U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
INTERNATIONAL CIGAR HOLDINGS, INC.
(Name of Small Business Issuer as specified in its charter)
DELAWARE 65-0833041
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7440 S. W. 50 Terrace, #107, Miami, Florida 33155
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (305) 284-0600
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Securities to be registered under Section 12(b) of the Act: None
Securities to be registered under Section 12(g) of the Act:
COMMON STOCK
(Title of class)
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ITEM 1. DESCRIPTION OF BUSINESS
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THE COMPANY
Tungsten International, Inc. (the "Company") was incorporated under the laws of
the State of Delaware on February 3, 1997. On April 13, 1998, the Company
purchased 100% of the issued and outstanding shares of Ambra Cigar, Inc.
(formerly known as International Cigar Holdings, Inc.), a Delaware corporation,
from its shareholders in exchange for 6,049,524 shares of the Company's common
stock. The name of the Company was then changed to International Cigar Holdings,
Inc.
Ambra Cigar, Inc. owns 97.8% of the outstanding shares of U.S. Cigar
Distributors, Inc., a Florida corporation ("U.S. Cigar"). Both U.S. Cigar and
Ambra Cigar, Inc. were established in 1996 by Juan A. Vega, Sr. and John J.
Kelly. As a result of these transactions, Ambra Cigar, Inc. is now a wholly
owned subsidiary of the Company and Ambra Cigar, Inc. owns 97.8% of U.S. Cigar.
Mr. Kelly is the President, Treasurer and Assistant Secretary of the Company.
The Company's principal offices are located at 7440 S.W. 50th Terrace, Miami,
Florida 33155 and its telephone number is (305) 284-0600. All references to the
operations of the Company refer to the operations of the Company and its direct
and indirect subsidiaries.
The Company has developed an association with a cigar manufacturer that has a
long-standing tradition in the premium cigar and leaf tobacco business. The
Suerdieck Group consists of two companies, Agro Comercial Fumageira, S.A. and
Suerdieck Charutos, Ltda. (collectively referred to as "Suerdieck"). Suerdieck
manufactures Don Pepe long filler, hand made premium cigars, in the state of
Bahia, Brazil. The Company has an exclusive distribution agreement with
Suerdieck for its cigars and other products, including cigar wrappers, in North
America. The Suerdieck family has been one of the leading producers of premium
tobacco leaf for premium cigars and hand and machine made cigars for over 100
years in the prime tobacco-growing region of Bahia, Brazil. Suerdieck's hand
made and machine made cigars and cigarillos have been sold in the United States
and Canada for over 20 years and in Europe since the late 1800's. In Brazil,
Suerdieck's share of the cigar market is over 60%. Suerdieck produces over 90%
of the Sumatra seed wrapper exported from Brazil to the United States and
Europe. Don Pepe has been advertised in numerous magazines, including Cigar
Aficionado, Tobacconist, Smoke, and Smoke Shop. The Don Pepe brand has been
featured in various articles as the leader in premium cigar products from
Brazil.
The Company will continue to work with Suerdieck in Brazil and other significant
producers and distributors of fine cigars and cigarillos to increase production
of premium cigars to sell in the markets in which the Company operates. In North
America, The Company now distributes all of the Suerdieck products, including
wrapper, filler, premium cigars and cigarillos. The distribution agreement is
for a term of 10 years, with an automatic 5-year extension at the Company's
option and a renegotiable term of ten years. Suerdieck is the largest producer
of premium cigars in Brazil with over 60% of the domestic market. Their wrapper
is grown from Sumatra seed and
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produces a very high value light wrapper. This wrapper is believed to make
cigars like Suerdieck's premier brand, Don Pepe, a superior hand made cigar.
The Company also has an exclusive distribution agreement with Swisher
International, Inc. ("Swisher") for the distribution of Don Pepe and a
non-exclusive distribution agreement for the distribution of flavored brands
under the Palomitas name. The Swisher distribution and sales agreement started
in February 1997 and runs for two years with renewal clauses. The first contract
allowed Swisher to purchase up to $2,500,000 of products per year. Sales under
this agreement were $444,511 and $496,445 in the fiscal years ended June 30,
1997 and 1998, respectively.
The Company is also considering distributing products of the Havana Sunrise
Group ("Havana Sunrise"), which has developed a niche market for its high-end
premium hand made cigars. Its manufacturing facility in Miami's Little Havana is
known for producing a product that has received excellent reviews and normally
retails for prices ranging from $8.00 to $16.00, which is the middle to high end
of the retail prices for quality premium cigars. In addition, Havana Sunrise has
extended its expertise to a facility in the Dominican Republic that will be the
manufacturing site for a line of premium products that may be sold exclusively
by the Company in Brazil, Argentina, Chile and Canada. These products will be
positioned in the middle to low end of the retail prices for quality premium
cigars. In addition, the Company may expand sourcing from Central America and
the Dominican Republic with the acquisition of production capacity in those
countries.
There is no assurance that these measures will increase the supply of cigars or
that they will be sufficient to enable the Company to meet any future demand for
its cigars. Any material inability of the Company to expand its current means of
supply in a timely manner could have a material adverse effect on the Company's
business, including the loss of sales.
The Company plans to add additional sales personnel to sell and distribute
cigars from Brazil, Central America, and the Dominican Republic. The Company may
also pursue the acquisition of distributors in certain key markets in North
America and in Brazil. The Company's main market focus will be in the $3.00 to
$8.00 range for premium hand made cigars.
The Company's main market focus will be both the premium hand made cigars and
machine made cigars and cigarillos. In the premium cigar market we will focus on
units that retail for between $3.00 and $8.00. In the machine made business we
will focus on flavored and unflavored cigars and cigarillos that will retail
between $.25 and $1.25 per unit. Our business plan contemplates an investment in
machinery and raw materials to expand the capabilities for producing the machine
made cigars and cigarillos.
FORWARD-LOOKING STATEMENTS. When used in this Form 10 filing, the words
"believe", "should", "would" and similar expressions which are not historical
are intended to identify forward-looking statements that involve risks and
uncertainties. Such statements include, without limitation, expectations with
respect to the results for the next fiscal year, the Company's beliefs about
trends in the cigar industry and its views about the long-term future of the
industry and the Company, its
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plan to address the Year 2000 issue, the costs associated therewith and the
results of Year 2000 non-compliance by the Company or one or more of its
customers, suppliers or other strategic business partners. In addition to
factors that may be described in the Company's other Securities and Exchange
Commission filings, the following factors among others, could cause the
Company's financial performance to differ materially from that expressed in any
forward-looking statements made by, or on behalf of, the Company: (i) changes in
consumer preference resulting in a decline in the demand for and consumption of
cigars; (ii) sustained inventory imbalances at the retailer/wholesaler level;
(iii) an inability on the part of the Company to increase its production of
premium cigars as a result of, among other things, a shortage of raw materials;
(iv) an increase in the price of raw materials; (v) additional governmental
regulation of tobacco products or further tobacco industry litigation; (vi)
enactment of new or significant increases in existing excise taxes on cigars and
tobacco products; and (vii) difficulties, delays or unanticipated costs in
achieving Year 2000 compliance or unanticipated consequences from non-compliance
by the Company or one or more of its customers, suppliers or other strategic
business partners. The Company does not undertake any responsibility to update
the forward-looking statements contained in this From 10 filing.
RISK FACTORS
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The primary risks to which the Company is subject include those listed below.
LIMITED OPERATING HISTORY. The Company has been in the cigar business since
October 1996 and has a limited operating history. The Company has completed only
one and one half years of operations. The Company's operations consist of
distributing cigars and tobacco leaf. There is no assurance that the Company
will be able to sell enough of its products to ensure a profit. The Company must
be considered subject to all the risks inherent in any newly formed business,
including the absence of a long, profitable operating history, lack of market
recognition and limited banking and financial relationships. In addition, the
Company's business plan and operating strategy involve expansion in the cigar
business, which is highly competitive and typified by well established and
better financed companies with long established and a highly recognized market
presence. There can be no assurance that the Company will be successful in
completing its product development program, implement its corporate
infrastructure to support operations at the levels called for in its business
plan, conclude a successful sales and marketing plan to achieve significant
penetration of the cigar market, or generate sufficient revenues to meet its
expenses or to achieve and maintain profitability.
COMPETITION. The Company must compete with other companies whose business plans
and objectives are similar to its own. The Company is aware of many other
companies engaged in similar businesses, including Consolidated Cigar
Corporation, General Cigar Company, U.S. Tobacco and Tabacalera de Espana, which
have substantially greater resources and longer operating histories than it has.
DEPENDENCE ON KEY EXISTING AND FUTURE PERSONNEL. The Company's success will
depend to a large degree upon the efforts and abilities of its officers and key
management employees. The loss of the services of one or more of key employees
could have a material adverse effect on the
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Company's business prospects and potential earning capacity. As its business
plan is implemented, the Company will need to recruit and retain additional
management and key employees in virtually all phases of its operations. There
can be no assurances that the Company will be able to recruit or retain such new
employees on terms suitable to it.
ADDITIONAL FINANCING REQUIRED - LACK OF TRADITIONAL FINANCING SOURCES. The
Company is pursuing an aggressive growth strategy, which will require
substantially more funding than is currently available to it. The Company
intends to offer additional convertible preferred shares to raise an additional
$6,000,000. However, there can be no assurance that all, or any part, of such
additional financing will in fact be realized. The Company may seek such
financing from sources such as bank financing or through the sale of additional
debt or equity securities (or a combination thereof) in future public or private
offerings. However, there can be no assurance that any such financing will in
fact be available to the Company when needed or upon terms acceptable to the
Company.
CURRENCY RISKS. There are possible currency risks associated with operations in
countries such as Brazil that have in the recent past experienced high rates of
inflation and devaluation. The Company will attempt to take prudent steps and
policies to mitigate and reduce those risks based on its experience operating in
those environments. However, no assurance can be given that those steps will be
successful.
EFFECTS OF FLUCTUATIONS IN CIGAR COSTS AND AVAILABILITY. The Company purchases
cigars, which are manufactured by suppliers outside the United States. The price
and availability of these cigars are subject to numerous factors out of the
Company's control, including weather conditions, foreign government policies,
potential trade restrictions and the overall demand for cigars.
HISTORICAL DEPENDENCE ON ONE SUPPLIER. Through the date hereof, the Company's
largest supplier accounted for approximately 100% of its cigar purchases.
Problems with its major supplier could have a significant adverse impact on the
operations of the Company.
HISTORICAL DEPENDENCE ON ONE CUSTOMER. Swisher, one of the largest cigar
distributors in the United States, has accounted for over 80% of the Company's
sales. The Company has expanded its customer base, but expects that sales to
Swisher will continue to account for a substantial percentage of sales. Problems
with Swisher could have a substantial adverse impact on the Company.
AGREEMENTS WITH SUERDIECK. In December, 1996, U.S. Cigar entered into a series
of agreements with Suerdieck and members of the Suerdieck family, including a
Shareholder's Agreement, Operational Agreement, Distribution Agreement for the
distribution of cigars and tobacco products in North America. Additionally, the
agreements give the Company the option to acquire 35% of the Suerdieck Group.
The Company is currently in the process of renegotiating these agreements.
Failure to renegotiate these agreements could seriously impact the distribution
arrangement with Suerdieck.
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DECLINING MARKET FOR PREMIUM CIGARS. According to industry sources, the cigar
industry was in substantial decline from approximately 1973 to 1991. While
premium cigar sales increased between 1991 and 1997, there recently has been a
softening in the market due in part to the fact that many new companies entered
the business and created an oversupply of premium cigars. The Company was
fortunate to not have built up a substantial inventory, but Swisher, the
Company's main distributor, has a large inventory. However, discussions with
Swisher show that the market may start normalizing as inventories are reduced,
prices firm, and demand resumes a more normal increase of approximately 10% per
year. The decrease in cigar sales as well as the general decline in smoking
followed the 1964 report of the United States Surgeon General. Numerous other
subsequent studies stressed the link between smoking, and medical problems such
as cancer, heart, and respiratory and other diseases. "No smoking" laws,
ordinances and prohibitions on cigar smoking in certain cases may have adversely
affected the sale of cigar products. The Company believes that these factors may
continue to have an adverse effect upon the cigar industry in general and the
Company's business in particular. The Company believes that a considerable
percentage of the recent increase in cigar sales, especially with respect to
premium cigars, is attributable to new cigar smokers attracted by the improving
image of cigar smoking and the increased visibility of cigar smoking by
celebrities. The Company can make no assurances that recent increases in cigar
sales are indicative of long-term trends or that these new customers will
continue to smoke cigars in the future.
RISKS RELATING TO SUPPLY OF CIGARS. The Company primarily sells moderately
priced cigars that are hand-rolled or machine-made and use tobacco aged six
months to two years. There is an abundant supply of tobacco available in a
number of countries for the types of cigars the Company primarily sells. The
Company also, however, sells a limited number of higher priced premium cigars
that require longer-aged tobacco. The Company's ability to acquire cigars in the
future may be constrained by a shortage of premium cigars made with longer-aged
tobacco. At times, producers have suspended shipping certain brands of cigars
when excessive demand results in a shortage of properly aged and blended
tobacco. Accordingly, the Company cannot assure that increases in demand would
not adversely affect its ability to acquire higher priced premium cigars.
DEMAND FOR CIGARS AND INVENTORY. While the cigar industry had experienced
increasing demand for cigars during the last several years, in 1997 there was a
noticeable drop in cigar sales. Several U.S. based cigar manufacturers have
closed both their U.S. and offshore facilities. The Company believes that the
excess cigar capacity has diminished but we cannot give any assurance that the
trend will not continue. If the industry does not continue to grow or if the
Company experiences a reduction in demand, the Company may temporarily
accumulate inventory which could have an adverse effect on its business or
results of operations.
SOCIAL, POLITICAL AND ECONOMIC RISKS ASSOCIATED WITH FOREIGN OPERATIONS AND
INTERNATIONAL TRADE. The Company purchases virtually all of its premium cigars
from manufacturers located in countries outside of the U.S., including Brazil.
Social, political and economic conditions inherent in foreign operations and
international trade may change, including changes in the laws and policies that
govern foreign investment and international trade. To a lesser extent, social,
political and economic conditions may cause changes in U.S. laws and regulations
relating to foreign investment and trade. Social, political or economic changes
could, among other things, interrupt
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cigar supply or cause significant increases in cigar prices. In particular,
political or labor unrest in Brazil could interrupt the production of premium
cigars, which would inhibit us from buying inventory. Accordingly, changes in
social, political or economic conditions could have a material adverse effect on
the Company's business.
LIMITED INSURANCE COVERAGE. The Company does not carry general liability,
product liability or health hazard insurance. There is no assurance that the
Company will be able to obtain product liability insurance, or if available,
that it will be available on commercially reasonable terms. The Company could be
subject to liability, which is not covered by insurance. The Company does have
employee medical and dental insurance as well as required workers' compensation
insurance.
RISKS ASSOCIATED WITH THE TOBACCO INDUSTRY.
REGULATION. The tobacco industry is subject to regulation at 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 sale of tobacco products, together with an appropriate
enforcement program. The recent trend is toward increasing regulation of the
tobacco industry, and the increase in popularity of cigars could lead to an
increase in regulation of cigars. A variety of bills relating to tobacco issues
have been introduced in the United States Congress. Included are bills that
would, if passed, (i) prohibit the advertising and promotion of all tobacco
products or restrict or eliminate the deductibility of such advertising
expenses; (ii) increase labeling requirements on tobacco products to include,
among other things, addiction warnings and lists of additives and toxins; (iii)
shift regulatory control of tobacco products and advertisements from the FTC to
the FDA; (iv) increase tobacco excise taxes; and (v) require tobacco companies
to pay for health care costs incurred by the federal government in connection
with tobacco related diseases. Hearings have been held on certain of these
proposals; however, to date, Congress has not passed any of these.
In August 1996, the FDA published a final rule on tobacco in the Federal
Register in which it announced that nicotine is a drug and that it therefore has
jurisdiction over nicotine-delivery products, including cigarettes and smokeless
tobacco products, as medical devices. Specifically, the rule prohibits a variety
of activities relating to the sale of cigarettes and smokeless tobacco. The
provision prohibiting retailers from selling cigarettes, cigarette tobacco or
smokeless tobacco to persons under the age of 18, and requiring retailers to
check the photographic identification of every person under the age of 27 became
effective on February 28, 1997. The FDA has also announced that, at some future
point, it intends to apply additional requirements, potentially including
registration, listing, premarket notification and approval, record keeping and
reporting requirements, and good manufacturing practices. A number of tobacco
companies and other entities have filed legal proceedings challenging the FDA's
assertion of jurisdiction to regulate tobacco products. One tobacco company has
proposed, as an alternative to FDA regulation of tobacco products, a more
limited set of restrictions on cigarette sales and advertising aimed at curbing
youth smoking. The Company is unable to predict the effect on its business and
profitability of the FDA rules but, if upheld in court, such rules could have a
material adverse effect on the operations of the Company. Although these
regulations are not currently applicable
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to cigars, there can be no assurance that these regulations will not be extended
to include cigars in the future.
In addition, the majority of states restricts or prohibits smoking in certain
public places and restricts the sale of tobacco products to minors. Local
legislative and regulatory bodies have also increasingly moved to curtail
smoking by prohibiting smoking in certain buildings or areas or by requiring
designated "smoking" areas. Further restrictions of a similar nature could have
an adverse effect on the sales or operations of the Company. Numerous proposals
also have been considered at the state and local level restricting smoking in
certain public areas, regulating point of sale placement and promotion and
requiring warning labels. As an example, the state of Texas has mandated that
all cigars sold in the state have the chemical content of the cigars registered
with the state.
Federal law has required health warnings on cigarettes since 1965 and on
smokeless tobacco since 1986. Although there is no federal law currently
requiring that cigars or pipe tobacco carry such warnings, California has
enacted legislation requiring that "clear and reasonable" warnings be given to
consumers who are exposed to chemicals known to the state to cause cancer or
reproductive toxicity, including tobacco smoke and several of its constituent
chemicals. Violations of this law, known as Proposition 65, can result in a
civil penalty not to exceed $2,500 per day for each violation. In addition,
legislation recently introduced in Massachusetts would, if enacted, require
warning labels on cigar boxes. Although similar legislation has been introduced
in other states, no action has been taken. There can be no assurance that such
legislation introduced in other states will not be passed in the future or that
other states will not enact similar legislation. Consideration at both the
federal and state level also has been given to consequences of tobacco smoke on
others who are not presently smoking (so called "second hand" smoke). There can
be no assurance that regulations relating to second hand smoke will not be
adopted or that such regulations or related litigation would not have a material
adverse effect on the Company's results of operations or financial condition.
The U.S. Environmental Protection Agency (the "EPA") published a report in
January 1993 with respect to the respiratory health effects of second hand
smoke, which concluded that widespread exposure to environmental tobacco smoke
presents a serious and substantial public health concern. Issuance of the
report, which is based primarily on studies of passive cigarette smokers, may
lead to further legislation designed to protect non-smokers. Also, a study
recently published in the journal Science reported that a chemical found in
cigarette smoke has been found to cause genetic damage in lung cells that is
identical to damage observed in many malignant tumors of the lung and, thereby,
directly links lung cancer to smoking. The National Cancer Institute also has
issued reports describing research into cigars and health. The study and these
reports could affect pending and future tobacco regulation and litigation. See
"Litigation."
Increased cigar consumption and the publicity such increase has received may
increase the risk of additional regulation. There can be no assurance as to the
ultimate content, timing or effect of any additional regulation of tobacco
products by any federal, state, local or regulatory body, and there can be no
assurance that any such legislation or regulation would not have a material
adverse effect on the Company's business.
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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 has historically been brought by
individual cigarette smokers. In 1992, the United States Supreme Court in
CIPPOLLONE 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 have
been generally unsuccessful. A jury in Florida, however, recently determined
that a cigarette manufacturer was negligent in the production and sale of its
cigarettes and sold a product that was unreasonably dangerous and defective,
awarding the plaintiffs a total of $750,000 in damages.
Current tobacco litigation generally falls within one of three categories: class
actions, individual actions (which have been filed mainly in the State of
Florida) or actions brought by individual states generally to recover Medicaid
costs allegedly attributable to tobacco-related illnesses. The pending actions
allege a broad range of injuries resulting from the use of tobacco products or
exposure to tobacco smoke and seek various remedies, including compensatory and,
in some cases, punitive damages together with certain types of equitable relief
such as the establishment of medical monitoring funds and restitution. The major
tobacco companies are vigorously defending these actions.
In May 1996, the Fifth Circuit Court of Appeals in CASTANO V. AMERICAN TOBACCO,
ET AL. reversed a Louisiana district court's certification of a nationwide class
consisting essentially of nicotine dependent cigarette smokers. Notwithstanding
the dismissal, new class actions asserting claims similar to those in Castano
have recently been filed in many states.
There can be no assurance that there will not be an increase in health-related
litigation involving tobacco and health issues against the cigarette industry or
similar litigation in the future against the cigar industry. The costs to the
Company of defending prolonged litigation and any settlement or successful
prosecution of any material health-related litigation against sellers of cigars
could have a material adverse effect on the Company's business.
EXCISE TAXES. Cigars long have been subject to federal, state and local excise
taxes, and such taxes have frequently 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 per thousand
cigars.
In the past, there have been various proposals by the federal government to fund
legislative initiatives through increases in federal excise taxes on tobacco
products. Several state and federal jurisdictions have proposed significant
increases in excise taxes on cigars, pipe tobacco, cigarettes and other tobacco
products to fund health care programs. We believe that the volume of cigars sold
could be dramatically reduced if additional excise taxes are enacted as part of
the
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Administration's health care reform program. Future enactment of significant
increases in excise taxes, such as those initially proposed by the Federal and
state governments or other proposals not linked specifically to health care
reform, would have a material adverse effect on the business of the Company. The
Company is unable to predict the likelihood of the passage or the enactment of
future increases in tobacco excise taxes.
Tobacco products are also subject to certain state and local taxes. Deficit
concerns at the state level continue to exert pressure to increase tobacco
taxes. State cigar excise taxes generally range from 2% to 75% of the wholesale
purchase price and are not subject to ceilings similar to the federal cigar
excise tax.
CONTINUED CONTROL BY EXISTING STOCKHOLDERS. The Company was established by its
principal stockholders who own a majority of the issued and outstanding shares
of Common Stock of the Company. As a result, these principal stockholders will
be in a position to control the affairs of the Company and any matters requiring
a stockholder vote, including the election of directors, the amendment of its
charter documents, the merger or dissolution of the Company and the sale of all
or substantially all of its assets.
PREFERRED STOCK OF SUBSIDIARY. The Company beneficially owns 97.8% of U.S.
Cigar, its operating subsidiary. Holders of preferred stock of U.S. Cigar are
entitled to a preference upon liquidation which could substantially eliminate
the Company's investment in U.S. Cigar.
UNCERTAIN ABILITY TO MANAGE GROWTH. As part of the business strategy, the
Company intends to pursue rapid growth. Its ability to achieve planned growth
depends upon a number of factors, including the Company's ability to hire and
train management and other employees, the adequacy of its financial resources,
its ability to identify new markets in which it can successfully compete and the
Company's ability to adapt its purchasing and other systems to accommodate its
expanded operations. In addition, planned expansion may not be achieved or we
may not be able to manage successfully the expanded operations. Failure to
manage growth effectively could adversely affect the Company's financial
condition, results of operations and prospects.
POSSIBLE FAILURE TO OBTAIN LISTING OF COMMON STOCK AND MARKET ILLIQUIDITY. The
Company intends to list its Common Stock on the National Association of
Securities Dealers OTC Bulletin Board, a stock exchange or internet listing
service. On September 2, 1998, the Company borrowed $300,000 from a
non-affiliate. Because the Company was not listed on December 2, 1998, the loan
became due on demand. Management is in discussions with the lender to obtain an
extension of the term of the loan. If it is unable to do so, the Company's
liquidity could be impaired.
ABSENCE OF DIVIDENDS ON COMMON STOCK. The Company has not paid any dividends on
any of its shares of Common Stock since its inception and does not currently
anticipate paying dividends on its Common Stock in the foreseeable future. See
"Dividend Policy."
AUTHORIZATION OF PREFERRED STOCK. The Company's Certificate of Incorporation
authorizes the issuance of Preferred Stock with such designations, rights and
preferences as may be determined
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from time to time by our Board of Directors. Accordingly, the Board of Directors
is empowered, without stockholder approval, to issue Preferred Stock with
dividend, liquidation, conversion, voting and other rights that could adversely
affect the voting power or other rights of the holders of the Common Stock.
Although the Company has no present intention to issue any additional shares of
its Preferred Stock, there can be no assurance that the Company will not do so
in the future. See "Description Of Securities."
ISSUANCE OF ADDITIONAL SHARES. The Board of Directors has the power to issue
additional shares without shareholder approval. Any additional shares issued by
the Company below their book value may have the effect of further diluting the
interest of then current shareholders.
YEAR 2000 RISKS. The Company believes that it is Year 2000 compliance at the
present time. Given the relatively small size of the Company's software systems,
the Company uses standard software systems that are Year 2000 compliant. The
Company does not expect any disruptions in its operations as a result of any
failure by the Company to be in compliance.
