. If Green's employment terminates by reason of his death,
Green's designated beneficiary or personal representative shall be entitled to
any unpaid portion of his annual base salary prorated to the date of death and
shall be entitled to exercise the Option, to the extent it was exercisable by
Green on the date of his death or become exercisable by virtue of his death,
within one year of Green's death but in no event
4
<PAGE>
later than the date the Option would have expired if Green had lived. Green's
designated beneficiary or personal representative shall also be entitled to a
prorated portion of any bonus awarded to Green by the Compensation Committee
with respect to the year of his death. Green's designated beneficiary or
personal representative shall be eligible for those death benefits, if any,
available under the employee benefit plans and programs of Culbro and in which
Green has participated.
(b) Disability. If Culbro terminates Green's employment, as a result of
Green's Disability, as hereinafter defined, Green shall be entitled to any
unpaid portion of his annual base salary prorated to the date of such
termination. For purposes of this Agreement, "Disability" shall mean Green's
inability to discharge his duties and responsibilities under this Agreement due
to either his physical or mental incapacity for a period of four (4) consecutive
months or for an aggregate of five (5) months in any eight (8) consecutive month
period. In the event Culbro terminates Green's employment due to Disability, he
shall be entitled to continue participation in the employee benefit plans and
programs of Culbro if and to the extent permitted by such plans. In the event
Culbro terminates Green's employment due to Disability, he may exercise the
Option, to the extent it was a Vested Stock Option on the date his employment
terminated or became exercisable by virtue of such termination, within one year
of such date, but in no event later than the date the Option would have expired
in accordance with its terms.
(c) Voluntary Termination. In the event of a voluntary termination of
employment by Green, Green shall be entitled to an unpaid portion of his annual
base salary prorated to the date of such termination. He may exercise the
Option, to the extent it was a Vested Stock Option on the date his employment
terminated, within 90 days from such event, but in no event later than the date
the Option would have expired in accordance with its terms.
(d) Termination for Cause. Culbro may terminate Green's employment
hereunder for Cause. For purposes of this Agreement the term "Cause" shall mean
gross negligence and gross misconduct which is materially injurious to Culbro or
any of its subsidiaries, conviction of a felony or its equivalent under local
law after appeal, continued failure by Green substantially to perform his
employment duties and obligations (other than any such failure resulting from
his Disability), or material violation of Paragraphs 6, 7 or 8 of this
Agreement. Upon a termination of employment by Culbro for Cause, Green shall be
entitled to an unpaid portion of his annual base salary prorated to the date of
such termination. Other than Options which have already been exercised, no
Vested Stock Options may be exercised in the event that Green's employment has
been terminated for Cause.
5
<PAGE>
(e) Termination Without Cause. A "Termination Without Cause" shall mean a
termination of Green's employment (i) by Culbro other than due to the events
described in Paragraph 5(a), 5(b), 5(c) and 5(d) respectively; or (ii) by Green
following: (A) a reduction, without his prior written consent, in his then
current annual base salary, (B) the loss, without his prior written consent, of
his title or position as Executive Vice President - Finance and Administration,
(C) a significant diminution, without his prior written consent, of his ongoing
duties and responsibilities as Executive Vice President - Finance and
Administration, (D) a significant diminution, without his prior written consent,
of his benefits, or (E) his being required to report, without his prior written
consent, to any person not a member of the Cullman Group. Culbro shall have the
right to terminate Green in a Termination Without Cause at any time. In
addition, a Termination Without Cause shall be deemed to have taken effect if
Green shall have delivered a written notice to the Board within two months of
the occurrence of one of the events listed in clause (ii) above, stating which
one of those events has occurred and stating that he is terminating his
employment pursuant to the provisions of Paragraph 5(e) of this Agreement.
If a Termination Without Cause occurs, Green shall be entitled to a cash
payment equal to 150% of his current annual base salary in effect on the date of
termination. Furthermore, if a Termination Without Cause occurs during the
first thirty (30) months of the Employment Period, the Option shall immediately
become a Vested Stock Option with respect to (i) 87,500 shares of Common Stock,
less (ii) the number of shares of Common Stock which had previously become
Vested Stock Options pursuant to Paragraph 4(b). If a Termination Without Cause
occurs during the last thirty (30) months of the Employment Period, the Option
shall immediately become a Vested Stock Option with respect to all shares of
Common Stock covered thereby. Green may exercise the Vested Stock Options for a
period of 90 days following his Termination Without Cause.
6. AGREEMENT NOT TO COMPETE. Green agrees that in consideration of the
benefits defined in this Agreement, until 18 months following the termination of
his employment and regardless of the reason for any termination of employment
(whether voluntary or involuntary and whether for Cause or otherwise), Green,
except when acting on behalf of Culbro or any affiliate thereof, shall not
engage in, be employed directly or indirectly by, hold a greater than one (1)
percent equity interest in, or provide advise or act as a consultant to, any
person or entity which is, or is about to be, engaged in any business
substantially the same as any business engaged in (or actively being planned to
be engaged in) by Culbro or its subsidiaries without Board approval. For
purposes of this preceding sentence, a real estate business shall not be
considered substantially the same as a business engaged in by Culbro or its
subsidiaries unless that real estate business is conducted, in whole or in part,
in the greater Hartford, Connecticut area.
6
<PAGE>
7. NONSOLICITATION. Green agrees that until three years following the
termination of this Agreement (regardless of whether his employment is
continuing hereunder or has been terminated), he shall not, except when acting
on behalf of Culbro or any affiliate of Culbro:
(i) directly or indirectly solicit any person, corporation, partnership or
other business entity which is, at the time of such solicitation, a customer of
Culbro or its subsidiaries or affiliates, for the purpose of engaging in any
business transactions of the nature performed by or conducted by Culbro or its
subsidiaries at any time during this three year period with any such customer;
or
(ii) directly or indirectly employ, solicit for employment, or advise or
recommend to any other person that he employ or solicit for employment, any
person employed at that time by Culbro or its affiliates. This Paragraph shall
not be construed to prohibit Green from responding, in accordance with Culbro
policy, to reference requests received from prospective employers of former
employees, if such reference requests are not related to an activity by Green
prohibited under this Agreement; or
(iii) solicit any employee of Culbro or its subsidiaries to terminate his
employment.
8. NONDISCLOSURE.
(a) Green agrees that during the Employment Period and until three
years following the termination of this Agreement, Green shall not, without the
prior written consent of the Board or a person authorized thereby, disclose or
use (except (1) in the course of his employment hereunder and in furtherance of
the business of Culbro or its affiliates or (2) when required to do so by a
court of competent jurisdiction, by any governmental agency having supervisory
authority over the business of Culbro, or by any administrative body or
legislative body (including a committee thereof) with purported or apparent
jurisdiction to order Green to divulge, disclose or make accessible such
information) any confidential information or proprietary data of Culbro or its
subsidiaries; provided, however, that confidential information shall not include
any information known generally to the public (other than as a result of
unauthorized disclosure by Green) or any information of a type not otherwise
considered confidential or proprietary by persons engaged in the same business
or a business similar to that conducted by Culbro or its subsidiaries.
(b) Green agrees that upon termination of his employment with Culbro,
for any reason, he will return to Culbro immediately any property, customer
lists, information, forms, formulae, plans, documents or other written or
computer material, software or firmware, or copies of the same, belonging to
Culbro or
7
<PAGE>
its subsidiaries, or any of their customers, within his possession, and will not
at any time thereafter copy or reproduce the same, except that he may retain
personal notes, notebooks and diaries. Green further agrees that he will not
retain or use for his own account at any time any trade names, trademark,
service mark, or other proprietary business designation used or owned in
connection with the business of Culbro or its subsidiaries.
9. CONTINUATION OF EMPLOYMENT. Unless the parties otherwise agree in writing,
continuation of Green's employment with Culbro beyond the expiration of the
Employment Period shall be deemed an employment at will and shall not be deemed
to extend any of the provisions of this Agreement, and Green's employment may
thereafter be terminated at will by Green or Culbro.
10. SUCCESSORS AND ASSIGNS. This Agreement and all rights hereunder shall inure
to the benefit of and be enforceable by Green's personal or legal
representatives, executors, administrators, heirs, distributees, devisees and
legatees and by Culbro's successors and assigns. This Agreement is personal in
nature and shall not be assignable by Green without the written consent of the
Board. Culbro may not assign or transfer this Agreement or any right or
obligation hereunder to any other person, firm, corporation or entity except (i)
in connection with any transfer of a majority of the assets of Culbro, or (ii)
with the written consent of Green.
11. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the substantive law but not the choice of law rules of the State
of New York.
12. ARBITRATION. Any dispute or controversy arising under this Agreement
relating to money damages or in connection with the interpretation of this
Agreement shall be arbitrated and settled before and pursuant to the commercial
rules of the American Arbitration Association which are then in effect.
13. AMENDMENT. No amendment, modification or waiver of this Agreement or any of
its provisions shall be binding upon either party unless made in writing and
signed by all parties.
14. VALIDITY. It is the desire and intent of the parties that the provisions of
this Agreement shall be enforced to the fullest extent permissible under the
laws and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, the invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect, nor shall the invalidity or unenforceability of any portion or any
provision of this agreement affect the validity or enforceability of th4e
balance of such provisions.
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15. COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which together will
constitute one and the same instrument.
16. ENTIRE AGREEMENT. This Agreement, constitutes the entire Agreement between
the parties hereto with respect to the subject matter hereof, and supersedes all
other prior agreement, understandings and arrangement between the parties
hereto, all of which are merged herein. There are no restrictions, promises,
warranties, covenants or undertakings other than those expressly set forth
herein or incorporated herein by reference.
17. WAIVER. The observation or performance of any condition or obligation
imposed upon Green hereunder may be waived only upon the written consent of the
Board. Such waiver shall be limited to the terms thereof and shall not
constitute a waiver of any other condition or obligation of Green under this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first written above.
CULBRO CORPORATION:
By: /s/ Edgar M. Cullman, Jr.
------------------------------
Edgar M. Cullman, Jr.
President
JAY M. GREEN:
By: /s/ Jay M. Green
------------------------------
Jay M. Green
9
<PAGE>
FIRST AMENDMENT TO THE EMPLOYMENT AGREEMENT
BETWEEN CULBRO CORPORATION AND JAY M. GREEN
This First Amendment to the Employment Agreement between Culbro
Corporation, and Jay M. Green, is made by and between Culbro Corporation, a
New York corporation ("Culbro"), and Jay M. Green, an individual ("Green"),
effective April 8, 1994.
WITNESSETH
WHEREAS, Culbro and Green have entered into an Employment Agreement,
dated as of April 8, 1994 (the "Agreement"); and
WHEREAS, the parties desire to amend the Agreement as set forth below;
and
WHEREAS, at the April 11, 1996 Annual Meeting of Shareholders, Culbro's
shareholders approved in principle the amendments to the Agreement set forth
below;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties agree as follows:
1. Section 3(b) of the Agreement is hereby amended in its entirety to
read as follows:
(b) Bonus. In connection with the close of each fiscal
year of Culbro through the fiscal year ending prior to the end of the
Employment Period, the Compensation Committee shall review the services
provided by Green and the performance of Culbro for such fiscal year and
shall award Green such bonus, if any, as the Compensation Committee in its
sole discretion shall determine, provided, however, that if performance
targets set forth in any bonus plan in which Green participates are met at
the 100% level, Green shall receive a bonus equal to 50% of his base salary
for the fiscal year to which such bonus plan relates ("Target Bonus"), and
provided further that Green shall be eligible, at the discretion of the
Compensation Committee, to receive a bonus in excess of the Target Bonus with
respect to any fiscal year in which such performance targets are met at a
greater than 100% level.
2. Section 4(d) of the Agreement is hereby amended in its entirety to
read as follows:
(d) Section 162(m) Disallowance. Green will use his
reasonable best efforts to schedule his exercise of the Option so that the
exercise of the Option will not result in a disallowance of a deduction on
Culbro's federal income tax return for any year under section 162(m) of the
Internal Revenue Code of 1986, as amended (a "Disallowance"). The Option may
not be exercised in any year prior to the last tax year of Culbro in which it
is exercisable ("The Last Year") to the extent that the exercise of the
Option would result in
<PAGE>
a Disallowance, unless such exercise is specifically approved by the Section
162(m) Subcommittee of the Compensation Committee (the "Section 162(m)
Subcommittee") and such approval is ratified by the Compensation Committee.
If Green delivers notice of exercise of the Option in The Last Year, but
exercise of the Option in The Last Year would result in a Disallowance, then,
at Culbro's option, the Option shall not be exercised in The Last Year and
the period during which the Option is excercisable may be extended for up to
two years, during which years the Options originally sought to be exercised
in The Last Year shall be exercised so as to minimize any Disallowance. All
determinations as to whether an Option would result in a Disallowance shall
be made by the Section 162(m) Subcommittee and Compensation Committee in
their sole discretion after taking into account all compensation of Green.
3. All other provisions of the Agreement shall continue as therein
provided, except that to the extent that any provision of the Agreement
shall conflict with this Amendment the provisions of this Amendment
shall control.
IN WITNESS WHEREOF, the parties have caused this Amendment
to be signed as of January 11, 1997.
CULBRO CORPORATION:
By: /s/ Edgar M. Cullman, Jr.
-------------------------
Its: President
-------------------------
JAY M. GREEN:
By: /s/ Jay M. Green
-------------------------
Jay M. Green
<PAGE>
GENERAL CIGAR HOLDINGS, INC. 1997 STOCK PLAN
ARTICLE A - Purpose.
The purpose of the General Cigar Holdings, Inc. 1997 Stock Plan
(hereinafter referred to as the "Plan") is to provide incentives to those
employees of General Cigar Holdings, Inc. (hereinafter referred to as the
"Corporation") and its subsidiaries who are largely responsible for the
long-term success and development of the Corporation and its subsidiaries, to
strengthen the alignment of interests between employees and the Corporation's
shareholders through the increased ownership of shares of the Corporation's
Common Stock, and to encourage those employees to remain in the employ of the
Corporation and its subsidiaries. This will be accomplished through the granting
to employees of options to purchase shares of the Common Stock of the
Corporation, payment of a portion of the employees' remuneration in shares of
the Common Stock, and the granting to them by the Corporation of deferred awards
related to the increase in the price of the Common Stock of the Corporation as
provided by the terms and conditions set forth in the Plan.
ARTICLE B - Administration.
1. The Plan shall be administered by the Compensation Committee
(hereinafter referred to as the "Committee") of the Board of Directors of the
Corporation (hereinafter referred to as the "Board"), or such other committee as
may be designated by the Board. The Committee shall consist of not less than two
(2) members of the Board, each of whom is a "non-employee director" as defined
in Rule 16b-3 under the Securities Exchange Act of 1934, as amended, or any
successor rule or definition adopted by the Securities and Exchange Commission,
to be appointed by the Board from time to time and to serve at the discretion of
the Board.
2. It shall be the duty of the Committee to administer this Plan in
accordance with its provisions and to make such recommendations of amendments or
otherwise as it deems necessary or appropriate. A decision by a majority of the
Committee shall govern all actions of the Committee.
3. Subject to the express provisions of this Plan, the Committee shall
have authority: to grant nonstatutory and incentive stock options; to grant to
recipients stock appreciation rights either freestanding, in tandem with
simultaneously granted stock options, or in parallel with simultaneously granted
stock options; to award a portion of a recipient's remuneration in shares of
Common Stock of the Corporation subject to such conditions or restrictions, if
any, as the Committee may determine; to determine in accordance with the terms
of this Plan all the terms and provisions of the respective stock option, stock
appreciation right, and stock award agreements including setting the date when
each stock option or stock appreciation right or part thereof may be exercised
and determining the conditions and restrictions, if any, of any shares of Common
Stock acquired through the exercise of any stock option; and to make all other
determinations it deems necessary or advisable for administering this Plan.
4. The Committee may establish from time to time such regulations,
provisions, and procedures within the terms of this Plan as, in its opinion, may
be advisable in the administration of this Plan.
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<PAGE>
5. The Committee may designate the Secretary of the Corporation or other
employees of the Corporation to assist the Committee in the administration of
this Plan and may grant authority to such persons to execute documents on behalf
of the Committee.
6. Members of the Committee may participate in any Stock Option Plan for
Non-employee Directors that the Corporation may hereafter establish.
7. Notwithstanding anything to the contrary in this Plan, any grant or
award under the Plan to any employee who at the time of such grant or award is a
"covered employee" under Section 162(m) of the Internal Revenue Code of 1986, as
amended, shall only be made by the Section 162(m) Subcommittee of the Committee,
but subject to ratification by the Committee.
ARTICLE C - Participation.
The Committee shall select those employees of the Corporation and its
subsidiaries, who, in the opinion of the Committee, have demonstrated a capacity
for contributing in a substantial manner to the success of such companies and
shall determine the number of shares of the Common Stock of the Corporation to
be transferred under this Plan subject to such conditions or restrictions as the
Committee may determine and the number of shares with respect to which stock
options or stock appreciation rights will be granted. The Committee may consult
with the Chief Executive Officer of the Corporation, but nevertheless the
Committee has the full authority to act, and the Committee's actions shall be
final.
ARTICLE D - Limitation on Number of Shares for the Plan.
1. Unless otherwise authorized by the shareholders, the maximum aggregate
number of shares available for award under this Plan is _______________, and the
maximum number of shares available for award to any "covered employee"
(determined as of the date of award) in any calendar year shall be
_____________.
2. Any of the authorized shares may be used in respect of any of the types
of awards described in this Plan.
3. Any authorized shares not used in a calendar year shall be available
for awards under this Plan in succeeding calendar years.
ARTICLE E - Shares Subject to Use Under the Plan.
1. The shares to be delivered by the Corporation upon exercise of stock
options or stock appreciation rights shall be either authorized but unissued
shares or treasury shares, as determined by the Board.
2. For the purposes of this Plan, restricted or unrestricted stock awarded
under the terms of this Plan shall be authorized but unissued shares, treasury
shares, or shares acquired for use under the Plan by the Corporation, as
determined by the Board.
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ARTICLE F - Stock Options and Stock Appreciation Rights.
1. In addition to such other conditions as may be established by the
Committee, in consideration of the granting of stock options or stock
appreciation rights under the terms of this Plan, the recipient agrees as
follows:
(a) The right to exercise any stock option or stock appreciation right
shall be conditional upon certification by the recipient at time of
exercise that the recipient intends to remain in the employ of the
Corporation or one of its subsidiaries (except in cases of
retirement or disability) for at least one (1) year following the
date of the exercise of the stock option or stock appreciation
right, and,
(b) In order to better protect the goodwill of the Corporation and its
subsidiaries and to prevent the disclosure of the Corporation's or
its subsidiaries' trade secrets and confidential information and
thereby help insure the long-term success of the business, the
recipient, without prior written consent of the Corporation, will
not engage in any activity or provide any services, whether as a
director, manager, supervisor, employee, adviser, consultant or
otherwise, for a period of three (3) years following the date of the
granting of a stock option or a stock appreciation right in
connection with the manufacture, development, advertising,
promotion, or sale of any product which is the same as or similar to
or competitive with any products of the Corporation or its
subsidiaries (including both existing products as well as products
known to the recipient, as a consequence of the recipient's
employment with the Corporation or one of its subsidiaries, to be in
development):
(1) with respect to which the recipient's work has been directly
concerned at any. time during the two (2) years preceding
termination of employment with the Corporation or one of its
subsidiaries; or
(2) with respect to which during that period of time the
recipient, as a consequence of the recipient's job performance
and duties, acquired knowledge of trade secrets or other
confidential information of the Corporation or its
subsidiaries.
For purposes of this section, it shall be conclusively
presumed that recipients have knowledge of information they
were directly exposed to through actual receipt or review of
memos or documents containing such information, or through
actual attendance at meetings at which such information was
discussed or disclosed.
(c) The provisions of this Article are not in lieu of, but are in
addition to the continuing obligation of the recipient (which
recipient hereby acknowledges) to not use or disclose the
Corporation's or its subsidiaries' trade secrets and confidential
information.
(d) By acceptance of any offered stock option or stock appreciation
rights granted under the terms of this Plan, the recipient
acknowledges that if the recipient were, without authority, to use
or disclose the Corporation's or any of its subsidiaries' trade
secrets or confidential information or threaten to do so, the
Corporation or one of its subsidiaries would be entitled to
injunctive and other appropriate relief to prevent the recipient
from doing so. The recipient acknowledges that the harm caused to
the Corporation by the breach or anticipated breach of this Article
is by its nature irreparable because, among
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<PAGE>
other things, it is not readily susceptible of proof as to the
monetary harm that would ensue. The recipient consents that any
interim or final equitable relief entered by a court of competent
jurisdiction shall, at the request of the Corporation or one of its
subsidiaries, be entered on consent and enforced by any court having
jurisdiction over the recipient, without prejudice to any rights
either party may have to appeal from the proceedings which resulted
in any grant of such relief.
(e) If any of the provisions contained in this Article shall for any
reason, whether by application of existing law or law which may
develop after the recipient's acceptance of an offer of the granting
of stock appreciation rights or stock options, be determined by a
court of competent jurisdiction to be overly broad as to scope of
activity, duration, or territory, the recipient agrees to join the
Corporation or any of its subsidiaries in requesting such court to
construe such provision by limiting or reducing it so as to be
enforceable to the extent compatible with then applicable law. If
any one or more of the terms, provisions, covenants, or restrictions
of this Article shall be determined by a court of competent
jurisdiction to be invalid, void or unenforceable, then the
remainder of the terms, provisions, covenants, and restrictions of
this Article shall remain in full force and effect and shall in no
way be affected, impaired, or invalidated.
2. The fact that an employee has been granted a stock option or a stock
appreciation right under this Plan shall not limit the right of the Corporation
or any of its subsidiaries to terminate the recipient's employment at any time
and shall have no effect upon the Corporation's or any of its subsidiaries'
status as an employer-at-will. The Committee is authorized to suspend or
terminate any outstanding stock option or stock appreciation right prior to or
after termination of employment if the Committee determines the recipient has
acted significantly contrary to the best interests of the Corporation.
3. More than one stock option or stock appreciation right may be granted
to any employee under this Plan.
4. To the extent that the aggregate fair market value (determined as of
the time a stock option is granted) of the shares with respect to which
incentive stock, options are exercisable for the first time by any employee
during any calendar year (under the Plan and any other plans of the Corporation
and its subsidiaries) exceeds $100,000, such options shall be treated as
nonqualified options to the extent of such excess.
5. If the Committee grants incentive stock options, all such stock options
shall contain such provisions as permit them to qualify as "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended and as may be further amended from time to time.
6. With respect to stock options granted in tandem with or parallel to
stock appreciation rights, the exercise of either such stock options or such
stock appreciation rights will result in the simultaneous cancellation of the
same number of tandem or parallel stock appreciation rights or stock options, as
the case may be.
7. The exercise price for all stock options and stock appreciation rights
shall be established by the Committee at the time of their grant and shall be
not less than one hundred percent (100%) of the fair market value of the Common
Stock of the Corporation on the date of grant.
ARTICLE G - Exercise of Stock Options and Stock Appreciation Rights.
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1. All stock options and stock appreciation rights granted hereunder shall
have a maximum life of no more than ten (10) years from the date of grant.
2. Stock options or stock appreciation rights shall become exercisable
with respect to one-third of the underlying shares on each of the third, fourth
and fifth anniversaries after the date of the grant.
3. During the lifetime of the recipient, stock options and stock
appreciation rights may be exercised only by the recipient personally, or, in
the event of the legal incompetence of the recipient, by the recipient's duly
appointed legal guardian.
4. Unless earlier terminated in accordance with their terms, stock options
and stock appreciation rights shall terminate ninety days after any of the
following:
(a) voluntary termination of employment by the employee, with or without
the consent of the Corporation, or
(b) termination of employment by the Corporation or any of its
subsidiaries, with or without cause,or
(c) termination of employment because of disability, retirement, or
because the employing subsidiary ceased to be a subsidiary of the
Corporation and the employee does not, prior thereto or
contemporaneously therewith, become an employee of the Corporation
or of another subsidiary;
provided, that with regard to terminations of employment pursuant to clause (b),
stock options and stock appreciation rights shall terminate as of the date of
such discharge if prior to such termination the Board of Directors or the
Committee in its discretion shall determine that it is not in the best interests
of the Corporation that the stock options or stock appreciation rights should
continue for said ninety-day period.
5. In the case of the death of a recipient of stock options or stock
appreciation rights while an employee of the Corporation or any of its
subsidiaries, the persons to whom the stock options or stock appreciation rights
have been transferred by will or the laws of descent and distribution shall have
the privilege of exercising remaining stock options, stock appreciation rights
or parts thereof, whether or not exercisable on the date of death of such
employee, at any time within one year following the death of such employee, but
in no event after the expiration date of the stock options or stock appreciation
rights.
6. When an employee retires in accordance with the provisions of any
appropriate profit sharing or retirement plan of the Corporation or any of its
subsidiaries, any exercisable portions of stock options or stock appreciation
rights then held by the employee shall continue to be exercisable until the
expiration date of the stock option or stock appreciation right. Termination of
employment under the permanent disability provision of any such plan shall be
deemed the same as retirement for purposes of this section. The death of any
employee subsequent to retirement shall not render exercisable stock options or
stock appreciation rights which were unexercisable at the time of retirement.
The persons to whom the exercisable stock options or stock appreciation rights
have been transferred by will or the laws of descent and distribution shall have
the privilege of exercising such remaining stock options, stock appreciation
rights or parts thereof, at any time prior to the expiration date of the stock
options or stock appreciation rights.
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7. Stock options and stock appreciation rights are not transferable other
than by will or by the laws of descent and distribution. For the purpose of
exercising stock options or stock appreciation rights after the death of the
recipient, the duly appointed executors and administrators of the estate of the
deceased recipient shall have the same rights with respect to the stock options
and stock appreciation rights as legatees or distributees would have after
distribution to them from the recipient's estate.
8. Upon the exercise of stock appreciation rights, the recipient shall be
entitled to receive a redemption differential for each such stock appreciation
right which shall be the difference between the then fair market value of one
share of the Common Stock of the Corporation and the exercise price of one stock
appreciation right then being exercised. As determined by the Committee, the
redemption differential may be paid in cash, Common Stock of the Corporation to
be valued at its fair market value on the date of exercise, or any other mode of
payment deemed appropriate by the Committee or any combination thereof The
number of shares with respect to which stock appreciation rights are being
exercised shall not be available for granting future stock options or stock
appreciation rights under this Plan.
9. The Committee may, in its sole discretion, permit a stock option which
is being exercised either (a) by an optionee whose retirement is imminent or who
has retired or (b) after the death of the optionee, to be surrendered, in lieu
of exercise, for an amount equal to the difference between the stock option
exercise price and the fair market value of shares of the Common Stock of the
Corporation on the day the stock option is surrendered, payment to be made in
shares of the Corporation's Common Stock which are subject to this Plan valued
at their fair market value on such date, cash, or a combination thereof, in such
proportion and upon such terms and conditions as shall be determined by the
Committee. The difference between the number of shares subject to stock options
so surrendered and the number of shares, if any, issued upon such surrender
shall represent shares which shall not be available for granting future stock
options under this Plan.
10. Time spent on leave of absence shall be considered as employment for
the purposes of this Plan. Leave of absence means any period of time away from
work granted to any employee because of illness, injury, or other reasons
satisfactory to the Corporation or any of its subsidiaries.
11. The Corporation reserves the right from time to time to suspend the
exercise of any stock option or stock appreciation right where such suspension
is deemed by it necessary or appropriate for corporate purposes. No such
suspension shall extend the life of the stock option or stock appreciation right
beyond its expiration date and in no event will there be a suspension in the
five (5) calendar days immediately preceding the expiration date.
ARTICLE H - Payment for Stock Options.
Upon the exercise of a stock option, payment in full of the exercise price
shall be made by the optionee. As determined by the Committee, the stock option
exercise price may be paid for by the, optionee either in cash, shares of the
Common Stock of the Corporation to be valued at their fair market value on the
date of exercise, or a combination thereof, provided that shares of Common Stock
of the Corporation issuable to the optionee upon exercise of the option may be
used to satisfy the exercise price of such exercise, in the case of persons
subject to Section 16 of the Securities Exchange Act of 1934, only (i) during
the period beginning on the third business day following the date of release of
the quarterly or annual summary statement of sales and earnings of the
Corporation and ending on the twelfth business day following such date or (ii)
pursuant to an irrevocable written election by the optionee to so
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use such shares of Common Stock of the Corporation made at least six months
prior to the payment of such exercise price.
ARTICLE I - Transfer of Shares.
1. The Committee may transfer Common Stock of the Corporation under the
Plan subject to such conditions or restrictions, if any, as the Committee may
determine. The conditions and restrictions may vary from time to time and with
respect to particular employees or group of employees and may be set forth in
agreements between the Corporation and the employee or in the awards of stock to
them, all as the Committee determines. It is contemplated that the conditions
and restrictions established by the Committee will be consistent with the
objectives of this Plan and may be of the following types. In giving these
examples, it is not intended to restrict the Committee's authority to impose
other restrictions or conditions, or to waive restrictions or conditions under
circumstances deemed by the Committee to be appropriate and not contrary to the
best interests of the Corporation.
(a) Restrictions
The employee will not be able to sell, pledge, or dispose of the
shares during a specified period except in accordance with the
agreement or award. Such restrictions will lapse either after a
period of, for example, five years, or in fifteen or fewer annual
installments following retirement or termination of employment, as
the Committee from time to time may determine. However, upon the
transfer of shares subject to restrictions, an employee will have
all incidents of ownership in the shares, including the right to
dividends (unless otherwise restricted by the Committee), to vote
the shares, and to make gifts of them to family members (still
subject to the restrictions).
(b) Lapse of Restrictions
In order to have the restrictions lapse, an employee may be required
to continue in the employ of the Corporation or a subsidiary for a
prescribed period of time. Exemption from this requirement may be
prescribed in the case of death, disability, or retirement, or as
otherwise prescribed by the Committee. In addition, an employee may
be required, following termination of employment other than by
retirement or disability, to render limited consulting and advisory
services and to refrain from conduct deemed contrary to the best
interests of the Corporation.
ARTICLE J - Adjustments.
The amount of shares authorized to be issued under this Plan will be
subject to appropriate adjustments in their numbers in the event of future stock
splits, stock dividends, or other changes in capitalization of the Corporation
occurring after the date of approval of this Plan by the Corporation's
shareholders to prevent the dilution or enlargement of rights under this Plan;
following any such change, the term "Common Stock" shall be deemed to refer to
such class of shares or other securities as may be applicable. The number of
shares and exercise prices covered by outstanding stock options and stock
appreciation rights shall be adjusted to give effect to any such stock splits,
stock dividends, or other changes in the capitalization.
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<PAGE>
ARTICLE K - Additional Provisions.
The Board may, at any time, repeal this Plan or may amend it from time to
time except that no such amendment may amend this paragraph, increase the
aggregate number of shares subject to this Plan, reduce the price at which stock
options or stock appreciation rights may be exercised, or surrendered or alter
the class of employees eligible to receive stock options. The recipient of
awards under this Plan and the Corporation shall be bound by any such amendments
as of their effective dates, but if any outstanding stock options or stock
appreciation rights are affected, notice thereof shall be given to the holders
of such stock options and stock appreciation rights and such amendments shall
not be applicable to such holder without his or her written consent. If this
Plan is repealed in its entirety, all theretofore granted unexercised stock
options or stock appreciation rights shall continue to be exercisable in
accordance with their terms and shares subject to conditions, or restrictions
transferred pursuant to this Plan shall continue to be subject to such
conditions or restrictions.
ARTICLE L - Consent.
Every recipient of a stock option, stock appreciation right, or transfer
of shares pursuant to this Plan shall be bound by the terms and provisions of
this Plan and of the stock option, stock appreciation right, or transfer of
shares agreement referable thereto, and the acceptance of any stock option,
stock appreciation right, or transfer of shares pursuant to this Plan shall
constitute a binding agreement between the recipient and the Corporation and its
subsidiaries and any successors in interest to any of them.
ARTICLE M - Duration of Plan.
This Plan will terminate after the earlier of (i) the expiration of ten
(10) years from the date this Plan is adopted by the Board, or (ii) the
expiration of ten years from the date this Plan is approved by the Corporation's
shareholders, unless a different termination date is fixed by the shareholders
or by action of the Board of Directors; provided, however, that no such
termination shall affect the prior rights under this Plan of the Corporation (or
any subsidiary) or of anyone to whom stock options or stock appreciation rights
were granted prior thereto or to whom shares have been transferred prior to such
termination.
ARTICLE N - Compliance With Rule 16b-3.
It is the intention of the Corporation that the Plan comply in all
respects with Rule 16b-3 promulgated under Section 16(b) of the Securities
Exchange Act of 1934, as amended. Therefore, if any Plan provision is later
found not to be in compliance with Rule 16b-3, that provision shall be deemed
null and void, and in all events the Plan shall be construed in favor of its
meeting the requirements of Rule 16b-3.
* * *
I hereby certify that the foregoing Plan was duly adopted by the Board of
Directors of General Cigar Holdings, Inc. on January ____, 1997.
Executed on this _____ day of January, 1997.
________________________________
Secretary
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Exhibit 10.13
Corporate
THE ANNUAL INCENTIVE COMPENSATION
PLAN DOCUMENT
1996
PURPOSE
The purpose of the Annual Management Incentive Plan (The Plan) is to reward the
performance of key Corporate and Strategic Business Unit ("SBU") executives of
Culbro Corporation and the companies of Culbro Corporation through an annual
award, tied to the Corporation's or SBU's performance against key financial and
individual goals Specific plan objectives are to:
o Motivate executives to perform against financial goals that contribute to
the creation of shareholder value;
o Encourage both teamwork and personal achievement by tying awards to Company
and individual performance;
o Enhance the Corporation's ability to retain and motivate high quality
executive talent by providing competitive award opportunities, commensurate
with management challenge and performance.
GENERAL PLAN DESCRIPTION
Plan Administration
The Plan shall be administered by the Board of Directors, or its designee, which
shall have full authority to interpret the Plan, establish rules and regulations
relating to the Plan, determine the criteria for eligibility to participate in
the Plan, select Participants in the Plan, set performance targets under the
Plan, calculate the amount of the Awards, and to make all other determinations
and take all other actions necessary to appropriate for the proper
administration of the Plan. The Board's interpretation of the Plan, and all
actions taken within the scope of its authority, shall be final and binding on
the Company, its stockholders, Participants, Employees and former employees.
The Board of Directors has assigned the responsibility of Plan administration to
the Office of the Chief Executive (OCE).
Plan Effective Date
The Plan, initially effective December 1, 1990, and approved by Culbro's Board
of Directors was amended as described below and approved by the Board of
Directors on December 7, 1995.
<PAGE>
Determination of Award
The Plan provides the opportunity for key executives to receive awards based on
a combination of financial results and individual performance. Payout of
incentive compensation for Corporate will depend solely on the results of
Culbro's Corporation as a whole.
Eligibility
Only key executives whose efforts directly impact Corporate's results are
eligible for The Plan. These include:
o President and Chief Executive Officer
o Corporate Officers
Participants will be notified of their eligibility early in the performance
period.
PLAN MEASURES
Time Period
The Plan is based on a 12 month period reflecting the approved annual business
plan December through the following November.
Components
Each participant will be assigned a Target Award percentage expressed as a
percentage of Base Salary: The target award is divided into two components:
a) Financial: 70% is based on financial performance
b) Strategic: 30% is based on performance of individual goals
The Financial Component will be determined as follows:
o 100% of the Financial Component is awarded if 100% of plan performance is
achieved. As part of the business planning process, a financial target or
multiple financial targets will be developed and presented for approval to
the OCE.
o The Award for the Financial Component will be increased or decreased by a
multiple as described under the heading "Multiplier" below.
o Performance below 80% of plan level will result in no award.
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o Award for performance above 135% of Plan will be determined by the OCE and
approved by the Board of Directors. Award will not necessarily be formula
driven.
The Strategic Component will be determined based on specific individual goals
identified and approved by the President of Culbro Corporation. The
Objective/Development plan section of the Performance Appraisal Form will be
primarily used for this purpose.
The Strategic Component will be increased or decreased by a multiplier as
described under the heading "Multiplier" below.
Multiplier
Although the Multiplier will be applied to both the financial and the strategic
components of the award, it is the financial results that determine the
multiplier. Thus, if the financial performance is between 95% and 104% of the
financial goals performance will be considered to be in the "target range" and
the target award will be increased or decreased by a multiplier of 1 times the
number of points above or below 100%. This adjustment will apply to both the
financial and the strategic components.
"Target Range" is defined as achievement of financial goals at 95% up to and
including 104%.
For financial performance outside the targeted range (minimum of 80% and maximum
of 135%) the target award will be increased or decreased by a multiplier of 4
for all percentage points above or below 100%. For example at 115% the
multiplier would provide an additional payment equal to 60% (4x. 15) of the
target award.
If the Company achieves financial performance above 135% the award will be
multiplied by 4 times 35 points. Any additional payment will be at the
discretion of the Board.
Both the financial component and the strategic component will be subject to the
multiplier.
An example Plan calculation is shown on Exhibit 1.
3
<PAGE>
PLAN PAYMENTS
ALL PARTICIPANTS IN THE PLAN MUST BE ACTIVELY EMPLOYED AT TIME OF PAYMENT.
Payments under The Plan are not considered compensation for the purpose of
determining or calculating other benefits which are based on your base salary
such as the Retirement, Savings and Disability Plans. Actual payment of your
award will be made if earned, as soon as practical after the performance period
ends. All required tax withholdings will be applied to each payment.
Deferred Payment
The Plan allows you to defer receipt of all or a portion of a cash award if
eligible under the Corporation's Deferred Incentive Compensation Plan. An
election whether to defer any award which may be payable should be made before
the performance period begins, subject to tax law changes and restrictions. You
should consult the Corporations's tax department and/or your own advisor before
making such an election.
If you elect to defer all or a portion of an award, you will not have access to
that money while you remain an active employee until the end of the deferral
period which you elected or as otherwise may be permitted under the
Corporation's Deferred Compensation Plan.
A deferred award will earn interest at a rate equal to 1% below prime compounded
quarterly pursuant to the Corporation's Deferred Compensation Plan.
If you leave the company after an award has been earned and deferred, deferred
amounts plus accumulated interest will be calculated as of the end of the month
which precedes your departure. Payments of the amount will be made within 30
days after you leave. A copy of the Corporation's Deferred Compensation Plan is
available upon request from the Human Resources Department or the Corporate
Secretary's Office.
Tax Implications
Under current tax law any cash award from The Plan will be taxed as ordinary
income in the year it is received. Again, for guidance about your individual tax
situation, including the tax implications of deferring your cash award, you
should consult your accountant or other professional tax advisor.
4
<PAGE>
ADMINISTRATION
Change in Participation
The OCE administers The Plan for Culbro's Board of Directors. Any modification
of your participation in The Plan in view of a change in your status within
Corporate, such as a transfer, promotion or change in responsibility, etc., will
be determined by the OCE. New hires whose employment begins after May 31st are
not eligible for the performance period.
