SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 29, 1997
-------------------------------------------
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-12757
GENERAL CIGAR HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3922128
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
387 Park Avenue South, New York, New York 10016-8899
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(Registrant's Telephone Number, Including Area Code) (212) 448-3800
--------------
Securities registered pursuant to Section
12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
Class A Common Stock, $0.01 par value New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to the
date of filing: $262,000,000 approximately, based on the closing sales price on
the New York Stock Exchange on February 25, 1998.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: As of February 25,
1998 Class A Common Stock: 12,290,060 shares; Class B Common Stock: 15,293,898
shares.
The following documents, or portions thereof as indicated in the following
report, are incorporated by reference in the Parts of Form 10-K indicated:
Part Document
- ---- --------
I Annual Report to Shareholders for the fiscal year ended November 29, 1997
II Annual Report to Shareholders for the fiscal year ended November 29, 1997
III Proxy Statement in connection with the 1998 Annual Meeting of Shareholders
IV Annual Report to Shareholders for the fiscal year ended November 29, 1997
(such Annual Report is referred to hereinafter as the "Annual Report")
- --------------------------------------------------------------------------------
<PAGE>
FORM 10-K GENERAL CIGAR HOLDINGS, INC.
Part I
ITEM 1. - BUSINESS
General
General Cigar Holdings, Inc. (which prior to February 1997 was a
wholly-owned subsidiary of Culbro Corporation) and its principal operating
subsidiary, General Cigar Co., Inc. (collectively, "General Cigar" or the
"Company") 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). General
Cigar believes its Macanudo brand is the top selling premium cigar brand sold in
the U.S. and that three of its other brands are in the top ten.
General Cigar markets its cigars under a number of well-known brand names.
General Cigar's premium cigars include the Macanudo, Partagas, Punch, Hoyo de
Monterrey, El Rey Del Mundo, Temple Hall, Cohiba, Canaria d'Oro, Cifuentes and
Ramon Allones brands. General Cigar's mass market large cigars include Garcia y
Vega, White Owl, Robt. Burns and Wm. Penn. General Cigar's mass market small
cigars include the Tiparillo and Tijuana Smalls brands, as well as smaller sizes
of its other mass market brands. General Cigar does not participate in the
market for little cigars, which are cigars that resemble cigarettes. General
Cigar 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. A
second Club Macanudo is scheduled to open in Chicago in April 1998.
General Cigar is a grower and supplier of Connecticut Shade tobacco grown
on its own farms and used in making Macanudo, Temple Hall, Garcia y Vega and
other cigars. The Connecticut Shade tobacco used for wrapper on General Cigar'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. 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 General Cigar's
cigar manufacturing facilities in the Dominican Republic and Jamaica.
Approximately 33% of General Cigar's Connecticut Shade tobacco is sold to third
parties.
Sales and Marketing
General Cigar 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, buying clubs and convenience store chains),
tobacconists, specialty retailers (such as Neiman Marcus and Orvis) and consumer
catalogue retailers. In 1997 one customer, J.R. Tobacco Company, accounted for
approximately 11.5% of General Cigar's total sales.
General Cigar has 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
General Cigar acts as category manager. General Cigar also employs a direct
sales force to develop and service its sales to wholesalers, distributors,
direct buying chains and tobacconists. General Cigar's sales force is composed
of two groups, one group responsible for the sale of all General Cigar'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. General Cigar's sales force
operates nationally with account coverage structured geographically to provide
for close relationships with local customers.
2
<PAGE>
FORM 10-K GENERAL CIGAR HOLDINGS, INC.
General Cigar actively pursues innovative outlets for marketing its
premium cigars to the luxury goods consumer, such as golf pro shops and upscale
wine shops. General Cigar also has developed a program through which it markets
cigars and cigar menus directly to restaurants. With respect to its mass market
brands, General Cigar has adopted a program to promote its brands with certain
retailers, such as CVS and Walmart/McLane, by acting as tobacco Acategory
manager". General Cigar 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 General Cigar's brands.
General Cigar advertises its premium cigar products in cigar specialty
magazines, such as Cigar Aficionado and Smoke, as well as general magazines
targeted to an upscale adult audience such as Fortune, Forbes and Golf Digest.
General Cigar advertises its mass market cigar products primarily through
newspapers, sports magazines and similar publications, as well as its website,
"cigarworld.com." General Cigar has substantially increased its marketing and
advertising expenditures in order to continue to build the brand recognition of
its premium cigar brands, as well as to support new product introductions. Since
1993, General Cigar 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 and Macanudo, Cohiba, Cifuentes and
Partagas branded logo apparel.
Sales of General Cigar's cigar products outside of the U.S. currently are
not material, although General Cigar plans to increase its international
presence, particularly with respect to the Macanudo brand. General Cigar will
focus its efforts in the United Kingdom, Germany, France, Spain, China, Russia
and certain countries in South America, as well as duty free markets worldwide.
General Cigar 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. General
Cigar already has begun distributing premium and mass market cigars in China.
On October 2, 1997, the Company acquired DB International Marketing, Ltd.,
("DBI") a U.K. based cigar distribution company, which previously was a customer
of the Company. DBI was subsequently renamed General Cigar International
("GCI"). The purchase price has been estimated at $7.0 million of which $2.0
million was paid at closing. The final purchase price will be determined based
on a percentage of sales for each of the succeeding fiscal years through the
year 2000. The excess of the estimated purchase price over the net tangible
assets acquired was approximately $6.7 million, and is being amortized over 15
years. DBI sales and operating profit for the period in fiscal 1997 prior to the
acquisition were $6.3 million and $0.9 million, respectively.
Trademarks
General Cigar's success and ability to compete are dependent to a
significant degree on its trademarks. General Cigar generally owns the
trademarks under which its products are sold. General Cigar 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. General Cigar holds the right to use
the Macanudo trademark and brand name for cigars in many countries worldwide.
General Cigar does not, however, hold or own the right to use certain of its
well-known trademarks and brand names, including Partagas and Cohiba, in most
foreign markets. General Cigar'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.
General Cigar pays royalties to the prior owners of certain of its trademarks.
Such payments are not material. General Cigar owns the following U.S.
trademarks:
3
<PAGE>
FORM 10-K GENERAL CIGAR HOLDINGS, INC.
Premium Cigar Brands Mass Market Cigar Brands
- -------------------- ------------------------
Macanudo Garcia y Vega
Partagas White Owl
Punch Tiparillo
Hoyo de Monterrey Robt. Burns
Cohiba Tijuana Smalls
Cifuentes Wm. Penn
Excalibur Lord Beaconsfield
Ramon Allones Villa De Cuba
Temple Hall Pedro Iglesias
El Rey Del Mundo Top Stone
Canaria d'Oro Villazon Deluxe
Bolivar
Belinda
Bances
General Cigar vigorously defends its trademarks from their improper use by
others, including the manufacturers and distributors of infringing and
counterfeit cigars. In December 1997 General Cigar was issued a preliminary
injunction by a U.S. District Court against Global Direct Marketing, a New York
company distributing cigars which infringed General Cigar's Cohiba brand. See
also "Legal Proceedings - Other Litigation" for a discussion of other
proceedings related to General Cigar's Cohiba brand.
Raw Materials
General Cigar 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. General Cigar 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, General Cigar
discontinued shipping Macanudo cigars for a two month period as excessive demand
led to a shortage of properly aged and blended tobacco. General Cigar has
experienced shortages in Cameroon-grown natural wrapper tobacco, which is used
in making Partagas and Cohiba cigars, due to the increase in demand for high
quality natural wrapped cigars. Because General Cigar is a leading grower and
supplier of Connecticut Shade tobacco, which is used in making Macanudo, Temple
Hall and Garcia y Vega cigars, General Cigar 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. General
Cigar has an extensive seed development program to improve the wrapper tobacco
characteristics. General Cigar lost certain seed samples and records in a fire
in 1994. It is currently litigating its claim for the value of its lost seeds
with its property insurance carrier.
4
<PAGE>
FORM 10-K GENERAL CIGAR HOLDINGS, INC.
Competition
General Cigar is the largest manufacturer and marketer in the U.S. in both
units and dollar sales of brand name premium cigars. General Cigar's main
competitors in the branded and private label premium markets include Davidoff,
Fuente, Consolidated Cigar Holdings Inc. and Matasa. 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. General Cigar's main
competitors in the mass market cigar market are Swisher International Group
Inc., Consolidated Cigar Holdings, Inc., and Havatampa/Phillies Cigar
Corporation, which was recently acquired by multi-national Tabacalera, S.A., the
former Spanish tobacco monopoly. It has been reported that Tabacalera, S.A. will
also become a competitor in the premium market.
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 and visibility of cigars could lead to an increase in the regulation
of cigars. A variety of bills relating to tobacco issues have been introduced in
recent sessions of 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, (iv) substantially 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.
Recently various legislative initiatives have been proposed in connection
with the highly publicized proposed settlement of the various State Attorneys
General medicare actions and the class action and private lawsuits involving the
major cigarette manufacturers and the largest smokeless tobacco company. While
cigar manufacturers were neither defendants in such actions not participants in
the settlement, various of the legislative initiatives proposed to implement
aspects of the settlement have applied to all tobacco products, including
cigars. Moreover, respected members of the public health community and others
have called for Food and Drug Administration ("FDA") jurisdiction over all
tobacco products which contain nicotine. While no reliable standard testing
procedure has been established for cigars because of their many types, sizes and
shapes, and manner of use, it is undisputed cigars contain nicotine and some
will call for FDA regulation of cigars for that reason. The settlement, if
enacted into law as negotiated and applied to cigars, would impose severe
restrictions upon the way General Cigar manufactures, advertises and promotes
its cigars and in the manner which many retailers could display and sell them.
5
<PAGE>
FORM 10-K GENERAL CIGAR HOLDINGS, INC.
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 General Cigar's Djeep lighter sales is to
cigarette manufacturers who sell or give away such lighters with their
cigarettes. These regulations would have a material adverse effect on General
Cigar's Djeep lighter business. A federal court recently ordered the FDA not to
implement the advertising and promotional restrictions which would have affected
the Djeep lighter business. The court, however, upheld FDA jurisdiction over
cigarettes and smokeless tobacco. The decision has been appealed by both the FDA
and the tobacco companies and a decision from the appellate court is expected
soon.
The FDA considered asserting jurisdiction over little cigars in 1995. It
declined to do so in the final rule issued in August 1996 principally because
the FDA concluded that little cigars were not used significantly by teenagers.
In May 1997 the Center for Disease Control ("CDC") issued a widely publicized
report that has come most often to be cited for the claim that "more than a
quarter of the nation's teenagers have smoked a cigar in the past year." While
General Cigar does not produce little cigars and believes the incidence of youth
usage of cigars has been exaggerated, the CDC report is being cited as
justification for extending the legislation implementing the proposed settlement
to all cigars, and for FDA jurisdiction of all cigars.
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 General Cigar. 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. In California, an important state for
General Cigar's sales, the exemption from no-smoking regulations accorded
taverns, bars and cigar bars expired January 1, 1998.
California requires "clear and reasonable" warnings to consumers who are
exposed to chemicals determined by the state to cause cancer or reproductive
toxicity, including tobacco smoke and several of its constituent chemicals. As a
result, all of General Cigar's cigar packaging has, since 1989, contained the
following: "WARNING: This Product Contains/Produces Chemicals Known to the State
of California to Cause Cancer, and Birth Defects or Other Reproductive Harm".
Legislation recently introduced in Massachusetts would, if enacted, also require
warning labels on cigar packaging. Texas, Minnesota and Utah have recently
passed ingredient, additive and/or nicotine disclosure laws applicable to
cigars. 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). The expressed concern of the California legislators
who supported the expiration of the no-smoking exemption for taverns, bars and
cigar bars was the effect of second-hand smoke on the employees of such
establishments. 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 General Cigar's financial
condition.
6
<PAGE>
FORM 10-K GENERAL CIGAR HOLDINGS, INC.
The U.S. Environmental Protection Agency (the "EPA") published a report in
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 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 is expected to issue in the very near future
a comprehensive report describing research into cigars and health. The report is
expected to be generally adverse and widely publicized and could affect pending
and future tobacco regulation and litigation. See "Litigation."
