SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by Registrant x
Filed by Party other than the Registrant o
Check the appropriate box:
o Preliminary Proxy Statement
o Confidential, for Use of the Commission Only (as permitted by Rule
14-6(e)(2)
x Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Pursuant to Sec. 240.14a-11(c) or 240.14a-12
800-JR Cigar, Inc.,
Lew Rothman,
Chairman and Chief Executive Officer
Payment of Filing Fee (Check the appropriate box):
x No fee required.
o Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act
Rule 0-11(Set forth the amount on which the filing fee is calculated
and state how it was determined):
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5) Total fee paid:
o Fee paid previously with preliminary materials
o Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing by registration for which the
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registration statement number, or the Form or Schedule and the date of
its filing.
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4) Date Filed:
<PAGE>
800-JR CIGAR, Inc.
301 Route 10 East
Whippany, New Jersey 07981
Lew Rothman
Chairman and Chief Executive Officer
Dear Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of
Stockholders (the "Annual Meeting") of 800-JR Cigar, Inc. (the "Company"). The
Annual Meeting will be held on Wednesday, May 20, 1998, at 10:00 a.m., local
time, in Burlington, North Carolina.
The enclosed Notice of Meeting and Proxy Statement contains details
concerning the business to come before the meeting. You will note that the Board
of Directors of the Company recommends a vote "FOR" the election of two Class I
Directors to serve until the 2001 Annual Meeting of Stockholders and "FOR" the
ratification of Ernst & Young LLP as independent auditors of the Company for the
1998 fiscal year.
The vote of every stockholder is important. I urge you to sign, date
and promptly mail your proxy. The Board of Directors and management look forward
to greeting those stockholders who are able to attend.
Sincerely,
Lew Rothman
President and Chief
Executive Officer
<PAGE>
800-JR CIGAR, Inc.
301 Route 10 East
Whippany, New Jersey 07981
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held May 20, 1998
The 1998 Annual Meeting of Stockholders of 800-JR Cigar, Inc., will be
held at The Ramada Inn, 2703 Ramada Road, Burlington, North Carolina, on
Wednesday, May 20, 1998, at 10:00 a.m., local time, for the following purposes:
1. To elect two Class I Directors to serve until the 2001 Annual Meeting
of Stockholders;
2. To ratify the appointment of Ernst & Young, LLP as the independent
auditors of the Company to serve for the 1998 fiscal
year; and
3. To transact such other business as may properly come before the meeting
and any adjournments or postponements thereof.
Owners of record of the Common Stock of the Company at the close of business on
April 6, 1998 are entitled to receive notice of and to vote at the Annual
Meeting and any adjournment thereof. A list of stockholders of the Company as of
the close of business on April 20, 1998 will be available for inspection during
normal business hours from May 6, 1998 through May 20, 1998 at 301 Route 10
East, Whippany, New Jersey 07981, starting at 10:00 a.m., local time.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL MEETING
WHETHER OR NOT YOU ARE PERSONALLY ABLE TO ATTEND. STOCKHOLDERS WHO DO NOT
EXPECT TO ATTEND THE MEETING IN PERSON ARE URGED TO PLEASE SIGN, DATE AND
MAIL THE ACCOMPANYING PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. THIS WILL
ENSURE THAT YOUR SHARES ARE VOTED IN ACCORDANCE WITH YOUR WISHES AND THAT A
QUORUM WILL BE PRESENT AT THE ANNUAL MEETING.
By Order of the Board of Directors,
LaVonda Rothman
Secretary
<PAGE>
FOR ANNUAL MEETING OF STOCKHOLDERS'
To be Held May 20, 1998
PROXY STATEMENT
April 13, 1998
This Proxy Statement is furnished in connection with the solicitation
of proxies on behalf of the Board of Directors of 800-JR Cigar, Inc., for the
Annual Meeting of Stockholders of the Company to be held at the Ramada Inn, 2703
Ramada Road, Burlington, North Carolina 27215 on Wednesday, May 20, 1998 at
10:00 a.m., local time, and at any adjournments thereof for the purposes set
forth in the accompanying notice of meeting.