Funding Mechanism
The estimated award payments must be accrued during the plan year. When the
financial result of the Company is the financial target (or one of the financial
targets) calculation of Plan achievement will be based on earnings, only after
the full amount of accrued incentive compensation has been expensed.
Award Calculation
The base salary earned while the employee was participating in the Plan will be
used for calculating the incentive awards.
The "Percentage of Goal Achieved" will be calculated solely by the OCE and the
Board of Directors and will be final and binding upon all participants.
Percentage of goal will be rounded up (or down) to whole percentages only.
Dollar amounts will be rounded up (or down) to the whole dollar amounts.
All determinations and interpretations will be made solely by the OCE and the
Board of Directors and will be final and binding upon all participants.
The Board of Directors reserves the right, exercisable at its sole discretion,
at any time to amend or terminate this Plan.
Participation in The Plan does not confer any right to continued employment with
Culbro or participation in any other performance period cycle. Nor does
participation in The Plan or the receipt of any plan document or letter create
any employment contract, express or implied, or otherwise affect in any way
Culbro's status as an employer-at-will.
5
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Exhibit 1
1996 ANNUAL INCENTIVE COMPENSATION PLAN
Corporate
EXAMPLE
Base Salary - $100,000
Total Eligible Bonus - 20% of Salary
20% = $20,000
Financial Component (70%): $14,000 based on financial goals
Strategic Component (30%): $6,000
If the financial goals are achieved at exactly 100%, the Participant would have
a maximum potential award of $20,000. The financial component would be awarded
at $14,000 and based on achievement of individual goals the strategic component
would be awarded at any amount between $0 and $6,000.
Target Range Example
If the financial goals are achieved at either 103% or 97% of target the
following calculation would apply:
103% 97%
---- ---
Target Award $20,000 $20,000
Multiplier x.01 X.01
Point Differential x3 (X3)
Award Differential $600 ($600)
Total Potential Award $20,600 19,400
Financial Component 14,420 (70%) 13,580 (70%)
Maximum Strategic * 6,180 (30%) 5,820 (30%)
* Strategic Award based on executive's performance against individual goals.
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Above/Below Target Range Example
If the financial goals are achieved at either 115% or 85% of target the
following calculation would apply:
115% 85%
---- ---
Target Award $20,000 $20,000
Multiplier X.04 ) X.04 )
) =x60% ) =x60%
Point Differential X15 ) (X15) )
Award Differential $12,000 ($12,000)
Total Potential Award $32,000 $8,000
Financial Component 22,400 (70%) $5,600 (70%)
Maximum Strategic * 9,600 (30%) 2,400 (30%)
* Strategic award based on executive's performance against individual goals.
7
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CULBRO CORPORATION
1996 BUSINESS PLAN
(amounts in thousands)
1996 Business plan pretax income $25,379
Income taxes - 39% 9,898
-------
Net income $15,481
=======
Earning per share*
EPS $ 3.26
=======
- --------------------------------------------------------------------------------
For incentive compensation purposes, the following will be considered:
- - Gain or loss on the sale of any businesses will not be included in the
formula calculations but may be judged from an incremental point of view by
the Compensation Committee.
- - Transaction involving the sale of CMSG will be taken into account based on
actual results through date of sale.
- - Transaction involving any pre-payment penalty for "taking out" the
insurance company lenders will have no impact on incentive award.
<PAGE>
Exhibit 10.14
General Cigar
THE ANNUAL INCENTIVE COMPENSATION
PLAN DOCUMENT
1996
PURPOSE
The purpose of the Annual Management Incentive Plan (The Plan) is to reward the
performance of key Corporate and Strategic Business Unit ("SBU") executives of
Culbro Corporation and the companies of Culbro Corporation through an annual
award, tied to the Corporation's or SBU's performance against key financial and
individual goals. Specific plan objectives are to:
o Motivate executives to perform against financial goals that contribute to
the creation of shareholder value;
o Encourage both teamwork and personal achievement by tying awards to Company
and individual performance;
o Enhance the Corporation's ability to retain and motivate high quality
executive talent by providing competitive award opportunities, commensurate
with management challenge and performance.
GENERAL PLAN DESCRIPTION
Plan Administration
The Plan shall be administered by the Board of Directors, or its designee, which
shall have full authority to interpret the Plan, establish rules and regulations
relating to the Plan, determine the criteria for eligibility to participate in
the Plan, select Participants in the Plan, set performance targets under the
Plan, calculate the amount of the Awards, and to make all other determinations
and take all other actions necessary or appropriate for the proper
administration of the Plan. The Board's interpretation of the Plan, and all
actions taken within the scope of its authority, shall be final and binding on
the Company, its stockholders, Participants, Employees and former employees.
The Board of Directors has assigned the responsibility of Plan administration to
the Office of the Chief Executive (OCE).
Plan Effective Date
The Plan, initially effective December 1, 1990, and approved by Culbro's Board
of Directors was amended as described below and approved by the Board of
Directors on December 7, 1995.
<PAGE>
Determination of Award
The Plan provides the opportunity for key executives to receive awards based on
a combination of financial results and individual performance. Payout of
incentive compensation for General Cigar will depend solely on the results of
General Cigar's performance without regard to the results of Culbro Corporation.
Eligibility
Only key executives whose efforts directly impact General Cigar's results are
eligible for The Plan. These include:
o General Cigar's President
o Key General Cigar managers recommended by General Cigar's President and
approved by the OCE
Participants will be notified of their eligibility early in the performance
period.
PLAN MEASURES
Time Period
The Plan is based on a 12 month period reflecting the approved annual business
plan December through the following November.
Components
Each participant will be assigned a Target Award percentage expressed as a
percentage of Base Salary. The target award is divided into two components:
(a) Financial: 70% is based on financial performance
(b) Strategic: 30% is based on performance of individual goals
The Financial Component will be determined as follows:
o 100% of the Financial Component is awarded if 100% of plan performance is
achieved. As part of the business planning process, a financial target or
multiple financial targets will be developed by General Cigar and presented
for approval to the OCE.
o The Award for the Financial Component will be increased or decreased by a
multiple as described under the heading "Multiplier" below.
2
<PAGE>
o Performance below 80% of plan level will result in no award.
o Award for performance above 135% of Plan will be determined by the OCE and
approved by the Board of Directors. Award will not necessarily be formula
driven.
The Strategic Component will be determined based on specific individual goals
identified and approved by the Corporate President. The Objective/Development
plan section of the Performance Appraisal Form will be primarily used for this
purpose.
The Strategic Component will be increased or decreased by a multiplier as
described under the heading "Multiplier" below.
Multiplier
Although the Multiplier will be applied to both the financial and the strategic
components of the award, it is the financial results that determine the
multiplier. Thus, if the financial performance is between 95% and 104% of the
financial goals, performance will be considered to be in the "target range" and
the target award will be increased or decreased by a multiplier of 1 times the
number of percentage points above or below 100%. This adjustment will apply to
both the financial and the strategic components.
"Target Range" is defined as achievement of financial goals at 95% up to and
including 104%.
For financial performance outside the targeted range (minimum of 80% and maximum
of 135%) the target award will be increased or decreased by a multiplier of 4
for all percentage points above or below 100%. For example at 115% the
multiplier would provide an additional payment equal to 60% (4x. 15) of the
target award.
If the Company achieves financial performance above 135% the award will be
multiplied by 4 times 35 percentage points. Any additional payment will be at
the discretion of the Board.
Both the financial component and the strategic component will be subject to the
multiplier.
An example Plan calculation is shown on Exhibit 1.
3
<PAGE>
PLAN PAYMENTS
ALL PARTICIPANTS IN THE PLAN MUST BE ACTIVELY EMPLOYED AT TIME OF PAYMENT.
Payments under The Plan are not considered compensation for the purpose of
determining or calculating other benefits which are based on your base salary
such as the Retirement, Savings or Disability Plans. Actual payment of your
award will be made if earned, as soon as practical after the performance period
ends. All required tax withholdings will be applied to each payment.
Deferred Payment
The Plan allows you to defer receipt of all or a portion of a cash award if
eligible under the Corporation's Deferred Incentive Compensation Plan. An
election whether to defer any award which may be payable should be made before
the performance period begins, subject to tax law changes and restrictions. You
should consult the Corporation's tax department and/or your own advisor before
making such an election.
If you elect to defer all or a portion of an award, you will not have access to
that money while you remain an active employee until the end of the deferral
period which you elected or as otherwise may be permitted under the
Corporation's Deferred Compensation Plan.
A deferred award will earn interest at a rate equal to 1% below prime compounded
quarterly pursuant to the Corporation's Deferred Compensation Plan.
If you leave the company after an award has been earned and deferred, deferred
amounts plus accumulated interest will be calculated as of the end of the month
which precedes your departure. Payments of the amount will be made within 30
days after you leave. A copy of the Corporation's Deferred Compensation Plan is
available upon request from the Human Resources Department or the Corporate
Secretary's Office.
Tax Implications
Under current tax law any cash award from The Plan will be taxed as ordinary
income in the year it is received. Again, for guidance about your individual tax
situation, including the tax implications of deferring your cash award, you
should consult your accountant or other professional tax advisor.
4
<PAGE>
ADMINISTRATION
Change in Participation
The OCE administers The Plan for Culbro's Board of Directors. Any modification
of your participation in The Plan in view of a change in your status within
General Cigar, such as a transfer, promotion or change in responsibility, etc.,
will be determined by the OCE. New hires whose employment begins after May 31st
are not eligible for the performance period.
Funding Mechanism
General Cigar must accrue the estimated award payments during the plan year.
When the Annual Business Plan of General Cigar is the financial target, the
calculation of Plan achievement will be based on earnings only after the full
amount of accrued incentive compensation has been expensed.
Award Calculation
The base salary earned while the employee was participating in the Plan will be
used for calculating the incentive awards.
The "Percentage of Goal Achieved" will be calculated solely by the OCE and the
Board of Directors and will be final and binding upon all participants.
Percentage of goal will be rounded up (or down) to whole percentages only.
Dollar amounts will be rounded up (or down) to the whole dollar amounts.
All determinations and interpretations will be made solely by the OCE and the
Board of Directors and will be final and binding upon all participants.
The Board of Directors reserves the right, exercisable at its sole discretion,
at any time to amend or terminate this Plan.
Participation in The Plan does not confer any right to continued employment with
Culbro or participation in any other performance period cycle. Nor does
participation in The Plan or the receipt of any plan document or letter create
any employment contract, express or implied, or otherwise affect in any way
Culbro's status as an employer-at-will.
5
<PAGE>
Exhibit 1
1996 ANNUAL INCENTIVE COMPENSATION PLAN
General Cigar
EXAMPLE
Base Salary - $100,000
Total Eligible Bonus - 20% of Salary
20% = $20,000
Financial Component (70%): $14,000 based on financial goals
Strategic Component (30%): $6,000
If the financial goals are achieved at exactly 100%, the Participant would have
a maximum potential award of $20,000. The financial component would be awarded
at $14,000 and based on achievement of individual goals the strategic component
would be awarded at any amount between $0 and $6,000.
Target Range Example
If the financial goals are achieved at either 103% or 97% of target the
following calculation would apply:
103% 97%
---- ---
Target Award $20,000 $20,000
Multiplier x1 x1
Point Differential x.03 (x.03)
Award Differential $600 ($600)
Total Potential Award $20,600 19,400
Financial Component 14,420 (70%) 13,580 (70%)
Maximum Strategic* 6,180 (30%) 5,820 (30%)
* Strategic Award based on executive's performance against individual goals
6
<PAGE>
Above/Below Target Range Example
If the financial goals are achieved at either 115% or 85% of target the
following calculation would apply:
115% 85%
---- ---
Target Award $20,000 $20,000
Multiplier x4 ) x4 )
) =x60% ) =x60%
Point Differential x.15 ) x(.15) )
Award Differential $12,000 ($12,000)
Total Potential Award $32,000 $8,000
Financial Component $22,400 (70%) $5,600 (70%)
Maximum Strategic* 9,600 (30%) 2,400 (30%)
* Strategic Award based on executive's performance against individual goals.
7
<PAGE>
Exhibit 2
GENERAL CIGAR
1996 BUSINESS PLAN
(amounts in thousands)
1996 BUSINESS PLAN SUMMARY
Planned operating profit $30,073
Planned Corporate capital charge 5,080
-------
Operating profit after Corporate capital charge $24,993
=======
Payment of a bonus will be based on achievement of the operating profit
target noted above, adjusted for any variance between the planned and actual
Corporate capital charge. Examples of the bonus calculation is as follows:
1. Assumed operating profit (15% above plan) $34,584
Assumed Corporate capital charge 5,215
Operating profit 34,584
Planned Corporate capital charge 5,080
Corporate capital charge 5,215 (135)
--------------------
34,449
Planned operating profit 30,073
-------
% of plan achieved 115%
=======
2. Assumed operating profit (85% of plan) $25,562
Assumed Corporate capital charge 4,945
Operating profit 25,562
Planned Corporate capital charge 5,080
Corporate capital charge 4,945 135
--------------------
25,697
Planned operating profit 30,073
-------
% of plan achieved 85%
=======
<PAGE>
Exhibit 10.15
The Long Term Performance Plan Document
for the Companies of
Culbro Corporation
1995 - 1997
Introduction
The purpose of the long Term Incentive Plan (The Plan) is to support Culbro
Corporation's Mission Statement and reward the performance of key Strategic
Business Unit ("SBU") executives through a cash award tied to the Company's
performance against key financial goals. Specifically, The Plan is designed to:
o Motivate executives to perform against financial goals that contribute to
the creation of shareholder value;
o To foster a long term management focus and encourage teamwork by tying
awards to efficient management of assets invested;
o Enhance the SBU's ability to retain and motivate high quality executive
talent by providing competitive award opportunities, commensurate with the
SBU's management challenge and performance.
General Plan Description
The Plan was amended for the three-year period 1995-1997. Rewards will be
measured on the Return on Net Assets (RONA). RONA is calculated by dividing the
average operating income after taxes (assuming a fixed and constant tax rate of
38%) by the average net assets of the SBU.
The Plan provides the opportunity for key executives to receive cash awards
based on a RONA Target which is for the three-year period covered above (i.e.
not year by year). Payout of incentive compensation for each SBU will depend
solely on the results of the SBU's performance without regard to the results of
Culbro Corporation taken as a whole.
Corporate officers may receive cash awards based on Culbro Corporation financial
results.
<PAGE>
Eligibility
Only key executives whose efforts directly impact long-term Corporate or SBU
results are eligible for The Plan. This includes:
o Key Corporate executives (the Chief Executive Officer has elected
not to participate in this plan cycle.)
o SBU Presidents (this Plan is not in effect at CLR nor Eli Witt).
o Key SBU managers chosen by SBU Presidents and approved by the Office
of the Chief Executive of Culbro Corporation (OCE).
Participants will be notified of their eligibility early in the performance
period.
How the Plan Works
The OCE determines a specific RONA target for each of the SBUs based on
historical performance, Culbro's cost of capital, and relative industry
performance benchmarks. A target is similarly determined for Culbro Corporation.
Earnings opportunity begins at 80% achievement of the RONA Target. Performance
below 80% will result in no award. Performance exceeding the RONA Target is not
capped. Calculations are interpolated.
Individual letters will be sent to each participant to describe the payout
formula and assign a Percent of Salary at 100% achievement of the RONA Target.
In terms of calculating the RONA achievement, The Plan will treat the effect of
special items as follows:
Acquisitions Included
Gains & Losses from Dispositions Included
LIFO Gains & Losses Excluded
New Accounting Pronouncements Excluded
Page three provides examples of how The Plan works.
2
<PAGE>
Long Term Performance Plan
Example
Payout Formula for Executive A
Achievement of RONA Target Percent of Salary
- -------------------------- -----------------
Below 80% of Objective No Payment
80% 25.0%
90% 37.5%
100% 50.0%
110% 66.7%
120% 83.4%
130% 100%
Above 130% Add 1.67% for each 1%
Example
Company A (000)
Average Net Assets: $40,000
Average Net Operating Profits After Tax: $3,600
RONA Hurdle: 10%
********************************************************************************
RONA = $3,600 = 9.0%
$40,000
RONA Objective = 10.0%
Percent of Plan = 90%
Bonus Percent of Salary = 37.5%
3
<PAGE>
Plan Payments
Actual payment of your Long - Term Performance Plan award will be made, if
earned, as soon as practicable after the performance period ends. Income tax
withholding applies to each payment.
Your Other Benefits
Payments under the Long - Term Performance Plan are not considered compensation
for the purpose of determining or calculating other benefits which are based on
your base salary such as the Retirement, Savings and Disability Plans.
Deferred Payment
The Plan allows you to defer receipt of all or a portion of a cash award if
eligible under the Corporation's Deferred Incentive Compensation Plan. You must
make an election whether to defer any award which may be payable no later that
12 months before a performance period ends, subject to tax law changes and
restrictions. You should consult the Corporation's tax department and/or your
own advisor before making such an election.
If you elect to defer all or a portion of an award, you will not have access to
that money while you remain an active employee until the end of the deferral
period which you elected or as otherwise may be permitted under the
Corporation's Deferred Compensation Plan.
If you leave the company after an award has been earned and deferred, deferred
amounts plus accumulated interest will be calculated as of the end of the month
which precdes your departure. Payments of the amount will be made within 30 days
after you leave. A copy of the Corporation's Deferred Compensation Plan is
available upon request form the Human Resources or Secretary's Office.
Tax Implications
Under current tax law any cash award from The Plan will be taxed as ordinary
income in the year it is received. Again, for guidance about your individual tax
situation, including the tax implications of deferring your cash award, you
should consult your accountant or other professional tax advisor.
4
<PAGE>
If You Leave the Company
if you voluntarily leave the company or are terminated for cause, you forfeit
any award which may be payable for the performance period.
if you retire under the Corporation's Retirement Plan, if you are disabled and
eligible for benefits under the Corporation's Long-Term Disability Plan, or if
you are terminated without cause, you may be eligible to receive a portion of
the award for the current performance period. The portion of the award which you
receive for the current performance period will be based on the SBU's or
Corporation's progress toward substantial achievement of Plan awards in that
performance period, as follows:
This portion of the target award
If your service ends for the full period maybe earned
-------------------- --------------------------------
In the first year None
In the second year no more than one-third of the target award
In the third year no more than two-thirds of the target award
Should you become deceased while an active employee, the above schedule applies.
Any payment from The Plan will be payable to your estate.
Administration
The OCE administers the Long-Term Performance Plan for the Compensation
Committee of Culbro's Board of Directors. Any modification of your participation
in The Plan in view of a change in your status with the Company such as a
transfer, promotion or change in responsibility, etc., will be recommended by
your SBU President and approved by the OCE. Participation for new hires will be
recommended by the SBU Presidents and approved by the OCE. Payment will be
determined based on your average salary during the three year period and will be
calculated based on the salary in effect on the last day of each fiscal year
during the three year period. All determinations and interpretations, including
such matters as "cause", "substantial achievement" and "percentage of goal
achieved", will be made solely by the OCE and the Compensation Committee and
will be final and binding upon all participants.
The Compensation Committee of the Board of Directors reserves the right,
exercisable at its sole discretion, to amend or terminate the Long-Term
Performance Plan.
Participation the Long-Term Plan does not confer any right to continued
employment with Culbro or participation in any performance period cycle. Nor
does participation in The Plan or the receipt of any plan document or letter
create any employment contract, express or implied, or otherwise affect in any
way Culbro's status as employer-at-will.
5
<PAGE>
General Cigar
Actual Forecast Plan
1993 1994 1995 Average
---------------------------------------------------
Operating profit 7,953 13,305 14,503 11,920
Tax provision(38%) 3,022 5,056 5,511 4,530
---------------------------------------------------
NOPAT 4,931 8,249 8,992 7,391
===================================================
Average net assets 58,824 56,343 56,200 57,122
===================================================
Return on investment 12.9%
====
Imperial Nurseries
Actual Forecast Plan
1993 1994 1995 Average
---------------------------------------------------
Operating profit 322 437 2,748 1,169
Tax provision (38%) 122 166 1,044 444
---------------------------------------------------
NOPAT 200 271 1,704 725
===================================================
Average net assets 39,542 40,610 42,377 40,910
===================================================
Return on investment 1.8%
====
CMS Glibreth
Actual Forecast Plan
1993 1994 1995 Average
---------------------------------------------------
Operating profit 4,925 5,858 4,514 5,099
Tax provision (38%) 1,872 2,226 1,715 1,938
---------------------------------------------------
NOPAT 3,054 3,632 2,799 3,161
===================================================
Average net assets 46,233 45,868 42,691 44,931
===================================================
Return on investment 7.0%
====
<PAGE>
Exhibit 10.16
================================================================================
CULBRO CORPORATION
----------
Deferred Incentive Compensation Plan
Effective for Fiscal Years Commencing 1982
================================================================================
Still in effect as of 3/92
<PAGE>
CULBRO CORPORATION
DEFERRED INCENTIVE COMPENSATION PLAN
ARTICLE I
PURPOSE OF PLAN
Section 1.1. Culbro Corporation has adopted this Plan to provide certain of
its officers and key employees in managerial and other important positions with
the opportunity to defer certain incentive compensation otherwise payable
currently and thereby to reward such employees for their contributions to the
growth and success of the Corporation and to retain and attract persons of
competence.
ARTICLE II
DETERMINATION AND MAINTENANCE OF DEFERRED
COMPENSATION ACCOUNT
Section 2.1. Deferred Incentive Compensation Accounts. Beginning with the
Fiscal year commencing January 1, 1982, there shall be established a Deferred
Incentive Compensation Account (hereinafter called the Account) for each
Participant.
Section 2.2. Election to Defer Payment of Incentive Compensation. Officers
and employees to whom this Plan is applicable may elect to defer the payment of
all or a portion of the incentive compensation earned during any Fiscal year
after 1981, provided that such election is made on or before December 31 of the
year preceding the year in which such incentive compensation is earned, except
that, for incentive compensation earned during Fiscal year 1982 and payable
during 1983, the election may be made on or before December 31, 1982. The
amounts so deferred shall be referred to as Deferred Incentive Compensation and
shall be credited to the Participants' Accounts by the Corporation on behalf of
the electing Participants as of the year immediately following the year in which
the Deferred Incentive Compensation is earned. A Participant may elect the time
period for which each year's Deferred Incentive Compensation or portion thereof
is to be deferred, and such a timely election will be given effect, subject to
the provisions of Article V, but if such an election is not made, payment shall
be made in accordance with Article IV hereof.
<PAGE>
Amendment to ARTICLE III
of the Culbro Corporation
Deferred Incentive Compensation Plan
Section 3.3. Notwithstanding the foregoing, the Corporation may, if so
elected by a Participant, utilize deferred amounts to enter into a defined
benefit arrangement for a Participant. However, such arrangement shall not cause
the Corporation to incur costs in excess of those incurred under the defined
contribution plan under reasonable interest and actuarial assumptions or the
Participant to receive a lesser benefit than provided under Sections 3.1 and
3.2.
Adopted
February 12, 1985
<PAGE>
ARTICLE III
INVESTMENT OF AND INTEREST ON DEFERRED
INCENTIVE COMPENSATION
Section 3.1. Use of Accounts By Corporation. The Corporation shall not
segregate the amounts credited to each Participant's Account but may utilize
such amounts for such purposes as it deems appropriate, including working
capital.
Section 3.2. Interest on Accounts. Accounts shall bear interest at the rate
of interest publicly announced by Manufacturers Hanover Trust Company, New York,
New York from time to time as its prime rate less one percentage point (as
determined by the Committee), which amount shall be credited to each
Participant's Account as of the end of each quarter in each year and such
interest shall thereafter become a part of the Participant's Account. The rate
of interest to be credited to the Participants' Accounts shall be subject to
annual review by the Committee which may, in its sole discretion, change such
rate on a prospective basis.
ARTICLE IV
PAYMENT OF ACCOUNTS
Section 4.1. Distributions Out of Accounts. Except as provided in Section
4.2. and subject to the provisions of Article V hereof, distributions in respect
of the Account of any Participant shall, unless the Committee otherwise
determines, or unless the Participant has otherwise elected pursuant to Section
2.2 hereof, become payable in full to such Participant or to his legal
representatives, as the case may be, in cash, annually over a period of not more
than fifteen years, as determined by the Committee, upon the happening of any of
the events described in this Section. The first payment shall be made within
fifteen months after the happening of any such event. The amount of each
distribution shall be the amount obtained by multiplying the balance in the
Participant's Account by a fraction, the numerator of which is one and the
denominator of which is the number of years in which distributions remain to be
made (including the current distribution). The Participant's Account shall be
charged with the amount of each such distribution.
The events described in this Section are as follows:
(i) Death. In the event of the death of a Participant while still in
the employ of the Corporation or a subsidiary, distribution in respect of
the balance in his Account shall be made to his legal representatives.
-2-
<PAGE>
(ii) Retirement under an Employee's Retirement Plan of the Corporation
or a Subsidiary.
(iii) Termination of Participant's Service with the Corporation or a
Subsidiary. Termination of a Participant's service (but otherwise than as a
result of death, disability or retirement under an Employee's Retirement
Plan of the Corporation or a subsidiary); provided that a leave of absence
consented to by the Board shall not constitute a termination of service.
(iv) Total and Permanent Disability. Such disability shall be deemed
to have occurred only when certified by a physician appointed by the
Corporation or by a physician acceptable to the Corporation. In the event
of the cessation of such disability and the return of such Participant to
work for the Corporation, distribution in respect of such part, if any, of
such balance of his Account as shall remain to his credit shall be deferred
and shall be made only to such extent and at such time as distribution
would otherwise be made in accordance with the Plan.
Section 4.2. Payments in Form of Annuity. The Committee may, in its
discretion on the happening of one of the events described in Section 4.1, but
first giving effect to the provisions of Article V, provide for payment of all
or a portion of the Participant's Account in the form of either (i) an annuity
for the life of the Participant or (ii) an annuity for the joint lives of the
Participant and his beneficiary, in lieu of the distributions provided in
Section 4.1. In the event the Committee, in its discretion, decides to provide
for the payments above described, it shall purchase an Annuity Contract from a
third party for this purpose, but in such case such Annuity Contract shall be
owned by the Corporation which shall also be the beneficiary under such
contract. If an Annuity Contract is purchased pursuant to this Section 4.2, the
Participant's Account shall be charged with the amount of the purchase price of
the Annuity Contract. As payments are received under such contract such amounts
shall be paid out to the Participant on a current basis.
Section 4.3. Withholding of Taxes. There shall be deducted from all
payments under the Plan any taxes required by the Federal or any State or local
government to be withheld and paid over to such government for the account of
such Participant.
-3-
<PAGE>
ARTICLE V
NO VESTED RIGHTS OF PARTICIPANTS;
CONTINGENCIES AFFECTING PAYMENT
Section 5.1. The Corporation's sole obligation to a Participant or his
legal representatives, as the case may be, in respect of the payment of (a) any
balance in his Account, and (b) the payments under any Annuity Contract
purchased pursuant to Section 4.2, shall be solely a contractual obligation in
accordance with the terms of this Plan. The Corporation shall have no further or
other obligation in respect of any amounts described above. The Accounts and the
Deferred Incentive Compensation and interest credited thereto, and any Annuity
Contract described in Section 4.2. shall not be held or set aside in trust. No
Participant shall have any vested or other rights in the Account in his name or
in any Annuity Contract purchased by the Corporation pursuant to Section 4.2.
Because Participants have no vested rights with respect to the Plan and
because the Accounts and the Deferred Incentive Compensation and interest
credited thereto and any Annuity Contract described in Section 4.2 are not held
or set aside in trust (a) the Corporation may seek to retain, offset, attach or
similarly place a lien on such funds in circumstances where a Participant has
been discharged for cause and shall be entitled to do so when such cause is for
(i) malfeasance damaging to the Corporation, (ii) conversion to the Participant
of a Corporate opportunity, or (iii) a violation of the Corporation's conflict
of interest policy, in each case as determined in the sole discretion of the
Board of Directors and (b) in the event the Corporation is unable to make any
payment under the Plan because of insolvency, bankruptcy or similar status or
proceedings, Participants will be treated as general unsecured creditors of the
Corporation and may be entitled to no priority under applicable law with respect
to such payments.
No Participant shall have any right with respect to any Account credit,
until such Account credit or written notice thereof shall have been delivered to
him; nor shall any such Participant or any person claiming under or through him
have any right or interest in this Plan, or in any allocation hereunder, or in
any balance in any Account or the proceeds or "cash value" of any Annuity
Contract unless and until all the terms, conditions and provisions of the Plan
that affect such Participant have been complied with as specified herein and, in
such case, only to the extent provided herein.
-4-
<PAGE>
ARTICLE VI
SCOPE OF PLAN
Section 6.1. To Whom Applicable. This Plan shall apply to such officers and
key employees in the employ of the Corporation and its subsidiaries as may be
selected by or under the authority of the Committee after consultation with the
management of the Corporation.
Section 6.2. No Prohibition Against Other Plans. Nothing in this Plan shall
be construed as preventing the Corporation or any of its subsidiaries from
establishing sales commission plans or any other or different plans providing
for incentive compensation for employees.
ARTICLE VII
GENERAL CONDITIONS; MISCELLANEOUS PROVISIONS
Section 7.1. Plan Amendments. The Committee may from time to time amend,
suspend or terminate in whole or in part or may reinstate any or all of the
provisions of the Plan, except that no amendment, suspension or termination may,
without his consent, apply to the balance in a Participant's Account prior to
the effective date of such amendment, suspension or termination.
Section 7.2. Non-Assignability of Benefits; Loans Prohibited. Except as
otherwise required by law, it is a condition of the Plan that no Participant or
his legal representatives shall have any right to assign, transfer, appropriate,
encumber, or anticipate his interest in the Plan or any payments to be made
thereunder, and no benefits or payments, rights or interest of a Participant of
any kind or nature shall in any way be subject to any legal process to levy
upon, garnishee or attach the same for payment of any claim against the
Participant or his legal representatives nor shall any Participant or his legal
representatives have any right of any kind whatsoever with respect to the Plan
or any interest therein other than the right to receive distributions under the
Plan as and when the same become due and payable under the terms of the Plan.
No loan shall be made by the Corporation to any Participant of any amount
credited to him under the Plan.
Section 7.3. Right to Terminate Employment. The selection of any employee
for participation in the Plan in any year shall not give the Participant any
right to participate in the Plan in any future year or to be retained in the
employ of the Corporation or any subsidiary, and the right and power of the
Corporation or any subsidiary to dismiss or discharge any Participant is
specifically reserved.
-5-
<PAGE>
Section 7.4. Withholding of Distributions. In the event that any dispute
shall arise as to the person or persons to whom any distribution shall be made
by the Corporation, the Corporation may withhold such distribution until such
dispute shall have been determined in accordance with law. All distributions to
Participants or to their legal representatives shall be subject to any
applicable tax, community property or other statutes and regulations of the
United States or of any state having jurisdiction thereof.
Section 7.5. Reliance on Accountants. The Board of Directors and the
Committee may rely upon any information supplied to them by an officer of the
Corporation or by the Corporation's independent public accountants in connection
with the administration of the Plan. The determination of the Corporation's
independent public accountants as to the Deferred Incentive Compensation and the
interest thereon for any quarter and the maximum amounts which may be credited
to an Account in any quarter and any other computations or matters arising under
the Plan and referred to such independent public accountants by the Committee or
the Board for determination shall be final, conclusive and binding on the
Corporation and on all Participants and upon all persons claiming through or
under any Participant.
Section 7.6. Liability. No member of the Board of Directors or of the
Committee shall be liable for any act or action, including any act or action in
connection with the purchase of any Annuity Contract, whether of commission or
omission, taken by any other member, or by any officer, agent, or employee or by
any investment advisor or financial institution appointed by the Committee.
ARTICLE VIII
ADMINISTRATION OF THE PLAN; COMMITTEE
Section 8.1. Appointment of Committee. The Plan shall be administered by
the Compensation Committee of the Board of Directors.
Section 8.2. Powers and Duties of Committee. The Committee shall have full
power to construe and interpret this Plan, to modify the rate of return to be
paid on the amounts in the Accounts on a prospective basis, to determine any and
all questions arising under the Plan, including the right to remedy possible
ambiguities, inconsistencies and omissions, and to establish and amend rules and
regulations for its administration. Similarly, the determination of the
happening of any of the contingencies mentioned in Article V resulting in the
loss or reduction of benefits therein provided, the determination of those who
may participate under the Plan, and the determination of the amounts credited to
the Accounts of such Participants shall rest in the absolute discretion of the
Committee
-6-
<PAGE>
subject to the review of the Board of Directors as herein provided (and no
Participant shall have the right to require any distribution otherwise than in
accordance with his election made under Section 2.2 or the terms of Article IV).
All such determinations, constructions, interpretations, rules and
regulations made pursuant to this Section shall be conclusive and binding upon
all Participants and on all persons claiming under or through any Participant.
ARTICLE IX
Section 9.1. Definitions. For the purposes of the Plan, unless the context
otherwise indicates, the following definitions shall be applicable.
(a) The word "Plan" shall mean the Deferred Compensation Plan as set
forth in this Instrument and as from time to time amended.
(b) The word "Corporation" shall mean Culbro Corporation.
(c) The term "Board of Directors" shall mean the Board of Directors or
the Executive Committee of the Corporation.
(d) The word "Committee" shall mean the Compensation Committee
appointed to administer the Plan, as provided in Article VIII, as such
Committee may from time to time be constituted.
(e) The word "Participant" shall mean an officer or other employee of
the Corporation or of a subsidiary of the Corporation to whom an amount of
Deferred Incentive Compensation has been credited under the Plan for any
Fiscal year and whose balance in his Account has not been wholly
distributed, or to whom an amount of Deferred Incentive Compensation
previously credited under the Plan remains subject to restrictions,
conditions or limitations imposed by the Committee. The word "Participant"
shall also be deemed to include the estate of a Participant or his legal
representative or representatives.
(f) the word "officer" or "employee" shall mean an officer or employee
of the Corporation or of a subsidiary of the Corporation.
-7-
<PAGE>
(g) The term "year" shall mean the calendar year and the term "Fiscal
year" shall mean the calendar year or such other fiscal year as may be
established from time to time.
(h) The use of the singular shall also include within its meaning the
plural and vice versa. The use of masculine shall include feminine.
ARTICLE X
Section 10.1. Revocation of Election to Defer Payment for Financial
Hardship. The Committee may, in its sole discretion, alter or revoke an election
made by a Participant to defer payment of any amount of Deferred Incentive
Compensation and the interest thereon credited to the Account of such
Participant or charged to such Participant's Account pursuant to an Annuity
purchased pursuant to Section 4.2 on a clear showing of severe financial
hardship suffered or to be suffered by such Participant.
ARTICLE XI
APPROVAL; EFFECTIVE DATE
Section 11.1. This document shall become effective as the Plan as of Fiscal
year 1982.
December 13, 1982
<PAGE>
Exhibit 10.17
EXECUTION COPY
================================================================================
CREDIT AGREEMENT
dated as of January 21, 1997
among
GENERAL CIGAR CO., INC.,
as Borrower
GENERAL CIGAR HOLDINGS, INC.