In February 1998, the Federal Trade Commission ("FTC") issued orders to
five of the largest cigar companies, including General Cigar, requiring them to
file "special reports" on their sales and advertising expenditures. The FTC
orders require the cigar manufacturers to report the total number of cigars
sold, the total dollar volume of cigar sales, and the total dollar amounts
expended on cigar advertising, merchandising and promotion in 1996 and 1997. The
orders also require a breakdown of different categories of advertising and
marketing expenses for each cigar brand marketed, including any payments for
placement of cigar products in movies and on television. These categories of
information are similar to the categories of information that the cigarette and
smokeless tobacco manufacturers are required to report to the FTC, and which is
reported on an aggregate basis by the FTC to Congress. General Cigar voluntarily
provided advertising materials to the FTC staff in 1996 and intends to comply
with the orders and cooperate with the FTC investigation, which could lead to
regulations and/or legislation respecting cigar advertising and promotion,
including health warning labels.
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 General Cigar's business.
Litigation
Historically, the cigar industry has experienced less health-related
litigation than the cigarette and smokeless tobacco industries have experienced.
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, 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.
7
<PAGE>
FORM 10-K GENERAL CIGAR HOLDINGS, INC.
Current tobacco litigation generally falls within one of three categories:
class actions, individual actions and actions brought by individual states or
other entities that provide payments for medical services generally to recover
medical 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 are defending certain of these actions
(such as in Minnesota where a trial is in progress) and have settled others,
reportedly for tens of billions of dollars to be paid over many years.
In 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. The flight attendants' action reportedly has been settled by
some or all of the defendant cigarette manufacturers for over $300 million.
See "ITEM 3. - 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 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. General Cigar
believes that the volume of cigars sold would have been dramatically reduced if
excise taxes were enacted as originally proposed. In 1998 various legislative
initiatives relating to the proposed cigarette settlement have been proposed
which, if enacted, could raise the federal cigarette excise tax significantly.
Several of these proposed bills would apply to other tobacco products, including
cigars, and raise their excise tax proportionately. Enactment of these
initiatives could have a material adverse effect on the business of General
Cigar. General Cigar is unable to predict the likelihood of the passage or the
enactment of future increases in tobacco excise taxes as they relate to cigars.
Tobacco products also are subject to certain state and local taxes.
Childrens' health concerns at the state level exert pressure to increase tobacco
taxes. The number of states that impose excise taxes on cigars is over 40. 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.
8
<PAGE>
FORM 10-K GENERAL CIGAR HOLDINGS, INC.
Employees
General Cigar employs approximately 6,000 persons, plus an additional
1,000 seasonal employees. At present, employees at General Cigar'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. General Cigar's contract with TUC expires in March 1999, and
its contract with BITU expired in December 1997 but is mutually extended while
the parties are renegotiating the terms. 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 General Cigar's Villazon & Company facility in
Tampa, Florida are represented by the Cigar Makers' Union Local 533 of the
Retail, Wholesale and Department Store Union AFL-CIO-CLC. General Cigar is in a
dispute with the Union Trustees as to contributions required to be made by it
and the sellers of the Villazon & Company business to the Union's multi-employer
pension fund. No other employees of General Cigar are represented by unions.
General Cigar 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.
ITEM 2. - Properties
Land Holdings
General Cigar owns approximately 1,100 acres of land in the Connecticut
River Valley used in its tobacco growing operations. In addition, General Cigar
is leasing for a ten-year period approximately 500 acres of arable land in
Connecticut from its former affiliate Griffin Land & Nurseries, Inc.
("Griffin"). Griffin at its option may terminate the lease as to 100 acres
annually.
9
<PAGE>
FORM 10-K GENERAL CIGAR HOLDINGS, INC.
Principal Properties
As of February 25, 1998, the principal properties owned or leased (most
leases are subject to renewal) by General Cigar for use in its business
included:
<TABLE>
<CAPTION>
Owned Lease
Location or Expiration Nature of Operations Approximate
- -------- Leased Date -------------------- Floor Space (1)
------ ---- ---------------
<S> <C> <C> <C> <C>
New York, New York Owned(2) N/A Executive Offices-New 210,000
York Headquarters
New York, New York Leased 8/31/05 Club Macanudo-Cigar Bar 5,000
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 Owned N/A Warehouse 30,000
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
Woking, England Leased 12/9/2018 Office 1,352 square feet
San Pedro Sula, Honduras Owned N/A Manufacturing & 6.9 acres (entire
Distribution site)
San Pedro Sula, Honduras Leased 3/31/99 Offices 421 square meters
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 Leased 12/31/00 Sales & Distribution 21,500
Jersey
Chicago, Illinois Leased 9/31/01 Club Macanudo-Cigar Bar 11,000
</TABLE>
- --------------
(1) In square feet, except where indicated.
(2) General Cigar uses approximately 25,000 square feet. The balance is leased
or available for lease.
(3) Industrial Revenue Bond financing lease. General Cigar owns a 52,000 square
foot warehouse in Dothan, Alabama that is leased to a third party.
(4) General Cigar 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. General Cigar subleases 70,000 square feet
of these facilities to Shade Leaf Processors.
10
<PAGE>
FORM 10-K GENERAL CIGAR HOLDINGS, INC.
General Cigar believes that its existing manufacturing facilities and
distribution centers are adequate for the current level of General Cigar's
operations. General Cigar is, however, in the process of expanding its
operations to meet increasing demand. General Cigar recently completed the
expansion of its manufacturing space in Jamaica, through a combination of new
construction and reconfiguration of existing space at those facilities to
increase the overall square footage devoted to the manufacturing process. A
similar expansion in the Dominican Republic is nearing completion.
Capital expenditures in 1998 are projected at approximately $20 million,
principally to complete current manufacturing capacity expansion projects, and
install a new computer system. General Cigar has commenced installation of a new
computer information system which will provide significantly enhanced systems
capability, as well as "Year 2000" readiness. The cost of the entire project is
estimated at $7 million, and the funds will be expended principally in 1998.
General Cigar believes that its facilities are well maintained and in
substantial compliance with environmental laws and regulations.
ITEM 3. - Legal Proceedings
Tobacco Litigation
General Cigar is a party to lawsuits incidental to its business. General
Cigar has been named in a lawsuit brought in federal court in Tampa, Florida by
a prisoner seeking damages for personal injury allegedly caused by smoking
cigars manufactured by General Cigar. General Cigar has moved to dismiss the
case and the motion to dismiss is pending. General Cigar, together with a
variety of other tobacco product manufacturers and retailers, has been named in
eight suits in Florida since 1995; however, it has been served in only five of
these lawsuits and in four such cases was voluntarily dismissed as a defendant
(without prejudice in each such dismissed case). One of the suits in which
General Cigar has been named but not served is a putative class action, filed on
or about August 30, 1996, brought against General Cigar 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, General Cigar 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. General Cigar has not been served
with complaints in any such cases. General Cigar believes that the outcome of
such legal proceedings as are pending will not in the aggregate have a material
adverse effect on General Cigar's consolidated financial position. General Cigar
carries general liability insurance but has no health hazard policy, which, to
the best of General Cigar'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 cigar manufacturers. The costs to General
Cigar 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 General Cigar'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
against cigars.
11
<PAGE>
FORM 10-K GENERAL CIGAR HOLDINGS, INC.
Other Litigation
In the spring of 1995, General Cigar 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 General Cigar's Kingston, Jamaica plant.
General Cigar 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, General Cigar uncovered
information which led to the conviction of one of its senior managers on 25
counts of mail fraud, who was sentenced to 44 months in a federal prison. The
employee brought suit (which was withdrawn in January 1998) for wrongful
termination and alleged a number of illegal activities by General Cigar,
including election campaign contribution violations. The alleged improper
campaign contributions, aggregating $11,000, have been refunded by such
campaigns. General Cigar entered into a conciliation agreement with the Federal
Election Commission pursuant to which it paid in 1997 a penalty of $80,000 in
connection with these contributions. General Cigar denied any intent to violate
the election law.
In May 1995, the SEC began an informal investigation into trading in the
common stock of Culbro Corporation, the then parent company of General Cigar
("Culbro"), in the period prior to Culbro's announcement of an agreement in
principle to sell a 51% interest in General Cigar. The SEC staff was provided
with numerous documents they requested and they interviewed several officers of
Culbro and General Cigar. General Cigar does not know the status of the
investigation, but it received no communication from the SEC in 1997.
Empressa Cubana Del Tabaco ("Cubatabaco") filed a petition on January 15,
1997 in the United States Patent and Trademark Office ("USPTO") to cancel
General Cigar's two United States trademark registrations of the name Cohiba for
use in connection with cigars. Cubatabaco's petition was filed in response to
the USPTO's anticipated rejection of its attempt to register its Cohiba
trademark in the United States. Subsequently, Cubatabaco filed suit against
General Cigar in U.S. District Court to preliminarily and permanently enjoin
General Cigar's sales of Cohiba cigars and for monetary damages. General Cigar
believes its Cohiba registrations were properly issued by the USPTO and are
valid and that it owns the exclusive right to use the Cohiba mark in the United
States. General Cigar will vigorously defend its rights and registrations in
these proceedings. Both proceedings have been suspended by agreement of the
parties as the parties negotiate a possible settlement of the dispute. General
Cigar's sales of Cohiba cigars represent a small, but growing, percentage of its
premium cigar sales.
General Cigar believes that the outcome of such pending legal proceedings
in the aggregate will not have a material adverse effect on General Cigar's
consolidated financial position. There can be no assurance, however, that
General Cigar will not experience material health-related litigation in the
future. For a discussion of litigation affecting the tobacco industry in
general, see "ITEM 1 - Business - The Tobacco Industry - Litigation".
12
<PAGE>
FORM 10-K GENERAL CIGAR HOLDINGS, INC.
- --------------------------------------------------------------------------------
FORWARD LOOKING STATEMENTS: Certain matters discussed within this Form 10-K may
constitute forward-looking statements within the meaning of the federal
securities laws. Such statements include, without limitations, the Company's
beliefs about trends in the cigar industry and its views about the long-term
future of the industry and the Company. The following factors, among others,
could cause the Company's financial performance to differ materially from that
expressed in such statements (i) changes in consumer preferences resulting in a
decline in the demand for and consumption of cigars; (ii) an inability on the
part of the Company to increase production of cigars, particularly premium
cigars, to meet demand as a result of, among other things, a shortage of raw
materials, trained labor or production capacity, (iii) an increase in the price
of raw materials, (iv) additional governmental regulation of tobacco or further
tobacco litigation, (v) enactment of new, or significant increases in existing,
excise or other taxes or fees or (vi) political and/or economic instability in
foreign countries where the Company has operations.
- --------------------------------------------------------------------------------
PART II
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS
On February 24, 1998 the approximate number of record holders of Common
Stock (of Class A and Class B shares) of General Cigar (including Culbro holders
who have not yet tendered their Culbro shares for exchange) was approximately
850 which does not include beneficial owners whose shares are held of record in
the names of brokers or nominees. The closing market price of the Class A Common
Stock as quoted on the New York Stock Exchange on such date was $15.25 per
share. The information appearing (i) under Quarterly Data on Common Shares in
the Annual Report, (ii) in Note 9 to the Consolidated Financial Statements and
(iii) in Note 14 to the Consolidated Financial Statements are hereby
incorporated by reference.
ITEM 6 - SELECTED FINANCIAL DATA
The Consolidated Statement of Operations and the Selected Financial Data
appearing in the Annual Report are hereby incorporated by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Management's Discussion and Analysis in the Annual Report is hereby
incorporated by reference.
13
<PAGE>
FORM 10-K GENERAL CIGAR HOLDINGS, INC.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements together with the Report of
Independent Accountants are hereby incorporated by reference.
ITEM 9 - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
In accordance with General Instruction G-3 to Form 10-K, the information
called for in this Item 10 with respect to directors is not presented here since
such information is included in the definitive proxy statement which involves
the election of directors which will be filed pursuant to Regulation 14A not
later than 120 days after the close of the fiscal year, and such information is
hereby incorporated by reference from such proxy statement.
The following table sets forth the information called for in this Item 10
with respect to executive officers and other key employees of General Cigar.
Unless otherwise specified, all references prior to 1997 are to Culbro.
Name of executive Other present Year Other positions
officer and positions and service or other business
present principal offices as executive experience during
position (beginning officer past five
(beginning year) Age year) began years (years)
- ---------------- --- ------------- ----- -------------
Edgar M. Cullman 80 Director 1963 None
Chairman of the Board (1961)
(1975)
Edgar M. Cullman, Jr. 51 Director 1983 Chief Operating
President (1984) (1982) Officer
Chief Executive (1992-1996)
Officer (1996)
Edward B. Polite 53 Chief Operating 1998 President, CMS
Executive Vice President Officer (1998) Gilbreth
(1997) Packaging Systems
(1992-1996)
Jay M. Green 50 Treasurer 1988 None
Executive Vice (1988)
President and Chief
Financial Officer (1988)
14
<PAGE>
FORM 10-K GENERAL CIGAR HOLDINGS, INC.