The Company estimates that the cost of replacing non compliant hardware will not
be material and will be carried out during Fiscal 1999 in the ordinary course of
business. The Company's operating systems are commercially available. The cost
to be upgraded to be fully compliant is estimated to be less than $10,000.
PRODUCTS AND MARKETS
The Company now markets the leading Brazilian brands Don Pepe, Iracema, and
Palomitas. Don Pepe, a hand made long filler cigar, is produced in the six most
popular size with the Double Corona as the largest, followed by a Robusto,
Churchill, Petit Lonsdale, Half Corona, Slim Panatela and Small Cigar. This line
is wrapped in light Sumatra seed leaf. Don Pepe premium cigars retail in the
range of $2.00 to $6.00 for the larger sizes with the 10 pack of the small
cigars selling for $11.00 a pack. Iracema is a maduro wrapper hand made long
filler cigar that is offered in three basic mid sizes in the Lonsdales and
Panatela ring sizes. Iracema retails for approximately 35% less than the Don
Pepe line. Palomitas are little flavored cigarillos sold in packs of 20 units
and 50 units with suggested retail prices of $6.00 and $15.00 respectively.
Current plans call for an expansion in the production of the Palomita products
to meet increasing demand for the product in the marketplace. The flavors
currently offered are clove, cherry and vanilla. Soon to be launched flavors are
cognac, rum, whisky and bourbon. Consumers of the Company's flavored cigarillos
praise the quality of the flavoring which is the result of using the best
flavoring essences from a well known German company as well as the proprietary
blend of premium filler tobacco with a binder of Sumatra homogenized paper
imported from Germany and wrapped in Mata Fina wrappers grown in Brazil from
Sumatra seed by Suerdieck.
The Company intends to launch the production expansion for machine made high
quality cigars and cigarillos through a newly-formed majority-owned subsidiary.
In addition, the Company is evaluating the feasibility of setting up a small
factory in the United States to make certain machine
11
<PAGE>
made cigars and cigarillos to supplement the production from Brazil. Products
will be standardized in order insured consistent product quality and
presentation.
The Company's distribution rights for the Don Pepe brands as well as all of the
other Suerdieck brands were acquired for 10 years with an automatic extension of
5 years that would allow the Company to re-orient its sourcing and sales should
the agreement lapse without renewal. However, the Company also has an option
agreement to acquire a significant equity position up to a voting majority
control of Suerdieck.
While the significant projections have attracted many new competitors, the cigar
industry has high barriers to entry for fully integrated producers due to high
costs, long lead times required to create brand identity and support.
MARKETING AND SALES STRATEGY
WHOLESALE DISTRIBUTION
The Company will sell its products through selected master distributors such as
Swisher and through tobacco stores and tobacco departments of large retail
chains. In some markets, the Company will sell directly to certain retailers in
order to obtain the widest possible sales coverage. Currently, the Company
shares the costs of advertising with Swisher and Suerdieck/Brazil for the Don
Pepe as the flagship line. The Company intends to launch a new campaign to
promote other products using the effect of the Swisher and Suerdieck quality
image.
ADVERTISING AND PROMOTIONS
The Company will support both wholesale and retail distribution of its cigars
through advertising in numerous publications, including Cigar Aficionado,
Tobacconist, Smokeshop, and Smoke magazines, along with general circulation
oriented to the type of consumer who, the Company believes, would smoke premium
cigars. To this end, the Company intends to use other marketing techniques that
have been identified as contributing to the increased interest in premium
cigars, including, but not limited to, the sponsorship of cigar smoking events.
The Company will also use direct mail and promotions at points of sale and
through the mails. The Company already participates in trade shows under
Swisher's lead and support.
PRODUCTION AND MANUFACTURING
The Company's current lines of products are mainly hand-rolled in the Suerdieck
facilities in Bahia, Brazil. The flavored cigarillos are currently sourced from
the Suerdieck facilities in Cruz das Almas, Bahia, Brazil. All production and
manufacturing adheres to a very strict corporate standard of quality in keeping
with the Company's mission to deliver the highest quality products. The Company
has established strict standards to maintain product integrity in the blending
of the raw materials that identify its product.
12
<PAGE>
The taste of the cigar is based on the quality and blend of the tobacco. The
Company's premium cigars use a blend of fine aged tobaccos. After tobacco is
grown, its is typically aged for a period of between 18 months to two years. The
lasting fermentation and aging process release ammonia, which occur naturally in
tobacco, and is believed to reduce the overall nicotine content in the tobacco.
The time period for aging has been reduced in recent months due to the high
demand for tobacco worldwide.
The particular tobacco blend for each of the Company's cigars is formulated to
highlight the attributes of the source whether from Brazil or Central America.
These blends usually involve two to four different tobacco types. Hand-made
premium cigars use exclusively long filler premium aged tobacco leaf. The actual
production process begins as each type of tobacco leaf is placed in different
boxes at the rollers desk, and the roller works from a precise formula to fit
the particular type of cigar he or she is making. The roller takes the leaves
and presses them together in their hand, then places the leaves on a binder leaf
( a flat elastic leaf of tobacco). The roller then rolls them together into a
"bunch", cuts them to the appropriate length and places them on the bottom half
of a wooden mold. After setting the upper half of the mold in place. the entire
box is put into a screw press. The press operator will usually break down the
press once, turn the "bunch" inside the mold and then re-box and press the
"bunch" again. The total pressing time is approximately one hour. The roller
removes the "bunch" and wraps it with the wrapper leaf (a supple, very elastic
leaf that has been cut in half). Keeping constant pressure on the "bunch" and
the wrapper, the cigar maker rolls the leaf around the "bunch" and applies a bit
of vegetable glue to bond the wrapper leaf together at the head to prevent
unraveling of the cigar.
Supervisors inspect every cigar by hand feeling the weight and looking for hard
spots that can result in uneven burning. In addition cigars are weighted in
bunches of 50 to assure consistency in weight. Significant variations can result
in rejections. The finished cigars are then aged for at least another thirty
days. The finished cigars are then packed in boxes designed to enhance
presentation and protect the product.
Suerdieck manufactures our flavored cigars from short-filler tobacco using a
proprietary flavoring process. The cigars are made from tobacco generated from
the manufacture of the premium cigar brands. This tobacco is then combined, and
flavored, and packaged for ultimate sale.
RAW MATERIALS
The Company's cigars and cigarillos are made from a combination of internally
grown tobacco as well from selected tobaccos that are currently purchased from
sources in Brazil. While the market for leaf has become very tight, the Company
believes that its Brazilian Sumatra leaf makes it a strong competitor. The
Company will emphasize quality and value in its product line.
COMPETITION
The tobacco industry in general, including the cigar industry, is dominated a
small number of companies which are well known to the public. The Company
believes that as a manufacturer of premium cigars, it competes with a smaller
number of domestic and foreign companies that
13
<PAGE>
specialize in premium cigars, and certain larger companies that maintain premium
cigar lines, including Consolidated Cigar Corporation, Culbro Corporation,
General Cigar Company and U.S. Tobacco. There are also a few large foreign
entities such as Tabacalera de Espana that have aggressively entered the United
States markets through expansion of their presence and acquisitions. However,
the market for premium cigars constitutes a small portion of the cigar market.
No assurance can be given that the Company will continue to be able to compete
effectively against these competitors or any other or existing or future
competitors in any of its market segments.
The Company believes that smokers of premium cigars purchase cigars based on the
perceived quality of the tobacco and the taste profile of the cigar. The process
of producing premium cigars is not patented, but is based on the know-how and
experience of master craftsmen who can identify, purchase, and roll tobacco into
premium cigars. The Company expects that a reputation for producing fine premium
hand made cigars will be an asset in the effort to manufacture and sell machine
made cigars and cigarillos. It is also very critical that the Company produce a
well-constructed cigar with excellent shelf life so together with good
relationships with key distributors and tobacconists we project an image of
quality, service, and consistency.
EMPLOYEES
The Company currently has two full-time employees. The Company entered into
employment agreements with Messrs. Vega and Kelly. Those agreements are now
terminated, and the Company is currently negotiating new agreements with these
individuals.
Mr. Kelly will continue as the Company's President, Treasurer, Assistant
Secretary and a Director and Mr. Vega will continue as the Company's Vice
President, Secretary and a Director. The Company will gradually add
administrative, sales, and marketing staff to support the expansion plans as
outlined. The Company will also engage personnel in Brazil to actively and
effectively manage the planned investments.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings or pending lawsuits.
FACILITIES
The Company's corporate offices and warehouse/humidor, consisting of
approximately 2,500 square feet, are located at 7440 S.W. 50th Terrace, Suite
107, Miami, Florida 33155. These facilities are leased under a five year lease
from Lakeside Property Investors Group, Inc., a company owned by Messrs. Vega
and Kelly, for $2,000 per month. The Company believes that the facilities are
sufficient to support its planned operations for the next three to five years.
Currently, the Company sublets a major portion of the facilities to Crystal
Cascade Water Company, a company controlled by Juan A. Vega, Sr., which pays the
Company rent of $750.00 per month. The Company has been advised that the tenant
will vacate the premises in January 1999.
14
<PAGE>
INTELLECTUAL PROPERTY
The Company believes our success and ability to compete are dependent to a
significant degree on our trademarks and licenses. The Company presently has a
license from Suerdieck for a term of 10 years, with an automatic 5-year
extension at its option and a renegotiable term of ten years at its option. for
the Don Pepe and all the other Suerdieck brands. The Company is in the process
of filing trademark applications for the Palomitas and Sampa cigar brand names.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- ---------------------------------------------------------
RESULTS OF OPERATIONS
The Company's independent auditors have included an explanatory paragraph in
their report on the Company's financial statements for the fiscal years ended
June 30, 1997 and June 30, 1998. The Company had a net loss of $29,830 and
$273,364 for the year ending June 30, 1997 and 1998, respectively, and an
accumulated deficit of $29,830 and $303,194 at June 30, 1997 and 1998,
respectively. The Company is currently seeking outside sources of financing to
fund development, operations and working capital. Should the Company be unable
to obtain financing, our development and operations and ability to continue as a
going concern will be materially affected.
In the three month period ended September 30, 1998 the Company had no revenues
due to excess inventories of our product at the wholesale and retail levels. In
addition, management's efforts were directed to raising additional capital in
order to expand the business to include the manufacture of machine made cigars.
Expenses during this period were mainly professional fees (legal and accounting)
incurred in anticipation of taking the Company public.
LIQUIDITY AND CAPITAL RESOURCES
Even though the Company raised $350,000 in a private placement of convertible
debt and equity, the Company has had diminishing working capital resources due
to lack of sales as a result of an excess of premium cigar products in the
marketplace. The Company has entered into discussions and preliminary agreements
to expand its product lines and to expand its territory, therefore reducing its
dependence on one major source of products and one major customer.
The Company's cash position on the balance sheet has improved from the issuance
of $300,000.00 note, which is personally guaranteed by the two principal
shareholders. A portion of this cash was used to reduce current payables and pay
expenses for the period.
Currently, cash flow from operations is running at a deficit of approximately
$25,000 a month.
15
<PAGE>
MANAGEMENT'S RESPONSE AND PLAN OF ACTION
The Swisher agreement gave the Company an immediate foothold into a distribution
network capable of servicing up to 250,000 outlets nationwide. However, the
Company is aware that dependence on one major source of sales leaves its sales
vulnerable to severe market changes. In addition, the Company further recognized
that with Suerdieck as its major supplier of products, the Company was left
exposed to supply disruptions in the event that Suerdieck would not be able to
honor its production commitments. With this in mind, the Company is aggressively
and successfully developing alternate sources of supply and is widening its
product offering as well as enlarging the scope of its sales territory outside
the United States.
The Company's main objective is to broaden product sources by developing
strategic alliances and acquiring sources through acquisitions. Additionally,
the Company intends to develop its own in house manufacturing product portfolio
such as quality premium machine made cigars and the fast growing segment of
cigarillos, both flavored and unflavored. The Company also established our
market presence with a Brazilian sourced product under the "Palomitas" name.
This product suffered from low rates of production due to antiquated machinery.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------
The following table sets forth the number of shares of our Common Stock
beneficially owned by (i) each person who, as the date hereof, was known by us
to own beneficially more than five percent (5%) of its Common Stock; (ii) the
individual Directors of our Company and (iii) the Officers and Directors of our
Company as a group. As of the date hereof, there were 10,999,133 common shares
issued and outstanding.
<TABLE>
<CAPTION>
TITLE OF CLASS NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
<S> <C> <C>
Common Juan Antonio Vega, Sr. 2,899,762 26.3%
Common John J. Kelly 3,149,762 (1) 28.6%
Common Southward Investments LLC 942,753 8.5%
Common Tramdot Development Corp. 664,840 6.0%
Common Officers and Directors 6,049,524 55.0%
as a group (2 individuals)
</TABLE>
(1) Mr. Kelly owns directly 1,199,762 shares and controls directly or indirectly
through various family members 1,950,000 shares.
16
<PAGE>
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
- ------------------------------------------------------------
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and current positions with our Company
held by Directors, Executive Officers and Significant Employees. There is no
immediate family relationship between or among any of the Directors, Executive
Officers or Significant Employees and our Company is not aware of any
arrangement or understanding between any Director or Executive Officer and any
other person pursuant to which he was elected to his current position.
NAME POSITION WITH COMPANY
John J. Kelly President, Assistant Secretary, Treasurer and Director
Juan Antonio Vega, Sr. Chairman of the Board, Vice President, Secretary and
Director
JOHN J. KELLY, 49, is a principal shareholder of our Company. He is a practicing
attorney and the principal and managing partner of Strategic Management
Investments, Inc., a Connecticut corporation dedicated to providing advisory
services to small and medium size firms, both publicly and closely held. Mr.
Kelly has 25 years experience in large industrial and manufacturing
multinational concerns starting with Dun & Bradstreet as the accountant in
S.E.C. compliance reporting. Later, Mr. Kelly worked in the Tax Department of
American Can Company where he held the positions of Manager, International Tax;
Director, Research and Planning; and Managing Director of Taxes. While in these
positions, he worked directly on the tax aspects of acquisition diversification
which changed the corporation from a packaging corporation to a conglomerate and
later the spin-off of business entities that removed all aspects of packaging,
specialty retail and consumer goods from the corporate entity. Mr. Kelly also
worked as a Senior Manager for the public accounting firm of Coopers & Lybrand
L.L.P. in its Stamford, Connecticut office. His clients included, among others,
Tiffany's, Ciba Giegy, and Maxwell Communications. From April 1993 through
September 1995, Mr. Kelly served as Chief Financial Officer, Member of the Board
of Directors, and advisor to the principal shareholders of KW Control Systems,
Inc. where he was responsible for restructuring the company, prevented
bankruptcy, and successfully negotiated the sale of the company to Piller Inc.
(a subsidiary of RWE) for four times book value. Until June 1996, he held the
position of Vice President and General Manager of Piller when he left to return
to private practice.
JUAN ANTONIO VEGA SR., 53, is a principal shareholder of our Company. Mr. Vega
has over 25 years of experience in Latin America and the United States where he
has held senior positions with Fortune 500 companies and large privately held
entities. Mr. Vega held senior financial positions at firms such as Xerox Latin
American group, GTE Telecommunications Division (including overseas senior
positions in Venezuela and Argentina), Polymer International Corp. (Chief
Financial Officer, Treasurer, and member of the Board of Directors), where Mr.
Vega was responsible for three initial public offerings of stock in the United
States and Canada as well as
17
<PAGE>
seven major acquisitions in four countries. Later, Mr. Vega joined Sterling Drug
Co. a division of Eastman Kodak where, as Treasury Director for consumer
products, he was responsible for the financial restructuring of the Latin
American assets prior to the merger with Sanofi Pharmaceuticals of Paris,
France. Recently, Mr. Vega served as Chief Financial Officer of Nueva Management
Latin America, a subsidiary of a Swiss holding group with over $3 billion in
assets. In 1994, Mr. Vega joined Wasserstein Perella, a New York based
investment banking group, and was instrumental in organizing the successful
privatization bid for Embraer Aircraft, a Brazilian commuter and military jet
and turboprop aircraft manufacturer with over $1 billion in assets. Subsequently
Mr. Vega was appointed to the Board of Director and to the Executive Committee
in charge of restructuring Embraer. Mr. Vega is currently an advisor to various
Brazilian firms and wealthy investors.
EXECUTIVE COMPENSATION
- ----------------------
U.S. Cigar entered into agreements whereby Messrs. Vega and Kelly receive
salaries of $150,000 and $120,000 respectively per year each in consideration of
their services to our Company. These agreements terminated on December 1, 1998.
The Company is currently developing a stock option program for key employees,
consultants and advisers at yet to be determined prices, which will include
Messrs. Vega and Kelly. To date neither Mr. Vega nor Mr. Kelly has taken his
salary and both have waived their rights to any accrued salaries prior to
September 30, 1998. The Company is currently negotiating new employment
agreements with Messrs. Vega and Kelly.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ----------------------------------------------
On March 31, 1998, the Company issued 10,999,133 shares of stock at $0.001 per
share in reliance upon Rule 504 of Regulation D promulgated under the Securities
Act of 1933. On April 13, 1998, the Company purchased 6,049,524 shares from
certain shareholders for $23,500.00, all of which shares were retired.
In April, 1998, the Company purchased Ambra Cigar, Inc. which was wholly-owned
by Messrs. Kelly and Vega, in exchange for 6,050,000 shares of the Company. The
purchase price for Ambra Cigars, Inc. was arrived at through arms-length
negotiations.
John Kelly also loaned $23,500 to the Company on a demand basis at an annual
interest rate of 15%. The note was repaid in September of 1998.
The Company's corporate facilities, located at 7440 S.W. 50th Terrace, Suite
107, Miami, Florida 33155, are leased under a five (5) year lease from Lakeside
Property Investors Group, Inc., a company owned by Messrs. Vega and Kelly, for
$2,000 per month. Currently, the Company sublets a major portion of the
facilities to Crystal Cascade Water Company, a company controlled by Juan A.
Vega, Sr., which pays the Company rent of $750.00 per month.
18
<PAGE>
DESCRIPTION OF SECURITIES
- -------------------------
The Company has authority to issue 50,000,000 shares, $.001 par value, of which
20,000,000 are designated Preferred Stock and 30,000,000 shares are designated
Common Stock. A total of 10,999,133 shares of Common Stock are currently
outstanding and the number of holders of record of our Common Stock is
approximately 1,320. A total of 50,000 shares of Series A Convertible Preferred
Stock are outstanding and are held by one owner of record.
COMMON STOCK
The holders of Common Stock have one vote per share on all matters (including
election of directors) without provision for cumulative voting. The Common Stock
is not redeemable and has no conversion or preemptive rights. The Common Stock
currently outstanding is validly issued, fully paid and non-assessable. The
Board of Directors may, from time to time, declare and our Company may pay
dividends on its shares in cash, property or its own shares, except when our
Company is insolvent subject to the provisions of the Florida Statutes. Our
Company has paid no cash dividends on its Common Stock.
PREFERRED STOCK
Under the Articles of Incorporation, the Board of Directors is authorized,
subject to limitations prescribed by law, to provide for the issuance of shares
of Preferred Stock in one or more series, to establish the number of shares to
be included in each series, and to fix the designation, powers, including the
voting rights, if any, preferences, and rights of the shares of each shares, and
any qualifications, limitations, or restrictions thereof.
The Board of Directors authorized 350,000 shares of Series A Convertible
Preferred Stock. Holders of Series A Convertible Preferred Stock are not
entitled to receive any dividends and except as otherwise provided by law, have
no voting rights. Each Share is convertible into shares of our Common Stock at
$1.50 per share. The Series A Convertible Preferred Stock ranks prior to all
classes or series of equity securities of our Company, including Common Stock.
Upon any liquidation, dissolution or winding-up of the Company, the Series A
Holders shall be entitled to receive out of the assets of the Company, for each
share of Series A Convertible Preferred Stock, an amount equal to the stated
value before any distribution or payment is made to the holders of any junior
securities.
WARRANTS
The Company has Warrants outstanding to purchase 166,666 shares of the common
stock of the Company. The Warrants are exercisable for a period of two years
from September 2, 1998 at an exercise price of $1.00 per share.
19
<PAGE>
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER
- -------------------------------------------------------------------------
SHAREHOLDER MATTERS
- -------------------
NO PUBLIC MARKET
As of the date of this Form 10-SB, there is no established public trading market
for our Common Stock. The Company is attempting to have an authorized market
maker apply to have the shares listed for trading on the National Association of
Securities Dealers OTC Bulletin Board, a stock exchange or internet listing
service.
DIVIDEND POLICY
Our Company has never declared nor paid dividends on its Common Stock and does
not intend to do so in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
- ---------------------------------------
On March 31, 1998, the Company issued 10,999,133 shares of stock at $0.001 per
share in reliance upon Rule 504 of Regulation D promulgated under the Securities
Act of 1933. On April 13, 1998, the Company purchased 6,049,524 of these shares
from certain shareholders for $23,500.00, all of which shares were retired. On
April 13, 1998, the Company issued 6,049,524 shares in a share for share
exchange, all of which are restricted shares. On September 2, 1998, the Company
issued the Warrants. The Warrants and the shares underlying the Warrants are
unregistered.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
- -----------------------------------------
The Articles of Incorporation contain provisions which, in substance, eliminate
the personal liability of the Board of Directors and officers to the Company and
its shareholders for monetary damages for breach of fiduciary duties as
directors to the fullest extent permitted by Delaware law. By virtue of these
provisions, and under current Delaware law, a director of the Company will not
be personally liable for monetary damages for breach of fiduciary duty, except
liability for: (a) breach of his duty of loyalty to our Company or to its
shareholders; (b) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law; (c) dividends or stock
repurchases or redemptions that are unlawful under Delaware law; and (d) any
transaction from which he or she receives and improper personal benefit. These
provisions pertain only to breaches of duty by individuals solely in their
capacity as directors, and not in any other corporate capacity, such as an
officer, and limit liability only for breaches of fiduciary duties under
Delaware corporate law and not for violations of other laws (such as Federal
securities laws). As a result of these indemnifications provisions, shareholders
may be unable to recover monetary damages against directors for actions taken by
them that constitute negligence or gross negligence or that are in violation of
their fiduciary duties, although it maybe possible to obtain injunctive or other
equitable relief with respect to such actions.
20
<PAGE>
The inclusion of these indemnifications provisions in our Bylaws may have the
effect of reducing the likelihood of derivative litigation against directors,
and may discourage or deter shareholders or management from bringing in lawsuits
against directors for breach of the their duty of care, even though such an
action, if successful, might otherwise benefit our Company or our shareholders.
The Company has entered into separate indemnification agreements with its
directors and officers containing provisions that provide for the maximum
indemnity allowed to directors and officers under Delaware law and the Company,
among other obligations, to indemnify such directors and officers against
certain liabilities that may arise by reason of their status as directors and
officers, other than liabilities arising from willful misconduct of a culpable
nature, provided that such person acted in good faith and in a manner that he or
she reasonably believed to be in or not opposed to me best interest of the
Company and, in the case of a criminal proceeding, had no reasonable cause to
believe that his or her conduct was unlawful. In addition, the indemnification
agreements provide generally that the Company will, subject to certain
exceptions, advance the expenses incurred by directors and officers a result of
any proceeding against them as to which they may be entitled to indemnification.
We believe these arrangements are necessary to attract and retain qualified
persons as directors and officers.
FINANCIAL STATEMENTS AND EXHIBITS
- ---------------------------------
(a) Financial Statements
1. Financial Statements as of and for the period ended June 30, 1997
(Audited)
2. Financial Statements as and for the year ended June 30, 1998
(Audited)
3. Financial Statements as of and for the three months ended
September 30, 1997 and 1998 (Unaudited)
(b) Exhibits
3(i) Articles of Incorporation of International Cigar Holdings, Inc.
3(ii) Bylaws of International Cigar Holdings, Inc.
10.1 Agreement with Swisher International, Inc.
10.2 Agreement with the Suerdieck Group
10.3 Lease Agreement between U.S. Cigar Distributors, Inc. and
Lakeside Property Investors Group, Inc.
21. List of Subsidiaries
27. Financial Data Schedule
21
<PAGE>
SIGNATURES:
- -----------
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
INTERNATIONAL CIGAR HOLDINGS, INC.
By: /s/ John J. Kelly
----------------------------------
John J. Kelly, President
Date: December 17, 1998
22
<PAGE>
FINANCIAL STATEMENTS AND REPORT
OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
INTERNATIONAL CIGAR HOLDINGS, INC.
