SCHEDULE 14C
INFORMATION REQUIRED IN INFORMATION STATEMENT
(RULE 14C-101)
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the Securities
Exchange Act of 1934 (Amendment No. 1)
Check the appropriate box:
[X] Preliminary Information Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14c-5(d)(2))
[ ] Definitive Information
Statement
ALEC BRADLEY CIGAR CORPORATION
------------------------------
(Name of Registrant as Specified In Its Charter)
not applicable
--------------
(Name of Person(s) Filing Information statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock
(2) Aggregate number of securities to which transaction applies: _________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
$_____ per share as determined under Rule 0-11(c)1 under the Exchange
Act.
(4) Proposed maximum aggregate value of transaction: $________________
(5) Total fee paid: $_________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Alec Bradley Cigar Corporation
3400 S.W. 26th Terrace
Suite A-1
Dania, Florida 33312
Telephone 954-321-5991
INFORMATION STATEMENT
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY
__________________, 2005
Dear Shareholder:
This information statement is being furnished to the shareholders of
Alec Bradley Cigar Corporation in lieu of a Special Meeting in connection with
the proposals ("Proposals") below:
* the sale of substantially all the assets of Alec Bradley Cigar by
selling Alec Bradley Cigar Corporation's cigar operations
pursuant to the terms of an asset purchase agreement between Alec
Bradley Cigar Corporation and Alan Rubin in connection with the
acquisition of Online Vacation Center Holdings, Inc.;
* to amend our articles of incorporation to eliminate preemptive
rights provided to our shareholders;
* to amend our articles of incorporation to change our name to
Online Vacation Center Holdings Corp.;
* to amend our articles of incorporation to increase our authorized
common stock to 80,000,000 shares; and
* to adopt the 2005 Management and Director Equity Incentive and
Compensation Plan.
This information statement is being sent in lieu of a special meeting.
Alec Bradley Cigar has adopted the Proposals discussed in this information
statement by the written consent of stockholders holding a majority of the
voting power of Alec Bradley Cigar's common stock. The Proposals have been made
pursuant to Alec Bradley's intended acquisition of Online Vacation Center
Holdings, Inc., a vacation services company. The asset sale and share exchange
discussed in this information statement constitute a reverse merger, in which
Online Vacation Center will be the surviving entity. A change of control will
occur and current Alec Bradley Cigar stockholders will experience substantial
dilution.
Alec Bradley Cigar's Board of Directors approved and recommended,
pursuant to a written consent dated August 25, 2005, that the Proposals be
accepted. Alec Bradley Cigar's stockholders holding a majority of the voting
power approved the Proposals, pursuant to a written consent dated August 25,
2005. Alec Bradley Cigar anticipates that the effectiveness of the asset sale
and filing of the amendments will occur on or about _________, 2005 (the
"Effective Date"). If the Proposals were not adopted by written consent, it
would have been required to be considered by Alec Bradley Cigar's stockholders
at a special or annual stockholders' meeting convened for the specific purpose
of approving the Proposals.
The elimination of the need for a special or annual meeting of
stockholders to ratify or approve the Proposals is authorized by Section
607.0704 of the Florida Business Corporation Act (the "FBCA") and Alec Bradley
Cigar's bylaws, which provides that the written consent of stockholders holding
at least a majority of the voting power may be substituted for such a special or
annual meeting. In order to eliminate the costs and management time involved in
holding a special or annual meeting and in order to effect or ratify the
Proposals as early as possible in order to accomplish the purposes of Alec
Bradley Cigar, the board of directors of Alec Bradley Cigar voted to utilize the
written consent of stockholders holding a majority of the voting power of the
Alec Bradley Cigar.
i
Alan Rubin and Bruce Ginsberg beneficially owning in the aggregate
3,395,000 shares of common stock, representing approximately 75% of the voting
power of Alec Bradley Cigar, gave their written consent to the Proposals
described in this information statement on August 25, 2005. It is proposed that
this information statement will be first sent to the stockholders on or about
_________, 2005. The record date established by Alec Bradley Cigar for purposes
of determining the number of outstanding shares of common stock, and thus the
voting power, is ______________, 2005 (the "Record Date").
Alec Bradley Cigar is distributing this information statement to its
stockholders in full satisfaction of any notice requirements it may have under
the FBCA. No additional action will be undertaken by Alec Bradley Cigar with
respect to the receipt of the written consents.
SHAREHOLDERS OF ALEC BRADLEY CIGAR ARE ENTITLED TO DISSENT FROM THE
SALE OF ASSETS AND ELIMINATION OF PREEMPTIVE RIGHTS DISCUSSED IN THIS
INFORMATION STATEMENT AND OBTAIN PAYMENT OF THE FAIR VALUE OF THEIR SHARES IF
AND WHEN THE PROPOSALS ARE EFFECTUATED. SHAREHOLDERS DESIRING TO EXERCISE THEIR
APPRAISAL RIGHTS MUST COMPLY WITH SPECIFIC PROVISIONS OF THE FBCA WHICH ARE
INCLUDED IN THE APPENDIX HERETO.
Sincerely,
/s/Alan Rubin
-------------
Alan Rubin
Chairman and Chief Executive Officer
ii
OUTSTANDING VOTING STOCK OF ALEC BRADLEY CIGAR CORPORATION
As of the Record Date, there were 4,499,777 shares of common stock
outstanding. Each share of common stock entitles the holder thereof to one vote
on all matters submitted to stockholders. Alan Rubin and Bruce Ginsberg have
voted an aggregate of 3,395,000 shares of common stock in favor of the
Proposals, which represents approximately 75% of the voting power of Alec
Bradley Cigar's common stock.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of our common stock as of the Record Date, with respect to (i) each
person known to Alec Bradley Cigar to be the beneficial owner of more than 5% of
Alec Bradley Cigar's common stock; (ii) each officer and director of Alec
Bradley Cigar; (iii) each person intending to file a written consent to the
adoption of the Proposals; and (iv) all directors, executive officers and
designated stockholders of the Company as a group. This information as to
beneficial ownership was furnished to Alec Bradley Cigar by or on behalf of the
persons named. Unless otherwise indicated, the business address of each person
listed is 3400 S.W. 26th Terrace, Suite A-1, Dania, Florida 33312.
Shares Percent of
Name Beneficially Owned Shares Outstanding
---- ------------------ ------------------
Alan Rubin 2,895,000 64.4%
Bruce A. Ginsberg(1) 500,000 11.1%
All executive officers and
directors as a group
(1 person) 2,895,000 64.4%
------------
(1) Address is 2523 Monterey Court, Weston, FL 33327
iii
TABLE OF CONTENTS
Page
----
SUMMARY TERM SHEET................................................................................... 1
SUMMARY: QUESTIONS AND ANSWERS ABOUT THE PROPOSALS................................................... 4
MARKET FOR COMMON STOCK.............................................................................. 12
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING INFORMATION.......................................... 13
THE INFORMATION STATEMENT............................................................................ 13
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....................................... 14
PROPOSAL ONE: SALE OF ASSETS......................................................................... 15
General............................................................................................ 15
Reasons for Sale of Assets......................................................................... 15
Asset Purchase Agreement........................................................................... 16
Effective Date and Consequences of the Sale of Assets.............................................. 16
Rights of Dissenting Shareholders.................................................................. 16
Fairness Opinion................................................................................... 16
Interest of Certain Entities....................................................................... 16
Background of the Share Exchange................................................................... 16
Reasons for the Share Exchange..................................................................... 17
Share Exchange Agreement........................................................................... 17
Penny Stock Rules.................................................................................. 22
Management after the Share Exchange................................................................ 22
Interest of Certain Persons in the Share Exchange.................................................. 24
Fairness Opinion................................................................................... 25
Engagement and Compensation of Financial Advisor................................................... 35
Regulatory Approval................................................................................ 35
Accounting Treatment .............................................................................. 35
PROPOSAL TWO: APPROVAL OF AMENDMENT TO ARTICLES
TO ELIMINATE PREEMPTIVE RIGHTS
General............................................................................................ 36
Reasons for the Amendment.......................................................................... 36
PROPOSAL THREE: APPROVAL OF AMENDMENT TO ARTICLES OF INCORPORATION
TO CHANGE ALEC BRADLEY CIGAR'S NAME
General............................................................................................ 37
Reasons for the Amendment.......................................................................... 37
PROPOSAL FOUR: APPROVAL OF AMENDMENT TO ARTICLES OF INCORPORATION
TO INCREASE AUTHORIZED SHARES OF COMMON STOCK
General............................................................................................ 38
Reasons for the Amendment.......................................................................... 38
Other Matters...................................................................................... 38
PROPOSAL FIVE: ADOPTION OF 2005 MANAGEMENT AND
DIRECTOR EQUITY INCENTIVE AND COMPENSATION PLAN
Reasons for Adopting the Plan...................................................................... 40
General............................................................................................ 40
Benefits Under the Plan to be Received by Affiliates............................................... 44
iv
Page
----
FEDERAL INCOME TAX CONSEQUENCES...................................................................... 45
CERTAIN INFORMATION CONCERNING OUR COMPANY........................................................... 47
CERTAIN INFORMATION CONCERNING ONLINE VACATION
CENTER HOLDINGS, INC................................................................................. 47
Overview........................................................................................... 47
Industry Background................................................................................ 47
Operations......................................................................................... 47
Intellectual Properties............................................................................ 48
Personnel.......................................................................................... 48
Properties......................................................................................... 48
Competition........................................................................................ 48
Regulation......................................................................................... 48
Related Party Transactions......................................................................... 48
Legal Proceedings.................................................................................. 49
Management's Discussion and Analysis of Financial Condition
and Results Of Operations........................................................................ 49
RISK FACTORS......................................................................................... 53
Risks Relating to the Share Exchange............................................................... 53
Risks Factors Relating to Online Vacation's Business............................................... 54
PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL INFORMATION............................................... 58
RIGHTS OF DISSENTING SHAREHOLDERS.................................................................... 62
INDEX TO AUDITED FINANCIAL STATEMENTS OF ONLINE VACATION CENTER HOLDINGS, INC.
Report of Independent Public Accountants........................................................... F-2
Balance Sheets..................................................................................... F-3
Statements of Operations........................................................................... F-4
Statements of Stockholders' Equity (Deficit)....................................................... F-5
Statements of Cash Flows........................................................................... F-6
Notes to Financial Statements...................................................................... F-7-F-18
INDEX TO UNAUDITED FINANCIAL STATEMENTS OF ONLINE VACATION CENTER HOLDINGS, INC.
Balance Sheets..................................................................................... F-3
Statements of Operations........................................................................... F-4-F-5
Statements of Cash Flows........................................................................... F-6
Notes to Condensed Consolidated Financial Statements............................................... F-7-F-15
APPENDIX A ASSET PURCHASE AGREEMENT
APPENDIX B SHARE EXCHANGE AGREEMENT
APPENDIX C ARTICLES OF AMENDMENT (AMENDED AND RESTATED ARTICLES OF INCORPORATION)
APPENDIX D 2005 MANAGEMENT AND DIRECTOR EQUITY INCENTIVE
AND COMPENSATION PLAN
APPENDIX E FAIRNESS OPINION OF CAPITALINK, L.C.
APPENDIX F DISSENTERS' RIGHTS (FLORIDA STATUTES)
APPENDIX G ALEC BRADLEY CORPORATION FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 2004 AND
FORM 10-QSB FOR THE PERIOD ENDED SEPTEMBER 30, 2005
V
SUMMARY TERM SHEET
FOR THE ALEC BRADLEY CIGAR AND ONLINE VACATION CENTER
REVERSE MERGER
The following summary term sheet for the reverse merger, together with
"Summary: Questions and Answers About the Proposals" appearing elsewhere in this
information statement highlight selected information from this information
statement and may not contain all of the information that is important to you.
We urge you to carefully read this entire document and the other documents that
we refer to in this document. These documents will give you a more complete
description of the reverse merger. We have included page references in this
summary to direct you to other places in this information statement where you
can find a more complete description of the documents and terms that we have
summarized.
Online Vacation Center and Our Reverse Merger
---------------------------------------------
Online Vacation Center is an Internet-based vacation seller and one of
the largest cruise sellers in the United States. Online Vacation Center was
founded in October 2000 by Edward B. Rudner, who has served as Online Vacation
Center's president since its inception. Online Vacation Center has approximately
40 employees and booked over $100,000,000 in vacations since inception.
Historically, a majority of Online Vacation Center's sales are cruises with
accompanying travel arrangements. For further information about Online Vacation
Center's business and operations, please see "Certain Information Concerning
Online Vacation Center Holdings, Inc." beginning on page ___. The transactions
described in this information statement will result in a reverse merger and
Online Vacation Center will be the surviving corporate entity. Current Alec
Bradley Cigar shareholders will no longer hold any interest in the cigar
business and will experience substantial dilution.
The Parties to the Reverse Merger and the Share Exchange Agreement
------------------------------------------------------------------
Online Vacation Center and Alec Bradley Cigar have entered into a share
exchange agreement. Under the share exchange Alec Bradley Cigar will issue an
aggregate of 15,000,000 shares of common stock to the shareholders of Online
Vacation Center in exchange for a wholly owned interest in Online Vacation
Center. Simultaneously with the share exchange Alec Bradley Cigar will dispose
of all of its cigar business assets and liabilities, which will be purchased by
Alan Rubin (currently our majority shareholder) in consideration for the return
of 2,700,000 shares of Alec Bradley Cigar common stock. Alan Rubin, who
currently serves as our sole officer and director and our majority shareholder,
will own 100% of the cigar business following the completion of the reverse
merger. Online Vacation Center will be the surviving corporate entity. The share
exchange agreement and asset purchase agreement are each included as an appendix
to this information statement. Additional copies will be furnished without
charge to beneficial shareholders or shareholders of record upon request by mail
to Secretary, Alec Bradley Cigar, 3400 S.W. 26th Terrace, Suite A-1, Dania,
Florida 33312.
The Exchange and Capitalization
Alec Bradley Cigar shares outstanding
prior to reverse merger: 4,499,777
Total Alec Bradley Cigar shares to be issued
to Online Vacation Center shareholders and
debenture holder: 15,000,000
Total Alec Bradley Cigar shares to be canceled
under the asset purchase: 2,700,000
Total Alec Bradley Cigar shares outstanding
following the reverse merger: 16,799,777 As a result of the reverse merger, there will be a
change of control of Alec Bradley Cigar and the current
shareholders of Alec Bradley Cigar will experience substantial
dilution.
1
Total options to purchase Alec Bradley Cigar
common stock to be issued to new officers
and directors of Alec Bradley Cigar: 1,500,000 With an exercise price of 110% of the closing
quotation price as reported by the OTCBB on the date of the
closing of the share exchange
Ownership interests of current Alec Bradley Cigar
Shareholders before reverse merger: 100%
Ownership interests of current Alec Bradley Cigar
Shareholders after the reverse merger: 9%
For more information on the terms of the share exchange and asset
purchase, please see Proposal 1 - Sale of Assets, beginning on page ___. In
addition to proposal 1, as described in this information statement the holders
of a majority of the common stock of Alec Bradley Cigar have approved:
Proposal 2: to amend our articles of incorporation to
eliminate the preemptive rights currently provided to
our shareholders (see page ___),
Proposal 3: to amend our articles of incorporation to change
our name to Online Vacation Center Holdings Corp.
(see page ___),
Proposal 4: to amend our articles of incorporation to increase
our authorized common stock to 80,000,000 shares (see
page __), and
Proposal 5: to adopt the 2005 Management and Director Equity
Incentive and Compensation Plan, (see page ___).
Pursuant to the reverse merger:
* Online Vacation Center will be the surviving entity and we will
no longer hold any interest in the cigar business.
* Alec Bradley Cigar will replace and expand the current board of
directors from one member to three new members. The new directors
will be: Edward Rudner, Richard Anthony McKinnon and Brian
Froelich. Mr. Rudner will also replace Alan Rubin as the sole
officer of Alec Bradley Cigar. We have included a discussion of
the new management of Alec Bradley Cigar later in this
information statement (see page __).
* We will enter into an employment agreement with Edward Rudner,
which includes the granting of options, and will issue options to
our other non-employee board members (see page ____).
* Mr. McKinnon, who will be a director of Alec Bradley Cigar will
also enter into a consulting agreement with Alec Bradley Cigar
(see page ___),
* Mr. Rudner will become the majority shareholder of the surviving
entity, receiving shares of common stock pursuant to the share
exchange and pursuant to private stock purchase with Bruce
Ginsberg and another Alec Bradley Cigar shareholder (see page
__).
* The effect of the share exchange and asset purchase will result
in a change of control in the common stock beneficial ownership
interest of our company.
Material Advantages and Disadvantages of the Reverse Merger to Alec Bradley
---------------------------------------------------------------------------
Cigar and its Current Shareholders
----------------------------------
Advantages:
* We believe the future potential of Online Vacation Center's
business exceeds our current cigar business prospects which may
result in an increase in the value of your investment in our
company.
2
* Disadvantages (see "Risk Factors" on page __):
* If Online Vacation Center's business plan is not successful, our
stock price may decrease and your investment in our company will
decrease in value.
* You will suffer immediate dilution as a result of the reverse
merger.
Conditions to closing the Reverse Merger (see page __)
------------------------------------------------------
In order to complete the reverse merger:
* Alec Bradley Cigar shall have maintained its quotation on the
OTCBB;
* Alec Bradley Cigar shall have complied with the terms of the
asset purchase agreement, which include the sale of all assets
and disposal of all liabilities;
* Alec Bradley Cigar shall have amended its articles of
incorporation to increase its authorized capital stock, eliminate
preemptive rights and change its name to Online Vacation Center
Holdings Corp.; and
* Alec Bradley Cigar shall not have more than 1,799,777 shares
outstanding immediately prior to the effective time of the share
exchange.