Name of executive Other present Year Other positions
officer and positions and service or other business
present principal offices as executive experience during
position (beginning officer past five
(beginning year) Age year) began years (years)
- ---------------- --- ------------- ----- -------------
A. Ross Wollen 54 Senior Vice 1977 None
General Counsel President
(1980) (1983)
Secretary
(1987)
Joseph C. Aird 53 None 1987 None
Senior Vice President-
Controller (1987)
David M. Danziger 32 Senior Vice 1996 Director of
Vice President President- Operational
Corporate Development Villazon & Projects - The
(1996) Company (a Eli Witt Company
subsidiary of (7/95-1/96);
General Cigar) Harvard Business
(1998) School (MBA)
(9/92-6/94)
Austin T. McNamara 43 President of 1994 Senior Vice
Executive Vice President General Cigar President of
(1996) Co., Inc. Sales & Marketing
(1994) (1993-1994)
Janet A. Krajewski 43 None 1993 None
Vice President-Taxes
(1993)
All of the Company's executive officers are subject to annual reelection.
There were and are no understandings or arrangements between any of the
Company's executive officers and any other person (except directors and officers
acting solely in their capacities as such) pursuant to which any executive
officer was selected as an officer. Messrs. Wollen and Green have employment
agreements terminating in 1999 and 2000, respectively. Positions not otherwise
identified are with the Company.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements (annexed hereto): There are filed as part of
this Report on Form 10-K: the Consent and Report of Independent Accountants; and
the Consolidated Financial Statements (including Notes) of the Company. See
Index To Financial Statements and Additional Financial Data.
(a)(2) Schedules (annexed hereto): Financial Statement Schedules required
by Item 8 of Form 10-K for the fiscal years ended 1997, 1996 and 1995. See Index
To Financial Statements and Additional Financial Data.
15
<PAGE>
FORM 10-K GENERAL CIGAR HOLDINGS, INC.
(a)(3) Exhibits. Certain exhibits are incorporated herein by reference to
the Registration Statement of the Company on Form S-1 filed December 24, 1996
(No. 333-18791) of which the Prospectus is a part (the "Registration
Statement"). (Enumeration corresponds to the Exhibit Table, Item 601, Regulation
S-K. Items not enumerated are not applicable).
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession.
(A) Form of Distribution Agreement among Culbro Corporation, Culbro Land
Resources, Inc. and General Cigar Holdings, Inc. (Incorporated by reference to
Exhibit 2.1 of the Registration Statement).
(B) Form of Merger Agreement between Culbro Corporation and General Cigar
Holdings, Inc. (Incorporated by reference to Exhibit 2.2 of the Registration
Statement).
(3) The Certificate of Incorporation and By-Laws of the Company.
(A) The Certificate of Incorporation, as amended to date (Incorporated by
reference to Exhibit 3.1 of the Registration Statement).
(B) The By-Laws, as amended to date (Incorporated by reference to Exhibits
3.2 of the Registration Statement).
(4) Instruments Defining the Rights of Security Holders, Including
Indentures.
(A) 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 (Incorporated by reference
to Exhibit 10.17 of the Registration Statement), as amended to date.
Certain other documents evidencing indebtedness of the Company are not
filed herewith in reliance upon the exemption provided by Item
601(b)(4)(iii)(A); the Registrant hereby undertakes to furnish a copy of such
documents to the Commission upon request.
(10) Material Contracts; Executive Compensation Plans and Arrangements.
(A) 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).
(B) 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).
16
<PAGE>
FORM 10-K GENERAL CIGAR HOLDINGS, INC.
(C) 1991 Employees Incentive Stock Option Plan of Culbro Corporation
(Incorporated by reference to the definitive proxy statement of Culbro
Corporation, dated April 9, 1991, for its 1991 Annual Meeting of Shareholders
held on May 9, 1991).
(D) 1983 Employees Incentive Stock Option Plan of Culbro Corporation, as
amended (Incorporated by reference to the definitive proxy statement of Culbro
Corporation, dated April 6, 1983, for its Annual Meeting of Shareholders held on
May 12, 1983 and to the Appendix filed pursuant to Rule 424(C) under the
Securities Act of 1933, as amended, dated March 3, 1987).
(E) Employment Contract between Culbro Corporation and Jay M. Green
(Incorporated by reference to the definitive proxy statement of Culbro
Corporation, dated March 14, 1994, for its Annual Meeting of Shareholders held
April 7, 1994) and amendment dated January 11, 1997 (Incorporated by reference
to Exhibit 10.7 of the Registration Statement).
(F) Employment Agreement, dated June 6, 1997, between Culbro Corporation,
General Cigar Holdings, Inc. and A. Ross Wollen.
(G) Stock Option Plan for Non-employee Directors of Culbro Corporation,
dated March 7, 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).
(H) General Cigar Holdings, Inc. 1997 Stock Plan.
(I) 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) Material Contracts; Other
(J) Asset Purchase Agreement, dated as of December 20, 1996, among General
Cigar Co., Inc., Villazon & Company, Inc. and the Stockholders (as defined
therein) (Incorporated by reference to Exhibit 10.1 of the Registration
Statement).
(K) 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) (Incorporated by reference to Exhibit 10.2 of the Registration
Statement).
(L) Form of Tax Sharing Agreement among Culbro Corporation, Culbro Land
Resources, Inc. and General Cigar Holdings, Inc.(Incorporated by reference to
Exhibit 10.3 of the Registration Statement).
(M) Form of Benefits and Employment Matters Allocation Agreement among
Culbro Corporation, Culbro Land Resources, Inc. and General Cigar Holdings,
Inc.(Incorporated by reference to Exhibit 10.4 of the Registration Statement).
(N) Form of Services Agreement among Culbro Corporation, Culbro Land
Resources, Inc. and General Cigar Holdings, Inc.(Incorporated by reference to
Exhibit 10.5 of the Registration Statement).
17
<PAGE>
FORM 10-K GENERAL CIGAR HOLDINGS, INC.
(O) Form of Agricultural Lease between Culbro Land Resources, Inc. and
General Cigar Holdings, Inc.(Incorporated by reference to Exhibit 10.6 of the
Registration Statement).
(13) Annual Report to Security Holders.
The Company's Annual Report to Shareholders for 1997 (portions of
which are annexed hereto). Such Annual Report, except for those portions
which are expressly incorporated by reference, is furnished for the
information of the Securities and Exchange Commission and is not to be
deemed "filed" or incorporated by reference as part of this Form 10-K.
(21) Subsidiaries.
List of Subsidiaries.
(28) Undertaking.
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference to registrant's Prospectus on Form S-8 (Incorporated
by reference to the Form S-8 (File Number 333-30659) of the Company filed July
2, 1997) and subsequent Form S-8's:
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 such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, 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.
(b) The Company filed no reports on Form 8-K.
(c) See (a)(3) above.
(d) See Index to Financial Statements and Additional Financial Data.
18
<PAGE>
FORM 10-K GENERAL CIGAR HOLDINGS, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GENERAL CIGAR HOLDINGS, INC.
By /s/ JAY M. GREEN
----------------
Jay M. Green
Executive Vice President-Finance and
Administration
Pursuant to the requirements of the Securities Exchange Act of 1934, this
annual report has been signed by the following persons on behalf of the Company
and in the capacities indicated as of February 19, 1998.
Signatures Title
---------- -----
/s/ BRUCE A BARNET Director
- ----------------------------
(Bruce A. Barnet)
/s/ JOHN L. BERNBACH Director
- ----------------------------
(John L. Bernbach)
/s/ EDGAR M. CULLMAN Chairman of the Board
- ---------------------------- and Director
(Edgar M. Cullman)
/s/ EDGAR M. CULLMAN, JR. President, Director and
- ---------------------------- Chief Executive Officer
(Edgar M. Cullman, Jr.)
/s/ SUSAN R. CULLMAN Director
- ----------------------------
(Susan R. Cullman)
/s/ JOHN L. ERNST Director
- ----------------------------
(John L. Ernst)
/s/ JAY M. GREEN Executive Vice President and
- ---------------------------- Principal Financial Officer
(Jay M. Green)
/s/ THOMAS C. ISRAEL Director
- ----------------------------
(Thomas C. Israel)
/s/ DAN W. LUFKIN Director
- ----------------------------
(Dan W. Lufkin)
/s/ GRAHAM V. SHERREN Director
- ----------------------------
(Graham V. Sherren)
/s/ PETER J. SOLOMON Director
- ----------------------------
(Peter J. Solomon)
/s/ FRANCIS T. VINCENT, JR. Director
- ----------------------------
(Francis T. Vincent, Jr.)
/s/ JOSEPH C. AIRD Senior Vice President and Controller
- ----------------------------
(Joseph C. Aird)
19
<PAGE>
Quarterly Data on Common Shares
The following are the high and low closing prices of the Class A common
shares of the Company in 1997 as traded on the New York Stock Exchange
from the February 28, 1997 date of commencement of public trading
(NYSE:MPP) through the Company's fiscal year end on November 29, 1997.
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High Low High Low High Low High Low
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 23 22 1/8 29 5/8 20 3/8 31 3/4 21 3/8 33 1/4 20 1/4
</TABLE>
No cash dividends have been declared.
Selected Financial Data
<TABLE>
<CAPTION>
(dollars in thousands except per share data) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales and other revenue $262,833 $154,676 $124,033 $ 89,538 $ 76,825
Operating profit 59,959 20,243 17,624 8,043 2,378
Income before cumulative effect of
accounting change (SFAS 106 in 1993) 36,064 12,407 11,324 4,550 1,307
Pro forma income per common share
before cumulative effect of
accounting change 1.26 0.44 0.40 0.16 0.05
Net income (loss) 36,064 12,407 11,324 4,550 (3,049)
Pro forma net income (loss) per common share 1.26 0.44 0.40 0.16 (0.11)
Working capital 133,129 65,121 43,632 41,176 45,001
Property and equipment, net 67,489 52,507 46,492 47,125 48,597
Total assets 320,205 145,042 113,655 100,974 104,551
Long-term debt 47,540 11,079 11,352 6,998 2,901
</TABLE>
20
<PAGE>
Management's Discussion and Analysis
Liquidity and Capital Resources
In 1997, net cash flow of $0.7 million was provided by operating activities
compared to net cash of $4.9 million used in operating activities in 1996. Both
years reflected principally higher tobacco inventories, accounts receivable, and
accounts payable and accrued liabilities. The Company continued to increase its
inventories of tobacco in 1997 to ensure supplies for future cigar production.
The increase in accounts payable reflects the higher tobacco purchases. The
increase in accounts receivable reflects the increase in sales. Investing
activities in 1997 reflected the acquisition cost of Villazon, excluding the
portion financed with seller notes, capital expenditures principally to increase
cigar manufacturing capacity, and the acquisition in October of GCI, a UK cigar
marketing and distribution company.
The financing activities reflected the proceeds of approximately $111.5
million from the initial public offering (the "Offering"), which was completed
on February 28, 1997. The proceeds were used principally to repay bank
borrowings under a Bank Credit Agreement (the "Credit Agreement") that had been
used to finance the Villazon Acquisition and repay debt assumed from Culbro. The
Credit Agreement, which the Company entered into on January 21, 1997, currently
provides a $50 million three-year revolving credit facility. On April 16, 1997,
the Company repaid a $5 million mortgage on its New York City headquarters
office building with borrowings under the revolving credit facility.
Prior to the Offering, the Company's retained earnings and historical capital
accounts were included in the accompanying financial statements as Culbro
Investment. Subsequent to the Offering, the Company's capital structure reflects
the proceeds from the issuance of the Class A shares in the Offering, the Class
B shares previously owned by Culbro, and retained earnings for the ensuing
periods.
Management believes that cash flow from operations and current borrowing
capacity are sufficient to fund the Company's operations and its anticipated
capital expenditures. Capital expenditures in 1998 are projected at
approximately $20 million, principally to complete current manufacturing
capacity expansion projects, and install a new computer system. The Company has
commenced installation of a new computer information system which will provide
significantly enhanced systems capability, as well as "Year 2000" readiness. The
cost of the entire project is estimated at $7 million, and the funds will be
expended principally in 1998.