387 PAS CORP.,
CLUB MACANUDO, INC.,
GCH TRANSPORTATION, INC. and
VILLAZON & COMPANY, INC.
as Guarantors
THE LENDERS FROM TIME TO TIME PARTIES HERETO
and
CHASE SECURITIES INC.,
as Arranger
----------------------------------
THE CHASE MANHATTAN BANK,
as Administrative Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. DEFINITIONS.................................................. 2
1.1 Defined Terms................................................ 2
1.2 Other Definitional Provisions................................ 18
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS.............................. 18
2.1 Revolving Credit Commitments................................. 18
2.2 Revolving Credit Notes....................................... 18
2.3 Procedure for Revolving Credit Borrowing..................... 19
2.4 Fees......................................................... 19
2.5 Termination or Reduction of Revolving Credit Commitments..... 20
2.6 Term Loans................................................... 20
2.7 Term Notes................................................... 20
2.8 Procedure for Term Loan Borrowing............................ 20
2.9 Optional and Mandatory Prepayments........................... 21
2.10 Conversion and Continuation Options.......................... 22
2.11 Minimum Amounts and Maximum Number of Tranches............... 23
2.12 Interest Rates and Payment Dates............................. 23
2.13 Computation of Interest and Fees............................. 23
2.14 Inability to Determine Interest Rate......................... 24
2.15 Pro Rata Treatment and Payments.............................. 24
2.16 Illegality................................................... 25
2.17 Requirements of Law.......................................... 26
2.18 Taxes........................................................ 27
2.19 Indemnity.................................................... 28
SECTION 3. REPRESENTATIONS AND WARRANTIES............................... 28
3.1 Financial Condition.......................................... 28
3.2 No Change.................................................... 31
3.3 Corporate Existence; Compliance with Law..................... 31
3.4 Corporate Power; Authorization; Enforceable Obligations...... 32
3.5 No Legal Bar................................................. 32
3.6 No Material Litigation....................................... 32
3.7 No Default................................................... 32
3.8 Ownership of Property; Liens................................. 33
3.9 Intellectual Property........................................ 33
3.10 No Burdensome Restrictions................................... 33
3.11 Taxes........................................................ 33
3.12 Federal Regulations.......................................... 33
3.13 ERISA........................................................ 34
3.14 Investment Company Act; Other Regulations.................... 34
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Page
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3.15 Subsidiaries................................................. 34
3.16 Purpose of Loans............................................. 34
3.17 Environmental Matters........................................ 35
3.18 Purchase Agreements.......................................... 35
3.19 Accuracy and Completeness of Information..................... 36
3.20 Assumed Liabilities.......................................... 36
3.21 Distribution Agreement....................................... 36
3.22 Asset Transfers.............................................. 36
SECTION 4. CONDITIONS PRECEDENT......................................... 36
4.1 Conditions to Initial Loans.................................. 36
(a) Loan Documents....................................... 36
(b) Corporate Proceedings of the ........................ 37
(c) Corporate Documents.................................. 37
(d) Incumbency Certificates.............................. 37
(e) Fees................................................. 37
(f) Closing Certificate.................................. 37
(g) Pledged Stock; Stock Powers.......................... 37
(h) Legal Opinion........................................ 37
(i) Acquisition.......................................... 38
(j) Transaction Fees..................................... 38
(k) Existing Credit Agreement............................ 38
4.2 Conditions to Each Loan...................................... 39
(a) Representations and Warranties....................... 39
(b) No Default........................................... 39
(c) Additional Documents................................. 39
(d) Additional Matters................................... 39
SECTION 5. AFFIRMATIVE COVENANTS........................................ 39
5.1 Financial Statements......................................... 40
5.2 Certificates; Other Information.............................. 41
5.3 Payment of Obligations....................................... 41
5.4 Conduct of Business and Maintenance of Existence;
Compliance with Contractual Obligations and
Requirements of Law...................................... 41
5.5 Maintenance of Property; Insurance........................... 42
5.6 Inspection of Property; Books and Records; Discussions....... 42
5.7 Notices...................................................... 42
5.8 Additional Pledges and Guarantees............................ 43
SECTION 6. NEGATIVE COVENANTS........................................... 43
6.1 Financial Condition Covenants................................ 43
(a) Indebtedness to Net Worth Ratio...................... 43
(b) Maintenance of Net Worth............................. 44
(c) Fixed Charge Coverage................................ 44
-ii-
<PAGE>
Page
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(d) Maintenance of Current Ratio......................... 44
6.2 Limitation on Indebtedness................................... 45
6.3 Limitation on Liens.......................................... 46
6.4 Limitation on Guarantee Obligations.......................... 47
6.5 Limitations of Fundamental Changes........................... 47
6.6 Limitation on Sale of Assets................................. 48
6.7 Limitation on Leases......................................... 48
6.8 Compliance with ERISA........................................ 48
6.9 Limitation on Investments, Loans and Advances................ 48
6.10 Limitation on Restricted Payments............................ 49
6.11 Limitation on Capital Expenditures........................... 50
6.12 Limitation on Negative Pledge Clauses........................ 50
6.13 Transactions with Affiliates................................. 50
6.14 Sale and Leaseback........................................... 50
6.15 Fiscal Year.................................................. 51
6.16 Corporate Documents.......................................... 51
6.17 Passive Status for Holdings.................................. 51
6.18 Distribution Agreement....................................... 51
SECTION 7. EVENTS OF DEFAULT............................................ 51
SECTION 8. THE ADMINISTRATIVE AGENT..................................... 54
8.1 Appointment.................................................. 54
8.2 Delegation of Duties......................................... 54
8.3 Exculpatory Provisions....................................... 54
8.4 Reliance by Administrative Agent............................. 55
8.5 Notice of Default............................................ 55
8.6 Non-Reliance on Administrative Agent and Other Lenders....... 55
8.7 Indemnification.............................................. 56
8.8 Administrative Agent in Its Individual Capacity.............. 56
8.9 Successor Administrative Agent............................... 57
SECTION 9. . GUARANTEE................................................... 57
9.1 Guarantee.................................................... 57
9.2 Right of Set-off............................................. 58
9.3 No Subrogation............................................... 58
9.4 Amendments, etc.............................................. 59
9.5 Guarantee Absolute and Unconditional......................... 59
9.6 Reinstatement................................................ 60
9.7 Payments..................................................... 60
SECTION 10. MISCELLANEOUS............................................... 60
10.1 Amendments and Waivers...................................... 60
10.2 Notices..................................................... 61
-iii-
<PAGE>
Page
----
10.3 No Waiver; Cumulative Remedies.............................. 62
10.4 Survival of Representations and Warranties.................. 62
10.5 Payment of Expenses and Taxes............................... 63
10.6 Successors and Assigns; Participations; Purchasing Lenders.. 63
10.7 Adjustments; Set-off........................................ 66
10.8 Counterparts................................................ 67
10.9 Severability................................................ 67
10.10 Integration................................................. 67
10.11 GOVERNING LAW............................................... 67
10.12 Submission To Jurisdiction.................................. 67
10.13 WAIVER OF JURY TRIAL........................................ 68
-iv-
<PAGE>
SCHEDULES
Schedule I - Commitments
Schedule II - Subsidiaries
Schedule III - Indebtedness
Schedule IV - Liens
Schedule V - Sale-Leaseback Transactions
Schedule VI - Guarantee Obligations
Schedule VII - Environmental Liabilities
Schedule VIII - List of Pledge Agreements
Schedule IX - Wollen Letter
EXHIBITS
Exhibit A-1 - Form of Revolving Credit Note
Exhibit A-2 - Form of Term Note
Exhibit B - Form of Closing Certificate
Exhibit C - Form of Borrower's Legal Opinion
Exhibit D - Form of Commitment Transfer Supplement
Exhibit E - Form of Culbro Group Guarantee
Exhibit F - Form of Pledge Agreement
-v-
<PAGE>
CREDIT AGREEMENT, dated as of January 21, 1997, among General Cigar
Co., Inc., a Delaware corporation (the "Borrower"), General Cigar Holdings,
Inc., a Delaware corporation ("Holdings"), 387 PAS Corp., a New York corporation
("387"), Club Macanudo, Inc., a New York corporation ("Club"), GCH
Transportation, Inc., a Delaware corporation ("Aircraft Subsidiary"), Villazon &
Company, Inc., a Delaware corporation ("New Villazon"), the several banks and
other financial institutions from time to time parties to this Agreement
(collectively, the "Lenders"), and The Chase Manhattan Bank, a New York banking
corporation, as agent for the Lenders hereunder (in such capacity, the
"Administrative Agent").
W I T N E S S E T H :
WHEREAS, Culbro (as defined herein), the Lenders and the
Administrative Agent are parties to that certain Amended and Restated Credit
Agreement, dated as of June 5, 1996 (as amended, the "Existing Credit
Agreement");
WHEREAS, pursuant to an Asset Purchase Agreement, dated as of
December 20, 1996 (as amended, supplemented or otherwise modified from time to
time in accordance with the terms thereof, the "Asset Purchase Agreement"),
among the Borrower, Villazon & Company, Inc., a Florida corporation
("Villazon"), Frank Llaneza, Daniel Blumenthal and Constantino Gonzalez
(collectively, the "Stockholders"), Villazon has agreed to sell, and the
Borrower has agreed to purchase (the "Asset Acquisition"), substantially all the
assets (collectively, the "Purchased Business") of Villazon (excluding, among
other things, Villazon Subsidiary (as defined below)) for a total consideration
(including the assumption by the Borrower of certain obligations owing by
Villazon to the Stockholders) of approximately $64,820,000 (the "Asset Purchase
Price"), all as provided in the Asset Purchase Agreement and the Tax
Reimbursement Agreement (as defined herein);
WHEREAS, pursuant to a Stock Purchase Agreement, dated as of
December 23, 1996 (as amended, supplemented or otherwise modified from time to
time in accordance with the terms thereof, the "Stock Purchase Agreement") (the
Asset Purchase Agreement and the Stock Purchase Agreement, collectively, the
"Purchase Agreements"), among the Borrower, Honduras American Tabaco, S.A. de
C.V., an Honduran corporation ("HATSA"), Frank Llaneza and Daniel Blumenthal
(Frank Llaneza and Daniel Blumenthal, collectively, the "Selling Shareholders"),
the Selling Shareholders have each agreed to sell all of their shares of capital
stock of HATSA and to deliver all of the shares owned by each of John Oliva,
Cesar Lopez, Estelo Padron and Edgardo Dumas (the "HATSA Shares" and, together
with the Purchased Business, the "Acquired Assets"), and the Borrower has agreed
to acquire all of the HATSA Shares ("the Stock Acquisition" and, together with
the Asset Acquisition, the "Acquisition") for a total consideration (including
the payment by HATSA to its shareholders of certain amounts at closing of the
Stock Acquisition) of approximately $24,200,000, all as provided in the Stock
Purchase Agreement (the "Stock Purchase Price" and, together with the Asset
Purchase Price, the "Purchase Price");
<PAGE>
2
WHEREAS, the Borrower intends that, immediately following the
closing of the Acquisition, assets acquired pursuant to the Acquisition (other
than the HATSA Shares) will be contributed by the Borrower to New Villazon;
WHEREAS, sources of funds are required to finance a portion of the
Purchase Price, to pay fees and other expenses incurred in connection with the
Acquisition and the financing thereof and to repay all outstanding borrowings
under the Existing Credit Agreement;
WHEREAS, the Borrower has requested that the Lenders make the Term
Loans (as defined herein) in the aggregate amount of $60,000,000 to provide for
a portion of the financing required for the Acquisition; and
WHEREAS, the Borrower has requested that the Lenders make available
a $60,000,000 revolving credit facility to provide for (i) prior to the
occurrence of an IPO Event (as defined herein), the repayment of outstanding
bank borrowings (including all borrowings made pursuant to the Existing Credit
Agreement), the funding of the Acquisition and expenses related thereto and the
working capital needs of Culbro and its Restricted Subsidiaries (as defined
herein) and (ii) following the occurrence of an IPO Event, the working capital
and general corporate needs of Holdings and its Restricted Subsidiaries in the
ordinary course of business;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties to this Agreement hereby agree as
follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms
shall have the following meanings:
"Acquired Assets": as defined in the recitals hereto.
"Acquisition": as defined in the recitals hereto.
"Administrative Agent": as defined in the preamble herein.
"Affiliate": as to any Person, any other Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is controlled
by, or is under common control with, such Person. For purposes of this
definition, "control" means the power, directly or indirectly, either (i)
to vote 10% or more of the securities having ordinary voting power for the
election of directors of such Person or (ii) to direct or cause the
direction of the management and policies of such Person, whether by
contract or otherwise.
<PAGE>
3
"Agreement": this Credit Agreement, as amended, supplemented or
otherwise modified from time to time.
"Aircraft Subsidiary": as defined in the preamble hereto.
"Alternate Base Rate": for any day, a rate per annum (rounded
upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a)
the Prime Rate in effect on such day and (b) the Federal Funds Effective
Rate in effect on such day plus 1/2 of 1%. For purposes hereof: "Prime
Rate" shall mean the rate of interest per annum publicly announced from
time to time by the Administrative Agent as its prime rate in effect at
its principal office in New York City (the Prime Rate not being intended
to be the lowest rate of interest charged by the Administrative Agent in
connection with extensions of credit to debtors); and "Federal Funds
Effective Rate" shall mean, for any day, the weighted average of the rates
on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day which is a Business Day, the
average of the quotations for the day of such transactions received by the
Administrative Agent from three federal funds brokers of recognized
standing selected by it. Any change in the Alternate Base Rate due to a
change in the Prime Rate or the Federal Funds Effective Rate shall be
effective as of the opening of business on the effective day of such
change in the Prime Rate or the Federal Funds Effective Rate,
respectively.
"Alternate Base Rate Loans": Loans the rate of interest applicable
to which is based upon the Alternate Base Rate.
"Applicable Margin": (a) with respect to Alternate Base Rate Loans,
(i) prior to an IPO Event, 1% per annum and (ii) following an IPO Event,
0% per annum and (b) with respect to Eurodollar Loans, (i) prior to an IPO
Event, 2% per annum and (ii) following an IPO Event, .75% per annum.
"Asset Acquisition": as defined in the recitals hereto.
"Asset Purchase Agreement": as defined in the recitals hereto.
"Asset Purchase Price": as defined in the recitals hereto.
"Asset Transfers": collectively, (i) the transfer by Culbro to
Holdings of all the shares of Capital Stock of the Borrower, Club, Club
Chicago, 387 and Aircraft Subsidiary, all of Culbro's interest in the
headquarters located at 387 Park Avenue South and all of Culbro's
licenses, permits, accounts receivable, prepaid expenses, reserves and
other current assets relating to the cigar business and (ii) the transfer
by Culbro to the Borrower of all the shares of Capital Stock of New
Villazon and approximately 1,200 acres of real estate held by Culbro in
the Connecticut River Valley, all as provided for in Sections 2.01 and
2.03 of the Distribution Agreement.
<PAGE>
4
"Assumed Liabilities": the liabilities of Culbro to be assumed by
Holdings relating to the cigar business and the assets to be transferred
to Holdings and the Borrower pursuant to the Asset Transfers, including
all expenses relating to the proposed initial public offering of common
stock of Holdings described in the S-1, the Asset Transfers, the CLR
Transfers (as defined in the Culbro Group Guarantee), the distribution by
Culbro to its shareholders of all the outstanding common stock of CLR and
the Merger, all as provided for in the "Retained Liabilities" definition
contained in the Distribution Agreement.
"Available Revolving Credit Commitment": as to any Lender at any
time, an amount equal to the excess, if any, of (a) the amount of such
Lender's Revolving Credit Commitment over (b) the aggregate principal
amount of all Revolving Credit Loans made by such Lender then outstanding.
"Benefitted Lender": as defined in subsection 10.7(a).
"Board": the Board of Governors of the Federal Reserve System of the
United States of America (or any successor).
"Borrower": as defined in the preamble hereto.
"Borrowing Date": any Business Day specified in a notice pursuant to
subsection or as a date on which the Borrower requests the Lenders to make
Loans hereunder.
"Business Day": a day other than a Saturday, Sunday or other day on
which commercial banks in New York City or Connecticut are authorized or
required by law to close.
"Capital Expenditure": as defined in subsection .
"Capital Stock": any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation,
any and all equivalent ownership interests in a Person (other than a
corporation) and any and all warrants or options to purchase any of the
foregoing.
"Cash Equivalents": (i) marketable securities issued or directly and
fully guaranteed or insured by the United States Government or any agency
or instrumentality thereof having maturities of not more than six months
from the date of acquisition, (ii) time deposits and certificates of
deposit having maturities of not more than six months from the date of
acquisition of any Lender or of any domestic commercial bank having
capital and surplus in excess of $500,000,000 the holding company of which
has a commercial paper rating meeting the requirements specified in clause
(iv) below, (iii) repurchase obligations with a term of not more than
seven days or underlying securities of the types described in clauses (i)
and (ii) entered into with any bank meeting the qualifications specified
in clause (ii) above, and (iv)
<PAGE>
5
commercial paper rated at least A-1 or the equivalent thereof by Standard
& Poor's Ratings Services or P-1 or the equivalent thereof by Moody's
Investors Service, Inc. and in either case maturing within six months
after the date of acquisition.
"Chase": The Chase Manhattan Bank.
"Closing Date": the date on which all of the conditions precedent
set forth in subsection shall have been satisfied, which shall be no later
than January 31, 1997.
"CLR": Culbro Land Resources, Inc., a Delaware corporation and a
wholly owned Subsidiary of Culbro.
"Club Chicago": Club Macanudo (Chicago), Inc., an Illinois
corporation.
"Code": the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral": as defined in the Pledge Agreement.
"Commitment Fee": as defined in subsection .
"Commitment Period": the period from and including the Closing Date
to but not including the Revolving Credit Termination Date or such earlier
date as the Commitments shall terminate as provided herein.
"Commitments": the collective reference to the Revolving Credit
Commitments and the Term Loan Commitments.
"Commonly Controlled Entity": an entity, whether or not
incorporated, which is under common control with Holdings (or, prior to an
IPO Event, with Culbro) within the meaning of Section 4001 of ERISA or is
part of a group that includes Holdings (or, prior to an IPO Event, Culbro)
and that is treated as a single employer under Section 414 of the Code.
"Consolidated Current Assets": as to any Person at a particular
date, all amounts which would, in conformity with GAAP, be included under
current assets on a consolidated balance sheet of such Person and its
Restricted Subsidiaries as at such date.
"Consolidated Current Liabilities": as to any Person at a particular
date, all amounts which would, in conformity with GAAP, be included under
current liabilities on a consolidated balance sheet of such Person and its
Restricted Subsidiaries as at such date, but in any event (a) including
the amounts of (i) all Indebtedness of any such Person payable on demand
or, at the option of the Person to which such Indebtedness is owed, not
more than twelve months after such date and (ii) any payments in respect
of any Indebtedness of any such Person (whether installment,
<PAGE>
6
serial maturity or sinking fund payments or otherwise) required to be made
not more than twelve months after such date and (b) excluding the Loans.
"Consolidated Indebtedness and Guarantee Obligations": as to any
Person at a particular date, the aggregate amount of all Indebtedness and
Guarantee Obligations of such Person and its Restricted Subsidiaries
determined on a consolidated basis as at such date, after eliminating all
intercompany items in accordance with GAAP.
"Consolidated Interest Expense": as to any Person for any period,
interest expense of such Person and its Restricted Subsidiaries for such
period, including without limitation, interest payable with respect to the
Loans and the interest portion of all obligations under Financing Leases,
all as determined on a consolidated basis in accordance with GAAP.
"Consolidated Lease Expense": as to any Person for any period, the
aggregate rental obligations of such Person and its Restricted
Subsidiaries determined on a consolidated basis payable in respect of such
period under leases of real and/or personal property (net of income from
sub-leases thereof, but including taxes, insurance, maintenance and
similar expenses which the lessee is obligated to pay under the terms of
said leases), whether or not such obligations are reflected as liabilities
or commitments on a consolidated balance sheet of such Person and its
Restricted Subsidiaries or in the notes thereto, excluding, however,
obligations under Financing Leases.
"Consolidated Net Income": as to any Person for any period, the
consolidated net income (or deficit) of such Person and its Restricted
Subsidiaries for such period, determined in accordance with GAAP.
"Consolidated Net Worth": as to any Person at a particular date, all
amounts which would be included under shareholders' equity on a
consolidated balance sheet of such Person and its Restricted Subsidiaries
determined on a consolidated basis in accordance with GAAP as at such
date.
"Consolidated Operating Cash Flow": as to any Person for any period
with respect to such Person and its Restricted Subsidiaries, the sum of
(a) Consolidated Net Income; plus (b) income tax expense, depreciation,
amortization and Consolidated Interest Expense; minus or plus,
respectively, (c) gains or losses in respect of minority interests of such
Person or any of its Restricted Subsidiaries in any other Person; minus or
plus, respectively, (d) earnings or losses of (i) all Subsidiaries of such
Person other than Restricted Subsidiaries of such Person and (ii) other
equity investments; plus (e) all cash dividends from (i) all Subsidiaries
of such Person other than Restricted Subsidiaries of such Person and (ii)
other equity investments to the extent actually received by such Person;
plus or minus, respectively, (f) non-cash charges or gains; plus or minus,
respectively, (g) losses or gains resulting from sales by such Person and
its Subsidiaries of assets not in the ordinary course of business, all for
such period and determined on a consolidated basis in accordance with
GAAP.
<PAGE>
7
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Culbro": Culbro Corporation, a New York corporation.
"Culbro Group": Culbro and each Restricted Subsidiary of Culbro
(other than a member of the Holdings Group).
"Culbro Group Guarantee": the guarantee to be made by each member of
the Culbro Group substantially in the form of Exhibit E, as amended,
supplemented or otherwise modified from time to time.
"Default": any of the events specified in Section 7, whether or not
any requirement for the giving of notice, the lapse of time, or both, or
any other condition, has been satisfied.
"Distribution Agreement": the Distribution Agreement to be entered
into among Holdings, Culbro and CLR substantially in the form of the draft
thereof dated January 20, 1997, as amended, supplemented or otherwise
modified in accordance with subsection 6.18.
"Dollars" and "$": dollars in lawful currency of the United States
of America.
"Environmental Laws": any and all foreign, Federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or other Requirements
of Law (including common law) regulating, relating to or imposing
liability or standards of conduct concerning protection of human health or
the environment, as now or may at any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on
such day (including, without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board or other
Governmental Authority having jurisdiction with respect thereto) dealing
with reserve requirements prescribed for eurocurrency funding (currently
referred to as "Eurocurrency Liabilities" in Regulation D of the Board)
maintained by a member bank of such System.
"Eurodollar Base Rate": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, a rate per annum equal to
the rate at which Chase is offered Dollar deposits at or about 10:00 A.M.,
New York City time, two Working
<PAGE>
8
Days prior to the beginning of such Interest Period, (a) in the interbank
eurodollar market where the eurodollar and foreign currency and exchange
operations in respect of its Eurodollar Loans are then being conducted,
(b) for delivery on the first day of such Interest Period, (c) for the
number of days comprised therein and (d) in an amount comparable to the
amount of its Eurodollar Loan to be outstanding during such Interest
Period.
"Eurodollar Loans": Loans the rate of interest applicable to which
is based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, a rate per annum determined for
such day in accordance with the following formula (rounded upward to the
nearest 1/100th of 1%):
Eurodollar Base Rate
------------------------------
1.00 - Eurocurrency Reserve Requirements
"Event of Default": any of the events specified in Section 7,
provided that any requirement for the giving of notice, the lapse of time,
or both, or any other condition, has been satisfied.
"Federal Funds Effective Rate": as defined in the definition of
Alternate Base Rate.
"Financing Lease": any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance
with GAAP to be capitalized on a balance sheet of the lessee.
"First Test Period": as defined in subsection 6.1(c).
"Foreign Subsidiary": any Subsidiary organized under the laws of any
jurisdiction other than the United States of America or any political
subdivision thereof.
"GAAP": generally accepted accounting principles in the United
States of America consistent with those utilized in preparing the audited
financial statements referred to in subsection 3.1(a).
"Governmental Authority": any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guarantee Obligation": as to any Person, any obligation of such
Person guaranteeing or in effect guaranteeing any Indebtedness, leases,
dividends or other
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9
obligations (the "primary obligations") of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not
contingent, (a) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (b) to advance or
supply funds (i) for the purchase or payment of any such primary
obligation or (ii) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (c) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such
primary obligation or (d) otherwise to assure or hold harmless the owner
of any such primary obligation against loss in respect thereof; provided,
however, that the term "Guarantee Obligation" shall not include
endorsements of instruments for deposit or collection in the ordinary
course of business. The amount of any Guarantee Obligation of any Person
shall be deemed to be the lower of (a) an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Guarantee Obligation is made and (b) the maximum amount for which such
Person may be liable pursuant to the terms of the instrument embodying
such Guarantee Obligation, unless such primary obligation and the maximum
amount for which such Person may be liable are not stated or determinable,
in which case the amount of such Guarantee Obligation shall be such
Person's maximum reasonably anticipated liability in respect thereof as
determined by the Borrower in good faith.
"Guarantors": prior to the IPO Event, each member of the Culbro
Group and the Holdings Loan Party Group (other than the Borrower);
following the IPO Event, each member of the Holdings Loan Party Group
(other than the Borrower).
"HATSA Shares": as defined in the recitals hereto.
"Holdings": as defined in the preamble hereto.
"Holdings Group": the collective reference to Holdings and each of
its Subsidiaries.
"Holdings Loan Party Group": the collective reference to Holdings,
the Borrower, 387, Club, Aircraft Subsidiary, New Villazon and each other
Person that shall hereafter become a party to this Agreement as a
guarantor pursuant to the provisions of subsection 5.8.
"Imperial": Imperial Nurseries, Inc., a Delaware corporation and
wholly owned Subsidiary of Culbro.
"Indebtedness": of any Person at any date, (a) all indebtedness of
such Person for borrowed money or for the deferred purchase price of
property or services (other than current liabilities incurred in the
ordinary course of business and payable in accordance with customary trade
practices) or which is evidenced by a note, bond, debenture or similar
instrument, (b) all obligations (contingent or otherwise) of such
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10
Person under Financing Leases, (c) all obligations (contingent or
otherwise) of such Person in respect of letters of credit, acceptances or
similar obligations issued or created for the account of such Person, (d)
all liabilities secured by any Lien on any property owned by such Person
even though such Person has not assumed or otherwise become liable for the
payment thereof and (e) any withdrawal liability of such Person or a
Commonly Controlled Entity to a Multiemployer Plan. The Indebtedness of
any Person shall include any Indebtedness of any partnership in which such
Person is a general partner.
"Insolvency": with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Interest Payment Date": (a) as to any Alternate Base Rate Loan, the
last day of each March, June, September and December to occur while such
Loan is outstanding; (b) as to any Eurodollar Loan having an Interest
Period of three months or less, the last day of such Interest Period; and
(c) as to any Eurodollar Loan having an Interest Period of longer than
three months, each day which is three months, or a whole multiple thereof,
after the first day of such Interest Period and the last day of such
Interest Period. Interest shall accrue from and including the first day of
an Interest Period to but excluding last day of such Interest Period.
"Interest Period": with respect to any Eurodollar Loan:
(a) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to such Eurodollar
Loan and ending one, two, three or six months thereafter, as
selected by the Borrower in its notice of borrowing or notice of
conversion, as the case may be, given with respect thereto; and
(b) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such Eurodollar Loan
and ending one, two, three or six months thereafter, as selected by
the Borrower by irrevocable notice to the Administrative Agent and
the Lenders not less than three Working Days prior to the last day
of the then current Interest Period with respect thereto;
provided that, all of the foregoing provisions relating to Interest
Periods are subject to the following:
(1) if any Interest Period would otherwise end on a day that
is not a Working Day, such Interest Period shall be extended to the
next succeeding Working Day unless the result of such extension
would be to carry such Interest Period into another calendar month
in which event such Interest Period shall end on the immediately
preceding Working Day;
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11
(2) any Interest Period that would otherwise extend beyond the
Revolving Credit Termination Date shall end on the Revolving Credit
Termination Date and any Interest Period with respect to the Term
Loans that would otherwise extend beyond the Maturity Date shall end
on the Maturity Date; and
(3) any Interest Period that begins on the last Working Day of
a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Working Day of a calendar month.
"Interest Rate Protection Agreement": for any Person, an interest
rate swap, cap or collar agreement or similar arrangement between such
Person and a financial institution providing for the transfer or
mitigation of interest risks either generally or under specific
contingencies.
"IPO Event": shall occur on any date after the Securities and
Exchange Commission issues an order declaring effective a registration
statement for the initial public offering of up to 25% of the then
outstanding shares of common stock of Holdings on which Holdings shall
receive Net Cash Proceeds from the sale of such shares of at least
$70,000,000.
"Lenders": as defined in the preamble hereto.
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference,
priority or other security agreement or preferential arrangement or
agreement of any kind or nature whatsoever (including, without limitation,
any conditional sale or other title retention agreement, any Financing
Lease having substantially the same economic effect as any of the
foregoing, and the filing of any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction in respect of any of
the foregoing).
"Loan": any loan made by any Lender pursuant to this Agreement.
"Loan Documents": this Agreement, the Notes, the Culbro Group
Guarantee and the Security Documents.
"Loan Party": at any time, any Person (other than the Administrative
Agent or any Lender) which is a party to any of the Loan Documents then in
effect (or, at any time prior to the Closing Date, any member of the
Holdings Group or the Culbro Group).
"Majority Lenders": at any time prior to satisfaction of the
conditions precedent set forth in subsection 4.1 on the Closing Date,
Lenders having at least 51% of the aggregate Commitments; and, at any time
thereafter, Lenders having total exposure consisting of Term Loans and
Revolving Credit Commitments in an
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12
aggregate amount of more than 50% of an amount equal to the sum of (a) the
aggregate Term Loans then outstanding plus (b) the aggregate Revolving
Credit Commitments then in effect, or, at any time after the termination
or expiration of the Revolving Credit Commitments, Lenders having total
exposure consisting of Term Loans and Revolving Credit Loans in an
aggregate amount of more than 50% of an amount equal to the sum of (x) the
aggregate Term Loans then outstanding plus (y) the aggregate Revolving
Credit Loans then outstanding.
"Majority Revolving Credit Lenders": at any time prior to the
expiration or termination of the Revolving Credit Commitments, Lenders
having an aggregate Revolving Credit Commitment Percentage of more than
50%; or, at any time after the expiration or termination of the Revolving
Credit Commitments, Lenders having total Revolving Credit Loans in an
amount of more than 50% of the aggregate Revolving Credit Loans then
outstanding.
"Majority Term Lenders": at any time prior to the satisfaction of
the conditions precedent set forth in subsection on the Closing Date,
Lenders having more than 50% of the aggregate Term Loan Commitments; and
at any time thereafter, Lenders holding more than 50% of the aggregate
Term Loans then outstanding.
"Material Adverse Effect": a material adverse effect on (a) the
business, operations, property, condition (financial or otherwise) or
prospects of Holdings and its Restricted Subsidiaries taken as a whole,
(b) the ability of any Loan Party to perform its obligations under this
Agreement or any of the other Loan Documents or (c) the validity or
enforceability of this Agreement or any of the other Loan Documents or the
rights or remedies of the Administrative Agent or the Lenders hereunder or
thereunder.
"Material Subsidiary": as to any Person at any time, any Subsidiary
of such Person which is not a Foreign Subsidiary and which shall either
(a) then have assets the aggregate fair market value of which is greater
than $1,000,000 or (b) have had aggregate consolidated revenues greater
than $1,000,000 during the then most recently ended period of four
consecutive fiscal quarters for which financial statements shall have been
delivered to the Lenders pursuant to subsection 5.1.
"Materials of Environmental Concern": any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated
as such in or under any Environmental Law, including, without limitation,
asbestos, polychlorinated biphenyls and urea-formaldehyde insulation.
"Maturity Date": as defined in subsection .
"Merger": the merger of Culbro with or into Holdings that is
proposed to occur approximately 180 days after an IPO Event and that is
described in the S-1.
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13
"Multiemployer Plan": a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Net Cash Proceeds": (a) with respect to the sale of any asset by
Holdings (or, at any time prior to an IPO Event, Culbro) or any of its
Restricted Subsidiaries, an amount certified in reasonable detail by the
Borrower to the Lenders as being equal to (i) the sum of the cash and Cash
Equivalents received in connection with such sale minus (ii) the sum of
(x) the principal amount of any Indebtedness which is secured by any such
asset and which is repaid in connection with the sale thereof, (y) the
reasonable out-of-pocket expenses incurred by Holdings (or, at any time
prior to an IPO Event, Culbro) or such Restricted Subsidiary in connection
with such sale and (z) provision for taxes attributable to such sale (as
estimated by the Borrower in good faith) and (b) with respect to the sale
or issuance of any Capital Stock by Holdings (or, at any time prior to an
IPO Event, Culbro) or any of its Restricted Subsidiaries, an amount
certified in reasonable detail by the Borrower to the Lenders as being
equal to (i) the sum of the cash and Cash Equivalents received in
connection with such sale minus (ii) the reasonable and customary
underwriting discounts and commissions (if any) and other reasonable
out-of-pocket expenses incurred by Holdings or such Restricted Subsidiary
in connection with such sale.
"New Villazon": as defined in the preamble hereto.
"Notes": the collective reference to the Revolving Credit Notes and
the Term Notes.
"Obligations": the collective reference to (a) the unpaid principal
of and interest on the Notes, and all other obligations and liabilities of
the Borrower to the Administrative Agent and the Lenders (including,
without limitation, interest accruing at the then applicable rate provided
herein after the maturity of the Loans and interest accruing at the then
applicable rate provided herein after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to the Borrower whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding),
whether direct or indirect, absolute or contingent, due or to become due,
or now existing or hereafter incurred, which may arise under, out of, or
in connection with, this Agreement, the Notes, the other Loan Documents or
any other document made, delivered or given in connection herewith or
therewith, including, without limitation, any Interest Rate Protection
Agreements entered into with any of the Lenders or any Affiliate thereof,
and (b) all obligations and liabilities of the Borrower or any of its
Restricted Subsidiaries under any letter of credit application or letter
of credit reimbursement agreement entered into with any of the Lenders or
any Affiliate thereof in connection with the issuance by such Lender or
Affiliate of a letter of credit on behalf of the Borrower or such
Restricted Subsidiary, in each case described in clauses (a) and (b) above
whether on account of principal, interest, reimbursement obligations,
fees, indemnities, costs, expenses or otherwise (including, without
limitation, all fees and disbursements of counsel to the
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14
Administrative Agent or to the Lenders that are required to be paid by the
Borrower or the Guarantors pursuant to the terms of this Agreement or any
other Loan Document).
"Park Avenue South Mortgages": the Amended and Restated Mortgage
dated April 21, 1995 between 387 P.A.S. Enterprises and Chase (formerly
Chemical Bank), as Agent, in the principal amount of $5,000,000 and the
Amended and Restated Mortgage dated April 21, 1995 between 387 P.A.S.
Enterprises and Culbro in the principal amount of $7,000,000.
"Participant": as defined in subsection .
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA or any successor thereto.
"Person": an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
limited liability company, Governmental Authority or other entity of
whatever nature.
"Plan": at a particular time, any employee benefit plan which is
covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Pledge Agreement": the Pledge Agreement to be made by Culbro, the
Borrower and Holdings in favor of the Administrative Agent for the ratable
benefit of the Lenders substantially in the form of Exhibit F, as the same
may be amended, supplemented or otherwise modified from time to time.
"Pledged Subsidiary": a Subsidiary of Culbro or Holdings all of the
shares of Capital Stock of which are pledged pursuant to the Pledge
Agreement.
"Prime Rate": as defined in the definition of Alternate Base Rate.
"Pro Forma Balance Sheet": as defined in subsection .
"Purchase Agreements": as defined in the recitals hereto.
"Purchase Price": as defined in the recitals hereto.
"Purchased Business": as defined in the recitals hereto.
"Purchasing Lender": as defined in subsection .
"Register": as defined in subsection .
"Regulation U": Regulation U of the Board as in effect from time to
time.
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15
"Reorganization": with respect to any Multiemployer Plan, the
condition that such Plan is in reorganization within the meaning of
Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section 4043(c)
of ERISA, other than those events as to which the thirty-day notice period
is waived under subsection .13, .14, .16, .18, .19 or .20 of PBGC Reg. ss.
2615.
"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents
of such Person, and any law, treaty, rule or regulation or determination
of an arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Responsible Officer": as to any Person, the chief executive
officer, the president or the chief financial officer of such Person.
"Restricted Payment": any declaration or payment of a dividend
(other than dividends payable solely in common stock of Holdings) on,
making of any payment on account of, or setting apart of assets for a
sinking or other analogous fund for the purchase, redemption, defeasance,
retirement or other acquisition of, any shares of any class of Capital
Stock of Holdings or any warrants or options to purchase any such stock
(other than (a) payments on account of Holdings' Capital Stock made by
Holdings to its management employees subsequent to an IPO Event pursuant
to any of its Plans to the extent that the aggregate amount of such
payments subsequent to the Closing Date does not exceed $750,000 and (b)
acquisitions subsequent to an IPO Event of Capital Stock of Holdings from
the holders of stock options granted pursuant to said Plans in
consideration for the cancellation of such options to the extent that the
aggregate amount paid in respect of such acquisitions does not exceed
$1,000,000), whether now or hereafter outstanding, and any making of any
other distribution in respect thereof, either directly or indirectly,
whether in cash or property or in obligations of Holdings or any
Subsidiary of Holdings.
"Restricted Subsidiaries": as to any Person at any time, the
Subsidiaries of such Person that would then be consolidated with such
Person in accordance with GAAP.
"Revolving Credit Commitment": as to any Lender, the obligation of
such Lender to make Revolving Credit Loans to the Borrower hereunder in an
aggregate principal amount at any one time outstanding not to exceed the
amount set forth opposite such Lender's name on Schedule I, as such amount
may be increased or reduced from time to time in accordance with the
provisions of this Agreement; collectively, as to all the Lenders, the
"Revolving Credit Commitments".
"Revolving Credit Commitment Percentage": as to any Lender at any
time, the percentage of the aggregate Revolving Credit Commitments then
constituted by such Lender's Revolving Credit Commitment.
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16
"Revolving Credit Commitment Period": the period from and including
the date hereof to but not including the Revolving Credit Termination Date
or such earlier date on which the Revolving Credit Commitments shall
terminate as provided herein.
"Revolving Credit Loans": as defined in subsection .
"Revolving Credit Note": as defined in subsection .
"Revolving Credit Termination Date": the date which is the third
anniversary of the Closing Date.
"S-1": the Borrower's Registration Statement under the Securities
Act of 1933, as amended, on Form S-1 with respect to shares of the
Borrower's Class A Common Stock, par value $0.01 per share, as filed with
the Securities and Exchange Commission on December 24, 1996.
"Second Test Period": as defined in subsection 6.1(c).
"Security Documents": the Pledge Agreement and all other security
documents hereafter delivered to the Administrative Agent granting a Lien
on any asset or assets of any Person to secure the Obligations or to
secure any guarantee of the Obligations.
"Seller Notes": as defined in subsection .
"Sellers": the collective reference to Villazon and the Selling
Shareholders.
"Selling Shareholders": as defined in the recitals hereto.
"Single Employer Plan": any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan.
"Stock Acquisition": as defined in the recitals hereto.
"Stockholder Loan Notes": as defined in subsection 4.1(i).
"Stock Purchase Agreement": as defined in the recitals hereto.
"Stock Purchase Price": as defined in the recitals hereto.
"Subsidiary": as to any Person, a corporation, partnership or other
entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly
through one or more intermediaries, or both, by such Person. Unless
otherwise qualified, all
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17
references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall
refer to a Subsidiary or Subsidiaries of Holdings.
"Tax Reimbursement Agreement": the Tax Reimbursement Agreement,
dated January 21, 1997, among the Borrower, Frank Llaneza, Daniel
Blumenthal and John Oliva.
"Term Loan": as defined in subsection .
"Term Loan Commitment": as to any Lender, the obligation of such
Lender to make a Term Loan to the Borrower hereunder on the Closing Date
in a principal amount equal to the amount set forth opposite such Lender's
name on Schedule I; collectively, as to all the Lenders, the "Term Loan
Commitments".
"Term Note": as defined in subsection .
"Third Test Period": as defined in subsection 6.1(c).
"Tranche": the collective reference to Eurodollar Loans the Interest
Periods with respect to all of which begin on the same date and end on the
same later date (whether or not such Eurodollar Loans shall originally
have been made on the same day).
"Transferee": as defined in subsection .
"Type": as to any Loan, its nature as an Alternate Base Rate Loan or
a Eurodollar Loan.
"Villazon": as defined in the recitals hereto.
"Villazon Subsidiary": James B. Russell, Inc., a wholly owned
Subsidiary of Villazon.
"Voting Stock": at a particular date, the Capital Stock of any
corporation having voting power to elect directors under ordinary
circumstances (irrespective of whether on such date Capital Stock of any
other class or classes of Capital Stock of such corporation shall or might
have voting power upon the occurrence of a contingency).
"Wollen Letter": the letter from A. Ross Wollen, General Counsel of
Culbro, to Price Waterhouse LLP, dated December 23, 1996, with respect to
the litigation in which Culbro and its Subsidiaries are involved, a copy
of which is attached hereto as Schedule IX.
"Working Day": any Business Day on which dealings in foreign
currencies and exchange between banks may be carried on in London,
England.
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18
1.2 Other Definitional Provisions. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in the Notes or any certificate or other document made or delivered
pursuant hereto.
(b) As used herein, in the Notes, in the other Loan Documents and in
any certificate or other document made or delivered pursuant hereto or thereto,
accounting terms relating to Culbro and its Subsidiaries or the Borrower and its
Subsidiaries not defined in subsection and accounting terms partly defined in
subsection , to the extent not defined, shall have the respective meanings given
to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
subsection, Schedule and Exhibit references are to this Agreement unless
otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Revolving Credit Commitments. (a) Subject to the terms and
conditions hereof, each Lender severally and not jointly agrees to make
revolving credit loans (the "Revolving Credit Loans") to the Borrower from time
to time during the Revolving Credit Commitment Period in an aggregate principal
amount at any one time outstanding not to exceed the amount of such Lender's
Revolving Credit Commitment. During the Revolving Credit Commitment Period the
Borrower may use the Revolving Credit Commitments by borrowing, prepaying the
Revolving Credit Loans in whole or in part, and reborrowing, all in accordance
with the terms and conditions hereof.
(b) The Revolving Credit Loans may from time to time be (i)
Eurodollar Loans, (ii) Alternate Base Rate Loans or (iii) a combination thereof,
as determined by the Borrower and notified to the Administrative Agent in
accordance with subsections and , provided that no Revolving Credit Loan shall
be made or continued as, or converted into, a Eurodollar Loan after the day that
is one month prior to the Revolving Credit Termination Date.