Termination of the Share Exchange (see page __)
-----------------------------------------------
The reverse merger may be terminated:
* By either party if the share exchange is not completed on or
before December 31, 2005,
* There has been a material misrepresentation, breach of warrant or
breach of covenant by the other part; or
* There shall have been a material adverse change in the financial
condition of the other party, or if an event shall have occurred
which, as far as reasonably can be foreseen, would result in any
such change.
Voting on the Proposals
-----------------------
The proposals were approved by majority shareholder written consent.
This information statement is being sent for notice purposes only. The proposals
were approved by Alan Rubin and Bruce Ginsberg, who collectively own
approximately 75% of the shares of Alec Bradley Cigar common stock.
Fairness Opinion
----------------
Capitalink L.C., has delivered a written opinion, as to the fairness of
the reverse merger. You should read the opinion to completely understand the
procedures followed, matters considered and limitation on the reviews undertaken
by Capitalink in rendering its opinion. A summary of Capitalink's opinion begins
on page ____ of this information statement, and the opinion in its entirety is
attached as Appendix E to this information statement.
Dissenters' Rights
------------------
Our shareholders are entitled to dissenters' rights under Florida law
as the rights pertain to the sale of assets and removal of shareholder
preemptive rights. You are urged to read the discussion of dissenters' rights
commencing on page ___ and applicable Florida law attached as Appendix F to this
information statement.
3
QUESTIONS AND ANSWERS ABOUT THE SALE OF ASSETS, SHARE EXCHANGE AGREEMENT,
AMENDMENTS TO OUR ARTICLES OF INCORPORATION AND 2005
MANAGEMENT AND DIRECTOR EQUITY INCENTIVE AND COMPENSATION PLAN
The following is a summary of certain information contained elsewhere
in this information statement. The following summary is not intended to be
complete and is qualified in its entirety by reference to the more detailed
information contained in this information statement and in the attached
Appendices. You are urged to review the entire information statement carefully.
References in this Summary and throughout the information statement to "we,"
"us," "Alec Bradley Cigar" or the "Company" refer to Alec Bradley Cigar
Corporation. References to "Online Vacation Center" refer to Online Vacation
Center Holdings, Inc. and its subsidiary. Alec Bradley Cigar has supplied all
information contained in this information statement relating to Alec Bradley
Cigar and Online Vacation Center has supplied all information in this
information statement relating to Online Vacation Center Holdings, Inc. and its
subsidiary. Neither Alec Bradley Cigar nor Online Vacation Center makes any
representation as to information contained herein supplied by the other company.
Q: WHY ARE WE SENDING OUR SHAREHOLDERS THIS INFORMATION STATEMENT?
A: Alec Bradley Cigar is mailing this information statement in lieu of a special
meeting to notify its shareholders that the following proposals have been
adopted by majority written consent:
* the sale of substantially all of the assets of Alec Bradley
Cigar to Alan Rubin, our majority shareholder and chief
executive officer in connection with the acquisition of Online
Vacation Center Holdings, Inc.;
* to amend our articles of incorporation to eliminate preemptive
rights provided to our shareholders;
* to amend our articles of incorporation to change our name to
Online Vacation Center Holdings Corp.;
* to amend our articles of incorporation to increase our
authorized common stock to 80,000,000 shares; and
* to adopt the 2005 Management and Director Equity Incentive and
Compensation Plan.
Approval of the sale of assets and the amendments to our articles of
incorporation required the affirmative vote of at least a majority of all issued
and outstanding shares of Alec Bradley Cigar common stock. Approval of the Plan
requires a majority vote of 51% of the outstanding shares of Alec Bradley Cigar.
All 2,895,000 shares of common stock owned by our sole officer and director,
Alan Rubin and 500,000 shares of common stock owned by Bruce Ginsberg, which are
approximately 75% of the total number of beneficially owned shares of Alec
Bradley Cigar's common stock, were voted in favor of all proposals.
On August 31, 2005, Alec Bradley Cigar announced it would seek to
divest itself of its cigar operations and acquire a new operating company with
the goal of enhancing shareholder value. The asset purchase agreement governing
the terms and conditions of the sale of assets provides for the sale of all of
Alec Bradley Cigar's cigar business assets for 2,700,000 shares of Alan Rubin's
Alec Bradley Cigar common stock. Alan Rubin, to whom all or substantially all of
the assets of Alec Bradley Cigar are being sold, is also the beneficial owner of
approximately 64% of the common stock of Alec Bradley Cigar. The sale of assets
is a condition of a share exchange with Online Vacation Center, a travel
services company. The consummation of these transactions will result in a
reverse merger and a change of control of Alec Bradley Cigar.
A copy of the agreements relating to the sale of assets and share
exchange are attached to this information statement and incorporated by
reference as Appendix A and Appendix B, respectively. A copy of the amended and
restated articles of incorporation is attached to this information statement as
Appendix C. A copy of the 2005 Management and Director Equity Incentive and
Compensation Plan is attached to this information statement as Appendix D. You
are urged to read these documents and agreements in their entirety.
4
Q: HOW WAS THE FAIRNESS OF THE SHARE EXCHANGE AND SALE OF ASSETS
DETERMINED BY THE ALEC BRADLEY CIGAR BOARD OF DIRECTORS?
A: Alec Bradley Cigar's board of directors has determined that the share
exchange and asset purchase is fair to and in the best interests of Alec Bradley
Cigar and our shareholders. With respect to the share exchange, the
consideration paid consists of 15,000,000 shares of our common stock and the
consideration received is the business of Online Vacation Center. The facts
bearing upon the question of the fairness of the consideration paid and received
included the historical and present financial condition and profitability of
Online Vacation Center and an analysis of publicly traded companies that have
characteristics comparable to Online Vacation Center. With respect to the sale
of assets, the board considered the performance of its common stock in the
marketplace, the nature of its principal assets and its growth potential. Mr.
Rubin, as the Company's principal stockholder and sole director, proposed the
terms and conditions of the asset sale. The sale of assets was viewed in
conjunction with the terms of the share exchange to determine the fairness of
the entire transaction as a whole. To further affirm the fairness of both the
asset purchase and share exchange, the board reviewed the opinion of Capitalink,
L.C., dated as of September 30, 2005, that as of the date of that opinion, the
share exchange and sale of assets, combined together, is fair from a financial
point of view to Alec Bradley Cigar's non-affiliated shareholders.
Q: WHY IS ALEC BRADLEY CIGAR PROPOSING THE REVERSE MERGER?
A: Alec Bradley Cigar is proposing the reverse merger for several reasons: (1)
the performance of Alec Bradley Cigar common stock in the marketplace has been
disappointing since its initial quotation on the Over the Counter Bulletin Board
(under $0.35 for the past two years until the disclosure of the reverse merger);
(2) the revenues that our cigar operations have generated and the revenues that
management believes our cigar operations will generate in the future, when
coupled with the costs and requirements of a publicly reporting company, are not
adequate to generate significant profits; and (3) the amount of working capital
necessary to conduct and grow Alec Bradley Cigar's cigar operations has
increased significantly. Alec Bradley Cigar currently does not have cash flow or
borrowing power sufficient to grow its cigar operations. Moreover, because of
illiquidity and low stock price, Alec Bradley Cigar's stock has not been
sufficiently attractive to serve as currency to fund investments. As a "micro
cap" company, Alec Bradley Cigar has had difficulty raising capital through
equity offerings because there has been no institutional interest in its stock.
Having determined that Alec Bradley Cigar no longer has a ready means by which
to fund future growth central to its business plan, Alec Bradley Cigar's board
of directors has determined that it is in Alec Bradley Cigar's best interests to
dispose of all of its cigar operations and via the share exchange explained
below, become a travel services company.
Q: WHY IS ALEC BRADLEY CIGAR PROPOSING THE SHARE EXCHANGE WITH ONLINE
VACATION CENTER?
A: In early 2005 Alec Bradley Cigar's board of directors evaluated the financial
condition of Alec Bradley Cigar and the prospects for its future as a cigar
importer and distributor. Our board of directors determined that the outlook for
Alec Bradley Cigar under its business plan was not good and that the interests
of our shareholders might be better served by restructuring Alec Bradley Cigar
or its business plan. We were subsequently introduced to Online Vacation Center
Holdings, Inc. Management of Alec Bradley Cigar has received unsolicited
proposals for other reverse merger transactions over the past two years. These
proposals included a technology company and a health care company. After
conducting preliminary due diligence, Alec Bradley has rejected all previous
proposals due to the nature of the underlying business prospects and plans
provided to Alec Bradley Cigar. Management believes that the business prospects
of Online Vacation Center exceed all prior proposals. Alec Bradley Cigar has not
entered into any other letters of intent or other agreements providing for a
reverse merger or other similar transaction. After conducting our due diligence
of Online Vacation Center and discussing the fairness of the entire transaction
with Capitalink, L.C., we have agreed to close the share exchange agreement with
Online Vacation Center immediately following the effectiveness of this
information statement.
5
We believe the reverse merger will benefit Alec Bradley Cigar and our
current shareholders because we believe:
* the assets of Online Vacation Center and the prospects of Online
Vacation Center's business will give our shareholders a greater
chance of increasing the value of their investment than if we
continue with our current cigar business.
* the nature of the cigar business presents numerous obstacles to
financial success, including potential industry law suits by
smokers, intense competition and a shrinking market.
* the online travel industry is a growing industry that is still in
its infancy and has a significant potential for growth.
Online Vacation Center's improved opportunities for growth after the
completion of the reverse merger will hopefully result in an increased stock
price, which directly effects our shareholders' investments in our company.
Q: WHAT ARE THE RISKS AND DISADVANTAGES OF THE PROPOSALS TO ALEC BRADLEY
CIGAR AND OUR CURRENT SHAREHOLDERS?
A: We are selling all of our cigar assets through an asset purchase agreement
with Alan Rubin (or his affiliated entities). Current Alec Bradley Cigar
shareholders will no longer hold any interest in the cigar business after the
asset sale. There are certain risks and disadvantages to the reverse merger.
These risks and disadvantages include:
* our decision to withdraw from our cigar business may be premature.
* Online Vacation Center's business plan may never be realized and
as a result, there may be a decrease in our stock price which
would adversely affect the stock ownership value of our
shareholders.
* our current shareholders are subject to immediate and substantial
dilution.
Q: WHY IS ONLINE VACATION CENTER PROPOSING THE SHARE EXCHANGE?
A. Online Vacation Center is proposing the share exchange in order to provide
its shareholders with greater liquidity through the public stock market. As a
public company Online Vacation Center should also have greater access to capital
markets for the continued development of its products and services. Online
Vacation Center believes that as a public company, its common stock may be used
as consideration to acquire other travel company businesses. Once public, Online
Vacation Center shareholders may also have a better ability to liquidate their
investment in Online Vacation Center as they will own stock in a public company.
Q: WHY IS ALEC BRADLEY CIGAR PROPOSING THE NAME CHANGE?
A: The name change is contingent upon effectiveness of the share exchange. The
name change will accurately reflect the new business of our company.
Q: WHY IS ALEC BRADLEY CIGAR PROPOSING THE AMENDMENT TO THE ARTICLES OF
INCORPORATION REMOVING PREEMPTIVE RIGHTS?
A: Alec Bradley Cigar's Articles of Incorporation currently provides that every
shareholder, upon the sale for cash of any new stock of the company of the same
kind, class, or series as that which he already holds, shall have the right to
purchase his pro rata share thereof at the price at which it is offered to
others. We believe that such right may delay or prevent future financings or
material transactions. The cost of providing for preemptive rights for any
future transaction are also a material cost to the company. The amendment is not
contingent upon the effectiveness of the share exchange.
6
Q: WHY IS ALEC BRADLEY CIGAR PROPOSING THE AMENDMENT TO THE ARTICLES OF
INCORPORATION TO INCREASE THE NUMBER OF SHARES OF AUTHORIZED COMMON
STOCK?
A: The additional shares of authorized common stock may be issued from time to
time, as the need may arise, in connection with future opportunities for
expanding business through investments, mergers, acquisitions or equity
financing and for other purposes. As of the date hereof, we have no plans or
proposals for issuing additional shares of common stock except as pursuant to
the exchange agreement. While the amendment is a condition of the share exchange
it is not contingent upon effectiveness of the share exchange.
Q: WHY IS ALEC BRADLEY CIGAR PROPOSING THE ADOPTION OF THE 2005
MANAGEMENT AND DIRECTOR EQUITY INCENTIVE AND COMPENSATION PLAN?
A: The purpose of the Plan is to advance our interests and those of our
stockholders by providing a means of attracting and retaining key employees,
directors and consultants. In order to serve this purpose, we believe this Plan
encourages and enables key employees, directors and consultants to participate
in our future prosperity and growth by providing them with incentives and
compensation based on our performance, development and financial success.
Participants in the Plan may include our officers, directors, other key
employees and consultants who have responsibilities affecting our management,
development or financial success. Adoption of the Plan is also a condition of
the share exchange, but not contingent upon the effectiveness of the share
exchange.
Q: WHAT IS THE CURRENT BUSINESS OF ONLINE VACATION CENTER HOLDINGS, INC.?
A: Online Vacation Center Holdings, Inc., a Florida corporation, is an
Internet-based vacation seller located in Plantation, Florida. It was founded in
October 2000 by Edward B. Rudner, who has served as its president since
inception. Online Vacation Center has approximately 40 employees and revenues of
$6,252,690 in 2004 and $5,649,406 in 2003. Online Vacation Center has produced
net income of $1,079,295 in 2004 and $1,393,581 in 2003. Historically, a
majority of Online Vacation Center's sales are cruises with accompanying travel
arrangements. Online Vacation Center is headquartered in Plantation, Florida and
its telephone number is (954) 377-6400.
Q: WHAT WILL HAPPEN IN THE PROPOSED REVERSE MERGER?
A: Alec Bradley Cigar will sell all of its assets in its cigar operations and
amend and restate its articles of incorporation to change its corporate name to
Online Vacation Center Corp., remove preemptive rights and increase its
authorized capital stock. We will also adopt the Plan. Alec Bradley Cigar's
operations and assets will be sold to Alan Rubin in return for 2,700,000 shares
of Alec Bradley Cigar common stock held by Mr. Rubin. These shares will be
returned to our treasury. In addition, as required under the terms of the asset
purchase and share exchange, Mr. Rubin will assume all of Alec Bradley Cigar's
obligations incurred prior to the effective date of the reverse merger,
including repayment of related party promissory note, which were approximately
$57,974 at September 30, 2005, although the outstanding balance on the
promissory note was not a factor in determining the sales price of the cigar
business. When the share exchange is consummated, Online Vacation Center will be
the surviving entity.
Q: WHAT ARE THE IMPLICATIONS OF THE PROPOSALS FOR ALEC BRADLEY CIGAR'S
CURRENT BUSINESS?
A: Alec Bradley Cigar will sell all or substantially all of its assets, dispose
of its liabilities and no longer own or operate its current cigar business.
Current Alec Bradley Cigar shareholders will no longer hold any interest in the
cigar business after the asset sale. After the share exchange, Alec Bradley
Cigar will conduct the Online Vacation Center's business, under the leadership
of Online Vacation Center's current management and the cigar business will
continue to be operated by Alec Bradley Cigar's current employees under the
ownership of Alan Rubin or his affiliates.
7
The share exchange is a reverse merger in which Online Vacation Center
will be the surviving company. As a result of this reverse merger, a change in
control in Alec Bradley Cigar will occur. Management of Alec Bradley Cigar will
change, as Edward Rudner will replace Alan Rubin as chief executive officer and
chief financial officer of the surviving entity. In addition, the board of
directors of the surviving entity will consist of Edward Rudner, Richard Anthony
McKinnon and Brian Froelich. Current shareholder ownership of Alec Bradley Cigar
will be reduced to approximately 9% of the surviving entity. Current
shareholders of Alec Bradley Cigar will experience substantial dilution if the
reverse merger is completed and will be investors in an online travel services
company.
Q: WHAT WILL ONLINE VACATION CENTER SHAREHOLDERS RECEIVE IN THE SHARE
EXCHANGE?
A: If the share exchange is consummated, shareholders and debenture holder of
Online Vacation Center will receive an aggregate of 15,000,000 shares of Alec
Bradley Cigar common stock in exchange for 100% of their interest in Online
Vacation Center. Current Alec Bradley Cigar shareholders will not receive any
stock or consideration in connection with the reverse merger and will continue
to hold stock in Alec Bradley Cigar, which, upon completion of the reverse
merger, will be renamed Online Vacation Center Holdings Corp. and will carry on
the business of Online Vacation Center. The aggregate ownership interest of
current shareholders in the surviving entity will be reduced to approximately 9%
Q: WHAT ARE THE TERMS OF THE SHARE EXCHANGE?
A: General. Upon the consummation of the transactions contemplated by the share
exchange agreement, the Online Vacation Center shareholders and debenture holder
will receive an aggregate of 15,000,000 shares of Alec Bradley Cigar common
stock and Online Vacation Center will become a wholly owned subsidiary of Alec
Bradley Cigar.
There are no options nor warrants to purchase shares of Online Vacation
Center common stock. See "Approval of the Share Exchange Agreement - The Share
Exchange -- Effects of the Share Exchange" "Approval of the Share Exchange
Agreement -- The Share Exchange Agreement -- Certain Conditions to Consummation
of the Share Exchange" for a more detailed discussion.
The share exchange will become effective upon approval of Online
Vacation Center shareholders and mailing of this information statement. Assuming
all conditions to the share exchange are satisfied or waived, it is anticipated
that the share exchange will be effective 20 days after the mailing of this
information statement.
Conditions to Closing. In addition to other conditions to consummation
of the share exchange customary to agreements of this type, the share exchange
agreement provides that the obligations of the parties to effect the share
exchange are subject to the satisfaction, among others, of the following
conditions:
* the approval of each shareholder of Online Vacation Center;
* Alec Bradley Cigar shall have maintained its quotation on the
OTCBB;
* Alec Bradley Cigar shall have completed the sale of assets or
otherwise disposed of all of its assets;
* Alec Bradley Cigar shall have amended its articles of
incorporation eliminating preemptive rights and changing its name
to Online Vacation Center Corp; and
* Alec Bradley Cigar shall not have more than 1,799,777 shares
outstanding immediately prior to the effective time of the share
exchange.