Results of Operations
Fiscal 1997 Compared to Fiscal 1996
Net sales increased 70%, or $108.1 million, to $262.8 million in 1997 from
$154.7 million in 1996. This increase reflected higher unit sales of cigars,
higher prices in all cigar categories, and sales of the newly acquired Villazon
business as of January 1997. Unit sales of premium cigars were led by the
premier brands, Macanudo and Partagas. Higher unit sales of mass market cigars
were due to strong performance by the Company's mass market Garcia y Vega brand.
Gross profit for the year increased 87.1%, or $59.6 million, to $128.0
million from $68.4 million in 1996. Gross margin increased to 48.7% in 1997 from
44.2% in 1996. The increase in gross margin reflected higher unit selling prices
and the benefit of relatively higher unit sales of premium cigars.
Selling, general and administrative expenses increased 52.6%, or $23.4
million, to $68.0 million in 1997 from $44.6 million in 1996. The increase
reflected principally higher marketing and selling expenses, and the general and
administrative expenses of Villazon including amortization of the acquired
trademark costs and goodwill. As a percentage of net sales, selling, general and
administrative expenses were 25.9% in 1997 compared to 28.8% in 1996. The
decrease in selling, general and administrative expenses as a percentage of net
sales in 1997 was due to the lower rate of increase in these expenses compared
to the rate of the sales increase. Operating profit in 1997 was approximately
three times the operating profit in 1996. As a result of the higher gross margin
and lower expense to sales ratio, operating margin was 22.8% in 1997 compared to
13.1% in 1996.
21
<PAGE>
The higher interest expense in 1997 reflects principally borrowings on the
revolving credit facility for working capital and capital expenditures. The
proceeds from the Offering were used primarily to repay the borrowings incurred
to finance the Villazon Acquisition and the debt assumed from Culbro. The lower
effective tax rate of 37.5% compared to 38.4% in 1996 reflects a change in the
geographical composition of earnings. The Company anticipates that its effective
tax rate will be lower in 1998 than in 1997 as this trend continues.
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 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 in this category.
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 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 included
approximately $1.9 million of legal expenses incurred in connection with certain
legal proceedings. 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 was 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 included 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 included 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.
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% in fiscal 1996 from 14.2% in 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 gain from an insurance settlement.
22
<PAGE>
Consolidated Statement of Operations
<TABLE>
<CAPTION>
(dollars in thousands except per share data) 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 262,833 $ 154,676 $ 124,033
Cost of goods sold 134,837 86,240 69,683
------------------------------------------
Gross profit 127,996 68,436 54,350
Selling, general and administrative expenses 68,037 44,593 36,726
Other nonrecurring expense -- 3,600 --
------------------------------------------
Operating profit 59,959 20,243 17,624
Gain on insurance settlement -- -- 2,586
Other nonoperating income (expense) 760 853 (597)
Interest expense 3,050 951 1,049
------------------------------------------
Income before income taxes 57,669 20,145 18,564
Income tax provision 21,605 7,738 7,240
------------------------------------------
Net income $ 36,064 $ 12,407 $ 11,324
==========================================
Pro forma net income per common share $ 1.26 $ 0.44 $ 0.40
==========================================
Pro forma weighted average common shares
and equivalents outstanding 28,590,000 28,200,000 28,200,000
==========================================
</TABLE>
See Notes to Consolidated Financial Statements.
23
<PAGE>
Consolidated Balance Sheet
<TABLE>
<CAPTION>
(dollars in thousands except per share data) Nov. 29, 1997 Nov. 30, 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 8,976 $ 409
Receivables, less allowance of $1,331 (1996--$482) 50,963 31,295
Inventories 107,358 53,702
Other current assets 8,779 3,673
--------------------------
Total current assets 176,076 89,079
Property and equipment, net 67,489 52,507
Intangible assets, net, principally trademarks and goodwill 73,740 --
Other assets 2,900 3,456
--------------------------
Total assets $320,205 $145,042
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 40,397 $ 22,827
Long-term debt due within one year 1,224 1,131
Income taxes 1,326 --
--------------------------
Total current liabilities 42,947 23,958
Long-term debt 47,540 11,079
Accrued retirement benefits 15,923 12,525
Deferred income taxes 5,317 1,057
Other noncurrent liabilities 10,974 2,704
--------------------------
Total liabilities 122,701 51,323
--------------------------
Commitments and Contingencies (Note 15)
Stockholders' Equity
Culbro Investment -- 93,719
Preferred stock, par value $0.01--authorized: 20,000,000 shares;
Issued: none -- --
Class B common stock, par value $0.01--authorized: 25,000,000 shares;
Issued: 15,707,226 shares 157 --
Class A common stock, par value $0.01--authorized: 50,000,000 shares;
Issued: 11,876,729 shares 119 --
Additional paid-in capital 165,441 --
Retained earnings 31,787 --
--------------------------
Total stockholders' equity 197,504 93,719
--------------------------
Total liabilities and stockholders' equity $320,205 $145,042
==========================
</TABLE>
See Notes to Consolidated Financial Statements.
24
<PAGE>
Consolidated Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Class B Class A Additional Total
Culbro Common Common Paid-in Retained Stockholders'
(dollars in thousands) Investment Stock Stock Capital Earnings Equity
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at November 30, 1996 $ 93,719 $ -- $ -- $ -- $ -- $ 93,719
Net income through the Offering date 4,277 -- -- -- -- 4,277
Liability assumption (46,937) -- -- -- -- (46,937)
Transactions with Culbro (2,393) -- -- -- -- (2,393)
Reclassification of Culbro Investment
at Offering date (48,666) 200 -- 48,466 -- --
Exercise of stock options -- 7 -- 1,828 -- 1,835
Tax benefit from exercise of stock options -- -- -- 3,732 -- 3,732
Net proceeds from Offering -- -- 69 111,415 -- 111,484
Net income subsequent to Offering -- -- -- -- 31,787 31,787
Exchange of shares -- (50) 50 -- -- --
--------------------------------------------------------------------
Balance at November 29, 1997 $ -- $ 157 $119 $165,441 $31,787 $ 197,504
====================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
25
<PAGE>
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
(dollars in thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 36,064 $ 12,407 $ 11,324
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 7,159 3,813 3,550
Gain on insurance settlement -- -- (2,586)
Changes in assets and liabilities, net of Villazon Acquisition and Liability
Assumption in 1997 (Note 5):
Increase in accounts receivable (13,706) (7,492) (10,600)
Increase in inventories (47,121) (15,859) (733)
Increase in accounts payable and accrued liabilities 14,257 2,087 9,834
Decrease in income taxes payable (1,070) -- --
Increase (decrease) in deferred income taxes 4,555 (1,064) (236)
Other, net 540 1,189 (1,017)
-------------------------------------
Net cash provided by (used in) operating activities 678 (4,919) 9,536
-------------------------------------
Investing Activities
Acquisition of Villazon, net of cash acquired (Note 12) (71,198) -- --
Additions to property and equipment (15,155) (9,701) (2,841)
Acquisition of General Cigar International (2,000) -- --
Proceeds from insurance settlement -- -- 2,225
-------------------------------------
Net cash used in investing activities (88,353) (9,701) (616)
-------------------------------------
Financing Activities
Net proceeds from Offering 111,484 -- --
Proceeds from exercise of stock options 1,835 -- --
Tax benefit from exercise of stock options 3,732 -- --
Increase in debt (Note 12) -- 476 5,000
Payments of debt (17,416) (563) (673)
Net transactions with Culbro, excluding Liability Assumption (2,393) 15,217 (13,389)
Other, net (1,000) (423) --
-------------------------------------
Net cash provided by (used in) financing activities 96,242 14,707 (9,062)
-------------------------------------
Net increase (decrease) in cash and cash equivalents 8,567 87 (142)
Cash and cash equivalents at beginning of period 409 322 464
-------------------------------------
Cash and cash equivalents at end of period $ 8,976 $ 409 $ 322
=====================================
</TABLE>
See Notes to Consolidated Financial Statements.
26
<PAGE>
Notes to Consolidated Financial Statements
(dollars in thousands except per share data)
NOTE 1:
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation
General Cigar Holdings, Inc. (the "Company") was formed on December 12, 1996.
Until the Company's initial public offering (the "Offering"-- Note 2) on
February 28, 1997, the Company was a wholly-owned subsidiary of Culbro
Corporation ("Culbro"). The consolidated financial statements of the Company
include the accounts of the Company and its subsidiaries General Cigar Co., Inc.
("General Cigar"), Club Macanudo, Inc. ("Club Macanudo"), and 387 PAS Corp.
("387 PAS"). These businesses and certain net assets of Culbro were transferred
to the Company by Culbro under the terms of a Distribution and Merger Agreement
(see below). The accompanying financial statements reflect the results of
operations of these businesses and assets for all of the periods presented. Club
Macanudo, which operates a cigar bar, and 387 PAS which owns and operates the
Company's headquarters building, were not material to the Company's results of
operations in any of the periods presented.
Certain other liabilities, including Culbro's general corporate debt, accrued
retirement and other obligations (see Liability Assumption in Note 5) were also
transferred to the Company by Culbro. These liabilities have been reflected in
the accompanying financial statements as of February 27, 1997, the date of the
Distribution and Merger Agreement (the "Agreement") among the Company, Culbro,
and Culbro's former wholly-owned subsidiary, Griffin Land & Nurseries, Inc.
("Griffin"). Pursuant to the Agreement, Griffin was spun off by Culbro to
Culbro's shareholders on July 3, 1997, and on August 29, 1997, Culbro was merged
into the Company. At the time of the merger, Culbro's principal asset was the
Class B shares of the Company and the merger was accounted for at historical
cost. Consequently, the transaction had no effect on the financial condition or
results of operations of the Company.
Fiscal Year
The Company's fiscal year ends on the Saturday nearest November 30. Fiscal 1997,
1996 and 1995 ended on November 29, 1997, November 30, 1996 and December 2,
1995, respectively and each year 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
average cost 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.
The Company generally accepts returns of cigars that are stale or damaged in
transit. Sales revenue is recorded net of anticipated returns based on
historical experience. Sales returns are not material.
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.
27
<PAGE>
Cash and Cash Equivalents
Cash and cash equivalents include cash on deposit and bank commercial paper
which matures within 90 days of purchase.
Intangible Assets
Intangible assets include principally the excess of the costs of businesses
acquired over the fair value of their net tangible assets. Such costs,
representing trademarks and goodwill, are amortized on a straight-line basis
over periods ranging from 20 to 30 years.
Earnings Per Share
For the 1997 period through the Offering and for all of the prior years
presented the Company was a wholly-owned subsidiary of Culbro. Accordingly,
earnings per share for all periods included herein are presented on a pro forma
basis. The weighted average number of common shares used to compute pro forma
net income per common share in 1997 was determined by assuming that the
Company's Class B common shares plus related stock options, and the 6,900,000
Class A common shares, outstanding at the Offering date were all outstanding at
the beginning of the year. This computation also reflected the actual options
exercised throughout the year. Pro forma net income of all prior years included
the weighted average number of common shares assuming that the Class B shares
plus the related options, and the Class A shares which were outstanding on the
Offering date were outstanding throughout each year.
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.
NOTE 2:
STOCK OFFERING
On February 28, 1997, the Company sold 6.9 million shares of its Class A
Common Stock in an initial public offering, reflecting approximately 26% of its
common equity ownership. The net proceeds from the Offering, after underwriters'
discounts and commissions and other expenses, were approximately $111.5 million.
The proceeds were used to reduce debt, a substantial portion of which was
incurred in connection with the Villazon Acquisition (Notes 3 and 4). Each share
of Class A Common Stock entitles its holder to one vote. The remaining equity
ownership of the Company in the form of Class B Common Stock, which entitles its
holder to ten votes for each share, was owned by Culbro at the date of the
Offering. Following the August 29, 1997 merger of Culbro into the Company, each
Culbro shareholder received 4.44557 shares of the Company's Class B stock in
exchange for each share of Culbro stock. Generally, subsequent to the merger,
Class B shares that are sold or otherwise exchanged become Class A shares.
The increase in additional paid-in capital reflects principally the Offering
proceeds in excess of the par value of the Class A Common Stock and the excess
of the Culbro Investment over the par value of the Class B Common Stock. The
Culbro Investment was reclassified to Class B Common Stock and additional
paid-in capital upon completion of the Offering. The retained earnings of the
Company reflect net income subsequent to the Offering.
NOTE 3:
ACQUISITIONS
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., a Honduran corporation (collectively "Villazon"), for
approximately $81.2 million consisting of $91.1 million of purchase price and
direct acquisition costs, less $9.9 million of cash acquired. At closing, $64.3
million of cash was paid 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 was accounted for using the
purchase method of accounting. Acquisition costs in excess of the
28
<PAGE>
fair value of net tangible assets are approximately $69 million, representing
principally trademarks and goodwill. This amount is being amortized over 30
years.