AND SUBSIDIARY
JUNE 30, 1998 AND 1997
<PAGE>
C O N T E N T S
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 2
CONSOLIDATED STATEMENTS OF OPERATIONS 3
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6 - 13
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors
International Cigar Holdings, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of International
Cigar Holdings, Inc. and Subsidiary as of June 30, 1998 and 1997 and the related
consolidated statements of operations, and cash flows for the year ended June
30, 1998 and for the period from October 23, 1996 (date of inception) through
June 30, 1997. These financial statements are the responsibility of management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of International
Cigar Holdings, Inc. and Subsidiary as of June 30, 1998 and 1997 and the
consolidated results of its operations and its consolidated cash flows for the
periods then ended, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note B to the
financial statements, the Company has experienced losses since inception and has
a net deficiency in working capital that raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note B. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Grant Thornton LLP
----------------------------
GRANT THORNTON LLP
Miami, Florida
September 22, 1998
<PAGE>
INTERNATIONAL CIGAR HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
June 30,
1998 1997
------- -------
<S> <C> <C>
Current assets
Cash $42,403 $41,710
Accounts receivable, net of allowance for doubtful accounts
of approximately $3,400 in 1998 and $-0- in 1997 6,089 245
Accounts receivable - related party 9,232 --
Due from shareholders -- 12,036
Inventory 128 2,196
Income taxes receivable 1,299 --
Other current assets 4,063 --
-------- -------
Total current assets 63,214 56,187
Office equipment, net 5,636 4,726
Other assets
Goodwill, net of accumulated amortization of $-0- in 1998 23,500 --
Deposits 4,777 4,777
------- -------
Total assets $97,127 $65,690
======= =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable $79,497 $39,174
Accounts payable - related party 155,856 28,660
Accrued expenses 515 631
Income taxes payable 1,803 1,803
Due to shareholders 52,810 9,081
Current portion of capital lease obligation 2,049 1,765
-------- -------
Total current liabilities 292,530 81,114
Capital lease obligations, net of current portion 326 3,406
Stockholders' deficit
Common stock - par value .001, authorized 30,000,000 shares
issued and outstanding 10,999,133 shares 10,999 10,999
Convertible preferred stock - par value .0001, authorized 20,000,000
shares issued and outstanding 50,000 shares 50 --
Preferred stock-subsidiary - no par value, authorized 10,000,000 shares
issued and outstanding 550,000 shares at a stated value of -0- 1 1
Additional paid-in-capital 96,415 --
Accumulated deficit (303,194) (29,830)
-------- -------
Total stockholders' deficit (195,729) (18,830)
-------- -------
Total liabilities and stockholders' deficit $97,127 $65,690
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
INTERNATIONAL CIGAR HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1998 AND PERIOD FROM OCTOBER 23, 1996 (DATE OF
INCEPTION) THROUGH JUNE 30, 1997
1998 1997
----------- -----------
Net sales $ 617,696 $ 2,255,145
Cost of goods sold 578,294 1,972,168
----------- -----------
Gross profit 39,402 282,977
----------- -----------
Operating expenses
Selling 44,541 43,950
General and administrative 270,731 267,054
----------- -----------
Total operating expenses 315,272 311,004
----------- -----------
Loss from operations (275,870) (28,027)
Other income - interest 1,207 --
----------- -----------
Net loss before (benefit from)
provision for income taxes (274,663) (28,027)
(Benefit from) provision for income taxes (1,299) 1,803
----------- -----------
Net loss $ (273,364) $ (29,830)
=========== ===========
The accompanying notes are an integral part of these statements.
3
<PAGE>
INTERNATIONAL CIGAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE YEAR ENDED JUNE 30, 1998 AND PERIOD FROM OCTOBER 23, 1996
(DATE OF INCEPTION) THROUGH JUNE 30, 1997
<TABLE>
<CAPTION>
Preferred Stock Common Stock
----------------------- ------------------------- Additional
Number of Number of Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
--------- ----------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 17,
1996 -- -- -- $ -- $ -- $ -- $ --
Issuance of
common stock -- -- 10,999,133 10,999 -- -- 10,999
Issuance of
preferred stock -
by subsidiary 550,000 1 -- -- -- -- 1
Net loss -- -- -- -- -- (29,830) (29,830)
------- ----------- ---------- ----------- ----------- ----------- -----------
Balance at
June 30, 1997 550,000 1 10,999,133 10,999 -- (29,830) (18,830)
Purchase of
treasury stock -- -- (6,049,524) (6,049) (17,451) -- (23,500)
Issuance of stock
in acquisition of
company -- -- 6,049,524 6,049 17,451 -- 23,500
Issuance of
preferred stock -
Series A 50,000 50 -- -- 49,950 --
50,000
Preferred stock
subscribed -- -- -- -- (3,535) -- (3,535)
Capital contribution -- -- -- -- 50,000 -- 50,000
Net loss -- -- -- -- -- (273,364) (273,364)
------- ----------- ---------- ----------- ----------- ----------- -----------
Balance at
June 30, 1998 600,000 $ 51 10,999,133 $ 10,999 $ 96,415 $ (303,194) $ (195,729)
======= =========== ========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE>
INTERNATIONAL CIGAR HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1998 AND PERIOD FROM OCTOBER 23, 1996
(DATE OF INCEPTION) THROUGH JUNE 30, 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net loss $(273,364) $ (29,830)
Adjustments to reconcile net loss to net cash
Depreciation 1,705 1,182
Provision for uncollectible accounts 3,455 --
(Increase) decrease in operating assets
Accounts receivable (9,299) (245)
Accounts receivable - related party (9,232) --
Inventory 2,068 (2,196)
Income taxes receivable (1,299) --
Increase (decrease) in operating liabilities
Accounts payable 40,322 39,174
Accounts payable - related party 127,196 28,660
Accrued expenses (116) 631
Income taxes payable -- 1,803
--------- ---------
Nets cash (used in) provided by operating
activities (118,564) 39,179
--------- ---------
Cash flows from investing activities
Due from shareholders 12,036 (12,036)
Deposits -- (4,777)
Purchase of securities (4,063) --
Purchase of office equipment (2,615) (5,908)
--------- ---------
Net cash provided by (used in) investing
activities 5,358 (22,721)
Cash flows from financing activities
Due to shareholders 20,229 9,081
Borrowings under capital lease obligation -- 5,590
Principal payments under capital lease obligation (2,796) (419)
Proceeds from issuance of common stock 50,000 10,999
Proceeds from issuance of preferred stock 46,466 1
--------- ---------
Net cash flows provided by financing
activities 113,899 25,252
--------- ---------
Increase in cash 693 41,710
Cash and cash equivalents, beginning of year 41,710 --
--------- ---------
Cash and cash equivalents, end of year $ 42,403 $ 41,710
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
INTERNATIONAL CIGAR HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
International Cigar Holdings, Inc. and its Subsidiary, U.S. Cigar
Distributors, Inc. (the "Company") are engaged in the wholesale
distribution of cigars and the sale of tobacco leaf.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
International Cigar Holdings, Inc., and its Subsidiary, U.S. Cigar
Distributors, Inc. All material intercompany transactions and balances have
been eliminated in the consolidation. The 1997 financial statements include
the combined assets and operations of the two companies. On April 29, 1998,
International Cigar Holdings, Inc. completed a Plan of Share Exchange with
the shareholders of U.S. Cigar Distributors, Inc. ("U.S. Cigar") The
Company acquired 97.8% of the outstanding common stock of U.S. Cigar. For
accounting purposes the acquisition has been treated as a recapitalization
of U.S. Cigar with the Company as the acquirer (reverse acquisition). The
excess of the cost over the fair value paid for the net assets received was
recorded as goodwill.
INVENTORY
Inventory, which consist of finished cigars, is stated the lower of cost or
market, determined on a first-in, first-out method.
GOODWILL
Goodwill is the excess of cost over the fair value of net assets acquired
and is being amortized by the straight-line method over five years. After
the initial year, management will review the goodwill and amortization to
determine possible impairment.
OFFICE EQUIPMENT
Office equipment is recorded at cost and depreciated using the straight
line method over a useful life of 5 years. Maintenance and repairs are
charged to expense as incurred.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method.
Deferred income taxes are recognized for the tax consequences for temporary
differences by applying enacted statutory tax rates applicable to future
years to differences between tax basis and financial reporting basis of
assets and liabilities.
6
<PAGE>
INTERNATIONAL CIGAR HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998 AND 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts and disclosure of assets and liabilities at the
date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period.
Actual results could differ from these estimates.
NOTE B - REALIZATION OF ASSETS
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the company as a going concern. However, the company has sustained
substantial losses from operations since inception, and has a net
deficiency in working capital of approximately $230,000 at June 30, 1998.
In view of the matters described in the preceding paragraph, recoverability
of a major portion of the recorded asset amounts shown in the accompanying
balance sheet is dependent upon the success of future operations of the
Company and the continued funding of cash needs by shareholders. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the company be
unable to continue in existence.
Management intends to change the Company's focus from solely the sale of
hand-made cigars and raw tobacco to include the production and sale of
machine-made cigars. The shareholders intend to continue to fund the
Company as required.
7
<PAGE>
INTERNATIONAL CIGAR HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998 AND 1997
Office equipment at June 30, 1998 and 1997, consist of the following:
1998 1997
------ ------
Telephone equipment $6,041 $5,908
Computer equipment 2,482 --
------ ------
8,523 5,908
Less: accumulated
depreciation 2,887 1,182
------ ------
$5,636 $4,726
====== ======
Depreciation expense was $1,705 for 1998 and $1,182 for 1997 and is
included in operating expenses in the financial statements.
NOTE D - CAPITAL LEASE OBLIGATIONS
The Company leases telephone equipment for its operations. For financial
reporting purposes, minimum lease rentals relating to this equipment have
been capitalized. The following is a schedule of leased equipment under
capital leases as of June 30, 1998 and 1997:
1998 1997
------ ------
Office equipment $6,041 $5,908
Less: accumulated
depreciation 2,390 1,182
------ ------
$3,651 $4,726
====== ======
8
<PAGE>
INTERNATIONAL CIGAR HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998 AND 1997
Obligations under capital leases consist of the following at June 30, 1998
and 1997:
9
<PAGE>
INTERNATIONAL CIGAR HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998 AND 1997
1998 1997
------ -------
Lease contract payable in
monthly installments of $209
including principal and
interest, maturing at April
2000 and bearing interest at a
rate of 15% $2,375 $ 5,171
Less: current portion 2,049 1,765
------ -------
$ 326 $ 3,406
====== =======
The following is a schedule of future minimum lease payments under this
capital lease, together with the obligation under the capital lease
(present value of minimum lease payments) as of June 30, 1998:
Year Ending June 30, Amount
-------------------- --------
1999 $ 2,514
2000 2,095
--------
4,609
Less: amount representing interest 2,234
--------
Present value of obligation under
capital lease $ 2,375
========
Depreciation of leased property under capital leases was $1,208 in 1998 and
$1,182 in 1997, and interest expense on the outstanding obligation under
such leases was $749 in 1998 and $150 in 1997.
NOTE E - CONCENTRATION RISK
10
<PAGE>
INTERNATIONAL CIGAR HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998 AND 1997
The Company purchased approximately 100% of its cigars from one vendor, who
is a minority shareholder, and approximately 100% of its tobacco leaf from
one vendor, who is a related party, during 1998 and 1997. Management
believes that in the event of a change in the relationships with these
vendors, other vendors with comparable merchandise are readily available at
competitive prices.
Two customers accounted for 80% and 11% of the Company's total sales during
the year ended June 30, 1998. Three customers accounted for 41%, 39% and
20% of the Company's total sales during the period ended June 30, 1997.
NOTE F - INCOME TAXES
For the year ended June 30, 1997, the Company had taxable income of
approximately $8,700. As of June 30, 1998, the Company has a federal net
operating loss carryforward of $268,246 and state net operating
carryforward of $276,908. These net operating losses will expire beginning
in year 2012.
The following represents the significant deferred tax assets at June 30,
1998 and June 30, 1997:
1998 1997
------- -------
Accumulated amortization of
organization costs $ 3,763 $ 5,018
Allowance for doubtful accounts 680 --
Depreciation (201) --
------- -------
4,242 5,018
Less: valuation allowance 4,242 5,018
------- -------
Net deferred tax asset $ -- $ --
======= =======
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. At June
30, 1998 and 1997, the Company recorded a full valuation allowance for the
deferred tax assets as the Company's ability to realize these benefits is
not "more likely than not." Accordingly, there is no net deferred tax asset
included in the accompanying consolidated balance sheets at June 30, 1998
and 1997, respectively.
NOTE G - RELATED PARTY TRANSACTIONS
In 1997, the Company made non-interest bearing advances to the
shareholders. The amounts are due on demand. The outstanding balance on
June 30, 1997 was $12,036.
11
<PAGE>
INTERNATIONAL CIGAR HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998 AND 1997
As of June 30, 1998 and 1997, the Company had borrowings from shareholders
in amounts of $52,810 and $9,081, respectively. The advances are unsecured
and non-interest bearing.
At June 30, 1998 and 1997, the Company had accounts receivable from related
party in the amount of $9,232 and $-0-, respectively.
At June 30, 1998 and 1997, the Company had accounts payable to related
party (minority shareholder in subsidiary) in the amount of $155,856 and
$28,660, respectively.
During the year ended June 30, 1998 and period ending June 30, 1997, the
Company purchased approximately $384,,000 and $410,000, respectively, of
cigars from a minority shareholder (see Note E).
During the year ended June 30, 1998 and period ending June 30, 1997, the
Company purchased approximately $115,000 and $1,600,000, respectively, of
tobacco leaf from a related party (see Note E).
The Company leases its warehouse and office from an entity owned by the
majority shareholders (see Note H).
NOTE H - COMMITMENTS AND CONTINGENCIES
The Company occupies its warehouse and office under a long-term operating
lease with majority shareholders for a term of 5-years for $2,000/month. In
addition, the Company is obligated to pay real estate taxes, insurance and
other costs in connection with the property. Rent expense for the year
ended June 30, 1998 and period ending June 30, 1997 was $24,000 and
$10,000, respectively.
The total minimum obligations under operating leases at June 30, 1998 are
approximately as follows:
Year Amount
---- ------
1999 $24,000
2000 24,000
2001 24,000
2002 14,000
-------
$86,000
=======
12
<PAGE>
INTERNATIONAL CIGAR HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998 AND 1997
NOTE I - STOCK
SERIES A CONVERTIBLE PREFERRED STOCK - INTERNATIONAL CIGAR HOLDINGS, INC.
International Cigar Holdings authorized 20,000,000 shares of Series A
Convertible Preferred Stock, par value $.001 and issued 50,000 shares.
Holders of the Series A Convertible Preferred Stock are not entitled to
receive any dividends. The Series A Convertible Preferred Stock has no
voting rights. Each share is convertible to one share of Common Stock at
$1.50 per share and has a liquidation preference over all other outstanding
preferred and common stock. In the event of liquidation of the Company, the
Series A Convertible Preferred Stock holders are entitled to receive a
priority distribution for each share equal to the stated value before any
distribution or payment is made to the holders of any junior securities.
SERIES A PREFERRED STOCK - U.S. CIGAR DISTRIBUTORS, INC.
U.S. Cigar Distributors, Inc. authorized 10,000,000 shares of Series A
Preferred Stock, no par value and issued 550,000 shares at a stated value
of $5.00. Holders of the Series A Preferred Stock have the same dividend
rights and voting rights as holders of Common Stock. Each share is
convertible to one share of Common Stock for a period of three years from
the date U.S. Cigar Distributors, Inc. is publicly listed. and has no
liquidation preference. The preferred stock was recorded at the value of
the exclusive distribution rights of the holder's product at June 30, 1998
and 1997 of $1.00.
COMMON STOCK
The Company has authorized 30,000,000 shares of Common Stock, par value
$.001 per share and issued and outstanding 10,999,133 shares at June 30,
1998 and 1997. The holders of Common Stock are entitled to one vote per
share on all matters to be voted on by the Company's shareholders. In
addition, the subsidiary had 7,000,000 shares of common stock issued and
outstanding prior to the reverse merger.
During 1998, the principal shareholders contributed $50,000 as a capital
contribution.
NOTE J - SUBSEQUENT EVENT
On September 2, 1998, the Company borrowed $300,000 from an individual
bearing interest at 6% due 90 days after issuance. The Company has
non-binding agreements for the infusion of $700,000 in capital, contingent
upon the stock being actively traded at agreed upon price levels. The
$300,000 loan may also be converted to equity.
13
<PAGE>
INTERNATIONAL CIGAR HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS PERIODS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
SEP-98 SEP-97
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Loss (83,950) (53,475)
Adjustments to reconcile net (loss) earnings to net cash
Depreciation --
Provision for uncollectible accounts --
(Increase) decrease in operating assets --
Accounts receivable -- (38,414)
Accounts receivable-related parties 7,790
Inventory -- (337)
Income taxes receivable --
Increase (decrease) in operating liabilities --
Accounts payable (41,371) (14,182)
Accounts payable-related parties -- 23,559
Accrued expenses 985 (631)
Income taxes payable -- --
-------- --------
Net cash (used in) provided by operating activities (116,546) (83,480)
CASH FLOWS FROM INVESTING ACTIVITIES
Due from shareholders (2,452) 3,680
Deposits (1,600) --
Purchase of securities --
Purchase of office equipment (2,315)
-------- --------
Net cash provided by (used in) investing activities (4,052) 1,365
CASH FLOWS FROM FINANCING ACTIVITIES
Due to shareholders (52,810) --
Borrowings under capital lease program --
Principal payments under capital lease program (169) (709)
Proceeds from issuance of common stock 49,000
Proceeds from issuance of preferred stock -- --
Proceeds from issuance of convertible note 300,000
-------- --------
Net cash provided by (used in) financing activities 247,021 48,291
Increase (decrease) in cash 126,423 (33,824)
Cash and cash equivalents, beginning of period 42,327 41,710
Cash and cash equivalents, end of period 168,750 7,886
</TABLE>
14
<PAGE>
INTERNATIONAL CIGAR HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statement of Earnings
For the Three Months Ended September 30, 1998 and 1997
Sep-98 Sep-97
-------- --------
Net Sales -- 201,728
Cost of Goods Sold -- 156,452
-------- --------
Gross Profit -- 45,276
Operating Expenses
Selling 22,520 5,897
General and administrative 61,430 93,085
-------- --------
Total operating expenses 83,950 98,982
Other Income--Interest -- 231
-------- --------
Net Loss before (benefit from)
provision for income taxes (83,950) (53,475)
(Benefit from) provision for income taxes -- --
-------- --------
Net Loss (83,950) (53,475)
15
<PAGE>
INTERNATIONAL CIGAR HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET AS AT SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
SEP-98 SEP-97
-------- --------
<S> <C> <C>
CURRENT ASSETS
Cash 168,750 7,886
Accts Receivable, net of allowance for doubtful accounts
of approximately $3,400 in 1997 and -0- in 1998 6,089 38,659
Accts Receivable - related parties 1,440
Due from Shareholders 2,452 8,356
Investments 3,919
Inventory 128 2,533
Income Taxes Receivable 1,299 --
-------- --------
TOTAL CURRENT ASSETS 184,077 57,434
OFFICE EQUIPMENT, NET 5,637 7,042
OTHER ASSETS
DEPOSITS 6,377 4,777
GOODWILL 23,500 --
-------- --------
TOTAL ASSETS 219,591 69,253
-------- --------
CURRENT LIABILITIES
Accounts Payable 38,125 24,993
Accounts Payable-related party 155,856 61,300
Accrued Expenses 1,500
Due to Shareholders --
Income Tax Payable 1,803 1,803
Current portion of Capital Lease Obligation 1,986 3,500
-------- --------
Total Current Liabilities 199,270 91,596
LONG TERM LIABILITIES
Capital Lease Obligation, net of current portion -- 962
Notes Payable 300,000 --
-------- --------
Total Long Term Liabilities 300,000 962
TOTAL LIABILITIES 499,270 92,558
-------- --------
STOCKHOLDER'S DEFICIT
Common Stock 10,999 10,999
Preferred Stk 51 1
Additional Paid In Capital 96,415 49,000
Accumulated Deficit (387,144) (83,306)
-------- --------
TOTAL STOCKHOLDER'S DEFICIT (279,679) (23,304)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT 219,591 69,253
======== ========
</TABLE>
16
<PAGE>
INTERNATIONAL CIGAR HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
1) The consolidated balance sheets as of September 30, 1998 and 1997 and the
related statements of operations and cash flows for the three months ended
September 30, 1998 and 1997 of International Cigar Holdings, Inc. and its
subsidiary have been prepared by the Company without audit. In the opinion
of management of the Company, all adjustments (consisting of normal
recurring accruals) necessary for the fair presentation of the unaudited
interim periods have been reflected herein.
2) The results of operations for the three months ended September 30, 1998 are
not necessarily indicative of the results for the entire year.
3) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
International Cigar Holdings, Inc., and its Subsidiary, U.S. Cigar
Distributors, Inc. All material intercompany transactions and balances have
been eliminated in the consolidation. The 1997 financial statements include
the combined assets and operations of the two companies. On April 29, 1998,
International Cigar Holdings, Inc. completed a Plan of Share Exchange with
the shareholders of U.S. Cigar Distributors, Inc. ("U.S. Cigar") The
Company acquired 97.8% of the outstanding common stock of U.S. Cigar. For
accounting purposes the acquisition has been treated as a recapitalization
of U.S. Cigar with the Company as the acquirer (reverse acquisition). The
excess of the cost over the fair value paid for the net assets received was
recorded as goodwill.
4) INVENTORY
Inventory, which consist of finished cigars, is stated the lower of cost or
market, determined on a first-in, first-out method.
5) GOODWILL
Goodwill is the excess of cost over the fair value of net assets acquired
and is being amortized by the straight-line method over five years. After
the initial year, management will review the goodwill and amortization to
determine possible impairment.
6) OFFICE EQUIPMENT
Office equipment is recorded at cost and depreciated using the
straight-line method over a useful life of 5 years. Maintenance and repairs
are charged to expense as incurred.
7) INCOME TAXES
The Company accounts for income taxes under the asset and liability method.
Deferred income taxes are recognized for the tax consequences for temporary
differences by applying enacted statutory tax rates applicable to future
years to differences between tax basis and financial reporting basis of
assets and liabilities.
At September 30, 1998, the Company has no deferred tax benefit related to
its net operating loss as the Company's ability to realize these benefits
is not "more likely than not" as defined by FASB Statement No. 109
"Accounting for Income Taxes".
17
<PAGE>
INTERNATIONAL CIGAR HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
8) ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts and disclosure of assets and liabilities at the
date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from these estimates.
9) DEBT
On September 2, 1998, the Company borrowed $300,000 from an individual
bearing interest at 6% due 90 days after issuance. The Company has
non-binding agreements for the infusion of $700,000 in capital, contingent
upon the stock being actively traded at agreed upon price levels. The
$300,000 loan may also be converted to equity.
10) NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statements of Financial
Standards Nos. 130 ("SFAS 130"), Reporting Comprehensive Income" and 131
("SFAS 131") "Disclosures about Segments of an Enterprise and Related
Information." SFAS 130 prescribes standards for reporting comprehensive
income and its components. SFAS 131 establishes guidance as to the required
disclosure for reporting segment information. The Company as adopted these
standards, which have no impact on the Company.
18
STATE OF DELAWARE
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
TUNGSTEN INTERNATIONAL, INC.
The undersigned corporation amends and restates its Articles of
Incorporation originally filed on February 3, 1997 including the change of its
name pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware.
ARTICLE I
The name of this corporation shall be:
INTERNATIONAL CIGAR HOLDINGS, INC.
ARTICLE II
This corporation may engage in any activity or business permitted under
the laws of the State of Delaware, and shall enjoy all the rights and privileges
of a corporation granted by the laws of the State of Delaware.
ARTICLE III
The aggregate number of shares which the corporation shall have
authority to issue is 50,000,000 shares, with a par value of $.001 per share,
divided into 20,000,000 shares of Preferred Stock (the "Preferred Stock") and
30,000,000 shares of Common Stock (the "Common Stock").
The designation and the preferences, limitations and relative rights of
the Preferred Stock and the Common Stock is as follows:
1
<PAGE>
A. Provisions Relating to the Preferred Stock.
1. The Preferred Stock may be issued from time to time in one
or more classes or series, the shares of each class or series to have such
designations and powers, preferences and rights, and qualifications, limitations
and restrictions thereof as are stated and expressed herein and in the
resolution or resolutions providing for the issuance of such class or series
adopted by the Board of Directors as hereinafter prescribed.
2. Authority is hereby expressly granted to and vested in the
Board of Directors to authorize the issuance of the Preferred Stock from time to
time in one or more classes or series, to determine and take necessary
proceedings fully to effect the issuance and redemption of any such Preferred
Stock, and, with respect to each class or series of Preferred Stock, to fix and
state by the resolution or resolutions from time to time adopted providing for
the issuance thereof the following:
a. whether or not the class or series is to have voting
rights, full or limited, or is to be without voting rights;
b. the number of shares to constitute the class or series
and the designations thereof;
c. the preferences and relative, participating, optional or
other special rights, if any, and the qualifications, limitations or
restrictions thereof, if any, with respect to any class or series;
d. whether or not the shares of any class or series shall be
redeemable and if redeemable the redemption price or prices, and the time or
times at which and the terms and conditions upon which, such shares shall be
redeemable and the manner of redemption;
e. whether or not the shares of a class or series shall be
subject to the operation of retirement or sinking funds to be applied to the
purchase or redemption of such shares for retirement, and if such retirement or
sinking fund or funds shall be established, the annual amount thereof and the
terms and provisions relative to the operation thereof;
f. the dividend rate, if any, whether any such dividends are
payable in cash, stock of the corporation or other property, the conditions upon
which and the times when any such dividends are payable, the preference to or
the relation to the payment of the dividends payable on any other class or
classes or series of stock, whether or not such dividend shall be cumulative or
noncumulative, and if cumulative, the date or dates from which such dividends
shall accumulate;
g. the preferences, if any, and the amounts thereof which
the holders of any class or series thereof shall be entitled to receive upon the
voluntary or involuntary dissolution of, or upon any distribution of the assets
of, the corporation;
2
<PAGE>
h. whether or not the shares of any class or series shall be
convertible into, or exchangeable for, the shares of any other class or classes
or of any other series of the same or any other class or classes of stock of the
corporation and the conversion price, ratio or rate at which such conversion or
exchange may be made, with such adjustments, if any, as shall be stated and
expressed or provided for in such resolution or resolutions; and
i. such other special rights and protective provisions with
respect to any class or series as the Board of Directors may deem advisable and
in the best interests of the corporation.