Termination of the share exchange agreement. The share exchange
agreement may be terminated by either party if:
8
* the shareholders of either company do not approve the requisite
transactions contemplated by the share exchange agreement;
* the share exchange has not been consummated by December 31, 2005,
or a later date mutually agreed upon;
* there has been a material misrepresentation, breach of warranty or
breach of a covenant by the other party; or
* there has been a material adverse change in the financial
condition of the other party.
Q: WHO WILL SERVE AS MANAGEMENT OF ALEC BRADLEY CIGAR AFTER THE REVERSE
MERGER?
A: Alec Bradley Cigar has agreed that, as of the effective time of the share
exchange, Alan Rubin, as the sole director of Alec Bradley Cigar, will appoint
Edward B. Rudner, who is currently the sole director of Online Vacation Center,
and Richard Anthony McKinnon and Brian P. Froelich to serve as members of the
board of directors until the next annual meeting of the shareholders.
Immediately thereafter Mr. Rubin will resign and the newly-comprised board of
directors will elect those individuals serving as officers of Online Vacation
Center immediately preceding the effective time of the share exchange as
officers of Alec Bradley Cigar. Biographical information concerning the new
directors is set forth in "Approval of the Share Exchange Agreement -- The
Management of Alec Bradley Cigar and the Surviving Company After the Share
Exchange."
Q: WHAT ARE THE INTERESTS OF THE AFFILIATES OF ALEC BRADLEY CIGAR AND
ONLINE VACATION CENTER?
A: We are selling our cigar business to Alan Rubin. The reverse merger will
result in a change of control of Alec Bradley Cigar. Certain individuals who
will serve as directors and executive officers of Alec Bradley Cigar following
the effective time of the share exchange currently own no shares of Alec Bradley
Cigar's common stock. Following the share exchange the current and future
directors, executive officers and affiliates will be deemed to have such
beneficial ownership of common stock as follows:
Shares Owned Prior Shares Owned After
to Effective Date Effective Date
Name Number Percentage Number Percentage
---- ------ ---------- ------ ----------
Alan Rubin 2,895,000 64.4% 195,000 (1) 1.2%
Edward B. Rudner -0- -0- 11,174,660 (2) 63.8%
Richard Anthony McKinnon -0- -0- 600,000 (3) 3.4%
Brian P. Froelich -0- -0- 200,000 (4) 1.2%
Bruce A. Ginsberg 500,000 10% 0 (5) 0%
Reginald Flosse -0- -0- 3,060,050 18.2%
Pacific Tour Services, Inc.(6) -0- -0- 1,500,310 8.9%
William A. Cataldo(7) -0- -0- 2,040,290 12.1%
(1) Assumes exchange of shares in connection with sale of assets.
(2) Includes shares issued pursuant to the share exchange. Includes an
aggregate of 1,680,000 shares held in trust for the benefit of Mr.
Rudner's children and 1,680,000 shares held by Mr. Rudner's wife. Also
includes 500,000 shares that Mr. Rudner has entered into an agreement
to purchase privately from Bruce Ginsberg (an affiliate of Alec Bradley
Cigar) at $0.90 per share and up to 75,000 shares that Mr. Rudner has
entered into an agreement to purchase privately from a third party
shareholder at $0.20 per share. The agreements were executed on
different dates and are effective on the date of the reverse merger.
Also includes 700,000 shares of common stock underlying options
exercisable at 110% of the market price of Alec Bradley Cigar's common
stock as of the effective date of the share exchange.
(3) Includes 600,000 shares of common stock underlying options exercisable
at 110% of the market price of Alec Bradley Cigar's common stock as of
the effective date of the share exchange.
(4) Includes 200,000 shares of common stock underlying options exercisable
at 110% of the market price of Alec Bradley Cigar's common stock as of
the effective date of the share exchange.
9
(5) Mr. Ginsberg has entered into a written agreement to sell his shares to
Mr. Rudner at $0.90 per share. The sale will be effective on the date
of the reverse merger.
(6) Voting control held by William A. Cataldo.
(7) Includes 539,980 shares held in the Cataldo Family Trust, a trust in
which Mr. Cataldo is a beneficiary and protector. Also includes
1,500,310 shares held by Pacific Tour Services.
In addition to the equity interests described above, the surviving
entity will enter into an employment agreement with Mr. Rudner, a consulting
agreement with Mr. McKinnon and pay an annual fee to all individuals serving on
the board of directors. The terms of these agreements and director compensation
are set forth in "Management After the Share Exchange - Compensation." Also as
previously described in this information statement, Alan Rubin will be receiving
sole ownership of the cigar business upon effectiveness of the share exchange
and will retain 195,000 shares of Alec Bradley Cigar common stock.
Q: HAS ALEC BRADLEY CIGAR RECEIVED A FAIRNESS OPINION?
A: Capitalink, L.C. provided its opinion to Alec Bradley Cigar's board of
directors that, as of the date of its opinion, the consideration received by
Alec Bradley Cigar in exchange for substantially all of its assets and the share
exchange, combined together, is fair from a financial perspective to Alec
Bradley Cigar's non-affiliated shareholders. The full text of Capitalink, L.C.'s
opinion is attached to this information statement as Appendix E. In reaching its
conclusion, Capitalink, L.C. reviewed various corporate and public documents and
performed other financial studies and analyses. See "Approval of the Share
Exchange Agreement - The Share Exchange Agreement -- Fairness Opinion."
Q: WHAT WILL BE THE ACCOUNTING TREATMENT?
A: Under generally accepted accounting principles the share exchange will be
accounted for as a reverse acquisition, with Online Vacation Center as the
surviving entity. The assets and liabilities of Online Vacation Center will be
carried forward at historical cost.
Q: WHAT ARE THE INTENDED FEDERAL INCOME TAX CONSEQUENCES?
A: It is intended that the share exchange will qualify as a tax-free
reorganization within the meaning of Section 368(a)(1)(B) of the Internal
Revenue Code of 1986, as amended (the "Code"). It is not expected that the share
exchange will result in any federal income tax consequences to shareholders of
Alec Bradley Cigar other than any shareholders exercising dissenter's rights
under the FBCA. See "Approval of the Share Exchange Agreement -- Certain Federal
Income Tax Effects."
Q: IS REGULATORY APPROVAL REQUIRED?
A: Alec Bradley Cigar and Online Vacation Center each believe that no regulatory
approvals are or will be required in connection with the share exchange.
Q: WILL ALEC BRADLEY CIGAR'S COMMON STOCK CONTINUE TO BE QUOTED ON THE
OVER THE COUNTER BULLETIN BOARD (OTCBB)?
A: Currently, our common stock is quoted on the OTCBB. The completion of the
sale of assets, share exchange and other proposals should have no effect on the
quotation of our common stock on the OTCBB.
Q: WHEN WILL THE SALE OF ASSETS AND SHARE EXCHANGE OCCUR?
A: We plan to complete the sale of assets, share exchange and other proposals as
soon as possible after the mailing of this information statement, subject to the
satisfaction or waiver of the conditions to the asset purchase agreement with
Mr. Rubin, and the share exchange agreement with Online Vacation Center.
Although we cannot predict exactly when all conditions will be satisfied or
waived, we hope to complete the transactions during the fourth fiscal quarter of
2005. The share exchange agreement provides for termination if the share
10
exchange is not consummated by December 31, 2005, unless the both parties agree
to a later date.
Q: WHAT WILL HAPPEN IF THE ASSET SALE AND SHARE EXCHANGE ARE NOT
CONSUMMATED?
A: If for any reason the share exchange and asset sale are not consummated, Alec
Bradley Cigar will continue to own and operate its current cigar business and
current shareholders will continue to be investors in the cigar business. Alec
Bradley Cigar currently has no other present plans or intentions to enter into
another merger or reverse merger transaction. However, if the reverse merger is
not completed, management of Alec Bradley Cigar will review all available
options.
Q: ARE DISSENTERS' RIGHTS AVAILABLE AND HOW DO I EXERCISE THEM?
A: Yes, Florida law provides that you may dissent from the sale of assets and
elimination of pre-emptive rights. In order to perfect your dissenter's rights,
you must first notify Alec Bradley Cigar prior to the Effective Date in writing.
Alec Bradley Cigar will then notify you that you are entitled to demand payment
for your shares and instruct you of the necessary steps in order to obtain such
payment. If you do not comply with the procedures governing dissenters' rights
set forth under Florida law and explained elsewhere in this information
statement, you may not be entitled to payment for your shares. You are urged to
review the section of this information statement entitled "Rights of Dissenting
Shareholders" and Appendix F for a more complete discussion of dissenters'
rights.
Q: WHAT DO I NEED TO DO NOW?
A: This information statement contains important information regarding the sale
of assets, share exchange, amendments to our articles of incorporation and 2005
Management and Director Equity Incentive and Compensation Plan. It also contains
important information about what our management and board of directors, and the
management and board of directors of Online Vacation Center, considered in
evaluating the sale of assets and share exchange. We urge you to read this
information statement carefully, including the appendices, and to consider how
the sale of assets, share exchange, articles of amendment and 2005 Management
and Director Equity Incentive and Compensation Plan effect you as a shareholder.
Q: DO I VOTE?
A: No. The Proposals have already been approved. We are not asking you for a
proxy.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions regarding the matters discussed in this information
statement or if you would like additional copies of this information statement,
you should call Alec Bradley Cigar's corporate offices at (954) 321-5991.
11
MARKET FOR COMMON STOCK
Alec Bradley Cigar's common stock is currently quoted on the OTCBB
under the symbol "ABDC." Alec Bradley Cigar's common stock commenced quotation
on the OTCBB in February 2002. The stock is thinly traded and transactions in
the stock are infrequent and sporadic. No established trading market exists for
Online Vacation Center's common stock.
The closing sale quotation per share of Alec Bradley Cigar's common
stock, as reported on the OTCBB on August 30, 2005 (the day immediately
preceding the announcement of the share exchange) was $0.20.
The following table sets forth the high and low bid quotations for Alec
Bradley Cigar's common stock for the periods indicated. These quotations, as
reported by the OTCBB, reflect prices between dealers, do not include retail
mark-ups, markdowns, or commissions, and may not necessarily represent actual
transactions.
Period High Low
------ ---- ---
Quarter ended March 31, 2003 $0.03 $0.03
Quarter ended June 30, 2003 $0.04 $0.02
Quarter ended September 30, 2003 $0.08 $0.02
Quarter ended December 31, 2003 $0.08 $0.04
Quarter ended March 31, 2004 $0.18 $0.04
Quarter ended June 30, 2004 $0.20 $0.10
Quarter ended September 30, 2004 $0.20 $0.05
Quarter ended December 31, 2004 $0.25 $0.10
Quarter ended March 31, 2005 $0.35 $0.06
Quarter ended June 30, 2005 $0.20 $0.15
Quarter ended September 30, 2005 $0.73 $0.13
12
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING INFORMATION
This information statement contains certain forward-looking statements
with respect to the financial condition, results of operations, plans,
objectives, future performance and business of each of Alec Bradley Cigar and
Online Vacation Center, and the effect of the share exchange. Because such
statements are subject to risks and uncertainties, actual results may differ
materially from historical results and those presently anticipated or projected.
Alec Bradley Cigar's shareholders are cautioned not to place undue reliance on
such statements, which speak only as of the date hereof. Among the factors that
could cause actual results in the future to differ materially from any opinions
or statements expressed with respect to future periods are those described in
the section of this information statement entitled "Risk Factors." Neither Alec
Bradley Cigar nor Online Vacation Center undertakes any obligation to release
publicly any revisions to such forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
THE INFORMATION STATEMENT
GENERAL
This information statement is being furnished to shareholders of Alec
Bradley Cigar in lieu of a special meeting of shareholders in connection with
the following Proposals:
* the sale of substantially all the assets of Alec Bradley Cigar
pursuant to the terms of an asset purchase agreement between Alec
Bradley Cigar and Alan Rubin;
* to amend our articles of incorporation to eliminate the preemptive
rights currently provided to our shareholders;
* to amend our articles of incorporation to change our name to
Online Vacation Center Holdings Corp.;
* to amend our articles of incorporation to increase our authorized
common stock to 80,000,000 shares; and
* to adopt the 2005 Management and Director Equity Incentive and
Compensation Plan.
The asset sale and share exchange discussed in this information
statement constitute a reverse merger, in which Online Vacation Center will be
the surviving entity. This information statement is being sent in lieu of a
special meeting. Alec Bradley Cigar has adopted the Proposals discussed in this
information statement by the written consent of stockholders holding a majority
of the voting power of Alec Bradley Cigar's common stock.
Alec Bradley Cigar's Board of Directors approved and recommended,
pursuant to a written consent dated August 25, 2005, that the Proposals be
accepted. Alec Bradley Cigar's stockholders holding a majority of the voting
power approved the Proposals, pursuant to a written consent dated August 25,
2005. Alec Bradley Cigar anticipates that the effectiveness of the asset sale
and filing of the amendments will occur on or about _________, 2005 (the
"Effective Date"). If the Proposals were not adopted by written consent, it
would have been required to be considered by Alec Bradley Cigar's stockholders
at a special or annual stockholders' meeting convened for the specific purpose
of approving the Proposals.
The elimination of the need for a special or annual meeting of
stockholders to ratify or approve the Proposals is authorized by Section
607.0704 of the Florida Business Corporation Act (the "FBCA") and Alec Bradley
Cigar's bylaws, which provides that the written consent of stockholders holding
at least a majority of the voting power may be substituted for such a special or
annual meeting. In order to eliminate the costs and management time involved in
holding a special or annual meeting and in order to effect or ratify the
Proposals as early as possible in order to accomplish the purposes of Alec
Bradley Cigar, the board of directors of Alec Bradley Cigar voted to utilize the
written consent of stockholders holding a majority of the voting power of the
Alec Bradley Cigar.
13
Alan Rubin beneficially owning 2,895,000 shares of common stock and
Bruce Ginsberg owning 500,000 shares of common stock, representing approximately
75% of the voting power of Alec Bradley Cigar, gave their written consent to the
Proposals described in this information statement on August 25, 2005. It is
proposed that this information statement will be first sent to the stockholders
on or about __________, 2005. The record date established by Alec Bradley Cigar
for purposes of determining the number of outstanding shares of common stock,
and thus the voting power, is ___________, 2005 (the "Record Date").
Alec Bradley Cigar is distributing this information statement to its
stockholders in full satisfaction of any notice requirements it may have under
the FBCA. No additional action will be undertaken by Alec Bradley Cigar with
respect to the receipt of the written consents.
SHAREHOLDERS OF ALEC BRADLEY CIGAR ARE ENTITLED TO DISSENT FROM THE
SALE OF ASSETS AND ELIMINATION OF PREEMPTIVE RIGHTS DISCUSSED IN THIS
INFORMATION STATEMENT AND OBTAIN PAYMENT OF THE FAIR VALUE OF THEIR SHARES IF
AND WHEN THE PROPOSALS ARE EFFECTUATED. SHAREHOLDERS DESIRING TO EXERCISE THEIR
APPRAISAL RIGHTS MUST COMPLY WITH SPECIFIC PROVISIONS OF THE FBCA WHICH ARE
INCLUDED IN THE APPENDIX HERETO.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below indicates the security ownership of officers, directors
and beneficial owners as of the date of this information statement. Unless
otherwise indicated, the business address of each person listed is 3400 S.W.
26th Terrace, Suite A-1, Dania, Florida 33312.
Number of Shares
Name of of Common Stock Ownership
Beneficial Owner Beneficially Owned Percentage
---------------- ------------------ ----------
Alan Rubin 2,895,000 64.4%
Bruce A. Ginsberg(1) 500,000 11.1%
All executive officers and
directors as a group (1 person) 2,895,000 64.4%
(1) 2523 Monterey Court, Weston, FL 33327
14
PROPOSAL ONE:
SALE OF ASSETS
The following discussion summarizes certain aspects of the proposal to
sell all or substantially all of Alec Bradley Cigar's assets to Alan Rubin or an
entity beneficially owned by Mr. Rubin. The following is not a complete
statement of the terms of the asset purchase agreement and is qualified in its
entirety by the asset purchase agreement, a copy of which is attached as
Appendix A.
GENERAL
The asset purchase agreement provides for the sale of all of the assets
of Alec Bradley Cigar to Alan Rubin for a total purchase price of 2,700,000
shares of Alec Bradley Cigar common Stock. Mr. Rubin is the principal
shareholder and sole executive officer and director of Alec Bradley Cigar. The
closing of the asset purchase agreement, which includes the sale of assets and
liabilities to Mr. Rubin, is a condition of the share exchange with Online
Vacation Center, a travel services company. The consummation of these
transactions will result in a reverse merger and Online Vacation Center will be
the surviving entity. There will be a change of control and current shareholders
will be substantially diluted.
Online Vacation Center shareholders will receive an aggregate of
15,000,000 shares of Alec Bradley Cigar common stock in exchange for their
interests in Online Vacation Center. The shares of common stock issued pursuant
to the share exchange will contain the same rights, terms and preferences as
Alec Bradley Cigar's currently issued and outstanding shares of common stock.
The par value of Alec Bradley Cigar common stock is $.0001 per share. The
holders of Alec Bradley Cigar common stock are entitled to one vote for each
share held of record on all matters to be voted on by shareholders. There is no
cumulative voting with respect to the election of directors, with the result
that the holders of more than 50% of the shares voted for the election of
directors can elect all of the directors. The holders of Alec Bradley Cigar
common stock are entitled to receive dividends when, as and if declared by the
board of directors out of legally available funds. Alec Bradley Cigar has not
paid dividends since its inception. In the event of Alec Bradley Cigar's
liquidation, dissolution or winding up, the holders of common stock are entitled
to share ratably in all assets remaining available for distribution to them
after payment of liabilities and after provision has been made for each class of
stock, if any, having preference over the common stock. Holders of shares of
common stock, as such, have no conversion or other subscription rights, and
there are no redemption provisions applicable to common stock. The common shares
currently have preemptive rights; however, such rights will be revoked under
Proposal 2. All of the outstanding shares of common stock are, and the shares of
common stock to be issued pursuant to the share exchange, will be duly
authorized, validly issued, fully paid and nonassessable. Alec Bradley Cigar is
also authorized to issue up to 1,000,000 shares of preferred stock, the rights,
preferences and designations of such shares to be determined by the board of
directors of Alec Bradley Cigar. There are currently no shares of preferred
stock issued or outstanding.