The Company entered into a Bank Credit Agreement (the "Credit Agreement") to
finance the acquisition. Proceeds from the Offering were used to reduce the
amount outstanding under the Credit Agreement and to repay $14.4 million of the
seller notes. The remaining $10 million of the seller notes bear interest at
prime plus 2% and are due January 2002 (See Notes 4 and 7).
On October 2, 1997, the Company acquired DB International Marketing , Ltd.,
("DBI") a U.K. based cigar distribution company, which previously was a customer
of the Company. DBI was subsequently renamed General Cigar International
("GCI"). The purchase price has been estimated at $7.0 million of which $2.0
million was paid at closing and $5.0 million is included in other noncurrent
liabilities in the consolidated balance sheet. The final purchase price will be
determined based on a percentage of sales for each of the succeeding fiscal
years through the year 2000. The acquisition was accounted for using the
purchase method of accounting. The excess of the estimated purchase price over
the net tangible assets acquired was approximately $6.7 million, and is being
amortized over 20 years. DBI sales and operating profit for the period in fiscal
1997 prior to the acquisition were $6.3 million and $0.9 million, respectively.
NOTE 4:
CONSOLIDATED CONDENSED PRO FORMA
FINANCIAL INFORMATION (UNAUDITED)
The following condensed unaudited pro forma statements reflect the results of
operations of the Company as if the Liability Assumption (See Note 5) and the
Villazon Acquisition had been consummated at the beginning of 1997 and 1996.
Substantially all of DBI sales were from products sold to DBI by the Company.
Consequently, the incremental sales and profit of DBI would not be material to
the pro forma results of operations or financial position of the Company and are
not included in the pro forma presentation. The unaudited pro forma financial
information presented herein may not necessarily reflect the results of
operations and financial position of the Company had these items discussed above
actually taken place on these dates.
Consolidated Condensed Pro Forma Statements
of Operations (Unaudited)
1997 1996
- --------------------------------------------------------------------------------
Net sales $268,425 $196,694
--------------------------
Operating profit 61,078 32,324
Other nonoperating income, net 760 1,532
Interest expense 2,282 11,669
--------------------------
Income before income taxes 59,556 22,187
Income taxes 22,341 8,535
--------------------------
Net income $ 37,215 $ 13,652
==========================
Pro forma net income
per common share $ 1.30 $ 0.48
==========================
NOTE 5:
RELATED PARTY TRANSACTIONS
Culbro Investment
Prior to the date of the Offering, the Company's retained earnings, capital
stock and intercompany accounts with Culbro were presented as Culbro Investment
under stockholders' equity in the Company's consolidated balance sheet. The
changes in the Culbro Investment account are summarized as follows:
1997 1996 1995
- --------------------------------------------------------------------------------
Balance beginning of year $ 93,719 $66,095 $ 68,160
Net income (through the
Offering date, in 1997) 4,277 12,407 11,324
Liability assumption (46,937) -- --
Transactions with Culbro (2,393) 15,217 (13,389)
Reclassification of
remaining balance
in Culbro Investment
to Class B common
stock and additional
paid-in capital (48,666) -- --
--------------------------------------
Balance end of year $ -- $93,719 $ 66,095
======================================
29
<PAGE>
Intercompany Activities
Through the date of the Offering, the Company's treasury activities remained
integrated into Culbro's cash management system. The Company's 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. The difference
between cash transferred by the Company to Culbro and reimbursements by Culbro
to the Company's disbursement accounts was reflected in Culbro Investment in the
consolidated balance sheet.
The accompanying financial statements include all direct charges relating to
the Company's participation in certain Culbro employee benefit and risk
insurance plans. These charges were based on the specific insurance data related
to the Company. In addition to these direct charges, the consolidated statement
of operations reflects general and administrative expenses of approximately $1.8
million in 1997 through the date of the Offering, and $7.2 million and $8.8
million for fiscal 1996 and 1995, respectively, that were allocated to the
Company by Culbro. These charges were based principally on the Company's
proportionate share of expenses relating to Culbro corporate activities
associated with the Company's operations and are considered by management to be
reasonable.
On February 27, 1997, pursuant to the Agreement the Company completed the
Liability Assumption in which the Company assumed Culbro's liabilities of
approximately $47 million, including principally Culbro's general corporate
debt, accrued retirement obligations, and certain accounts payable and accrued
liabilities.
Other Related Party Transactions
During 1997, the Company entered into transactions in the ordinary course of
business, with entities with which certain stockholders and board of directors
members of General Cigar are associated. In 1997, the aggregate cost of such
services from these firms was approximately $2.8 million and was settled on
terms similar to those with unrelated parties.
NOTE 6:
INCOME TAXES
All current tax liabilities relating to the period prior to the Offering were
paid by Culbro and accordingly the Company's current tax liabilities through
that date were reflected in the Culbro Investment account.
Prior to the completion of the Distribution and Merger, the results of
operations of the Company were included in Culbro's consolidated U.S. federal
income tax returns. The income tax provisions and deferred tax liabilities have
been calculated in accordance with SFAS No. 109 "Accounting for Income Taxes" as
if the Company had filed separate tax returns during this period.
The domestic and foreign pretax income is as follows:
1997 1996 1995
- --------------------------------------------------------------------------------
Domestic $ 46,839 $ 15,815 $ 15,103
Foreign 10,830 4,330 3,461
-----------------------------------------
$ 57,669 $ 20,145 $ 18,564
=========================================
The provision for income taxes is summarized as follows:
1997 1996 1995
- --------------------------------------------------------------------------------
Current federal $ 14,889 $ 7,647 $ 6,435
Current state and local 3,037 1,155 1,041
Deferred, principally
federal 3,679 (1,064) (236)
-----------------------------------------
$ 21,605 $ 7,738 $ 7,240
=========================================
The reasons for the difference between the United States statutory income tax
rate and the effective rates are shown in the following table:
1997 1996 1995
- --------------------------------------------------------------------------------
Tax expense at
statutory rates $ 20,184 $ 7,051 $ 6,497
State and local 1,974 751 677
Other (553) (64) 66
-----------------------------------------
$ 21,605 $ 7,738 $ 7,240
=========================================
30
<PAGE>
The significant components of net deferred tax liabilities are as follows:
1997 1996
- --------------------------------------------------------------------------------
Depreciation and amortization $ 10,419 $ 7,015
Unremitted earnings of foreign
subsidiaries 3,056 157
Postretirement benefit liabilities (2,828) (2,367)
Pension liabilities (2,545) (1,901)
Inventories (1,035) (676)
Other (1,750) (1,171)
-------------------------
$ 5,317 $ 1,057
=========================
The Company has accrued domestic taxes for income of foreign subsidiaries
that is expected to be remitted to the parent company. Income taxes are not
accrued for unremitted earnings of foreign subsidiaries that have been, or are
intended to be, reinvested indefinitely. Foreign income which is substantially
exempt from foreign taxes, primarily consists of earnings from the Company's
Dominican Republic, Jamaican and Honduran cigar manufacturing operations.
During 1997, the exercise of certain stock options which had been granted
previously under various Culbro stock option plans and the sale of stock issued
under such plans gave rise to compensation which is includable in the taxable
income of the applicable employees and deductible by the Company for federal and
state income tax purposes. Such compensation resulted from increases in the fair
market value of the Company's Common Stock subsequent to the date of grant of
the applicable exercised stock options. In accordance with Accounting Principles
Board Opinion No. 25, the tax benefit related to the deductions is not
recognized as a reduction of income tax expense for financial accounting
purposes and is recorded directly in additional paid-in capital. In 1997, $3,732
of such benefit was realized and included in additional paid-in capital.
The Company entered into a Tax Sharing Agreement which provides, among other
things, for the allocation between Griffin 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 provides that the Company will be liable only for amounts that
it would have been required to pay for any deficiencies assessed, generally as
if it had filed separate tax returns.
NOTE 7:
LONG-TERM DEBT
Long-term debt includes:
1997 1996
- --------------------------------------------------------------------------------
Credit Agreement $32,000 $ --
Villazon seller notes, due
January 2002 10,000 --
Building mortgage -- 5,000
Equipment loan, due
December 2003 3,892 4,218
Capital leases 2,872 2,992
-------------------------
Total 48,764 12,210
Less: due within one year 1,224 1,131
-------------------------
Total long-term debt $47,540 $11,079
=========================
On January 21, 1997, the Company entered into a Credit Agreement with certain
banks which provided financing of $120 million principally for the Villazon
Acquisition and repayment of Culbro's general corporate debt. The Credit
Agreement, which expires in January 2000, initially included a $60 million term
loan and a revolving credit facility of $60 million. In the 1997 second quarter,
net proceeds of $111.5 million were received from the Offering and used to repay
the term loan and reduce amounts outstanding under the revolving credit
facility. Currently, the commitment under the revolving credit facility is $50
million. In accordance with the terms of the Credit Agreement, borrowings under
the revolving credit facility 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 pays a commitment fee of 1/4 of 1% on the unused portion of the
revolving credit facility. The Credit Agreement includes limitations on
indebtedness, investments and other significant transactions, as defined.
31
<PAGE>
On April 16, 1997, the Company repaid the $5 million mortgage on its New York
City headquarters office building with borrowings under its revolving credit
facility. The mortgage carried an interest rate of the Eurodollar rate plus 2%.
As of November 29, 1997, the annual principal payment requirements under the
terms of the equipment loan were $0.4 million for the years 1998 through 2001
and $0.5 million for the year 2002. The equipment loan which was entered into in
January 1994, 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 $2.7 million at November 29, 1997.
Management believes that because the interest rates under the Credit
Agreement adjust to current market rates, this debt approximates its fair value.
Management also believes that the fixed rate debt included in the balance sheet
reflects its current market value based on market interest rates for comparable
risks, maturities and collateral.
NOTE 8:
RETIREMENT BENEFITS
Pension Plan
The Company's employees participate in a noncontributory defined benefit pension
plan, which covers substantially all of the Company's domestic employees. This
plan was previously sponsored by Culbro and was assumed by the Company under the
terms of the Agreement. The Company is directly responsible for all of the
pension obligations of the plan, including those relating to its former
employees, as well as all vested employees of Culbro and its former subsidiaries
under the plan. In connection with the Distribution and Merger, the Company and
Griffin entered into an Employee Benefits Administration Agreement which defined
the responsibilities for the administration of the plan. 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 for the fiscal years 1997, 1996 and 1995 was
computed as follows:
1997 1996 1995
- --------------------------------------------------------------------------------
Service costs-benefits
earned during the year $ 894 $ 1,153 $ 962
Interest on projected
benefit obligations 4,126 4,053 4,086
---------------------------------------
Total benefit expense 5,020 5,206 5,048
---------------------------------------
Actual return on pension
plan assets (16,158) (10,935) (12,886)
Difference from expected
long-term return 11,251 6,516 8,439
---------------------------------------
Net expected return (4,907) (4,419) (4,447)
---------------------------------------
Special termination
benefits expense -- 279 --
Curtailment gain -- (452) --
Amortization of net pension
obligation at adoption
of SFAS No. 87 48 51 51
Other (130) 39 21
---------------------------------------
Net pension expense $ 31 $ 704 $ 673
=======================================
32
<PAGE>
The status of the pension plan as determined by the plan's actuaries at
November 29, 1997 and November 30, 1996 was as follows:
1997 1996
- --------------------------------------------------------------------------------
Present value of benefits earned by
participants including vested benefits of
$54,268 and $52,095 at November 29, 1997 and
November 30, 1996, respectively $ 54,739 $ 52,668
=======================
Plan assets at fair value, primarily
equities 81,896 70,711
Present value of projected benefit
obligations 57,028 54,759
-----------------------
Plan assets in excess of projected
benefit obligations 24,868 15,952
Amount included on balance sheet 6,728 6,697
-----------------------
Unrecognized net asset $ 31,596 $ 22,649
=======================
Unrecognized net asset includes:
Net gain from experience differences
and assumption changes $ 31,964 $ 23,101
Less: changes due to plan
amendments (284) (321)
Net pension obligation at adoption
of SFAS No. 87 (84) (131)
-----------------------
Unrecognized net asset $ 31,596 $ 22,649
=======================
Discount rates of 7.5% and 7.75% were used to compute the present value of
pension benefits at November 29, 1997 and November 30, 1996, respectively. A 5%
rate of increase in future compensation levels was used to estimate the
projected pension obligations at both November 29, 1997 and November 30, 1996.