2.2 Revolving Credit Notes. The Revolving Credit Loans made by each
Lender shall be evidenced by a promissory note of the Borrower, substantially in
the form of Exhibit A-1 with appropriate insertions as to payee, date and
principal amount (a "Revolving Credit Note"), payable to the order of such
Lender and in a principal amount equal to the lesser of (a) the amount of the
initial Revolving Credit Commitment of such Lender (subject to subsection ) and
(b) the aggregate unpaid principal amount of all Revolving Credit Loans made by
such Lender. Each Lender is hereby authorized to record the date, Type and
amount of each Revolving Credit Loan made by such Lender, each continuation
thereof, each conversion of all or a portion thereof to another Type, the date
and amount of each payment
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19
or prepayment of principal thereof and, in the case of Eurodollar Loans, the
length of each Interest Period with respect thereto, on the schedule annexed to
and constituting a part of its Revolving Credit Note, and any such recordation
shall constitute prima facie evidence of the accuracy of the information so
recorded; provided, that the failure of any Lender to make any such recordation
or any error in any such recordation shall not affect the obligations of the
Borrower hereunder or under such Note. Each Revolving Credit Note shall (x) be
dated the Closing Date, (y) be stated to mature on the Revolving Credit
Termination Date and (z) provide for the payment of interest in accordance with
subsection .
2.3 Procedure for Revolving Credit Borrowing. The Borrower may
borrow under the Revolving Credit Commitments during the Revolving Credit
Commitment Period on any Working Day, if all or any part of the requested
Revolving Credit Loans are to be initially Eurodollar Loans, or on any Business
Day, otherwise, provided that the Borrower shall give the Administrative Agent
and the Lenders irrevocable notice (which notice must be received by the
Administrative Agent prior to 11:00 A.M., New York City time, (a) three Working
Days prior to the requested Borrowing Date, if all or any part of the requested
Revolving Credit Loans are to be initially Eurodollar Loans, or (b) one Business
Day prior to the requested Borrowing Date, otherwise), specifying (i) the amount
to be borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing
is to be of Eurodollar Loans, Alternate Base Rate Loans or a combination thereof
and (iv) if the borrowing is to be entirely or partly of Eurodollar Loans, the
respective amounts of each such Type of Loan and the respective lengths of the
initial Interest Periods therefor. Each borrowing under the Revolving Credit
Commitments shall be in an amount equal to (x) in the case of Alternate Base
Rate Loans, $1,000,000 or a whole multiple of $1,000,000 in excess thereof (or,
if the then Available Revolving Credit Commitments are less than $1,000,000,
such lesser amount) and (y) in the case of Eurodollar Loans, $5,000,000 or a
whole multiple of $1,000,000 in excess thereof. Each Lender will make the amount
of its pro rata share of each borrowing available to the Administrative Agent
for the account of the Borrower at the office of the Administrative Agent
specified in subsection prior to 1:00 P.M., New York City time, on the Borrowing
Date requested by the Borrower in funds immediately available to the
Administrative Agent. Subject to the satisfaction of the conditions precedent
set forth in Section 4, such borrowing will then be made available to the
Borrower by the Administrative Agent crediting the account of the Borrower on
the books of such office with the aggregate of the amounts made available to the
Administrative Agent by the Lenders and in like funds as received by the
Administrative Agent.
2.4 Fees. (a) The Borrower agrees to pay to the Administrative Agent
for the account of each Lender a commitment fee (the "Commitment Fee") for the
period from and including the first day of the Revolving Credit Commitment
Period to the Revolving Credit Termination Date, computed on the average daily
amount of the Available Revolving Credit Commitment of such Lender during the
period for which payment is made (a) prior to an IPO Event, at the rate of 3/8
of 1% per annum and (b) following an IPO Event, at the rate of 1/4 of 1% per
annum, in each case payable quarterly in arrears on the last day of each March,
June, September and December, commencing on the last day of March, 1997, and on
the Revolving Credit Termination Date or such earlier date as the Revolving
Credit Commitments
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20
shall terminate as provided herein, commencing on the first of such dates to
occur after the date hereof.
(b) The Borrower agrees to pay to the Administrative Agent, for its
sole account and not for distribution to the Lenders, the fees specified in the
fee letter from the Administrative Agent to the Borrower on the dates specified
therein.
2.5 Termination or Reduction of Revolving Credit Commitments. (a)
The Borrower shall have the right, upon not less than three Business Days'
notice to the Administrative Agent and the Lenders, to terminate the Revolving
Credit Commitments or, from time to time, to reduce the amount of the Revolving
Credit Commitments, provided that no such termination or reduction shall be
permitted if, after giving effect thereto and to any prepayments of the
Revolving Credit Loans made on the effective date thereof, the aggregate
principal amount of the Revolving Credit Loans then outstanding would exceed the
Revolving Credit Commitments then in effect. Any such reduction shall be in an
amount equal to $2,000,000 or a whole multiple of $500,000 in excess thereof and
shall reduce permanently the Revolving Credit Commitments then in effect.
(b) The Revolving Credit Commitments shall be reduced automatically
on the dates and in the amounts specified in subsection if and to the extent
required by such subsection.
(c) Any reduction of the Revolving Credit Commitments pursuant to
this subsection shall reduce permanently the Revolving Credit Commitments then
in effect.
2.6 Term Loans. Subject to the terms and conditions hereof, each
Lender severally agrees to make a term loan (a "Term Loan") to the Borrower on
the Closing Date in the amount of its Term Loan Commitment. The Term Loans may
from time to time be (a) Eurodollar Loans, (b) Alternate Base Rate Loans or (c)
a combination thereof, as determined by the Borrower and notified to the
Administrative Agent in accordance with subsections and 2.10.
2.7 Term Notes. The Term Loan made by each Lender shall be evidenced
by a promissory note of the Borrower, substantially in the form of Exhibit A-2
(a "Term Note"), with appropriate insertions therein as to payee, date and
principal amount, payable to the order of such Lender and in a principal amount
equal to the Term Loan of such Lender. The Term Note of each Lender shall (a) be
dated the Closing Date; (b) be stated to mature on the date which is 364 days
after the Closing Date (the "Maturity Date"); and (c) provide for the payment of
interest in accordance with subsection .
2.8 Procedure for Term Loan Borrowing. The Borrower may borrow under
the Term Loan Commitments on the Closing Date, provided that, if the Term Loans
are to be initially Eurodollar Loans, the Closing Date must be a Working Day
and, if the Term Loans are to be initially Alternate Base Rate Loans, the
Closing Date must be a Business Day and provided, further, that the Borrower
shall give the Administrative Agent irrevocable notice (which notice must be
received by the Administrative Agent prior to 11:00 A.M., New York
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21
City time, (a) three Working Days prior to the Requested Borrowing Date, if the
Term Loans are to be initially Eurodollar Loans, or (b) one Business Day prior
to the requested Borrowing Date, otherwise), specifying the Closing Date and
whether the Term Loans are to be initially Eurodollar Loans or Alternate Base
Rate Loans and requesting that the Lenders make the Term Loans on such date.
Upon receipt of such notice the Administrative Agent shall promptly notify each
Lender thereof. Not later than 11:00 A.M. on the Closing Date each Lender shall
make available to the Administrative Agent at its office specified in subsection
the amount of such Lender's Term Loan in immediately available funds. Subject
to the satisfaction of the conditions precedent set forth in Section 4, the
Administrative Agent on such date shall credit the account of the Borrower on
the books of such office of the Administrative Agent with the aggregate of the
amounts made available to the Administrative Agent by the Lenders and in like
funds as received by the Administrative Agent.
2.9 Optional and Mandatory Prepayments. (a) The Borrower may on the
last day of any Interest Period with respect thereto, in the case of Eurodollar
Loans, or at any time and from time to time, in the case of Alternate Base Rate
Loans, prepay the Loans, in whole or in part, without premium or penalty, upon
at least four Business Days' prior irrevocable notice to the Administrative
Agent, specifying the date and amount of prepayment and whether the prepayment
is of Eurodollar Loans, Alternate Base Rate Loans or a combination thereof, and,
if of a combination thereof, the amount allocable to each. Upon receipt of any
such notice the Administrative Agent shall promptly notify each Lender thereof.
If any such notice is given, the amount specified in such notice shall be due
and payable on the date specified therein. Partial prepayments shall be in an
aggregate principal amount of $1,000,000 or a whole multiple thereof.
(b) (i) If any Loan Party or any of its Subsidiaries shall sell,
lease, assign, exchange or otherwise dispose of (including as a result of
casualty or condemnation) any of its assets in accordance with subsection 6.6(b)
or (e) or, prior to an IPO Event, subsection 5.6(b) or (e) of the Culbro Group
Guarantee, on the date on which the Net Cash Proceeds thereof are received by
such Loan Party or such Subsidiary, as the case may be, an amount equal to 100%
of such Net Cash Proceeds shall be applied to the prepayment of the Loans and to
the permanent reduction of the Revolving Credit Commitments in accordance with
paragraph (iv) below.
(ii) If any Loan Party or any of its Subsidiaries shall sell or
issue any class of its Capital Stock after the Closing Date, on the date on
which the Net Cash Proceeds thereof are received by such Loan Party or such
Subsidiary, as the case may be, an amount equal to 100% of such Net Cash
Proceeds shall be applied to the prepayment of the Loans and to the permanent
reduction of the Revolving Credit Commitments in accordance with paragraph (iv)
below, provided that no reduction of the Revolving Credit Commitments to an
amount less than $50,000,000 shall be required pursuant to this subsection and,
provided, further, that the Term Loans shall be paid in full upon the occurrence
of an IPO Event.
(iii) If, after the Closing Date, any reduction in the Purchase
Price is required pursuant to Section 1.6 of the Asset Purchase Agreement or
Section 1.4 of the Stock Purchase Agreement, on the date on which the Borrower
receives any payment in respect of such
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22
reduction an amount equal to 100% of the cash proceeds thereof shall be applied
to the prepayment of the Loans and to the permanent reduction of the Revolving
Credit Commitments in accordance with paragraph (iv) below, provided that no
such prepayment or reduction of the Revolving Credit Commitments shall be
required except to the extent that the aggregate amount of such Purchase Price
reduction exceeds $500,000.
(iv) Prepayments on account of the Loans and reductions in the
Revolving Credit Commitments made pursuant to paragraphs (i), (ii) and (iii) of
this subsection shall be applied first, to the Term Loans, and second, to the
permanent reduction of the Revolving Credit Commitments then in effect. If,
after giving effect to any such reduction in the Revolving Credit Commitments,
the aggregate then outstanding principal amount of the Revolving Credit Loans
shall exceed the aggregate amount of the Revolving Credit Commitments of all the
Lenders as so reduced, the Borrower shall prepay the Revolving Credit Loans to
the extent of such excess.
(c) Each prepayment of the Loans pursuant to this subsection shall
be made together with any amounts payable pursuant to subsection and, in the
case of the Term Loans, accrued interest to the date of prepayment on the amount
prepaid. Amounts prepaid on account of the Term Loans may not be reborrowed.
2.10 Conversion and Continuation Options. (a) The Borrower may elect
from time to time to convert Eurodollar Loans to Alternate Base Rate Loans by
giving the Administrative Agent at least two Business Days' prior irrevocable
notice of such election, provided that any such conversion of Eurodollar Loans
may only be made on the last day of an Interest Period with respect thereto. The
Borrower may elect from time to time to convert Alternate Base Rate Loans to
Eurodollar Loans by giving the Administrative Agent at least three Working Days'
prior irrevocable notice of such election. Any such notice of conversion to
Eurodollar Loans shall specify the length of the initial Interest Period or
Interest Periods therefor. Upon receipt of any such notice the Administrative
Agent shall promptly notify each Lender thereof. All or any part of outstanding
Eurodollar Loans and Alternate Base Rate Loans may be converted as provided
herein, provided that (i) no Alternate Base Rate Loan may be converted into a
Eurodollar Loan when any Default or Event of Default has occurred and is
continuing and the Majority Lenders have determined in their sole discretion
that such a conversion is not appropriate, (ii) any such conversion may only be
made if, after giving effect thereto, subsection shall not have been contravened
and (iii) no Alternate Base Rate Loan may be converted into a Eurodollar Loan
after the date that is one month prior to the Revolving Credit Termination Date
(in the case of a conversion of Revolving Credit Loans) or the Maturity Date (in
the case of a conversion of Term Loans).
(b) Any Eurodollar Loans may be continued as such upon the
expiration of the then current Interest Period with respect thereto by the
Borrower giving notice to the Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in subsection , of
the length of the next Interest Period to be applicable to such Loans, provided
that no Eurodollar Loan may be continued as such (i) when any Default or Event
of Default has occurred and is continuing and the Majority Lenders have
determined in their sole discretion that such a continuation is not appropriate,
(ii) if, after giving effect
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23
thereto, subsection would be contravened or (iii) after the date that is one
month prior to the Revolving Credit Termination Date (in the case of a
conversion of Revolving Credit Loans) or the Maturity Date (in the case of a
conversion of Term Loans), and provided, further, that if the Borrower shall
fail to give any required notice as described above in this paragraph or if such
continuation is not permitted pursuant to clause (i) above such Eurodollar Loans
shall be automatically converted to Alternate Base Rate Loans on the last day of
such then expiring Interest Period. Upon receipt of any such notice the
Administrative Agent shall promptly notify each Lender thereof.
2.11 Minimum Amounts and Maximum Number of Tranches. All borrowings,
conversions and continuations of Eurodollar Loans hereunder and all selections
of Interest Periods hereunder shall be in such amounts and be made pursuant to
such elections so that, after giving effect thereto, the aggregate principal
amount of the Eurodollar Loans comprising each Tranche shall be equal to
$5,000,000 or a whole multiple of $1,000,000 in excess thereof. No more than ten
Tranches may be outstanding at any time.
2.12 Interest Rates and Payment Dates. (a) Each Eurodollar Loan
shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such day
plus the Applicable Margin.
(b) Each Alternate Base Rate Loan shall bear interest at a rate per
annum equal to the Alternate Base Rate plus the Applicable Margin.
(c) If all or a portion of (i) the principal amount of any Loan,
(ii) any interest payable thereon or (iii) any fees or other amounts owing under
this Agreement or any other Loan Document shall not be paid when due (whether at
the stated maturity, by acceleration or otherwise), such overdue amount shall
bear interest at a rate per annum which is the higher of (x) 2% per annum plus
the rate that would otherwise be applicable thereto pursuant to the foregoing
provisions of this subsection or (y) 2% per annum plus the Alternate Base Rate,
in each case from the date of such non-payment until such amount is paid in full
(as well after as before judgment).
(d) Interest shall be payable in arrears on each Interest Payment
Date and on each date principal is due, provided that interest accruing pursuant
to paragraph (c) of this subsection shall be payable on demand.
2.13 Computation of Interest and Fees. (a) Interest on Alternate
Base Rate Loans and Commitment Fees shall be calculated on the basis of a
360-day year for the actual days elapsed, provided that Interest on Alternate
Base Rate Loans the interest payable on which is then based on the Prime Rate
shall be calculated on the basis of a 365- (or 366-, as the case may be) day
year for the actual days elapsed. Interest on Eurodollar Loans shall be
calculated on the basis of a 360-day year for the actual days elapsed. The
Administrative Agent shall as soon as practicable notify the Borrower and the
Lenders of each determination of a Eurodollar Rate. Any change in the interest
rate on a Loan resulting from a change in the Alternate Base Rate or the
Eurocurrency Reserve Requirements shall become effective as of the opening of
business on the day on which such change in the Alternate Base Rate is
<PAGE>
24
announced or such change in the Eurocurrency Reserve Requirements becomes
effective, as the case may be. The Administrative Agent shall as soon as
practicable notify the Borrower and the Lenders of the effective date and the
amount of each such change in interest rate.
(b) Each determination of an interest rate by the Administrative
Agent pursuant to any provision of this Agreement shall be conclusive and
binding on the Borrower and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Borrower, deliver to the
Borrower a statement showing the quotations used by the Administrative Agent in
determining any interest rate pursuant to subsection .
2.14 Inability to Determine Interest Rate. In the event that prior
to the first day of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that, by
reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for
such Interest Period, or
(b) the Administrative Agent shall have received notice from any
Lender that the Eurodollar Rate determined or to be determined for such
Interest Period will not adequately and fairly reflect the cost to such
Lender (as conclusively certified by such Lender) of making or maintaining
its affected Loans during such Interest Period,
the Administrative Agent shall give telex, telecopy or telephonic notice thereof
to the Borrower and the Lenders as soon as practicable thereafter. If such
notice is given (x) any Eurodollar Loans requested to be made on the first day
of such Interest Period shall be made as Alternate Base Rate Loans, (y) any
Alternate Base Rate Loans that were to have been converted on the first day of
such Interest Period to Eurodollar Loans shall be continued as Alternate Base
Rate Loans and (z) any outstanding Eurodollar Loans shall be converted, on the
first day of such Interest Period, to Alternate Base Rate Loans. Until such
notice has been withdrawn by the Administrative Agent, no further Eurodollar
Loans shall be made or continued as such, nor shall the Borrower have the right
to convert Alternate Base Rate Loans to Eurodollar Loans.
2.15 Pro Rata Treatment and Payments. (a) Each borrowing of
Revolving Credit Loans by the Borrower from the Lenders hereunder, each payment
by the Borrower on account of any Commitment Fee hereunder and any reduction of
the Revolving Credit Commitments of the Lenders shall be made pro rata according
to the respective Revolving Credit Commitment Percentages of the Lenders.
Subject to the provisions of subsection , each payment (including each
prepayment) by the Borrower on account of principal of and interest on (i) the
Revolving Credit Loans shall be made pro rata according to the respective
outstanding principal amounts of the Revolving Credit Loans then held by the
Lenders and (ii) the Term Loans shall be made pro rata according to the
respective outstanding principal amounts of the Term Loans then held by the
Lenders. All payments (including prepayments) to be made by the Borrower
hereunder and under the Notes, whether on account of principal, interest, fees
or otherwise, shall be made without set-off or counterclaim and shall be made
<PAGE>
25
prior to 12:00 Noon, New York City time, on the due date thereof to the
Administrative Agent, for the account of the Lenders, at the Administrative
Agent's office specified in subsection , in Dollars and in immediately available
funds. The Administrative Agent shall distribute such payments to the Lenders
promptly upon receipt in like funds as received. If any payment hereunder (other
than payments on the Eurodollar Loans) becomes due and payable on a day other
than a Business Day, such payment shall be extended to the next succeeding
Business Day, and, with respect to payments of principal, interest thereon shall
be payable at the then applicable rate during such extension. If any payment on
a Eurodollar Loan becomes due and payable on a day other than a Working Day, the
maturity thereof shall be extended to the next succeeding Working Day (and, with
respect to payments of principal, interest thereon shall be payable at the then
applicable rate during such extension) unless the result of such extension would
be to extend such payment into another calendar month, in which event such
payment shall be made on the immediately preceding Working Day.
(b) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a Borrowing Date that such Lender will not make
the amount that would constitute its share of the borrowing on such Borrowing
Date available to the Administrative Agent, the Administrative Agent may assume
that such Lender is making such amount available to the Administrative Agent on
such Borrowing Date, and the Administrative Agent may, in reliance upon such
assumption, make available to the Borrower a corresponding amount. If such
amount is not made available to the Administrative Agent by the required time on
the Borrowing Date therefor, such Lender shall pay to the Administrative Agent,
on demand, such amount with interest in an amount equal to the product of (i)
the daily average Federal Funds Effective Rate during such period as quoted by
the Administrative Agent, times (ii) the amount of such Lender's share of such
borrowing, times (iii) a fraction the numerator of which is the number of days
that elapse from and including such Borrowing Date to the date on which such
Lender's share of such borrowing shall have become immediately available to the
Administrative Agent and the denominator of which is 360. A certificate of the
Administrative Agent submitted to any Lender with respect to any amounts owing
under this subsection shall be conclusive in the absence of manifest error. If
such Lender's share of such borrowing is not made available to the
Administrative Agent by such Lender within three Business Days of such Borrowing
Date, the Administrative Agent shall also be entitled to recover such amount,
together with interest thereon at the rate per annum applicable to Alternate
Base Rate Loans hereunder, from the Borrower on the Business Day following the
date upon which the Administrative Agent demands payment of such amount.
2.16 Illegality. Notwithstanding any other provision herein, if the
adoption of or any change in any Requirement of Law or in the interpretation or
application thereof shall make it unlawful for any Lender to make or maintain
Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such
Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and
convert Alternate Base Loans to Eurodollar Loans shall forthwith be cancelled
and (b) such Lender's Loans then outstanding as Eurodollar Loans, if any, shall
be converted automatically to Alternate Base Rate Loans on the respective last
days of the then current Interest Periods with respect to such Eurodollar Loans
or within such earlier period as required by law. If any such conversion of a
Eurodollar Loan occurs on a day which is not the last day of the then current
Interest Period with respect thereto, the
<PAGE>
26
Borrower shall pay to such Lender such amounts, if any, as may be required
pursuant to subsection .
2.17 Requirements of Law. (a) In the event that the adoption of or
any change in any Requirement of Law or in the interpretation or application
thereof or compliance by any Lender with any request or directive (whether or
not having the force of law) from any central bank or other Governmental
Authority made subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever with
respect to this Agreement, any Note or any Eurodollar Loan made by it, or
change the basis of taxation of payments to such Lender in respect thereof
(except for taxes covered by subsection and changes in the rate of tax on
the overall net income of such Lender);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the Eurodollar Rate hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or to reduce any amount receivable
hereunder in respect thereof then, in any such case, the Borrower shall promptly
pay such Lender, upon its demand, any additional amounts necessary to compensate
such Lender for such increased cost or reduced amount receivable. If any Lender
becomes entitled to claim any additional amounts pursuant to this subsection, it
shall promptly notify the Borrower, through the Administrative Agent, of the
event by reason of which it has become so entitled. A certificate as to any
additional amounts payable pursuant to this subsection submitted by such Lender,
through the Administrative Agent, to the Borrower shall be conclusive in the
absence of manifest error. This covenant shall survive the termination of this
Agreement and the payment of the Notes and all other amounts payable hereunder.
(b) In the event that any Lender shall have determined that the
adoption of or any change in any Requirement of Law regarding capital adequacy
or in the interpretation or application thereof or compliance by such Lender or
any corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof does or shall have the effect of
reducing the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder to a level below that which such Lender
or such corporation could have achieved but for such change or compliance
(taking into consideration such Lender's or such corporation's policies with
respect to capital adequacy) by an amount deemed by such Lender to be material,
then from time to time, after submission by such
<PAGE>
27
Lender to the Borrower (with a copy to the Administrative Agent) of a written
request therefor, the Borrower shall pay to such Lender such additional amount
or amounts as will compensate such Lender or the corporation controlling such
Lender, as the case may be, for such reduction. A certificate as to any
additional amounts payable pursuant to this subsection
submitted by such Lender, through the Administrative Agent, to the Borrower
shall be conclusive in the absence of manifest error. This covenant shall
survive the termination of this Agreement and the payment of the Notes and all
other amounts payable hereunder.
2.18 Taxes. (a) All payments made by the Borrower under this
Agreement and the Notes shall be made free and clear of, and without reduction
or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or withholdings,
now or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding, in the case of the Administrative Agent and
each Lender, net income taxes and franchise taxes based upon net income imposed
on the Administrative Agent or such Lender, as the case may be, by the
jurisdiction under the laws of which it is organized or in which is located any
office from or at which such Lender is making or maintaining its Loans, or any
political subdivision or taxing authority thereof or therein (all such
non-excluded taxes, levies, imposts, duties, charges, fees, deductions and
withholdings being hereinafter called "Taxes"). If any Taxes are required to be
withheld from any amounts payable to the Administrative Agent or any Lender
hereunder or under the Notes, the amounts so payable to the Administrative Agent
or such Lender shall be increased to the extent necessary to yield to the
Administrative Agent or such Lender (after payment of all Taxes) interest or any
such other amounts payable hereunder at the rates or in the amounts specified in
this Agreement and the Notes. Whenever any Taxes are payable by the Borrower, as
promptly as possible thereafter the Borrower shall send to the Administrative
Agent for its own account or for the account of such Lender, as the case may be,
a certified copy of an original official receipt received by the Borrower
showing payment thereof. If the Borrower fails to pay any Taxes when due to the
appropriate taxing authority or fails to remit to the Administrative Agent the
required receipts or other required documentary evidence, the Borrower shall
indemnify the Administrative Agent and the Lenders for any incremental taxes,
interest or penalties that may become payable by the Administrative Agent or any
Lender as a result of any such failure. The agreements in this subsection shall
survive the termination of this Agreement and the payment of the Notes and all
other amounts payable hereunder.
(b) Each Lender that is not incorporated under the laws of the
United States of America or a state thereof shall deliver to the Borrower and
the Administrative Agent (i) two duly completed copies of United States Internal
Revenue Service Form 1001 or 4224 or successor applicable form, as the case may
be, and (ii) an Internal Revenue Service Form W-8 or W-9 or successor applicable
form, as the case may be. Each such Lender also agrees to deliver to the
Borrower and the Administrative Agent two further copies of the said Form 1001
or 4224 and Form W-8 or W-9, or successor applicable forms or other manner of
certification, as the case may be, on or before the date that any such form or
certification expires or becomes obsolete and after the occurrence of any event
requiring a change in the most recent form previously delivered by it to the
Borrower, and such extensions or renewals thereof as may reasonably be requested
by the Borrower or the Administrative Agent. Such
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28
Lender shall certify (i) in the case of a Form 1001 or 4224, that it is entitled
to receive payments under this Agreement without deduction or withholding of any
United States federal income taxes, unless in any such case an event (including,
without limitation, any change in treaty, law or regulation) has occurred prior
to the date on which any such delivery would otherwise be required which renders
all such forms inapplicable or which would prevent such Lender from duly
completing and delivering any such form with respect to it and such Lender
advises the Borrower that it is not capable of so receiving payments without any
deduction or withholding, and (ii) in the case of a Form W-8 or W-9, that it is
entitled to an exemption from United States backup withholding tax.
2.19 Indemnity. The Borrower agrees to indemnify each Lender and to
hold each Lender harmless from any loss or expense which such Lender may sustain
or incur as a consequence of the following events: (a) default by the Borrower
in payment when due of the principal amount of or interest on any Eurodollar
Loan, (b) default by the Borrower in making a borrowing of, conversion into or
continuation of Eurodollar Loans after the Borrower has given a notice
requesting the same in accordance with the provisions of this Agreement, (c)
default by the Borrower in making any prepayment after the Borrower has given a
notice thereof in accordance with the provisions of this Agreement and (d) the
making of a prepayment of Eurodollar Loans or a conversion of Eurodollar Loans
to Alternate Base Rate Loans on a day which is not the last day of an Interest
Period with respect thereto. Such indemnification shall include, without
limitation, an amount equal to the excess, if any, of (i) the amount of interest
which would have accrued on the amount so paid or prepaid, or not so borrowed,
converted or continued, for the period from the date of such payment or
prepayment or of such failure to borrow, convert or continue to the last day of
such Interest Period (or, in the case of a failure to borrow, convert or
continue, the Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such Loans provided
for herein over (ii) the amount of interest (as reasonably determined by such
Lender) which would have accrued to such Lender on such amount by reemploying
such amount in United States Treasury obligations with comparable maturities for
comparable periods. A certificate as to any amounts payable pursuant to this
subsection submitted by such Lender through the Administrative Agent, to the
Borrower shall be conclusive in the absence of manifest error. This covenant
shall survive the termination of this Agreement and the payment of the Notes and
all other amounts payable hereunder.
SECTION 3. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into
this Agreement and to make the Loans, Holdings hereby represents and warrants to
the Administrative Agent and each Lender that:
3.1 Financial Condition. (a) Each of (i) the audited combined
balance sheets of Holdings as at December 2, 1995 and December 3, 1994 and the
related audited combined statements of operations and of cash flows for the
fiscal years ended on December 2, 1995, December 3, 1994 and November 27, 1993
(said financial statements having been audited by
<PAGE>
29
Price Waterhouse LLP), copies of which have heretofore been furnished to each
Lender, are complete and correct and present fairly the combined financial
condition of Holdings as at such dates, and the combined results of its
operations and its combined cash flows for the fiscal periods then ended. All
such financial statements, including the related schedules and notes thereto,
have been prepared in accordance with GAAP applied consistently throughout the
periods involved (except as approved by such accountants, and as disclosed
therein). Neither Holdings nor any of its Subsidiaries had, at the date of the
balance sheets referred to above, any material Guarantee Obligation, contingent
liability or liability for taxes, or any long-term lease or unusual forward or
long-term commitment, including, without limitation, any interest rate or
foreign currency swap or exchange transaction, which is not reflected in the
foregoing statements or in the notes thereto. During the period from December 2,
1995 to and including the date hereof there has been no sale, transfer or other
disposition by Holdings or any of its Subsidiaries of any material part of its
business or property, and, except for the Asset Transfers, the assumption of the
Assumed Liabilities and the Acquisition, no purchase or other acquisition of any
business or property (including any Capital Stock of any other Person) material
in relation to the combined financial condition of Holdings and its
Subsidiaries, taken as a whole, at December 2, 1995.
(b) The Borrower has furnished to the Administrative Agent and the
Lenders the audited consolidated balance sheets of Villazon and Villazon
Subsidiary as at October 31, 1996 and December 31, 1995 and the related audited
consolidated statements of income, of changes in stockholders' equity and of
cash flows for the fiscal years ended December 31, 1995 and 1994 and the ten
months ended October 31, 1996 (said consolidated financial statements having
been audited by Price Waterhouse LLP). Such financial statements are complete
and correct and present fairly the consolidated financial condition of Villazon
and Villazon Subsidiary and the results of its operations, its retained earnings
and its cash flows for each of the fiscal periods then ended. All such financial
statements, including the related schedules and notes thereto, have been
prepared in accordance with GAAP applied consistently throughout the periods
involved (except as approved by such accountants and as disclosed therein). As
of the Closing Date, no material Guarantee Obligation, contingent liability or
liability for taxes, or any long-term lease or unusual forward or long-term
commitment, including, without limitation, any interest rate or foreign currency
swap or exchange transaction exists with respect to Villazon and Villazon
Subsidiary, which is not reflected in the foregoing financial statements. Since
October 31, 1996, there has been no change in the Purchased Business which could
reasonably be expected to have a Material Adverse Effect.
(c) The Borrower has furnished to the Administrative Agent and the
Lenders the balance sheet of Villazon Subsidiary as at October 31, 1996 and the
related statement of operations for the ten months ended October 31, 1996. Such
financial statements are complete and correct in all material respects and
present fairly, when read in conjunction with the financial statements referred
to in subsection 3.1(b), the financial condition of Villazon Subsidiary's
business and the results of its operations for the fiscal period then ended. All
such financial statements have been prepared in substantial conformance with
GAAP (other than the omission of footnotes and schedules and subject to normal
year-end audit adjustments). Since October 31, 1996, there has been no change in
Villazon Subsidiary's
<PAGE>
30
business which could reasonably be expected to have a Material Adverse Effect.
The assets and liabilities included on the balance sheet referred to in this
subsection 3.1(c) represent the only material assets and liabilities of Villazon
and Villazon Subsidiary that shall not be included in the Purchased Business to
be transferred to the Borrower upon consummation of the Acquisition.
(d) The Borrower has furnished to the Administrative Agent and the
Lenders the audited balance sheets of HATSA as at October 31, 1996 and December
31, 1995 and the related audited statements of operations and retained earnings
and of cash flows for the fiscal years ended December 31, 1995 and 1994 and the
ten months ended October 31, 1996 (said financial statements having been audited
by Price Waterhouse). Such financial statements are complete and correct and
present fairly the financial condition of HATSA and the results of its
operations, its retained earnings and its cash flows for each of the fiscal
periods then ended. All such financial statements, including the related
schedules and notes thereto, have been prepared in accordance with GAAP applied
consistently throughout in the periods involved (except as approved by such
accountants and as disclosed therein). As of the Closing Date, no material
Guarantee Obligation, contingent liability or liability for taxes, or any
long-term lease or unusual forward or long-term commitment, including, without
limitation, any interest rate or foreign currency swap or exchange transaction
exists with respect to HATSA, which is not reflected in the foregoing financial
statements. Since October 31, 1996, there has been no change in HATSA's Business
which could reasonably be expected to have a Material Adverse Effect.
(e) The unaudited pro forma combined balance sheet of Holdings and
its consolidated Subsidiaries (pro forma for the Villazon Acquisition) as of
August 31, 1996 (the "Pro Forma Balance Sheet"), contained in the S-1 (copies of
which have heretofore been furnished to each Lender), presents fairly in
substantial conformance with GAAP applied on a consistent basis the pro forma
consolidated financial position of Holdings and its Subsidiaries as of August
31, 1996 after giving effect to (i) the consummation of the Acquisition and each
of the transactions contemplated by the Purchase Agreements, (ii) the initial
borrowings hereunder, (iii) the consummation of the Asset Transfers and the
Acquisition, (iv) the assumption of the Assumed Liabilities and (v) the fees,
expenses and financing costs related to the Acquisition. The Pro Forma Balance
Sheet was prepared based on good faith estimates and assumptions believed by the
Borrower to be reasonable at the time made and presents fairly on a pro forma
basis the consolidated financial position of Holdings and its Subsidiaries as at
such date, assuming that the events specified in the preceding sentence had
occurred on such date.
(f) As of the Closing Date, after giving effect to the Acquisition,
neither Holdings nor any of its Subsidiaries will have any material liability or
obligation of any nature, absolute, accrued, contingent or otherwise, or any
material judgment or long-term lease or forward or long-term commitment,
including, without limitation, any interest rate or foreign currency swap or
exchange transaction, which is not reflected in the Pro Forma Balance Sheet or
in the notes thereto (other than those which are incurred in the ordinary course
of business of Holdings or its Restricted Subsidiaries and which are not
prohibited by the provisions of this Agreement or any other Loan Document).
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(g) As of the Closing Date and after giving effect to the
Acquisition and to all Indebtedness (including the Loans and the guarantees
herein) being incurred and Liens created by the Loan Parties in connection
therewith, (i) the amount of the present fair saleable value of the assets of
the members of the Holdings Loan Party Group, taken as a whole, will, as of such
date, exceed the amount of all liabilities of the members of the Holdings Loan
Party Group, taken as a whole, contingent or otherwise; (ii) the present fair
saleable value of the assets of the members of the Holdings Loan Party Group,
taken as a whole, will, as of such date, be greater than the amount that will be
required to pay such members' liabilities on their debts as such debts become
absolute and matured; (iii) the Holdings Loan Party Group, taken as a whole,
will not have, as of such date, an unreasonably small amount of capital with
which to conduct its business as now and as presently proposed to be conducted;
and (iv) the members of the Holdings Loan Party Group, taken as a whole, will be
able to pay their debts as they mature. For purposes of this subsection , (i)
"debt" means "liability on a claim" and (ii) "claim" means (A) right to payment,
whether or not such a right is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable,
secured, or unsecured; or (B) right to an equitable remedy for breach of
performance if such breach gives rise to a right to payment, whether or not such
right to an equitable remedy is reduced to judgment, fixed, contingent, matured,
unmatured, disputed, undisputed, secured, or unsecured.
(h) Holdings was formed on December 12, 1996; from such date to and
including the date hereof it has engaged in no business or operations other than
the holding of shares of the Capital Stock of the Borrower, 387, Club and
Aircraft Subsidiary; and on the date hereof it has no material obligations and
liabilities other than its obligations hereunder. Holdings is the record and
beneficial owner of all the shares of the issued and outstanding Capital Stock
of the Borrower, 387, Club and Aircraft Subsidiary. The Borrower is the record
and beneficial owner of all the shares of the issued and outstanding Capital
Stock of New Villazon and HATSA other than the HATSA Shares owned by Edgar M.
Cullman, Jr., Jay M. Green, Austin T. McNamara and A. Ross Wollen, which
constitute in the aggregate less than 1% of the issued and outstanding shares of
Capital Stock of HATSA as of the Closing Date.
3.2 No Change. Since December 2, 1995 there has been no change, and
no development or event involving a prospective change, which has had or could
reasonably be expected to have a Material Adverse Effect, and, except for the
treasury activities described on page F-10 of the S-1 under "Treasury", during
the period from December 2, 1995 to and including the date hereof Holdings and
its Subsidiaries have made no Restricted Payments.
3.3 Corporate Existence; Compliance with Law. Each of Holdings and
its Subsidiaries (a) is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, (b) has the corporate
power and authority, and the legal right, to own and operate its property, to
lease the property it operates as lessee and to conduct the business in which it
is currently engaged, (c) is duly qualified as a foreign corporation and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such
qualification, except to the extent that the failure to be so qualified would
not have a Material Adverse Effect and (d) is in
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32
compliance with all Requirements of Law except to the extent that the failure to
comply therewith could not, in the aggregate, reasonably be expected to have a
Material Adverse Effect.
3.4 Corporate Power; Authorization; Enforceable Obligations. Each
member of the Holdings Loan Party Group (a) has the corporate power and
authority, and the legal right, to make, deliver and perform this Agreement, the
Notes and the other Loan Documents to which it is a party and, in the case of
the Borrower, to borrow hereunder and (b) has taken all necessary corporate
action to authorize the borrowings, in the case of the Borrower, on the terms
and conditions of this Agreement and the Notes and to authorize the execution,
delivery and performance of the Purchase Agreement, this Agreement, the Notes
and the other Loan Documents to which it is a party. No consent or authorization
of, filing with or other act by or in respect of any Governmental Authority or
any other Person is required in connection with the borrowings hereunder or with
the execution, delivery, performance, validity or enforceability of the Purchase
Agreement, this Agreement, the Notes or the other Loan Documents. This Agreement
has been, and each Note and each other Loan Document to which it is a party will
be, duly executed and delivered on behalf of each member of the Holdings Loan
Party Group. This Agreement constitutes, and each Note and each other Loan
Document to which it is a party when executed and delivered will constitute, a
legal, valid and binding obligation of each member of the Holdings Loan Party
Group enforceable against such member of the Holdings Loan Party Group in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles (whether enforcement is sought by proceedings in
equity or at law).
3.5 No Legal Bar. The execution, delivery and performance of the
Purchase Agreement, this Agreement, the Notes and the other Loan Documents, the
borrowings hereunder and the use of the proceeds thereof will not violate any
Requirement of Law or Contractual Obligation of Holdings or of any of its
Subsidiaries, and, except pursuant to the Pledge Agreement, will not result in,
or require, the creation or imposition of any Lien on any of its or their
respective properties or revenues pursuant to any such Requirement of Law or
Contractual Obligation.
3.6 No Material Litigation. (a) Except as set forth in the Wollen
Letter, no litigation, investigation or proceeding is pending, or to the
knowledge of Holdings threatened, by or against Holdings or any of its
Subsidiaries that has any reasonable likelihood of having a Material Adverse
Effect and (b) the actions described in the Wollen Letter do not have any
reasonable likelihood of having a material adverse effect on the financial
condition of Holdings and its Subsidiaries taken as a whole.
3.7 No Default. Neither Holdings nor any of its Subsidiaries is in
default under or with respect to any of its Contractual Obligations in any
respect which has any reasonable likelihood of having a Material Adverse Effect.