All proxies delivered pursuant to this solicitation are revocable at
any time at the option of the persons executing them by giving written notice to
the Secretary of the Company, by delivering a later dated proxy or by voting in
person at the Annual Meeting.
The mailing address of the principal executive offices of the Company
is 301 Route 10 East, Whippany, New Jersey 07981. The approximate date on which
this Proxy Statement and form of proxy are first being sent or given to
stockholders is April 20, 1998.
All properly executed proxies delivered pursuant to this solicitation
and not revoked will be voted at the Annual Meeting in accordance with the
directions given. Regarding the election of Directors to serve until the 2001
Annual Meeting of Stockholders, in voting by proxy, stockholders may vote in
favor of all nominees or withhold their votes as to all nominees or withhold
their votes as to specific nominees. With respect to the ratification of the
appointment of Ernst & Young, LLP as independent auditors, stockholders may vote
in favor of the proposal, against the proposal or may abstain from voting.
Stockholders should specify their choices on the enclosed form of proxy. If no
specific instructions are given with respect to the matters to be acted upon,
the shares represented by a signed proxy will be voted FOR the election of all
nominees and FOR the proposal to ratify the appointment of Ernst & Young, LLP as
independent auditors. The election of Directors will require the affirmative
vote of a plurality of the shares of Common Stock of the Company voting in
person or by proxy at the Annual Meeting and the ratification of the appointment
of Ernst & Young, LLP as independent auditors will require the affirmative vote
of a majority of the shares of Common Stock of the Company voting on the
proposal in person or by proxy at the Annual Meeting. Thus, abstentions and
broker non-votes will not be included in vote totals and will have no effect on
the outcome of the vote.
Only owners of record of shares of Common Stock of the Company at the
close of business on April 17, 1998 are entitled to vote at the meeting or
adjournments thereof. Each owner of record on the record date is entitled to one
vote for each share of Common Stock of the Company so held. On April 6, 1998
there were 12,750,000 shares of Common Stock of the Company issued and
outstanding.
After the initial mailing of this Proxy Statement, proxies may be
solicited by telephone, telegram or personally by directors, officers and other
employees of the Company (who will not receive any additional compensation
therefore). All expenses with respect to this solicitation will be paid by the
Company. Arrangements will be made with brokers and other custodians, nominees
and fiduciaries to sent proxies and the proxy material to their principals, and
the Company will, upon request, reimburse them for their reasonable expenses in
doing so. The Company may engage an outside proxy soliciting firm to assist in
the solicitation of proxies. The Company will pay reasonable fees and
out-of-pocket costs and expenses if it elects to engage such a firm.
----------------------------------------
As used herein, the term "Company" or "JR" includes 800-JR Cigar, Inc. and its
subsidiaries.
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The term of office of the Company's two Class I Directors expires with
the forthcoming Annual Meeting or at such time as their successors shall have
been elected and qualified. Based on the recommendations of the Nominating
Committee, the Board of Directors of the Company proposes the reelection of John
F. Barry, Jr. and Jane Vargas as Directors of the Company for a three-year term
expiring with the 2001 Annual Meeting of Stockholders.
The two director nominees will be elected by a plurality of the votes
cast.
The following table sets forth certain information relating to the
nominees and the Directors whose terms of office will continue after this Annual
Meeting. Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the above named nominees, who have consented to serve if
elected. If a nominee is unable to serve as a Director, an event not now
anticipated, the proxies will be voted by the proxy holders for a substitute
nominee.
The Board of Directors recommends that the Stockholders vote FOR the
election to the Board of each of the proposed nominees.