Pursuant to Proposal 2 discussed in this information statement, the
articles of incorporation of Alec Bradley Cigar will be amended to remove
preemptive rights. Therefore, upon the execution of the reverse merger, current
Alec Bradley Cigar stockholders will no longer have preemptive rights. A
preemptive right is the right of current shareholders to maintain their
fractional ownership of a company by buying a proportional number of shares of
any future issue of common stock. The elimination of preemptive rights is
discussed under Proposal 2. There will be no other material differences in
shareholder rights as a result of the reverse merger.
REASONS FOR SALE OF ASSETS
The disposition of all of Alec Bradley Cigar's assets is a condition to
the consummation of the share exchange, as described in this information
statement.
15
ASSET PURCHASE AGREEMENT
Pursuant to the share exchange, Alec Bradley will dispose of all its
assets and liabilities under an asset purchase agreement with Alan Rubin. In
consideration of the cigar operations and assets, Mr. Rubin will tender
2,700,000 of his shares of Alec Bradley Cigar common stock. Such shares will be
cancelled by Alec Bradley Cigar. In addition, as required under the terms of the
asset purchase agreement, Mr. Rubin will assume all of Alec Bradley Cigar's
obligations incurred prior to the effective date of the reverse merger.
Assumption of the obligations was not a factor in determining the sales price of
the cigar business. You are urged to review the asset purchase agreement, a copy
of which is incorporated in and attached to this information statement as
Appendix A, for a complete statement of the terms of the sale of assets.
EFFECTIVE DATE AND CONSEQUENCES OF THE SALE OF ASSETS
The effective time of the sale of assets will immediately precede the
closing of the share exchange. Upon the consummation of the sale of assets, Alec
Bradley Cigar will no longer import and distribute cigars and Alec Bradley Cigar
shareholders will no longer own an investment in the cigar business.
RIGHTS OF DISSENTING SHAREHOLDERS
The proposed sale of assets is a corporate action which gives rise to
dissenters' rights under the FBCA. A summary and discussion of dissenters'
rights available to Alec Bradley Cigar shareholders is set forth in this
information statement under the heading "Rights of Dissenting Shareholders."
Dissenters' rights under the FBCA are attached to this information statement as
Appendix F.
FAIRNESS OPINION
The board of directors engaged Capitalink, L.C. to perform a fairness
evaluation of the sale of assets and share exchange. Capitalink, L.C. has been
engaged in the valuation of businesses and their securities in connection with
share exchanges and acquisitions, public and private financing, and valuations
for estate, corporate and other purposes. The fairness opinion is attached to
this information statement as Appendix E. The opinion is discussed below.
INTERESTS OF CERTAIN ENTITIES
In considering the sale of assets, you should be aware that Alan Rubin
currently owns approximately 2,895,000 shares of the Alec Bradley Cigar
outstanding common stock. Therefore, Mr. Rubin, as a shareholder of Alec Bradley
Cigar, has interests in the sale of assets in addition to, and different from,
the interests of Alec Bradley Cigar's shareholders generally.
BACKGROUND OF THE SHARE EXCHANGE
The following information describes the material aspects of the share
exchange. This description does not purport to be complete and is qualified in
its entirety by reference to the appendices attached hereto, including the share
exchange agreement, which is attached to this information statement as Appendix
B and is incorporated herein by reference. You are urged to read Appendix B in
its entirety. On the closing date of the share exchange agreement, Alec Bradley
Cigar will receive 100% of the outstanding shares of Online Vacation Center
common stock in exchange for 15,000,000 shares of Alec Bradley Cigar common
stock. The share exchange is a reverse merger in which Online Vacation Center
will be the surviving entity. In early 2005, Alec Bradley Cigar's board of
directors began considering and evaluating the economic conditions for Alec
Bradley Cigar and began to evaluate restructuring alternatives. Shortly
thereafter, Alec Bradley Cigar was introduced to Online Vacation Center and the
parties entered into a non-binding letter of intent to facilitate a share
exchange between the companies. The parties executed the share exchange
agreement on August 25, 2005. The share exchange and non-binding letter of
intent are the only agreements entered into by and between Alec Bradley Cigar
16
and Online Vacation Center. Except as otherwise disclosed in this information
statement there are no past contacts, transactions or negotiations with Online
Vacation Center.
If for any reason the share exchange and asset sale are not
consummated, Alec Bradley Cigar will continue to own and operate its current
cigar business. Alec Bradley Cigar currently has no other plan or intentions to
enter into another merger or reverse merger transaction.
REASONS FOR THE SHARE EXCHANGE
Currently, Alec Bradley Cigar does not have cash flow or borrowing
capacity sufficient to pay for the costs and fees of expansion. Moreover,
because of illiquidity in its stock, Alec Bradley Cigar's stock has not been
sufficiently attractive to serve as currency to fund its growth. As an OTCBB
quoted company, Alec Bradley Cigar has been unable to raise capital through
equity offerings because it has had no institutional interest in its stock.
Having determined that it no longer has a ready means by which to fund future
growth central to its business plan, the board of directors has determined that
it is in Alec Bradley Cigar's best interests to dispose of all or substantially
all of Alec Bradley Cigar's current operations. The board of directors believes
that if the reverse merger is completed, Alec Bradley Cigar's shareholders are
more likely to realize increased value, because its share price may increase as
a result of the business and results of operations of the surviving entity.
The decision by Online Vacation Center's board of directors and
shareholders to enter into the share exchange agreement is based upon their
belief that funding sources and access to capital markets are more readily
available to Online Vacation Center as a public company with a trading market
for its common stock then if it remained a private company. Online Vacation
Center also believes that as a public company its common stock may be used as
consideration for the acquisition of other travel companies. Another factor in
entering into the share exchange agreement is that as a public company, its
shareholders will be better able to sell all or a part of their common stock
because there may be a public market for the common stock of Online Vacation
Center.
THE SHARE EXCHANGE AGREEMENT
General Terms
-------------
The share exchange agreement provides that, upon the satisfaction or
waiver of certain conditions, all the shareholders of Online Vacation Center
will exchange their shares of Online Vacation Center for an aggregate of
15,000,000 shares of Alec Bradley Cigar common stock. The shares will be issued
pursuant to the exemption from registration provided by Section 4(2) of the
Securities Act. An aggregate of ten individuals and entities will receive shares
of common stock pursuant to the share exchange. The individuals and entities are
all accredited. The individuals and entities have received current information
about Alec Bradley Cigar and the reverse merger and have had an opportunity to
ask questions about Alec Bradley Cigar and the reverse merger. All shares of
common stock issued pursuant to the share exchange will contain legends
restricting transferability absent registration or applicable exemption.
Following the share exchange, Online Vacation Center will be the
surviving entity. It is anticipated that if all conditions of the share exchange
have been satisfied or waived, the share exchange will be completed within 20
days of the mailing of this information statement. The delay in fulfilling any
condition of the share exchange could delay the completion of the share exchange
or result in the termination of the share exchange agreement.
Effects of the Share Exchange
-----------------------------
The share exchange will be accounted for as a reverse acquisition, with
Online Vacation Center as the surviving entity. At the effective time of the
share exchange, all outstanding shares of Online Vacation Center common stock
and Online Vacation Center debentures will be exchanged for an aggregate of
15,000,000 shares of Alec Bradley Cigar common stock. Following the share
17
exchange and assuming Alec Bradley Cigar's sale of assets, Online Vacation
Center will be a wholly-owned subsidiary of Alec Bradley Cigar.
Upon the exchange of all shares of Online Vacation Center common stock
and exchange of all $3,000,000 of outstanding Online Vacation Center debentures,
the aggregate number of shares of Alec Bradley Cigar common stock issuable to
the shareholders and debenture holder of Online Vacation Center will be
15,000,000, or approximately 90% of the Alec Bradley Cigar common stock
outstanding immediately after the effective time of the share exchange. As a
result, the shareholders of Online Vacation Center will have significant control
over Alec Bradley Cigar. In connection with the share exchange, there were not
any specific terms of exchange on a per share basis. Instead, 15,000,000 shares
were to be exchanged for the business of Online Vacation Center after the
exchange of the debentures and the number of shares to be received by each
shareholder and debenture holder was agreed to by negotiations by and between
the shareholders and debenture holder.
Fractional Shares
-----------------
No fractional shares of Alec Bradley Cigar common stock shall be issued
in exchange for shares of Online Vacation Center common stock. In lieu thereof,
fractional shares shall be rounded up to the nearest whole number.
Effective Time
--------------
If the share exchange agreement is adopted by the requisite vote of the
shareholders of Alec Bradley Cigar and all of the other conditions described
under "Conditions to Consummation of the Share Exchange" are satisfied or waived
by one or both of the parties, as appropriate (and to the extent permitted by
the share exchange agreement), then, unless the share exchange agreement is
previously terminated, the share exchange will be consummated and become
effective immediately following the special meeting.
The share exchange agreement provides that Alec Bradley Cigar and
Online Vacation Center will cause the effective time to occur as promptly as
practicable after the adoption by the shareholders of Alec Bradley Cigar and of
Online Vacation Center and the satisfaction or waiver of the other conditions
described under "Conditions to Consummation of the Share Exchange," but in no
event later than ten business days after all such conditions have been satisfied
or waived, or on such other date as may be mutually agreed upon by the parties.
There can be no assurance that all conditions to the share exchange will be
satisfied. The share exchange agreement may be terminated prior to the effective
date of the share exchange by either Alec Bradley Cigar or Online Vacation
Center in specified circumstances, whether before or after adoption of the share
exchange agreement by the shareholders of Alec Bradley Cigar. See "Termination."
Representations and Warranties
------------------------------
Subject to specified exceptions, the share exchange agreement contains
various representations and warranties of both Alec Bradley Cigar and Online
Vacation Center relating to, among other things:
o the due organization, power and standing of Alec Bradley Cigar and
Online Vacation Center, and similar corporation matters;
o the absence of any public body, court or authority's
authorization, consent or approval required for the consummation
of the share exchange by Alec Bradley Cigar and Online Vacation
Center;
o the capital structure and the authorization and validity of the
outstanding shares of capital stock of Alec Bradley Cigar and
Online Vacation Center;
o the absence of material changes or events with respect to Alec
Bradley Cigar and Online Vacation Center;
o the absence of material undisclosed liabilities of Alec Bradley
Cigar and Online Vacation Center;
18
o the absence of pending or threatened actions against such party
with respect to the share exchange;
o the absence of claims for brokerage commissions, finders' fees,
investment advisory fees or similar compensation based upon
arrangements made by or on behalf of Alec Bradley Cigar or Online
Vacation Center with respect to the share exchange;
o real property used or occupied by Alec Bradley Cigar and Online
Vacation Center;
o title (including leasehold title) of Alec Bradley Cigar and Online
Vacation Center to, and the absence of liens against, properties
and assets;
o the filing of tax returns, the absence of tax audits, the payment
of taxes and related tax matters by Alec Bradley Cigar and Online
Vacation Center;
o material contracts to which Alec Bradley Cigar or Online Vacation
Center is a party and the absence of defaults and breaches with
respect thereto;
o undisclosed transactions with affiliates of Alec Bradley Cigar and
Online Vacation Center;
o compliance with applicable laws and possession of necessary
permits by Alec Bradley Cigar and Online Vacation Center; and
o material disclosure by Alec Bradley Cigar and Online Vacation
Center.
In addition, Alec Bradley Cigar has also made additional
representations and warranties to Online Vacation Center relating to, among
other things, the following matters (which representations and warranties are
subject, in certain cases, to specified exceptions):
o the filing of reports and other documents with the SEC, the
material compliance of such documents with SEC rules and
regulations and the accuracy of the information contained therein;
o the material compliance of this information statement with state
and Federal laws and the accuracy of the information contained
therein; and
o the authorization and validity of the shares of common stock to be
issued pursuant to the share exchange agreement.
Covenants
---------
The share exchange agreement also contains various other covenants,
including the following:
o The parties shall use all reasonable efforts to make all
legally-required filings and take all other actions necessary,
proper or advisable to consummate the share exchange;
o Between the date of the share exchange agreement and the date this
information statement was filed with the SEC, the parties were
required to afford each other reasonable access to corporate
books, records and papers;
o Prior to the closing of the share exchange and in the event the
share exchange is never consummated, the parties are prohibited
from disclosing or using any confidential information received
from the other party;
o Alec Bradley Cigar is required to seek approval of the proposals
contemplated by the share exchange agreement from its shareholders
and notify its shareholders of the pending transactions via the
mailing of an information statement; each party is required to
cooperate in the preparation of the information statement;
o Neither Alec Bradley Cigar nor Online Vacation Center shall
knowingly take any action which would disqualify the share
exchange as a tax-free reorganization under the Internal Revenue
Code;
o The parties shall cooperate regarding the substance of press
releases and public announcements relating to the share exchange
agreement;
o The parties shall use reasonable efforts to maintain quotation of
Alec Bradley Cigar's common stock on the OTCBB;
o Subject to the fiduciary duties and legal obligations of the
respective boards of directors of Alec Bradley Cigar and Online
19
Vacation Center, the parties shall each recommend approval of the
share exchange agreement, and, in the case of Alec Bradley Cigar,
the sale of substantially all of its assets and the amendment to
Alec Bradley Cigar's articles of incorporation, and use all
reasonable efforts to obtain approvals thereof from their
respective shareholders;
o The parties shall give prompt notice to each other with respect to
certain events and determinations and discovery of material
information;
o At the effective time of the share exchange, Alec Bradley Cigar
shall deliver the voluntary resignations of its directors and
executive officers;
o The parties agreed that, following the effective time of the share
exchange, they will not alter the rights of any current or former
director of Alec Bradley Cigar who has a right to indemnification
from Alec Bradley Cigar pursuant to its articles of incorporation
or bylaws; and
o Alan Rubin and four other shareholders of Alec Bradley Cigar
owning an aggregate of 368,000 shares of Alec Bradley Cigar common
stock shall enter into Lock Up Agreements preventing such
individuals from selling or transferring such shares for a period
of 12 months from the effective date of the share exchange.
Limitations on Solicitation of Transactions
-------------------------------------------
Pursuant to the share exchange agreement, Alec Bradley Cigar and Online
Vacation Center have each agreed that neither party nor any party's officers,
directors or agents shall, directly or indirectly, encourage, solicit or
initiate discussions or negotiations with, or engage in negotiations or
discussions with, or provide non-public information to, any corporation,
partnership, person or other entity or groups concerning any share exchange,
sale of capital stock, sale of substantial assets or other business combination;
provided that either party may engage in such discussion in response to an
unsolicited proposal from an unrelated party if such party's board of directors
determines, in good faith, after consultation with counsel, that the failure to
engage in such discussions may constitute a breach of the fiduciary or legal
obligations of such board of directors. Alec Bradley Cigar and Online Vacation
Center have each agreed to promptly advise the other party if it receives a
proposal or inquiry with respect to the matters described above.
Conditions to Consummation of the Share Exchange
------------------------------------------------
The effective time of the share exchange shall occur only upon the
satisfaction of numerous conditions by either Alec Bradley Cigar, Online
Vacation Center or both. The share exchange agreement provides that neither
party is obligated to consummate the share exchange unless the following
conditions are satisfied or mutually waived:
o NASD shall not have provided any notice to Alec Bradley Cigar that
the quotation of its common stock may be in jeopardy following the
completion of the share exchange;
o Each of Online Vacation Center shareholders shall have completed
and delivered to Alec Bradley Cigar an executed share exchange
agreement, a subscription agreement and letter of representation
in the form attached to the share exchange agreement;
o There shall be no injunction or other order of any court and there
shall not have been any law enacted prohibiting the transactions
contemplated by the share exchange agreement;
o Each party shall have obtained all necessary third party consents
and approvals;
o No action or proceeding shall be pending or threatened which would
seek to prohibit the transactions contemplated by the share
exchange agreement;
o There shall not have been any general suspension of trading on the
NASD markets, a suspension of trading of Alec Bradley Cigar common
stock or any other banking crisis or other national emergency; and
o The offering of shares of Alec Bradley Cigar common stock to the
Online Vacation Center shareholders shall be exempt under the
Securities Act.
20
Conditions to Alec Bradley Cigar's Obligations
----------------------------------------------
In addition to the conditions set forth above, the obligation of Alec
Bradley Cigar to effect the share exchange is subject to the satisfaction of the
following conditions at or prior to the effective time of the share exchange
(unless waived by Alec Bradley Cigar):
o The shareholders of Online Vacation Center shall have approved the
share exchange;
o The representations and warranties of Online Vacation Center
contained in the share exchange agreement shall be true and
correct on the closing date; and
o Online Vacation Center shall have performed and complied with all
the covenants and agreements contained in all material respects
and satisfied in all material respects all the conditions required
by the share exchange agreement to be performed or complied with
by Online Vacation Center at or prior to the effective time of the
share exchange.
Conditions to Online Vacation Center's Obligations
--------------------------------------------------
The obligation of Online Vacation Center to effect the share exchange
is subject to the satisfaction of conditions at or prior to the effective time
of the share exchange (unless waived by Online Vacation Center):
o The shareholders of Alec Bradley Cigar shall have approved the
proposals by the requisite votes;
o The representations and warranties of Alec Bradley Cigar contained
in the share exchange agreement shall be true and correct on the
closing date;
o Alec Bradley Cigar shall have performed and complied with all the
covenants and agreements contained in all material respects and
satisfied in all material respects all the conditions required by
the share exchange agreement to be performed or complied with by
Alec Bradley Cigar at or prior to the effective time of the share
exchange;
o Alec Bradley Cigar shall have disposed of all or substantially all
of its assets and liabilities;
o Alec Bradley Cigar shall have amended its articles of
incorporation eliminating shareholder preemptive rights and
changing its name to Online Vacation Center Holdings Corp.; and
o Alec Bradley Cigar shall not have more than 1,799,777 shares of
its common stock outstanding on a fully-diluted basis.