No Default or Event of Default has occurred and is continuing.
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33
3.8 Ownership of Property; Liens. Each of Holdings and its
Subsidiaries has good record and marketable title in fee simple to, or a valid
leasehold interest in, all its real property, except for (a) imperfections in
title that do not, in the aggregate, have any reasonable likelihood of (i)
materially detracting from the value of the real property owned by Holdings and
its Subsidiaries taken as a whole or (ii) materially interfering with the
ordinary conduct of the business of Holdings and its Subsidiaries taken as a
whole and (b) any limitations on marketability that may result from zoning
restrictions on the use of such property, and good title to all its other
property, and none of such property is subject to any Lien except as permitted
by subsection .
3.9 Intellectual Property. Each of Holdings and its Subsidiaries
owns, or is licensed to use, all trademarks, tradenames, copyrights, technology,
know-how and processes necessary for the conduct of its business as currently
conducted except for those the failure to own or license which could not
reasonably be expected to have a Material Adverse Effect (the "Intellectual
Property"). As of the date of this Agreement no claim has been asserted and is
pending by any Person challenging or questioning the use of any such
Intellectual Property or the validity or effectiveness of any such Intellectual
Property, nor does the Borrower know of any valid basis for any such claim. The
use of such Intellectual Property by Holdings and its Subsidiaries does not
infringe on the rights of any Person, except for such claims and infringements
that, in the aggregate, could not reasonably be expected to have a Material
Adverse Effect. To the Borrower's knowledge no Person is infringing upon the
rights of Holdings and its Subsidiaries in such Intellectual Property, except
for such infringements that, in the aggregate, could not reasonably be expected
to have a Material Adverse Effect.
3.10 No Burdensome Restrictions. No Requirement of Law or
Contractual Obligation of Holdings or any of its Subsidiaries could reasonably
be expected to have a Material Adverse Effect.
3.11 Taxes. Each of Holdings and its Subsidiaries has filed or
caused to be filed all tax returns which are required to be filed and has paid
all taxes shown to be due and payable on said returns or on any assessments made
against it or any of its property and all other taxes, fees or other charges
imposed on it or any of its property by any Governmental Authority (other than
any taxes, fees or other charges the amount or validity of which are currently
being contested in good faith by appropriate proceedings and with respect to
which reserves in conformity with GAAP have been provided on the books of
Holdings or its Subsidiaries, as the case may be); no tax Lien has been filed,
and, to the knowledge of the Borrower, no claim is being asserted, with respect
to any such tax, fee or other charge.
3.12 Federal Regulations. No part of the proceeds of any Loans will
be used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation U as now and from time to
time hereafter in effect or for any purpose which violates the provisions of the
Regulations of the Board. If requested by any Lender or the Administrative
Agent, the Borrower will furnish to the Administrative Agent and each Lender a
statement to the foregoing effect in conformity with the requirements of FR Form
U-1 referred to in Regulation U.
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34
3.13 ERISA. Except where any of the following events or conditions,
together with all other such events or conditions, if any, could not subject any
Loan Party or any of its Commonly Controlled Entities to any tax, penalty or
other liabilities in the aggregate material in relation to the business,
operations, property or other condition of Holdings and its Subsidiaries taken
as a whole: (i) no Reportable Event or "accumulated funding deficiency" (within
the meaning of Section 412 of the Code or Section 302 of ERISA), whether or not
waived, has occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Single Employer Plan
or any Multiemployer Plan; (ii) each Single Employer Plan and Multiemployer Plan
has complied in all material respects with the applicable provisions of ERISA
and the Code; (iii) the present value of all accrued benefits under each Single
Employer Plan maintained by the Borrower or any Commonly Controlled Entity
(based on those assumptions used to fund the Plans) did not, as of the last
annual valuation date prior to the date on which this representation is made or
deemed made, exceed the value of the assets of such Plan allocable to such
benefits; (iv) neither the Borrower nor any Commonly Controlled Entity has had a
complete or partial withdrawal from any Multiemployer Plan, and neither the
Borrower nor any Commonly Controlled Entity would become subject to any
liability under ERISA if the Borrower or any such Commonly Controlled Entity
were to withdraw completely from all Multiemployer Plans as of the valuation
date most closely preceding the date on which this representation is made or
deemed made; and (v) no Multiemployer Plan is in Reorganization or Insolvent.
3.14 Investment Company Act; Other Regulations. The Borrower is not
an "investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. The
Borrower is not subject to regulation under any Federal or State statute or
regulation which limits its ability to incur Indebtedness.
3.15 Subsidiaries. The Persons listed on Schedule II constitute all
of the Subsidiaries of Holdings at the date hereof, and such Schedule accurately
indicates the corporate parent of each such Subsidiary, the number of shares of
the issued and outstanding Capital Stock of each such Subsidiary and whether
each such Subsidiary is a Material Subsidiary. The Subsidiaries that are
designated as Material Subsidiaries on Schedule II constitute the only Material
Subsidiaries of Holdings on the date hereof, and the Borrower has no Material
Subsidiaries on the date hereof other than New Villazon.
3.16 Purpose of Loans. The proceeds of the Term Loans shall be used
to pay a portion of the Purchase Price. Prior to the occurrence of an IPO Event,
the proceeds of the Revolving Credit Loans shall be used (i) to repay
outstanding bank borrowings, including, without limitation, all loans
outstanding on the Closing Date under the Existing Credit Agreement, (ii) to
fund a portion of the Purchase Price and the expenses relating to the
Acquisition, (iii) to provide working capital for Culbro and its wholly owned
Subsidiaries and (iv) to the extent permitted by subsection 6.10(b), to prepay
optionally the Seller Notes. Following the occurrence of an IPO Event, the
proceeds of the Revolving Credit Loans shall be used to finance the working
capital and general corporate needs of Holdings and its Subsidiaries in the
ordinary course of business, including, without limitation, the repayment of the
Seller Notes.
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35
3.17 Environmental Matters. Except as set forth in the Wollen
Letter, neither Holdings nor any of its Subsidiaries (i) has received written
notice or otherwise learned of any claim, demand, action, event, condition,
report or investigation indicating or concerning any potential or actual
liability which individually or in the aggregate is likely to have a Material
Adverse Effect, arising in connection with: (A) any non-compliance with or
violation of the requirements of any applicable federal, state or local
environmental health and safety statutes and regulations ("Environmental Laws")
or (B) the release or threatened release of any toxic or hazardous waste,
substance or constituent, or other substance into the environment, (ii) to the
best knowledge of the Borrower, has any liability in connection with the release
or threatened release of any toxic or hazardous waste, substance or constituent,
or other substance into the environment which individually or in the aggregate
is likely to have a Material Adverse Effect, (iii) has received notice of any
federal or state investigation evaluating whether any remedial action is needed
to respond to a release or threatened release of any toxic or hazardous waste,
substance or constituent or other substance into the environment for which
Holdings or any of its Subsidiaries is or may be liable where the failure to
take such remedial action is likely to have a Material Adverse Effect, or (iv)
has received notice that Holdings or any of its Subsidiaries is or may be liable
to any Person under the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, 42 U.S.C. Section 9601 et seq., or any analogous
state law, the failure to comply with which is likely to have a Material Adverse
Effect. Holdings and each of its Subsidiaries are in compliance in all material
respects with the financial responsibility requirements of federal and state
environmental laws to the extent applicable, including, without limitation,
those contained in 40 C.F.R., parts 264 and 265, subpart H, and any analogous
state law, the failure to comply with which is likely to have a Material Adverse
Effect.
3.18 Purchase Agreements. The Borrower has heretofore furnished to
each Lender a true, complete and correct copy of the Asset Purchase Agreement
and the Stock Purchase Agreement, all schedules, exhibits, annexes and
amendments, supplements and other modifications thereto and all side letters or
agreements affecting the terms thereof. To the knowledge of the Borrower with
respect to the Sellers, each of the parties to the Purchase Agreements is in
compliance with its covenants and agreements contained therein; the Purchase
Agreements and the other documents and instruments referred to in the preceding
sentence constitute the complete agreement between the Sellers and the Borrower
relating to the Acquisition. The Purchase Agreements have been duly authorized,
executed and delivered by the Borrower, and, to the best knowledge of the
Borrower, the Purchase Agreements have been duly authorized, executed and
delivered by the Sellers. The Purchase Agreements are in full force and effect
and constitute the legal, valid and binding obligation of the Borrower and the
Sellers enforceable against each such party in accordance with its terms, except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law). No consent or
authorization of, filing with, notice to or other act by or in respect of, any
Governmental Authority or any other Person is required in connection with the
Acquisition or with the execution, delivery, performance, validity or
enforceability of either Purchase Agreement, except for those that will be
obtained or made prior to the closing of the Acquisition and those the failure
to obtain or make would not, individually or in the aggregate, have a Material
Adverse Effect. All the representations and warranties in the
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36
Purchase Agreements made by the Borrower are complete and correct; no
representation, warranty or other statement in the Purchase Agreements made by
any of the other parties to the Purchase Agreements is incomplete or incorrect
to such an extent that such incompleteness or incorrectness could reasonably be
expected to have a Material Adverse Effect.
3.19 Accuracy and Completeness of Information. No representation,
warranty or other statement made by any Loan Party in this Agreement or any
other Loan Document or in any certificate, written statement or other document
furnished to the Lenders by or on behalf of any Loan Party, is incomplete or
incorrect in any material respect nor does it contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances under which such statements were made. All financial projections
and pro forma financial information that have been prepared by any member of the
Culbro Group or the Holdings Group and provided to the Administrative Agent and
the Lenders were prepared in good faith based upon reasonable assumptions, it
being recognized by the Administrative Agent and the Lenders that such
projections as to future events are not to be viewed as facts and that actual
results during the period or periods covered by any such projections may differ
from the projected results. There is no fact known to the Borrower which has had
or could reasonably be expected to have a Material Adverse Effect, except as set
forth or referred to in this Agreement.
3.20 Assumed Liabilities. The Assumed Liabilities assumed and to be
assumed do not and will not exceed $5.4 million.
3.21 Distribution Agreement. The Borrower has heretofore furnished
to each Lender a true, complete and correct copy of the draft dated January 20,
1997 of the Distribution Agreement and all of the drafts dated January 20, 1997
of the schedules, exhibits, annexes, amendments and supplements thereto and all
side letters or agreements or forms of side letters or agreements affecting the
terms of the Distribution Agreement.
3.22 Asset Transfers. All the shares of Capital Stock of each of the
Borrower, Club, 387 and Aircraft Subsidiary have been transferred to Holdings,
in each case pursuant to the Distribution Agreement. All of the other Asset
Transfers will be completed on or prior to the IPO Event.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions to Initial Loans. The agreement of each Lender to
make the initial Loan requested to be made by it is subject to the satisfaction,
immediately prior to or concurrently with the making of such Loan on the Closing
Date, of the following conditions precedent:
(a) Loan Documents. The Administrative Agent shall have received (i)
this Agreement, executed and delivered by a duly authorized officer of
each member of the Holdings Loan Party Group, with a counterpart for each
Lender, (ii) for the account of
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37
each Lender, a Term Note and a Revolving Credit Note conforming to the
requirements hereof and executed by a duly authorized officer of the
Borrower, (iii) the Pledge Agreement, executed and delivered by a duly
authorized officer of each of the parties thereto, with a counterpart or a
conformed copy for each Lender and (iv) the Culbro Group Guarantee,
executed and delivered by a duly authorized officer of each member of the
Culbro Group, with a counterpart or conformed copy for each Lender.
(b) Corporate Proceedings of the Loan Parties. The Administrative
Agent shall have received, with a counterpart for each Lender, a copy of
the resolutions, in form and substance reasonably satisfactory to the
Administrative Agent, of the Board of Directors of each Loan Party
authorizing (i) the execution, delivery and performance of this Agreement,
the Notes and/or the other Loan Documents to which it is a party and (ii)
in the case of the Borrower, the borrowings contemplated hereunder,
certified by the Secretary or an Assistant Secretary of such Loan Party as
of the Closing Date, which certificate shall state that the resolutions
thereby certified have not been amended, modified, revoked or rescinded
and are in full force and effect, and shall be in form and substance
satisfactory to the Administrative Agent.
(c) Corporate Documents. The Administrative Agent shall have
received, with a counterpart for each Lender, true and complete copies of
the restated certificate of incorporation and the by-laws of each Loan
Party, certified as complete and correct copies thereof by the Secretary
or an Assistant Secretary of such Loan Party.
(d) Incumbency Certificates. The Administrative Agent shall have
received, with a counterpart for each Lender, a certificate of each Loan
Party, dated the Closing Date, as to the incumbency and signature of the
officers of such Loan Party executing any Loan Document or any other
certificate or other document to be delivered pursuant hereto or thereto,
satisfactory in form and substance to the Administrative Agent, executed
by the President and the Secretary of such Loan Party.
(e) Fees. The Administrative Agent shall have received the fees to
be received on or prior to the Closing Date referred to in subsections and
.
(f) Closing Certificate. The Administrative Agent shall have
received, with a counterpart for each Lender, a Closing Certificate of
each of the Loan Parties, dated the date hereof, substantially in the form
of Exhibit B, with appropriate insertions and attachments, satisfactory in
form and substance to the Administrative Agent and its counsel, executed
by the President or any Vice President and the Secretary or any Assistant
Secretary of each of the Loan Parties.
(g) Pledged Stock; Stock Powers. The Administrative Agent shall have
received the certificates representing the shares pledged pursuant the
Pledge Agreement, together with an undated stock power for each such
certificate executed in blank by a duly authorized officer of the pledgor
thereof.
(h) Legal Opinion. The Administrative Agent shall have received,
with a
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38
counterpart for each Lender, (i) the executed legal opinion of A. Ross
Wollen, Esq., General Counsel of Culbro, substantially in the form of
Exhibit C with such changes therein as shall be requested or approved by
the Administrative Agent and (ii) the executed legal opinions of each of
Fowler, White, Gillen, Boggs, Villareal and Baker, P.A., counsel to
Villazon, Messrs. Frank Llaneza, Constantino Gonzalez and J. John Oliva
and Llaneza Enterprises, Ltd., and Braverman & Lester, counsel to Mr.
Daniel Blumenthal, delivered pursuant to Section 7.5 of the Asset Purchase
Agreement or Section 7.4 of the Stock Purchase Agreement as the case may
be, in which opinions each such counsel expressly permits reliance thereon
by each of the Administrative Agent and the Lenders. Such legal opinion
referred to in clause (i) of the preceding sentence shall cover such
matters incident to the transactions contemplated by this Agreement as the
Administrative Agent may reasonably require.
(i) Acquisition. The transactions described in the Purchase
Agreements which are to occur on or prior to the Closing Date shall have
been consummated in accordance with the terms and provisions thereof,
including, without limitation, a purchase price of not greater than
$95,000,000 no more than $65,675,000 of which shall be payable in cash and
the remainder of which shall be payable by the delivery of one or more
subordinated promissory notes of the Borrower (the "Seller Notes") all the
terms and conditions of which (including, without limitation, provisions
limiting the aggregate amount of which may be paid prior to an IPO Event
to an amount equal to the excess of $79,020,000 over the aggregate amount
of the Purchase Price paid in cash on or before the Closing Date) shall be
satisfactory in form and substance to the Lenders and no more than an
aggregate $10,000,000 principal amount of which shall have a stated
maturity (in accordance with Exhibit B to the Asset Purchase Agreement) of
5 years from the closing of the Acquisition, and no more than an aggregate
$14,370,000 principal amount of which (the "Stockholder Loan Notes") shall
have a stated maturity (in accordance with Exhibit C to the Asset Purchase
Agreement) of the earlier of (i) April 2, 1997 and (ii) the date which is
30 days after an IPO Event; no provisions of either Purchase Agreement
shall have been amended, supplemented or otherwise modified or waived in
any material respect without the prior written consent of the Lenders, and
the Administrative Agent shall have received a certificate of the Borrower
signed by a duly authorized officer of the Borrower to such effect and to
the effect that the only condition to the consummation of the Acquisition
remaining to be satisfied under the Purchase Agreements (which condition
shall be satisfied simultaneously with the making of the initial Loans
hereunder) is the delivery of funds sufficient to pay the amounts required
to be paid under Section 1 of the Asset Purchase Agreement and Section 1
of the Stock Purchase Agreement.
(j) Transaction Fees. The Administrative Agent shall have received
evidence satisfactory to it that Culbro and its Subsidiaries have not paid
and are not liable for costs, fees and expenses in connection with the
Acquisition (other than those relating to this Agreement and the financing
provided for herein and those relating to the preparation of the S-1) in
an aggregate amount in excess of $1,000,000.
(k) Existing Credit Agreement. The Administrative Agent shall have
received evidence, in form and substance satisfactory to it, that (a)
Culbro shall have paid in
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39
full all loans outstanding under the Existing Credit Agreement and all
other obligations and liabilities thereunder (other than indemnities
expressly stated to survive payment of the loans thereunder) and (b) all
Commitments (as defined therein) shall have been terminated.
(l) Asset Transfers. The Administrative Agent shall have received
evidence, in form and substance satisfactory to it, that all the shares of
Capital Stock of each of the Borrower, Club, 387 and Aircraft Subsidiary
have been transferred to Holdings and that all the shares of Capital Stock
of each of New Villazon and HATSA are owned by the Borrower.
4.2 Conditions to Each Loan. The agreement of each Lender to make
any Loan requested to be made by it on any date (including, without limitation,
its initial Loan) is subject to the satisfaction of the following conditions
precedent:
(a) Representations and Warranties. Each of the representations and
warranties made by each Loan Party in or pursuant to this Agreement and
the other Loan Documents to which it is a party shall be true and correct
in all material respects on and as of such date as if made on and as of
such date.
(b) No Default. No Default or Event of Default shall have occurred
and be continuing on such date or after giving effect to the Loans
requested to be made on such date and, in the case of the Loans requested
to be made on the Closing Date, after giving effect to the consummation of
the Acquisition.
(c) Additional Documents. The Administrative Agent shall have
received each additional document, instrument, legal opinion or item of
information reasonably requested by it, including, without limitation, a
copy of any debt instrument, security agreement or other material contract
to which any Loan Party may be a party.
(d) Additional Matters. All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement, the Notes and the other Loan
Documents shall be satisfactory in form and substance to the
Administrative Agent, and the Administrative Agent shall have received
such other documents and legal opinions in respect of any aspect or
consequence of the transactions contemplated hereby or thereby as it shall
reasonably request.
Each borrowing by the Borrower hereunder shall constitute a representation and
warranty by the Borrower as of the date of such borrowing that the conditions
contained in this subsection have been satisfied.
SECTION 5. AFFIRMATIVE COVENANTS
Holdings hereby agrees that, so long as the Commitments remain in
effect, any Note remains outstanding and unpaid or any other amount is owing to
any Lender or the
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40
Administrative Agent hereunder, Holdings shall and (except in the case of
delivery of financial information, reports and notices) shall cause each of its
Subsidiaries to:
5.1 Financial Statements. Furnish to each Lender:
(a) as soon as available, but in any event within 100 days after the
end of each fiscal year of Holdings, a copy of (i) the consolidated
balance sheet of Holdings and its consolidated Subsidiaries as at the end
of such year and the related consolidated statements of operations and
retained earnings and of cash flows for such year, setting forth in each
case in comparative form the figures as of the end of and for the previous
year, reported on without a qualification arising out of the scope of the
audit by independent certified public accountants of nationally recognized
standing, and (ii) the consolidating balance sheets of Holdings and its
consolidated Subsidiaries as at the end of such fiscal year, showing
inter-company eliminations, and the related consolidating statements of
operations and retained earnings and of cash flows of Holdings and its
consolidated Subsidiaries for such year, showing inter-company
eliminations, setting forth in each case in comparative form the figures
as of the end of and for the previous year, certified by a Responsible
Officer of Holdings as being fairly stated in all material respects when
considered in relation to the consolidated financial statements of
Holdings and its consolidated Subsidiaries;
(b) as soon as available, but in any event not later than 50 days
after the end of each of the first three quarterly periods of each fiscal
year of Holdings, the unaudited consolidated and consolidating balance
sheets of Holdings and its consolidated Subsidiaries as at the end of such
quarter and the related unaudited consolidated and consolidating
statements of operations and retained earnings and of cash flows of
Holdings and its consolidated Subsidiaries for such quarter and the
portion of the fiscal year through the end of such quarter, setting forth
in each case in comparative form the figures for the corresponding date or
period in the previous year, certified by a Responsible Officer of
Holdings as being fairly stated in all material respects (subject to
normal year-end audit adjustments);
(c) together with each financial statement delivered pursuant to
paragraphs (a) and (b) above, a copy of the unaudited consolidated balance
sheets of Holdings and its consolidated Subsidiaries as at the end of such
period and the related unaudited consolidated statements of operations and
retained earnings and of cash flows of Holdings and its consolidated
Subsidiaries for such period and, in the case of quarterly financial
statements, the portion of the fiscal year through the end of such
quarter, in each case adjusted to reflect the Subsidiaries of the Borrower
that are not Restricted Subsidiaries as equity investments and setting
forth in each case in comparative form the figures for the corresponding
date or period in the previous year, certified by a Responsible Officer of
Holdings as being fairly stated in all material respects when considered
in relation to the consolidated financial statements of Holdings and its
consolidated Subsidiaries (subject in the case of quarterly financial
statements to normal year-end audit adjustments);
<PAGE>
41
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or Responsible Officer of
Holdings, as the case may be, and disclosed therein).
5.2 Certificates; Other Information. Furnish to each Lender:
(a) concurrently with the delivery of the financial statements
referred to in subsection (i), a certificate of the independent certified
public accountants reporting on such financial statements stating that in
making the examination necessary therefor no knowledge was obtained of any
Default or Event of Default, except as specified in such certificate;
(b) concurrently with the delivery of the financial statements
referred to in subsections and , a certificate of a Responsible Officer of
Holdings (i) stating that, to the best of such Responsible Officer's
knowledge, Holdings during such period has observed or performed all of
its covenants and other agreements, and satisfied every condition,
contained in this Agreement and in the Notes and the other Loan Documents
to which it is a party to be observed, performed or satisfied by it, and
that such Responsible Officer has obtained no knowledge of any Default or
Event of Default except as specified in such certificate and (ii) showing
in detail the calculations supporting such statement in respect of
subsections , , , , ,
and ;
(c) not later than sixty days after the end of each fiscal year of
the Borrower, a copy of the projections by the Borrower of the operating
budget and cash flow budget of Holdings and its Subsidiaries for the
succeeding fiscal year, prepared in accordance with past practices of the
Borrower and Holdings;
(d) within five days after the same are sent, copies of all
financial statements and reports which Holdings sends to its shareholders,
and within five days after the same are filed, copies of all financial
statements and reports which Holdings may make to, or file with, the
Securities and Exchange Commission or any successor or analogous
Governmental Authority; and
(e) promptly, such additional financial and other information as the
Administrative Agent or any Lender may from time to time reasonably
request.
5.3 Payment of Obligations. Pay, discharge or otherwise satisfy at
or before maturity or before they become delinquent, as the case may be, or in
accordance with customary industry practice, all its obligations of whatever
nature, except where the amount or validity thereof is currently being contested
in good faith by appropriate proceedings and reserves as may be required by GAAP
with respect thereto have been provided on the books of Holdings or its
Subsidiaries, as the case may be.
5.4 Conduct of Business and Maintenance of Existence; Compliance
with Contractual Obligations and Requirements of Law. Continue to engage in
businesses of the
<PAGE>
42
same general types as now conducted by it and preserve, renew and keep in full
force and effect its existence and take all reasonable action to maintain all
rights, privileges and franchises necessary or desirable in the normal conduct
of its business except (a) as otherwise permitted pursuant to subsection and (b)
in connection with the discontinuance of a line of business if such
discontinuance could not reasonably be expected to have a Material Adverse
Effect; and comply with all Contractual Obligations and Requirements of Law
except to the extent that failure to comply therewith could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
5.5 Maintenance of Property; Insurance. Keep all property useful and
necessary in its business in good working order and condition; maintain with
financially sound and reputable insurance companies insurance on all its
property in at least such amounts and against at least such risks as are usually
insured against in the same general area by companies engaged in the same or a
similar business; and furnish to the Administrative Agent or any Lender, upon
its written request, full information as to the insurance carried.
5.6 Inspection of Property; Books and Records; Discussions. Keep
proper books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities; and permit
representatives of the Administrative Agent or any Lender to visit and inspect
any of its properties and examine and make abstracts from any of its books and
records at any reasonable time and as often as may reasonably be desired and to
discuss the business, operations, properties and financial and other condition
of Holdings and its Subsidiaries with officers and employees of Holdings and its
Subsidiaries and with its independent certified public accountants.
5.7 Notices. Promptly give notice to the Administrative Agent and
each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of Holdings or any of its Subsidiaries or (ii) litigation,
investigation or proceeding which may exist at any time between Holdings
or any of its Subsidiaries and any Governmental Authority, which in either
case with respect to clauses (i) or (ii) above, if not cured or if
adversely determined, as the case may be, could reasonably be expected to
have a Material Adverse Effect;
(c) any litigation or proceeding affecting Holdings or any of its
Subsidiaries in which the amount involved is $1,000,000 or more and not
covered by insurance or in which injunctive or similar relief is sought;
(d) the following events, as soon as possible and in any event
within 30 days after the Borrower knows thereof: (i) the occurrence or
expected occurrence of any Reportable Event with respect to any Plan, or
any withdrawal from, or the termination, Reorganization or Insolvency of,
any Multiemployer Plan or (ii) the institution of proceedings or the
taking of any other action by the PBGC or the Borrower or any
<PAGE>
43
Commonly Controlled Entity or any Multiemployer Plan with respect to the
withdrawal from, or the termination, Reorganization or Insolvency of, any
Plan;
(e) a material adverse change in the business, operations, property,
condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole; and
(f) the failure of Holdings or any Subsidiaries to comply with the
provisions of any applicable Environmental Law, where such failure could
reasonably be expected to have a Material Adverse Effect.
Each notice pursuant to this subsection shall be accompanied by a statement of a
Responsible Officer of Holdings setting forth details of the occurrence referred
to therein and stating what action Holdings proposes to take with respect
thereto.
5.8 Additional Pledges and Guarantees. With respect to any Person
that, subsequent to the Closing Date, becomes a Material Subsidiary of Holdings,
promptly (unless, in the case of clauses (a) and (b) below, such Person shall so
become a Material Subsidiary subsequent to an IPO Event): (a) execute and
deliver to the Administrative Agent, for the benefit of the Lenders, a new
pledge agreement or such supplement to the Pledge Agreement as the
Administrative Agent shall deem necessary or advisable to grant to the
Administrative Agent, for the benefit of the Lenders, a Lien on all the Capital
Stock of such Material Subsidiary which is owned by Holdings or any of its
Subsidiaries, (b) deliver to the Administrative Agent the certificates
representing such Capital Stock, together with undated stock powers executed and
delivered in blank by a duly authorized officer of Holdings or such Material
Subsidiary, as the case may be, (c) cause such Material Subsidiary to become a
party to this Agreement as an additional Guarantor pursuant to documentation
which is in form and substance satisfactory to the Administrative Agent and (d)
if requested by the Administrative Agent, deliver to the Administrative Agent
legal opinions relating to the matters described in clauses (a), (b) and (c)
immediately preceding, which opinions shall be in form and substance, and from
counsel, reasonably satisfactory to the Administrative Agent.
SECTION 6. NEGATIVE COVENANTS
Holdings hereby agrees that, so long as the Commitments remain in
effect, any Note remains outstanding and unpaid or any other amount is owing to
any Lender or the Administrative Agent hereunder, Holdings shall not, and
(except with respect to subsections and ) shall not permit any of its Restricted
Subsidiaries to, directly or indirectly:
6.1 Financial Condition Covenants.
(a) Indebtedness to Net Worth Ratio. After an IPO Event, permit the
ratio of Consolidated Indebtedness and Guarantee Obligations of Holdings to
Consolidated Net Worth of Holdings at any time to exceed 1.0 to 1.0.
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44
(b) Maintenance of Net Worth. Permit Consolidated Net Worth of
Holdings at any time to be less than the sum of (i) $63,000,000 plus (ii) 100%
of (A) the Consolidated Net Income of Holdings for the fiscal year ended
November 30, 1996 plus or minus (B) to the extent not reflected in Consolidated
Net Income for periods subsequent to December 3, 1995, any adjustments made
subsequent to December 3, 1995 to the Consolidated Net Worth of Holdings
resulting from the Asset Transfers and the assumption of the Assumed
Liabilities, in each case pursuant to the Distribution Agreement, plus (C) any
investments made by Culbro in Holdings during the period from December 3, 1995
through the Closing Date and minus (D) any dividends or other distributions made
by Holdings to Culbro during the period referred to in clause (C) above, plus
(iii) 50% of cumulative Consolidated Net Income of Holdings (without deduction
for any losses during any quarterly period) for the period commencing on
December 1, 1996 and ending on the last day of the then most recently ended
fiscal period for which financial statements shall have been delivered to the
Lenders pursuant to subsection or (b) plus (iv) in the case of the occurrence of
an IPO Event, any increase in consolidated shareholders' equity of Holdings and
its Restricted Subsidiaries resulting from such IPO Event.
(c) Fixed Charge Coverage. Permit the ratio of (i) Consolidated
Operating Cash Flow of Holdings for any Test Period (as defined below) less the
sum of (x) Capital Expenditures of Holdings during such Test Period and (y)
Restricted Payments during such Test Period to (ii) Consolidated Interest
Expense of Holdings for such Test Period to be less than the ratio set forth
below opposite such Test Period:
Test Period Ratio
----------- -----
First Test Period (prior to an IPO Event) 2.0 to 1.0
Second Test Period (prior to an IPO Event) 2.5 to 1.0
Third Test Period (prior to an IPO Event) 3.0 to 1.0
Any Test Period (after an IPO Event) 3.0 to 1.0
As used herein the term "Test Period" shall mean any period of four consecutive
fiscal quarters, except that the term "First Test Period" shall mean the first
fiscal quarter after the fiscal quarter in which the Closing Date shall occur,
the term "Second Test Period" shall mean the fiscal quarter included in the
First Test Period and the subsequent fiscal quarter and the term "Third Test
Period" shall mean the fiscal quarters included in the Second Test Period and
the subsequent fiscal quarter, provided, however, that if an IPO Event shall
occur, the term "First Test Period" shall mean the fiscal quarter after the
fiscal quarter in which such IPO Event shall occur, the term "Second Test
Period" shall mean the fiscal quarter included in the First Test Period and the
subsequent fiscal quarter and the term "Third Test Period" shall mean the fiscal
quarters included in the Second Test Period and the subsequent fiscal quarter.
(d) Maintenance of Current Ratio. Permit the ratio of Consolidated
Current Assets of Holdings to Consolidated Current Liabilities of Holdings at
any time to be less than 2.0 to 1.0.
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45
6.2 Limitation on Indebtedness. Create, incur, assume or suffer to
exist any Indebtedness, except:
(a) Indebtedness in respect of the Loans, the Notes and the other
obligations of the Borrower under this Agreement;
(b) Indebtedness outstanding on the date hereof and listed on
Schedule III and any refinancings thereof provided that the principal
amount thereof is not increased thereby and the other material terms
thereof are on the whole no less favorable to the obligor thereon than
those applicable to the Indebtedness so listed at the time of such
refinancing;
(c) (i) the Indebtedness in existence on the date hereof secured by
the Park Avenue South Mortgages and (ii) upon the repayment of such
existing Indebtedness in full, any Indebtedness secured by the real
property which is the subject of the Park Avenue South Mortgages provided
that recourse for the payment of such Indebtedness is limited to such real
property;
(d) Indebtedness in respect of the undrawn portion of the face
amount of letters of credit issued for the account of the Borrower or any
other Restricted Subsidiary of Holdings in an aggregate amount not
exceeding for the Borrower and such Subsidiaries $7,500,000 at any one
time outstanding;
(e) Indebtedness of a corporation which becomes a Restricted
Subsidiary of Holdings or which is merged into a Restricted Subsidiary of
Holdings after the date hereof, provided that (i) such Indebtedness
existed at the time such corporation became a Restricted Subsidiary of
Holdings or was merged into a Restricted Subsidiary of Holdings, whichever
may be the case, and was not created in anticipation thereof and (ii)
immediately after giving effect to the acquisition or merger of such
corporation no Default or Event of Default shall have occurred and be
continuing;
(f) Indebtedness of the Borrower and the Restricted Subsidiaries of
Holdings under Financing Leases with respect to new equipment, not
exceeding $5,000,000 in aggregate principal amount at any one time
outstanding;
(g) the Seller Notes;
(h) Indebtedness of Holdings to any of its Subsidiaries and
Indebtedness of the Borrower or any of its Subsidiaries which is a
Guarantor to Holdings, the Borrower or any other Subsidiary of Holdings;
(i) prior to an IPO Event, Indebtedness of Holdings or any of its
Restricted Subsidiaries to any member of the Culbro Group; and
(j) Indebtedness not otherwise permitted hereunder incurred in the
ordinary course of business not exceeding (as to Holdings and all its
Subsidiaries) $1,000,000 in aggregate amounts at any one time outstanding.
<PAGE>
46
6.3 Limitation on Liens. Create, incur, assume or suffer to exist
any Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, except for:
(a) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, provided that adequate reserves with
respect thereto are maintained on the books of Holdings or its
Subsidiaries, as the case may be, in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business
which are not overdue for a period of more than 60 days or which are being
contested in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and deposits
securing liability to insurance carriers under insurance or self-insurance
arrangements;
(d) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of Holdings
or any of its Restricted Subsidiaries;
(f) Liens created by the Park Avenue South Mortgages and other Liens
in existence on the date hereof listed on Schedule IV, securing
Indebtedness permitted by subsections and 6.2(c)(1), provided that no such
Lien is spread to cover any additional property after the date hereof and
that the amount of Indebtedness secured thereby is not increased;
(g) Liens on the real property which is the subject of the Park
Avenue South Mortgages securing Indebtedness permitted by subsection
6.2(c)(ii), provided that no such Lien is spread to cover any other
property;
(h) Liens on (x) the property or assets of a corporation which
becomes a Restricted Subsidiary of Holdings (or which is merged into a
Restricted Subsidiary of Holdings) after the date hereof securing
Indebtedness permitted by subsection , or (y) property or assets acquired
after the date hereof securing Indebtedness permitted by subsection
6.2(j), provided that (i) such Liens existed at the time such corporation
became a Restricted Subsidiary of Holdings (or was merged into a
Restricted Subsidiary of Holdings) or, as the case may be, such property
or assets were acquired and were not created in anticipation thereof, (ii)
any such Lien is not spread to cover
<PAGE>
47
any property or assets of such corporation after the time such corporation
becomes a Restricted Subsidiary of Holdings (or was merged into a
Restricted Subsidiary of Holdings) or, as the case may be, any other
property or assets of the Person acquiring such property or assets and
(iii) the amount of Indebtedness secured thereby is not increased;
(i) Liens securing Indebtedness under Financing Leases permitted by
subsection 6.2(f), provided that each such Lien is limited to the assets
that are the subject of the related Financing Lease;
(j) Liens pursuant to the Security Documents; and
(k) Liens not otherwise permitted hereunder incurred in the ordinary
course of business which secure obligations not exceeding (as to Holdings
and all its Subsidiaries) $1,000,000 in aggregate amount at any time
outstanding securing Indebtedness permitted by subsection 6.2(j).
6.4 Limitation on Guarantee Obligations. Create, incur, assume or
suffer to exist any Guarantee Obligation except (a) Guarantee Obligations
existing on the date hereof and listed on Schedule VI and (b) the Guarantee
Obligations created pursuant to Section 9, or amend, modify or change, or
consent or agree to any amendment, modification or change to, any of the terms
of any Guarantee Obligations described in clauses (a) and (b).
6.5 Limitations of Fundamental Changes. Enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer
or otherwise dispose of, all or substantially all of its property, business or
assets, or make any material change in its present method of conducting
business, except:
(a) any Subsidiary of Holdings may be merged or consolidated with or
into Holdings (provided that Holdings shall be the continuing or surviving
corporation) and any Restricted Subsidiary of Holdings may be merged with
or consolidated into any one or more wholly owned Restricted Subsidiaries
of Holdings (provided that the wholly owned Restricted Subsidiary of
Holdings or Restricted Subsidiaries of Holdings shall be the continuing or
surviving corporation and provided, further, that if one of the merging or
consolidating Restricted Subsidiaries of Holdings is a Guarantor or, prior
to an IPO Event, a Pledged Subsidiary, then a Guarantor or a Pledged
Subsidiary, as the case may be, shall be the continuing or surviving
corporation);
(b) any wholly owned Restricted Subsidiary of Holdings may sell,
lease, transfer or otherwise dispose of any or all of its assets (upon
voluntary liquidation or otherwise) to Holdings or any wholly owned
Restricted Subsidiary of Holdings, except as otherwise prohibited or
limited by any other provision of this Section 6 (provided, that if the
transferor Restricted Subsidiary of Holdings is a Guarantor or, prior to
an IPO Event, a Pledged Subsidiary, the transferee Restricted Subsidiary
of Holdings shall also be a Guarantor or a Pledged Subsidiary); and
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48
(c) Holdings may consummate the Merger after an IPO Event, provided
that at the time of consummation thereof no Default or Event of Default
shall have occurred and be continuing or would result therefrom and Culbro
will have no material obligations or liabilities other than (i)
obligations or liabilities assumed by Holdings or the Borrower as part of
the Assumed Liabilities and (ii) obligations or liabilities assumed by CLR
in connection with the CLR Transfers (as defined in the Culbro Group
Guarantee) and with respect to which CLR is required to indemnify Culbro
in full pursuant to the Distribution Agreement.
6.6 Limitation on Sale of Assets. Convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, equipment, receivables, leasehold interests,
shares of Capital Stock (other than issuances of Capital Stock of Holdings) and
unimproved land), whether now owned or hereafter acquired, except:
(a) sales of inventory in the ordinary course of business;
(b) the sale of obsolete or worn-out property in the ordinary course
of business; provided, that the Net Cash Proceeds of any such asset sale
made prior to an IPO Event shall be applied as set forth in subsection ;
(c) as permitted by subsection or ;
(d) the sale or discount without recourse of accounts receivable
arising in the ordinary course of business in connection with the
compromise or collection thereof, but excluding the sale of any of the
accounts receivable of Holdings or any of its Subsidiaries directly or
indirectly in connection with a securitization or financing thereof; and
(e) other sales for cash up to an aggregate amount of $5,000,000;
provided that the Net Cash Proceeds of any such sale made prior to an IPO
Event shall be applied as set forth in subsection .
6.7 Limitation on Leases. Permit Consolidated Lease Expense for any
fiscal year of the Borrower to exceed $5,000,000.
6.8 Compliance with ERISA. (a) Terminate any Plan so as to result in
any material liability to PBGC, (b) engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan
which would result in a material liability for an excise tax or civil penalty in
connection therewith, (c) incur or suffer to exist any material "accumulated
funding deficiency" (as defined in Section 412 of the Code or Section 302 of
ERISA), whether or not waived, involving any Plan, or (d) allow or suffer to
exist any event or condition which presents a reasonable risk of incurring a
material liability to PBGC by reason of termination of any such Plan.