The shares of each class or series of Preferred Stock may vary from the
shares of any other series thereof in any or all of the foregoing respects. The
Board of Directors may increase the number of shares of Preferred Stock
designated for any existing class or series by a resolution adding to such class
or series authorized and unissued shares of Preferred Stock not designated for
any other class or series. The Board of Directors may decrease the number of
shares of Preferred Stock designated for any existing class or series by a
resolution, subtracting from such series unissued shares of Preferred Stock
designated for such class or series, and the shares so subtracted shall become
authorized, unissued and undesignated shares of Preferred Stock.
B. Provisions relating to the Common Stock.
1. Except as otherwise required by law or as may be provided
by the resolutions of the Board of Directors authorizing the issuance of any
class or series of Preferred Stock, as hereinabove provided, all rights to vote
and all voting power shall be vested exclusively in the holders of Common Stock.
2. Subject to the rights of the holders of the Preferred
Stock, the holders of Common Stock shall be entitled to receive when, as and if
declared by the Board of Directors, out of funds legally available therefor,
dividends payable in cash, stock or otherwise.
3. Upon any liquidation, dissolution or winding-up of the corporation,
whether voluntary or involuntary, and after the holders of the Preferred Stock
shall have been paid in full the amounts to which they shall be entitled (if
any) or a sum sufficient for such payment in full shall have been set aside, the
remaining net assets of the corporation shall be distributed pro rata to the
holders of the Common Stock in accordance with their respective rights and
interests to the exclusion of the holders of the Preferred Stock.
C. General Provisions.
1. Except as may be provided by the resolutions of the Board
of Directors authorizing the issuance of any class or series of Preferred Stock,
as hereinabove provided, cumulative voting by any shareholder is hereby
expressly denied.
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2. No shareholder of this corporation shall have, by reason
of its holding shares of any class or series of stock of the corporation, any
preemptive or preferential rights to purchase or subscribe for any other shares
of any class or series of this corporation now or hereafter authorized, and any
other equity securities, or any notes, debentures, warrants, bonds, or other
securities convertible into or carrying options or warrants to purchase shares
of any class, now or hereafter authorized whether or not the issuance of any
such shares, or such notes, debentures, bonds or other securities, would
adversely affect the dividend or voting rights of such shareholder.
ARTICLE IV
The corporation is to have perpetual existence.
ARTICLE V
The business and property of the corporation shall be managed by a
Board of not fewer than one (1) director, who shall be a natural persons of full
age, and who shall be elected annually by the shareholders having voting rights,
for the term of one year, and shall serve until the election and acceptance of
their duly qualified successors. In the event of any delay in holding, or
adjournment of, or failure to hold an annual meeting, the terms of the sitting
directors shall be automatically continued indefinitely until their successors
are elected and qualified, Directors need not be residents of the State of
Delaware nor shareholders. Any vacancies, including vacancies resulting from an
increase in the number of directors, may be filled by the Board of Directors,
though less than a quorum, for the unexpired term. The Board of Directors shall
have full power, and it is hereby expressly authorized, to increase or decrease
the number of directors from time to time without requiring a vote of the
shareholders. Any director or directors may be removed with or without cause by
the shareholders at a meeting called for such purpose.
ARTICLE VI
This corporation, and any or all of the shareholders of this
corporation, may from time to time enter into such agreements as they deem
expedient relating to the shares of stock held by them and limiting the
transferability thereof; and thereafter any transfer of such shares shall be
made in accordance with the provisions of such agreement, provided that before
the actual transfer of such shares on the books of the corporation, written
notice of such agreement shall be given to this corporation by filing a copy
thereof with the secretary of the corporation and a reference to such agreement
shall be stamped, written or printed upon the certificate representing such
shares, and the By-Laws of this corporation may likewise include provisions for
the making of such agreement, as aforesaid.
ARTICLE VII
The private property of the shareholders of the corporation shall not
be subject to the payment of the corporation's debts to any extent whatever.
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ARTICLE VIII
The corporation hereby designates, as its Registered Agent, and as its
Resident Agent to accept service of process within the State of Delaware:
Corporate Creations Enterprises, Inc.
686 North Dupont Boulevard, #302
Milford, DE 19963
Kent County
ARTICLE IX
The following indemnification provisions shall be deemed to be
contractual in nature and not subject to retroactive removal or reduction by
amendment:
A. The corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative, or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee, or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, against expenses (including attorneys'
fees), judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit, or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit, or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
B. The corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending, or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee, or agent
of the corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue, or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation unless and only to the extent that the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such
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expenses which the court shall deem proper.
C. To the extent that a director, officer, employee, or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit, or proceeding referred to in subparagraphs A and B, or in defense
of any claim, issue, or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
D. Any indemnification under subparagraphs A and B (unless ordered by a
court) shall be made by the corporation only as authorized in the specific case
upon a determination that indemnification of the director, officer, employee, or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in subparagraphs A and B. Such determination shall be made
(1) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit, or proceeding, or (2) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
E. Expenses incurred in defending a civil or criminal action, suit, or
proceeding may be paid by the corporation in advance of the final disposition of
such action, suit, or proceeding as authorized by the Board of Directors in the
specific case upon receipt of an undertaking by or on behalf of the director,
officer, employee, or agent to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the corporation as
authorized herein.
ARTICLE X
No director of the corporation shall be personally liable to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director; provided, that the foregoing clause shall not apply to any
liability of a director for any action for which the General Corporation Law of
the State of Delaware proscribes this limitation and then only to the extent
that this limitation is specifically proscribed.
ARTICLE XI
In furtherance, and not in limitation, of the powers conferred by the
laws of the State of Delaware, the Board of Directors is expressly authorized:
A. To make, alter, amend, and repeal the By-Laws of the corporation,
subject to the power of the holders of stock having voting power to alter,
amend, or repeal the By-Laws made by the Board of Directors.
B. To determine and fix the value of any property to be acquired by the
corporation and to issue and pay in exchange therefore, stock of the
corporation; and the judgment of the directors in determining such value shall
be conclusive.
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C. To set apart out of any funds of the corporation available for
dividends, a reserve or reserves for working capital or for any other lawful
purposes, and also to abolish any such reserve in the same manner in which it
was created.
D. To determine from time to time whether and to what extent, and at
what time and places, and under what conditions and regulations the accounts and
books of the corporation, or any of the books, shall be open for inspection by
the shareholders and no shareholder shall have any right to inspect any account
or book or document of the corporation except as conferred by the laws of the
State of Delaware, unless and until authorized to do so by resolution of the
Board of Directors or of the shareholders.
E. The Board of Directors may, by resolution, provide for the issuance
of stock certificates to replace lost or destroyed certificates.
ARTICLE XII
If the By-Laws so provide, the shareholders and the Board of Directors
of the corporation shall have the power to hold their meetings, to have an
office or offices, and to keep the books of the corporation, subject to the
provisions of the laws of the State of Delaware, outside of said state at such
place or places as may be designated from time to time by the Board of
Directors.
The corporation may, in its By-Laws, confer powers upon the Board of
Directors in addition to those granted by these Articles of Incorporation, and
in addition to the powers and authority expressly conferred upon them by the
laws of the State of Delaware.
Election of directors need not be by ballot unless the By-Laws so
provide.
Directors shall be entitled to reasonable fees for their attendance at
meetings of the Board of Directors.
ARTICLE XIII
In case the corporation enters into contracts or transacts business
with one or more of its directors, or with any firm of which one or more of its
directors are members, or with any other corporation or association of which one
or more of its directors are shareholders, directors, or officers, such
contracts or transactions shall not be invalidated or in any way affected by the
fact that such director or directors have or may have an interest therein which
is or might be adverse to the interest of this corporation, provided that such
contracts or transactions are in the usual course of business.
In the absence of fraud, no contract or other transaction between this
corporation and any other corporation or any individual or firm, shall in any
way be affected or invalidated by the fact that any of the directors of this
corporation is interested in such contract or transaction, provided that such
interest shall be fully disclosed or otherwise known to the Board of Directors
in the meeting of such
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Board at which time such contract or transaction was authorized or confirmed,
and provided, however, that any such directors of this corporation who are so
interested may be counted in determining the existence of a quorum at any
meeting of the Board of Directors of this corporation which shall authorize or
confirm such contract or transaction, and any such director may vote thereon to
authorize any such contract or transaction, and any such director may vote
thereon to authorize any such contract or transaction with the like force and
effect as if he were not such director or officer of such other corporation or
not so interested.
ARTICLE XIV
The corporation reserves the right to amend, alter, change or repeal
any provision contained in these Amended and Restated Articles of Incorporation
in the manner now or hereafter prescribed by law, and all rights and powers
conferred herein upon shareholders, directors and officers are subject to this
reserved power.
IN WITNESS WHEREOF, I, the undersigned, pursuant to the laws of the
State of Delaware, has hereunto duly executed the foregoing Amended and Restated
Articles of Incorporation to be filed in the Office of the Secretary of the
State of Delaware for the purposes therein set forth this 21 day of April, 1998.
/s/ Juan A. Vega, Sr.
---------------------------------
Juan A. Vega, Sr., President
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BY-LAWS
INTERNATIONAL CIGAR HOLDINGS, INC.
ARTICLE I
SHARES
1. EVERY STOCKHOLDER OF RECORD shall be entitled to a stock certificate
representing the shares owned by him, but a stock certificate shall not be
issued to any stockholder until the shares represented thereby have been fully
paid. No note or obligation given by a stockholder, whether secured by pledge or
otherwise, shall be considered as payment in whole or in part, of any shares.
2. SHARE CERTIFICATES of the corporation shall be in such form as the Board
of Directors may from time to time determine. Stock certificates shall be issued
to each holder of fully-paid shares, in numerical order, from the stock
certificate books, signed by the President or Vice-President, countersigned by
the Secretary or Treasurer, and sealed with the corporate seal. Facsimile
signatures may be used as permitted by law. Share certificates restricted as to
transfer or resale shall bear an appropriate restriction legend and "stop
transfer" notices may be placed in the stock transfer records with respect to
such certificates. A record of each certificate issued shall be kept either on
the stub thereof or in appropriate files.
3. TRANSFERS OF SHARES shall be made only upon the books of the corporation
and, before a new certificate is issued, the old certificate must be surrendered
for cancellation. The corporation shall not be bound by any restrictions on the
transferability of shares imposed by any agreement to which it is not a party
unless both written notice of such agreement or restrictions is given to the
Secretary and notice of such agreement or restriction has been put upon the
stock certificate(s) so restricted. No transfer shall be made where such
transfer is restricted by law or governmental regulation. The corporation shall
be entitled to delay or refuse any transfer pending adequate proof of
entitlement to transfer.
4. IN CASE A STOCK CERTIFICATE IS LOST OR DESTROYED, the claimant thereof
shall make an affirmation or affidavit of the fact and advertise the same in
such manner as the Board of Directors may require, and shall give the
corporation a bond of indemnity in form and amount acceptable to the Board, and
with one or more sureties satisfactory to the Board and upon satisfactory proof
being produced to the Board of Directors of such loss or destruction, a new
certificate may be issued of the same tenor and for the same number of shares as
the one alleged to be lost or destroyed, but always subject to the approval of
the Board of Directors.
5. THE HOLDER OF RECORD OF ANY SHARE OR SHARES shall be entitled to be
treated by the corporation as the holder in fact thereof, and the corporation
accordingly shall not be bound to recognize any equitable claim to, or interest
in, such share on the part of any other person, whether or not the corporation
shall have express or other notice thereof, save as expressly provided by
applicable laws.
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6. A STOCKHOLDER SHALL NOT BE PERSONALLY LIABLE for any debt or liability
of the corporation, except as may be imposed by law.
7. THE TREASURY STOCK of the corporation shall consist of such issued and
outstanding shares of the corporation as may be donated to the corporation or
otherwise acquired, and shall be held subject to disposal by the Board of
Directors. Such shares shall neither vote nor participate in dividends while
held by the corporation.
ARTICLE II
MEETINGS OF STOCKHOLDERS
1. THE ANNUAL MEETING OF THE STOCKHOLDERS of this corporation shall be held
at such place either within or without the State of Delaware, on such date, and
at such time, as may be designed by the Board of Directors. Failure to hold an
annual meeting at the designated time shall not work any forfeiture or
dissolution of the corporation.
2. SPECIAL MEETINGS OF THE STOCKHOLDERS may be called to be held at the
registered office of the corporation, or at such other place designated in the
call, at any time, (a) by the President or (b) by resolution of the Board of
Directors, or (c) upon written request of the stockholders holding a majority of
the outstanding shares having voting rights. Upon written request of the
stockholder or stockholders entitled to call a special meeting, the Secretary
shall give notice of such special meeting, to be held at such time as the
Secretary may fix, not less than ten (10) nor more than sixty (60) days after
the receipt of such request. Upon neglect or refusal of the Secretary to issue
such call, the person or persons making the request may do so.
3. IN ORDER THAT THE CORPORATION MAY DETERMINE THE STOCKHOLDERS entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of share or for the purpose of any other lawful action,
the Board of Directors may fix, in advance, a record date, which shall not be
more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If no record date is fixed:
(a) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, on
which the meeting is held.
(b) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is necessary, shall be the day on which the first
written consent is expressed.
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(c) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
(d) A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
4. AT LEAST TEN DAYS BEFORE EACH MEETING OF STOCKHOLDERS, the officer
having charge of the transfer books for shares shall make a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
with the address of and the number of shares held by each, which list shall be
kept on file at the principal office of the corporation and shall be subject to
inspection by any stockholder at any time during usual business hours. Such list
shall be produced and kept open at the time and place of meeting, subject to the
inspection of any stockholders during the whole time of the meeting. The
preparation of such list may be dispensed with by oral or written agreement of
all stockholders.
5. EXCEPT AS HEREIN OTHERWISE PROVIDED, NOTICE OF MEETING, written or
printed for every regular or special meeting of the stockholders, shall be
prepared and mailed to the last known post office address of each stockholder
having voting rights, not less than five days before any such meeting, and if
for a special meeting, such notice shall also state the object or objects
thereof. No failure of or irregularity in notice of any regular meeting shall
invalidate such meeting or any proceeding thereat. Notice of a meeting may be
waived by written waiver signed by persons entitled to vote. Attendance at a
meeting shall constitute waiver of notice of place, date, time and purpose.
6. A QUORUM at any meeting of the stockholders shall consist of a majority
of the voting shares of the corporation, represented in person or by proxy. A
majority of such quorum shall decide any question that may come before the
meeting unless such question is by statute required to be decided by a majority
of the outstanding shares or otherwise.
7. AT ANY MEETING DULY CALLED and held for the election of directors at
which a quorum is present, directors shall be elected by a plurality of the
votes cast by the holders (acting as such) of shares of stock of the corporation
entitled to elect such directors.
8. REMOVAL OF DIRECTORS. Notwithstanding any other provisions of the
Certificate of Incorporation or the By-Laws of the corporation (and
notwithstanding the fact that some lesser percentage may be specified by law,
the Certificate of Incorporation or the By-laws of the corporation), any
director or the entire board of Directors of the corporation may be removed at
any time, for cause or without cause, by the affirmative vote of the holders of
a majority of the outstanding shares of capital stock of the corporation
entitled to vote generally in the election of directors (considered for this
purpose as one class) cast at a meeting of the stockholders called for that
purpose.
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9. A DIRECTOR MAY BE REMOVED FROM OFFICE for cause by the vote of a
majority of the Board of Directors without notice. Cause shall include the
occurrence of one of the following events:
(a) the director commits, is arrested, or is officially charged with a
felony or any crime involving moral turpitude or unethical conduct which in the
good faith opinion of the Board of Directors could impair his ability to perform
his duties;
(b) the director commits an act, or fails to take action in bad faith
and to the detriment of the corporation;
(c) in the good faith opinion of the Board of Directors, the director
fails to fully and faithfully perform his obligations as a director; or
(d) the director engages in conduct which is either to promote a
personal interest rather than the interests of the stockholders of this
corporation or engages in conduct which constitutes a conflict of interest with
this corporation.
10. THE ORDER OF BUSINESS at the annual meeting and, as far as possible, at
all other meetings of the stockholders, shall be:
(a) Call to order
(b) Proof of due notice of meeting
(c) Call of roll, filing or proxies, and determination of a quorum
(d) Reading and disposal of any unapproved minutes
(e) Unfinished business
(f) Amendments of Articles of Incorporation or By-laws
(g) Fixing the number of directors and election of directors
(h) Reports of officers and committees
(i) New business
(j) Adjournment
Any agenda item may be waived. Unless an alternative procedure is adopted
by the Chairman of any meeting, Robert's Rules of Order shall determine any
question or dispute
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regarding procedure.
Business transacted at all special meetings shall be confined to the
objects stated in the call and matters germane thereto, unless all stockholders
entitled to vote are present and consent.
11. STOCKHOLDERS SHALL HAVE THE RIGHT to be represented and vote by proxy
at any meeting of stockholders. Proxies shall be filed with the Secretary prior
to the meeting and failure to do so file shall preclude exercise thereof by the
proxy holder at such meeting.
12. ANY ACTION which may be taken at a meeting of stockholders may be taken
without a meeting, if a consent in writing, setting forth the action so taken,
shall be signed by a majority of the stockholders who would be entitled to vote
at a meeting or such lesser percentage of shares as shall be set by the
Articles, and the consent shall be filed with the Secretary of the corporation.
ARTICLE III
DIRECTORS
1. SO LONG AS ALL THE SHARES OF THIS CORPORATION ARE owned beneficially and
of record by only one or two stockholders, the business and property of the
corporation shall be managed by a Board of not fewer than the number of
stockholders. At such time as the shares are owned beneficially and of record by
three (3) or more stockholders, the business and property of the corporation
shall be managed by a Board of not fewer than three (3) nor more than twenty-one
(21) directors, who shall be natural persons of full age, and who shall be
elected annually by the stockholders having voting rights, for the term of one
year, and shall serve until the election and acceptance of their duly qualified
successors. In the event of any delay in holding, or adjournment of, or failure
to hold an annual meeting, the terms of the sitting directors shall be
automatically continued indefinitely until their successors shall be duly
elected and qualified. Directors need not be stockholders. Any vacancies,
including vacancies resulting from an increase in the number of directors, may
be filled by the Board of Directors, though less than a quorum for the unexpired
term. The Board of Directors shall have full power, and it is hereby expressly
authorized, to increase or decrease the number of directors from time to time
without requiring a vote of the stockholders.
2. THE ANNUAL MEETING of the Board of Directors shall be held at the
offices of the corporation within thirty (30) days following the annual meeting
of stockholders. At such meeting, the Board may elect a Chairman of the Board
(who shall thereafter chair meetings of the Board), a Secretary (who shall
thereafter keep the minutes of the meetings of the Board), and such other
officials as the Board may deem desirable.
3. SPECIAL MEETINGS of the Board of Directors, may be called at any time by
the President, or by a majority of the members of the Board, and may be held at
any time and place, either within or without the State of Delaware, either with
notice as provided in Section 4 or without if by written consent of all the
absent members any by the presence of all other members
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at such meeting.
4. NOTICE OF SPECIAL MEETINGS shall be given by any means of communication
by the Secretary to each member of the Board not less than twenty-four (24)
hours before any such meeting, and notice of such special meetings shall include
a general statement of the purposes thereof. Notice of such meetings may be
waived by written waiver.
5. A QUORUM at any meeting shall consist of a majority of the entire
membership of the Board. A majority of such quorum shall decide any question
that may come before the meeting, unless otherwise provided by statute.
6. THE BOARD OF DIRECTORS may, by resolution adopted by a majority of the
whole Board, delegate not less than two of its number to constitute an Executive
Committee which, to the extent provided in such resolution, shall have and
exercise the authority of the Board of Directors in the management of the
business of the corporation. Written minutes shall be kept of all actions taken
by the Executive Committee between intervals of the regular meetings of the
Board of Directors, and these minutes must be reported at the next regular
meeting of the Board.
7. THE BOARD OF DIRECTORS may, by resolution adopted by a majority of the
whole Board, delegate not less than two of its number to constitute a special
committee which, to the extent and scope provided in such resolution, shall have
an exercise authority in such matters as the Board shall declare. Written
minutes shall be kept of all actions taken by any such special committee between
the intervals of the regular meetings of the Board of Directors, and those
minutes must be reported at the next regular meeting of the Board.
8. ONE OR MORE DIRECTORS may participate in a meeting of the Board or of an
Executive or other committee of the Board by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other.
9. ANY ACTION which may be taken at a meeting of the Board or of any
committee thereof may be taken without a meeting, if a consent in writing,
setting forth the action so taken, shall be signed by all of the Directors who
would be entitled to vote at a meeting for such purposes and shall be filed with
the Secretary of the Corporation.
10. OFFICERS OF THE CORPORATION, including the President, shall be elected
by ballot, by the Board of Directors, at its first meeting after the election of
directors each year. If any office becomes vacant, including the office of the
President, during the year, the Board of Directors shall fill it for the
unexpired term. The President need not be chosen from the Board of Directors.
11. THE ORDER OF BUSINESS at any regular or special meeting of the Board of
Directors shall be:
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(a) Call to order an call of roll
(b) Reading and disposal of any unapproved minutes
(c) Unfinished business
(d) Reports of officers and committees
(e) New business
(f) Adjournment
Any agenda item may be waived. Robert's Rules of Order shall determine any
question or dispute regarding procedure.
12. DIRECTORS shall receive such compensation for their services, or
alternatively a fixed sum and expenses of attendance, if any, for attendance at
each regular or special meeting of the Board, as fixed by specific resolution of
the Board of Directors and provided that nothing herein contained shall be
construed to preclude any director from servicing the corporation in any other
capacity and receiving compensation therefor.
ARTICLE IV
OFFICERS
1. THE OFFICERS OF THE CORPORATION shall be a President, a Secretary and a
Treasurer. In addition, there may be one or more Vice Presidents and such other
officers, assistant officers, and agents as the Board of Directors may
determine. All officers and agents shall be elected for the term of one year and
shall hold office until their successors are elected and qualified. Any two or
more offices may be held by the same person including the offices of President
and Secretary.
2. THE PRESIDENT shall be the senior officer of the corporation; shall
preside at all meetings of the stockholders and directors; shall have general
supervision of the affairs of the corporation; shall sign or countersign
certificates, contracts, and other instruments of the corporation, as authorized
by the Board of Directors; shall make reports to the directors and stockholders;
and shall perform all such other duties as are incident to his office or are
properly required of him by the Board of Directors.
3. THE SECRETARY shall issue notices for all meetings; shall keep minutes,
shall have charge of the seal and the books of the corporation; shall sign with
the President or affix the seal to such instruments as require such signature or
seal and attest to the signature of the President by affixation of the seal
thereto; shall record the minutes of all meetings of the stockholders and, in
the absence of an elected secretary of the Board of Directors, record the
minutes of all meetings
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of the Board of Directors; and shall make such reports and perform such other
duties as are incident to his office, or are properly required of him by the
Board of Directors.
4. THE TREASURER shall have the custody of all monies and securities of the
corporation and shall keep regular books of account. He shall sign or
countersign such documents and instruments as required his signature, shall
perform all duties incident to his office or that are properly required of him
by the Board of Directors, and if required by the Board of Directors, shall give
bond for the faithful performance of his duties in such sum and with such
sureties as may be required by the Board of Directors.
5. ALL OTHER OFFICERS, ASSISTANT OFFICERS, AND AGENTS shall perform such
duties as may be required of them by the Board of Directors. All officers,
assistant officers, and agents of the corporation shall be subject to removal by
the Board of Directors whenever in its judgment the best interests of the
corporation will be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person removed. Any vacancy occurring in
any office of the corporation by death, resignation, removal or otherwise shall
be filled by the Board of Directors.
6. IN ADDITION to the officers, the Corporation may have such management
officials, including a Chief Executive Officer (CEO), Chief Operating Officer
(C)), Chief Financial Officer (CFO), and Chief Information Officer (CIO), as the
Board of Directors may determine from time to time. Such management officials
shall have such duties and authority, and shall receive such compensation, as
the Board of Directors shall determine.
7. ALL OFFICERS, assistant officers, and agents of the Corporation shall be
subject to removal by the Board of Directors whenever in its judgment the best
interests of the Corporation will be serviced thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person removed.
8. THE BOARD OF DIRECTORS shall have power to fix the compensation of all
officers and assistant officers of the corporation. It may authorize any
officer, upon whom the power of appointing subordinate officers may have been
conferred, to fix the compensation of such subordinate officers.