The expected rate of return on pension plan assets in 1997, 1996 and 1995 was
estimated at 9% representing the average long-term rate expected from the
investment of plan assets.
Other Postretirement Benefits
Prior to the date of the Offering, the Company's employees participated in
Culbro's postretirement benefits program, which provided principally health and
life insurance benefits to certain of its retired employees. The cost of such
benefits attributed to the Company's employees under this program was $0.4
million and $0.5 million in 1996 and 1995, respectively. The Company continues
to provide its employees with substantially the same level of retiree medical
benefits as those provided under the Culbro program. The cost of such benefits
was $0.6 million in fiscal year 1997 and consisted of the following:
- --------------------------------------------------------------------------------
Service cost-benefits earned
during the year $ 79
Interest on accumulated post-
retirement benefit obligation 516
----
Total expense $595
====
- --------------------------------------------------------------------------------
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 November 29, 1997 and November 30, 1996.
1997 1996
- -------------------------------------------------------------
Retirees $4,170 $3,434
Fully eligible active participants 1,764 1,530
Other active participants 446 361
Unrecognized net gain from
experience differences and
assumption changes 798 907
----------------
Accrued other postretirement
benefits $7,178 $6,232
================
The balance at November 29, 1997 includes approximately $1.0 million of
retiree medical benefits related to former Culbro employees which the Company
assumed under the Merger and Distribution Agreement. Discount rates of 7.5% and
7.75% were used to compute the accumulated postretirement benefit obligations at
November 29, 1997 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.
NOTE 9:
STOCK OPTION PLANS
Employees Stock Options
On February 27, 1997 the Company adopted a new stock option plan ("the 1997
Stock Option Plan"). The plan
33
<PAGE>
authorized 3,300,000 shares of Class A Common Stock of the Company to be made
available for issuance as either incentive stock options or nonqualified
options. An initial grant of 626,600 shares under the new plan was made on
February 27, 1997 at an exercise price of $18.00 per share. These options are
exercisable rateably over a three year period beginning with the third
anniversary from the date of grant. The terms of the plan impose certain
restrictions on the sale of the shares received upon exercise of the option.
Upon consummation of the Distribution and Merger, the Company assumed all
employee stock options outstanding under Culbro's stock option plans. These
options were converted into options to purchase shares of common stock of the
Company under the new plan. The number of outstanding options and the exercise
prices were adjusted to preserve the value of the options. A total of 291,600 of
such options at exercise prices ranging from $12.25 to $80.00 was adjusted to
1,299,058 of General Cigar options at prices ranging from $2.45 to $16.08.
Consistent with the prior terms of the Culbro options, 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 the Company. These
options are not exercisable until three years from the date of original grant
and may be exercised over a period ending not later than ten years from the date
of grant. None of these options may be exercised as stock appreciation rights.
Transactions in all of the above options for the fiscal year ended November
29, 1997 are summarized as follows:
- --------------------------------------------------------------------------------
Culbro options outstanding at Nov. 30, 1996 342,514
Exercised prior to merger and distribution (50,914)
----------
Outstanding at merger and distribution date 291,600
==========
Conversion to General Cigar options 1,299,058
Exercised after merger (361,083)
General Cigar options granted during 1997 626,600
----------
Options outstanding at Nov. 29, 1997 1,564,575
==========
Option prices range between: $2.45 and $18.00
Options exercisable at Nov. 29, 1997 178,766
Number of option holders at Nov. 29, 1997 42
Nonemployee Directors Stock Options
Options previously granted to nonemployee directors under a Culbro nonemployee
directors plan also were assumed by the Company and converted, after adjustment
to preserve their value, into options to purchase common shares of the Company.
Transactions in these options for the fiscal year ended November 29, 1997 are as
follows:
- --------------------------------------------------------------------------------
Culbro Options outstanding at Nov. 30, 1996 43,000
Exercised prior to merger and distribution (2,000)
--------
Outstanding at merger and distribution date 41,000
========
Conversion to General Cigar options 182,268
Exercised after merger (17,782)
General Cigar options granted during 1997 35,000
--------
Options outstanding at Nov. 29, 1997 199,486
========
Option prices range between $2.89 and $18.00
Options exercisable at Nov. 29, 1997 71,128
Number of option holders at Nov. 29, 1997 7
Employment Agreement
In addition to the options described above, options issuable under an employ
ment agreement entered into in May 1994 between Culbro and an officer of Culbro
became an obligation of the Company. The agreement provided for the issuance of
125,000 Culbro stock options, exercisable at the rate of 25,000 per year from
1995 through 1999 at an exercise price of $4.00 per share. Through November 30,
1996, 15,000 of these options had been exercised. The remaining options were
converted into options to purchase shares of the Company, and the number of
outstanding options and the exercise price were adjusted to preserve the value
of the options. After the adjustment, 444,557 of these options remained
outstanding at November 29, 1997 at an exercise price of approximately $0.80 per
share of which 222,278 were exercisable. During 1997, 44,456 of these options
were exercised. The annual compensation expense for this agreement is $267
through April 1999 reflecting the amortization of the difference between the
option price and the market price at the date of grant.
34
<PAGE>
The following table summarizes information relating to all currently
outstanding and exercisable stock options:
Weighted Weighted Weighted
Average Average Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
- --------------------------------------------------------------------------------
$10 and under 1,006,620 6.5 years $ 2.37 472,172 $2.07
Over $10 1,201,998 8.8 years $16.18 -- --
--------- -------
2,208,618 472,172
========= =======
Stock-Based Compensation
The Company has adopted the disclosure provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation" which require disclosing the pro forma effect on
earnings and earnings per share of the fair value method of accounting for
stock-based compensation. The Company's net income and net income per common
share would have been the following pro forma amounts under the method
prescribed by SFAS No. 123.
- --------------------------------------------------------------------------------
Net income, as reported $36,064
Net income, pro forma $33,808
Net income per common share, as reported $ 1.26
Net income per common share, pro forma $ 1.18
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 1997: expected volatility of approximately 40%, risk
free interest rate of 6.43%; expected option term of 6 years and no dividend
yield for all options issued. The expected option term was developed based on
historical grant and exercise information.
NOTE 10:
LEASES
The Company has the following noncancellable 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 29, 1997 were:
- --------------------------------------------------------------------------------
1998 $1,066
1999 963
2000 724
2001 478
------
Total minimum lease payments 3,231
Less: Amounts representing interest 359
------
Present value of minimum lease payments(a) $2,872
======
(a) Includes current portion of $0.9 million on November 29, 1997.
At November 29, 1997 and November 30, 1996, buildings, machinery and equipment
included capital leases amounting to $4.1 million and $4.2 million,
respectively, which is net of accumulated depreciation of $3.7 million and $3.4
million, respectively. Depreciation expense relating to capital leases was $0.8
million in 1997, and $0.7 million in each of fiscal years 1996 and 1995.
35
<PAGE>
Operating Leases
Future minimum rental payments under noncancellable leases as of November 29,
1997 covering principally buildings were:
- --------------------------------------------------------------------------------
1998 $1,821
1999 1,750
2000 1,656
2001 1,377
2002 1,104
Later years 3,674
-------
Total minimum lease payments $11,382
=======
Total rental expense for all operating leases in 1997, 1996 and 1995 was $1.5
million, $0.6 million and $0.1 million, respectively.
NOTE 11:
EARNINGS PER SHARE
In February 1997, the FASB issued Statement No. 128, "Earnings Per Share" ("SFAS
No. 128"). This statement requires companies to present basic earnings per share
and, if applicable, diluted earnings per share instead of primary and fully
diluted earnings per share. Under SFAS No. 128, basic earnings per share
includes the weighted average number of common shares outstanding during the
period, excluding common stock equivalents, and diluted earnings per share
includes the weighted average number of common shares outstanding and common
stock equivalents.
For fiscal year 1997 there was no difference between primary earnings per
share as reported and diluted earnings per share as computed under SFAS 128
which the Company will adopt in fiscal 1998. Basic earnings per share computed
under SFAS 128 for fiscal year 1997 would have been $1.33.
NOTE 12:
SUPPLEMENTAL FINANCIAL STATEMENT
INFORMATION
Net Sales
Excise taxes paid on cigar sales were $9.2 million, $7.9 million and $7.0
million for 1997, 1996 and 1995, respectively, and are included in net sales and
cost of goods sold.
Selling, General and Administrative Expenses
Included in selling, general and administrative expenses were advertising
expenses of $6.9 million, $4.4 million and $2.8 million for 1997, 1996 and 1995,
respectively.
Other Nonrecurring Expense
Other nonrecurring expense in 1996 reflects 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 included
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 by management to be reasonable.
Gain on Insurance Settlement
The gain on insurance settlement in the 1995 statement of operations was
realized from the settlement of a property insurance claim related to a 1994
fire that destroyed an administration and warehouse facility 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) included 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.
36
<PAGE>
Inventories
Inventories consist of:
Nov. 29, Nov. 30,
1997 1996
- --------------------------------------------------------------------------------
Raw materials and supplies $83,884 $43,704
Work-in-process 9,202 4,529
Finished goods 14,272 5,469
--------------------------
$107,358 $53,702
==========================
Property and Equipment
Property and equipment consist of:
Estimated Nov. 29, Nov. 30,
Useful Lives 1997 1996
- --------------------------------------------------------------------------------
Land $3,041 $2,534
Buildings 10 to 40 years 68,700 58,225
Machinery
and equipment 3 to 7 years 41,300 33,470
--------------------------
113,041 94,229
Accumulated
depreciation (45,552) (41,722)
--------------------------
$67,489 $52,507
==========================
Land and buildings include the Company's New York City headquarters building,
at a cost of $39.7 million and accumulated depreciation of $10.9 million at
November 29, 1997.
Total depreciation expense for the Company was $4.3 million, $3.7 million and
$3.5 million for 1997, 1996, and 1995, respectively.
Accounts Payable and Accrued Expenses
Accounts payable and accrued liabilities include trade payables of $19.6 million
and $11.5 million for 1997 and 1996, respectively, accrued salaries, wages and
other compensation of $11.9 million and $6.8 million for 1997 and 1996,
respectively, and other accrued liabilities of $8.9 million and $4.5 million for
1997 and 1996, respectively, primarily for accrued workers compensation and
general liability insurance.
Supplemental Cash Flow Information
Prior to the Offering, General Cigar had been included in Culbro's consolidated
federal income tax returns (see Note 6). Accordingly, tax payments made by
Culbro in the period prior to the Offering are reflected in net transactions
with Culbro in the consolidated statement of cash flows. In the period
subsequent to the Offering, taxes paid by the Company were $16.7 million.
Interest paid by the Company was $3.0 million, $1.0 million and $1.0 million
for 1997, 1996 and 1995, respectively.
The cash and noncash activities related to the Villazon Acquisition are
summarized as follows:
- --------------------------------------------------------------------------------
Estimated fair values of net assets acquired $ 91,105
Notes issued to sellers (24,370)
Payment of short-term seller notes 14,370
--------
Payments in connection with the acquisition 81,105
Cash acquired (9,907)
--------
Payments in connection with acquisition,
net of cash acquired $ 71,198
========
Changes In Debt Not Affecting Cash
Certain noncash transactions totaling $53,970 which
increased debt are summarized as follows:
- --------------------------------------------------------------------------------
Total debt-- Nov. 30, 1996 $ 12,210
--------
Assumed Culbro general corporate debt 43,200
Villazon seller notes 10,000
Other 770
--------
Total increase in debt not affecting cash 53,970
Payments of debt (17,416)
--------
Total debt-- Nov. 29, 1997 $ 48,764
========
NOTE 13:
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.
In 1997, sales to one customer were approximately $30.3 million or 11.5% Of
the Company's total net sales.
37
<PAGE>
NOTE 14:
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
1997 Quarters 1st 2nd 3rd 4th Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $49,798 $58,908 $70,660 $83,467 $262,833
Gross profit 22,283 26,473 35,267 43,973 127,996
Net income 4,277 6,390 11,369 14,028 36,064
Pro forma net income per common share 0.15 0.22 0.39 0.49 1.26
========================================================================
1996 Quarters 1st 2nd 3rd 4th Total
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $28,832 $34,851 $38,611 $52,382 $154,676
Gross profit 12,590 15,243 18,162 22,441 68,436
Net income 2,395 2,650 4,142 3,220 12,407
Pro forma net income per common share 0.08 0.09 0.15 0.11 0.44
========================================================================
</TABLE>
NOTE 15:
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 12) and the remaining claims are being litigated.