6.9 Limitation on Investments, Loans and Advances. Make any advance,
loan, or capital contribution to, or purchase any stock, bonds, notes,
debentures or other securities
<PAGE>
49
of or any assets constituting a business unit of, or make any other investment
in, any Person, except:
(a) extensions of trade credit in the ordinary course of business;
(b) investments in Cash Equivalents;
(c) investments or advances by Holdings (other than investments or
advances made directly or indirectly for the purposes of the development
of real estate) in or to its Restricted Subsidiaries and investments or
advances by such Restricted Subsidiaries in or to Holdings and in or to
other Restricted Subsidiaries of Holdings;
(d) investments or advances by Holdings or any of its Restricted
Subsidiaries after the date of an IPO Event in an amount not to exceed
$15,000,000 in the aggregate for the purpose of acquiring assets (other
than assets covered by subsection ) or businesses, provided, that, in the
case of the acquisition of the Capital Stock of any Material Subsidiary
the provisions of subsection 5.8 shall be complied with in connection
therewith; and
(e) until the occurrence of an IPO Event, loans and advances by
members of the Holdings Group to Culbro in the ordinary course of business
in connection with the treasury activities described on page F-10 of the
S-1 under "Treasury", provided that all such loans and advances are paid
in full by Culbro upon the occurrence of an IPO Event.
6.10 Limitation on Restricted Payments. Make any Restricted Payment
or make any optional payment on (including, without limitation, by means of the
exercise of a right of setoff) or redemption or purchase of any Indebtedness
owing to any Person other than a member of the Holdings Group (other than the
Notes but including, without limitation, the Seller Notes) or amend, modify or
change, or consent or agree to any amendment, modification or change to, any of
the terms of any such Indebtedness (other than any such amendment, modification
or change which would extend the maturity or reduce the amount of any payment of
principal thereof or which would reduce the rate or extend the date for payment
of interest thereon), except that, so long as no Default or Event of Default
shall have occurred and be continuing or would result therefrom:
(a) Holdings may at any time after an IPO Event pay regular
quarterly dividends on shares of its issued and outstanding common stock
in an amount such that the aggregate of such dividend payments made
subsequent to December 2, 1995 do not exceed $5,000,000 plus 50% of
aggregate Consolidated Net Income of Holdings for the period commencing
December 3, 1995 and ending on the last day of the then most recently
ended fiscal period for which financial statements shall have been
delivered to the Lenders pursuant to subsection or (b); provided, that
prior to the payment of any dividends, Holdings shall have delivered to
the Administrative Agent and the Lenders a certificate of a Responsible
Officer showing in detail the calculation of the amount of dividends
payable;
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50
(b) the Borrower may prior to an IPO Event optionally prepay
(including, without limitation, by means of the exercise of a right of
setoff), redeem or purchase the Stockholder Loan Notes to the extent that
the aggregate amount paid by the Borrower on account of such Notes prior
to an IPO Event does not exceed the excess, if any, of $79,020,000 over
the aggregate amount of the Purchase Price paid in cash on or before the
Closing Date;
(c) any member of the Holdings Group may prior to an IPO Event
prepay any intercompany Indebtedness owing to Culbro; and
(d) prepayments of Indebtedness in connection with a refinancing
thereof permitted by subsection 6.2(b).
6.11 Limitation on Capital Expenditures. Prior to an IPO Event, make
or commit to make (by way of the acquisition of securities of a Person or
otherwise) any expenditure in respect of the purchase or other acquisition of
fixed or capital assets (excluding any such asset acquired in connection with
normal replacement and maintenance programs properly charged to current
operations) (a "Capital Expenditure") except for expenditures by the Borrower
and the other Restricted Subsidiaries of Holdings in the ordinary course of
business not exceeding, in the aggregate for the Borrower and such Subsidiaries,
$12,000,000 during any fiscal year of the Borrower.
6.12 Limitation on Negative Pledge Clauses. Enter into with any
Person any agreement, other than (a) this Agreement and any other Loan Document
and (b) any industrial revenue bonds, purchase money mortgages or Financing
Leases permitted by this Agreement (in which cases, any prohibition or
limitation shall only be effective against the assets financed thereby), which
prohibits or limits the ability of Holdings or any of its Subsidiaries to
create, incur, assume or suffer to exist any Lien upon any of its property,
assets or revenues, whether now owned or hereafter acquired.
6.13 Transactions with Affiliates. Enter into any transaction,
including, without limitation, any purchase, sale, lease or exchange of property
or the rendering of any service, with any Affiliate unless such transaction (i)
is otherwise permitted under this Agreement, (ii) is in the ordinary course of
Holdings' or such Restricted Subsidiary's business or is effected pursuant to
the Distribution Agreement (as described in the S-1) and (iii) is upon fair and
reasonable terms no less favorable to Holdings or such Restricted Subsidiary, as
the case may be, than it would obtain in a comparable arm's length transaction
with a Person not an Affiliate.
6.14 Sale and Leaseback. Enter into any arrangement with any Person
providing for the leasing by Holdings or any of its Restricted Subsidiaries of
real or personal property which has been or is to be sold or transferred by
Holdings or such Restricted Subsidiary to such Person or to any other Person to
whom funds have been or are to be advanced by such Person on the security of
such property or rental obligations of the Borrower or such Restricted
Subsidiary, except arrangements involving sales or transfers for an aggregate
purchase price not to exceed $5,000,000 in the aggregate during any fiscal year
<PAGE>
51
provided that the Net Cash Proceeds of any such sale and leaseback entered into
prior to an IPO Event shall be applied as set forth in subsection 2.9(b)(i).
6.15 Fiscal Year. Permit the fiscal year of the Borrower to end on a
day other than the Saturday falling nearest to November 30 in each year.
6.16 Corporate Documents. Amend its certificate of incorporation or
amend its by-laws in any material respect without the prior written consent of
the Majority Lenders.
6.17 Passive Status for Holdings. Permit Holdings to engage in any
business or operations other than holding shares of the Capital Stock of the
Borrower, 387, Club, Aircraft Subsidiary, and Club Chicago or to incur any
material obligations or liabilities other than as permitted herein.
6.18 Distribution Agreement. Execute the Distribution Agreement in a
form different from that described in subsections 1.01, 2.01, 2.03, 2.04, 2.06,
2.08, 2.09 and 3.01 of the Distribution Agreement or in the S-1 in any way that
would materially decrease the assets to be transferred to Holdings or the
Borrower pursuant to the Asset Transfers or materially increase the liabilities
to be assumed by Holdings as part of the Assumed Liabilities.
SECTION 7. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Note when
due in accordance with the terms thereof or hereof; or the Borrower shall
fail to pay any interest on any Note, or any fee or other amount payable
hereunder, within five days after any such interest, fee or other amount
becomes due in accordance with the terms hereof; or
(b) Any representation or warranty made or deemed made by Holdings
or any other Loan Party herein or in any other Loan Document or which is
contained in any certificate, document or financial or other statement
furnished at any time under or in connection with this Agreement (other
than any projections delivered pursuant to subsection ) shall prove to
have been incorrect in any material respect on or as of the date made or
deemed made; or
(c) Holdings or any other Loan Party shall default in the observance
or performance of any agreement contained in subsection or Section 6
hereof or Section 4.1(a) or 4.3 of the Pledge Agreement or any member of
the Culbro Group shall default in the observance or performance of any
agreement contained in Section 5 of the Culbro Group Guarantee; or
(d) Holdings or any other Loan Party shall default in the observance
or performance of any other agreement contained in this Agreement or any
other Loan
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52
Document (other than as provided in paragraphs (a) through (c) of this
Section 7), and such default shall continue unremedied for a period of 30
days; or
(e) Any Loan Party or any of its Subsidiaries shall (i) default in
any payment of principal of or interest on any Indebtedness (other than
the Notes) or in the payment of any Guarantee Obligation, beyond the
period of grace (not to exceed 30 days), if any, provided in the
instrument or agreement under which such Indebtedness or Guarantee
Obligation was created; or (ii) default in the observance or performance
of any other agreement or condition relating to any such Indebtedness or
Guarantee Obligation or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur
or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders of such
Indebtedness or beneficiary or beneficiaries of such Guarantee Obligation
(or a trustee or agent on behalf of such holder or holders or beneficiary
or beneficiaries) to cause, with the giving of notice if required, such
Indebtedness to become due prior to its stated maturity or such Guarantee
Obligation to become payable; provided, however, that a default, event or
condition described in clause (i) or (ii) of this paragraph (e) shall not
constitute an Event of Default unless, at the time of such default,
defaults, events or conditions of the type described in clauses (i) and
(ii) of this paragraph (e) shall have occurred and be continuing with
respect to Indebtedness and/or Guarantee Obligations the outstanding
principal amount of which exceeds in the aggregate $1,000,000; or
(f) (i) Any Loan Party or any of its Subsidiaries shall commence any
case, proceeding or other action (A) under any existing or future law of
any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it
or its debts, or (B) seeking appointment of a receiver, trustee, custodian
or other similar official for it or for all or any substantial part of its
assets, or any of its Subsidiaries shall make a general assignment for the
benefit of its creditors; or (ii) there shall be commenced against any
Loan Party or any of its Subsidiaries any case, proceeding or other action
of a nature referred to in clause (i) above which (A) results in the entry
of an order for relief or any such adjudication or appointment or (B)
remains undismissed, undischarged or unbonded for a period of 60 days; or
(iii) there shall be commenced against any Loan Party or any of its
Subsidiaries any case, proceeding or other action seeking issuance of a
warrant of attachment, execution, distraint or similar process against all
or any substantial part of its assets which results in the entry of an
order for any such relief which shall not have been vacated, discharged,
or stayed or bonded pending appeal within 60 days from the entry thereof;
or (iv) any Loan Party or any of its Subsidiaries shall take any action in
furtherance of, or indicating its consent to, approval of, or acquiescence
in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v)
any Loan Party or any of its Subsidiaries shall generally not, or shall be
unable to, or shall admit in writing its inability to, pay its debts as
they become due; or
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53
(g) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan, (ii) any "accumulated funding deficiency" (as defined in Section 412
of the Code or Section 302 of ERISA), whether or not waived, shall exist
with respect to any Single Employer Plan, (iii) a Reportable Event shall
occur with respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or to terminate,
any Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion of
the Majority Lenders, likely to result in the termination of such Single
Employer Plan for purposes of Title IV of ERISA, (iv) any Single Employer
Plan shall terminate for purposes of Title IV of ERISA, (v) the Borrower
or any Commonly Controlled Entity (or, prior to an IPO Event, Culbro or
any Commonly Controlled Entity) shall, or in the reasonable opinion of the
Majority Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer
Plan or (vi) any other event or condition shall occur or exist, with
respect to a Plan; and in each case in clauses (i) through (vi) above,
such event or condition, together with all other such events or
conditions, if any, could subject any Loan Party or any of its Commonly
Controlled Entities to any tax, penalty or other liabilities in the
aggregate material in relation to the business, operations, property or
financial or other condition of any Loan Party and its Subsidiaries taken
as a whole; or
(h) (i) Any of the Loan Documents shall cease for any reason to be
in full force and effect, or any Loan Party or any of its Subsidiaries
shall so assert or (ii) the security interest created by the Security
Documents shall cease to be valid and enforceable and of the same effect
and priority purported to be created thereby; or
(i) One or more judgments or decrees shall be entered against any
Loan Party or any of its Subsidiaries involving in the aggregate a
liability (not paid or fully covered by insurance) of $1,000,000 or more
and all such judgments or decrees shall not have been vacated, discharged,
stayed or bonded pending appeal within 60 days from the entry thereof; or
(j) (i) any Person or "group" (within the meaning of Section 13(d)
or 14(d) of the Securities Exchange Act of 1934, as amended) other than
the Cullman Group shall own, directly or indirectly, shares of Capital
Stock of Holdings or, prior to an IPO Event, Culbro having an aggregate
voting power equal to or greater than those owned in the aggregate,
directly or indirectly, by the Cullman Group; the "Cullman Group" shall
mean Edgar M. Cullman, Edgar M. Cullman, Jr., John L. Ernst, Frederick M.
Danziger and the members of their families and trusts for their benefit,
partnerships in which they own substantial interests and charitable
foundations on whose boards of directors they sit or (ii) the Board of
Directors of Culbro (prior to an IPO Event) or Holdings shall not consist
of a majority of Continuing Directors; "Continuing Directors" shall mean
the directors of Culbro and Holdings on the Closing Date and each other
director, if such director's nomination for election to the respective
Boards of Directors of Culbro or Holdings, respectively, is recommended by
a majority of the then Continuing Directors of Culbro or Holdings,
respectively;
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54
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to the Borrower,
automatically the Revolving Credit Commitments shall immediately terminate and
the Loans hereunder (with accrued interest thereon) and all other amounts owing
under this Agreement and the Notes shall immediately become due and payable, and
(B) if such event is any other Event of Default, either or both of the following
actions may be taken: (i) with the consent of the Majority Lenders, the
Administrative Agent may, or upon the request of the Majority Lenders, the
Administrative Agent shall, by notice to the Borrower declare the Revolving
Credit Commitments to be terminated forthwith, whereupon the Revolving Credit
Commitments shall immediately terminate; and (ii) with the consent of the
Majority Lenders, the Administrative Agent may, or upon the request of the
Majority Lenders, the Administrative Agent shall, by notice of default to the
Borrower, declare the Loans hereunder (with accrued interest thereon) and all
other amounts owing under this Agreement and the Notes to be due and payable
forthwith, whereupon the same shall immediately become due and payable. Except
as expressly provided above in this Section 7, presentment, demand, protest and
all other notices of any kind are hereby expressly waived.
SECTION 8. THE ADMINISTRATIVE AGENT
8.1 Appointment. Each Lender hereby irrevocably designates and
appoints Chase as the Administrative Agent of such Lender under this Agreement,
the Notes and the other Loan Documents, and each Lender irrevocably authorizes
Chase, as the Administrative Agent for such Lender, to take such action on its
behalf under the provisions of this Agreement, the Notes and the other Loan
Documents and to exercise such powers and perform such duties as are expressly
delegated to the Administrative Agent by the terms of this Agreement, the Notes
and the other Loan Documents, together with such other powers as are reasonably
incidental thereto. Notwithstanding any provision to the contrary elsewhere in
this Agreement, the Administrative Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement, the Notes or the other Loan Documents or otherwise exist against the
Administrative Agent.
8.2 Delegation of Duties. The Administrative Agent may execute any
of its duties under this Agreement, the Notes and the other Loan Documents by or
through agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent shall
not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
8.3 Exculpatory Provisions. Neither the Administrative Agent nor any
of its officers, directors, employees, agents, attorneys-in-fact or Affiliates
shall be (i) liable for any action lawfully taken or omitted to be taken by it
or such Person under or in connection with this Agreement, the Notes or any
other Loan Document (except for its or such Person's own gross negligence or
willful misconduct) or (ii) responsible in any manner to any of the Lenders for
any recitals, statements, representations or warranties made by the Borrower or
any officer thereof contained in this Agreement, the Notes or any other Loan
Document or in
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55
any certificate, report, statement or other document referred to or provided for
in, or received by the Administrative Agent under or in connection with, this
Agreement, the Notes or any other Loan Document or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement, the
Notes or any other Loan Document or for any failure of the Borrower to perform
its obligations hereunder or thereunder. The Administrative Agent shall not be
under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement, the Notes or any other Loan Document, or to inspect the
properties, books or records of the Borrower.
8.4 Reliance by Administrative Agent. The Administrative Agent shall
be entitled to rely, and shall be fully protected in relying, upon any note,
writing, resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document or conversation believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including, without limitation, counsel to the
Borrower), independent accountants and other experts selected by the
Administrative Agent. The Administrative Agent may deem and treat the payee of
any Note as the owner thereof for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with the
Administrative Agent. The Administrative Agent shall be fully justified in
failing or refusing to take any action under this Agreement, the Notes or any
other Loan Document unless it shall first receive such advice or concurrence of
the Majority Lenders (or to the extent required by this Agreement, all of the
Lenders) as it deems appropriate or it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action
(except for its gross negligence or willful misconduct). The Administrative
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement, the Notes and the other Loan Documents in
accordance with a request of the Lenders, and such request and any action or
failure to act pursuant thereto shall be binding upon all the Lenders and all
future holders of the Notes.
8.5 Notice of Default. The Administrative Agent shall not be deemed
to have knowledge or notice of the occurrence of any Default or Event of Default
unless the Administrative Agent has received notice from a Lender or the
Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". In the event that
the Administrative Agent receives such a notice, the Administrative Agent shall
give notice thereof to the Lenders. The Administrative Agent shall take such
action with respect to such Default or Event of Default as shall be reasonably
directed by the Majority Lenders (or, to the extent required by this Agreement,
all of the Lenders); provided that unless and until the Administrative Agent
shall have received such directions, the Administrative Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Lenders.
8.6 Non-Reliance on Administrative Agent and Other Lenders. Each
Lender expressly acknowledges that neither the Administrative Agent nor any of
its officers, directors, employees, agents, attorneys-in-fact or Affiliates has
made any representations or
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56
warranties to it and that no act by the Administrative Agent hereafter taken,
including any review of the affairs of the Borrower, shall be deemed to
constitute any representation or warranty by the Administrative Agent to any
Lender. Each Lender represents to the Administrative Agent that it has,
independently and without reliance upon the Administrative Agent or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of the
Borrower and made its own decision to make its Loans hereunder and enter into
this Agreement. Each Lender also represents that it will, independently and
without reliance upon the Administrative Agent or any other Lender, and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement, the Notes and the other Loan Documents,
and to make such investigation as it deems necessary to inform itself as to the
business, operations, property, financial and other condition and
creditworthiness of the Borrower. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the
Administrative Agent hereunder, the Administrative Agent shall not have any duty
or responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of the Borrower which may come into
the possession of the Administrative Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates.
8.7 Indemnification. The Lenders agree to indemnify the
Administrative Agent in its capacity as such (to the extent not reimbursed by
the Borrower and without limiting the obligation of the Borrower to do so),
ratably according to the respective amounts of their respective Commitment
Percentages in effect on the date on which indemnification is sought, from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind
whatsoever which may at any time (including, without limitation, at any time
following the payment of the Notes) be imposed on, incurred by or asserted
against the Administrative Agent in any way relating to or arising out of this
Agreement, the Notes or any other Loan Document or any documents contemplated by
or referred to herein or therein or the transactions contemplated hereby or
thereby or any action taken or omitted by the Administrative Agent under or in
connection with any of the foregoing; provided that no Lender shall be liable
for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting solely from the Administrative Agent's gross negligence or willful
misconduct. The agreements in this subsection shall survive the payment of the
Notes and all other amounts payable hereunder.
8.8 Administrative Agent in Its Individual Capacity. The
Administrative Agent and its affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Borrower as though the
Administrative Agent were not the Administrative Agent hereunder and under the
other Loan Documents. With respect to its Loans made or renewed by it and any
Note issued to it, the Administrative Agent shall have the same rights and
powers under this Agreement and the other Loan Documents as any Lender and may
exercise the same as though it were not the Administrative Agent, and the terms
"Lender" and "Lenders" shall include the Administrative Agent in its individual
capacity.
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57
8.9 Successor Administrative Agent. The Administrative Agent may
resign as Administrative Agent upon 10 days' notice to the Lenders. If the
Administrative Agent shall resign as Administrative Agent under this Agreement
and the other Loan Documents, then the Majority Lenders shall appoint from among
the Lenders a successor agent for the Lenders, which successor agent shall be
approved by the Borrower, whereupon such successor agent shall succeed to the
rights, powers and duties of the Administrative Agent, and the term
"Administrative Agent" shall mean such successor agent effective upon its
appointment, and the former Administrative Agent's rights, powers and duties as
Administrative Agent shall be terminated, without any other or further act or
deed on the part of such former Administrative Agent or any of the parties to
this Agreement or any holders of the Notes. After any retiring Administrative
Agent's resignation as Administrative Agent, the provisions of this subsection
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Administrative Agent under this Agreement and the other Loan
Documents.
SECTION 9. GUARANTEE
9.1 Guarantee. (a) Each member (other than the Borrower) of the
Holdings Loan Party Group (for purposes of this Section 9, each, a "Guarantor")
hereby unconditionally and irrevocably guarantees to the Administrative Agent,
for the ratable benefit of the Lenders and their respective successors,
indorsees, transferees and assigns, the prompt and complete payment and
performance by the Borrower when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations. Anything herein or in any other
Loan Document to the contrary notwithstanding, the maximum liability of each
Guarantor solely in respect of its guarantee of the Borrower's Obligations
hereunder and under the other Loan Documents shall in no event exceed the amount
which can be guaranteed by such Guarantor under applicable federal and state
laws relating to the insolvency of debtors.
(b) Each Guarantor further agrees to pay any and all expenses
(including, without limitation, all fees and disbursements of counsel) which may
be paid or incurred by the Administrative Agent or any Lender in enforcing, or
obtaining advice of counsel in respect of, any rights with respect to, or
collecting, any or all of the Obligations and/or enforcing any rights with
respect to, or collecting against, such Guarantor under this Section 9. The
provisions of this Section 9 shall remain in full force and effect until the
Obligations are paid in full and the Revolving Credit Commitments are terminated
(subject to reinstatement pursuant to subsection 9.6) notwithstanding that from
time to time prior thereto the Borrower may be free from any Obligations.
(c) No payment or payments made by the Borrower or any other Person
or received or collected by the Administrative Agent or any Lender from the
Borrower or any other Person by virtue of any action or proceeding or any
set-off or appropriation or application, at any time or from time to time, in
reduction of or in payment of the Obligations shall be deemed to modify, reduce,
release or otherwise affect the liability of any Guarantor hereunder which
shall, notwithstanding any such payment or payments other than payments made by
such Guarantor in respect of the Obligations or payments received or collected
from such Guarantor in respect of the Obligations, remain liable for the
Obligations up to the maximum liability of such Guarantor hereunder until the
Obligations are paid in full and the
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58
Revolving Credit Commitments are terminated (subject to reinstatement pursuant
to subsection 9.6).
(d) Each Guarantor agrees that whenever, at any time, or from time
to time, it shall make any payment to the Administrative Agent or any Lender on
account of its liability hereunder, it will notify the Administrative Agent and
such Lender in writing that such payment is made under this Section 9 for such
purpose.
9.2 Right of Set-off. Upon the occurrence of any Event of Default,
each of the Administrative Agent and each Lender is hereby irrevocably
authorized at any time and from time to time without notice to any Guarantor,
any such notice being expressly waived by such Guarantor, to set off and
appropriate and apply any and all deposits (general or special, time or demand,
provisional or final), in any currency, and any other credits, indebtedness or
claims, in any currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by the
Administrative Agent or such Lender to or for the credit or the account of such
Guarantor, or any part thereof in such amounts as the Administrative Agent or
such Lender may elect, against or on account of the obligations and liabilities
of such Guarantor to the Administrative Agent or such Lender hereunder and
claims of every nature and description of the Administrative Agent or such
Lender against such Guarantor, in any currency, whether arising under this
Agreement, any Note or any other Loan Document or otherwise, as the
Administrative Agent or such Lender may elect, whether or not the Administrative
Agent or such Lender has made any demand for payment and although such
obligations, liabilities and claims may be contingent or unmatured. The
Administrative Agent and each Lender shall notify such Guarantor promptly of any
such set-off and the application made by the Administrative Agent or such
Lender, as the case may be, of the proceeds thereof; provided that the failure
to give such notice shall not affect the validity of such set-off and
application. The rights of the Administrative Agent and each Lender under this
subsection are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which the Administrative Agent or such
Lender may have.
9.3 No Subrogation. Notwithstanding any payment or payments made by
any Guarantor hereunder, or any set-off or application of funds of such
Guarantor by the Administrative Agent or any Lender, such Guarantor shall not be
entitled to be subrogated to any of the rights of the Administrative Agent or
any Lender against the Borrower or against any collateral security or guarantee
or right of offset held by the Administrative Agent or any Lender for the
payment of the Obligations, nor shall such Guarantor seek or be entitled to seek
any contribution or reimbursement from the Borrower in respect of payments made
by such Guarantor hereunder, until all amounts owing to the Administrative Agent
and the Lenders by the Borrower on account of the Obligations are paid in full
and the Revolving Credit Commitments are terminated. If any amount shall be paid
to such Guarantor on account of such subrogation rights at any time when all of
the Obligations shall not have been paid in full, such amount shall be held by
such Guarantor in trust for the Administrative Agent and the Lenders, segregated
from other funds of such Guarantor, and shall, forthwith upon receipt by such
Guarantor, be turned over to the Administrative Agent in the exact form received
by such Guarantor (duly indorsed by such Guarantor to the Administrative Agent,
if required), to be applied against the Obligations, whether matured or
unmatured, in such order as the Administrative Agent may determine.
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59
9.4 Amendments, etc. with respect to the Obligations; Waiver of
Rights. Each Guarantor shall remain obligated hereunder notwithstanding that,
without any reservation of rights against such Guarantor, and without notice to
or further assent by such Guarantor, any demand for payment of any of the
Obligations made by the Administrative Agent or any Lender may be rescinded by
the Administrative Agent or such Lender, and any of the Obligations continued,
and the Obligations, or the liability of any other party upon or for any part
thereof, or any collateral security or guarantee therefor or right of offset
with respect thereto, may, from time to time, in whole or in part, be renewed,
extended, amended, modified, accelerated, compromised, waived, surrendered,
impaired or released by the Administrative Agent or any Lender, and this
Agreement, any Notes and the other Loan Documents and any other documents
executed and delivered in connection therewith may be amended, modified,
supplemented or terminated, in whole or in part, as the Administrative Agent (or
the Majority Lenders, as the case may be) may deem advisable from time to time,
and any collateral security, guarantee or right of offset at any time held by
the Administrative Agent or any Lender for the payment of the Obligations may be
sold, exchanged, waived, surrendered or released. Neither the Administrative
Agent nor any Lender shall have any obligation to protect, secure, perfect or
insure any Lien at any time held by it as security for the Obligations or for
this Section 9 or any property subject thereto. When making any demand hereunder
against any Guarantor, the Administrative Agent or any Lender may, but shall be
under no obligation to, make a similar demand on the Borrower or any other
guarantor, and any failure by the Administrative Agent or any Lender to make any
such demand or to collect any payments from the Borrower or any such other
guarantor or any release of the Borrower or such other guarantor shall not
relieve such Guarantor of its obligations or liabilities hereunder, and shall
not impair or affect the rights and remedies, express or implied, or as a matter
of law, of the Administrative Agent or any Lender against such Guarantor. For
the purposes hereof "demand" shall include the commencement and continuance of
any legal proceedings.
9.5 Guarantee Absolute and Unconditional. Each Guarantor waives any
and all notice of the creation, renewal, extension or accrual of any of the
Obligations and notice of or proof of reliance by the Administrative Agent or
any Lender upon this Section 9 or acceptance of this Section 9; the Obligations,
and any of them, shall conclusively be deemed to have been created, contracted
or incurred, or renewed, extended, amended or waived, in reliance upon this
Section 9; and all dealings between the Borrower or such Guarantor, on the one
hand, and the Administrative Agent and the Lenders, on the other, shall likewise
be conclusively presumed to have been had or consummated in reliance upon this
Section 9. Each Guarantor waives diligence, presentment, protest, demand for
payment and notice of default or nonpayment to or upon the Borrower or such
Guarantor with respect to the Obligations. This Section 9 shall be construed as
a continuing, absolute and unconditional guarantee of payment (and not of
collection) without regard to (a) the validity, regularity or enforceability of
this Agreement, any Note, any other Loan Document, any of the Obligations or any
other collateral security therefor or guarantee or right of offset with respect
thereto at any time or from time to time held by the Administrative Agent or any
Lender, (b) any defense, set-off or counterclaim (other than a defense of
payment or performance) which may at any time be available to or be asserted by
any Loan Party against the Administrative Agent or any Lender, or (c) any other
circumstance whatsoever (with or without notice to or knowledge of the Borrower
or the Guarantors) which constitutes, or might be construed to
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constitute, an equitable or legal discharge of the Borrower for the Obligations,
or of the Guarantors under this Section 9, in bankruptcy or in any other
instance. When pursuing its rights and remedies hereunder against any Guarantor,
the Administrative Agent and any Lender may, but shall be under no obligation
to, pursue such rights and remedies as it may have against the Borrower or any
other Person or against any collateral security or guarantee for the Obligations
or any right of offset with respect thereto, and any failure by the
Administrative Agent or any Lender to pursue such other rights or remedies or to
collect any payments from the Borrower or any such other Person or to realize
upon any such collateral security or guarantee or to exercise any such right of
offset, or any release of the Borrower or any such other Person or of any such
collateral security, guarantee or right of offset, shall not relieve the
Guarantors of any liability hereunder, and shall not impair or affect the rights
and remedies, whether express, implied or available as a matter of law, of the
Administrative Agent or any Lender against the Guarantors. This Section 9 shall
remain in full force and effect and be binding in accordance with and to the
extent of its terms upon the Guarantors and their respective successors and
assigns thereof, and shall inure to the benefit of the Administrative Agent and
the Lenders, and their respective successors, indorsees, transferees and
assigns, until all the Obligations and the obligations of the Guarantors under
this Section 9 shall have been satisfied by payment in full and the Revolving
Credit Commitments shall be terminated (subject to reinstatement pursuant to
subsection 9.6), notwithstanding that from time to time during the term of this
Agreement the Borrower may be free from any Obligations.
9.6 Reinstatement. This Section 9 shall continue to be effective, or
be reinstated, as the case may be, if at any time payment, or any part thereof,
of any of the Obligations is rescinded or must otherwise be restored or returned
by the Administrative Agent or any Lender upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Borrower or upon or as a
result of the appointment of a receiver, intervenor or conservator of, or
trustee or similar officer for, the Borrower or any substantial part of its
property, or otherwise, all as though such payments had not been made.
9.7 Payments. Each Guarantor hereby agrees that the Obligations will
be paid to the Administrative Agent without set-off or counterclaim in Dollars
at the office of the Administrative Agent's Loan and Agency Services Group, One
Chase Manhattan Plaza, 8th Floor, New York, New York 10081, Attention: Rose
Clinton.
SECTION 10. MISCELLANEOUS
10.1 Amendments and Waivers. Neither this Agreement, any Note, any
other Loan Document, nor any terms hereof or thereof may be amended,
supplemented or modified except in accordance with the provisions of this
subsection. With the written consent of the Majority Lenders, the Administrative
Agent and the Borrower may, from time to time, enter into written amendments,
supplements or modifications hereto and to the Notes and the other Loan
Documents for the purpose of adding any provisions to this Agreement, the Notes
or the other Loan Documents or changing in any manner the rights of the Lenders
or of the Borrower hereunder or thereunder or waiving, on such terms and
conditions as the Administrative Agent may specify in such instrument, any of
the requirements of this
<PAGE>
61
Agreement or the other Loan Documents or any Default or Event of Default and its
consequences; provided, however, that no such waiver and no such amendment,
supplement or modification shall (a) reduce the amount or extend the maturity of
any Note, or reduce the rate or extend the time of payment of interest thereon,
or reduce the amount or extend the time of payment of any fee payable to any
Lender hereunder, or change the amount of any Lender's Revolving Credit
Commitment or modify in any way the requirements of the second proviso to
subsection , in each case without the consent of the Lender affected thereby,
(b) amend, modify or waive any provision of this subsection, or reduce the
percentage specified in the definition of Majority Lenders, or consent to the
assignment or transfer by the Borrower of any of its rights and obligations
under this Agreement, the Notes and the other Loan Documents, or release all or
substantially all of the Liens granted or the Collateral pledged pursuant to the
Pledge Agreement or Culbro, Holdings or all or substantially all of the
Guarantors from their obligations under Section 9 or the Culbro Group Guarantee,
as the case may be, or increase the amount of the aggregate Revolving Credit
Commitments, in each case (other than in the case of any such release expressly
permitted by the provisions of subsection 6.13 of the Culbro Group Guarantee or
subsection 7.15 of the Pledge Agreement) without the written consent of all the
Lenders, (c) amend, modify or waive any provision of subsections through or (to
the extent such subsections relate to the Revolving Credit Commitments and
subject in the case of subsection 2.9(b)(ii) to the provisions of clause (a)
above) or reduce any of the percentages specified in the definition of Majority
Revolving Credit Lenders, in each case without the prior written consent of the
Majority Revolving Credit Lenders, (d) amend, modify or waive any provision of
subsections
through or (to the extent such subsections relate to the Term Loans and subject
in the case of subsection 2.9(b)(ii) to the provisions of clause (a) above) or
reduce any of the percentages specified in the definition of Majority Term
Lenders, in each case without the prior written consent of the Majority Term
Lenders, or (e) amend, modify or waive any provision of Section 8 without the
written consent of the then Administrative Agent. Any such waiver and any such
amendment, supplement or modification shall apply equally to each of the Lenders
and shall be binding upon the Borrower, the Lenders, the Administrative Agent
and all future holders of the Notes. In the case of any waiver, the Borrower,
the Lenders and the Administrative Agent shall be restored to their former
position and rights hereunder and under the outstanding Notes and any other Loan
Documents, and any Default or Event of Default waived shall be deemed to be
cured and not continuing; but no such waiver shall extend to any subsequent or
other Default or Event of Default, or impair any right consequent thereon.
10.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered by hand, or three Business Days
after being deposited in the mail, postage prepaid, or, in the case of telecopy
notice, when sent, confirmation of receipt received, addressed as follows in the
case of the Borrower and the Administrative Agent, and as set forth in Schedule
I in the case of the other parties hereto, or to such other address as may be
hereafter notified by the respective parties hereto and any future holders of
the Notes.
The Borrower: General Cigar Co., Inc.
c/o Culbro Corporation
<PAGE>
62
387 Park Avenue South
New York, New York 10016
Attention: Jay M. Green
Executive Vice President-Finance
and Administration and Treasurer
Telecopy: (212) 561-8979
with a copy to: Culbro Corporation
387 Park Avenue South
New York, New York 10016
Attention: A. Ross Wollen, Esq.
Secretary
Telecopy: (212) 561-8791
Each Guarantor which
is a party hereto: c/o the Borrower at the address
for the Borrower set forth above
The Administrative Agent: The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Attention: Peter Eckstein
Telecopy: (212) 270-0330
with a copy to:
Loan and Agency Services Group
One Chase Manhattan Plaza, 8th Floor
New York, New York 10081
Attention: Rose Clinton
Telecopy: (212) 522-5662
provided that any notice, request or demand to or upon the Administrative Agent
or the Lenders pursuant to subsection , , , , , or shall not be effective until
received.
10.3 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Administrative Agent or any Lender, any
right, remedy, power or privilege hereunder shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
10.4 Survival of Representations and Warranties. All representations
and warranties made herein and in any document, certificate or statement
delivered pursuant
<PAGE>
63
hereto or in connection herewith shall survive the execution and delivery of
this Agreement and the Notes.
10.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay
or reimburse the Administrative Agent for all its reasonable out-of-pocket costs
and expenses incurred in connection with the development, preparation and
execution of, and any amendment, supplement or modification to, this Agreement,
the Notes and the other Loan Documents and any other documents prepared in
connection herewith or therewith, and the consummation of the transactions
contemplated hereby and thereby, including, without limitation, the reasonable
fees and disbursements of counsel to the Administrative Agent, (b) to pay or
reimburse each Lender and the Administrative Agent for all its costs and
expenses incurred in connection with the enforcement or preservation of any
rights under this Agreement, the Notes and the other Loan Documents and any such
other documents, including, without limitation, fees and disbursements of
counsel to the Administrative Agent and to the several Lenders, and (c) to pay
and indemnify and hold harmless each Lender and the Administrative Agent from
any and all recording and filing fees and any and all liabilities with respect
to, or resulting from any delay in paying, stamp, excise and other taxes, if
any, which may be payable or determined to be payable in connection with the
execution and delivery of, or consummation of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver
or consent under or in respect of, this Agreement, the Notes, and the other Loan
Documents and any such other documents, and (d) to pay and indemnify and hold
harmless each Lender and the Administrative Agent (and their respective
directors, officers, employees and agents) from and against any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses and disbursements of any kind or nature whatsoever with respect
to the execution, delivery, enforcement, performance and administration of this
Agreement, the Notes, and the other Loan Documents and any such other documents
(all the foregoing, collectively, the "indemnified liabilities"), provided, that
the Borrower shall have no obligation hereunder to the Administrative Agent or
any Lender with respect to indemnified liabilities arising from (i) the gross
negligence or willful misconduct of the Administrative Agent or such Lender,
(ii) legal proceedings commenced against the Administrative Agent or such Lender
by any security holder or creditor thereof arising out of and based upon rights
afforded any such security holder or creditor solely in its capacity as such,
(iii) legal proceedings commenced against the Administrative Agent or any such
Lender by any other Lender or by any Transferee or (iv) any event which results
solely from actions taken by the Administrative Agent or such Lender that are
within the sole control of the Administrative Agent or such Lender, as the case
may be, and do not in any way involve the Borrower or any of its Subsidiaries or
Affiliates. The agreements in this subsection shall survive the termination of
this Agreement and the repayment of the Notes and all other amounts payable
hereunder.
10.6 Successors and Assigns; Participations; Purchasing Lenders. (a)
This Agreement and the other Loan Documents shall be binding upon and inure to
the benefit of the Borrower, the Guarantors, the Lenders, the Administrative
Agent, all future holders of the Notes and their respective successors and
assigns, except that none of the Loan Parties may assign or transfer any of its
rights or obligations under this Agreement or the other Loan Documents without
the prior written consent of each Lender.
<PAGE>
64
(b) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time sell to one or more
banks or other entities ("Participants") participating interests in any Loan
owing to such Lender, any Note held by such Lender and any Revolving Credit
Commitment of such Lender or any other interest of such Lender hereunder and
under the other Loan Documents. In the event of any such sale by a Lender of
participating interests to a Participant, such Lender's obligations under this
Agreement to the other parties to this Agreement shall remain unchanged, such
Lender shall remain solely responsible for the performance thereof, and such
Lender shall remain the holder of any such Note for all purposes under this
Agreement and the other Loan Documents, and the Borrower and the Administrative
Agent shall continue to deal solely and directly with such Lender in connection
with such Lender's rights and obligations under this Agreement and the other
Loan Documents. No Lender shall grant any participation under which the
Participant shall have the right to require such Lender to take or omit to take
any action hereunder or approve any amendment to or waiver of this Agreement or
the Notes or any other Loan Document, except to the extent such amendment or
waiver would: (i) extend the final maturity date of, or extend any date for
payment of any principal, interest or fees applicable to, the Loans or the
Revolving Credit Commitment in which such Participant is participating, (ii)
reduce the interest rate or the amount of principal or fees applicable to the
Loans in which such Participant is participating or (iii) release any Lien
granted pursuant to any Security Document. The Borrower agrees that if amounts
outstanding under this Agreement, the Notes and the other Loan Documents are due
or unpaid, or shall have been declared or shall have become due and payable upon
the occurrence of an Event of Default, each Participant shall be deemed to have
the right of set-off in respect of its participating interest in amounts owing
under this Agreement, any Note and the other Loan Documents to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement, any Note or any other Loan Document, provided that
such Participant shall only be entitled to such right of set-off if it shall
have agreed in the agreement pursuant to which it shall have acquired its
participating interest to share with the Lenders the proceeds thereof as
provided in subsection . The Borrower also agrees that each Participant shall be
entitled to the benefits of subsections , , and with respect to its
participation in the Revolving Credit Commitments and the Loans outstanding from
time to time; provided, that no Participant shall be entitled to receive any
greater amount pursuant to such subsections than the transferor Lender would
have been entitled to receive in respect of the amount of the participation
transferred by such transferor Lender to such Participant had no such transfer
occurred.