Name of Principal Director Year in which
Nominees Occupation Age Since Term Expires
- --------------------------------------------------------------------------------
John F. Barry, Jr. Private Legal Practice 72 July 1997 Class I/1998/2001
Jane Vargas Vice President of the 40 March 1997 Class I/1998/2001
Company
Other Directors
- --------------------------------------------------------------------------------
Lew Rothman Chief Executive Officer,51 March 1997 Class III/2000
President and Chairman
of the Board
LaVonda M. Rothman Executive Vice President 49 March 1997 Class III/2000
and Secretary
Stephen J. Bloom Director 61 March 1997 Class III/2000
Maureen a. Colleton Director 57 March 1997 Class II/1999
John Oliva Director 55 March 1997 Class II/1999
Business Experience
Lew Rothman has been the President, Chief Executive Officer and a Director of
the Company since March 1997 and the President, Chief Executive Officer and a
director of each of the Company's predecessors since 1970. He graduated from
Kansas State Teachers College in 1970 with a BA in Political Science and
Geography. He is the author of The Cigar Almanac and a contributing editor of
Smoke magazine. Lew Rothman and LaVonda M. Rothman are married.
LaVonda M. Rothman has been the Executive Vice President, Secretary and a
Director of the Company since March 1997 and the Executive Vice President,
Secretary and a Director of each of the Company's predecessors since 1970. Lew
Rothman and LaVonda M. Rothman are married.
Maureen A. Colleton has been President of MC Management, Inc., a company which
provides maintenance of customer lists and banking records, preparation of
quarterly and annual payroll and sales tax returns, providing general ledger
accounting services, processing account receivable and payable, making payroll
distributions and providing telemarketing services to the Company since 1990.
Mrs. Colleton has been a Director of the Company since March 1997. She graduated
from Brooklyn College in 1960 with a BA in Marketing.
Jane Vargas has been Vice President and a Director of the Company since March
1997 and has been a Vice President of MC Management, Inc. since 1990. Prior to
joining MC Management, Ms. Vargas was an Assistant Vice President for Horizon
Bank. She graduated from St. Peter's College in 1980 with a BS in accounting.
John Oliva became a Director of the Company in July 1997. Since 1980, he has
been the President and a director of Oliva Tobacco Company, one of the largest
tobacco-leaf growers in the world. Mr. Oliva graduated the University of Florida
in 1966 with a BS in Industrial Engineering.
Stephen J. Bloom became a Director of the Company in July 1997. He has been an
outside consultant to Phillip Morris U.S.A. since April 1993. Mr. Bloom
was employed by Phillip Morris U.S.A. as Vice President, Corporate Account
Sales from January 1986 to April 1989, as Vice President of Trade Development
from 1989 to 1991 and as Senior Vice President and Chief Executive Officer of
S. Bloom, Inc. in Chicago, a tobacco distributing company. Mr. Bloom was
elected to the National Association of Tobacco Distributors Hall of Fame in
1985. He graduated from the University of Michigan with a BBA in 1958.
John F. Barry Jr. became a Director of the Company in July 1997. He was a
Partner at Lord Day & Lord, Barrett Smith until September 1994 and Special
Counsel at Morgan, Lewis & Bockius LLP from October 1994 to September 1996.
He has been involved in his private legal practice from October 1996 to present.
Mr. Barry graduated from Princeton University in 1947 and from Columbia
University Law School in 1952.
Meetings and Committees of the Board of Directors
During the fiscal year ended December 31, 1997, the Executive Committee
functioned as the Compensation Committee (the "Compensation Committee") of the
Company's Board of Directors. The Compensation Committee was charged with
administering the Company's 1997 Long-Term Incentive Plan (the "1997 Plan");
reviewing the compensation of senior management; and recommending to the Board
of Directors such changes to the compensation of senior management, including
changes to the Company's compensation plans and programs, as the Compensation
Committee finds appropriate.
The Audit Committee of the Company's Board of Directors consists of
Maureen A. Colleton, John Oliva and Stephen Bloom. The Audit Committee is
charged with recommending to the Board of Directors the engagement or discharge
of independent auditors; reviewing the plan and results of the audit engagement
with the Chief Financial Officer of the Company and the independent auditors.
The Executive Committee of the Company's Board of Directors consists of
Lew Rothman, LaVonda M. Rothman and Maureen A. Colleton. The Executive Committee
has authority to act for the Board on most matters during intervals between
Board meetings and is charged with supervising the implementation of the
decisions of the Board.