9. ANY PAYMENTS made to an officer or employee of the corporation such as a
salary, commission, bonus, interest, rent, travel or entertainment expense
incurred by him, which shall be disallowed in whole or in part as a deductible
expense by the Internal Revenue Service, shall be reimbursed by such officer or
employee to the corporation to the full extent of such disallowance. It shall be
the duty of the directors, as a Board, to enforce payment of each such amount
disallowed, in lieu of payment by the officer or employee, subject to the
determination of the directors, proportionate amounts may be withheld from his
future compensation payments until the amount owed to the corporation has been
recovered.
8
<PAGE>
10. ANY DIRECTOR OF OFFICER may resign at any time, such resignation to be
in writing, and to take effect from the time of its receipt by the corporation,
unless some time be fixed in the resignation and then from that date. The
acceptance of a resignation shall not be required to make it effective.
ARTICLE V
DIVIDENDS AND FINANCE
1. DIVIDENDS shall be declared as provided by law at such times as the
Board of Directors shall direct, and no dividend shall be declared that will
impair the capital of the corporation.
2. THE MONIES of the corporation shall be deposited in the name of the
corporation, in such banks, savings and loan associations or trust companies as
the Board of Directors shall designate, and shall be drawn out only by check or
other negotiable instrument signed as directed by the Board of Directors. Funds
in excess of current working capital needs may be invested in such certificates
of deposit, mutual funds government securities, money market funds, and similar
liquid investments, as the Board of Directors may authorize.
3. THE OFFICERS of the corporation shall tender to the Board of Directors
such financial reports of the condition of the corporation as may be required by
the Board of Directors. The directors and officers shall be required to forward
to the stockholders an annual financial report within one hundred eighty (180)
days after the close of each fiscal year. No report of the financial condition
of the corporation need be prepared, compiled, reviewed or audited by a
certified public accountant, unless directed to be so prepared by an order of
the Board of Directors.
4. A FISCAL YEAR basis may be established for the operations of the
corporation by the Board of Directors and may be changed, from time to time, as
desirable to the extent permitted by applicable tax laws or regulations.
5. THE TREASURER, with the approval of the President, may make charitable
contributions out of the funds of the corporation for purposes permitted by law,
without the consent of the stockholders or directors, to the extent that such
contributions shall be deductible by the corporation for income tax purposes;
provided, however, that full report of such contributions shall be made to the
Board of Directors at its next meeting.
ARTICLE VI
SEAL
1. THE CORPORATE SEAL of the corporation shall consist of two concentric
circles, between which is the name of the corporation, and the word, "Delaware",
and in the circle shall be inscribed the words "Corporate Seal" together with
the year of incorporation, and such seal is
9
<PAGE>
impressed on the margin hereof and is hereby adopted as the corporate seal of
the corporation.
ARTICLE VII
CONFLICT OF INTEREST
1. NO CONTRACT OR TRANSACTION between the corporation and one or more of
its directors or officers, or between the corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors of officers, or have a financial interest,
shall be void or voidable solely for such reason, or solely because the director
or officer is present at or participates in the meeting of the Board which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose, if:
(a) The material facts as to his (their) interest and as to the
contract or transaction are disclosed to or are known by the Board of Directors,
and the Board, in good faith, authorizes the contract or transaction by the
affirmative vote of a majority of the disinterested directors; or
(b) The material facts as to his (their) relationship or interest and
as to the contract or transaction are disclosed to or are known by the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
(c) The contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified, by the Board of Directors or the
stockholders.
2. COMMON OR INTERESTED DIRECTORS may be counted in determining the
presence of a quorum at a meeting of the Board of Directors which authorizes a
contract or transaction specified in Section 1 of the Article.
3. THIS ARTICLE shall be in addition to, and not in limitation of, any
applicable provisions of the law validating contracts in situations involving
interested directors, officers and stockholders. Furthermore, this Article shall
be subject to such restrictions and limitations as may be imposed by applicable
law, in the event of the Corporation electing to become a business development
company, a small business investment company, or other regulated entity.
ARTICLE VIII
LIMITATION OF LIABILITY
1. NO DIRECTOR of the corporation shall be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director; provided, that the
10
<PAGE>
foregoing clause shall not apply to any liability of a director for any action
for which the Business Corporation Act of the State of Delaware proscribes this
limitation and then only to the extent that this limitation is specifically
proscribed.
2. IT IS THE INTENT that this Article be interpreted to provide the maximum
protection against liability afforded to directors under the Delaware business
Corporation Act as it may be amended from time to time. Whichever law (that law
in effect at the time of the director's election, at the time of the director's
action, or at the time of interpretation) provides the greatest protection shall
be applicable.
ARTICLE IX
INDEMNIFICATION
1. THE CORPORATION SHALL, and by this Article hereby does, to the fullest
extent permitted by applicable law as then in effect, indemnify each director,
each officer and each other person who may have acted as a representative of the
corporation at its request, by his heirs, executors, and administrators. Any
such person shall be indemnified by the corporation against:
(a) any costs and expenses, including counsel fees, reasonably incurred
in connection with any civil, criminal, administrative or other claim, action,
suit or proceeding, in which he may become involved or with which he may be
threatened, by reason of his being or having been a director or officer of the
corporation or by reason of his serving or having served any corporation, trust,
committee, firm or other organization as director, officer, employee, trustee,
member or otherwise at the request of this corporation, and
(b) any payments in settlement of any such claim, suit, action, or
proceeding or in satisfaction of any related judgment, fine, or penalty, except
costs, expenses or payments in relation to any matter as to which he shall be
finally adjudged derelict in the performance of his duties to the corporation,
unless the corporation shall receive an opinion from independent counsel that
such director, officer, or representative has not so been derelict. In the case
of a criminal action, suit, or proceeding, a conviction or judgment (whether
after trial or based on a plea of guilty or nolo contendere or its equivalent)
shall not be deemed an adjudication that the director, officer or representative
was derelict in the performance of his duties to the corporation of he acted in
good faith in what he considered to be the best interests of the corporation and
which no reasonable cause to believe the action was illegal.
The foregoing right of indemnification shall not be exclusive of other
rights to which directors, officers and others may be entitled under the
Certificate of Incorporation as a matter of law or otherwise.
The foregoing provision is intended to be self-executing; however, the
corporation may also provide any indemnified person with a separate
Indemnification Agreement, which shall be in addition to the foregoing
indemnification.
11
<PAGE>
2. IT IS THE INTENT that this Article be interpreted to provide the maximum
indemnification permitted under the Business Corporation Act as it may be
amended from time to time. Whichever law (that law in effect at the time of the
director's election, at the time of the director's action, or at the time of
interpretation) provides the greatest protection shall be applicable.
3. THIS CORPORATION shall have the power to purchase and maintain insurance
on behalf of any person who (1) is or was a director, officer, employee or agent
of the corporation, or (2) is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability.
ARTICLE X
EMERGENCY BY-LAWS
1. EMERGENCY POWERS. During any emergency resulting from warlike damage,
including civil disorder, or an attack on the United States or any nuclear or
atomic disaster, the regular by-laws shall be suspended to the extent necessary
under the circumstances and the Board of Directors may make any emergency by-law
that may be practical or necessary for the circumstances of the emergency, even
though inconsistent with the regular by-laws. No director, officer, or employee
acting in accordance with any such emergency by-laws shall be liable, except for
willful misconduct.
2. MEETING. A meeting of the Board of Directors may be called by any
officer or director with no prescribed period of notice, so long as an attempt
is made to notify each director as soon as conditions may permit. Such notice
may be given by any feasible means at the time, including publication or radio.
3. QUORUM. The director or directors in attendance at the meeting of the
Board shall constitute a quorum.
4. EMERGENCY DIRECTORS. Prior to such an emergency, the Board of Directors
may designate officers or other persons who shall serve as directors in
emergency meetings in the event that the elected directors shall for any reason
be rendered incapable of discharging their duties.
5. LINES OF SUCCESSION. The Board of Directors, either before or during any
such emergency, may provide, and from time to time modify, lines of succession
in the event that during such an emergency any or all officers or agents of the
corporation shall for any reason be rendered incapable of discharging their
duties.
6. TERMINATION. Upon termination of the emergency, as declared by the Board
of
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<PAGE>
Directors or other person discharging their duties, the emergency by-laws shall
cease to be operative. Termination shall not affect the legality of actions
taken hereunder.
ARTICLE XI
AMENDMENTS
1. THESE BY-LAWS MAY BE AMENDED, repealed or altered in whole or in part,
by a majority vote of the outstanding stocks of the corporation, at any regular
or special meeting of the stockholders. Written notice shall, not less than five
(5) days before a stockholders' meeting called by the Board of Directors for the
purpose of considering proposed amendments, be given to each stockholder of
record entitled to vote. Such notice shall set forth the proposed amendment or a
summary of the changes to be effected thereby.
2. THESE BY-LAWS MAY ALSO BE AMENDED, repealed, or altered, in whole or in
part, by a majority vote of the Board of Directors, at any meeting, without
prior notice. However, such by-laws, or any provision thereof, made, altered,
amended, or repealed by the Board of Directors, shall from time to time be
submitted to the stockholders for approval, and may be further altered, amended
or repealed by the stockholders at any annual meeting or, upon notice, at any
special meeting, and when so altered, amended or repealed, the Board of
Directors' changes disapproved by the stockholders shall not be re-established
by the Board of Directors without the prior approval of the stockholders.
13
FIRST AMENDMENT TO DISTRIBUTION AGREEMENT
THIS FIRST AMENDMENT TO DISTRIBUTION AGREEMENT dated April 25th, 1997 (the
"Agreement") is made and entered into on this 25th day of April, 1997, by and
between U.S. Cigar Distributors, Inc., a Florida corporation ("U.S. Cigar"), and
Swisher International, Inc., a Delaware corporation ("Swisher").
Paragraph 1 of the Agreement is hereby modified as follows:
1. Engagement of Distributor
U.S. Cigar hereby grants to Swisher the exclusive right to distribute Don
Pepe brand cigars (the "Products") in the territory, as hereinafter described,
for a term of 24 months (the "Initial Term") with an automatic 24 month
extension, unless notice of termination is given by either party on or before
the 18th month of the Initial Term, provided the performance standards set forth
herein are met (the "Term"). It is understood by the parties that the rights
granted herein do not constitute an assignment of any trademark, trade name or
copyright. In the event that Swisher elects not to sell any Product hereunder,
U.S. Cigar shall have the right to distribute such Product in the territory as
hereinafter described. The parties shall agree within ninety (90) days of the
date of this Agreement on the other brands (and flavorings within such brands),
if any, that Swisher shall have an exclusive right to distribute hereunder.
Paragraphs 3. A and B of the Agreement are hereby modified as follows:
A. On or before October 31 of each year, Swisher and U.S. Cigar shall agree
on an annual sales forecast (the "Annual Sales Forecast") for the succeeding
calendar year of the Term containing sales projections for each Product on a
monthly basis. The Annual Sales Forecast may be revised by Swisher by up to 50%
for any month(s) during the Term upon thirty (30) days prior written notice to
U.S. Cigar, provided that Swisher shall exercise commercially reasonable efforts
to sell the total amount of Products included in the Annual Sales Forecast. The
Annual Sales Forecast for the remainder of 1997 shall be provided within ninety
(90) days of the date of this Agreement.
B. On or before October 31 of each year, Swisher and U.S. Cigar shall agree
on a production and delivery schedule (the "Annual Production and Delivery
Schedule") for the succeeding calendar year of the Term containing production
and delivery schedules for each Product on a monthly basis. The Annual
Production and Delivery Schedule may be revised by U.S. Cigar by up to 50% for
any month(s) during the Term upon thirty(30) days prior written notice to
Swisher, provided that U.S. Cigar shall exercise commercially reasonable efforts
to produce and deliver the total amount of Products included in the Annual
Production and Delivery Schedule. The Annual Production and Delivery Schedule
for the remainder of 1997 shall be provided within ninety (90) days of the date
of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
official seal this ____ day of April, 1997.
Signed and sealed in the U.S. Cigar Distributors, Inc.,
presence of:
- -----------------------------
By: /s/ Juan A. Vega, Sr.
- ----------------------------- -----------------------------
Juan A. Vega, Sr., President
Swisher International, Inc.
- -----------------------------
/s/ By: /s/ J. Thomas Ryan, III
- ----------------------------- -------------------------------
J. Thomas Ryan, III, Executive
Vice President
2
<PAGE>
U.S. Cigar Distributors,
6910 Barquera Street
Coral Gables, Florida 33146
Tel: 305.662.9586 Fax 305.662.1131
<TABLE>
<CAPTION>
Pricing Schedule for the balance of 1997 on sales to SWISHER INTERNATIONAL, INC.
Exhibit C--Pricing Forecast
<S> <C> <C> <C>
Product Presentation Current Price New Price
(see notes) 10/01/97
- -------------------------------------------------------------------------------------------------------
Don Pepe/Long Filler Petit Lonsdale 25/box 1.08 1.172
5x5 cartons 1.08 1.172
Churchill 25/box 1.28 1.389
4x5 cartons 1.28 1.389
Double Corona 25/box 1.48 1.606
3x5 cartons 1.48 1.606
Robusto 25/box 1.26 1.367
3x5 cartons 1.26 1.367
Short Filler Small Cigars 10x5 0.26 0.282
Half Coronas 50 box 0.50 0.543
5x5 cartons 0.50 0.543
Slim Panatelas 50 box 0.57 0.618
5x5 cartons 0.57 0.618
Palomitas: Classic 20x10's 0.134 0.145
ctns.
50's box " "
Cherry 20x10's " "
ctns
50's box " "
Clove 20x10's " "
ctns.
50's box " "
Sub-Total Palomitas
- -------------------------------------------------------------------------------------------------------
</TABLE>
Notes: Current prices agree with discussions held with Swisher as to the
Distribution Agreement and prices. The forecast beyond June 1997 is subject to
review as to unit volume, product mix, and pricing forecast for October 1st,
1997. This price would hold for at least 90 days.
<PAGE>
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT (the "Agreement") is made and entered into on
this 25th day of April, 1997, by and between U.S. Cigar Distributors, Inc., a
Florida corporation ("U.S. Cigar"), and Swisher International, Inc., a Delaware
corporation ("Swisher").
RECITALS:
A. U.S. Cigar is engaged in the distribution of tobacco leaf, cigars,
cigarillos and other tobacco products and is the exclusive distributor in the
United States, Canada and Mexico for certain of these products produced,
brokered and manufactured by Agro Comercial Fumageira, S.A. and Suerdieck
Charutos e Cigarrilhas Ltda., Salvador, Bahia, Brazil (collectively, the
"Suerdieck Group").
B. The parties hereto wish to enter into an exclusive distribution
agreement.
NOW, THEREFORE, the parties agree as follows:
1. ENGAGEMENT OF DISTRIBUTOR
U.S. Cigar hereby grants to Swisher the exclusive right to distribute Don
Pepe brand cigars (the "Products") in the territory, as hereinafter described,
for a term of 24 months (the "Initial Term") with an automatic 24 month
extension, unless notice of termination is given by either party on or before
the 18th month of the Initial Term, provided the performance standards set forth
herein are met (the "Term"). It is understood by the parties that the rights
granted herein do not constitute an assignment of any trademark, trade name or
copyright. In the event that Swisher elects not to sell any Product hereunder,
U.S. Cigar shall have the right to distribute such Product in the territory as
hereinafter described.
2. TERRITORY
The exclusive territory shall consist of the United States only (the
"Territory").
3. SALES FORECAST AND MINIMUM SALES
A. On or before October 31 of each year, Swisher and U.S. Cigar shall agree
on an annual sales forecast (the "Annual Sales Forecast") for the succeeding
calendar year of the Term containing sales projections for each Product on a
monthly basis. The Annual Sales Forecast may be revised by Swisher by up to 50%
for any month(s) during the Term upon thirty (30) days prior written notice to
U.S. Cigar, provided that Swisher shall exercise commercially reasonable efforts
to sell the total amount of Products included in the Annual Sales Forecast. The
Annual Sales Forecast for the remainder of 1997 is attached hereto as Exhibit A.
<PAGE>
B. On or before October 31 of each year, Swisher and U.S. Cigar shall agree
on a production and delivery schedule (the "Annual Production and Delivery
Schedule") for the succeeding calendar year of the Term containing production
and delivery schedules for each Product on a monthly basis. The Annual
Production and Delivery Schedule may be revised by U.S. Cigar by up to 50% for
any month(s) during the Term upon thirty (30) days prior written notice to
Swisher, provided that U.S. Cigar shall exercise commercially reasonable efforts
to produce and deliver the total amount of Products included in the Annual
Production and Delivery Schedule. The Annual Production and Delivery Schedule
for the remainder of 1997 is attached hereto as Exhibit B.
C. Subject to the Subparagraphs A and B herein, prevailing market
conditions and Swisher's sales of the Products, Swisher intends to purchase
Products from U.S. Cigar having an aggregate invoice value, exclusive of freight
and taxes, but before any discounts or allowances, of up to $225,000.00 per
month during the Term.
4. ORDERS AND ACCOUNTS
A. All orders shall be taken at U.S. Cigar's export billing price as set
forth on a price list as hereinafter described on terms then in effect, FOB,
Salvador, Brazil or such other location specified by U.S. Cigar. Freight and
insurance charges prepaid by U.S. Cigar may, at its option, be included in the
price or billed separately to Swisher. All orders must be signed by Swisher or
its duly authorized agent.
B. On or before October 31 of each year, Swisher and U.S. Cigar shall agree
on a list of prices that U.S. Cigar will charge Swisher for the Products (the
"Price List") for the succeeding calendar year. The Price List may be changed by
U.S. Cigar only upon the giving of at least ninety (90) days prior written
notice to Swisher or upon the waiver of receipt of such notice by Swisher. The
Price List for the remainder of 1997 is attached hereto as Exhibit C.
C. The selling price charged by Swisher for the Products to its customers
shall be at its sole discretion.
D. All invoices from U.S. Cigar to Swisher shall be paid in United States
currency.
E. U.S. Cigar warrants and represents that all Products sold shall be free
of defects, whether apparent or latent. Swisher shall be entitled to return all
defective Products for either a full credit or replacement, including all
freight charges, if Swisher gives written notice of the defect to U.S. Cigar
within seven (7) days of receipt of the Products in the case of an apparent
defect or within seven (7) days of discovery in the case of a latent defect.
F. All orders shall be filled by U.S. Cigar with reasonable promptness
except that in the case of fire, riots, strikes, accidents, acts of God, pests,
disease, abnormal climactic conditions or force majeure which unavoidably
stopped the making of deliveries, deliveries may be canceled or partially
canceled as the case may require upon written notice to Swisher. Such
interruption of deliveries,
2
<PAGE>
however, shall not invalidate the remainder of this Agreement but upon removal
of the cause of the interruption, deliveries shall be as before.
5. PROMOTION OF PRODUCTS:
A. U.S. Cigar and Swisher shall jointly develop an overall marketing
strategy for the Products, taking into consideration the availability of the
Products and the market requirements in the Territory; develop a marketing
campaign and shall produce advertising and promotional material. U.S. Cigar and
Swisher shall share all costs associated with such promotional expenses equally.
The marketing campaign and the related expenditures shall require the approval
of U.S. Cigar, the approval of which shall not be unreasonably withheld.
B. All packaging shall contain a statement that the cigar(s) was
manufactured by Suerdieck Charutos e Cigarrilhas Ltda., Bahia, Brazil.
6. NAME AND TRADEMARKS
A. All trademarks, trade names, and copyrights granted or applied for in
connection with the Products are and shall remain the sole property of the
Suerdieck Group or U.S. Cigar. Swisher will not by its operations hereunder
acquire any right, title or interest thereto. Swisher shall not alter or remove
any trade name, trademark or other identification marks, symbols or labels from
the Products.
B. Use of the trademarks, trade names, and copyrights on any sales
promotion, advertising, stationery or other media produced by or for Swisher may
only be done with the express written consent of U.S. Cigar.
C. Swisher will not, by its operations hereunder, acquire any right, title
or interest in any blend of tobacco used in any Product or in any blend of
tobacco formulated or developed by either Swisher or U.S. Cigar and used in any
Product hereunder.
7. EXPENSES:
Except as set forth in this Agreement, each party shall pay all of its own
expenses in connection with this Agreement.
8. CONFIDENTIALITY
Swisher hereby agrees to keep confidential all knowledge, techniques,
information of any related sort and agrees not to reveal any information to
anyone concerning knowledge which Swisher has derived from its relationship with
U.S. Cigar.
3
<PAGE>
9. INDEMNIFICATION
A. U.S. Cigar shall indemnify Swisher, and hold Swisher harmless from any
claims, demands, liabilities, actions, suits or proceedings asserted or claimed
by third parties and arising out of the operation of U.S. Cigar's business. This
indemnification shall not apply, however, to any indemnitee whose own act or
omission has given rise to any such claim, demand, liability, action suit or
proceeding.
B. Swisher shall indemnify U.S. Cigar, and hold U.S. Cigar harmless from
any claims, demands, liabilities, actions, suits or proceedings asserted or
claimed by third parties and arising out of the operation of Swisher's business.
This indemnification shall not apply, however, to any indemnitee whose own act
or omission has given rise to any such claim, demand, liability, action, suit or
proceeding.
10. ASSIGNMENT
This Agreement is personal to the parties hereto and may not be assigned by
Swisher, in whole or in part, without the prior written consent of U.S. Cigar.
Change of ownership of more than 25% of the outstanding common shares of Swisher
or merger of Swisher shall constitute an assignment hereunder.
11. AGENCY:
Swisher is an independent contractor and is not a legal or implied agent of
U.S. Cigar and has no authority to bind the U.S. Cigar as a result of the
relationship created by this Agreement. No acts or assistance given by U.S.
Cigar shall be construed to alter the relationship created by this Agreement.
12. TERMINATION:
This Agreement shall terminate in the event one of the following
contingencies occurs, but in no event shall such termination relieve either
party of any of its obligations hereunder:
A. At the option of U.S. Cigar, upon sixty (60) days prior written notice,
if Swisher shall materially fail to meet any material obligations provided for
in this Agreement and fails to cure such breach within sixty (60) days of
receipt of such notice.
B. At the option of Swisher, upon sixty (60) days prior written notice, if
U.S. Cigar shall materially fail to meet any material obligations provided for
in this Agreement and fails to cure such breach within sixty (60) days of
receipt of such notice.
C. At the option of U.S. Cigar, upon the insolvency or bankruptcy of
Swisher, the making of an assignment for the benefit of creditors, or the
appointment of a receiver or trustee of any part of the assets of Swisher's
business.
4
<PAGE>
D. In the event that this Agreement is terminated hereunder, Swisher shall
have the right to sell the Products in its possession in the Exclusive Territory
for a period of three (3) months after the effective date of the termination of
this Agreement.
E. Within three (3) months after the effective date of the termination of
this Agreement, Swisher shall immediately return to U.S. Cigar at U.S. Cigar's
office or at another location designated by U.S. Cigar and at Swisher's expense
all of U.S. Cigar's literature, labels, samples, consignment equipment, if any,
and supplies in Swisher's possession. Additionally, U.S. Cigar shall purchase
from Swisher all Products remaining in Swisher's possession at the end of the
three (3) month period for cost plus any shipping and carrying charges incurred
by Swisher.
F. Unless otherwise provided herein, termination of this Agreement shall
not affect any liability of either party to the other which accrued prior to the
effective date of the termination of this Agreement.
13. NOTICE:
All notices, consents, requests, demands, and other communications
hereunder shall be in writing and shall be deemed to have been duly given or
delivered if delivered personally; or sent by facsimile with a copy sent by
first class mail; or mailed by registered mail, return receipt requested, with
first class postage prepaid:
To U.S. Cigar: Juan A. Vega, Sr.
6910 Barquera St.
Coral Gables, Florida 33146
Facsimile#: (305) 662-1131
With Copy to: Stewart A. Merkin, Esq.
Merkin & Iglesias
444 Brickell Ave., Suite 300
Miami, Florida 33131
Facsimile#: (305) 358-2490
To Swisher: Harry Oulundsen
Vice President/General Manager
Swisher International, Inc.
P.O. Box 2230
Jacksonville, Florida 32203
Facsimile#: (904) 353-9175
5
<PAGE>
With Copy to: Thomas R. Marshall, Esq.
Schnader, Harrison, Segal & Lewis
330 Madison Avenue
New York, New York 10017
Facsimile#: (212) 972-8798
or to such other address as designated by the recipient, in writing, and
properly sent to the other parties hereto.
14. ARBITRATION
It is agreed by the parties that all disputes concerning this Agreement
which the parties fail to adjust between themselves should be submitted to
arbitration in Miami, Florida. The arbitrators shall be selected and the
arbitration shall be conducted under the Rules of the American Arbitration
Association. Each party shall bear its own expenses, but the arbitrator's fees
and costs shall be borne equally between the parties.
15. WAIVER:
Failure by either party to enforce any of the provisions of this Agreement
shall not constitute a waiver of that party's rights hereunder.
16. MODIFICATION:
This Agreement constitutes the entire Agreement of the parties and may not
be modified, except in writing.