As of November 29, 1997 the Company had firm commitments for capital
expenditures of approximately $12.1 million for the implementation of a new
computer system, the expansion of manufacturing and distribution facilities and
the addition of machinery and equipment.
The Company believes that the outcome of currently pending legal proceedings
will not, in the aggregate, have a material adverse effect on the Company's
financial position.
38
<PAGE>
Report of Management
Management is responsible for the accompanying consolidated financial
statements, which are prepared in accordance with generally accepted accounting
principles. In management's opinion, the consolidated financial statements
present fairly the Company's financial position, results of operations and cash
flows.
The Company maintains a system of internal accounting procedures and controls
intended to provide reasonable assurance, at appropriate cost, that transactions
are executed in accordance with proper authorization, are properly recorded and
reported in the financial statements, and that assets are adequately
safeguarded. The Company's internal audit department continually evaluates the
adequacy and effectiveness of this system of controls.
The Audit Committee of the Board of Directors is comprised solely of outside
directors and is responsible for overseeing and monitoring the quality of the
Company's accounting and auditing practices. The Audit Committee meets regularly
with management, the internal audit department and independent accountants to
discuss audit activities, internal controls and financial reporting matters. The
internal audit department and the independent accountants have full and free
access to the Audit Committee.
To foster the conduct of its business in accordance with the highest ethical
standards, the Corporation annually disseminates ethical guidelines, the
Company's compliance with which is monitored by senior management and the Audit
Committee.
The appointment of Price Waterhouse LLP as the Company's independent
accountants was recommended and approved by the Audit Committee and the Board of
Directors, and was approved by the shareholders. Price Waterhouse's Report is
based on an examination conducted in accordance with generally accepted auditing
standards, including a review of internal accounting controls and tests of
accounting procedures and records.
/s/ EDGAR M. CULLMAN
EDGAR M. CULLMAN
Chairman
/s/ JAY M. GREEN
JAY M. GREEN
Executive Vice President-Chief
FINANCIAL OFFICER AND TREASURER
Report of Independent Accountants
To the Board of Directors and Stockholders of
General Cigar Holdings, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows, and of changes in
stockholders' equity present fairly, in all material respects, the consolidated
financial position of General Cigar Holdings, Inc. and its subsidiaries at
November 29, 1997 and November 30, 1996 and the results of their operations and
their cash flows for the fiscal years ended November 29, 1997, November 30, 1996
and December 2, 1995, 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.
/s/ Price Waterhouse LLP
New York, New York January 21, 1998
39
<PAGE>
Corporate Directors and Officers
DIRECTORS
Bruce Barnet (2),(3),(7)
President and Chief Executive Officer
Cahners Publishing Company
John L. Bernbach (2),(6),(7)
Chairman and Chief Executive Officer of
The Bernbach Group, Inc. - consulting
Edgar M. Cullman (1),(4),(5)
Chairman of the Board
Edgar M. Cullman Jr. (1),(4),(6),(7)
President and Chief Executive Officer
Susan R. Cullman (1),(6),(7)
President of Republican Coalition
for Choice. Chairman of
the Public Policy Committee
John L. Ernst (1),(3),(5)
Chairman of the Board of President of
Bloomingdale Properties, Inc., investments
real estate. Chairman of the Compensation and
Nominating Committees
Thomas C. Israel (2),(7)
A Director and Chairman of A.C. Israel
Enterprises, Inc., investments. Chairman of
the Audit Committee
Dan W. Lufkin (1),(2),(3),(4),(5)
Private investor. Co-Chairman of the Finance
Committee
Graham V. Sherren (7)
Chairman and Chief Executive Officer of
Centaur Communications Limited, publisher
of business magazines in Great Britain
Peter J. Solomon (3),(4)
Chairman of Peter J. Solomon Company Limited,
investment bankers and Chairman of Peter J.
Solomon Securities Company Limited.
Co-Chairman of the Finance Committee.
Francis T. Vincent, Jr. (2),(3),(7)
Vincent Enterprises-Private Investor
OFFICERS
Edgar M. Cullman
Chairman of the Board
Edgar M. Cullman, Jr.
President and Chief Executive Officer
Jay M. Green
Executive Vice President-Chief Financial
Officer and Treasurer
Edward B. Polite
Executive Vice President-Chief Operating Officer
Austin T. McNamara
Executive Vice President
Ross Wollen
Senior Vice President,
General Counsel and Secretary
Joseph C. Aird
Senior Vice President-Controller
Janet A. Krajewski
Vice President-Taxes
David M. Danziger
Vice President-Corporate Development
(1) Executive Committee
(2) Audit Committee
(3) Compensation Committee
(4) Finance Committee
(5) Nominating Committee
(6) Public Policy Committee
(7) Strategic Planning Committee
40
<PAGE>
Corporate Directory
Executive Offices
General Cigar Holdings, Inc.
387 Park Avenue South
New York, NY 10016-8899
Tel: (212) 448-3800
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Stock Listing
Class A Common Stock
New York Stock Exchange
Symbol MPP
Special Counsel
Latham & Watkins
885 Third Avenue (Suite 1000)
New York, NY 10022
Registrar and Transfer Agent
ChaseMellon Shareholders Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, N.J 07660
If you have any questions about your stockholdings please call or E-mail
ChaseMellon as follows: (1-800-273-8044) (www.chasemellon.com)
Annual meeting
The Annual Meeting of shareholders of General Cigar Holdings, Inc. will be held
on April 16, 1998 at 10:00 a.m. on the 11th floor of the Corporate Headquarters
of Chase, 270 Park Avenue, New York, N.Y.
Shareholders' Information
The Corporation's Annual Report filed with the Securities and Exchange
Commission on Form 10-K is available through EDGAR system of the Securities &
Exchange Commission and other services and (while supplies last) upon written
request to:
General Cigar Holdings, Inc.
387 Park Avenue South
New York, NY 10016-8899
Attn: Corporate Secretary
Note: The brand names of products mentioned in this Report are trademarks owned
by General Cigar Holdings, Inc. and its subsidiaries. All rights thereto are
reserved.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-K
---------------------
FOR FISCAL YEAR ENDED NOVEMBER 29, 1997
ITEMS 8 and 14 - INDEX TO FINANCIAL STATEMENTS
AND ADDITIONAL FINANCIAL DATA
---------------------
GENERAL CIGAR HOLDINGS, INC.
--------------------------------
<PAGE>
GENERAL CIGAR HOLDINGS, INC.
INDEX TO FINANCIAL STATEMENTS AND ADDITIONAL FINANCIAL DATA
The financial statements together with the report thereon of Price
Waterhouse LLP dated January 21, 1998, appearing in the accompanying 1997 Annual
Report to Shareholders, are incorporated by reference in this Form 10-K Annual
Report. With the exception of the aforementioned information and such other
information specifically incorporated by reference herein, the 1997 Annual
Report to Shareholders is not to be deemed filed or incorporated by reference as
part of this report.
The following exhibits and additional financial date should be read in
conjunction with the financial statements in such 1997 Annual Report to
Shareholders. Schedules not included with this additional financial data have
been omitted because they are not applicable or the required information is
shown in the financial statements or notes thereto.
Report of Independent Accountants on Financial
Statement Schedule and Consent of Independent
Accountants...................................... C-1
Schedule VIII Valuation and Qualifying Accounts and
Reserves......................................... S-1
Exhibit 11 - Statement Re: Computation of Earnings Per Share.... E-1
<PAGE>
To the Board of Directors of General Cigar Holdings, Inc.
Our audits of the consolidated financial statements referred to in our report
dated January 21, 1998 appearing in the 1997 Annual Report to Shareholders of
General Cigar Holdings. Inc, (which report and consolidated financial statements
are incorporated by reference in this Annual Report on Form 10-K) also included
an audit of the Financial Statement Schedule listed in Item 14(a) of this Form
10-K. In our opinion, this Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
/s/ Price Waterhouse LLP
New York, New York
January 21, 1998
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (333-30659) of General Cigar Holdings, Inc. of our report
dated January 21, 1998 appearing in the 1997 Annual Report to Shareholders which
is incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statement Schedule
which appears above.
/s/ Price Waterhouse LLP
New York, New York
February 26, 1998
C-1
<PAGE>
GENERAL CIGAR HOLDINGS, INC.
SCHEDULE VIII-VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Dollars in Thousands)
<TABLE>
<CAPTION>
Balance at Charged to Charged to Deductions Balance at
Beginning Costs and Other From End
Description of Year Expenses Accounts Reserves of Year
- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
For fiscal year ended November 29, 1997
---------------------------------------
Reserves:
Uncollectible accounts - trade........$482 1,372 413 936(1) $1,331
==== ===== === ===== ======
For fiscal year ended November 30, 1996
---------------------------------------
Reserves:
Uncollectible accounts - trade .......$465 420 - 403(1) $482
==== ===== === ===== ======
For fiscal year ended December 2, 1995
--------------------------------------
Reserves:
Uncollectible accounts - trade........$725 132 - 392(1) $465
==== ===== === ===== ======
</TABLE>
- ----------
Notes:
(1) Accounts receivable written-off.
S-1
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------
Primary Nov. 29 Nov. 30,* Dec. 2,*
- ------- 1997 1996 1995
------- --------- --------
<S> <C> <C> <C>
Net income $ 36,064 $ 12,407 $ 11,324
============ ============ ============
Weighted average common shares
outstanding in the 4th quarter 27,429,000 28,200,000 28,200,000
Net effect of dilutive stock options
based on the treasury stock method
using average market price 1,186,000 -- --
------------ ------------ ------------
Weighted average common shares
and equivalents outstanding 4th quarter 28,615,000 28,200,000 28,200,000
============ ============ ============
Weighted average common shares
outstanding in the 3rd quarter 27,172,000 28,200,000 28,200,000
Net effect of dilutive stock options
based on the treasury stock method
using average market price 1,668,000 -- --
------------ ------------ ------------
Weighted average common shares
and equivalents outstanding 3rd quarter 28,840,000 28,200,000 28,200,000
============ ============ ============
Weighted average common shares
outstanding in the 2nd quarter 27,101,922 28,200,000 28,200,000
Net effect of dilutive stock options
based on the treasury stock method
using average market price 1,598,078 -- --
------------ ------------ ------------
Weighted average common shares
and equivalents outstanding 2nd quarter 28,700,000 28,200,000 28,200,000
============ ============ ============
Weighted average common shares
outstanding in the 1st quarter 28,200,000* 28,200,000* 28,200,000*
Net effect of dilutive stock options
based on the treasury stock method
using average market price -- -- --
------------ ------------ ------------
Weighted average common shares
and equivalents outstanding 1st quarter 28,200,000 28,200,000 28,200,000
============ ============ ============
Total 114,355,000 112,800,000 112,800,000
Divided by 4 4 4
------------ ------------ ------------
28,590,000 28,200,000 28,200,000
============ ============ ============
Pro forma net income per common share $1.26 $0.44 $0.40
============ ============ ============
</TABLE>
* 28,200,000 computed as follows:
Class B shares and equivalents at
Offering date 21,300,000
Class A shares outstanding 6,900,000
------------
28,200,000
============
E-1
<PAGE>
Continued
<TABLE>
<CAPTION>
Fully diluted 1997 1996* 1995*
- ------------- ---- ----- -----
<S> <C> <C> <C>
Net income $ 36,064 $ 12,407 $ 11,324
=========== =========== ===========
Weighted average common shares
outstanding in the 4th quarter 27,429,000 28,200,000 28,200,000
Net effect of dilutive stock options
based on the treasury stock method
using ending market price 1,185,300 -- --
----------- ----------- -----------
Weighted average common shares
and equivalents outstanding 4th quarter 28,614,300 28,200,000 28,200,000
----------- ----------- -----------
Weighted average common shares
outstanding in the 3rd quarter 27,172,000 28,200,000 28,200,000
Net effect of dilutive stock options
based on the treasury stock method
using ending market price 1,528,000 -- --
----------- ----------- -----------
Weighted average common shares
and equivalents outstanding 3rd quarter 28,700,000 28,200,000 28,200,000
=========== =========== ===========
Weighted average common shares
outstanding in the 2nd quarter 27,101,922 28,200,000 28,200,000
Net effect of dilutive stock options
based on the treasury stock method
using ending market price 1,798,078 -- --
----------- ----------- -----------
Weighted average common shares
and equivalents outstanding 2nd quarter 28,900,000 28,200,000 28,200,000
=========== =========== ===========
Weighted average common shares
outstanding in the 1st quarter 28,200,000* 28,200,000* 28,200,000*
Net effect of dilutive stock options
based on the treasury stock method
using ending market price -- -- --
----------- ----------- -----------
Weighted average common shares
and equivalents outstanding 1st quarter 28,200,000 28,200,000 28,200,000
=========== =========== ===========
Total 114,414,300 112,800,000 112,800,000
Divided by 4 4 4
----------- ----------- -----------
28,603,575 28,200,000 28,200,000
=========== =========== ===========
Pro forma net income per common share $1.26 $0.44 $0.40
=========== =========== ===========
</TABLE>
* 28,200,000 computed as follows:
Class B shares and equivalents at
Offering date 21,300,000
Class A shares outstanding 6,900,000
-----------
28,200,000
===========
E-1
Exhibit 14(10)(F)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
the 6th day of June 1997, by and between Culbro Corporation, a New York
corporation ("Culbro"), and A. Ross Wollen ("Wollen").