Termination of Share Exchange Agreement
---------------------------------------
The share exchange agreement may be terminated at any time prior to the
effective time of the share exchange:
o by mutual consent of Alec Bradley Cigar and Online Vacation
Center; or
o by either Alec Bradley Cigar or Online Vacation Center if:
(1) the shareholders of either company do not give the requisite
approvals to the transactions contemplated by the share
exchange agreement;
(2) the share exchange has not been consummated on or before
December 31, 2005, or such later date as the parties may
mutually agree;
(3) there has been a material misrepresentation, breach of
warrant or breach of covenant by the other party; and
(4) there shall have been a material adverse change in the
financial condition of the other party, or if an event shall
have occurred which, as far as reasonably can be foreseen,
would result in any such change.
If for any reason the share exchange and asset sale are not
consummated, Alec Bradley Cigar will continue to own and operate its current
cigar business and current shareholders will continue to be investors in the
cigar business. Alec Bradley Cigar currently has no other present plans or
intentions to enter into another merger or reverse merger transaction. However,
21
if the reverse merger is not completed, management of Alec Bradley Cigar will
review all available options.
Expenses
--------
Each party is responsible for all of its expenses incurred in
connection with the share exchange and asset sale, including any fees paid to
brokers or financial advisors. However, Online Vacation Center shall pay or
reimburse Alec Bradley Cigar for any costs and expenses associated with the
fairness opinion required for consummation of the share exchange and sale of
assets. Online Vacation Center is also responsible for all costs (including
legal fees and expenses) associated with this information statement. Online
Vacation Center has also agreed to pay the legal fees and associated accounting
fees for Alec Bradley Cigar that are incurred in connection with the
transactions described in this information statement.
PENNY STOCK RULES
Alec Bradley Cigar's common stock is subject to the Penny Stock Rules
promulgated under the Securities Exchange Act of 1934. These rules regulate
broker-dealer practices in connection with transactions in "penny stocks." Penny
stocks generally are equity securities with a price of less than $5.00 (other
than securities registered on certain national securities exchanges or quoted on
the NASDAQ system, provided that current price and volume information with
respect to transactions in such securities is provided by the exchange or
system). The Penny Stock Rules require a broker-dealer, prior to a transaction
in a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document prepared by the SEC that provides information about
penny stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account. The bid and
offer quotations, and the broker dealer and salesperson compensation
information, must be given to the customer orally or in writing prior to
effecting the transaction and must be given to the customer in writing before or
with the customer's confirmation.
In addition, the Penny Stock Rules require that prior to a transaction
in a penny stock not otherwise exempt from such rules, the broker and/or dealer
must make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written agreement to
the transaction. These disclosure requirements may have the effect of reducing
the trading activity in the secondary market for Alec Bradley Cigar's common
stock.
MANAGEMENT AFTER THE SHARE EXCHANGE
The share exchange is a reverse merger in which Online Vacation Center
will be the surviving company. As a result of this reverse merger, a change in
control in Alec Bradley Cigar will occur. Pursuant to the share exchange
agreement, the sole officer and director of Alec Bradley Cigar, Alan Rubin,
will, as of the effective time of the share exchange, resign. Prior to his
resignation, Mr. Rubin will appoint to the board of directors, Edward B. Rudner,
who is currently sole director of Online Vacation Center, and Richard Anthony
McKinnon and Brian P. Froelich who will serve as directors of Alec Bradley Cigar
until the next annual meeting of Alec Bradley Cigar's shareholders. The new
board of directors will appoint new officers of Alec Bradley Cigar. Biographical
information concerning the new directors and officers is set forth below:
Name Age Position
---- --- --------
Richard Anthony McKinnon 65 Chairman of the Board of Directors
Edward B. Rudner 55 Director, Chief Executive Officer,
Chief Financial Officer
Brian P. Froelich 59 Director
22
Richard Anthony (Tony) McKinnon. Mr. McKinnon will commence serving as chairman
of the board of directors on the effective date of the share exchange. With a
background at senior levels in marketing and executive management, Mr. McKinnon
has accumulated over thirty years of experience in the travel industry. His
experiences include executive responsibilities at American Airlines, Pan
American World Airways, Delta Air Lines, Wyndham Resort Hotels, USAir, American
Hawaii Cruises and The Delta Queen Steamboat Company. Most recently, McKinnon
successfully developed Vacation.com, American's largest vacation selling
network. With the sale of Vacation.com to Amadeus, a leading global distribution
system (GDS) and technology provider serving the marketing, sales and
distribution needs of the world's travel and tourism industries, Mr. McKinnon
served as CEO of Amadeus' North American Operations from 2000 through 2004. From
February 2005 through October 2005, he served as a senior adviser to the Seabury
Group, a consulting firm. Mr. McKinnon currently provides consulting services to
travel industry companies. He also currently serves as a director for the
Baptist Foundation of Texas, Tauck, Inc. and Ocean Air Holdings, Inc. Mr.
McKinnon holds a BS from the United States Military Academy and a JD from Emory
University School of Law.
Edward B. Rudner. Mr. Rudner has served as an executive officer and director of
Online Vacation Center since its inception in October 2000. Prior to founding
Online Vacation Center, Mr. Rudner served as chief financial officer and then
chief operating officer of Alamo Rent A Car. During his tenure Alamo Rent A Car
expanded from a Florida company with 400 cars to a national car rental company
with over 50,000 cars. In 1984, Mr. Rudner became President and CEO of Certified
Tours, which grew from selling 10,000 vacation packages a year to over 250,000.
In 1989, Mr. Rudner became Chairman and CEO of Renaissance Cruises, which
expanded ship assets from $60 million to over $1 billion and increased revenues
from $20 million to over $300 million by 1999. Following his departure, on
September 25, 2001, Renaissance Cruises filed for bankruptcy under Chapter 11 in
the United States Bankruptcy Court, Southern District of Florida. Renaissance
Cruises ceased operations and its assets were placed in a liquidating trust. Mr.
Rudner holds a BA in history, cum laude from the University of Massachusetts.
Brian P. Froelich. Mr. Froelich will commence serving on the board of directors
on the effective date of the share exchange. After four years in public
accounting with Arthur Anderson and Coopers and Lybrand and five years at US
Life, he founded BPF Travel in 1979. In 1984 he sold the company to American
Express. With BPF's acquisition by American Express, he became part of the
senior executive team of American Express. During his tenure at American
Express, he was general manager of the domestic Travel Management Services
business. As a result of his performance he was named to the American Express
Hall of Fame. From 1999 through 2001 he served as Senior Vice President,
Consumer Travel, American Express. From 2001 through 2002 he served as president
and CEO of Allied Tours, where he affected the turnaround of a failing travel
subsidiary of a public company, and sold it to a large European travel company.
Since 2003 he has served as president and CEO of Fenevations, LLC, a U.S.-based
manufacturer of custom windows and doors. Mr. Froelich holds a BS in Finance
from Boston College, an MBA from Rutgers University, and a JD from Seton Hall
Law School.
Compensation
------------
Employment Agreements
---------------------
Upon the effectiveness of the share exchange, Alec Bradley Cigar will
enter into an executive employment agreement with Mr. Rudner. In consideration
for serving as president and chief executive officer, Alec Bradley Cigar will
pay Mr. Rudner an initial base salary of $300,000, payable bi-weekly. The base
salary is subject to annual incremental increases of the greater of the
percentage increase in the consumer price index or 6% of the previous year's
base salary. In addition, Alec Bradley Cigar shall issue Mr. Rudner options to
purchase 500,000 shares of Alec Bradley Cigar common stock which shall be
exercisable at 110% of the fair market value of Alec Bradley Cigar's common
stock as of the effective date of the share exchange. Mr. Rudner shall also be
entitled to a performance based bonus and to participate in all benefit
programs. Mr. Rudner is entitled to five weeks paid vacation per year,
reimbursement of all reasonable out-of-pocket business expenses, a monthly
automobile allowance of $1,500, automobile insurance coverage and reimbursement
for memberships in social, charitable or religious organizations or clubs for up
to $30,000 per year. In the event of Mr. Rudner's death or disability during the
23
term of the agreement, Mr. Rudner's beneficiaries shall be entitled to all
compensation and benefits under his employment agreement for a period of one
year following the date of his death or disability. In the event that Mr. Rudner
is terminated "for cause", he shall only be entitled to receive his salary and
earned but unpaid bonuses due up to the date of termination. "Cause" is defined
as committing or participating in an injurious act of fraud or embezzlement
against the company; engaging in a criminal enterprise involving moral
turpitude; conviction of an act constituting a felony of a crime of violence,
fraud or dishonesty; or any attempt by Mr. Rudner to assign the employment
agreement. In the event that Mr. Rudner is terminated for any other reason other
than for cause, death or disability, he will receive all compensation and
benefits under his employment agreement for a period of three years following
the date of termination. He shall also be entitled to receive a bonus equal to
the amount received for the prior year or if no prior bonus was received, an
amount equal to $150,000, as well as all earned but unpaid bonuses from previous
years. The employment agreement also includes a limited covenant not to compete
and non-disclosure provision. The term of the agreement is for a period of three
years and the term shall automatically renew every year so that such agreement
shall never be in effect for less than three years at any time.
At September 30, 2005, Online Vacation Center has an obligation under
the terms of Edward Rudner's employment agreement with Online Vacation Center
for compensation and benefits in the amount of $553,859. Such amounts will be
assumed by Alec Bradley Cigar.
Other Compensation
------------------
Individuals who serve as directors of Alec Bradley Cigar following the
share exchange shall receive options to purchase shares of common stock of Alec
Bradley Cigar in consideration for serving on the board of directors. Messrs.
Rudner and Froelich shall receive options to purchase 200,000 shares of Alec
Bradley Cigar common stock exercisable at 110% of the market price of Alec
Bradley Cigar's common stock as of the effective date of the share exchange. Mr.
McKinnon shall receive options to purchase 600,000 shares of Alec Bradley Cigar
common stock in consideration for Mr. McKinnon serving as chairman of the board
of directors of Alec Bradley Cigar. The options are exercisable at 110% of the
market price of Alec Bradley Cigar's common stock as of the effective date of
the share exchange.
In addition, following the effective date, directors of Alec Bradley
Cigar shall receive an annual fee of $25,000 for serving on the board of
directors. The chairman of the board of directors shall receive an additional
annual fee of $50,000.
Effective October 2005, Online Vacation Center engaged Mr. McKinnon to
provide consulting services for Online Vacation Center. In consideration for
such services Mr. McKinnon shall receive a monthly fee of $10,000. Mr. McKinnon
will continue to serve as a consultant to Online Vacation Center following the
effectiveness of the share exchange.
INTERESTS OF CERTAIN PERSONS IN THE SHARE EXCHANGE
The following table sets forth certain information regarding the
beneficial ownership of Alec Bradley Cigar's common stock as of the Record Date,
and as adjusted to give effect to the share exchange as if such transaction had
occurred on such date, by those individuals who will serve as directors and by
the directors and executive management of Alec Bradley Cigar (as a group)
following the share exchange. See "Management of Alec Bradley Cigar After the
Share Exchange." The table also includes, on an adjusted basis to give effect to
the share exchange, each person that will own more than 5% of Alec Bradley
Cigar's common stock following the share exchange. Shares of common stock
subject to options and warrants currently exercisable or exercisable within 60
days from the date hereof are deemed outstanding for computing the percentage of
the person holding such options or warrants, but are not deemed outstanding for
computing the percentage ownership of any other person. Unless otherwise
indicated, the address for each of the shareholders below is 1801 N.W. 66th
Avenue, Suite 102, Plantation, Florida 33313.
24
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED FOLLOWING
PRIOR TO SHARE EXCHANGE SHARE EXCHANGE
----------------------- --------------
Name Number Percentage Number Percentage
---- ------ ---------- ------ ----------
Alan Rubin(1) 2,895,000 64.4% 195,000 1.2%
Edward B. Rudner -0- -0- 11,174,660(2) 63.8%
Richard Anthony McKinnon -0- -0- 600,000(3) 3.4%
Brian P. Froelich -0- -0- 200,000(4) 1.2%
Reginald Flosse(5) -0- -0- 3,060,050 18.2%
Pacific Tour Services, Inc.(6) -0- -0- 1,500,310 8.9%
William A. Cataldo(7) -0- -0- 2,040,290 12.1%
New directors and officers
As a group (3 persons) -0- -0- 11,974,660 65.4%
(1) Address is 3400 S.W. 26th Terrace, Suite A-1, Dania, Florida 33312.
(2) Includes shares issued pursuant to the share exchange. Includes an
aggregate of 1,680,000 shares held in trust for the benefit of Mr.
Rudner's children and 1,680,000 shares held by Mr. Rudner's wife. Also
includes 500,000 shares that Mr. Rudner will purchase privately from
Bruce Ginsberg at $.90 per share and 75,000 shares that Mr. Rudner will
purchase privately from a third party shareholder at $.20 per share.
Also includes 700,000 shares of common stock underlying options
exercisable at 110% of the market price of Alec Bradley Cigar's common
stock as of the effective date of the share exchange.
(3) Includes 600,000 shares of common stock underlying options exercisable
at 110% of the market price of Alec Bradley Cigar's common stock as of
the effective date of the share exchange.
(4) Includes 200,000 shares of common stock underlying options exercisable
at 110% of the market price of Alec Bradley Cigar's common stock as of
the effective date of the share exchange.
(5) Address is B.P. 21426, Papeete, Tahiti.
(6) Investment control held by William A. Cataldo. Address is Suite 912,
Executive Center, 1088 Bishop Street, Honolulu, Hawaii 96813.
(7) Includes 539,980 shares held in the Cataldo Family Trust, a trust in
which Mr. Cataldo is a beneficiary and protector. Also includes
1,500,310 shares held by Pacific Tour Services. Address for Mr. Cataldo
is Suite 912, Executive Center, 1088 Bishop Street, Honolulu, Hawaii
96813.
* Less than 1%
FAIRNESS OPINION
Capitalink has been advised that, pursuant to the asset purchase
agreement, dated as of August 25, 2005 by and between Alec Bradley Cigar and
Alan Rubin or his assigns, Mr. Rubin will exchange 2,700,000 shares of Alec
Bradley Cigar's common stock for substantially all of Alec Bradley Cigar's
assets and substantially all of its liabilities (the "Rubin Transaction").
Capitalink has been further advised that, in conjunction with the Rubin
Transaction, and pursuant to the share exchange agreement, dated as of August
25, 2005, by and among Alec Bradley Cigar, Online Vacation Center, and the
stockholders of Online Vacation Center, Alec Bradley Cigar will acquire 100% of
the issued and outstanding capital stock of Online Vacation Center in exchange
for the issuance by Alec Bradley Cigar of 15,000,000 shares (the "OVC
Transaction") to the Online Vacation Center stockholders. The Rubin Transaction
and the OVC Transaction are hereinafter collectively, the "Transaction".
Capitalink has been retained to render an opinion as to whether, on the
date of such opinion, the Transaction is fair, from a financial point of view,
to Alec Bradley Cigar's nonaffiliated stockholders.
Capitalink made a presentation to Alec Bradley Cigar's board of
directors on September 30, 2005 and subsequently delivered its written opinion
to the board of directors, which stated that, as of September 30, 2005, and
based upon and subject to the assumptions made, matters considered, and
limitations on its review as set forth in the opinion, the Transaction is fair,
from a financial point of view, to the nonaffiliated stockholders. The full text
25
of the written opinion of Capitalink is attached as Appendix E and is
incorporated by reference into this information statement.
o You are urged to read the Capitalink opinion carefully and in its
entirety for a description of the assumptions made, matters
considered, procedures followed and limitations on the review
undertaken by Capitalink in rendering its opinion.
o Capitalink was not requested to opine as to, and the opinion does
not in any manner address, the relative merits of the Transaction
as compared to any alternative business strategy that might exist
for Alec Bradley Cigar, Alec Bradley Cigar's underlying business
decision to proceed with the Transaction, and other alternatives
to the Transaction that might exist for Alec Bradley Cigar.
In arriving at its opinion, Capitalink took into account an assessment
of general economic, market and financial conditions, as well as its experience
in connection with similar transactions and securities valuations generally. In
so doing, among other things, Capitalink:
o Reviewed the asset purchase agreement and the share exchange
agreement.
o Reviewed publicly available financial information and other data
with respect to Alec Bradley Cigar, including the Annual Report on
Form 10-KSB for the year ended December 31, 2004, the amended
Annual Report on 10-KSB/A for the year ended December 31, 2004,
the Quarterly Report on Form 10-QSB for the six months ended June
30, 2005, and the Current Report on Form 8-K dated August 25,
2005.
o Reviewed non-public financial information and other data with
respect to Alec Bradley Cigar, including the internal financial
statements for the eight months ended August 31, 2005.
o Reviewed non-public financial information and other data with
respect to Online Vacation Center, including the audited financial
statements for the twelve months ended December 31, 2003 and 2004,
the unaudited financial statements for the six months ended June
30, 2005, and the unaudited internal balance sheet as of August
31, 2005.
o Reviewed and analyzed the Transaction's pro forma impact on Alec
Bradley Cigar's capitalization.
o Reviewed and analyzed the Transaction's pro forma impact on Alec
Bradley Cigar's securities outstanding and stockholder ownership.
o Considered the historical financial results and present financial
condition of Alec Bradley Cigar and Online Vacation Center.
o Reviewed and compared the trading of, and the trading market for
Alec Bradley Cigar's common stock, the Distribution Comparable
Companies and the Tobacco Comparable Companies (each as defined
hereinafter), and a general market index.
o Reviewed and analyzed certain financial characteristics of
publicly-traded companies that were deemed to have characteristics
comparable to Alec Bradley Cigar and Online Vacation Center.
o Reviewed and analyzed certain financial characteristics of target
companies in transactions where such target company was deemed to
have characteristics comparable to that of Alec Bradley Cigar and
Online Vacation Center.