The Nominating Committee of the Company's Board of Directors consists
of Lew Rothman, LaVonda M. Rothman and Maureen A. Colleton. The Committee
reviews the qualifications of candidates suggested by Board members, management,
stockholders and other sources; considers the performance of Directors in
determining whether to nominate them for reelection; and recommends to the Board
nominees for election as Directors.
During the fiscal year ended December 31, 1997 the Board of Directors
held five meetings; the Compensation Committee held two meetings; the Audit
Committee held two meetings, the Executive Committee held ten meetings and the
Nominating Committee held three meetings. Each Director attended at least 75% of
the aggregate number of meetings held by the Board and any committee on which he
or she served.
Compensation of Directors
The Company pays each Director who is not a full-time employee of (or
consultant to) the Company an annual stipend of $20,000 plus a fee of $900 for
attendance at each meeting or committee meeting (unless held on the same day as
a Board meeting) of the Board. In addition, such Directors receive options to
purchase 10,000 shares of Common Stock upon the commencement of their term of
office. All Directors are reimbursed for out-of-pocket expenses incurred in
attending meetings of the Board or committees thereof, and for other expenses
incurred in their capacity as Directors of the Company.
EXECUTIVE OFFICERS
The Board elects executive officers annually at its first meeting
following the annual meeting of stockholders. Certain information concerning the
Company's executive officers is set forth under "Election of Directors", except
that information concerning Mr. Colleton is set forth below.
Michael E. Colleton, age 59, became Chief Financial Officer of the Company on
January 27, 1998. Mr. Colleton has 30 years experience as a corporate financial
manager and has an extensive background in both accounting and law. Prior to his
appointment, Mr. Colleton served as advisor to the Chief Financial Officer and
headed up the financial team that brought the Company public in June 1997.
EXECUTIVE COMPENSATION
The aggregate compensation paid or accrued by the Company during the
fiscal year ended December 31, 1997 to the Chief Executive Officer of the
Company and to the four most highly compensated executive officers (other than
the Chief Executive Officer) whose compensation in salary and bonus exceeded
$100,000 is set forth in the following table:
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Securities
Underlying
Name and Options/
Principal Salary Bonus SARs
Position Year ($) ($) (#)
- --------------------------------------------------------------------------------
Lew Rothman1: 1997 200,004 -0- 50,000
President & Chief Executive
Officer
LaVonda Rothman1: 1997 200,004 -0- 50,000
Vice President and Secretary
Jane Vargas2: 1997 107,019 500,000 35,000
Vice President
(1) Lew Rothman and LaVonda Rothman have each entered into a three-year
employment agreement with the company providing for an annual base salary
of $200,000, respectively. The agreements also provide that each employee
shall be entitled to such medical and other benefits, including insurance
and pension plans, as are provided to other executive officers of the
Company and to such bonuses as the capital board shall determine in its
discretion. The agreements also provide that in the event either officer
leaves the employ of the Company during the term of the agreement, he or
she agrees not to compete with the Company for a period of two years.
(2) Jane Vargas has entered into a three year employment contract at an annual
base salary of $105,000. The agreement provides she shall be entitled to
such medical and other benefits, including insurance and pension plans, as
are provided to other executive officers of the Company and to such bonuses
as the capital board shall determine in its discretion. The agreement also
provides that in the event she leaves the employ of the Company during the
term of the agreement, she agrees not to compete with the Company for a
period of two years. The agreement between the Company and Ms. Vargas also
provided for a signing bonus of $500,000.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth, as to the executive officers names in
the Summary Compensation Table, with respect to the fiscal year ended December
31, 1997, information relating to the grants of stock options pursuant to the
1997 Plan and otherwise.
Number of % of Total Potential
Securities Options/SARs Exercise or Realized
Underlying Options granted to Base Price Expiration Value2
Name /SARs Granted (#)1 Employees in 1997 (S/Sh) Date 5% ($) 10% ($)
- --------------------------------------------------------------------------------
Lew Rothman 50,000 11.1% $17.00 June 25, 2007 534,500 1,354,500
LaVonda Rothman 50,000 11.1 17.00 June 25, 2007 534,500 1,354,500
Jane Vargas 35,000 7.8 17.00 June 25, 2007 374,150 948,150
(1) Stock options entitle the holder to purchase shares of Common Stock at a
price, which is equal to the fair market value per share for such on the
date the stock option was granted. Payment of this price is made in cash.