(c) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time sell to any Lender
or any Affiliate thereof and, with the prior written consent of the Borrower
(which shall not be unreasonably withheld) and the Administrative Agent (which
shall not be unreasonably withheld), to one or more additional banks or
financial institutions ("Purchasing Lenders") all or any part of its rights and
obligations under this Agreement and the Notes pursuant to a Commitment Transfer
Supplement, substantially in the form of Exhibit E hereto, executed by such
Purchasing Lender and such transferor Lender (and, in the case of a Purchasing
Lender that is not then a Lender or an affiliate thereof, by the Borrower and
the Administrative Agent) and delivered to the Administrative Agent for its
acceptance and recording in the
<PAGE>
65
Register, provided, that each such sale shall be in an amount equal to or
greater than $5,000,000. Upon such execution, delivery, acceptance and
recording, from and after the Transfer Effective Date determined pursuant to and
as defined in such Commitment Transfer Supplement, (x) the Purchasing Lender
thereunder shall be a party hereto and, to the extent provided in such
Commitment Transfer Supplement, have the rights and obligations of a Lender
hereunder with Term Loans and a Revolving Credit Commitment as set forth
therein, and (y) the transferor Lender thereunder shall, to the extent provided
in such Commitment Transfer Supplement, be released from its obligations under
this Agreement (and, in the case of a Commitment Transfer Supplement covering
all or the remaining portion of a transferor Lender's rights and obligations
under this Agreement, such transferor Lender shall cease to be a party hereto).
Such Commitment Transfer Supplement shall be deemed to amend this Agreement to
the extent, and only to the extent, necessary to reflect the addition of such
Purchasing Lender and the resulting adjustment (to the extent applicable) of
Revolving Credit Commitment Percentages, Term Loan Percentages and Revolving
Credit Commitments arising from the purchase by such Purchasing Lender of all or
a portion of the rights and obligations of such transferor Lender under this
Agreement and the Notes. On or prior to the Transfer Effective Date determined
pursuant to such Commitment Transfer Supplement, the Borrower, at its own
expense, shall execute and deliver to the Administrative Agent in exchange for
the existing Note of the transferor Lender (i) a new Note to the order of such
Purchasing Lender in an amount equal to the Revolving Credit Commitment and/or
Term Loan assumed by it pursuant to such Commitment Transfer Supplement and (ii)
if the transferor Lender has retained a Revolving Credit Commitment and/or Term
Loan hereunder, a new Note to the order of the transferor Lender in an amount
equal to the Revolving Credit Commitment and/or Term Loan retained by it
hereunder, as applicable. Such new Notes shall be dated the date hereof and
shall otherwise be in the form of the Notes replaced thereby. The Note
surrendered by the transferor Lender shall be returned by the Administrative
Agent to the Borrower marked "cancelled".
(d) The Administrative Agent shall maintain at its address referred
to in subsection a copy of each Commitment Transfer Supplement delivered to it
and a register (the "Register") for the recordation of the names and addresses
of the Lenders and the Revolving Credit Commitment of, and principal amount of
the Loans owing to, each Lender from time to time. The entries in the Register
shall be conclusive, in the absence of manifest error, and the Borrower, the
Administrative Agent and the Lenders may treat each Person whose name is
recorded in the Register as the owner of the Loan recorded therein for all
purpose of this Agreement. The Register shall be available for inspection by the
Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of a Commitment Transfer Supplement executed by
a transferor Lender and Purchasing Lender (and, in the case of a Purchasing
Lender that is not then a Lender or an affiliate thereof, by the Borrower and
the Administrative Agent) together with payment to the Administrative Agent of a
registration and processing fee of $3,500, the Administrative Agent shall (i)
promptly accept such Commitment Transfer Supplement and (ii) on the Transfer
Effective Date determined pursuant thereto record the information contained
therein in the Register and give notice of such acceptance and recordation to
the Lenders and the Borrower.
<PAGE>
66
(f) The Borrower authorizes each Lender to disclose to any
Participant or Purchasing Lender (each, a "Transferee") and any prospective
Transferee any and all information in such Lender's possession concerning the
Borrower and its Subsidiaries which has been delivered to such Lender by or on
behalf of the Borrower pursuant to this Agreement or any other Loan Document or
which has been delivered to such Lender by or on behalf of the Borrower in
connection with such Lender's credit evaluation of the Borrower and its
Subsidiaries prior to becoming a party to this Agreement.
(g) If, pursuant to this subsection, any interest in this Agreement
or any Note is transferred to any Transferee which is organized under the laws
of any jurisdiction other than the United States or any State thereof, the
transferor Lender shall cause such Transferee, concurrently with the
effectiveness of such transfer, (i) to represent to the transferor Lender (for
the benefit of the transferor Lender, the Administrative Agent and the Borrower)
that under applicable law and treaties no taxes will be required to be withheld
by the Administrative Agent, the Borrower or the transferor Lender with respect
to any payments to be made to such Transferee in respect of the Loans, (ii) to
furnish to the transferor Lender (and, in the case of any Purchasing Lender
registered in the Register, the Administrative Agent and the Borrower) either
U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form
1001 (wherein such Transferee claims entitlement to complete exemption from U.S.
federal withholding tax on all interest payments hereunder) and (iii) to agree
(for the benefit of the transferor Lender, the Administrative Agent and the
Borrower) to provide the transferor Lender (and, in the case of any Purchasing
Lender registered in the Register, the Administrative Agent and the Borrower) a
new Form 4224 or Form 1001 upon the expiration or obsolescence of any previously
delivered form and comparable statements in accordance with applicable U.S. laws
and regulations and amendments duly executed and completed by such Transferee,
and to comply from time to time with all applicable U.S. laws and regulations
with regard to such withholding tax exemption.
(h) Notwithstanding any provision of this subsection, each Lender
may at any time without the consent of the Borrower or the Administrative Agent
pledge and assign as collateral to a Federal Reserve Bank all or any portion of
its rights and interests in respect of its Loans.
10.7 Adjustments; Set-off. (a) If any Lender (a "Benefitted Lender")
shall at any time receive any payment of all or part of its Loans, or interest
thereon, or receive any collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in Section 7(f), or otherwise), in a greater proportion than any
such payment to or collateral received by any other Lender, if any, in respect
of such other Lender's Loans, or interest thereon, such benefitted Lender shall
purchase for cash from the other Lenders such portion of each such other
Lender's Loans, or shall provide such other Lenders with the benefits of any
such collateral, or the proceeds thereof, as shall be necessary to cause such
benefitted Lender to share the excess payment or benefits of such collateral or
proceeds ratably with each of the Lenders; provided, however, that if all or any
portion of such excess payment or benefits is thereafter recovered from such
benefitted Lender, such purchase shall be rescinded, and the purchase price and
benefits returned, to the extent of such recovery, but without interest. The
Borrower agrees that each
<PAGE>
67
Lender so purchasing a portion of another Lender's Loans may exercise all rights
of payment (including, without limitation, rights of set-off) with respect to
such portion as fully as if such Lender were the direct holder of such portion.
(b) In addition to any rights and remedies of the Lenders provided
by law, each Lender shall have the right, without prior notice to the Borrower,
any such notice being expressly waived by the Borrower to the extent permitted
by applicable law, upon any amount becoming due and payable by the Borrower
hereunder or under the Notes (whether at the stated maturity, by acceleration or
otherwise) to set off and appropriate and apply against such amount any and all
deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by such Lender to or for the credit or the
account of the Borrower. Each Lender agrees promptly to notify the Borrower and
the Administrative Agent after any such set-off and application made by such
Lender, provided that the failure to give such notice shall not affect the
validity of such set-off and application.
10.8 Counterparts. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Agreement signed by all the parties
shall be lodged with the Borrower and the Administrative Agent.
10.9 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.10 Integration. This Agreement, the Notes and the other Loan
Documents to which the Borrower is a party represent the entire agreement of the
Borrower, the Guarantors which are parties hereto, the Administrative Agent and
the Lenders with respect to the subject matter hereof and thereof, and there are
no promises or representations by the Borrower, any such Guarantor, the
Administrative Agent or any Lender relative to subject matter hereof or thereof
not stated or referred to herein or in the other Loan Documents.
10.11 GOVERNING LAW. THIS AGREEMENT AND THE NOTES AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
NEW YORK.
10.12 Submission To Jurisdiction. Each of the Borrower and each
Guarantor which is a party hereto hereby irrevocably and unconditionally:
<PAGE>
68
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement, the Notes and the other Loan
Documents to which it is a party, or for recognition and enforcement of
any judgment in respect thereof, to the non-exclusive general jurisdiction
of the courts of the State of New York for New York County, the courts of
the United States of America for the Southern District of New York, and
appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not
to plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to the
Borrower at its address set forth in subsection or at such other address
of which the Administrative Agent shall have been notified pursuant
thereto; and
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction.
10.13 WAIVER OF JURY TRIAL. THE BORROWER, THE GUARANTORS WHICH ARE
PARTIES HERETO, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT OR THE NOTES OR ANY OTHER LOAN DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.
<PAGE>
69
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered in New York, New York by their proper and duly
authorized officers as of the day and year first above written.
GENERAL CIGAR CO., INC., as
Borrower
By /s/ A. Ross Wollen
-------------------------------------
Title:
GENERAL CIGAR HOLDINGS, INC., as a
Guarantor
By /s/ A. Ross Wollen
-------------------------------------
Title:
387 PAS CORP., as a Guarantor
By /s/ A. Ross Wollen
-------------------------------------
Title:
CLUB MACANUDO, INC., as a Guarantor
By /s/ A. Ross Wollen
-------------------------------------
Title:
GCH TRANSPORTATION, INC., as a
Guarantor
By /s/ A. Ross Wollen
-------------------------------------
Title:
<PAGE>
70
VILLAZON & COMPANY, INC., as a
Guarantor
By /s/ A. Ross Wollen
-------------------------------------
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Lender
By____________________________________
Title:
THE BANK OF NEW YORK, as a Lender
By____________________________________
Title:
THE BANK OF NOVA SCOTIA, as a
Lender
By____________________________________
Title:
FLEET NATIONAL BANK, as a Lender
By____________________________________
Title:
<PAGE>
70
VILLAZON & COMPANY, INC., as a
Guarantor
By____________________________________
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Lender
By /s/[ILLEGIBLE]
--------------------------------------
Title:
THE BANK OF NEW YORK, as a Lender
By____________________________________
Title:
THE BANK OF NOVA SCOTIA, as a
Lender
By____________________________________
Title:
FLEET NATIONAL BANK, as a Lender
By____________________________________
Title:
<PAGE>
70
VILLAZON & COMPANY, INC., as a
Guarantor
By____________________________________
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Lender
By____________________________________
Title:
THE BANK OF NEW YORK, as a Lender
By /s/[ILLEGIBLE]
--------------------------------------
Title: Vice President
THE BANK OF NOVA SCOTIA, as a
Lender
By____________________________________
Title:
FLEET NATIONAL BANK, as a Lender
By____________________________________
Title:
<PAGE>
70
VILLAZON & COMPANY, INC., as a
Guarantor
By____________________________________
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Lender
By____________________________________
Title:
THE BANK OF NEW YORK, as a Lender
By____________________________________
Title:
THE BANK OF NOVA SCOTIA, as a
Lender
By /s/[ILLEGIBLE]
--------------------------------------
Title: VP
FLEET NATIONAL BANK, as a Lender
By____________________________________
Title:
<PAGE>
70
VILLAZON & COMPANY, INC., as a
Guarantor
By____________________________________
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Lender
By____________________________________
Title:
THE BANK OF NEW YORK, as a Lender
By____________________________________
Title:
THE BANK OF NOVA SCOTIA, as a
Lender
By____________________________________
Title:
FLEET NATIONAL BANK, as a Lender
By /s/[ILLEGIBLE]
--------------------------------------
Title: Vice President
<PAGE>
SCHEDULE I
Addresses and Commitments of Lenders
Revolving
Term Loan Credit
Address Commitment Commitment
- ------- ---------- ----------
The Chase Manhattan Bank $ 15,000,000 $ 15,000,000
270 Park Avenue
New York, NY 10017
Attention: Peter C. Eckstein
The Bank of New York $ 15,000,000 $ 15,000,000
One Wall Street
New York, NY 10286
Attention: William Dakin
The Bank of Nova Scotia, New York Agency $ 15,000,000 $ 15,000,000
One Liberty Plaza
New York, NY 10006
Attention: Stephen Lockhart
Fleet National Bank $ 15,000,000 $ 15,000,000
777 Main Street
Hartford, CT 06115
Attention: Jeffrey J. White
<PAGE>
SCHEDULE II
Material Subsidiaries of General Cigar Holdings, Inc.
# of shares
Name Parent outstanding
- ---- ------ -----------
Club Macanudo, Inc. Holdings 100
GCH Transportation, Inc. Holdings 1,000
General Cigar Co., Inc. Holdings 100
387 PAS Corp. Holdings 100
387 PAS Enterprises 387 PAS Corp. N/A
Villazon & Co., Inc General Cigar 1,000
Non-Material Subsidiaries of General Cigar Holdings, Inc.
Name Parent
- ---- ------
Cifuentes Free Zone, Ltd. General Cigar
Cifuentes Y Cia. Ltd. General Cigar
Club Macanudo (Chicago), Inc. Holdings
Culbro International. S.A. General Cigar
Culbro International U.K., Ltd. General Cigar
Culbro Tobacco Sales Corporation General Cigar
Culbro V.L. Tobacco, S.A. General Cigar
Gradiaz Annis & Co., Inc. General Cigar
Helmetta Realty Corp. General Cigar
Honduras American Tabaco, S.A. de C.V. General Cigar
Industrial Buildings & Properties Inc. General Cigar
Jose Escalante & Co. General Cigar
Macanudo Cigar Company, Inc. General Cigar
Moll Tool & Plastics Corp. General Cigar
Partagas Cigar Company. Inc. General Cigar
Twenty Seventh & Park. Inc. 387 PAS Corp.
<PAGE>
Culbro Corporation Subsidiaries*
Name Parent
- ---- ------
Culbro Land Resources, Inc. Culbro
General Cigar Holdings, Inc. Culbro
General Witt Receivables Corp. Culbro Land
Resources
Imperial Nurseries, Inc. Culbro Land
Resources
The Eli Witt Company Culbro
(50.1% interest)
Centaur Communications Culbro Land
(25% interest) Resources
* other than Subsidiaries of General Cigar Holdings, Inc.
<PAGE>
Schedule III
General Cigar Holdings, Inc.
Schedule of Indebtedness
Dothan, Alabama IRB $1,440,000
Vehicle leases $2,647,000
Mortgage on Astra Airplane $4,218,000
Mortgage on 387 PAS $5,000,000
Villazon Installment Notes $10,000,000
Villazon Stockholder Loan Notes $14,370,000
<PAGE>
Sch IV
General Cigar Co., Inc.
Schedule of Liens
Dothan, Alabama IRB $1,440,000
Mortgage on Astra Airplane $4,218,000
Mortgage on 387 PAS $5,000,000
<PAGE>
SCHEDULE V
Sale-Leaseback Transactions
None.
<PAGE>
Schedule VI
General Cigar Holdings, Inc.
Schedule of Guarantees
Moll Tool GE Lease $3,030,000
Club Macanudo (Chicago) 10 year lease ending 9/30/2006, at an
average annual rent of $200,000
Club Macanudo (New York) 10 year lease ending 8/31/2005, at an
average annual rent of $250,000
General Cigar Co. Inc. Guarantee by Villazon & Co., Inc. of
$24,370,000 aggregate principal amount of
the Seller Notes
<PAGE>
SCHEDULE VII
Environmental Liabilities
Environmental liabilities set forth in the Wollen Leuer.
<PAGE>
SCHEDULE VIII
List of Parties to Pledge Agreement
Culbro Corporation
General Cigar Holdings, Inc.
General Cigar Co., Inc.
<PAGE>
SCHEDULE IX
December 23, 1996
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
Dear Sirs:
As General Counsel of Culbro Corporation I am familiar with the legal
affairs of its wholly owned subsidiary General Cigar Co., Inc. I am also
familiar with the newly formed parent company of General Cigar Co., 1nc., namely
General Cigar Holdings, Inc. (collectively, the "Corporation"). I advise you as
follows in connection with your examination of the consolidated financial
statements of the Corporation as at December 2, 1995 and for the 52 weeks then
ended.
I call your attention to the fact that as General Counsel of the
Corporation I have general supervision of the Corporation legal affairs. The
Corporation's legal staff currently conducts limited litigation on behalf of the
Corporation and our principal activities relating to litigation consist of
supervising the efforts of outside legal counsel to the Corporation. In such
capacity, however, I have reviewed litigation and claims threatened or asserted
involving the Corporation and have consulted with such outside legal counsel
with respect thereto where I have deemed it appropriate
Subject to the foregoing and to the last paragraph of this letter, I
advise you that since December 3, 1994 neither I, nor any of the lawyers over
whom I exercise general legal supervision, have given substantive attention to,
or represented the Corporation in connection with, material loss contingencies
coming within the scope of clause (a) of paragraph 5 of the Statement of Policy
referred to in the last paragraph of this letter, except as may be referred to
in the Memorandum of Contingencies, dated January 31, 1996 (the "Memorandum"), a
copy of which is attached hereto. Except as set forth in the next paragraph, to
the best of my knowledge the statements made in the
<PAGE>
-2-
Memorandum and the description of matters therein are accurate in all material
respects. This letter and the Memorandum should not be construed in any way 10
constitute a waiver of the attorney client privilege or the attorney work
product privilege.
The following matters referred to in the Memorandum have been terminated
with no continuing liability to the Corporation: (a)(i), (a)(v), (a)(vi) and
(a)(vii). There have been no material developments in the following matters:
(a)(iv), (b) investigation and (c) General Cigar-Superfund Proceeding. As to
(a)(ii) Tobacco Litigation, I call your attention to the update concerning such
litigation prepared by Latham & Watkins and attached hereto as Attachment A. As
to (a)(iii), I call your attention to the updates in the fiscal year 1996
Second Quarter and Third Quarter Form 1O-Q's of Culbro Corporation and the
following: Mr. Cleveland was found guilty of 25 counts of mail fraud by a jury
in Alabama and, as a result, his wrongful discharge lawsuit against the
Corporation in Connecticut is expected to be dismissed without material
liability to the Corporation. The investigation prompted by Mr. Cleveland's
complaint by the U.S. Attorney's office in Connecticut has been terminated. The
Corporation anticipates receiving a substantial reimbursement for its losses due
to Mr. Cleveland's criminal activities from (a) restitution ordered by the
federal court in the criminal action, (b) a settlement agreement with the
principals of the trucking concern which conspired with Mr. Cleveland, (c) a
judgment in its pending civil RICO action against Mr. Cleveland and (d) recovery
from the Corporation's fidelity insurance carrier. There have been no material
developments in the FEC matter or the investigation into drug trafficking at the
Corporation's Dothan, Alabama plant.
The information set forth herein and in the Memorandum is as of the date
hereof and thereof except as may otherwise be noted, and I disclaim any
undertaking to advise you of changes which thereafter may be brought to my
attention or to the attention of the lawyers over whom I exercise general legal
supervision.
This response is limited by, and in accordance with, the ABA Statement of
Policy Regarding Lawyers' Responses to Auditors' Requests for Information
(December 1975); without limiting the generality of the foregoing, the
limitations set forth in such Statement on the scope and use of this response
(Paragraphs 2 and 7) are specifically incorporated herein by reference, and any
description herein of any "loss contingencies" is qualified in its entirety by
Paragraph 5 of the Statement and the
<PAGE>
-3-
accompanying Commentary (which is an integral part of the Statement). Consistent
with the last sentence of Paragraph 6 of the ABA Statement of Policy, this will
confirm as correct the Corporation's understanding that whenever, in the course
of performing legal services for the Corporation with respect to any matter
recognized to involve an unasserted possible claim or assessment that may call
for financial settlement disclosure, I have formed a professional conclusion
that the Corporation must disclose or consider disclosure concerning such
possible claim or assessment. I, as a matter of professional responsibility to
the Corporation, will so advise the Corporation and will consult with the
Corporation concerning the question of such disclosure and the applicable
requirements of Statement of Financial Accounting Standards No. 5.
Very truly yours,
A. Ross Wollen
/ah/arwopin
Attachments as indicated
cf Jay M. Green
Executive Vice President/Finance
<PAGE>
[LETTERHEAD OF LATHAM & WATKINS]
December 23, 1996
Price Waterhouse, L.L.P.
1177 Avenue of the Americas
New York, New York 10036
Re: Culbro Corporation; General Cigar Co., Inc., and General
Cigar Holdings, Inc.
Gentlemen:
At the request of A. Ross Wollen, Esq., Senior Vice President and General
Counsel of Culbro Corporation, General Cigar Co., Inc. and General Cigar
Holdings, Inc. (collectively, the "Company"), we advise you as follows in
connection with your examination of the accounts of the Company.
We call your attention to the fact that, while this firm began representing
the Company on a regular basis as of October 1, 1995, our engagement to date has
been limited to specific matters as to which we were consulted by the Company,
and there may exist matters of a legal nature that could have a bearing on the
Company's financial condition with respect to which we have not been consulted.
Prior to October 1, 1995, this firm had not been engaged by the Company for any
purpose.
Prior to October 1, 1995, John J. Kirby, Jr., Walter P. Loughlin, James V.
Kearney, Francis K. Decker, Jr. and a team of lawyers handled their
representation of the Company at Mudge Rose Guthrie Alexander & Ferdon. Since
October 1, 1995, Messrs. Kerby, Loughlin, Kearney and Decker and their team of
lawyers have been practicing law at Latham & Watkins and have continued to
handle their representation of the Company on
<PAGE>
LATHAM & WATKINS
Price Waterhouse, L.L.P.
December 23, 1996
Page 2
behalf of the firm. Prior to December 1, 1995, Frederick M. Danziger represented
the Company at Mudge Rose Guthrie Alexander & Ferdon. Mr. Danziger has been
practicing with the firm since December 1, 1995 and has also continued his
representation of the Company on behalf of the firm.
Please be advised that our response is limited by, and in accordance with,
the ABA Statement of Policy Regarding Lawyers' Responses to Auditors' Requests
for Information (December 1975) and the accompanying Commentary (which is an
integral part of the Statement). Without limiting the generality of the
foregoing, please be advised that:
(a) The limitations set forth in Paragraphs 2 and 7 of the ABA
Statement of Policy on the scope and use of our response are specifically
incorporated herein by reference.
(b) Our response is limited to a description of "loss contingencies"
of the type defined in Paragraph 5 of the ABA Statement of Policy to the
extent that we have been requested by the Company (in the manner
contemplated by said Paragraph 5) to furnish you with such description. In
that connection, we advise you of our understanding that we have not been
so requested to furnish information regarding any loss contingency of the
type referred to in clauses (b) and (c) of said Paragraph 5.
(c) Any description herein (or in any Attachment hereto) of any "loss
contingency" is qualified in its entirety by Paragraph 5 of the ABA
Statement of Policy and Commentary.
(d) The information set forth herein and in any Attachment hereto is
as of December 17, 1996, the date on which we commenced our internal review
procedures for purposes of preparing this response, and we disclaim any
undertaking to advise you of changes which thereafter may be brought to our
attention.
Subject to the foregoing, we advise you that since December 2, 1995 we have
not been engaged to give substantive attention to, or to represent the Company
in connection with, any matters which, as of November 30, 1996 or the date
hereof, were material loss contingencies coming within the scope of clause (a)
of Paragraph 5 of the ABA Statement of Policy, except as set forth in Attachment
A hereto.
Consistent with the last sentence of Paragraph 6 of the ABA Statement of
Policy and pursuant to the Company's request, this will confirm that whenever,
in the course of performing legal services for the Company with respect to a
matter recognized by us to involve an unasserted possible claim or assessment
that may call for financial statement disclosure, we form a professional
conclusion that the Company must disclose or consider disclosure concerning said
possible claim or assessment, we, as a matter of professional
<PAGE>
LATHAM & WATKINS
Price Waterhouse, L.L.P.
December 23, 1996
Page 3
responsibility to the Company, will so advise that Company and will consult with
the Company concerning the question of such disclosure and the applicable
requirements of that portion of Statement of Financial Accounting Standard No. 5
which relates to "loss contingencies."
The Company has advise us that, by making the request set forth in its
letter to us, the Company does not intend to waive the attorney-client privilege
with respect to any information which the Company has furnished to us. Moreover,
please be advised that our response to you should not be construed in any way to
constitute a waiver of the protection of the attorney work-product doctrine with
respect to any of our files involving the Company.
Without otherwise affecting the limitation imposed upon this letter by the
ABA Statement of Policy, we wish to advise you that this letter does not cover
matters coming to the attention of Frederick M. Danziger, of counsel to the
firm, in his capacity as a director of, or other positions with, the Company.
Very truly yours,
Frederick M. Danziger
` of LATHAM & WATKINS
cc: Culbro Corporation
General Cigar Co., Inc.
<PAGE>
Attachment A
At this time, we are unable to form a judgment, within the meaning and in
accordance with the standards set forth in the ABA Statement of Policy, as to
whether an ultimate outcome unfavorable to the Company in the following matters
is either "probable" or "remote." At this time, we also are unable to give an
estimate, within the meaning and in accordance with the standards set forth in
the ABA Statement of Policy, of the amount or range of potential loss, if any,
which might result to the Company if the outcome in the following matters were
unfavorable.
Tobacco Litigation
In the following cases filed in Florida state courts, the Company was named
as a defendant together with a variety of tobacco product manufacturers and
retailers. Based on tort theories including strict liability, negligence, fraud
and civil conspiracy, plaintiffs allege adverse health effects from the use of
such tobacco products in these actions.
In Re Consolidated Tobacco Cases v. Brown & Williamson Tobacco Corporation,
et al., Fourth Judicial Circuit Court, Duval County, Florida. Two complaints,
which name the Company among other defendants, were filed in late August, 1996;
one is a "standard" personal injury complaint and the other is a "standard"
wrongful death complaint. Allegations include strict liability, negligence and
civil conspiracy. The company is not named in the complaint as a co-conspirator.
The Company has been advised that between 100 and 200 single page complaints
that name specific parties and incorporate allegations made in the "standard"
complaints were filed in connection therewith. It is not known whether the
Company has been named in any individual complaint. The Company has not been
served with any standard or individual complaint.
Florence Walters, et. al. v. Brown & Williamson Tobacco Corporation, et.
al., Fourth Judicial Circuit Court, Duval County, Florida. This class action
complaint was filed in late August, 1996 and specifically lists 291 class
members. The Company has been named together with the other defendants in this
case but has not been served with a complaint. The underlying claims, like the
above referenced "standard" complaints, include strict liability, negligence and
civil conspiracy claims under which the Company is absent from the list of
alleged conspirators.
Joseph Pacifico v. Philip Morris Inc., et. all., Fifteenth Judicial
Circuit, Palm Beach County, Florida. The Company has never been served in this
case and plaintiff has filed an amended complaint which does not name the
Company as a defendant.
Paul Haar and Josephine Haar v. Lorillard Tobacco Company, et. al.,
Thirteenth Judicial Circuit Court, Hillsborough County, Florida. Plaintiffs
voluntarily dismissed the Company from this action without prejudice on April
26, 1996.
Gilbert S. Wilson v. R.J. Reynolds Tobbacco Co., et. al., Fourth Judicial
Circuit Court, Duval County, Florida. The Company was voluntarily dismissed
without prejudice from the case on May 14, 1996.
<PAGE>
Bonnie Starling v. The American Tobacco Company, et. al., Eleventh Judicial
Circuit Court, Dade County, Florida. This action was filed on May 4, 1995.
Although named as a defendant in both the complaint and in an amended complaint
filed by plaintiff, the Company was not served with either complaint. On
February 1, 1996, plaintiff filed a second amended complaint which does not name
the Company as a defendant.
Employment Litigation
Paul Cleveland v. General Cigar Co., Judicial District of Hartford/New
Britain, Hartford, Connecticut. This case alleging wrongful constructive
termination remains pending against the Company; however the former employee has
been convicted in federal court of mail fraud arising from the facts which led
to the former employee's termination.
Federal Elections Committee Investigation
The Matter Under Review investigation initiated by the Federal Elections
Commission in connection with allegations of election fraud made by the employee
who brought the above-referenced wrongful termination action against the
Company, remains open. The Company is expected to be fined an immaterial amount.
Grand Jury Investigation
On February 7, 1996 the United States Attorney for the District of
Connecticut commenced an investigation regarding the same election fraud
allegations investigated by the FEC and certain aspects of the Company's foreign
operations. On October 11, 1996 the United States Attorney declined to prosecute
the Company and its officers and terminated this investigation.
Securities and Exchange Commission Investigations
In connection with the U.S. Securities and Exchange Commission ("SEC")
investigation into trading in the Company's shares in the period prior to its
announcement of an agreement in principle to sell a 51% interest in a subsidiary
to Tabacalera, S.A., two of the Company's officers were interviewed in Spring of
1996. The SEC staff has not communicated with the Company regarding this matter
in several months.
2
<PAGE>
CONFIDENTIAL
ATTORNEY WORK PRODUCT
January 31, 1996
MEMORANDUM OF CONTINGENCIES
This memorandum sets forth to the best of the Corporation's knowledge the
principal contingencies involving asserted or unasserted claims or assessments
and pending or threatened litigation affecting it and its subsidiaries. If a
matter has been referred to outside counsel it indicates the counsel engaged in
each such matter. In many actions both the Corporation and one of its
subsidiaries are named. The Corporation reserves the right to seek to remove
itself from litigation in appropriate circumstances and the use of the term
"Corporation" herein does not indicate an admission of proper jurisdiction; nor
should it affect the status of such subsidiary as a separate legal entity.
Consistent with the deconsolidation of the financial statements of the Eli
Witt Company ("Eli Witt") from those of the Corporation in 1994, this Memorandum
of Contingencies no longer includes Eli Witt which will issue its own Memorandum
and separate requests for attorney representation letters.
(a) Litigation
(b) Town of West Springfield v. Culbro Corporation
In 1986 the State of Massachusetts closed certain public and private
wells in the West Springfield, Massachusetts area, where the Corporation
has farmed tobacco, because of contamination by ethylene dibromide (EDB)
and other pesticides. Subsequently the Corporation's farms were identified
as a probable source of the EDB contamination.
In April 1987 the Town of West Springfield, Massachusetts filed suit
in Hampden County Superior Court against the Corporation, another tobacco
farmer, nine chemical manufacturers and an unknown number of unnamed
manufacturers and distributors of pesticides.
<PAGE>
In November 1995 the parties agreed to settle this litigation. The
Corporation agreed to pay $50,000 toward such settlement, all of which will
be paid, or reimbursed to it, by its insurance carriers.
The Corporation's environmental counsel in Massachusetts is Bulkley,
Richardson & Gelinas, Springfield, Massachusetts.
(ii) Tobacco Litigation
In 1995 the Corporation's General Cigar Co., Inc. subsidiary
("General Cigar") and/or the Corporation were named as defendants, together
with a variety of other tobacco product manufacturers and retailers, in
four Florida state circuit court actions alleging adverse health effects
from the use by the plaintiffs of such tobacco products. The Corporation
and General Cigar were subsequently dismissed from two of these actions in
October and November of 1995. General Cigar understands that these actions
were filed by several law firms which, according to press reports,
coordinate their filings and are considering many such lawsuits against
numerous tobacco product manufacturers. These are individual actions for
products liability and are not class actions. They are based on traditional
tort law and include fraud claims and are not based on recent legislation
passed in Florida and certain other states relating to reimbursement of
health care costs. The remaining two actions are captions: Starling vs. The
American Tobacco Company, Inc. et al., (Circuit Court, Fourth Judicial
Circuit, Dade County, Florida) (the Corporation was named but not served);
and Paul Haar v. Lorillard Tobacco Co. (023492-0004) (the Corporation was
named and served). These actions are in their very preliminary stages.
James Kearney, Esq. Of the New York office of Latham & Watkins
and local Florida counsel are handling these matters for the Corporation
and General Cigar.
<PAGE>
(iii) Fraud Litigation - Drug Investigation - Wrongful Discharge
Litigation
In the spring of 1995 General Cigar learned that illegal drugs
were passing through its Dothan, Alabama plant. The drugs were apparently
being secreted by persons currently unknown in cigar shipping cartons
originating from General Cigar's Kingston, Jamaica plant.
General Cigar, upon learning of the alleged drug trafficking,
hired former criminal prosecutor James Harmon, Esq. Of New York who also
served as Executive Director and General Counsel of the President's
Commission on Organized Crime. Mr. Harmon, and the private investigators he
retained, have cooperated on behalf of General Cigar with Customs Officials
and other federal and state officials throughout the investigation. A
federal grand jury in Birmingham, Alabama has the matter under
investigation. As a result of the investigation, two former General Cigar
employees have been indicted and are awaiting trial on drug-related
charges.
The investigation described above led to the discovery of almost
$1,000,000 of fraudulent trucking invoices between General Cigar's Dothan
facility and an Alabama trucking concern. Effective September 1, 1995
General Cigar suspended Paul Cleveland, Senior Vice President of
Operations, for his involvement in the fraudulent trucking invoices. Mr.
Cleveland was suspended because "he processed these invoices in a way which
was an unacceptable deviation from the company's business practices."
In September 1995 General Cigar filed in Alabama a civil suit under
the RICO statute against the trucking concern. Mr. Cleveland and two owners
of the trucking concern were later added as defendants in that action.
In late October 1995 Mr. Cleveland filed suit in the Judicial District
of Hartford - New Britain (a state court) against General Cigar and its
president, Austin McNamara, alleging wrongful constructive termination and
a variety of other claims. This action is being defended by John King, Esq.
Of the Hartford, Connecticut Law Firm of Updike, Kelly & Spellacy.
<PAGE>
The Corporation's internal audit department and General Cigar have
investigated each of Mr. Cleveland's claims, and believe they are without
merit.
One of Mr. Cleveland's charges is that he was constructively
terminated because of his intention to reveal certain allegedly illegal
campaign contributions by General Cigar. While General Cigar is confident
that this activity played no part in Mr. Cleveland's suspension, it does
appear that corporate reimbursements by General Cigar of certain personal
campaign contributions by its senior employees could constitute technical
violations of the Federal Elections Campaign Act (the "Act"). General Cigar
and Culbro's internal audit department also investigated this matter.
That investigation revealed that personal contributions had been made
to three campaigns and the donors reimbursed by General Cigar as follows:
1994, Committee for Newt Gingrich ($5000); 1995, Committee for Sam Gibbons
($1000); and 1995, Committee for Bob Dole ($5000). The investigation also
revealed that the reimbursement to General Cigar employees, including
himself, had been authorized by General Cigar's President, Austin McNamara.
All three campaigns have refunded all of the contributions.
Counsel for General Cigar and Mr. McNamara have corresponded with the
Federal Elections Commission ("FEC") which initiated a Matter Under Review
("MUR") investigation into these matters as a result of a complaint filed
with it by Mr. Cleveland. The Corporation and General Cigar believe, based
upon their investigations, that the above described reimbursements were not
made with the knowledge that the Act was being violated nor were they made
with the intent to violate the Act. General Cigar and its employees
involved in this matter have requested an opportunity, in light of
mitigating circumstances, to enter into a pre-probable cause conciliation
agreement with the FEC to terminate the MUR. The Corporation's Chairman has
admonished Mr. McNamara for breaching company policy.
(iv) DJEEP Lighter (SIBJET) Claims
The Corporation and/or its General Cigar Co., Inc.
<PAGE>
subsidiary is a defendant in a suit filed by an individual claiming
injuries allegedly caused by his use of an allegedly defective DJEEP
disposable cigarette lighter. The suit, filed in October of 1990, is
pending in the Supreme court of the State of New York, New York County and
alleges that the plaintiff sustained serious and permanent injuries. The
complaint in that suit demands damages in the amount of $8,000,000.
Settlement discussions at immaterial amounts have been held.
The DJEEP brand lighters are manufactured by Societe Industriel
Briquet de Jetable ("SIBJET") in France and distributed exclusively by
General Cigar in the United States. SIBJET is not a party to the action
discussed above.
General Cigar is indemnified by SIBJET for liability relating to
personal injury caused by the use of the lighters and is named as a
additional insured on SIBJET's policy of insurance. The Corporation
believes that SIBJET's insurance coverage will be adequate to cover an
adverse determination of this claim.
(v) Culbro v. William J. Spiegel
The Corporation is currently engaged in arbitration before a
panel of three arbitrators of the American Arbitration Association in
Philadelphia, Pennsylvania to recover amounts representing the overpayment
for the Gilbreth International business acquired by the Corporation in
1988.
(vi) Trine Manufacturing Company, Inc. Patent Matters
Trine Manufacturing Company, Inc., a subsidiary of the
Corporation which manufacturers labeling machines ("Trine"), has reached a
settlement of its patent infringement litigation with B&H Manufacturing,
Inc. ("B&H") in the Federal District Court for the Eastern District of
California, Fresno Division. See the description of such litigation and
related matters on page 11 of the Registrant's Form 10-K for the fiscal
year ended November 28, 1992.
<PAGE>
There is no litigation or arbitration involving Trine currently
pending with respect to the B&H patents. The settlement with B&H should
preclude any such indemnity action against the Corporation in the United
States. The settlement, however, does not affect foreign markets and such
litigation is possible in the future. None has been initiated to the
Corporation's knowledge.
(vii) Imperial Nurseries Azalea Crop
This discussion covers developments in the litigation described
in Item 3(iv) of the Corporation's Form 10-K for 1994 fiscal year which
relate to its subsidiary, Imperial Nurseries, Inc., ("Imperial"). The trial
described in Item 3(iv) resulted in a jury verdict on April 11, 1995 of no
recovery by Imperial for the loss of its azalea crop, above the $240,000
previously paid to Imperial. Imperial waived its right to appeal for which
it received approximately $100,000 and in connection therewith the
defendant waived its right to recover substantial costs from Imperial.
Imperial has notified its property insurance carrier of this result and may
seek a partial recovery from such carrier for this crop loss.
(b) Other Matters
Investigation
In May 1995 the U.S. Securities Exchange Commission ("SEC") began
an investigation into trading in Culbro shares in the period prior to its
announcement of an agreement in principle to sell a 51% interest in its
General Cigar subsidiary to Tabacalera, S.A. The New York Stock Exchange
subsequently initiated a similar inquiry. The transaction with Tabacalera,
S.A. was subsequently terminated.