Capitalink also performed such other analyses and examinations as it
deemed appropriate and held discussions with Alec Bradley Cigar and Online
Vacation Center management in relation to certain financial and operating
information furnished to Capitalink, including financial analyses with respect
to their respective business and operations.
In arriving at its opinion, Capitalink relied upon and assumed the
accuracy and completeness of all of the financial and other information that was
used without assuming any responsibility for any independent verification of any
such information. Further, Capitalink relied upon the assurances of Alec Bradley
Cigar and Online Vacation Center management that they were not aware of any
facts or circumstances that would make any such information inaccurate or
misleading. With respect to the financial information and projections utilized,
Capitalink assumed that such information has been reasonably prepared on a basis
reflecting the best currently available estimates and judgments, and that such
information provides a reasonable basis upon which it could make an analysis and
form an opinion. Capitalink did not make a physical inspection of the properties
26
and facilities of Alec Bradley Cigar and Online Vacation Center and did not make
or obtain any evaluations or appraisals of either company's assets and
liabilities (contingent or otherwise). In addition, Capitalink did not attempt
to confirm whether Alec Bradley Cigar and Online Vacation Center had good title
to their respective assets. Capitalink assumed that the Transaction will be
consummated in a manner that complies in all respects with the applicable
provisions of the Securities Act of 1933, as amended, the Securities Exchange
Act of 1934, as amended, and all other applicable federal and state statues,
rules and regulations. Capitalink assumes that each of the Rubin Transaction,
the OVC Transaction and the Transaction will be consummated substantially in
accordance with the terms set forth in the asset purchase agreement and share
exchange agreement, without any further amendments thereto, and that any
amendments, revisions or waivers thereto will not be detrimental to the
stockholders of Alec Bradley Cigar.
Capitalink's opinion is necessarily based upon market, economic and
other conditions as they existed on, and could be evaluated as of, September 30,
2005. Accordingly, although subsequent developments may affect its opinion,
Capitalink has not assumed any obligation to update, review or reaffirm its
opinion.
In connection with rendering its opinion, Capitalink performed certain
financial, comparative and other analyses as summarized below. Each of the
analyses conducted by Capitalink was carried out to provide a different
perspective on the Transaction, and to enhance the total mix of information
available. Capitalink did not form a conclusion as to whether any individual
analysis, considered in isolation, supported or failed to support an opinion as
to the fairness of the Transaction, from a financial point of view, to the
nonaffiliated stockholders. Further, the summary of Capitalink's analyses
described below is not a complete description of the analyses underlying
Capitalink's opinion. The preparation of a fairness opinion is a complex process
involving various determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to the particular
circumstances and, therefore, a fairness opinion is not readily susceptible to
partial analysis or summary description. In arriving at its opinion, Capitalink
made qualitative judgments as to the relevance of each analysis and factor that
it considered. In addition, Capitalink may have given various analyses more or
less weight than other analyses, and may have deemed various assumptions more or
less probable than other assumptions, so that the range of valuations resulting
from any particular analysis described above should not be taken to be
Capitalink's view of the value of Alec Bradley Cigar's assets. The estimates
contained in Capitalink's analyses and the ranges of valuations resulting from
any particular analysis are not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
suggested by such analyses. In addition, analyses relating to the value of
businesses or assets neither purport to be appraisals nor do they necessarily
reflect the prices at which businesses or assets may actually be sold.
Accordingly, Capitalink's analyses and estimates are inherently subject to
substantial uncertainty. Capitalink believes that its analyses must be
considered as a whole and that selecting portions of its analyses or the factors
it considered, without considering all analyses and factors collectively, could
create an incomplete and misleading view of the process underlying the analyses
performed by Capitalink in connection with the preparation of its opinion.
The analyses performed were prepared solely as part of Capitalink's
analysis of the fairness, from a financial point of view, of Transaction to the
nonaffiliated stockholders, and were provided to Alec Bradley Cigar's board of
directors in connection with the delivery of Capitalink's opinion. The opinion
of Capitalink was just one of the many factors taken into account by Alec
Bradley Cigar's board of directors in making its determination to approve the
Transaction, including those described elsewhere in this information statement.
Alec Bradley Cigar Financial Review
Capitalink undertook a review of Alec Bradley Cigar's historical
financial data in order to understand and interpret its operating and financial
performance and strength. Capitalink reviewed Alec Bradley Cigar's historical
financial data for the five fiscal years ("FY") ended December 31, 2004 and the
eight months ended August 31, 2005 and noted the following:
27
o Revenue increased significantly from FY2000 to FY2003 from
approximately $0.5 million to approximately $2.4 million,
representing a compound average growth rate of 68.7%. However,
since FY2003, revenue growth has slowed with the latest twelve
month ("LTM") revenue for the period ended August 31, 2005 at
approximately $2.5 million. The growth in sales prior to FY2003
was primarily due to efforts to increase distribution channels to
a wider range of wholesale distributors and retailers and
increased sales and marketing.
o Alec Bradley Cigar's earnings before interest tax, depreciation
and amortization ("EBITDA") improved significantly along with the
increase in revenues from FY2000 to FY2003 from approximately
$(170,000) to approximately $138,000. EBITDA for the LTM period
ended August 31, 2005 was approximately $75,000. The EBITDA margin
also fell from its high of 5.8% in FY2003, to approximately 2.9%
for the LTM period ended August 31, 2005.
o As of August 31, 2005, Alec Bradley Cigar had approximately
$53,000 in cash and $78,000 in notes payable owed to Mr. Rubin.
The note is payable in monthly installments of $10,000 plus
accrued interest at 5%, and matures in December 2005.
o Alec Bradley Cigar has also negotiated with its suppliers extended
credit terms for new products being developed through these
suppliers. Company management believes that the cash generated
from operations and credit terms and loans from its president will
enable Alec Bradley Cigar to satisfy its short term working
capital requirements.
Alec Bradley Cigar Stock Performance Review
Capitalink reviewed the daily closing market price and trading volume
of Alec Bradley Cigar's common stock during the period prior to the
announcement, and after the announcement of the Transaction. Capitalink noted
the following:
o In the pre-announcement period, Alec Bradley Cigar's stock had a
significantly lower trading volume than during the
post-announcement period as evidenced by the mean daily number of
shares traded of 1,137 and 23,677 shares, respectively. Capitalink
also noted that for the twenty four month period prior the
announcement of the Transaction, Alec Bradley Cigar's common stock
did not trade in approximately 88.9% of the available trading
days.
o In the twelve months prior to the announcement date, Alec Bradley
Cigar's mean share price was approximately $0.176 and ranged from
a high of $0.35 to a low of $0.05 over the period. In comparison,
the period from the announcement date and September 23, 2005, Alec
Bradley Cigar's mean share price was approximately $0.44 and
ranged from a high of $0.60 and a low of $0.35. Capitalink noted
the increase in Alec Bradley Cigar's share price reflects the
market's positive view of the Transaction.
Online Vacation Center Financial Review
Capitalink undertook a review of Online Vacation Center's historical
financial data in order to understand and interpret its operating and financial
performance and strength. Online Vacation Center's revenue and earnings have
been adjusted to remove any unusual or extraordinary sources of revenue and
expenses. The adjustments provide a more accurate portrayal of their underlying
operating earnings and financial performance. Capitalink reviewed Online
Vacation Center's historical financial data for the two fiscal years ended
December 31, 2004 and the six months ended June 30, 2005 and noted the
following:
o From FY2003 to FY2004, Online Vacation Center's total revenue
increased from approximately $5.6 million to approximately $6.3
million. Total revenue for the LTM period ended June 30, 2005 was
approximately $7.4 million.
o Online Vacation Center's EBITDA fell from approximately $1.9
million in FY2003 to approximately $1.1 million in FY2004,
primarily due to increased sales and marketing expenses during the
year. EBITDA for the LTM period ended June 30, 2005, improved to
approximately $1.5 million.
o As of June 30, 2005, Online Vacation Center had approximately $2.4
million in cash and equivalents (including $0.3 million in
restricted cash).
28
o Online Vacation Center also has $3.0 million in subordinate
debentures outstanding. Interest on the subordinate debentures
accrues at 8% per annum and payable on a quarterly basis on
December 31, March 31, June 30, and September 30 of each year that
the subordinated debentures remain outstanding. Online Vacation
Center management has indicated that there will be no debt at the
closing of the Transaction. It is anticipated that the
subordinated debentures will be converted into Online Vacation
Center common stock and any outstanding accrued interest will be
paid prior to the closing of the Transaction.
o Online Vacation Center also has an outstanding settlement
obligation payable related to a settlement agreement reached with
a travel company whereby Online Vacation Center paid $200,000 and
agreed to pay $175,000 over twenty months commencing January 2005
with interest on the outstanding balance at 8% per annum. As of
August 30, 2005, the balance owed on the settlement was
approximately $114,000. Online Vacation Center management has
indicated that this obligation will be settled prior to the
closing of the Transaction.
o The employment agreement of Online Vacation Center's director and
CEO, Edward Rudner, entitles payment of compensation and other
benefits to Mr. Rudner of approximately $637,551 for FY2005.
Capitalink understands that as part of the Transaction, Mr. Rudner
will enter into a new employment agreement that will reduce the
amount paid to Mr. Rudner and will positively impact Online
Vacation Center's profitability after completion of the
Transaction.
Pro Forma Capitalization and Stockholder Ownership Review
In order to better understand the Transaction and its impact on the
capitalization and stockholder ownership of Alec Bradley Cigar, Capitalink
reviewed Alec Bradley Cigar's estimated pro forma capitalization and pro forma
securities ownership. Based upon the pro forma review, Capitalink noted the
following:
o The Transaction will result in an increase in the number of shares
outstanding from approximately 4.5 million shares to approximately
16.8 million shares.
o The estimated book value per share will increase from
approximately $0.06 to approximately $0.20.
o Alec Bradley Cigar will have no debt outstanding after completion
of the Transaction.
o The nonaffiliated stockholders' ownership in Alec Bradley Cigar
will be reduced from approximately 24.6% to approximately 6.6%
after completion of the Transaction.
o The Online Vacation Center stockholders will own approximately
89.3% of the total common stock outstanding after completion of
the Transaction.
o The Online Vacation Center stockholders will further increase
their ownership to 92.7% after completion of the acquisition of
575,000 shares from Bruce Ginsberg and other parties, in a private
transaction for approximately $0.44 million.
Valuation Overview
In order to determine if the Transaction was fair, from a financial
point of view, to Alec Bradley's nonaffiliated stockholders, Capitalink compared
the indicated value of their holdings before and after the Transaction.
Capitalink first determined the indicated equity value range of both Alec
Bradley Cigar and Online Vacation Center, and then multiplied these indicated
equity value ranges with the nonaffiliated stockholder ownership interest before
and after the Transaction, respectively.
Capitalink utilized several valuation methodologies and analyses to
determine range of equity values for both Alec Bradley Cigar and Online Vacation
Center, including the comparable company and the comparable transaction analyses
(all of which are discussed in more detail hereinafter).
29
--------------------------------------------------------------------------------------------------------------------------
Alec Bradley Indicated Value Range Summary
--------------------------------------------------------------------------------------------------------------------------
Equity Value ($000) Weighting
-------------------------------- -------------------
Comparable Company Analysis $400 - $900 50%
Comparable Transaction Analysis $300 - $800 50%
Indicated Value Range $350 - $850
Pre-Transaction Indicated Nonaffiliated Stockholder's Interest $86 - $209
(24.6%)
--------------------------------------------------------------------------------------------------------------------------
Online Vacation Center Value Range Summary
--------------------------------------------------------------------------------------------------------------------------
Equity Value ($000) Weighting
--------------------------------- -------------------
Comparable Company Analysis $9,700 - $13,400 50%
Comparable Transaction Analysis $7,600 - $11,100 50%
Indicated Value Range $8,650 - $12,500
Post -Transaction Indicated Nonaffiliated Stockholder's Interest $ 569 - $806
(6.6%)
--------------------------------------------------------------------------------------------------------------------------
Capitalink noted that as a result of the Transaction, the indicated
equity value range of Alec Bradley Cigar's nonaffiliated stockholders' ownership
would increase substantially, therefore, the Transaction is expected to be
accretive to Alec Bradley Cigar's nonaffiliated stockholders.
The following sections provide a more detailed overview of the
valuation analyses undertaken by Capitalink for Alec Bradley Cigar and Online
Vacation Center.
Alec Bradley Cigar Comparable Company Analysis
A selected comparable company analysis reviews the trading multiples of
publicly traded companies that are similar to Alec Bradley Cigar with respect to
business and revenue model, operating sector, size and target customer base.
Because of the unique characteristics of Alec Bradley Cigar and the
limited availability of appropriate comparable companies involved only in the
distribution of cigars or other tobacco products, Capitalink derived two sets of
comparable companies:
o "Distribution Comparable Companies"- includes publicly listed
companies that are involved in the wholesale distribution of
consumer discretionary products.
o "Tobacco Comparable Companies" - includes publicly listed
companies that are involved in the manufacture and distribution of
tobacco products.
Capitalink located four Distribution Comparable Companies. All of the
companies are substantially larger than Alec Bradley Cigar both in terms of
revenue and enterprise value. Capitalink prepared analyses of each of the
30
Distribution Comparable Companies and noted the following with respect to the
multiples generated:
o The enterprise value to LTM revenue multiple ranged from 0.13
times to 1.11 times, with a mean of 0.42 times.
o The enterprise value to LTM EBITDA multiple ranged from 12.8 times
to 42.9 times, with a mean of 25.2 times.
Capitalink located four Tobacco Comparable Companies. All of the
companies are substantially larger than Alec Bradley Cigar, both in terms of
revenue and enterprise value. Capitalink prepared analyses of each of the
Tobacco Comparable Companies and noted the following with respect to the
multiples generated:
o The enterprise value to LTM revenue multiple ranged from 1.02
times to 3.13 times, with a mean of 2.36 times.
o The enterprise value to LTM EBITDA multiple ranged from 6.3 times
to 10.2 times, with a mean of 8.6 times.
Capitalink selected an appropriate multiple range for Alec Bradley
Cigar by examining the range indicated by the Distribution Comparable Companies
and Tobacco Comparable Companies and then applied this multiple range to Alec
Bradley Cigar's LTM revenue and LTM EBITDA.
Capitalink expects Alec Bradley Cigar to be valued at a revenue
multiple around the mean of the Distribution Comparable Companies due to Alec
Bradley Cigar's similar EBITDA margin. In addition, Capitalink expects Alec
Bradley Cigar's EBITDA multiple to follow the Tobacco Comparable Companies (as
opposed to the Distribution Comparable Companies) due to their similar long term
growth characteristics. In selecting the multiples, Capitalink also took into
account Alec Bradley Cigar's smaller size, specialized product line, limited
distribution channels and limited capital sources.
Based on the above factors, the multiple ranges selected for Alec
Bradley Cigar were as follows:
o Between 0.20 and 0.35 times LTM revenue.
o Between 6.0 and 8.0 times LTM EBITDA.
Based on the selected multiple ranges, Capitalink calculated a range of
enterprise values for Alec Bradley Cigar. Capitalink then deducted net debt of
approximately $25,000 (which includes approximately $78,000 in interest bearing
debt and approximately $53,000 in cash) to derive an indicated equity value
range of approximately $0.4 million to approximately $0.9 million.
None of the Comparable Companies have characteristics identical to Alec
Bradley Cigar. An analysis of publicly traded comparable companies is not
mathematical; rather it involves complex consideration and judgments concerning
differences in financial and operating characteristics of the Comparable
Companies and other factors that could affect the public trading of the
Comparable Companies.
Alec Bradley Cigar Comparable Transaction Analysis
A comparable transaction analysis is based on a review of merger,
acquisition and asset purchase transactions involving target companies that are
in related industries to Alec Bradley Cigar. The comparable transaction analysis
generally provides the widest range of value due to the varying importance of an
acquisition to a buyer (i.e., a strategic buyer willing to pay more than a
financial buyer) in addition to the potential differences in the transaction
process (i.e., competitiveness among potential buyers).
31
As in the Comparable Company Analysis, Capitalink derived two sets of
comparable transactions:
o "Distribution Transactions" - includes those transactions
involving target companies that are involved in the wholesale
distribution of consumer discretionary products.
o "Tobacco Transactions" - includes those transactions involving
target companies that are involved in the manufacturing and
distribution of Tobacco products.
Based on the information disclosed with respect to the targets in the
each of the Distribution Transactions and Tobacco Transactions, Capitalink
calculated and compared the enterprise values as a multiple of LTM revenue and
LTM EBITDA.
Capitalink located two Distribution Transactions announced since
January 2003 and for which detailed financial information was available. A
review of the Distribution Transactions indicates that the enterprise value to
LTM revenue multiple ranged from 0.21 times to 0.65 times with a mean of 0.43
times. Only one of the Distribution Transactions generated an EBITDA multiple of
3.1 times.
Capitalink located five Tobacco Transactions announced since January
2003 and for which detailed financial information was available. A review of the
Tobacco Transactions indicates that:
o The enterprise value to LTM revenue multiple ranged from 0.47
times to 1.70 times with a mean of 1.05 times.
o The enterprise value to LTM EBITDA multiple ranged from 5.8 times
to 22.5 times with a mean of 13.6 times.
Capitalink selected an appropriate multiple range for Alec Bradley
Cigar by examining the range indicated by the Distribution Transactions and
Tobacco Transactions and then applied this multiple range to Alec Bradley
Cigar's LTM revenue and LTM EBITDA.