Stock options become exercisable over a three-year period (beginning one
year after the date of grant in three equal installments. No stock option
may be exercised after the expiration of ten years from the date of grant.
(2) Potential realized value is at assumed annual rates of stock appreciation
for the option term compounded annually.
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth the number of shares covered by stock
options held by the named executive officers as of December 31, 1997, and the
value of "in-the-money" stock options, which represents the positive spread
between the exercise price of a stock option and the year-end market price of
the shares subject to such options at December 31, 1997. The named executive
officers of the Company did not exercise any stock options during the year ended
December 31, 1997.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year-End1 at Year-End2
Name Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------------------------------------------------------
Lew Rothman -0- 50,000 -0- $400,000
LaVonda Rothman-0- 50,000 -0- 400,000
Jane Vargas -0- 35,000 -0- 280,000
(1) As of December 31, 1997, none of the options granted are exercisable.
(2) Values for "in-the-money" outstanding options represent the positive spread
between the respective exercise price of the outstanding options and the
last closing price of the Common Stock as of December 31, 1997, which was
$25.00.
Employment Agreements
Each of Mr. Lew Rothman, Mrs. LaVonda M. Rothman, and Ms. Jane Vargas
has entered into an employment agreement with the Company expiring on March 13,
2000, providing for an annual base salary of $200,000. $200,000, and $105,000,
respectively. The agreements also provide that each employee shall be entitled
to such medical and other benefits, including insurance and pension plans, as
are provided to other executive officers of the Company and to bonuses at the
discretion of the Board from amounts available under the Company's bonus pool.
The bonus pool for the year ended December 31, 1997 consisted of an amount not
exceeding five percent of the amount by which the Company's pre-tax profit
exceeded the Company's forecasted pre-tax profit as set forth in the budget
approved by the Board. The Agreements also provide that in the event any such
officer shall leave the employ of the Company during the term of the agreement,
he or she agrees not to compete with the Company for a period of two years. The
employment agreement between the Company and Jane Vargas provided for a signing
bonus of $0.5 million.
Compliance with Reporting Requirements
The Company believes that, during the fiscal year ended December 31,
1998, all filing requirements under Section 16(a) of the Securities Exchange Act
of 1934, as amended, applicable to its executive officers, directors and greater
than ten percent stockholders were complied with on a timely basis.
Compensation Committee Report on Executive Compensation-Interlocks and Insiders
Participation
The Executive Committee, functioning as the Company's compensation
committee, supervises management compensation and employee benefits and
administers the Company's pension, stock option, health, incentive compensation
and other employee benefit plans. Mr. Lew Rothman is Chairman and members are
Mrs. LaVonda M. Rothman and Mrs. Maureen A. Colleton. Mr. Rothman is the
President and beneficially owns 72.94% of the outstanding stock of the Company.
Mrs. LaVonda M. Rothman is Vice President and Secretary and beneficially owns
72.94% of the outstanding stock of the Company. Ms. Maureen A. Colleton is
President of MC Management, Inc., which provides telemarketing services and
various administrative and other services to the Company.
REPORT OF THE COMPENSATION COMMITTEE
The following report of the Compensation Committee and the performance graph
that appears immediately after such report shall not be deemed to be soliciting
material or to be filed with the Securities and Exchange Commission under the
Securities Act of 1933 or the Securities Exchange Act of 1934 or incorporated by
reference in any document so filed.
Overview
800-JR Cigar, Inc.'s executive compensation programs are designed to
attract, retain and motivate the broad based executive talent required to
achieve its business objectives and increase stockholder value. The Company's
executive compensation program is administrated by the Executive Committee of
the Board of Directors (the "Committee") which is comprised of the individuals
listed above. Total compensation for the Company's executive officers consists
of a base salary and long-term incentives consisting of stock options. The
Committee annually reviews the competitiveness of the Executive Compensation
programs.