17. GOVERNING LAW:
This Agreement shall be construed and enforced in accordance with the laws
of the State of Florida.
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18. SEPARABILITY:
If any provision of this Agreement in any way contravenes the laws of any
state or jurisdiction, such provision shall be deemed not to be a part of this
Agreement in that jurisdiction, and the parties agree to remain bound by all
remaining provisions.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
official seal this ____ day of April, 1997.
Signed and sealed in the U.S. Cigar Distributors, Inc.,
presence of:
- -----------------------------
By: /s/ Juan A. Vega, Sr.
- ----------------------------- -----------------------------
Juan A. Vega, Sr., President
Swisher International, Inc.
- -----------------------------
/s/ By: /s/ J. Thomas Ryan, III
- ----------------------------- -------------------------------
J. Thomas Ryan, III, Executive
Vice President
7
EXCLUSIVE DISTRIBUTION AND LICENSING AGREEMENT
----------------------------------------------
1. PARTIES:
A. Agro Comercial Fumageira, S.A. and Suerdieck Charutos e
Cigarrilhas Ltda., respectively, a corporation and a limited liability company
registered in the State of Bahia under the laws of the Federal Republic of
Brazil (collectively, the "Suerdieck Group").
B. U.S. Cigar Distributors, Inc. ("U.S. Cigar") has its
principal place of business at 6910 Barquera Street, Coral Gables, Florida
33146.
2. PRODUCTS:
The Suerdieck Group is engaged in the production, brokering
and manufacture of tobacco leaf, cigars, cigarillos and other tobacco products
(the "Products).
3. EXCLUSIVE TERRITORY:
A. Exclusive Territory. The Suerdieck Group hereby grants to
U.S. Cigar the exclusive right and all exclusive licenses and use of trademarks
necessary to develop and distribute the Products and all products developed by
the Suerdieck Group during the term of this Agreement, in the Exclusive
Territory described as follows: the United States, Canada and Mexico (the
"Exclusive Territory"). For as long as this Agreement shall continue, the
Suerdieck Group shall not appoint another distributor for all or any part of the
Exclusive Territory. It is understood by the parties that the rights granted
herein do not constitute an assignment of any trademark.
B. Options for Additional Exclusive Territories. The Suerdieck
Group hereby grants to U.S. Cigar an option, said option to last for a period of
five (5) years from the date of this Agreement, to purchase from the Suerdieck
Group the rights to Central America, the Caribbean, Russia and other parts of
Europe, excluding Germany and Switzerland, as additional exclusive territories
(the "Additional Exclusive Territories").
C. Nonexclusive Territories. During the term of this
Agreement, U.S. Cigar may sell Products in Central America, the Caribbean,
Russia and other parts of Europe, excluding Germany and Switzerland on a
nonexclusive basis.
<PAGE>
4. TERM:
The term of the distribution and licensing agreement shall be
ten years with an automatic five-year extension during which time the parties
will negotiate an additional renewal term of ten years. Notice to terminate this
agreement at the end of the automatic five year extension period must be given
by either party not earlier than the end of the tenth year and not later than 30
months thereafter. In the event of notice of termination hereunder, both parties
agree to negotiate the additional renewal term set forth herein in good faith
and both parties will continue to honor their obligations under the agreement.
In the event that no notice of termination is given hereunder the agreement
shall be automatically extended for an additional renewal period of ten (10)
years beginning at the end of the five (5) year extension.
5. CONSIDERATION:
The consideration which U.S. Cigar shall pay to the Suerdieck
Group for the rights granted to it herein shall be as follows:
A. 550,000 shares of Preferred Stock of U.S. Cigar plus 20% of
the outstanding common stock of U.S. Cigar. The Preferred Stock shall contain
the following terms and conditions: valuation-$5.00 per share; each share of
Preferred Stock shall be convertible into one share of common stock for a period
of three years from the date that the U.S. Cigar is listed on either the New
York Stock Exchange, the American Stock Exchange or the Small Cap Issues listing
or National Market System of the National Association of Securities Dealers
Automated Quotation System (the "Listing Date") and in the event that the
Listing Date does not occur within two years from the date of this Agreement,
then four (4) years from the date of this Agreement; shall have the same
dividend rights and voting rights as the common stock; and shall have no
liquidation preference.
B. L.F. Partners, Inc. ("LFP") shall grant to the Suerdieck
Group an option to purchase 1,925,000 shares of the common stock of U.S. Cigar
from LFP beginning one year from the date of this Agreement for $.25 per share
and after the effective date of an initial public offering of U.S. Cigar, and an
option to purchase 1,925,000 shares of the common stock of U.S. Cigar from LFP
for $.325 per share, pursuant to the terms and conditions of Stock Option
Agreement No. 3.
C. The consideration for the exercise of the options for the
Additional Exclusive Territory shall be as follows:
(i) Central America - the higher of $750,000 or an amount
determined by an evaluation provided by an independent expert agreed upon by the
parties hereto.
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<PAGE>
(ii) The Caribbean - the higher of $750,000 or an amount
determined by an evaluation provided by an independent expert agreed upon by the
parties hereto.
(iii) Europe - an amount determined by an evaluation
provided by an independent expert agreed upon by the parties hereto.
(iv) Russia - an amount determined by an evaluation
provided by an independent expert agreed upon by the parties hereto.
6. ORDERS AND ACCOUNTS:
A. The Suerdieck Group agrees that the prices which the
Suerdieck Group charges to U.S. Cigar for the Products shall not be in excess of
the lowest prices which the Suerdieck Group charges to other distributors.
Notwithstanding, it is the intention of the parties hereto that the prices
charged hereunder will be comparable to the prices which other companies charge
to its distributors for similar tobacco products. The prices charged by the
Suerdieck Group will be changed in response to market conditions upon giving at
least 90 days notice to U.S. Cigar or notice may be waived by mutual consent.
B. The selling price charged by U.S. Cigar for the Products
require the approval of the Suerdieck Group, the approval of which shall not be
unreasonably withheld. Such selling price shall take into consideration such
factors as market conditions and competitive pricing.
C. Payment for Products by U.S. Cigar is to be made in United
States currency.
D. The Suerdieck Group shall furnish to U.S. Cigar information
on all inquiries and leads on Products originating in the Exclusive Territory;
information on orders, invoices, changes, quotations, complaints, cancellations
and similar data which is helpful to U.S. Cigar; information on delivery dates
and other important details which may affect the processing and completion of an
order; information on new products, changes or deletions of products;
information on competition and their techniques.
7. QUALITY OF PRODUCTS; RESPONSIBILITIES:
A. All responsibilities regarding the quality of products
shall be set forth in sales agreements between U.S. Cigar and its customers (the
"Sales Agreements"). All Sales Agreements shall require the approval of the
Suerdieck Group, the approval of which shall not be unreasonably withheld.
3
<PAGE>
B. Notwithstanding that which is contained in Subparagraph A
herein, the following responsibilities shall govern as between the Suerdieck
Group and U.S. Cigar:
(i) Tobacco leaf Products: Generally, the Suerdieck Group
shall be responsible for the quality, sorting, bailing and packaging of tobacco
leaf Products. It is agreed that most shipments of tobacco leaf Products shall
be made directly from the Suerdieck Group to U.S. Cigar's customer. In the event
that U.S. Cigar receives such shipment of Products, the Suerdieck Group and U.S.
Cigar shall be bound by the same terms and conditions contained in the Sales
Agreements as if U.S. Cigar was a customer. In the event of a dispute regarding
the quality of tobacco leaf Products with a customer, such dispute shall be
handled by the Suerdieck Group until such time that the Suerdieck Group and U.S.
Cigar determine that U.S. Cigar has the expertise to handle such matters.
(ii) Cigar Products: Generally, the Suerdieck Group shall
be responsible for the quality of cigar Products. In the event of a dispute
regarding the quality of cigar Products with a customer, such dispute shall be
handled by the Suerdieck Group until such time that the Suerdieck Group and U.S.
Cigar determine that U.S. Cigar has the expertise to handle such matters. In the
event of a dispute with a customer regarding damage to the cigar Products as a
result of transportation or other non quality damage, such dispute shall be
handled by U.S. Cigar unless the value of the cigar Products in dispute is more
than $5000.00 or represents more than 5% of the shipment of such cigar Products,
then the Suerdieck Group shall handle such dispute.
(iii) U.S. Cigar shall notify the Suerdieck Group in the
event that U.S. Cigar is notified by any of its customers of a quality dispute
of any Product.
(iv) The Suerdieck Group shall notify U.S. Cigar in the
event that the Suerdieck Group is notified by any of its customers of a quality
dispute of any Product.
C. U.S. Cigar shall obtain product liability insurance in a
reasonable amount.
8. SUBDISTRIBUTORSHIPS IN EXCLUSIVE TERRITORY:
U.S. Cigar shall have the right, but not the obligation to
establish subdistributorships in the Exclusive Territory. In the event that U.S.
Cigar establishes such subdistributorships, the consent of the Suerdieck Group
shall be required, the consent of which shall not be unreasonably withheld.
4
<PAGE>
9. TRADEMARKS:
A. The Suerdieck Group hereby grants to U.S. Cigar a
continuing license during the term of this Agreement, to use the Suerdieck name
and the names of Suerdieck family members and the trademarks which will be
agreed upon within 90 days of this Agreement, which U.S. Cigar will require to
sell the Products, with the right for U.S. Cigar to permit U.S. Cigar's
subdistributors to use the trademarks in the normal course of business, and all
trademarks and trade names acquired for use only with the Products, in
connection with the advertising, merchandising, promotion, sale and distribution
of the Products, until the termination of this Agreement in accordance with the
terms hereof (hereinafter referred to as the "Trademarks"). The license granted
hereunder shall be an exclusive license for U.S. Cigar to use the Trademarks in
order to advertise, market and sell the Products in the Exclusive Territory. For
purposes of this Agreement, the term "Products" shall include all existing and
any future Products as defined herein. This grant shall cover all brand names,
designs, logos and family names (with the family history and traditions)
associated with the Trademarks. It is understood by the parties that the rights
granted herein do not constitute an assignment of any trademark.
B. Any new Trademarks applied for Products shall be applied by
U.S. Cigar on behalf of the Suerdieck Group at the Suerdieck Group's sole
expense and such Trademark shall be immediately licensed to U.S. Cigar when
obtained.
C. The Suerdieck Group represents and warrants that:
(i) The Suerdieck Group owns or holds rights to use the
intellectual property rights (e.g., trademarks and tradenames) (the
"Intellectual Property Rights") in connection with the Products and the right to
manufacture, market, distribute and sell the Products.
(ii) The licensing of the Intellectual Property Rights
contained herein will not infringe on the Intellectual Property Rights or
contracts rights of any third party.
(iii) The rights licensed to U.S. Cigar hereunder are
subject to no prior assignments, sales or encumbrances that would prevent U.S.
Cigar from freely performing under this Agreement.
D. U.S. Cigar acknowledges that the Trademarks are the sole
property of the Suerdieck Group, that the registration of such names or terms
shall remain the sole worldwide right of the Suerdieck Group and that U.S. Cigar
has not acquired any right, title or interest in these names or terms other than
those specifically granted by this Agreement.
5
<PAGE>
E. In the event of any adjudication of bankruptcy or of
insolvency under any statute for the relief of debtors or the appointment of a
receiver by a court of competent jurisdiction, or the assignment for the benefit
of creditors or levy of execution directly involving U.S. Cigar, this licensing
agreement contained herein shall thereupon terminate forthwith.
F. Trademark Applications:
(i) The Suerdieck Group shall use its best efforts to
maintain the Trademarks and maintain the Trademarks at its expense. U.S. Cigar
shall cooperate fully with the efforts of the Suerdieck Group to maintain the
Trademarks, which efforts shall be at the Suerdieck Group's expense. The
Trademarks shall be in the Suerdieck Group's name or such other name as the
Suerdieck Group deems appropriate, so long as ownership remains in the Suerdieck
Group. At the Suerdieck Group's request, U.S. Cigar shall execute all such
documents as are reasonably necessary or expedient to aid the Suerdieck Group in
maintaining the Trademarks.
(ii) In the event that the Suerdieck Group fails to
perform its obligations under this Paragraph, U.S. Cigar shall have the right,
in addition to any other remedies for such breach, but not the obligation, to
perform such obligations on the Suerdieck Group's behalf, at the Suerdieck
Group's expense, and, as may be required by applicable law, in the Suerdieck
Group's name. Where necessary and appropriate as determined by the Suerdieck
Group in its sole discretion, the Suerdieck Group shall grant to U.S. Cigar such
powers-of-attorney as may be necessary or convenient for U.S. Cigar to perform
any obligations of U.S. Cigar hereunder, provided however, that if the Suerdieck
Group does not grant U.S. Cigar a power-of-attorney necessary to perform a
certain obligation of U.S. Cigar hereunder, U.S. Cigar shall be relieved of such
obligation.
G. Third Party Claim.
(i) Each party hereto shall promptly notify the other in
writing of any legal proceeding instituted, or written claim or demand asserted
by any third party of which such party becomes aware, with respect to any
Trademarks infringement which is alleged to result from the Product (a "Third
Party Claim").
(ii) The Suerdieck Group shall defend, at its expense, and
indemnify and hold U.S. Cigar harmless against any Third Party Claim which may
arise, and liability, damage, loss, cost or expense U.S. Cigar may suffer or
incur as a result of, or in connection with, such Third Party Claim. U.S. Cigar
shall have the right, at its expense, to be represented by counsel of its own
choice with respect to, and to participate in any defense, negotiation or
settlement of any Third Party Claim. U.S. Cigar shall have the right to approve
any settlement of a Third Party Claim, which approval shall not be unreasonably
withheld or delayed.
6
<PAGE>
H. Infringement.
Each party shall give notice to the other of any infringement
or possible infringement by a third party of the Trademarks of which it becomes
aware. The Suerdieck Group, in its sole discretion, if requested by U.S. Cigar
and after giving reasonable consideration to such request, shall promptly decide
whether or not to institute any legal action against the alleged infringers and
shall promptly notify U.S. Cigar of its decision. U.S. Cigar shall reasonably
cooperate with the Suerdieck Group in any legal action taken by the Suerdieck
Group against any party alleged to be infringing the Trademarks, provided that
the Suerdieck Group agrees to reimburse U.S. Cigar for its reasonable costs and
expenses in providing such cooperation. In the event the Suerdieck Group does
not institute action or abate the infringement within 120 days of receipt of
notice from U.S. Cigar requesting such action, U.S. Cigar may institute such
legal action and the Suerdieck Group agrees to reimburse U.S. Cigar for its
reasonable costs and expenses in taking such legal action.
10. PROMOTION OF PRODUCTS:
A. U.S. Cigar, with the assistance of the Suerdieck Group,
shall develop an overall marketing strategy for U.S. Cigar, taking into
consideration the availability of Products and the market requirements in the
Exclusive Territory. U.S. Cigar, with the assistance of the Suerdieck Group,
shall develop a marketing campaign, shall produce advertising and promotional
material and shall participate in industry events, smokers, media advertising
and other industry related promotional efforts in order to sell the Products.
The Suerdieck Group and U.S. Cigar shall share all costs associated with such
promotional expenses equally. The marketing campaign and the expenditures shall
require the approval of the Suerdieck Group, the approval of which shall not be
unreasonably withheld.
B. The Suerdieck Group shall furnish to U.S. Cigar, at no cost
to U.S. Cigar and in reasonable amounts, all catalogs and other material which
the Suerdieck Group issues and makes available.
C. The Suerdieck Group shall make available certain members of
the Suerdieck family to make personal appearances on a reasonable basis as
requested by U.S. Cigar in connection with major regional and national events
and smokers held by U.S. Cigar and at major regional and national industry
events at no charge to U.S. Cigar.
D. U.S. Cigar shall keep the Suerdieck Group properly advised
and informed as to the general conditions which pertain to or affect the sale of
the Products and provide on a continuous basis to the Suerdieck Group market
analyses, sales report breakdowns by
7
<PAGE>
region, customer and Product, regional analyses, pricing information and any
other data necessary to assist the Suerdieck Group for planning purposes.
11. PRODUCTS DEVELOPED BY U.S. CIGAR:
A. U.S. Cigar shall have the right, but not the obligation, to
research, develop, purchase, secure, use, test and secure trademarks for
products not produced or sold by the Suerdieck Group, to sell within or outside
the Exclusive Territory. U.S. Cigar does not have to obtain approval of the
Suerdieck Group if such products are non tobacco products (not made with
tobacco) and do not use any trademarks of the Suerdieck Group, the Suerdieck
name or the names of Suerdieck family members as set forth in Paragraph 8. A.
herein, and U.S. Cigar may sell such non tobacco products within or without the
Exclusive Territory. If such products are tobacco products or are non tobacco
products and do use any trademarks of the Suerdieck Group, the Suerdieck Group
shall review said products for approval to market such product within the
Exclusive Territory and shall separately approve said product for marketing
without the Exclusive Territory. The Suerdieck Group may approve said product
for marketing within the Exclusive Territory but not without the Exclusive
Territory. In the event the Suerdieck Group approves said products, U.S. Cigar
may sell said products within and/or without the Exclusive Territory, as the
case may be. The approval of the Suerdieck Group required herein may not be
arbitrarily withheld. The Suerdieck Group shall have thirty days in which to
approve or disapprove a tobacco product hereunder after U.S. Cigar has sent
information to the Suerdieck Group regarding the product. In the event that the
Suerdieck Group does not approve or disapprove the product in writing submitted
by U.S. Cigar within said thirty day period, said product will be deemed to be
approved by the Suerdieck Group.
B. The rights to the products hereunder and all trademarks
developed for said products which do not use any present or future trademarks of
the Suerdieck Group, the Suerdieck name or the names of Suerdieck family members
shall be the sole property of U.S. Cigar during the term of this Agreement and
after termination of this Agreement.
12. MINIMUM PRODUCTION AND SALES REQUIREMENTS:
A. U.S. Cigar, in conjunction with the Suerdieck Group, will
generate a sales forecast (the "Sales Forecast") for U.S. Cigar for the rolling
twelve (12) month period beginning 90 days from the end of the month that the
forecast is made. The Sales Forecast shall be updated monthly and shall include
sales projections for each Product.
B. The Suerdieck Group, in conjunction with U.S. Cigar, will
generate a production and delivery schedule (the "Production
8
<PAGE>
and Delivery Schedules") for U.S. Cigar for the rolling twelve (12) month period
beginning 90 days from the end of the month that the forecast is made. The
Production and Delivery Schedules shall be updated monthly and shall include
production and delivery projections for each Product.
C. All orders shall be filled by the Suerdieck Group with
reasonable promptness except that in the case of fire, riots, strikes,
accidents, acts of God, pests, disease, abnormal climactic conditions or force
majeure which unavoidably stopped the making of deliveries, deliveries may be
canceled or partially canceled as the case may require upon written notice to
U.S. Cigar. Such interruption of deliveries, however, shall not invalidate the
remainder of this Agreement but upon removal of the cause of the interruption,
deliveries shall be as before.
D. After the first year of the term of this Agreement, the
Suerdieck Group agrees to supply to U.S. Cigar at least 75% of the Sales
Forecast to U.S. Cigar and U.S. Cigar agrees to purchase at least 75% of the
amount supplied by the Suerdieck Group hereunder. The Suerdieck Group hereby
agrees to indemnify U.S. Cigar for its failure to supply Products as set forth
herein except for the reasons stated in subparagraph B. hereunder and U.S. Cigar
hereby agrees to indemnify the Suerdieck Group for its failure to purchase
Products as set forth herein except for the reasons stated in subparagraph B.
hereunder.
13. REALLOCATION OF ORDERS:
A. In the event that the Suerdieck Group receives an order
originating outside the Exclusive Territory and by which shipments of Products
are to be made by the Suerdieck Group into the Exclusive Territory, the
Suerdieck Group shall immediately turn over said order to U.S. Cigar.
B. In the event that U.S. Cigar receives an order originating
inside the Exclusive Territory and by which shipments of Products are to be made
by U.S. Cigar outside the Exclusive Territory, U.S. Cigar shall immediately turn
over said order to the Suerdieck Group.
C. In the event that U.S. Cigar exercises its option to
purchase any portion of the Additional Exclusive Territory, this Paragraph 13
shall apply to that exercised portion of the Additional Exclusive Territory.
D. Each party to this Agreement shall use efforts to monitor
the events set forth in this Paragraph 13.
9
<PAGE>
14. EXPENSES:
Except as set forth in this Agreement, each party shall pay
all of its own expenses in connection with this Agreement.
15. CONFIDENTIALITY:
The parties hereto hereby agree to keep confidential all
knowledge, techniques, information of any related sort and agrees not to reveal
any information to anyone concerning knowledge which each party hereto has
derived from its relationship with the other party hereto.
16. TAXES:
U.S. Cigar shall pay any and all Federal, state, city and
local taxes, fines, penalties and assessments arising out of the operation of
U.S. Cigar's business.
17. AGENCY:
U.S. Cigar is an independent contractor and is not a legal or
implied agent of the Suerdieck Group and has no authority to bind the Suerdieck
Group as a result of the relationship created by this Agreement. No acts or
assistance given by the Suerdieck Group shall be construed to alter the
relationship created by this Agreement.
18. INDEMNIFICATION:
A. U.S. Cigar shall indemnify the Suerdieck Group, and hold
the Suerdieck Group harmless from any claims, demands, liabilities, actions,
suits or proceedings asserted or claimed by third parties and arising out of the
operation of U.S. Cigar's business. This indemnification shall not apply,
however, to any indemnitee whose own act or omission has given rise to any such
claim, demand, liability, action, suit or proceeding.
B. The Suerdieck Group shall indemnify U.S. Cigar, and hold
U.S. Cigar harmless from any claims, demands, liabilities, actions, suits or
proceedings asserted or claimed by third parties and arising out of the
operation of the Suerdieck Group's business. This indemnification shall not
apply, however, to any indemnitee whose own act or omission has given rise to
any such claim, demand, liability, action, suit or proceeding.
19. CODES AND ORDINANCES:
U.S. Cigar shall be solely responsible for compliance with all
state, municipal and local laws, orders, codes and ordinances applicable to U.S.
Cigar's business.
10
<PAGE>
20. ASSIGNMENT:
This Agreement may not be assigned by U.S. Cigar without the
prior consent, in writing, of the Suerdieck Group, which consent shall not be
unreasonably withheld.
21. WAIVER:
Failure by either party to enforce any of the provisions of
this Agreement shall not constitute a waiver of that party's rights hereunder.
22. TERMINATION:
This Agreement shall terminate in the event one of the
following contingencies occurs, but in no event shall such termination relieve
either party of any of its obligations hereunder:
A. If U.S. Cigar shall fail to meet any obligations
provided for in this Agreement
B. At the option of the Suerdieck Group, upon the
insolvency or bankruptcy of U.S. Cigar, the making of an assignment for the
benefit of creditors, or the appointment of a receiver or trustee of any part of
the assets of U.S. Cigar's business.
C. At the option of U.S. Cigar, upon the insolvency
or bankruptcy of the Suerdieck Group, the making of an assignment for the
benefit of creditors, or the appointment of a receiver or trustee of any part of
the assets of the Suerdieck Group's business except that a voluntary family
trust established by the current owners of the Suerdieck Group in order to hold
ownership of the Suerdieck Group shall constitute an event giving an option to
U.S. Cigar hereunder.
D. In the event that this Agreement is terminated
hereunder, U.S. Cigar shall have the right to sell the Products in its
possession in the Exclusive Territory for a period of six (6) months after the
effective date of the termination of this Agreement. A commission of 10% shall
be paid to U.S. Cigar in the event that any Products are sold by the Suerdieck
Group or another Suerdieck Group U.S. Cigar in the Exclusive Territory during
the six month period after the effective date of the termination of this
Agreement.
E. Within six (6) months after the effective date of
the termination of this Agreement, U.S. Cigar shall immediately return to the
Suerdieck Group at the Suerdieck Group's office or at another location
designated by the Suerdieck Group and at Suerdieck Group's expense all of
Suerdieck Group's literature, labels,
11
<PAGE>
samples, consignment equipment, if any, and supplies in U.S. Cigar's possession.
Additionally, the Suerdieck Group shall purchase from U.S. Cigar all Products
remaining in U.S. Cigar's possession at the end of the six month period for cost
plus any shipping and carrying charges incurred by U.S. Cigar.
F. Unless otherwise provided herein, termination of
this Agreement shall not affect any liability of either party to the other which
accrued prior to the effective date of the termination of this Agreement.
23. NOTICE:
All notices, consents, requests, demands, and other
communications hereunder shall be in writing and shall be deemed to have been
duly given or delivered if delivered personally or mailed by registered mail,
return receipt requested, with first class postage prepaid:
To U.S. Cigar: c/o Juan A. Vega, Sr.
6910 Barquera St.
Coral Gables, FL 33146
With Copy to: Stewart A. Merkin, Esq.
Merkin, Levin & Iglesias
444 Brickell Ave., Suite 300
Miami, FL 33131
To Suerdieck Group: Geraldo Andreas Meyer Suerdieck
Margem BR 101 Km 223
44.380 - Cruz das Almas, Bahia
With Copy to: Roberto Portella, Esq.