WHEREAS, Wollen is employed by Culbro in an executive capacity and Culbro
desires to secure the continued services of Wollen, 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, Wollen 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 Wollen, and Wollen hereby agrees
to remain an employee of Culbro, on the terms and conditions set forth herein,
for the period commencing June 6, 1997 and expiring on June 6, 2000 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, Wollen shall occupy the position and
perform the duties of Senior Vice President - General Counsel and Secretary of
Culbro (which duties shall be of the same general nature as those performed by
the chief legal officer of similarly situated companies and substantially the
same as those previously performed by Wollen) 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").
<PAGE>
-2-
(b) Wollen 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 without the consent of the Board. The parties anticipate Wollen will
also perform the duties of manager of investor relations and may become
affiliated with a mutual fund company in a manner that will not conflict with
his position and duties hereunder.
3. COMPENSATION.
(a) Base Compensation. Subject to the provisions of Paragraph 4 hereof,
Wollen shall receive an annual base salary of $236,250, payable in substantially
equal periodic installments. Wollen'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 Wollen and the
performance of Culbro for such fiscal year and shall award Wollen such bonus, if
any, as the Compensation Committee in its sole discretion shall determine.
(c) Benefits. Wollen 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 Wollen 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
<PAGE>
-3-
Board for executive officers of Culbro), provided that any such expenses shall
be reimbursable only to the extent that Wollen proper accounts therefor in
accordance with established policy, and further provided that political
contributions shall under no circumstances be reimbursable.
4. TERMINATION.
(a) Death. If Wollen's employment terminates by reason of his death,
Wollen'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 any options then held by him, to the extent
exercisable by Wollen on the date of his death or which became exercisable by
virtue of his death, within one year of Wollen's death but in no event later
than the date such options would have expired if Wollen had lived. Wollen's
designated beneficiary or personal representative shall also be entitled to a
prorated portion of any bonus awarded to Wollen by the Compensation Committee
with respect to the year of his death. Wollen'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
Wollen has participated.
(b) Disability. If Culbro terminates Wollen's employment, as a result of
Wollen's Disability, as hereinafter defined, Wollen 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 Wollen'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 Wollen'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 Wollen's employment due to Disability, he may exercise any
options then held by him, to the extent such options were exercisable on the
date his employment terminated or
<PAGE>
-4-
became exercisable by virtue of such termination, within one year of such date,
but in no event later than the date such options would have expired in
accordance with its terms.
(c) Voluntary Termination. In the event of a voluntary termination of
employment by Wollen, Wollen shall be entitled to any unpaid position of his
annual base salary prorated to the date of such termination. He may exercise any
options then held by him, to the extent such options were exercisable on the
date his employment terminated, within 90 days from such event, but in no event
later than the date such options would have expired in accordance with their
terms.
(d) Termination For Cause. Culbro may terminate Wollen'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 Wollen 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, Wollen shall be
entitled to any 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 Wollen's employment has
been terminated for Cause.
(e) Termination Without Cause. A "Termination Without Cause" shall mean a
termination of Wollen's employment (i) by Culbro other than due to the events
described in Paragraph 4(a), (b), (c) and (d) respectively; or (ii) by Wollen
following: (A) a reduction, without his prior written consent, inn his then
current annual base salary, (B) the loss, without his prior written consent, of
his title or position as Senior Vice President General Counsel and Secretary,
(C) a significant diminution, without his prior written consent, of his ongoing
duties and responsibilities as Senior Vice President - General Counsel and
Secretary, (D) a significant diminution, without his prior written consent, of
his benefits, or
<PAGE>
-5-
(E) the occurrence of a Change of Control as defined in Paragraph 4(f). Culbro
shall have the right to terminate Wollen in a Termination Without Cause at any
time. In addition, a Termination Without Cause shall be deemed to have taken
effect if Wollen 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 4(e) of this
Agreement. If a Termination Without Cause occurs, Wollen shall be entitled to
(i) a cash payment equal to 299.99% of his current annual base salary in effect
on the date of termination, (ii) exercise any options he then holds which will
be deemed vested and exercisable for 90 days following the date of such
termination and (iii) receive a proportion of any amounts earned or accrued
under any annual, long term or other incentive compensation program in which
Wollen was eligible to participate.
(f) Change of Control. A Change of Control is defined as (i) any person or
"group" (within the meaning of Section 13(d) or 14(d) of the Securities and
exchange Act of 1934, as amended) other than the group consisting of Edgar M.
Cullman, Edgar M. Cullman, Jr., Susan R. Cullman, 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 (the "Cullman Group") shall own, directly
or indirectly, shares of Capital Stock of Holdings having an aggregate voting
power equal to or greater than that of the shares of Capital Stock of Holdings
owned, in the aggregate, directly or indirectly, by the Cullman Group; or (ii)
the Board of Directors of Holdings shall not consist of a majority of Continuing
Directors (defined for this purpose as the directors of Holdings on May 2, 1997
and any other director the nomination of whom for election to the Board of
Directors of Holdings is recommended by a majority of the then Continuing
Directors of Holdings).
5. AGREEMENT NOT TO COMPETE. Wollen agrees that in consideration of the benefits
defined in this Agreement, until 18 months following the termination of his
<PAGE>
-6-
employment and regardless of the reason for any termination of employment
(whether voluntary or involuntary and whether for Cause or otherwise), Wollen,
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 advice 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 the 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. NONSOLICITATION. Wollen 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 Wollen 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 Wollen
prohibited under this Agreement; or
(iii) solicit any employee of Culbro or its subsidiaries to terminate his
employment.
<PAGE>
-7-
7. NONDISCLOSURE.
(a) Wollen agrees that during the Employment Period and until three years
following the termination of this Agreement, Wollen 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
Wollen to divulge, disclose or make accessible such information) any
confidential information or proprietary date 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 Wollen) 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) Wollen 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
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. Wollen 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.
8. CONTINUATION OF EMPLOYMENT. Unless the parties otherwise agree in writing,
continuation of Wollen's employment with Culbro beyond the expiration of the
<PAGE>
-8-
Employment Period shall be deemed an employment at will and shall not be deemed
to extend any of the provisions of this Agreement, and Wollen's employment may
thereafter be terminated at will by Wollen or Culbro.
9. SUCCESSORS AND ASSIGNS. This Agreement and all rights hereunder shall inure
to the benefit of and be enforceable by Wollen'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 Wollen 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, (ii) with
the written consent of Wollen or (iii) in accordance with paragraph 17 hereof.
10. 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.
11. 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.
12. 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.
13. 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
<PAGE>
-9-
remain in full; force and effect, nor shall the invalidity or unenforceability
of any portion of any provision of this Agreement affect the validity or
enforceability of the balance of such provisions.
14. 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.
15. ENTIRE AGREEMENT. This Agreement, constitutes the entire Agreement between
the parties hereto with respect to the subject matter hereof, and supersedes all
other prior agreements, understandings and arrangements 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.
16. WAIVER. The observation or performance of any condition or obligation
imposed upon Wollen hereunder may be waived only upon the written consent of the
Board. Such waiver shall be limited to the terms thereof an shall not constitute
a waiver of any other condition or obligation of Wollen under this Agreement.
17. ASSUMPTION. The parties intend this Agreement to be assumed by Holdings on
or prior to the merger of Culbro into Holdings and this Agreement shall be fully
enforceable by Wollen and his representatives against Holdings.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first written above.
<PAGE>
-10-
GENERAL CIGAR HOLDINGS, INC. CULBRO CORPORATION
By: /s/ EDGAR M. CULLMAN, JR. By: /s/ EDGAR M. CULLMAN, JR.
---------------------------- ---------------------------
Edgar M. Cullman, Jr. Edgar M. Cullman, Jr.
President and Chief Executive Officer President and Chief Executive Officer
A. ROSS WOLLEN
By: /s/ A. ROSS WOLLEN
--------------------
A. Ross Wollen
Exhibit 14(10)(H)
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
Class A Common Stock ("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 to be appointed by the Board from time to time and to
serve at the discretion of the Board, each of whom is both (i) 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 and (ii) an "outside director" for purposes of Section
162(m) of the Internal Revenue Code of 1986, as amended.
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.
1
<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.
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 of Common Stock available for award under this Plan is
(a) 3,300,000 reduced by
(b) the number of shares of Common Stock into which shares of the
par value $1.00 common stock of Culbro Corporation previously granted and
outstanding under
(i) the Culbro Corporation 1991 Employees Incentive Stock
Option Plan,
(ii) the Culbro Corporation 1992 Stock Plan,
(iii) the Culbro Corporation 1996 Stock Plan,
(iv) the 1993 Stock Option Plan for Non-Employee Directors of
Culbro Corporation, and
(v) the 1996 Stock Option Plan for Non-Employee Directors of
Culbro Corporation,
(taking into account any adjustment in the number of shares of Culbro
common stock subject to option under the Culbro option plans listed above
made in connection with the distribution of all outstanding shares of
Culbro Land Resources, Inc. common stock to the holders of Culbro common
stock) as are redenominated as options granted with respect to Common
Stock hereunder upon the merger of Culbro Corporation into General Cigar
Holdings, Inc.
2
<PAGE>
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 200,000.
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.
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
3
<PAGE>
(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 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.
4
<PAGE>
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; provided, that with respect to
options granted in connection with the public offering occurring on or about
February 27, 1997, such fair market value shall be the price to the public of
the shares of Common Stock so offered.
ARTICLE G - Exercise of Stock Options and Stock Appreciation Rights.
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. No stock options or stock appreciation rights shall be exercisable
within one (1) year from their date of grant, except in the case of the death of
the recipient.
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;
5
<PAGE>
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.
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
6
<PAGE>
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 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.
7
<PAGE>
(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.
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.
8
<PAGE>
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. as of February 24, 1997.
Executed on this 24th day of February, 1997.
/s/ A. ROSS WOLLEN
------------------
Secretary
9
EXHIBIT 21
GENERAL CIGAR HOLDINGS, INC.
Delaware
State/Jurisdiction
Subsidiaries (1) of Incorporation
- --------------------- ------------------
General Cigar Co., Inc. (2) Delaware
387 PAS Corp. New York
Club Macanudo, Inc. New York
Culbro Tobacco, Inc. Delaware
Club Macanudo (Chicago), Inc. Illinois
(1) The Company also has several inactive subsidiaries which considered in the
aggregate as a single subsidiary would not constitute a significant subsidiary.
The Consolidated Financial Statements of the Company include the accounts of all
subsidiaries of the Company.
(2) Includes approximately 8 subsidiaries and 4 operating divisions through
which it carries on its cigar growing, manufacturing and distribution
businesses, and approximately 12 registered assumed or fictitious names used in
its business.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-29-1997
<PERIOD-END> NOV-29-1997
<CASH> 8,976
<SECURITIES> 0
<RECEIVABLES> 52,294
<ALLOWANCES> (1,331)
<INVENTORY> 107,358
<CURRENT-ASSETS> 176,076
<PP&E> 113,041
<DEPRECIATION> (45,552)
<TOTAL-ASSETS> 320,205
<CURRENT-LIABILITIES> 42,947
<BONDS> 47,540
0
0
<COMMON> 276
<OTHER-SE> 197,228
<TOTAL-LIABILITY-AND-EQUITY> 320,205
<SALES> 262,833
<TOTAL-REVENUES> 262,833
<CGS> 134,837
<TOTAL-COSTS> 202,874
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,372
<INTEREST-EXPENSE> 3,050
<INCOME-PRETAX> 57,669
<INCOME-TAX> 21,605
<INCOME-CONTINUING> 36,064
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,064
<EPS-PRIMARY> 1.26
<EPS-DILUTED> 1.26
</TABLE>