Base Salary
In 1997, the company capped all executive base salaries at a rate of no
more than $200,000 per year. The Company took this action to promote equality
among the founding group of owner/managers and to stabilize fixed executive
compensation costs. As such, the Company was able to focus its executive
resources on managing the business and maximizing earnings per share and cash
flow performance.
Over time, the Company intends to establish base salary levels based
upon competitive market pay rates, each individual's role in the Company and
each individual executive's performance over time. Consequently, employees
assuming greater responsibilities and/or employees with higher levels of
sustained performance over time will be paid correspondingly higher salaries.
Salaries for executives will be reviewed annually based on a variety of
factors, including individual performance, market salary levels for comparable
positions within comparable companies and the Company's overall financial
results. Salary increases will be granted within a pay-for-performance
framework, but not to exceed certain maximum levels based upon the applicable
position.
The Company intends to target the marketplace median in setting base pay levels
over time.
Annual Incentive Plan
Prior to its Initial Public Offering, the Board of Directors and
company implemented a long-term incentive plan (the "Plan"). The maximum number
of shares of Common Stock that may be subject to outstanding awards may not
exceed the greater of 800,000 shares or 9% of the aggregate number of shares of
Common Stock outstanding. Awards may be settled in cash, shares, other awards or
other property, as determined by the Committee. The number of shares received or
deliverable under the Plan and the annual per-participant limit is subject to
adjustment in the event of stock splits, stock dividends and other extraordinary
corporate events.
The purpose of the Plan is to provide executive officers (including
directors who also serve as executive officers), key employees, consultants and
other service providers with additional incentives by enabling such persons to
increase their ownership interests in the Company. Individual awards under the
Plan may take the form of one or more of: (I) either incentive stock options
("ISOs") or non-qualified stock options ("NQSOs"); (ii) stock appreciation
rights ("SARs"); (iii) restricted or deferred stock; (iv) dividend equivalents;
(v) bonus shares and awards in lieu of Company obligations to pay cash
compensation; and (vi) other awards the value of which is based in whole or in
part upon the value of the Common Stock. Upon a change of control the Company
(as defined in the Plan), certain conditions and restrictions relating to an
award with respect to the exercisability or settlement of such award will be
accelerated.
The Compensation Committee administers the Plan and generally selects
the individuals who will receive awards and the terms and conditions of those
awards including exercise prices, vesting and forfeiture conditions, performance
conditions and periods during which awards will remain outstanding. The number
of shares deliverable upon exercise of ISOs is limited to 800,000, provided that
shares of Common Stock that are attributable to ISOs that have expired,
terminated or been canceled or forfeited or otherwise terminate without delivery
of shares are available for issuance or use in connection with future ISOs. The
Plan also provides that no participant may be granted in any calendar year
awards settleable by delivery of more than 500,000 shares, and limits payment
under cash-settled awards in any calendar year to an amount equal to the fair
market value of that number of shares.
The Plan will remain in effect until terminated by the Board of
Directors. The Plan may be amended by the board of Directors without the consent
of the stockholders of the Company, except that any amendment, although
effective when made, will be subject to stockholder approval if required by any
Federal or State law or regulation or by the rules of any stock exchange or
automated quotation system on which the Common Stock may then be listed or
quoted.
NQSO's to purchase a total of 450,000 shares of Common Stock of the
Company were granted to various employees, each of the options have an exercise
price of $17.00. These options vest equally over a three-year period commencing
on June 25, 1998, and generally will expire on the earlier of 10 years after the
date grant or three months after termination of employment. If termination is
for cause, all options will terminate immediately.
STOCK PERFORMANCE GRAPH AND TABLE
The following graph compares the percentage change in the Company's
Common Stock to the cumulative total return of the Standard & Poor's 500 Stock
Index and the Company's peer group for the portion of 1998 that the Company's
Common Stock was registered pursuant to Section 12 of the Securities Exchange
Act, assuming the investment of $100 on June 26, 1997.
The following table was represented by a line chart in the printed material.