Capitalink expects Alec Bradley Cigar's multiples to be trading below
the comparable transactions given Alec Bradley Cigar's smaller size, specialized
product line, limited distribution channels, limited capital sources and growth
prospects. Based on these factors, the multiple ranges selected for Alec Bradley
Cigar were as follows:
o Between 0.25 and 0.40 times LTM revenue.
o Between 6.0 and 8.0 times LTM EBITDA.
Based on the selected multiple ranges, Capitalink calculated a range of
enterprise values for Alec Bradley Cigar. Capitalink then deducted net debt of
approximately $25,000 (which includes approximately $78,000 in interest bearing
debt and approximately $53,000 in cash) to derive an indicated equity value
range, on a controlling interest basis, of approximately $425,000 to
approximately $996,000.
Capitalink applied a minority interest discount of 22% in order to
obtain an equity value range for Alec Bradley Cigar on a marketable minority
basis of between approximately $300,000 and approximately $800,000. The selected
minority interest discount is based on the Mergerstat/Shannon Pratt's Control
Premium Study which determined a mean control premium of 28.1% utilizing data
for the first six months of 2005.
A review of target companies provides Capitalink with an understanding
of the acquisition multiples of companies in similar industries to Alec Bradley
Cigar; however, none of the target companies in the Comparable Transactions have
characteristics identical to Alec Bradley Cigar. Accordingly, an analysis of
comparable business combinations is not mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the target companies in the Comparable Transactions and other
factors that could affect the respective acquisition values.
32
Online Vacation Center Comparable Company Analysis
A selected comparable company analysis reviews the trading multiples of
publicly traded companies that are similar to Online Vacation Center with
respect to business and revenue model, operating sector, size and target
customer base.
Capitalink located five companies that it deemed comparable to Online
Vacation center with respect to their industry sector and operating model (the
"OVC Comparable Companies"). All of the OVC Comparable Companies provide travel
agency services and the provision of vacation and travel reservations either
through their website, phone, or offices. All of the OVC Comparable Companies
are classified under the SIC code 4724 (Travel Agencies).
Capitalink noted that most of the OVC Comparable Companies report total
transaction value (i.e. the total value of the each trip booked) as their total
revenue. In comparison, Online Vacation Center reports net revenues/commissions
as their revenue. Because of the differences in how revenue is reported,
Capitalink adjusted the analysis to include a comparison of net revenues rather
than total gross revenue.
Most of the OVC Comparable Companies are substantially larger than
Online Vacation Center in terms of net revenue. Capitalink prepared analyses of
each of the OVC Comparable Companies and noted the following with respect to the
multiples generated:
o The enterprise value to LTM net revenue multiple ranged from 0.72
times to 4.91 times, with a mean of 3.10 times.
o The enterprise value to LTM EBITDA multiple ranged from 6.0 times
to 10.2 times, with a mean of 7.5 times.
Capitalink selected an appropriate multiple range for Online Vacation
Center by examining the range indicated by the OVC Comparable Companies and then
applied this multiple range to Online Vacation Center's LTM net revenue and LTM
EBITDA. Capitalink utilized net revenue and EBITDA for the LTM period ended June
30, 2005. The LTM EBITDA was also adjusted for estimated public company costs of
$50,000 for comparison purposes.
Capitalink expects Online Vacation Center's revenue multiples to be
significantly below the mean of the OVC Comparable Companies due to its lower
EBITDA margins. Capitalink also expects Online Vacation Center's EBITDA multiple
to be slightly below the mean of the OVC Comparable Companies due to their
smaller size, limited customer focus and limited service offerings.
Based on the above factors, the multiple ranges selected for Alec
Bradley Cigar were as follows:
o Between 1.00 and 1.50 times LTM revenue.
o Between 6.0 and 7.0 times LTM EBITDA.
Based on the selected multiple ranges, Capitalink calculated a range of
enterprise values for Online Vacation Center. Capitalink then added net cash of
approximately $2.3 million (which includes approximately $137,000 in interest
bearing settlement obligations and accrued interest and approximately $2.4
million in cash) to derive an indicated equity value range of approximately $9.7
million to approximately $13.4 million.
A review of comparable companies provides Capitalink with an
understanding of the value that the public markets are placing on companies
similar to Online Vacation Center; however, none of the Comparable Companies
have characteristics identical to Online Vacation Center. An analysis of
publicly traded comparable companies is not mathematical; rather it involves
complex consideration and judgments concerning differences in financial and
operating characteristics of the Comparable Companies and other factors that
could affect the public trading of the Comparable Companies.
33
Online Vacation Center Comparable Transaction Analysis
A comparable transaction analysis is based on a review of merger,
acquisition and asset purchase transactions involving target companies that are
in related industries to Online Vacation Center. The comparable transaction
analysis generally provides the widest range of value due to the varying
importance of an acquisition to a buyer (i.e., a strategic buyer willing to pay
more than a financial buyer) in addition to the potential differences in the
transaction process (i.e., competitiveness among potential buyers).
Capitalink located eleven transactions announced since January 2003
involving target companies that are involved in the provision of travel agency
services (the "OVC Comparable Transactions") and for which detailed financial
information was available.
Capitalink noted the following with respect to the multiples generated:
o The enterprise value to LTM revenue multiple ranged from 0.12
times to 5.34 times, with a mean of 1.44 times.
o The enterprise value to LTM EBITDA multiple ranged from 3.3 times
to 26.3 times, with a mean of 9.4 times.
Capitalink also recalculated the multiple range excluding outlier
transaction multiples and noted the following with respect to the multiples
generated:
o The enterprise value to LTM revenue multiple ranged from 0.57
times to 1.13 times, with a mean of 0.78 times.
o The enterprise value to LTM EBITDA multiple ranged from 3.3 times
to 8.1 times, with a mean of 5.6 times.
Capitalink determined a range of indicated enterprise values for Online
Vacation Center by selecting a range of valuation multiples based on the OVC
Comparable Transactions, and then applied them to Online Vacation Center's LTM
revenue and LTM EBITDA for the LTM period ended June 30, 2005. The LTM EBITDA
was also adjusted for estimated public company costs of $50,000 for comparison
purposes.
Capitalink expects Online Vacation Center to be valued at a higher
revenue multiple than the mean of the OVC Comparable Transactions multiples due
to its higher EBITDA margins. When determining the EBITDA multiple, Capitalink
also took into account Online Vacation Center's smaller size, limited customer
focus and limited service offerings, offset by its strong cash flow and low cost
structure.
Taking into account such factors, Capitalink selected a multiple range
for Online Vacation Center's LTM revenue of between 1.00 and 1.40 times and LTM
EBITDA of between 6.0 and 8.0 times to obtain a range of indicated enterprise
values.
Capitalink then added net cash of approximately $2.3 million (which
includes approximately $137,000 in interest bearing settlement obligations and
accrued interest and approximately $2.4 million in cash) to derive an indicated
equity value range on a control basis of approximately $9.7 million to
approximately $14.2 million.
Capitalink applied a minority interest discount of 22% in order to
obtain an equity value range for Online Vacation Center on a marketable minority
basis of between approximately $7.6 million and approximately $11.1 million. The
selected minority interest discount is based on the Mergerstat/Shannon Pratt's
Control Premium Study which determined a mean control premium of 28.1% utilizing
data for the first six months of 2005.
34
A review of target companies provides Capitalink with an understanding
of the acquisition multiples of companies in similar industries to Online
Vacation Center; however, none of the target companies in the Comparable
Transactions have characteristics identical to Online Vacation Center.
Accordingly, an analysis of comparable business combinations is not
mathematical; rather it involves complex considerations and judgments concerning
differences in financial and operating characteristics of the target companies
in the Comparable Transactions and other factors that could affect the
respective acquisition values.
Based on the information and analyses set forth above, Capitalink
delivered its written opinion to Alec Bradley Cigar's board of directors, which
stated that, as of September 30, 2005, based upon and subject to the assumptions
made, matters considered, and limitations on its review as set forth in the
opinion the Transaction is fair, from a financial point of view, to the
nonaffiliated stockholders. Capitalink is an investment banking firm that, as
part of its investment banking business, regularly is engaged in the evaluation
of businesses and their securities in connection with mergers, acquisitions,
corporate restructurings, private placements, and for other purposes. We
determined to use the services of Capitalink because it is a recognized
investment banking firm that has substantial experience in similar matters.
Capitalink received a $50,000 fee in connection with the preparation and
issuance of its opinion. In addition, Alec Bradley Cigar has agreed to indemnify
Capitalink for certain liabilities that may arise out of the rendering of its
opinion. Capitalink does not beneficially own any interest in either Alec
Bradley Cigar or Online Vacation Center and has not provided either company with
any other services in the past.
ENGAGEMENT AND COMPENSATION OF FINANCIAL ADVISOR
Capitalink was paid a fee of $50,000 for the fairness opinion. No other
compensation was paid to Capitalink or any other financial advisor. No
instructions or limitations were placed on Capitalink by us or Online Vacation
Center nor are there any material relationships between Capitalink and Alec
Bradley or Online Vacation Center. Capitalink was selected to render the
fairness opinion following interviews with three candidates who each provided
proposals for the engagement. The method of determination for selecting the
advisor was based upon the quality of the proposal, the experience of the
candidates, and the recommendations of legal counsel and other business
professionals.
REGULATORY APPROVAL
Alec Bradley Cigar and Online Vacation Center each believe that no
regulatory approvals are or will be required in connection with the reverse
merger.
ACCOUNTING TREATMENT
Under generally accepted accounting principles the share exchange will
be accounted for as a reverse acquisition, with Online Vacation Center as the
surviving entity. The assets and liabilities of Online Vacation Center will be
carried forward at historical cost. Alec Bradley Cigar and Online Vacation
Center expect that the share exchange and sale of assets will be treated as a
tax-free reorganization within the meaning of the Code, and that no income, gain
or loss will be recognized by Alec Bradley Cigar or its shareholders as a result
of the consummation of either transaction other than shareholders exercising
dissenters' rights under the Florida Business Corporation Act (FBCA) with
respect to the sale of assets.
35
PROPOSAL TWO
APPROVAL OF AMENDMENT TO THE ARTICLES OF
INCORPORATION TO ELIMINATE PREEMPTIVE RIGHTS
GENERAL
The board of directors and majority shareholders approved a proposal to
amend Alec Bradley Cigar's articles of incorporation to eliminate preemptive
rights provided to shareholders. A preemptive right is the right of current
shareholders to maintain their fractional or proportional ownership of a company
by buying a proportional number of shares of any future issuance of common
stock. These rights can provide anti-takeover protection to minority
shareholders in the event that a company offers to issue additional shares of
its common stock to a potential suitor. In such instance, the existing
shareholders would have the ability to purchase their pro rata amount, limiting
the amount of shares the potential suitor could acquire. Management believes
that such rights may delay or prevent future material transactions, including
but not limited to materials acquisitions or financing. In addition, in the
event of such transaction, the cost of complying with such shareholder right
would be material, as Alec Bradley Cigar would be required to provide notice to
all of its stockholders. As Alec Bradley Cigar is a public company, such notice
would be burdensome and costly. The text of the proposed amendment is set forth
in Appendix C attached to this information statement.
REASONS FOR THE AMENDMENT
Our board of directors proposed the articles of amendment to eliminate
preemptive rights because of the reasons provided above. In addition, the
amendment is a condition to the share exchange. However, the amendment is not
contingent upon the effectiveness of the share exchange.
RIGHTS OF ALEC BRADLEY CIGAR'S DISSENTING SHAREHOLDERS
The proposed elimination of preemptive rights is a corporate action
which gives rise to dissenters' rights under the FBCA. A summary and discussion
of dissenters' rights available to Alec Bradley Cigar's shareholders is set
forth in this information statement under the heading "Rights of Dissenting
Shareholders." Dissenters' rights under the FBCA are attached to this
information statement as Appendix F.
36
PROPOSAL THREE
APPROVAL OF AMENDMENT TO THE ARTICLES OF
INCORPORATION TO CHANGE ALEC BRADLEY CIGAR'S NAME
GENERAL
The board of directors and majority shareholders approved a proposal to
amend Alec Bradley Cigar's articles of incorporation to change Alec Bradley
Cigar's name to Online Vacation Center Holdings Corp. Online Vacation Center
Holdings Corp. will be our company's new name. The text of the proposed
amendment is set forth in Appendix C attached to this information statement.
REASONS FOR THE AMENDMENT
Our board of directors proposed the articles of amendment to change our
corporate name because it is a condition to the share exchange. In addition,
Online Vacation Center Holdings Corp. more accurately represents the business of
Online Vacation Center. The name change is a condition of the share exchange and
contingent upon the effectiveness of the share exchange.
37
PROPOSAL FOUR
AMENDMENT TO ARTICLES OF INCORPORATION
TO INCREASE AUTHORIZED SHARES OF COMMON STOCK
GENERAL
Our board of directors has approved and a majority of our stockholders
approve a proposal to increase our authorized shares of common stock from
30,000,000 shares to 80,000,000 shares by amending our articles of
incorporation.
REASONS FOR THE AMENDMENT
The amendment is a condition of the share exchange, but not contingent
upon closing of the share exchange. The additional shares of authorized common
stock provided for in the amendment may be used, from time to time, as the need
may arise, in connection with future opportunities for expanding the company's
business through investments or acquisitions, equity financing and for other
purposes. There are currently no commitments or arrangements, written or oral,
to participate in any other business opportunity. Alec Bradley Cigar and Online
Vacation Center currently have no plans to issue additional shares of common
stock (except as provided herein).
Authorized but unissued shares of common stock may be issued at such
times, for such purposes and for such consideration as the board of directors
may determine to be appropriate without further authority from the company's
stockholders, except as otherwise required by applicable corporate law or stock
exchange policies.
The recapitalization will effect all of our stockholders uniformly and
will not affect any stockholder's percentage ownership interests in us or
proportionate voting power, unless and until additional shares of capital stock
authorized through the amendment are issued.
The recapitalization will have the following effects upon the shares of
our common stock outstanding and the number of authorized and unissued shares of
our common stock:
* The number of shares of common stock owned by each stockholder
will remain the same;
* The number of shares of common stock we are authorized to issue
will increase to 80,000,000 shares;
* The par value of the common stock will remain $0.0001 per share;
* The stated capital on our balance sheet attributable to the common
stock will remain the same, as will the additional paid-in capital
account.
OTHER MATTERS
No Rights of Appraisal
----------------------
Under the Laws of Florida, our dissenting stockholders are not entitled
to appraisal rights with respect to the amendment to effect the
recapitalization, and we will not independently provide our stockholders with
any such right.
Federal Income Tax Consequences
-------------------------------
We believe that the federal income tax consequences of the
recapitalization to holders of our common stock will be as follows:
* No gain or loss will be recognized by a stockholder upon the
effective date of the recapitalization.
38
* The aggregate tax basis of shares of our common stock will not be
affected by the recapitalization.
* The holding period of shares of our common stock after the
recapitalization will remain the same as the holding period prior
to the recapitalization.
Our beliefs regarding the tax consequence of the recapitalization are
not binding upon the Internal Revenue Service or the courts, and there can be no
assurance that the Internal Revenue Service or the courts will accept the
positions expressed above.
This summary does not purport to be complete and does not address the
tax consequences to holders that are subject to special tax rules, such as
banks, insurance companies, regulated investment companies, personal holding
companies, foreign entities, nonresident foreign individuals, broker-dealers and
tax exempt entities.
The state and local tax consequences of the recapitalization may vary
significantly as to each stockholder, depending upon the state in which he or
she resides.
The foregoing summary is included for general information only.
Accordingly, stockholders are urged to consult their own tax advisors with
respect to the Federal, State and local tax consequences of the
recapitalization.
39
PROPOSAL FIVE
ADOPTION OF THE 2005 MANAGEMENT AND DIRECTOR
EQUITY INCENTIVE AND COMPENSATION PLAN
Our Board of Directors has approved, and a majority of our stockholders
have approved the 2005 Management and Director Equity Incentive and Compensation
Plan (the "Plan").
REASONS FOR ADOPTING THE PLAN
The purpose of the Plan is to advance our interests and those of our
stockholders by providing a means of attracting and retaining key employees,
directors and consultants. In order to serve this purpose, we believe this Plan
encourages and enables key employees, directors and consultants to participate
in our future prosperity and growth by providing them with incentives and
compensation based on our performance, development and financial success.
Participants in the Plan may include our officers, directors, other key
employees and consultants who have responsibilities affecting our management,
development or financial success. The adoption of the Plan is not contingent
upon the closing of the share exchange.
Our Board of Directors cannot predict what effect, if any, the adoption
by our stockholders of the Plan will have on the market price of our common
stock.
GENERAL
A Description of the Plan
-------------------------
We have reserved an aggregate of 2,500,000 shares of common stock for
issuance under the Plan. At the Record Date we had no outstanding options under
the Plan. Our Board of Directors (or at their discretion a committee of our
board members) administers the Plan including, without limitation, the selection
of recipients of awards under the Plan, the granting of stock options,
restricted share or performance shares, the determination of the terms and
conditions of any such awards, the interpretation of the Plan and any other
action they deem appropriate in connection with the administration of the Plan.
Awards may be made under the Plan in the form of Plan options, shares
of our common stock subject to a vesting schedule based upon certain performance
objectives ("performance shares") and shares subject to a vesting schedule based
on the recipient's continued employment ("restricted shares"). Plan options may
either be options qualifying as incentive stock options under Section 422 of the
IRS Code, or options that do not so qualify. Any incentive stock option granted
under our Plan must provide for an exercise price of not less than 100% of the
fair market value of the underlying shares on the date of such grant, but the
exercise price of any incentive option granted to an eligible employee owning
more than 10% of our common stock must be at least 110% of such fair market
value as determined on the date of the grant. Only persons who are our officers
or other key employees are eligible to receive incentive stock options and
performance share grants. Any non-qualified stock option granted under our Plan
must provide for an exercise price of not less than ninety percent (90%) of the
fair market value of the underlying shares on the date of such grant.