Demarest & Almeida
Al. Campinas, 1070
Sao Paulo, SP 01404-001
24. MODIFICATION:
This Agreement constitutes the entire Agreement of the parties
and may not be modified, except in writing, executed by an authorized officer of
the Suerdieck Group.
25. GOVERNING LAW:
This Agreement shall be construed and enforced in accordance
with the laws of the State of Florida.
26. SEPARABILITY:
If any provision of this Agreement in any way contravenes the
laws of any state or jurisdiction, such provision shall be
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deemed not to be a part of this Agreement in that jurisdiction, and the parties
agree to remain bound by all remaining provisions.
27. ARBITRATION:
Any dispute arising under this Agreement or with regard to its
interpretation shall be submitted for arbitration to the American Arbitration
Association in Miami, Florida in accordance with the rules and regulations of
said Association.
28. SCHEDULE OF AGREEMENTS:
This Agreement must be read in conjunction with a Schedule of
Agreements which sets forth other agreements which are being entered into
simultaneously with this Agreement.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and official seal this 18th day of December, 1996.
Signed and sealed in the U.S. Cigar Distributors, Inc.,
presence of:
- ------------------------
- ------------------------ By: /s/ Juan A. Vega, Sr.
-----------------------------------
Juan A. Vega, Sr., President
Agro Comercial Fumageira, S.A.
- ------------------------
- ------------------------ By: /s/ Geraldo Suerdieck
-----------------------------------
Suerdieck Charutos e Cigarrilhas Ltda.
- ------------------------
- ------------------------ By: /s/ Geraldo Suerdieck
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WAREHOUSE LEASE
THIS AGREEMENT entered into this 3rd day of February, 1997, by and between
LAKESIDE PROPERTY INVESTMENT GROUP, INC., a Florida corporation, hereinafter
referred to as "Landlord", and U.S. CIGAR DISTRIBUTORS, INC., a Florida
corporation hereinafter called "Lessee".
Upon the terms and conditions hereinafter set forth and in consideration for the
payment of rents hereinafter provided and in consideration of the performance
continuously by the Lessee of each and every covenant and agreement herein
contained to be kept and performed, the performance of each and every one of
which is declared to be an integral part of the consideration to be paid by the
Lessee, the Landlord does hereby lease, rent and demise unto the Lessee and the
Lessee does hereby lease from and of the Landlord the warehouse space known as
Condominium Unit 7, of Lakeside Commons Business Center, a Condominium,
according to the Declaration thereof recorded in the Public Records of Dade
County, Florida, and commonly known as 7440 S.W. 50th Terrace, Suite 107, Miami,
Florida 33155.
1. TERM:
A. INITIAL TERM: The term of this Lease shall begin February 1, 1997,
and shall end on January 31, 2002, unless extended or sooner terminated as
hereinafter provided.
B. OPTION TO RENEW: Provided that Lessee is not in default of the
terms of this lease, the Landlord grants to the Lessee an option to extend this
Lease for an additional 5 year term upon the same terms and conditions except
rent which must be renegotiated between the Landlord and Lessee. Failure of
Lessee to give written notice to Landlord 60 days prior to the termination date
or failure to agree on a new rental amount within 30 days of the termination
date will render the option to renew null and void.
2. BASE RENT. Lessee shall pay to Landlord at such place as directed from
time to time by notice to Lessee from Landlord, a minimum total "Base Rent" for
the Lease Term equal to ONE HUNDRED AND TWENTY THOUSAND AND 00/100 ($120,000.00)
payable in equal monthly installments of TWO THOUSAND DOLLARS AND 00/100
($2,000.00) plus the applicable sales or rent tax thereon with the first payment
of Base Rent to be made by Lessee to Landlord on February 1, 1997. Checks
returned from the bank must be covered by cash, cashier's check, or money order,
plus (i) a $35.00 returned check charge for administrative fees, and (ii)
whatever fees are levied by the Landlord's bank in connection therewith. Any
time the Lessee does not pay any rent or additional rent due hereunder by its
due date and the Landlord serves a 13-day notice upon Lessee, Lessee agrees to
reimburse Landlord the sum of $225.00 for attorney's fees for preparation and
for service of such notice. All payments due from Lessee under this Lease which
even if not specifically designated as rent shall be due, payable, and
enforceable as additional rent hereunder.
2 a. ADDITIONAL RENT: As and for additional rent the Lessee shall pay to
the Landlord each year an amount equal to the ad valorem real property taxes
assessed against the premises. Payment by the Lessee shall be made to the
Landlord within 30 days of the Landlord delivering to the Tenant a copy of the
tax bill and request for payment.
3. SECURITY DEPOSIT AND LAST MONTH'S RENT DEPOSIT. Lessee will on February
1, 1997, deposit with Landlord the sum of $2,000.00 as security deposit. The
parties agree that the security deposit of $2,000.00 shall be retained by
Landlord as security for the payment by Lessee of the rents and other payments
herein agreed to be
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paid by Lessee and for the faithful performance by Lessee of the terms and
covenants of this Lease. It is agreed that Landlord, at Landlord's option in the
event of default by Lessee, may at any time and without notice to the Lessee
apply said sum or any part thereof toward the payment of the rents and all other
sums payable by Lessee under this Lease, and toward the performance of each and
every of Lessee's covenants under this Lease, but such covenants and Lessee's
liability under this Lease shall thereby be discharged only pro tanto; that
Lessee shall remain liable for any amounts that such sum shall be insufficient
to pay; that Landlord may exhaust any or all rights and remedies against Lessee
before resorting to said sum, but nothing herein contained shall required or be
deemed to require Landlord so to do; that, in the event this deposit shall not
be utilized for any such purposes, then such deposit shall be returned by
Landlord to Lessee within -20- days next after the expiration of the term of
this Lease and Lessee shall have vacated the Leased Premises and returned the
keys and the premises, broom swept clean, to Landlord. Landlord shall not be
required to pay Lessee any interest on said security deposit; it need not be
held in a separate account; and it may be commingled with other funds of the
Landlord.
Lessee will on February 1, 1997, deposit with Landlord the sum of $2,000.00
on account of the last month's rent due January 1, 2002.
4. ASSIGNABILITY. Lessee shall not assign, transfer, mortgage, pledge or
otherwise encumber or dispose of this Lease or sublet the Leased Premises or
permit the premises to be occupied by other persons without the express written
consent of the Landlord, which consent can be unreasonably denied.
5. LESSEE'S RISKS. Lessee assumes all risks of any damage to Lessee's
property that may occur by reason of water or by the bursting or leaking of any
pipes or waste water about the premises, or from any act of negligence of any
co-tenant or occupant of the building, or of any person or fire or hurricane or
other Act of God, or from any cause whatsoever. All property placed or moved in
the Leased Premises shall be at the risk of Lessee or the owner thereof, and
Landlord shall not be liable to Lessee for any damages to said personal property
unless caused by or due to gross negligence of Landlord, Landlord's agents or
employees.
6. SALE OF LEASED PREMISES. A sale of the Leased Premises shall relieve
Landlord of responsibility for return of its security deposit and the last
month's rent deposited with Landlord, and Lessee shall look solely to the
purchaser for the return thereof.
7. ESTOPPEL/CERTIFICATES. Within -7- days of Landlord's written request,
Lessee agrees at any time, and from time to time, to execute, acknowledge and
deliver to Landlord a written statement certifying that this Lease is unmodified
and in full force and effect (or if there have been modifications, that the same
is in full force and effect as modified and stating the modifications), and the
dates to which the rent and other charges have been paid in advance, if any, it
being intended that any such statement delivered pursuant to this paragraph may
be relied upon by any prospective purchaser or mortgagee of the Leased Premises.
8. INSPECTION. Lessee, having examined the Leased Premises, is familiar
with the condition thereof and relying solely on such examination will take them
in their present condition.
9. PURPOSES. Landlord makes no warranties and representations with regard
to the purposes for which the Leased Premises may be used. Lessee has made its
own independent investigation and is satisfied that the Leased Premises may be
used for the purposes for which Lessee intends to use the same, to wit: to store
and distribute cigars and tobacco. The Leased Premises shall be used for no
other purposes, except as Landlord may reasonably consent to in writing.
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Lessee shall not permit the Leased Premises to be used in any manner which
would render the insurance thereon void or the insurance risk more hazardous.
Lessee shall not use or occupy the Leased Premises, or permit the Leased
Premises to be used or occupied, contrary to any statute, rule, order,
ordinance, requirement or regulation applicable thereto, or in any manner which
would violate any certificate of occupancy affecting the same, or which would
cause structural injury to the improvements, or cause the value or usefulness of
the Lease Premises, or any part thereof, to diminish, or which would constitute
a public or private nuisance or waste.
10. ALTERATIONS. Lessee will make no alterations, additions or improvements
in or to the Leased Premises without the prior written consent of Landlord. All
additions, fixtures and improvements shall be and remain a part of the premises
at the termination of this Lease unless Landlord shall require, by giving
written notice thereof to Lessee either when Landlord consents to such
alterations, improvements or additions or at any time prior to the termination
of this Lease, that the same, or any part thereof, be removed at the termination
of this Lease. If the Landlord notifies the Lessee that any alterations,
improvements or additions be removed, then Lessee shall be responsible for
restoring the premises, or such portion thereof which the Landlord designates,
as the case may be, to the condition it was in at the commencement of this
Lease.
11. MAINTENANCE AND REPAIRS. Landlord shall have no obligation to make any
repairs or maintain any portion of the Leased Premises except for the roof and
exterior walls which is the obligation of the condominium association, provided,
however, that in the event of any damage to any portion of the Leased Premises
required to be maintained by Landlord or association is a result of the neglect,
negligence or fault of Lessee, its agents, servants, employees or invitees, then
Landlord shall have the right to charge Lessee for all necessary repairs or
replacements to be made by reason of such damage and to collect the costs
thereof in the same manner as rent. Lessee shall give Landlord notice in writing
of any repairs required to be made by Landlord.
Lessee accepts the Leased Premises in the condition "as is" on the
commencement date of this Lease. Lessee agrees to keep the interior of the
premises, all windows, screens, awnings, doors, interior walls, pipes,
machinery, plumbing, electric wiring, and other fixtures and interior
appurtenances, in good and substantial repair and clean condition at Lessee's
own expense, fire, windstorm or other Act of God alone excepted; if replacement
shall be required, then Lessee, at Lessee's expense, shall replace the same with
material and/or equipment of equal quality of that being replaced. All glass,
both interior and exterior, is at the sole risk of Lessee and Lessee agrees to
replace at Lessee's own expense any glass broken during the term of this Lease,
and the Lessee agrees to insure and to keep insured all plate glass in the
Leased Premises and to furnish the Landlord with certification of said
insurance. It is hereby understood and agreed that all air-conditioning units
and systems, including all duct work, are the property of the Landlord and shall
remain on the Leased Premises upon termination of this Lease; and that the
Lessee shall maintain and replace the same when needed during the term of this
Lease; and that Lessee shall return said air conditioning units and systems to
the Landlord at the termination of this Lease in good working order, reasonable
wear and tear excepted.
Lessee, at Lessee's own cost and expense, shall maintain all portions of
the Leased Premises and adjoining areas, including the parking areas, in a clean
and orderly fashion, free of vermin, dirt, rubbish and unlawful obstructions.
12. UTILITIES/CLEANING. Lessee shall be responsible for the payment of all
of its utilities, including, by way of example, electricity, water, and trash
removal (whether private or municipal), including cleaning of the parking area
and greenbelt areas immediately abutting and adjacent to the Leased Premises.
13. WASTE. Lessee agrees to commit or suffer no act which would result in
damage to or waste of the Leased Premises.
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14. GOVERNMENTAL COMPLIANCE.
A. Lessee shall promptly execute and comply with all statutes,
ordinances, rules, orders, regulations and requirements of the Federal, State
and City governments, and any and all of their Departments and Bureaus,
applicable to said premises for the correction, prevention and abatement of
nuisances or other grievances in, upon or connected with said premises, during
said terms, and shall also promptly comply with and execute all rules, orders
and regulations of the Southeastern Underwriters Association for the prevention
of fire, at Lessee's own cost and expense.
B. This Lease and all of the terms, covenants, conditions and
provisions hereof are in all respects subject and subordinate to all zoning
restrictions affecting the Leased Premises, and the building in which they are
located; and the Lessee agrees to be bound by such restrictions. Lessee shall be
responsible for obtaining such permits or licenses which may be required for the
conduct of its business on the Leased Premises.
C. HAZARDOUS MATERIALS.
(1) The term "Hazardous Materials" shall mean any substance, water or
material which has or shall be determined by any state, federal or local
governmental authority to be capable of posing a risk of injury to health,
safety, and property, including, but not limited to, all of those materials,
wastes and substances designated as hazardous or toxic by the U.S. Environmental
Protection Agency, the U.S. Department of Labor, the U.S. Department of
Transportation, the Florida Department of Environmental Protection, the Dade
County Department of Environmental Resources Management, and/or any other
governmental agency now or hereafter authorized to regulate materials and
substances in the environment (collectively "Governmental Authorities").
(2) Lessee agrees to take responsibility for any remedial action
required by Government Authorities having jurisdiction regarding any Hazardous
Material if released by Lessee, its officers, agents, servants, invitees, and
contractors. If released by Lessee, its officers, agents, servants, invitees,
and contractors, Lessee shall pay all costs and expenses in connection with any
investigation and remedial activity including, without limitation, all
installation, operation, maintenance, testing, and monitoring costs, all power
and utility costs and any and all pumping taxes or fees that may be applicable
to Lessee's activities. When remedial action by Lessee is required, Lessee shall
perform all such work in a good, safe and workmanlike manner, in compliance with
all laws and regulations applicable thereto, and shall diligently pursue such
investigation and remedial activity until Lessee is allowed to terminate these
activities by those Governmental Authorities having jurisdiction.
(3) Promptly upon Lessee remedying the problem and Lessee's complete
performance and satisfaction of all of its obligations hereunder, Lessee, at its
sole cost and expense, shall permanently seal or cap all monitoring wells and
test holes to industry standards in compliance with applicable federal, state
and local laws and regulations, remove all associated equipment, and restore the
Leased Premises to its condition existing immediately prior to the commencement
of such remedial action to the maximum extend possible, which shall include,
without limitation, the repair of any surface damage, including paving, caused
by Lessee's activities hereunder.
(4) Lessee shall indemnify, hold harmless, and defend Landlord and its
partners (if a corporation, its stockholders, officers, directors, trustees,
employees, and agents, and any successors, assigns or purchasers if to Lessee's
interest in the Leased Premises, (collectively "Indemnities"), against all
claims, demands, losses, liabilities, costs and expenses, including attorney's
fees (collectively "Liabilities") imposed upon or accruing against Indemnities
as actual and direct costs of investigatory or remedial action required by any
Government Authority having jurisdiction or as damages to third
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persons for personal injury or property damage arising from the existence of any
Hazardous Material at the Leased Premises released by Lessee, its officers,
agents, servants, invitees, and contractors. The provisions of this
indemnification shall survive the termination of the Lease whether by time or
otherwise. Such Liabilities shall include, without limitation: (i) injury or
death to any person, (ii) damage to or loss of use of any other property; (iii)
the cost of any demolition and rebuilding of the improvements on the Leased
Premises, repair, or remedying and the preparation of any closure or other
activity required by any Governmental Authority; (iv) any lawsuit brought or
threatened, good faith settlement reached, or governmental order relating to the
presence, disposal, release or threatened release of any Hazardous Material on,
from or under the Leased Premises; and (v) the imposition of any liens on the
Leased Premises arising from Lessee's activities on the Leased Premises.
(5) Lessee shall use its best efforts (including payment of money) not
to cause or suffer any lien to be recorded against the Leased Premises as a
consequence of, or in any way related to, the presence, remedying or disposal of
Hazardous Material in or about the Leased Premises caused by Lessee, or related
in any way to Lessee's activities pursuant to this Lease, including any
mechanics' liens and any so-called state, federal or local "Superfund" lien
relating to such matters.
(6) Lessee covenants and agrees that during the terms of the Lease, it
shall not use or store or permit the use or storage by any party or parties
whomsoever of any Hazardous Material in or about the Leased Premises except in
compliance with and not in contravention of any and all applicable laws,
ordinances, rules, and regulations.
(7) Each party shall promptly notify the other party of any inquiry,
investigation, order, or enforcement proceeding by or against the notifying
party in connection with the Leased Premises.
15. INSURANCE. Lessee shall, during the entire term of this Lease and
during any extension term, keep in full force and effect a comprehensive policy
of public liability and property damage insurance with respect to the Leased
Premises and the business operated by Lessee in the Leased Premises, in which
the limits of public liability shall not be less than $1,000,000 per accident
and in which the property damage liability shall not be less than $500,000. The
policy shall contain an endorsement naming the Landlord and any other person,
firm or corporation designated by Landlord as additional insureds, and shall
contain a clause that the insurer will not cancel or change the insurance
without first giving the Landlord -15- days prior written notice. The insurance
shall be issued by insurers of recognized responsibility, licensed and doing
business in the State of Florida, and a copy of the policy or a certificate of
insurance shall be delivered to the Landlord prior to the commencement date and
whenever requested thereafter by Landlord. In the event Lessee fails to provide
such evidence, or in the event of cancellation, termination or change of such
insurance, Landlord may, but shall not be required to, procure such insurance
for Lessee and the cost thereof shall be charged as Additional Rent hereunder.
In addition, if Lessee's use of the Leased Premises shall cause an additional or
increased premium of the cost of comprehensive, general liability, and fire and
extended coverage insurance payable by the Condominium Association, then Lessee
shall pay such additional cost within -15- days of demand therefor from
Landlord.
16. CASUALTY. In the event the Leased Premises, or the building of which
the Leased Premises are a part, shall be destroyed or so damaged or injured by
fire or other casualty during the life of this agreement whereby the same shall
be rendered untenantable, then Landlord shall have the right to render said
premises tenantable by repairs within -150- days therefrom. If the Leased
Premises are not rendered tenantable within said time, it shall be optional with
either party hereto to cancel this Lease, and in the event of such cancellation,
the rent shall be paid only to the date of such fire or casualty. The
cancellation herein mentioned shall be evidenced in writing. During any
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time that the premises are untenantable due to causes set forth in this
paragraph, the rent or a just and fair proportion thereof shall be abated unless
such casualty shall result from the Tenant's or their agent's, servant's or
employee's negligence.
17. CONDEMNATION. In the event any portion of Leased Premises is taken by
any condemnation or eminent domain proceedings, the monthly rental herein
specified to be paid shall be proportionately reduced according to the area of
the Improvements which is taken, and Lessee shall be entitled to no other
consideration by reason of such taking, and any damages suffered by Lessee on
account of the taking of any portion of said Leased Premises and any damages
that shall be awarded to Lessee in said proceedings, except as provided below,
shall be paid to and received by Landlord, and Lessee shall have no right
therein or thereto or to any party thereof, and Lessee does hereby relinquish
and assign to Landlord all of Lessee's rights and equities in and to any such
damages. Should all of the Leased Premises be taken by eminent domain or
condemnation, then and in that event Lessee shall be entitled to no damages or
any consideration by reason of such taking, except as provided below and except
that this Lease shall be canceled and terminated as of the date of said taking.
Notwithstanding the foregoing, Lessee shall be entitled to any award for loss or
taking of its trade fixtures or its relocation expenses.
If -20%- or more of the Leased Premises is taken by any condemnation or
eminent domain proceedings, and if such taking shall render the Leased Premises
unsuitable for the conduct of Lessee's business as provided in paragraph 9 of
this Lease, then Lessee at its option may terminate this Lease.
Notwithstanding the foregoing, Lessee shall not be precluded from
prosecuting any claim directly against the condemning authority in such
condemnation proceedings for loss of business, or depreciation to, damage to, or
cost of removal of, or for the value of, Lessee's improvements, equipment, trade
fixtures, furniture, inventory and other personal property, and such other
claims as Lessee may assert; provided, however, that no such claim shall
diminish or otherwise adversely affect the Landlord's award or the award of any
fee mortgagee.
18. RIGHT OF ENTRY. Landlord, or any of its agents, shall have the right to
enter the Leased Premises during business hours with reasonable notice, and at
any time in the event of an emergency, to examine the same or to make such
repairs, additions, or alterations as may be deemed necessary for the safety,
comfort, or preservation thereof, or of said building, or to exhibit the Leased
Premises, and to put or keep upon the doors or windows thereon notice "FOR RENT"
at any time within -120- days before the expiration of this Lease. Said right of
entry shall likewise exist for the purpose of removing placards, signs,
fixtures, alterations or additions which do not conform to this Lease.
19. INDEMNIFICATION. In consideration of the Leased Premises being leased
to Lessee, Lessee agrees: That Lessee at all times will indemnify and keep
harmless Landlord from all losses, damage, liabilities and expenses, which may
arise or be claimed against Landlord and be in favor of any person, firm or
corporation, for any injuries or damages to the person or property of any
person, firm or corporation, consequent upon or arising from the use or
occupancy of said premises by Lessee, or consequent upon or arising from any
acts, omissions, neglect, or fault of Lessee (its agents, servants, employees,
licensees, customers or invitees), or consequent upon or arising from Lessee's
failure to comply with the aforesaid laws, statutes, ordinances or regulations;
that Landlord shall not be liable to Lessee for any damages, losses or injuries
to the person or property of Lessee which may be caused by the acts, neglect,
omissions or faults of any person, firm or corporation and that Lessee will
indemnify and keep harmless Landlord from all damages, liabilities, losses,
injuries or expenses which may arise or be claimed against Landlord and be in
favor of any person, firm or corporation, for any injuries or damages to the
person or property of any person, firm or corporation, where said injuries or
damages arose about or upon said premises.
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20. QUIET ENJOYMENT. Subject to the terms, conditions and covenants of this
Lease, Landlord agrees that Lessee shall and may peaceably have, hold and enjoy
the Leased Premises, without hindrance or molestation by Landlord. At the
expiration of this Lease, Lessee shall, without demand, quietly and peaceably
deliver up possession of the Leased Premises in as good condition as they now
are, normal wear and decay and damage by the elements only excepted.
21. SUBORDINATION. Lessee's rights shall be subject to any bona fide
mortgage which now covers the real property of which the Leased Premises are a
part or which may hereafter be placed on the real property of which the Leased
Premises are a part by Landlord; and in the event of any proceedings for the
foreclosure thereof, Lessee shall attorn to and recognize such mortgagee or
purchaser at foreclosure sale as landlord under this Lease.
22. LIENS. Lessee further agrees that it will pay all liens of contractors,
subcontractors, mechanics, laborers, materialmen and other items of like
character, and will indemnify Landlord against all legal costs and charges, bond
premiums for release of liens, including counsel fees (and appellate counsel
fees) reasonably incurred in and about the defense of any suit in discharging
the said premises any part thereof from any liens, judgments or encumbrances
caused or suffered by Lessee. It is understood and agreed between the parties
hereto that the costs and charges above referred to shall be considered as rent
due and shall be included in any lien for rent.
The Lessee herein shall not have any authority to create any liens for
labor or material on the Landlord's interest in the Leased Premises and all
persons contracting with the Lessee for the destruction or removal of any
building or for the erection, installation, alteration, or repair of any
building, or other improvements on the above described premises, and all
materialmen, contractors, mechanics and laborers are hereby charged with notice
that they must look to the Lessee and to Lessee's interests only in the above
described property to secure the payment of any bill for work done or material
furnished during the rental period created by this Lease.
23. SURRENDER.
A. Upon the termination of this Lease, whether by forfeiture, lapse of
time or otherwise, or upon the termination of Lessee's right to possession of
the Leased Premises, Lessee will at once surrender and deliver up the Leased
Premises, together with all fixtures, therein and improvements thereon, to
Landlord in good condition and repair, reasonable wear and tear and damage
excepted. Such fixtures and improvements shall include all plumbing, lighting,
light fixtures, water heater (if any), electrical, heating, cooling and
ventilating fixtures and equipment and air conditioning, together with all duct
work. Except as otherwise specifically herein provided, all additions and all
improvements, temporary or permanent, in or upon the Lease Premises placed there
by Lessee shall become Landlord's property and shall remain upon the Leased
Premises upon such termination of this Lease by lapse of time or otherwise,
without compensation or allowance or credit to Lessee, unless Landlord requests
their removal in writing at or before the time of such termination of this
Lease. If Landlord requests the removal of Lessee's improvements or fixtures,
Lessee shall repair any injury or damage to the Leased Premises which may result
from such removal.
B. Lessee agrees that if Lessee does not surrender the Leased Premises
to Landlord, at the end of the term of this Lease or upon any cancellation of
the term of this Lease, then Lessee shall pay to Landlord all damages that
Landlord may suffer on account of Lessee's failure to surrender to Landlord
possession of the Leased Premises, and will indemnify and save Landlord harmless
from and against all claims made by any succeeding tenant of said premises
against Landlord on account of delay of Landlord in delivery of possession of
said premises to said succeeding tenant so far as such delay is occasioned by
failure of Lessee to so surrender said premises.
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24. HOLDING OVER. Any holding over by Lessee of the Leased Premises after
the expiration of this Lease shall operate and be construed to be a tenancy from
month to month, only at a monthly rental of double the monthly rate of rent
payable during the last year of the Lease Term.