STARTING
BASIS
DESCRIPTION 6/97 12/97
800 JR CIGAR IN (%) 47.06
800 JR CIGAR IN ($) $100.00 $147.06
S & P 500 (%) 15.53
S & P 500 ($) $100.00 $115.53
S & P Smallcap 600 (%) 17.55
S & P Smallcap 600 ($) $100.00 $117.55
PEER GROUP ONLY (%) -16.86
PEER GROUP ONLY ($) $100.00 $83.14
PEERS + YOUR COMPANY (%) -12.13
PEERS + YOUR COMPANY ($) $100.00 $87.87
Comparison of Cumulative Total Return
The performance of the Company's Common Stock reflected above is not
necessarily indicative of future performance of the Common Stock. The total
return on investment (change in the year-end stock price plus reinvested
dividends) for the period shown for the Company, the S&P 500 Index and the
Company's peer group is based on the stock price or composite index at June 26,
1997.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 6, 1998, certain
information concerning the ownership of the Company's Common Stock by (i) each
person known to the Company to be the beneficial owner of more than 5% of the
Company's Common Stock, (ii) each Director and nominee for Director, (iii) each
executive officer of the Company named in the Summary Compensation Table and
(iv) the Company's executive officers and Directors as a group. Except as
otherwise indicated, the address of each such person is c/o 800-JR Cigar, Inc.,
301 Route 10 East, Whippany, New Jersey 07981. Unless otherwise indicated, the
named beneficial owner has sole voting and investment power with respect to the
shares beneficially owned by him or her.
Name Number of Common Shares and Share Equivalents % of Ownership1
- --------------------------------------------------------------------------------
Lew Rothman2 9,300,000 72.94%
LaVonda M. Rothman2 9,300,000 72.94
John Oliva 51,200 .40
All Executive Officers and 9,351,200 73.34
Directors as a group (8 persons)
(1) Represents percent of shares outstanding based on 12,750,000 shares
outstanding as of April 6, 1998.
(2) Includes (i) 131,040 shares of Common Stock held by LaVonda M. Rothman and
Lew Rothman, as Trustees, and Samuel Bornstein, as Special Trustee, of a
trust f/b/o Shane Rothman (the "Shane Rothman Trust"), created under a
trust agreement dated November 1, 1994, made by Lewis Irving Rothman, as
Grantor (the "Lewis Irving Rothman Children's Trust Agreement #1"), (ii)
131,040 shares of Common Stock held by LaVonda M. Rothman and Lew Rothman,
as Trustees, and Samuel Bornstein, as Special Trustee, of a trust f/b/o
Marni Rothman created under the Lewis Irving Rothman Children's Trust
Agreement #1, (iii) 131,040 shares of Common Stock held by LaVonda M.
Rothman and Lew Rothman, as Trustees, and Samuel Bornstein, as Special
Trustee, of a trust f/b/o Samantha Rothman (the "Samantha Rothman Trust")
created under the Lewis Irving Rothman Children's Trust Agreement #1 and
(iv) 131,040 shares of Common Stock held by LaVonda M. Rothman and Lew
Rothman, as Trustees, and Samuel Bornstein, as Special Trustee, of a trust
f/b/o Luke Rothman (the "Luke Rothman Trust") created under the Lewis
Irving Rothman Children's Trust Agreement #1, which may be deemed to be
beneficially owned by the names person but as to which the named person
disclaims beneficial ownership.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management Services
During 1997, the Company entered into a five year contract with MC
Management, Inc. ("MC Management"), for the performance on behalf of the Company
of various administrative and other services, including, among other things,
maintaining customer lists and banking records, preparing quarterly and annual
payroll and sales tax returns, providing general ledger accounting services,
processing account receivable and payable, making payroll distributions and
providing telemarketing services. MC Management receives a management fee from
the Company equal to 1.0% of the Company's gross cigarette sales and between
0.5% and 3.1% of the Company's gross sales of all other products marketed by the
Company. In consideration of MC Management's agreement to enter into the
five-year contract, the Company paid a signing bonus to MC Management in the
amount of $1.0 million.