The SEC staff was provided with numerous documents they requested
and they interviewed several officers of the Corporation and General Cigar.
The Corporation also supplied the SEC with numerous reports in various
financial media and the general press about the resurgence in interest in
cigars and the substantial interest in Culbro and General Cigar in early
1995. They are being
<PAGE>
represented in this investigation by Walter P. Laughlin, Esq. of the New
York office of Latham & Watkins. The SEC staff has not been in contact with
the Corporation or its counsel for some time and the Corporation does not
know the status of these investigations.
General Cigar - Superfund Proceeding
In June 1992 the Corporation received a Potentially Responsible Party
("PRP") letter from the United States Environmental Protection Agency
("EPA") relating to the International Depositary, Inc. Superfund Site in
North Kingston, Rhode Island. The PRP letter relates to waste allegedly
generated by the Culbro Tobacco Division of General Cigar Co., Inc. and
removed to the Site by a licensed waste removal company. The PRP letter
indicates Culbro Tobacco's exposure may be limited to approximately 1.7% of
$1,200,000 of remedial expenses incurred by EPA. The Corporation has paid
$25,000 in settlement of the EPA claim. The State of Rhode Island is also
claiming damages from the PRP's and the Corporation believes its share of
such damages would be less than the amount paid to the EPA. The Corporation
will seek to recover reimbursement of any amounts paid from its licensed
transporter, which has refused reimbursement but agreed to binding
arbitration of the matter. Updike Kelley & Spellacy of Hartford,
Connecticut is monitoring this matter for the Corporation and several other
of its clients.
The Corporation and its subsidiaries are defendants in various other
litigation which is not deemed to be material in the aggregate, including
personal liability actions believed to be adequately covered by insurance and
actions relating to employee terminations.
<PAGE>
(c) Tax Matters
The tax years prior to 1992 are closed. The Internal Revenue Service
while scheduled to audit 1992-1993, has not contacted the Corporation with
a start date.
The Internal Revenue Service is currently auditing employment taxes
for 1990 and 1991. The Corporation anticipates that the IRS will challenge
the Corporation's failure to withhold employment taxes from amounts paid to
William Spiegel pursuant to a contract entered into in 1988 when the
Corporation acquired Gilbreth International. The Corporation will oppose
that position if the IRS asserts it. If the IRS is successful in such
assertion the Corporation will seek reimbursement from Mr. Spiegel in the
arbitration proceedings described in (a)(iv).
The Corporation deems its consolidated tax reserves, giving effect to
credits, to be adequate.
Any matters which do not specify counsel are being handled by the
Corporation's Legal Department or tax staff.
<PAGE>
EMPLOYMENT AND CONSULTING AGREEMENT
-----------------------------------
EMPLOYMENT AND CONSULTING AGREEMENT made as of January 21, 1997 by and
among General Cigar Co., Inc., a Delaware corporation ("GCC") with its
principal office at 387 Park Avenue South, New York, New York 10016 and Frank
Llaneza ("Executive") c/o Villazon & Company, Inc., 3104 N America Avenue,
Tampa, Florida 33601.
WITNESSETH:
WHEREAS, GCC simultaneously with the execution of this Agreement is
acquiring all of the assets of Villazon, pursuant to an Asset Purchase
Agreement dated as of December 20, 1996 (the "Purchase Agreement");
WHEREAS, upon acquiring the assets of Villazon, GCC shall assign all such
assets to its subsidiary, Villazon & Company, Inc., a Delaware Corporation
("New Villazon"). Unless the context otherwise requires, a reference to GCC
in this Agreement shall be deemed to include New Villazon.
WHEREAS, capitalized terms not otherwise defined herein shall have the
meanings ascribed thereto in the Purchase Agreement;
WHEREAS, Villazon is, and has for many years been, engaged in the
Business;
WHEREAS, Executive has been President of Villazon, a principal
shareholder of Villazon, has unique experience in all aspects of the Business
and is the principal officer of the operations of Villazon based at Tampa,
Florida, principally comprising the manufacture and distribution of Villazon
products and general oversight of the operations of HATSA (the "Position");
WHEREAS, GCC desires to continue the services of Executive in connection
with the Business; and
WHEREAS, Executive is willing to continue to act in the capacities
provided for herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter contained, the parties agree as follows:
1. SERVICES. (a) During the Initial Term (hereinafter defined) GCC
hereby engages Executive and Executive hereby accepts such engagement, to act
as a principal executive of GCC and President of New Villazon with respect to
the Business and to continue to discharge the duties historically associated
with his Position. During the Initial Term Executive's services shall cover
all aspects of the Business relating to his Position and he shall serve on a
full time basis as such principal executive subject to the direction of the
Board of Directors of GCC and Edgar M.
<PAGE>
Cullman, Jr., Chief Executive Officer. Executive shall also participate in a
planning-management committee comprised of himself, Frank Llaneza, Edgar M.
Cullman, Sr., Edgar M. Cullman, Jr. and Austin T. McNamara which will meet
periodically in person or by conference call to identify areas of opportunity
where GCC can collaborate with Villazon and HATSA to their mutual benefits.
(b) SERVICES DURING CONSULTING TERM. During the Consulting Term
(hereinafter defined) Executive shall consult with respect to all aspects of
the Business including product development and customer and supplier
relations. He shall also at the reasonable request and expense of GCC attend
GCC and industry meetings and trade shows. Executive in connection with his
duties during the Consulting Term shall not be required to be away from his
principal residence for more than 14 days a year.
(c) SERVICES DURING NON-COMPETITION TERM. During the Non-Competition Term
(hereinafter defined) Executive shall provide such advice as shall be
required by GCC from time to time and shall on the request of GCC participate
not more than 7 days a year in the aggregate at trade shows. During the
Non-Competition Term Executive's services other than at trade shows shall not
require him to travel without his consent.
2. TERM. (a) The Initial Term of this Agreement ("Initial Term") and the
engagement of Executive hereunder shall commence as of the date hereof and
shall continue (unless sooner terminated as hereinafter provided) for their
period from the date hereof to and including the final day of January, 2000.
The Consulting Term shall commence the following day and end the final day of
January, 2001. The Non-Competition Term shall commence the following day and
end the final day of January, 2002, PROVIDED, HOWEVER, that the
non-competition obligation hereof shall terminate if there is a default on
the Installment Note or the Stockholder Loan Note ("Notes") held by
Executive. Term shall mean the period from the date hereof to the final day
of January, 2002.
3. EXCLUSIVITY OF SERVICES/TRADE SECRETS. (a) During the Initial Term,
Executive will render his services to GCC on an exclusive basis. During the
Term Executive shall devote his best efforts to his activities hereunder.
During the Initial Term his services hereunder shall require his full time
participation at the office and manufacturing locations of GCC and Villazon
in Tampa, Florida and temporarily at such other locations as the parties
shall agree. Thereafter during the Consulting Term Executive shall devote
such time as may be required to fulfill the services required as specified in
Section 1(b). During the Non-Competition Term the sole required services to
be performed shall be those specified in Section 1(c) hereof. As used herein,
the term full time participation shall mean such participation as the
Executive has provided to Villazon during 1996.
(b) Executive shall not, directly or indirectly, during the Term enter
into or in any manner take part in or lend his name,
2
<PAGE>
counsel or assistance to any venture, business or endeavor, either as
proprietor, principal, partner, consultant, advisor, agent or independent
contractor or in any other capacity whatsoever including investing in or
receiving a royalty or share of the profits or compensation of any nature
from any such venture for a purpose competitive with the Business or, to his
knowledge, any Affiliate, as defined in the Securities Act of 1933, (an
"Affiliate") of GCC during the Term PROVIDED, HOWEVER, that (i) ownership,
including beneficial ownership by him or his family, of less than 1% of any
class of the capital stock of a corporation whose securities are regularly
traded on a national securities exchange or in the over-the-counter market
provided that no services are rendered to such corporation shall not be
deemed to violate this provision; and (ii) neither his ownership of a direct
or indirect interest in Russell (as owned on the date hereof) nor, while such
ownership continues, his management of Russell (to the extent managed by him
heretofore) shall be deemed to violate this provision, so long as the
business of Russell is not materially different from its business as at the
date hereof.
(c) Except (i) as specifically authorized in writing by GCC or (ii) in
accordance with the proper performance of his duties hereunder Executive
agrees that he will not at any time during the Term or thereafter disclose or
use any secrets or any confidential and/or proprietary information, knowledge
or data pertaining to the Business or other enterprise or business with which
he would be prohibited from competing hereunder, including, without
limitation, the Business processes, trade secrets, tobacco purchasing
sources, methods, customers lists, know-how, machines, manufacturing
procedures, tobacco blends or flavorings of GCC or the Business.
(d) Executive shall not at any time during the Term or thereafter seek to
hire for any purpose any person, other than a relative of his, employed by
Villazon or GCC within the last 36 months or at any time during the Term.
(e) It is the intention of GCC to make the covenants of this Agreement
binding only to the extent that it may be lawfully done under existing
applicable laws. In the event that any part of any covenants contained in
this Agreement is determined by a court of law to be overly broad, thereby
making the covenants unenforceable, the parties hereto agree, and it is their
desire that such court shall substitute a reasonable judicially enforceable
limitation in place of the offensive part of the covenant, and that as so
modified the covenant shall be as fully enforceable as set forth herein by
the parties themselves in the modified form.
(f) Executive consents and agrees to the enforcement of this Agreement by
GCC, upon determination of a breach hereof, by means of a temporary and/or
permanent injunction and/or decree of specific performance issued by any
court having jurisdiction thereof. The undertakings and agreements by
Executive herein shall not be construed as any limitation upon the
enforcement of this Agreement and such remedies, including damage awards,
shall be
3
<PAGE>
cumulative and in addition to any other rights or remedies which GCC may have
at law or in equity.
4. COMPENSATION. During the Initial Term GCC shall pay Executive,
bi-weekly, $250,000 per year. No other payments shall be due hereunder.
Executive upon appropriate accounting shall be reimbursed for his reasonable
expenses in providing services hereunder.
5. OPTIONS. The parties anticipate that General Cigar Holdings, Inc.
("Parent"), the parent of GCC, will shortly consummate an initial public
offering of its common stock ("IPO"). Upon such IPO, Executive shall be
entitled to receive options, pursuant to Parent's employee stock ownership
plan ("Plan"), for a number of shares of common stock of Parent with an
exercise price equal to $360,000. The terms and conditions of such options,
including exercise price and vesting date, shall be the same as the options
granted to other officers participating in the Plan.
6. REPRESENTATIONS AND WARRANTIES. GCC represents and warrants to
Executive that this Agreement has been duly authorized, executed and
delivered by GCC and constitutes a legal, valid and binding obligation of GCC.
7. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF EXECUTIVE. Executive
represents and warrants to GCC that this Agreement has been duly authorized,
executed and delivered by Executive and constitutes a legal, valid and
binding obligation of Executive. Executive represents and warrants that
neither the execution and delivery of this Agreement, nor his performance
hereunder will violate any agreement, arrangement or duty to which he is
subject, and agrees to hold GCC harmless from any loss, cost or expense
arising from any litigation or threatened litigation relating to his
engagement hereunder.
8. TERMINATION OF EMPLOYMENT.
(a) Executive's employment hereunder may be terminated for (i) death
or incapacity to provide full services hereunder either for a consecutive
three-month period or for an aggregate of four months in any nine-month
period; (ii) material breach of fidelity or loyalty to GCC, or dishonesty in
any material transaction with GCC; (iii) failure or refusal to perform
expected functions of a principal executive on behalf of GCC during the
initial Term including all services or duties provided for pursuant to
Section 1(a) or his reduced duties during the rest of the Term; and (iv) the
knowing and willful engaging by Executive in material misconduct injurious to
GCC monetarily or otherwise. Termination of this Agreement pursuant to this
Section 8(a) shall result in the forfeiture by Executive of all compensation
not paid hereunder as of the date of termination and such other damages and
other remedies as may be determined by a court of competent jurisdiction.
4
<PAGE>
(b) Executive may terminate his employment hereunder without cause
upon giving 60 days written notice of termination to GCC at the address set
forth above. Termination of this Agreement pursuant to this Section 8(b)
shall result in the Executive ceasing to be entitled to any compensation and
other benefits and perquisites as set forth herein as of the date of
termination.
(c) Executive may terminate this Agreement immediately in the event
GCC breaches any material term of this Agreement and fails to cure the same
within 5 business days after receiving written notice thereof. Upon
termination pursuant to Section 8(c) Executive shall have all remedies as
are available at law.
(d) All duties of Executive under Section 3 hereof shall survive any
termination of this Agreement unless a default occurs in the Notes held by
Executive.
9. WAIVERS AND MODIFICATIONS. No waiver by any of the parties hereto of
any breach by the other of any provision hereof shall be deemed to be a
waiver of any later or other breach hereof, or as a waiver of any such or
other provision of this Agreement. This Agreement sets forth all of the terms
of the understandings among the parties with reference to the subject matter
set forth herein and may not be waived, changed, discharged or terminated
orally or by any course of dealing among the parties, but only by an
instrument in writing signed by the party against whom any waiver, change,
discharge or termination is sought.
10. EMPLOYEE BENEFITS. Executive shall be entitled to continue to receive
such employee benefits and perquisites as were received by him during the
past year as an employee of Villazon. Executive shall also participate in the
Plan as set forth in paragraph 5 hereof, Parent's incentive compensation plan
and such other employee benefit plans as may be generally available to
executives of Parent.
11. BINDING EFFECT. This Agreement shall inure to the benefit of, and be
binding upon, each of the parties hereto and his or its successors and
assigns. The rights, duties and obligations of Executive hereunder may not be
assigned under any circumstances.
12. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York and all parties
hereto consent to jurisdiction in the New York Courts and to service of
process by certified mail.
13. MISCELLANEOUS. The headings of the Sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute a part
hereof or to affect the meaning thereof.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written.
FRANK LLANEZA
By: /s/ Frank Llaneza
-----------------------------------
GENERAL CIGAR CO., INC.
By: /s/ [Illegible]
-----------------------------------
Secretary
6
<PAGE>
EMPLOYMENT AND CONSULTING AGREEMENT
-----------------------------------
EMPLOYMENT AND CONSULTING AGREEMENT made as of January 21, 1997 by and
among GENERAL CIGAR CO., INC., a Delaware corporation ("GCC") with its
principal office at 387 Park Avenue South, New York, New York 10016 and
Daniel Blumenthal ("Executive") c/o Villazon & Company, Inc., 25 Park Way,
Upper Saddle River, NJ 07458
WITNESSETH:
WHEREAS, GCC simultaneously with the execution of this Agreement is
acquiring all of the assets of Villazon, pursuant to an Asset Purchase
Agreement dated as of December 20, 1996 (the "Purchase Agreement");
WHEREAS, upon acquiring the assets of Villazon, GCC shall assign all such
assets to its subsidiary, Villazon & Company, Inc., a Delaware Corporation
("New Villazon"). Unless the context otherwise requires, a reference to GCC
in this Agreement shall be deemed to include New Villazon.
WHEREAS, capitalized terms not otherwise defined herein shall have the
meanings ascribed thereto in the Purchase Agreement;
WHEREAS, Villazon is, and has for many years been, engaged in the
Business;
WHEREAS, Executive has been Chairman of Villazon, a principal shareholder
of Villazon, has unique experience in all aspects of the Business and is the
principal officer of the operations of Villazon based at Upper Saddle River,
New Jersey, principally comprising the sale, marketing and distribution of
cigars and other tobacco products produced by Villazon and HATSA (the
"Position");
WHEREAS, GCC desires to continue the services of Executive in connection
with the Business; and
WHEREAS, Executive is willing to continue to act in the capacities
provided for herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter contained, the parties agree as follows:
1. SERVICES. (a) During the Initial Term (hereinafter defined) GCC hereby
engages Executive and Executive hereby accepts such engagement, to act as a
principal executive of GCC and Chairman of New Villazon with respect to the
Business and to continue to discharge the duties historically associated with
his Position. During the Initial Term Executive's services shall cover all
aspects of the Business relating to his Position and he shall serve as such
principal executive subject to the direction of the Board of Directors of GCC
and Edgar M. Cullman, Jr., Chief Executive Officer. Executive shall also
participate in a planning management committee comprised of himself, Frank
Llaneza, Edgar M. Cullman, Sr., Edgar M. Cullman, Jr., and Austin T. McNamara
which
<PAGE>
will meet periodically in person or by conference call to identify areas of
opportunity where GCC can collaborate with Villazon and HATSA to their mutual
benefits.
(b) SERVICES DURING CONSULTING TERM. During the Consulting Term
(hereinafter defined) Executive shall consult with respect to all aspects of
the Business including product development and customer and supplier
relations. He shall also at the reasonable request and expense of GCC attend
GCC and industry meetings and trade shows. Executive in connection with his
duties during the Consulting Term shall not be required to be away from his
principal residence for more than 14 days a year.
(c) SERVICES DURING NON-COMPETITION TERM. During the Non-Competition Term
(hereinafter defined) Executive shall provide such advice as shall be
required by GCC from time to time and shall on the request of GCC participate
not more than 7 days a year in the aggregate at trade shows. During the
Non-Competition Term Executive's services other than at trade shows shall not
require him to travel without his consent.
2. TERM. (a) The Initial Term of this Agreement ("Initial Term") and the
engagement of Executive hereunder shall commence as of the date hereof and
shall continue (unless sooner terminated as hereinafter provided) for the
period from the date hereof to and including the final day of January, 2000.
The Consulting Term shall commence the following day and end the final day of
January, 2001. The Non-Competition Term shall commence the following day and
end the final day of January, 2002, PROVIDED, HOWEVER, that the
non-competition obligation hereof shall terminate if there is a default on
the Installment Note or the Stockholder Loan Note ("Notes") held by
Executive. Term shall mean the period from the date hereof to the final day
of January, 2002.
3. EXCLUSIVITY OF SERVICES/TRADE SECRETS. (a) During the Initial Term,
Executive will render his services to GCC on an exclusive basis. During the
Term Executive shall devote his best efforts to his activities hereunder.
During the Initial Term his services hereunder shall require his full time
participation at the office and manufacturing locations of GCC and Villazon
in Upper Saddle River, New Jersey and temporarily at such other locations as
the parties shall agree. Thereafter during the Consulting Term Executive
shall devote such time as may be required to fulfill the services required as
specified in Section 1(b). During the Non-Competition Term the sole required
services to be performed shall be those specified in Section 1(c) hereof. As
used herein, the term full time participation shall mean such participation
as the Executive has provided to Villazon during 1996.
(b) Executive shall not, directly or indirectly, during the Term enter
into or in any manner take part in or lend his name, counsel or assistance to
any venture, business or endeavor, either as proprietor, principal, partner,
consultant, advisor, agent or independent contractor or in any other capacity
whatsoever
2
<PAGE>
including investing in or receiving a royalty or share of the profits or
compensation of any nature form any such venture for a purpose competitive
with the Business or, to his knowledge, any Affiliate, as defined in the
Securities Act of 1933, (an "Affiliate") of GCC during the Term PROVIDED,
HOWEVER, that (i) ownership, including beneficial ownership by him or his
family, of less than 1% of any class of the capital stock of a corporation
whose securities are regularly traded on a national securities exchange or in
the over-the-counter market provided that no services are rendered to such
corporation shall not be deemed to violate this provision; (ii) neither his
ownership of a director or indirect interest in Russell (as owned on the date
hereof) nor, while such ownership continues, his management of Russell (to
the extent managed by him heretofore) shall be deemed to violate this
provision, so long as the business of Russell is not materially different
from its business as at the date hereof; and (iii) neither his ownership of a
direct or indirect interest in Tinder Box International, L.T.D. ("Tinder
Box") nor, while such ownership continues, his participation in management
and as a director of Tinder Box shall be deemed to violate this provision.
(c) Except (i) as specifically authorized in writing by GCC or (ii) in
accordance with the proper performance of his duties hereunder Executive
agrees that he will not at any time during the Term of thereafter disclose or
use any secrets or any confidential and/or proprietary information, knowledge
or data pertaining to the Business or other enterprise or business with which
he would be prohibited from competing hereunder, including, without
limitation, the Business processes, trade secrets, tobacco purchasing
sources, methods, customer lists, know-how, machines, manufacturing
procedures, tobacco blends or flavorings of GCC or the Business.
(d) Executive shall not at any time during the Term or thereafter seek to
hire for any purpose any person, other than a relative of his, employed by
Villazon or GCC within the last 36 months or at any time during the Term.
(e) It is the intention of GCC to make the covenants of this Agreement
binding only to the extent that it may be lawfully done under existing
applicable laws. In the event that any part of any covenants contained in this
Agreement is determined by a court of law to be overly broad, thereby making
the covenants unenforceable, the parties hereto agree, and it is their
desire that such court shall substitute a reasonable judicially enforceable
limitation in place of the offensive part of the covenant, and that as so
modified the covenant shall be as fully enforceable as set forth herein by
the parties themselves in the modified form.
(f) Executive consents and agree to the enforcement of this Agreement by
GCC, upon determination of a breach hereof, by means of a temporary and/or
permanent injunction and/or decree of specific performance issued by any
court having jurisdiction thereof. The undertakings and agreements by
Executive herein shall not be construed as any limitation upon the
enforcement of this
3
<PAGE>
Agreement and such remedies, including damage awards, shall be cumulative and
in addition to any other rights or remedies which GCC may have at law or in
equity.
4. COMPENSATION. During the Initial Term GCC shall pay Executive,
bi-weekly, $250,000 per year. No other payments shall be due hereunder.
Executive upon appropriate accounting shall be reimbursed for his reasonable
expenses in providing services hereunder.
5. OPTIONS. The parties anticipate that General Cigar Holdings, Inc.
("Parent"), the parent of GCC, will shortly consummate an initial public
offering of its common stock ("IPO"). Upon such IPO, Executive shall be
entitled to receive options, pursuant to Parent's employee stock ownership
plan ("Plan"), for a number of shares of common stock of Parent with an
exercise price equal to $360,000. The terms and conditions of such options,
including exercise price and vesting date, shall be the same as the options
granted to other officers participating in the Plan.
6. REPRESENTATIONS AND WARRANTIES. GCC represents and warrants to
Executive that this Agreement has been duly authorized, executed and
delivered by GCC and constitutes a legal, valid and binding obligation of GCC.
7. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF EXECUTIVE. Executive
represents and warrants to GCC that this Agreement has been duly authorized,
executed and delivered by Executive and constitutes a legal, valid and
binding obligation of Executive. Executive represents and warrants that
neither the execution and delivery of this Agreement, nor his performance
hereunder will violate any agreement, arrangement or duty to which he is
subject, and agrees to hold GCC harmless from any loss, cost or expense
arising from any litigation or threatened litigation relating to his
engagement hereunder.
8. TERMINATION OF EMPLOYMENT.
(a) Executive's employment hereunder may be terminated for (i) death
or incapacity to provide full services hereunder either for a consecutive
three-month period or for an aggregate of four months in any nine-month
period; (ii) material breach of fidelity or loyalty to GCC, or dishonesty in
any material transaction with GCC; (iii) failure or refusal to perform
expected functions of a principal executive on behalf of GCC during the
Initial Term including all services or duties provided for pursuant to
Section 1(a) or his reduced duties during the rest of the Term; and (iv) the
knowing and willful engaging by Executive in material misconduct injurious to
GCC monetarily or otherwise. Termination of this Agreement pursuant to this
Section 8(a) shall result in the forfeiture by Executive of all compensation
not paid hereunder as of the date of termination and such other damages and
other remedies as may be determined by a court of competent jurisdiction.
4
<PAGE>
(b) Executive may terminate his employment hereunder without cause
upon giving 60 days written notice of termination to GCC at the address set
forth above. Termination of this Agreement pursuant to this Section 8(b)
shall result in the Executive ceasing to be entitled to any compensation and
other benefits and perquisites as set forth herein as of the date of
termination.
(c) Executive may terminate this Agreement immediately in the event
GCC breaches any material term of this Agreement and fails to cure the same
within 5 business days after receiving written notice thereof. Upon
termination pursuant to Section 8 (c) Executive shall have all remedies as
are available at law.
(d) All duties of Executive under Section 3 hereof shall survive any
termination of this Agreement unless a default occurs in the Notes held by
Executive.
9. WAIVERS AND MODIFICATIONS. No waiver by any of the parties hereto of
any breach by the other of any provision hereof shall be deemed to be a
waiver of any later or other breach hereof, or as a waiver of any such or
other provision of this Agreement. This Agreement sets forth all of the terms
of the understandings among the parties with references to the subject matter
set forth herein and may not be waived, changed, discharged or terminated
orally or by any course of dealing among the parties, but only by an
instrument in writing signed by the party against whom any waiver, change,
discharge or termination is sought.
10. EMPLOYEE BENEFITS. Executive shall be entitled to continue to receive
such employee benefits and perquisites as were received by him during the
past year as an employee of Villazon. Executive shall also participate in the
Plan as set forth in paragraph 5 hereof, Parent's incentive compensation plan
and such other employee benefit plans as may be generally available to
executives of Parent.
11. BINDING EFFECT. This Agreement shall inure to the benefit of, and be
binding upon, each of the parties hereto and his or its successors and
assigns. The rights, duties and obligations of Executive hereunder may not be
assigned under any circumstances.
12. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York and all
parties hereto consent to jurisdiction in the New York State Courts and to
service of process by certified mail.
13. MISCELLANEOUS. The headings of the Section of this Agreement are
inserted for convenience only and shall not be deemed to constitute a part
hereof or to affect the meaning thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written.
5
<PAGE>
DANIEL BLUMENTHAL
By: /s/ Daniel Blumenthal
---------------------------------
GENERAL CIGAR CO., INC.
By: /s/ [illegible]
---------------------------------
Secretary
6
<PAGE>
EMPLOYMENT AND CONSULTING AGREEMENT
-----------------------------------
EMPLOYMENT AND CONSULTING AGREEMENT made as of January 21, 1997 by and
among GENERAL CIGAR CO., INC., a Delaware corporation ("GCC") with its
principal office at 387 Park Avenue South, New York, New York 10016 and
Constantino Gonzalez ("Executive") c/o Villazon & Company, Inc., 3104 N
America Avenue, Tampa, Florida 33601.
WITNESSETH:
WHEREAS, GCC simultaneously with the execution of this Agreement is
acquiring all of the assets of Villazon, pursuant to an Asset Purchase
Agreement dated as of December 20, 1996 (the "Purchase Agreement");
WHEREAS, upon acquiring the assets of Villazon, GCC shall assign all such
assets to its subsidiary, Villazon & Company, Inc., a Delaware Corporation
("New Villazon"). Unless the context otherwise requires, a reference to GCC
in this Agreement shall be deemed to include New Villazon.
WHEREAS, capitalized terms not otherwise defined herein shall have the
meanings ascribed thereto in the Purchase Agreement;
WHEREAS, Villazon is, and has for many years been, engaged in the
Business;
WHEREAS, Executive has been Secretary and Treasurer of Villazon, a
principal shareholder of Villazon, has unique experience in all aspects of
the Business and is the principal assistant officer of the operations of
Villazon based at Tampa, Florida, principally comprising the manufacture and
distribution of Villazon products and general oversight of the operations of
and HATSA (the "Position");
WHEREAS, GCC desires to continue the services of Executive in connection
with the Business; and
WHEREAS, Executive is willing to continue to act in the capacities
provided for herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter contained, the parties agree as follows:
1. SERVICES. (a) During the Initial Term (hereinafter defined) GCC hereby
engages Executive and Executive hereby accepts such engagement, to act as a
principal executive of GCC with respect to the Business and to continue to
discharge the duties historically associated with his Position. During the
Initial Term Executive's services shall cover all aspects of the Business
relating to his Position and he shall serve on a full time basis as such
principal executive subject to the direction of the Board of Directors of GCC
and Edgar M. Cullman, Jr., Chief Executive Officer.
<PAGE>
(b) SERVICES DURING CONSULTING TERM. During the Consulting Term
(hereinafter defined) Executive shall consult with respect to all aspects of
the Business including product development and customer and supplier
relations. He shall also at the reasonable request and expense of GCC attend
GCC and industry meetings and trade shows. Executive in connection with his
duties during the Consulting Term shall not be required to be away from his
principal residence for more than 14 days a year.
(c) SERVICES DURING NON-COMPETITION TERM. During the Non-Competition Term
(hereinafter defined) Executive shall provide such advice as shall be
required by GCC from time to time and shall on the request of GCC participate
not more than 7 days a year in the aggregate at trade shows. During the
Non-Competition Term Executive's services other than at trade shows shall not
require him to travel without his consent.
2. TERM. (a) The Initial Term of this Agreement ("Initial Term") and the
engagement of Executive hereunder shall commence as of the date hereof and
shall continue (unless sooner terminated as hereinafter provided) for the
period from the date hereof to and including the final day of January, 2000.
The Consulting Term shall commence the following day and end the final day of
January, 2001. The Non-Competition Term shall commence the following day and
end the final day of January, 2002, PROVIDED, HOWEVER, that the
non-competition obligation hereof shall terminate if there is a default on
the Installment Note or the Stockholder Loan Note ("Notes") held by
Executive. Term shall mean the period from the date hereof to the final day
of January, 2002.
3. EXCLUSIVITY OF SERVICES/TRADE SECRETS. (a) During the Initial Term,
Executive will render his services to GCC on an exclusive basis. During the
Term Executive shall devote his best efforts to his activities hereunder.
During the Initial Term his services hereunder shall require his full time
participation at the office and manufacturing locations of GCC and Villazon
in Tampa, Florida and temporarily at such other locations as the parties
shall agree. Thereafter during the Consulting Term Executive shall devote
such time as may be required to fulfill the services required as specified in
Section 1(b). During the Non-Competition Term the sole required services to
be performed shall be those specified in Section 1(c) hereof. As used herein,
the term full time participation shall mean such participation as the
Executive has provided to Villazon during 1996.
(b) Executive shall not, directly or indirectly, during the Term enter
into or in any manner take part in or lend his name, counsel or assistance to
any venture, business or endeavor, either as proprietor, principal, partner,
consultant, advisor, agent or independent contractor or in any other capacity
whatsoever including investing in or receiving a royalty or share of the
profits or compensation of any nature form any such venture for a purpose
competitive with the Business or, to his knowledge, any Affiliate, as defined
in the Securities Act of 1933, (an
2
<PAGE>
"Affiliate") of GCC during the Term PROVIDED, HOWEVER, that (i) ownership,
including beneficial ownership by him or his family, of less than 1% of any
class of the capital stock of a corporation whose securities are regularly
traded on a national securities exchange or in the over-the-counter market
provided that no services are rendered to such corporation shall not be
deemed to violate this provision; (ii) neither his ownership of a director or
indirect interest in Russell (as owned on the date hereof) nor, while such
ownership continues, his management of Russell (to the extent managed by him
heretofore) shall be deemed to violate this provision, so long as the
business of Russell is not materially different from its business as at the
date hereof; and (iii) neither his ownership of a direct or indirect interest
in Tinder Box International, L.T.D. ("Tinder Box") nor, while such ownership
continues, his participation in management and as a director of Tinder Box
shall be deemed to violate this provision.
(c) Except (i) as specifically authorized in writing by GCC or (ii) in
accordance with the proper performance of his duties hereunder Executive
agrees that he will not at any time during the Term of thereafter disclose or
use any secrets or any confidential and/or proprietary information, knowledge
or data pertaining to the Business or other enterprise or business with which
he would be prohibited from competing hereunder, including, without
limitation, the Business processes, trade secrets, tobacco purchasing
sources, methods, customer lists, know-how, machines, manufacturing
procedures, tobacco blends or flavorings of GCC or the Business.
(d) Executive shall not at any time during the Term or thereafter seek to
hire for any purpose any person, other than a relative of his, employed by
Villazon or GCC within the last 36 months or at any time during the Term.
(e) It is the intention of GCC to make the covenants of this Agreement
binding only to the extent that it may be lawfully done under existing
applicable laws. In the event that any part of any covenants contained in
this Agreement is determined by a court of law to be overly broad, thereby
making the covenants unenforceable, the parties hereto agree, and its is
their desire that such court shall substitute a reasonable judicially
enforceable limitation in place of the offensive part of the covenant, and
that as so modified the covenant shall be as fully enforceable as set forth
herein by the parties themselves in the modified form.
(f) Executive consents and agree to the enforcement of this Agreement by
GCC, upon determination of a breach hereof, by means of a temporary and/or
permanent injunction and/or decree of specific performance issued by any
court having jurisdiction thereof. The undertakings and agreements by
Executive herein shall not be construed as any limitation upon the
enforcement of this Agreement and such remedies, including damage awards,
shall be cumulative and in addition to any other rights or remedies which GCC
may have at law or in equity.
4. COMPENSATION. During the Initial Term GCC shall pay Executive,
bi-weekly, $250,000 per year. No other payments shall be due hereunder.
Executive upon appropriate accounting shall be reimbursed for his reasonable
expenses in providing services
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hereunder.
5. OPTIONS. The parties anticipate that General Cigar Holdings, Inc.
("Parent"), the parent of GCC, will shortly consummate an initial public
offering of its common stock ("IPO"). Upon such IPO, Executive shall be
entitled to receive options, pursuant to Parent's employee stock ownership
plan ("Plan"), for a number of shares of common stock of Parent with an
exercise price equal to $280,000. The terms and conditions of such options,
including exercise price and vesting date, shall be the same as the options
granted to other officers participating in the Plan.
6. REPRESENTATIONS AND WARRANTIES. GCC represents and warrants to
Executive that this Agreement has been duly authorized, executed and
delivered by GCC and constitutes a legal, valid and binding obligation of GCC.
7. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF EXECUTIVE. Executive
represents and warrants to GCC that this Agreement has been duly authorized,
executed and delivered by Executive and constitutes a legal, valid and
binding obligation of Executive. Executive represents and warrants that
neither the execution and delivery of this Agreement, nor his performance
hereunder will violate any agreement, arrangement or duty to which he is
subject, and agrees to hold GCC harmless from any loss, cost or expense
arising from any litigation or threatened litigation relating to his
engagement hereunder.
8. TERMINATION OF EMPLOYMENT.
(a) Executive's employment hereunder may be terminated for (i) death
or incapacity to provide full services hereunder either for a consecutive
three-month period or for an aggregate of four months in any nine-month
period; (ii) material breach of fidelity or loyalty to GCC, or dishonesty in
any material transaction with GCC; (iii) failure or refusal to perform
expected functions of a principal executive on behalf of GCC during the
Initial Term including all services or duties provided for pursuant to
Section 1(a) or his reduced duties during the rest of the Term; and (iv) the
knowing and willful engaging by Executive in material misconduct injurious to
GCC monetarily or otherwise. Termination of this Agreement pursuant to this
Section 8(a) shall result in the forfeiture by Executive of all compensation
not paid hereunder as of the date of termination and such other damages and
other remedies as may be determined by a court of competent jurisdiction.
(b) Executive may terminate his employment hereunder without cause
upon giving 60 days written notice of termination to GCC at the address set
forth above. Termination of this Agreement pursuant to this Section 8(b)
shall result in the Executive ceasing to be entitled to any compensation and
other benefits and perquisites as set forth herein as of the date of
termination.
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(c) Executive may terminate this Agreement immediately in the event
GCC breaches any material term of this Agreement and fails to cure the same
within 5 business days after receiving written notice thereof. Upon
termination pursuant to Section 8 (c) Executive shall have all remedies as
are available at law.
(d) All duties of Executive under Section 3 hereof shall survive any
termination of this Agreement unless a default occurs in the Notes held by
Executive.
9. WAIVERS AND MODIFICATIONS. No waiver by any of the parties hereto of
any breach by the other of any provision hereof shall be deemed to be a
waiver of any later or other breach hereof, or as a waiver of any such or
other provision of this Agreement. This Agreement sets forth all of the terms
of the understandings among the parties with references to the subject matter
set forth herein and may not be waived, changed, discharged or terminated
orally or by any course of dealing among the parties, but only by an
instrument in writing signed by the party against whom any waiver, change,
discharge or termination is sought.
10. EMPLOYEE BENEFITS. Executive shall be entitled to continue to receive
such employee benefits and perquisites as were received by him during the
past year as an employee of Villazon. Executive shall also participate in the
Plan as set forth in paragraph 5 hereof, Parent's incentive compensation plan
and such other employee benefit plans as may be generally available to
executives of Parent.
11. BINDING EFFECT. This Agreement shall inure to the benefit of, and be
binding upon, each of the parties hereto and his or its successors and
assigns. The rights, duties and obligations of Executive hereunder may not be
assigned under any circumstances.
12. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York and all
parties hereto consent to jurisdiction in the New York State Courts and to
service of process by certified mail.
13. MISCELLANEOUS. The headings of the Section of this Agreement are
inserted for convenience only and shall not be deemed to constitute a part
hereof or to affect the meaning thereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written.
CONSTANTINO GONZALEZ
By: /s/ Constantino Gonzalez
---------------------------------
GENERAL CIGAR CO., INC.
By: /s/ [illegible]
---------------------------------
Secretary
<PAGE>
Exhibit 21.1
Direct and Indirect Subsidiaries of General Cigar Holdings, Inc.
State or Other Jurisdiction of
Name* Incorporation or Organization
- ---- -----------------------------
Club Macanudo, Inc. New York
GCH Transportation, Inc. Delaware
General Cigar Co., Inc. Delaware
387 PAS Corp. New York
387 PAS Enterprises New York
Villazon & Company, Inc. Delaware
Cifuentes Free Zone, Ltd. Jamaica, W.I.
Cifuentes Y Cia, Ltd. Jamaica, W.I.
Club Macanudo (Chicago), Inc. Illinois
Culbro International, S.A. Delaware
Culbro International U.K., Ltd. Delaware
Culbro Tobacco Sales Corporation Virgin Islands
Culbro V.L. Tobacco, S.A. Dominican Republic
Gradiaz Annis & Co., Inc. Jamaica, W.I.
Helmetta Realty Corp. New Jersey
Honduras American Tabaco, S.A. de C.V. Honduras
Industrial Buildings & Properties Inc. Jamaica, W.I.
Jose Escalante & Co. Delaware
Macanudo Cigar Company, Inc. Delaware
Moll Tool & Plastics Corp. Indiana
Partagas Cigar Company, Inc. Delaware
Twenty Seventh & Park, Inc. New York
* The names listed are the only names under which the subsidiaries do
business.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated January 28, 1997,
relating to the combined financial statements of General Cigar Holdings, Inc.,
which appears in such Prospectus. We also consent to the reference to us under
the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
New York, New York
January 31, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated December 20, 1996,
relating to the financial statements of Villazon & Company, Inc. and Subsidiary,
which appears in such Prospectus. We also consent to the reference to us under
the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Tampa, Florida
February 3, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated December 20, 1996,
relating to the financial statements of Honduras American Tabaco, S. A. de C.
V., which appears in such Prospectus. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
/s/ Price Waterhouse
Tegucigalpa, M.D.C.
February 3, 1997