25. EVENTS OF DEFAULT. Lessee further agrees that any one or more of the
following events shall be considered events of default as said term is used
herein and Lessee shall be in default if any of the following occurs:
A. Lessee shall be adjudged an involuntary bankrupt, or a decree or
order approving, as properly filed, a petition or answer filed against Lessee
asking reorganization of Lessee under the federal bankruptcy laws as now or
hereafter amended, or under the laws of any state, shall be entered, and any
such decree of judgment or order shall not have been vacated or stayed or set
aside within -30- days from the date of the entry or granting thereof;
B. Lessee shall file or admit the jurisdiction of the court and the
material allegations contained in any petition in bankruptcy, or any petition
pursuant or purporting to be pursuant to the federal bankruptcy laws now or
hereafter amended, or Lessee shall institute any proceedings or shall give its
consent to the institution of any proceedings for any relief of Lessee under any
bankruptcy or insolvency laws or any laws relating to the relief of debtors,
readjustment of indebtedness, reorganization, arrangements, composition or
extension.
[Notwithstanding the provisions of subparagraphs A and B above, any
bankruptcy proceeding which permits the Lessee (not a receiver or trustee acting
in lieu of or on behalf of Lessee) to be a debtor in possession shall not
constitute a default so long as all rent required to be paid hereunder is timely
paid.]
C. Lessee shall make any assignment for the benefit of creditors or
shall apply for or consent to the appointment of a receiver for Lessee or any of
the property of Lessee;
D. The Leased Premises are levied upon by any revenue officer or
similar officer and the obligation is not paid within -30- days of such levy;
E. A decree or order appointing a receiver of the property of Lessee
shall be made and such decree or order shall not have been vacated, stayed or
set aside within -30- days from the date of entry or granting thereof;
F. Lessee shall abandon the same during the term hereof;
G. Lessee shall fail to pay any monthly payments of rent and/or
Additional Rent required to be made by Lessee hereunder when due. All payments
due from Lessee under this Lease which even if not specifically designated as
rent shall be due, payable, and enforceable as additional rent hereunder
including, but not limited to, late fees, bank administration charges, the
additional security deposit, the monthly condominium maintenance
fees/assessments/charges, and the security deposit;
H. Lessee shall fail to contest the validity of any lien or claimed
lien and to give security to Landlord to insure payment thereof, or, having
commenced to contest the same and having given such security, shall fail to
prosecute such contest with diligence, or shall fail to have the same released
and to satisfy any judgment rendered thereon, and such default continues for
- -15- days after notice thereof in writing to Lessee;
I. Lessee shall default in any other covenant and agreement herein
contained to be kept, observed and performed by Lessee, and such default shall
continue for 15 days after notice thereof in writing to Lessee.
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26. LANDLORD'S REMEDIES.
A. Upon the occurrence of any one or more of events of default,
Landlord may terminate this Lease. Upon termination of this Lease, Landlord may
re-enter the Leased Premises, with or without process of law and using such
force as may be necessary, and remove all persons, fixtures, and chattels
therefrom and Landlord shall not be liable for any damages resulting therefrom.
Such re-entry and repossession shall not work a forfeiture of the rents to be
paid and the covenants to be performed by Lessee during the full term of this
Lease. No re-entry by Landlord shall be deemed an acceptance of the surrender of
this Lease. Upon such repossession of the Leased Premises, Landlord shall be
entitled to recover as liquidated damages and not as a penalty of sum of money
equal to the value of the rent and other sums provided herein to be paid by
Lessee to Landlord for the remainder of the Lease Term.
B. Upon the occurrence of any one or more of events of default,
Landlord may repossess the Leased Premises by forcible entry or detainer suit,
or otherwise, without demand or notice of any kind to Lessee (except as
hereinabove expressly provided for) and without terminating this Lease, in which
event Landlord may, but shall be under no obligation so to do, relet all or any
part of the Leased Premises for such rent and upon such terms as shall be
satisfactory to Landlord including the right to relet the Leased Premises for a
term greater or lesser than that remaining under the Lease term, and the right
to relet the Leased Premises as part of a larger area, and the right to change
the character or use made of the Leased Premises. For the purpose of such
reletting, Landlord may decorate or make any repairs, changes, alterations or
additions in or to the Leased Premises that may be necessary or convenient. If
Landlord does not relet the Leased Premises, Lessee shall pay to Landlord on
demand as liquidated damages and not as a penalty a sum equal to the amount of
the rent and other sums provided herein to be paid by Lessee for the remainder
of the Lease term. If the Leased Premises are relet and a sufficient sum shall
not be realized from such reletting after paying all of the expenses of such
decorations, repairs, changes, alterations, and additions, the expenses of such
reletting and the collection of the rent accruing therefrom (including, but not
by way of limitation, attorneys' fees and brokers' commissions) to satisfy the
rent herein provided to be paid for the remainder of the Lease term, Lessee
shall pay to Landlord on demand any deficiency, and Lessee agrees that Landlord
may file suit to recover any sums failing due under the terms of this paragraph
from time to time. Any sums or other consideration received by Landlord on a
reletting in excess of the rent reserved in this Lease shall belong to Landlord.
C. If default shall be made in any covenant, agreement, condition or
undertaking herein contained to be kept, observed and performed by Lessee (other
than the making of any payments of rent and/or additional rent as herein
provided) which cannot with due diligence be cured within a period of -30- days,
and if notice thereof in writing shall have been given to Lessee, and if Lessee,
prior to the expiration of -30days from and after the giving of such notice,
commences to eliminate the cause of such default and proceeds diligently and
with reasonable dispatch to take all steps and do all work required to cure such
default and does so cure such default, then Landlord shall not have the right to
declare the term ended by reason of such default or to repossess without
terminating the Lease, provided that the curing of any default in such manner
shall not be construed to limit or restrict the right of Landlord to declare the
term ended or to repossess without terminating the Lease, and to enforce all of
its rights and remedies hereunder for any other default not so cured.
D. Notwithstanding any other provision of this Lease, if Lessee shall
default in the payment of any rent and/or any other payments required of Lessee,
or any part thereof, and if such default shall continue for a period of -7- days
after the due date thereof, Landlord may, without terminating this Lease,
institute any action, suit or proceeding provided for by law against Lessee from
time to time to recover any of the aforesaid sums which at the commencement of
any action, suit or proceeding shall then or theretofore have become due and
payable to Landlord under any provisions hereof,
9
<PAGE>
without waiting until the end of the original term of this Lease; and neither
the institution of such action, suit or proceeding nor the settlement thereof or
entering of judgment therein shall terminate this Lease, nor shall it bar the
Landlord from bringing subsequent actions, suits or proceedings from time to
time for any sum or sums of any kind which shall thereafter become due and owing
from Lessee to Landlord under any of the terms of this Lease, Lessee hereby
expressly waives any right or defense which it may have to claim a merger of
such subsequent actions, suits or proceedings and any previous action, suit or
proceeding, or in a settlement thereof or judgments entered therein.
E. Upon termination of this lease or abandonment by Lessee if any
personal property of Lessee or any other person or entity remains in the
premises, such property shall be deemed to have been abandoned and Lessor may
dispose of such property as Lessor deems appropriate, even to the extent of
giving it away notwithstanding the value thereof; and Lessor shall have no
liability to Lessee or any other person or entity therefor. Lessee understands
and agrees that by leaving the property on the Leased Premises, Lessee has
abandoned all of its right, title, and interest in such property.
27. ACCELERATION. Lessee agrees the Lessee will promptly pay all rent at
the times above stated. If any part of the rent shall not be paid when due or
within -7- days next after the same shall become due and payable, then in
addition to the remedies provided in paragraph 26 hereof, Landlord shall have
the option of declaring the balance of the entire rent for the entire rental
term of this Lease to be immediately due and payable, and Landlord may then
proceed immediately to collect all the unpaid rent called for by this Lease, by
distress or otherwise.
28. CUMULATIVE REMEDIES. No remedy herein or otherwise conferred upon or
reserved to Landlord shall be considered to exclude or suspend any other remedy,
but the same shall be cumulative and shall be in addition to every other remedy
given hereunder now or hereafter existing at law or in equity or by statute, and
every power and remedy given by this Lease or Lessor may be exercised from time
to time and as often as the occasion may arise or as may be deemed expedient. No
delay or omission of Landlord to exercise any right or power arising from any
default shall impair any such right or power nor shall it be construed to be a
waiver of any such default or any acquiescence therein. Neither the rights
herein given to receive, collect, sue for or distrain from any rent or rents,
monies or payments, or to enforce to the terms, provision and condition of this
Lease, or to prevent the breach or nonobservance thereof, or the exercise of any
such right or of any other right or remedy hereunder or otherwise granted or
arising, shall in any way affect, impair or toll the right or power of Landlord
to declare the Lease terms hereby granted ended, to terminate this Lease as
provided for in this Lease, or to repossess without terminating the Lease,
because of any default in or breach of the covenants, provisions or conditions
of this Lease.
29. WAIVER. No waiver of any breach of any of the covenants of this Lease
shall be construed, taken or held to be a waiver of any other breach or waiver,
acquiescence in or consent to any further or succeeding breach of the same
covenant. No act or acts, omission or omissions or series of acts or omissions,
or waiver, acquiescence or forgiveness by Landlord as to any default in or
failure to perform, either in whole or in part, by Lessee, any of the covenants,
terms and conditions of this Lease, shall be deemed or construed to be a waiver
by Landlord of the right at all times thereafter to insist upon the prompt, full
and complete performance by Lessee of each and all of the covenants, terms and
conditions thereafter to be performed in the same manner and to the same extent
as the same are herein covenanted to be performed by Lessee.
30. SIGNS. No awnings, sign or signs shall be painted upon, attached to or
erected on the exterior of the Leased Premises without the written consent of
the Landlord having first been obtained. Any awnings and signs installed by
Lessee shall be removed at the termination or expiration of this Lease, and
Lessee agrees, at Lessee's expense, to restore the Leased Premises to its
original condition, ordinary wear and tear
10
<PAGE>
excepted.
31. RECORDATION. This Lease shall not be recorded by the Lessee except with
the express written approval and consent of the Landlord.
32. ATTORNEY'S FEES AND COSTS. In the event of any litigation arising out
of or related to this Lease including, but not limited to, recovery of rents or
for recovery of the possession of the Leased Premises, or for the enforcement of
any of the terms and conditions of this Lease, or arising out of or in
connection with the Sales Agreement attached hereto including, but not limited
to, the interpretation or the enforcement thereof, the prevailing party shall be
entitled to recover from the other reasonable attorney's fee (at all tribunal
levels) and reasonable suit costs and expenses.
33. FORCE MAJEURE. None of the acts, promises, covenants, agreements or
obligations on the party of Lessee to be kept, performed or not performed, as
the case may be, nor the obligation of Lessee to pay rent and/or Additional Rent
or other charge or payment shall be in anywise waived, impaired, excused or
affected by reason of the Landlord being unable at any time or times during the
term of this Lease to supply, or being prevented from, or delayed in supply of
any service expressed or implied on the part of the Landlord to be supplied, or
by reason of the Landlord being unable to make any alterations, repairs or
decorations or to supply any equipment or fixtures, or any other promise,
covenant, agreement or obligation on the part of the Landlord to be performed,
if the Landlord's inability or delay shall arise by reason of any law, rule or
regulation of any Federal, State, Municipal, or other governmental department,
agency or subdivision thereof, or by reason of conditions of supply and demand
due to National Emergency or other conditions or causes beyond the Landlord's
control.
34. NOTICES. It is understood and agreed between the parties hereto that
written notice addressed to Lessee or Landlord at their respective addresses set
forth herein, and mailed, certified mail, return receipt requested, or delivered
by hand to the addresses below, shall constitute sufficient notice to the
addressee; notice shall be deemed given, if mailed, -3- days from the date of
mailing or, if delivered by hand, when received by the addressee or posted on
the entrance door of the Leased Premises if notice is to Lessee or at the
following designated addresses:
TO LESSEE: U.S. CIGAR DISTRIBUTORS
7440 S.W. 50TH Terrace
Suite 107
Miami, Florida 33155
TO LANDLORD: Lakeside Property Investment Group, Inc.
Attn: Juan Vega
6910 Barguera Street
Coral Gables, Florida 33146
or to such other persons or at such other addresses (other than a post-office
box) as a party shall designate in writing and deliver to the other; provided,
however, that any notification to lessee must be to an address (other than a
post-office address) in Dade County, Florida.
35. TIME OF ESSENCE. Time is of the essence of this Lease, and all
provisions herein relating thereto shall be strictly construed.
36. RELATIONSHIP OF PARTIES. Nothing contained herein s hall be deemed or
construed by the parties hereto, nor by any third party, as creating the
relationship of principal and agent or of partnership, or of joint venture by
the parties hereto, it being understood and agreed that no provision contained
in this Lease nor any acts of the parties hereto shall be deemed to create any
relationship other than the relationship of
11
<PAGE>
Landlord and Lessee.
37. EXCULPATION. Lessee agrees that it shall look solely to the estate and
property of Landlord in the Leased Premises for the collection of judgment (or
any other judicial process) requiring the payment of money by Landlord in the
event of any default or breach by Landlord with respect to any of the terms,
covenants, and conditions of this Lease to be observed and performed by
Landlord, and no other property or estates of Landlord and partners or
stockholders shall be subject to levy, execution, or other enforcement
procedures for the satisfaction of Lessee' remedies.
38. CAPTIONS. Headings or captions preceding the text of the several
paragraphs of this Lease are inserted solely for convenience of reference and
shall not constitute a part of this Lease, nor shall they affect its meaning,
construction or effect.
39. WAIVER OF TRIAL BY JURY. It is mutually agreed between Landlord and
Lessee that the respective parties hereto shall and do hereby waive trial by
jury in any action or proceeding arising out of or in connection with the Lease.
40. AMENDMENT AND FULL UNDERSTANDINGS. This Lease contains the entire
agreement between the parties hereto and all previous negotiations leading
thereto, and it may be modified only by an agreement in writing, signed by
Landlord and Lessee. There are no premises, agreements, conditions or
understandings, either oral or written, between Landlord and Lessee other than
those set forth herein. Except as herein otherwise provided, no subsequent
alteration, amendment, change or addition to this Lease shall be binding upon
Landlord or Lessee unless reduced to writing and signed by them. No surrender of
the Leased Premises, or of the remainder of the term of this Lease, shall be
valid unless accepted by Landlord in writing.
41. SEVERABILITY. If any term or provision of this Lease shall to any
extent be held invalid or unenforceable, the remaining terms and provisions of
this Lease shall not be affected thereby, but each term and provision of this
Lease shall be valid and be enforced to the fullest extent permitted by law.
42. APPLICABLE LAW. This Lease shall be construed and enforced in
accordance with the laws of the State of Florida.
43. BINDING EFFECT. All of the covenants, agreements, conditions and
undertakings contained in this Lease shall extend and inure to and be binding
upon the heirs, personal representatives, administrators, successors and assigns
of the respective parties hereto, the same as if they were in every case
specifically named, and wherever in this Lease reference is made to either of
the parties hereto, it shall be held to include and apply to, wherever
applicable, the heirs, personal representatives, administrators, successors and
assigns of such party. Nothing herein contained shall be construed to grant or
confer upon any person or persons, firm, corporation or governmental authority,
other than the parties hereto, their heirs, personal representatives,
administrators, successors and assigns, any right, claim or privilege by virtue
of any covenant, agreement, condition or undertaking in this Lease contained. If
more than one person executes this Lease as Lessee, the Lessee's obligations
shall be joint and several.
44. COMPLIANCE WITH CONDOMINIUM DOCUMENTS. Lessee covenants and agree to be
bound by the terms and conditions of the Declaration of Condominium of Tamair
Commercial Center Condominium Section I Condominium recorded in Official Records
Book 12422, Page 2112, of the Public Records of Dade County, Florida, and the
rules and regulations promulgated by the governing association; provided,
however, that maintenance fees and special assessments attributable to the
condominium as a whole shall be paid by the Landlord. Lessee acknowledges having
received a copy of such declaration.
12
<PAGE>
45. AUTHORITY OF LESSEE. Each individual executing this Lease on behalf of
Lessee represents and warrants that he is duly authorized to execute and deliver
this Lease on behalf of Lessee in accordance with a duly adopted resolution of
the Board of Directors or the By-Laws of Lessee, and that this Lease is binding
upon said corporation in accordance with its terms. Simultaneously with the
execution of this Lease, Lessee shall deliver to Landlord a certified copy of a
resolution of the Board of Directors of said corporation authorizing or
ratifying the execution of this Lease.
46. In accordance with Florida Statutes, the following notice about "RADON
GAS" is hereby given to Lessee:
"Radon is a naturally occurring radioactive gas that, when it has accumulated in
a building in sufficient quantities, may present health risks to persons who are
exposed to it over time. Levels of radon that exceed federal and state
guidelines have been found in buildings in Florida. Additional information
regarding radon and radon testing may be obtained from your county public health
unit."
IN WITNESS WHEREOF, the parties have executed this Warehouse Agreement as
of the day and year first above written.
Witness as to Lessee: LESSEE:
/s/ Carlos Figarola U.S. CIGAR DISTRIBUTORS
- -----------------------------
- ----------------------------- By: /s/ Juan A. Vega, Sr.
-----------------------------
(Corporate Seal)
Witness as to Landlord: LANDLORD:
/s/ LAKESIDE PROPERTY INVESTMENT
- ----------------------------- GROUP, INC. a Florida corporation
- ----------------------------- By: /s/ John J. Kelly
-----------------------------
13
<PAGE>
COMMERCIAL REAL ESTATE LEASE
This Lease Agreement (this "Lease") is made effective as of May 1st, 1997, by
and between U.S. Cigar Distributors, Inc., ("Landlord") and Crystal Cascade
Waters, Inc. ("Tenant"). The parties agree as follows:
PREMISES. Landlord, in consideration of the lease payments provided in this
Lease, leases to Tenant an area comprising of 250 Square feet of office
space as well as provide use of approximately 1,000 Square feet of
warehouse space in Suite 107 at 7440 SW 50th Terrace, Miami, Florida 33146
(Dade County).
PARKING. Tenant shall be entitled to use one parking space for the parking
of Tenant's customers'/guests' motor vehicle(s) in the area near the
premises.
FURNISHINGS. None included. The tenant may bring approved furnishings and
remove them promptly upon termination of the lease. Should the tenant's
furnishings require alterations to the premises, tenant is responsible for
leaving the premises restored to their original condition.
STORAGE. Tenant shall be entitled to store items of personal property in
the warehouse portion of the premises during the term of the Lease. At no
time shall the tenant store any hazardous material. Landlord shall not be
liable for loss of, or damage to, such stored items. Tenant shall provide
insurance coverage for its personal property stored on the premises.
TERM. The lease term will begin May 1st, 1997 and terminate October 31,
1998, unless mutually agreed to cancel by both parties.
RENEWAL. The lease can be extended for six months under the same terms and
conditions subject to an additional rent of $150.00 a month for the balance of
the extension. The rent during the extension period is $900.00 a month or $5,400
for six months.
LEASE PAYMENTS. Tenant shall pay to Landlord monthly payments of $750.00 per
month due in advance on the second (2nd) day of each month, for a total
annual payment of $13,500.00. Lease payments shall be made to the Landlord at
7440 SW 50th Terrace, Suite 107, Miami, Florida, 33155, or as may be changed
from time to time by the Landlord. As the premises are regulated by the same
HVAC system, Tenant shall share the cost of electricity. Said cost will be
prorated between the Tenant and the Landlord. Tenant's share shall be 50% and
Landlord's 50% based on the square footage designated in the attached drawing.
POSSESSION. Tenant shall be entitled to possession on the first day of the
term of this Lease, and shall yield possession to Landlord on the last day of
the term of this Lease, unless otherwise agreed by both parties in writing.
USE OF PREMISES. Tenant may use the Premises only to store products that
are used in the business. The Premises may be used for any other purpose only
with the prior written consent of the Landlord, which shall not be unreasonably
withheld. Tenant shall notify Landlord of any anticipated extended absence from
the Premises not later than first day of the extended absence.
PROPERTY INSURANCE. Tenant shall maintain casualty insurance on the Premises in
an amount equal to $50,000. The Landlord shall be named as an insured in such
policies. Tenant shall deliver appropriate evidence to Landlord as proof that
adequate insurance is in force. Landlord shall have the right to require that
the Landlord receive notice of any termination or changes of such insurance
policies. Tenant shall also maintain any other insurance which Landlord may
reasonably require for the protection of the Landlord's interest in the
premises.
DEFAULT. Tenant shall be in default of this Lease, if Tenant fails to fulfill
any lease obligation or term by which Tenant is bound. Subject to any governing
provisions of law to the contrary, if Tenant fails to cure any financial
obligation within 5 business days (or any other obligation within 7 business
days) after written
<PAGE>
notice of such default is provided by Landlord to Tenant, Landlord may take
possession of the Premises without further notice (to the extent permitted by
law), and without prejudicing Landlord's rights to damages. In the alternative,
Landlord may elect to cure any default and the cost of such action shall be
added to the Tenant's financial obligations under this Lease. Tenant shall pay
the costs, damages, and expenses (including reasonable attorney's fees and
expenses) suffered by the Landlord by reason of Tenant's defaults. All sums of
money or charges required to be paid by Tenant under this Lease shall be
additional rent, whether or not such sums or charges are designated as
"additional rent".
NOTICE. Notices under this Lease shall not be deemed valid unless given or
served in writing and forwarded by mail, postage prepaid, addressed as follows:
LANDLORD:
U.S. Cigar Distributors, Inc.
7440 SW 50th Terrace, Suite 107
Miami, FL 33155
TENANT:
CRYSTAL CASCADE WATERS, Inc.
7440 SW 50th Terrace, Suite 107
Miami, FL 33155
Such addresses may be changed from time to time by either party by providing
notice as set forth above.
ENTIRE AGREEMENT/AMENDMENT. This Lease Agreement contains the entire agreement
of the parties and there are no other promises or conditions in any other
agreement whether oral or written. This Lease maybe modified or amended in
writing, if the writing is signed by the party obligated under the amendment.
SEVERABILITY. If any provision of this Lease shall be held to be invalid or
unenforceable for any reason, the remaining provisions shall continue to be
valid and enforceable. If a court finds that any provision of this Lease is
invalid or unenforceable, that by limiting such provision, it would become valid
and enforceable, then such provision shall be deemed to be written, construed
and enforced as so limited.
WAIVER. The failure of either party to enforce any provisions of this Lease
shall not be construed as a waiver or limitation of the party's right to
subsequently enforce and compel strict compliance with every other provision of
this Lease.
CUMULATIVE RIGHTS. The rights of the parties under this Lease are cumulative,
and shall not be construed as exclusive unless otherwise required by law.
GOVERNING LAW. This Lease shall be construed in accordance with the Laws of the
State of Florida.
For the Landlord.
/s/ Juan A. Vega, Sr.
- -----------------------------
For the Tenant
/s/ Carlos Figarola
- -----------------------------
Date 5/1/97
-------------------------
Ambra Cigar, Inc.
U.S. Cigar Distributors, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the periods ended June 30, 1997 and June 30, 1998 as
well as the interim financials for the three month period ended September 30,
1997 and September 30, 1998. This financial information is qualified in its
entirety by reference to the audited financial statements and the footnotes.
</LEGEND>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1997 JUN-30-1999 JUN-30-1998
<PERIOD-END> JUN-30-1998 JUN-30-1997 SEP-30-1998 SEP-30-1997
<CASH> 42,403 41,710 168,750 7,886
<SECURITIES> 4,063 0 3,919 0
<RECEIVABLES> 18,721 12,281 14,680 47,015
<ALLOWANCES> (3,400) 0 (3,400) 0
<INVENTORY> 128 2,196 128 2,533
<CURRENT-ASSETS> 61,914 56,187 184,077 57,434
<PP&E> 8,524 5,908 8,524 8,223
<DEPRECIATION> (2,887) (1,182) (2,887) (1,182)
<TOTAL-ASSETS> 97,127 65,690 219,591 69,253
<CURRENT-LIABILITIES> 292,530 81,114 199,270 91,596
<BONDS> 0 0 0 0
0 0 0 0
51 1 51 1
<COMMON> 10,999 10,999 10,999 10,999
<OTHER-SE> (206,779) (29,830) (290,729) (34,305)
<TOTAL-LIABILITY-AND-EQUITY> 97,127 65,690 219,591 69,253
<SALES> 617,696 2,255,145 0 201,728
<TOTAL-REVENUES> 618,903 2,255,145 0 201,960
<CGS> 578,295 1,972,168 0 156,452
<TOTAL-COSTS> 619,435 2,016,118 22,520 162,350
<OTHER-EXPENSES> 270,731 267,054 61,430 93,085
<LOSS-PROVISION> 3,400 0 0 0
<INTEREST-EXPENSE> 0 0 0 0
<INCOME-PRETAX> (274,663) (28,027) (83,950) (53,475)
<INCOME-TAX> (1,299) 1,803 0 0
<INCOME-CONTINUING> (273,364) (29,830) (83,950) (53,475)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (273,364) (29,830) (83,950) (53,475)
<EPS-PRIMARY> (0.02) (0.00) (0.01) (0.00)
<EPS-DILUTED> (0.02) (0.00) (0.01) (0.00)
</TABLE>