Manufacturing Facility Arrangements
In December 1996, Lew Rothman, the Company's Chief Executive Officer,
and John Oliva, a director of the Company, purchased a 49% and 36% interest,
respectively, in NATSA, a corporation which owns and operates a Nicaraguan cigar
manufacturing facility. In addition, Lew Rothman purchased a 35% interest in
TANDSA, a corporation that owns and operates a Dominican cigar manufacturing
facility. Pursuant to agreements with each of NATSA and TANDSA, NATSA has agreed
to produce the Company's products exclusively for a five-year period, subject to
renewals, and TANDSA will dedicate one-third of its production to the Company's
products for a five-year period, subject to renewals. NATSA produces four of the
Company's products, Jose Marti, Villar Y Villar, Rosa Cuba and La Finca. TANDSA
produces Trinidad y Cia. The Company believes that the terms of such
arrangements are no less favorable than would be obtained from unaffiliated
third parties.
On January 27, 1998, the Board of Directors approved the purchase of
the stock of Nicaraguan American Tobacco, Inc. ("NATCO"), the exclusive importer
of all cigars produced by Nicaragua American Tobacco, S.A. ("NATSA"), a
manufacturer of hand made cigars in Nicaragua. NATCO is owned 50% by an
officer/director and 50% by another director of the Company, and 49% and 36% of
NATSA is owned by these same individuals. The purchase price is based on a
predetermined multiple of earnings of NATCO for the year ended December 31,
1997.
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors of the Company, upon the recommendation of the
Audit Committee, has appointed the firm of Ernst & Young LLP to serve as
independent auditors of the Company for the fiscal year ended December 31, 1998,
subject to ratification of this appointment by the stockholders of the Company.
Ernst & Young LLP has served as independent auditors of the Company for two
years and is considered by management of the Company to be well qualified. The
Company has been advised by that firm that neither it nor any member thereof has
any financial interest, direct or indirect, in the Company or any of its
subsidiaries in any capacity.
One or more representatives of Ernst & Young LLP will be present at
this year's Annual Meeting of Stockholders, will have an opportunity to make a
statement if he or she desires to do so and will be available to respond to
appropriate questions.
Ratification of the appointment of the independent auditors requires
the affirmative vote of a majority of the shares of Common Stock of the Company
voting in person or by proxy at the Annual Meeting of Stockholders. If
stockholders should not ratify the appointment of Ernst & Young LLP, the Board
of Directors will reconsider the appointment.
The Board of Directors recommends a vote FOR the proposal to ratify the
appointment of Ernst & Young LLP as independent auditors of the Company for the
1998 fiscal year. Proxies received by the Board of Directors will be so voted
unless stockholders specify in their proxies a contrary choice.
REPORT ON FORM 10-K
The Company filed its Annual Report on Form 10-K for the year ended
December 31, 1997 with the Securities and Exchange Commission on March 31, 1998.
A copy of the report, including any financial statements and schedules and a
list describing any exhibits not contained therein, may be obtained without
charge by any stockholder. Written requests for copies of the report should be
directed to Investor Relations, 800-JR Cigar, Inc., 301 Route 10 East, Whippany,
New Jersey 07981.
In addition, a copy of the Report is available to the Company's stockholders
without charge at the web site (http://www.sec.gov) maintained by the Commission
and at the public reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street., N.W., Washington, DC 20549. Copies also may be
obtained at prescribed rates at the Commission" regional office in New York
located at 7 World Trade Center, 15th Floor, New York, New York 10048.
A copy of the Company's 1997 Annual Report accompanies this Proxy
Statement.
SUBMISSION OF STOCKHOLDER PROPOSALS
Any proposal to be presented by a stockholder at the Company's 1999
Annual Meeting of Stockholders must be received by the Company no later than
(December 15, 1998), so that it may be considered by the Company for inclusion
in its proxy statement and form of proxy relating to that meeting.
OTHER MATTERS
The Board of Directors knows of no matters that are expected to be
presented at the Annual Meeting other than those described in this Proxy
Statement. Should any other matter properly come before the Annual Meeting,
however, the persons named in the form of proxy accompanying this Proxy
Statement will vote all shares represented by proxies in accordance with their
best judgement on such matters.