The term of each Plan option and the manner in which it may be
exercised is determined by the Board of Directors, provided that no Plan option
may be exercisable more than three years after the date of its grant and, in the
case of an incentive option granted to an eligible employee owning more than 10%
of our common stock, no more than five years after the date of the grant. The
exercise price of the stock options may be paid in either:
* cash, or
* delivery of unrestricted shares of our common stock having a fair
market value on the date of delivery equal to the exercise price,
or
40
* surrender of shares of our common stock subject to the stock
option which has a fair market value equal to the total exercise
price at the time of exercise, or
* a combination of the foregoing methods.
All Plan options are non-assignable and nontransferable, except by will
or by the laws of descent and distribution and, during the lifetime of the
optionee, may be exercised only by such optionee. At the discretion of the Board
of Directors, it may approve the irrevocable transfer, without payment, of
non-qualified options to the option holder's spouse, children, grandchildren,
nieces or nephews, or to the trustee of a trust for the principal benefit of one
or more such persons, or to a partnership whose partners are one or more of such
persons. If an optionee's employment is terminated for any reason, other than
due to his or her death, disability or termination for cause, or if an optionee
is not our employee but is a member of our Board of Directors and his or her
service as a director is terminated for any reason, other than due to his or her
death or disability, the Plan option granted may be exercised on the earlier of
the expiration date or 90 days following the date of termination. If the
optionee dies during the term of his or her employment, the Plan option granted
to him or her shall lapse to the extent unexercised on the earlier of the
expiration date of the Plan option or the date one year following the date of
the optionee's death. If the optionee's employment, membership on the Board of
Directors or engagement as a consultant terminates by reason of the optionee's
retirement, then the Plan option granted may be exercised until the earlier of
90 days following the date of termination or the expiration date. If the
optionee is permanently and totally disabled within the meaning of Section
22(c)(3) of the IRS Code, the Plan option granted to him or her lapses to the
extent unexercised on the earlier of the expiration date of the option or one
year following the date of such disability.
At the time of the restricted share grant, the Board of Directors may
determine the vesting schedule of such shares and that after vesting, such
shares may be further restricted as to transferability or be subject to
repurchase by us or forfeiture upon the occurrence of certain events. Awards of
restricted shares must be accepted by the participant within 30 days of the
grant.
At the time of the award of performance shares, the Board of Directors
shall establish a range of performance goals to be achieved during the
performance period, including, without limitation, earnings, return on capital,
or any performance goal approved by our stockholders in accordance with Section
162(m) of the IRS Code. Attainment of the highest performance goal for the
performance period will earn 100% of the performance shares awarded for the
performance period; failure to attain the lowest performance goal will result in
the participant earning no performance shares. Attainment of the performance
goals will be calculated from our financial statements, excluding changes in
federal income tax rates and the effect of non-recurring and extraordinary
items. The performance goals may vary for difference performance periods and
need not be the same for each participant receiving an award during a
performance period.
If the participant's employment by us, membership on our Board of
Directors, or engagement by us as a consultant is terminated before the end of
any performance period, or upon the participant's death, retirement or
disability, the Board of Directors, taking into consideration the performance of
such participant and our performance over the performance period, may authorize
the issuance to the participant or his or her legal representative or designated
beneficiary all or a portion of the performance shares which would have been
issued to him or her had the participant's employment, board membership or
consulting engagement continued to the end of the performance period. If the
participant's employment, board membership or consulting engagement terminates
before the end of the performance period for any other reason, all performance
shares are forfeited.
Notwithstanding the foregoing, but subject to any stockholder approval
or other requirements of Section 162(m) of the IRS Code, the Board of Directors
in its discretion and as determined at the time of award of the performance
shares, may provide the participant with the option of receiving cash in lieu of
the performance shares in an amount determined at the time of award including,
without limitation, by one or more of the following methods:
41
* the fair market value of the number of shares subject to the
performance shares agreement on the date of award, or
* part or all of any increase in the fair market value since such
date, or
* part or all of any dividends paid or payable on the number of
shares subject to the performance share agreement, or
* any other amounts which in the board's sole discretion are
reasonably related to the achievement of the applicable
performance goals, or
* any combination of the foregoing.
The purchase price for restricted shares or performance shares granted
under the Plan shall be set by the Board of Directors but may not be less than
par value. Payment of the purchase price for the restricted shares or
performance share may be made in either,
* cash, or
* by delivery of unrestricted shares of our common stock having a
fair market value on the date of such delivery equal to the total
purchase price, or
* a combination of either of these methods.
We may, at our option, terminate all unexercised stock options within
30 days after a change in control and pay to the participant holding these
unexercised options cash in an amount equal to the difference between fair
market value and the exercise price of the stock option. If the fair market
value is less than the exercise price, we may terminate the options without
payment to the holder. The per share purchase price of shares subject to Plan
options granted under the Plan or related to performance share awards or
restricted share awards may be adjusted in the event of certain changes in our
capitalization, but any such adjustment shall not change the total purchase
price payable upon the exercise in full of such option or award. No participant
in our Plan has any rights as a stockholder until the shares subject to the Plan
options or stock awards have been duly issued and delivered to him or her.
The Board of Directors may amend, suspend or terminate our Plan at any
time, except that no amendment shall be made which:
* increases the total number of shares subject to the Plan or
changes the minimum purchase price therefore (except in either
case in the event of adjustments due to changes in our
capitalization), or
* affects outstanding Plan options or any exercise right thereunder,
or
* extends the term of any Plan option beyond 10 years, or
* extends the termination date of the Plan.
Unless the Plan shall be earlier suspended or terminated, the Plan
shall terminate 10 years from the date of the Plan's adoption by our
stockholders. Any such termination of our Plan shall not affect the validity of
any Plan options previously granted thereunder.
Federal Income Tax Effects
--------------------------
The following discussion applies to our Plan and is based on federal
income tax laws and regulations in effect on December 31, 2004. It does not
purport to be a complete description of the federal income tax consequences of
the Plan, nor does it describe the consequences of state, local or foreign tax
laws which may be applicable. Accordingly, any person receiving a grant under
the Plan should consult with his or her own tax adviser.
Our Plan is not subject to the provisions of the Employee Retirement
Income Security Act of 1974 and is not qualified under Section 401(a) of the IRS
Code.
An employee granted an incentive stock option does not recognize
taxable income either at the date of grant or at the date of its timely
exercise. However, the excess of the fair market value of common stock received
42
upon exercise of the incentive stock option over the option exercise price is an
item of tax preference under Section 57(a)(3) of the IRS Code and may be subject
to the alternative minimum tax imposed by Section 55 of the IRS Code. Upon
disposition of stock acquired on exercise of an incentive stock option,
long-term capital gain or loss is recognized in an amount equal to the
difference between the sales price and the incentive stock option exercise
price, provided that the option holder has not disposed of the stock within two
years from the date of grant and within one year from the date of exercise. If
the incentive stock option holder disposes of the acquired stock (including the
transfer of acquired stock in payment of the exercise price of an incentive
stock option) without complying with both of these holding period requirements
("Disqualifying Disposition"), the option holder will recognize ordinary income
at the time of such Disqualifying Disposition to the extent of the difference
between the exercise price and the lesser of the fair market value of the stock
on the date the incentive stock option is exercised (the value six months after
the date of exercise may govern in the case of an employee whose sale of stock
at a profit could subject him to suit under Section 16(b) of the Securities
Exchange Act of 1934) or the amount realized on such Disqualifying Disposition.
Any remaining gain or loss is treated as a short-term or long-term capital gain
or loss, depending on how long the shares are held. In the event of a
Disqualifying Disposition, the incentive stock option tax preference described
above may not apply (although, where the Disqualifying Disposition occurs
subsequent to the year the incentive stock option is exercised, it may be
necessary for the employee to amend his or her return to eliminate the tax
preference item previously reported). We are not entitled to a tax deduction
upon either exercise of an incentive stock option or disposition of stock
acquired pursuant to such an exercise, except to the extent that the option
holder recognized ordinary income in a Disqualifying Disposition.
If the holder of an incentive stock option pays the exercise price, in
full or in part, with shares of previously acquired common stock, the exchange
should not affect the incentive stock option tax treatment of the exercise. No
gain or loss should be recognized on the exchange, and the shares received by
the employee, equal in number to the previously acquired shares exchanged
therefor, will have the same basis and holding period for long-term capital gain
purposes as the previously acquired shares. The employee will not, however, be
able to utilize the old holding period for the purpose of satisfying the
incentive stock option statutory holding period requirements. Shares received in
excess of the number of previously acquired shares will have a basis of zero and
a holding period which commences as of the date the common stock is issued to
the employee upon exercise of the incentive stock option. If an exercise is
effected using shares previously acquired through the exercise of an incentive
stock option, the exchange of the previously acquired shares will be considered
a disposition of such shares for the purpose of determining whether a
Disqualifying Disposition has occurred.
In respect to the holder of non-qualified options, the option holder
does not recognize taxable income on the date of the grant of the non-qualified
option, but recognizes ordinary income generally at the date of exercise in the
amount of the difference between the option exercise price and the fair market
value of the common stock on the date of exercise. However, if the holder of
non-qualified options is subject to the restrictions on resale of common stock
under Section 16 of the Securities Exchange Act of 1934, such person generally
recognizes ordinary income at the end of the six-month period following the date
of exercise in the amount of the difference between the option exercise price
and the fair market value of the common stock at the end of the six-month
period. Nevertheless, such holder may elect within 30 days after the date of
exercise to recognize ordinary income as of the date of exercise. The amount of
ordinary income recognized by the option holder is deductible by us in the year
that income is recognized.
In connection with the issuance of stock grants as compensation, the
recipient must include in gross income the excess of the fair market value of
the property received over the amount, if any, paid for the property in the
first taxable year in which beneficial interest in the property either is
"transferable" or is not subject to a "substantial risk of forfeiture." A
substantial risk of forfeiture exists where rights and property that have been
transferred are conditioned, directly or indirectly, upon the future performance
(or refraining from performance) of substantial services by any person, or the
occurrence of a condition related to the purpose of the transfer, and the
possibility of forfeiture is substantial if such condition is not satisfied.
Stock grants received by a person who is subject to the short swing profit
recovery rule of Section 16(b) of the Securities Exchange Act of 1934 is
considered subject to a substantial risk of forfeiture so long as the sale of
such property at a profit could subject the stockholder to suit under that
section. The rights of the recipient are treated as transferable if and when the
43
recipient can sell, assign, pledge or otherwise transfer any interest in the
stock grant to any person. Inasmuch as the recipient would not be subject to the
short swing profit recovery rule of Section 16(b) of the Securities Exchange Act
of 1934 and the stock grant, upon receipt following satisfaction of condition
prerequisites to receipt, will be presently transferable and not subject to a
substantial risk of forfeiture, the recipient would be obligated to include in
gross income the fair market value of the stock grant received once the
conditions to receipt of the stock grant are satisfied.
Restrictions Under Federal Securities Laws
------------------------------------------
The sale of our common stock issuable pursuant to our Plan must be made
in compliance with federal and state securities laws. Our officers, directors
and 10% or greater stockholders, as well as certain other persons or parties who
may be deemed to be "affiliates" of ours under federal securities laws, should
be aware that resales by affiliates can only be made pursuant to an effective
registration statement, Rule 144 promulgated under the Securities Act or other
applicable exemption. Our officers, directors and 10% and greater stockholders
may also be subject to the "short swing" profit rule of Section 16(b) of the
Securities Exchange Act of 1934.
No Dissenter's Rights
---------------------
Under Florida Law, stockholders are not entitled to dissenter's rights
of appraisal with respect to the adoption of the Plan.
BENEFITS UNDER THE PLAN TO BE RECEIVED BY AFFILIATES
The table below provides the benefits and amounts that will be received
by affiliates of the surviving entity under the Plan. The issuance of the
options is subject to the completion of the share exchange. The table below
excludes options to be issued to non-employee directors of the surviving entity,
as such directors will receive stock options outside the Plan.
2005 Management and Director Equity
-----------------------------------
Incentive and Compensation Plan
-------------------------------
Number of Shares of
-------------------
Name and Position Common Stock Underlying Options Price Per Share Value
----------------- ------------------------------- --------------- -----
Edward Rudner, CEO 700,000 (1) (2)
(1) Shares will be exercisable at 110% of the quotation price of Alec
Bradley Cigar's common stock as of the effective date of the
reverse merger.
(2) Options, upon the date of issuance, will be out of the money.
44
FEDERAL INCOME TAX CONSEQUENCES
Alec Bradley Cigar and Online Vacation Center expect that the share
exchange and sale of assets will be treated as a tax-free reorganization within
the meaning of the Code, and that no income, gain or loss will be recognized by
Alec Bradley Cigar or its shareholders as a result of the consummation of either
transaction other than shareholders exercising dissenters' rights under the
Florida Business Corporation Act (FBCA) with respect to the sale of assets. Such
dissenting shareholders of Alec Bradley Cigar may be subject to state and
federal taxation as described below.
Under currently existing provisions of the Code, the Treasury
Regulations promulgated thereunder, applicable judicial decisions and
administrative rulings, all of which are subject to change, the federal income
tax consequences described below are expected to arise in connection with the
exercise of dissenters' rights. Due to the complexity of the Code, the following
discussion is limited to the material federal income tax aspects of the proposed
sale of assets for a Alec Bradley Cigar shareholder who properly exercises his
or her dissenters' rights under the FBCA, who is a citizen or resident of the
United States and who, on the date of disposition of such holder's shares of
common stock, holds such shares as a capital asset. The general tax principles
discussed below are subject to retroactive changes that may result from
subsequent amendments to the Code. The following discussion does not address the
material federal income tax aspects of the sale of assets for any dissenting
shareholder who is not a citizen or resident of the United States. The following
discussion does not address potential foreign, state, local and other tax
consequences, nor does it address taxpayers subject to special treatment under
the federal income tax laws, such as life insurance companies, tax-exempt
organizations, S corporations, trusts, and taxpayers subject to the alternative
minimum tax. In addition, the following discussion may not apply to dissenting
shareholders who acquired their shares upon the exercise of employee stock
options or otherwise as compensation. Alec Bradley Cigar has not requested the
IRS to rule or issue an opinion on the federal income tax consequences of the
share exchange or the sale of assets.
ALL SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE
FEDERAL, FOREIGN, STATE, AND LOCAL TAX CONSEQUENCES OF THE DISPOSITION OF THEIR
SHARES IN THE SHARE EXCHANGE.
For federal income tax purposes, the exchange of Alec Bradley Cigar
common stock for cash pursuant to the proposed sale of assets will be treated as
a distribution in redemption of common stock from each holder of Alec Bradley
Cigar's common stock who properly exercises dissenter's rights, subject to the
provisions of Section 302 of the Code. Under the rules of Section 302, the
determination of whether the exchange of common stock for cash pursuant to the
exercise of dissenters' rights has the effect of a distribution of a dividend
will be made, on a shareholder by shareholder basis, by comparing the
proportionate, percentage interest of a shareholder after the share exchange
with the proportionate, percentage interest of such shareholder before such
transaction. In making this comparison, there must be taken into account (a) any
other shares of common stock actually owned by such shareholder, and (b) any
such shares considered to be owned by such shareholder by reason of the
constructive ownership rules set forth in Section 318 of the Code. These
constructive ownership rules apply in certain specified circumstances to
attribute ownership of shares of a corporation from the shareholder actually
owning the shares, whether an individual, trust, partnership or corporation, to
certain members of such individual's family or to certain other individuals,
trusts, partnerships or corporations. Under these rules, a shareholder is also
considered to own any shares with respect to which the shareholder holds stock
options.
Under applicable IRS guidelines, such a redemption involving a holder
of a minority interest in Alec Bradley Cigar whose relative stock interest in
Alec Bradley Cigar is minimal, who exercises no control over the affairs of Alec
Bradley Cigar and who experiences a reduction in the shareholder's proportionate
interest in Alec Bradley Cigar, both directly and by application of the
foregoing constructive ownership rules, generally will not be deemed to have
resulted in a distribution of a dividend under the rules set forth in Section
302(b)(1) of the Code. Accordingly, the federal income tax consequences to Alec
Bradley Cigar's shareholders who exercise dissenters' rights will generally be
as follows:
45
(a) Assuming that the shares of common stock exchanged by a
dissenting shareholder for cash in connection with the sale of assets
are capital assets in the hands of the dissenting shareholder at the
effective date of the share exchange (and the exchange does not result
in a distribution of a dividend under Section 302 of the Code), such
dissenting shareholder may recognize a capital gain or loss by reason
of the consummation of the share exchange.
(b) The capital gain or loss, if any, will be long-term with respect
to shares of common stock held for more than twelve (12) months as of
the effective date of the share exchange, and short-term with respect
to such shares held for twelve (12) months or less.
(c) The amount of capital gain or loss to be recognized by each
dissenting shareholder will be measured by the difference between the
amount of cash received by such dissenting shareholder in connection
with the exercise of dissenters' rights and such dissenting
shareholder's adjusted tax basis in the common stock at the effective
date of the share exchange.
(d) An individual's long-term capital gain is subject to federal
income tax at a maximum rate of 15 percent, while any capital loss can
be offset only against other capital gains plus $3,000 of other income
in any tax year ($1,500 in the case of a married individual filing a
separate return). Capital losses in excess of these limits can be
carried forward to future years.
(e) A corporation's long-term capital gain is subject to federal
income tax at a maximum rate of 35%, while any capital loss can be
offset only against other capital gains in any tax year, subject to the
carryback and carryforward rules of the Code.
Cash payments made pursuant to the sale of assets will be reported to
the extent required by the Code to dissenting shareholders and the IRS. Such
amounts will ordinarily not be subject to withholding of U.S. federal income
tax. However, backup withholding of such tax at a rate of 31% may apply to
certain dissenting shareholders by reason of the events specified in Section
3406 of the Code and the Treasury Regulations promulgated thereunder, which
include failure of a dissenting shareholder to supply Alec Bradley Cigar or its
agent with such dissenting shareholder's taxpayer identification number.
Accordingly, Alec Bradley Cigar dissenting shareholders (or other payees) will
be asked to provide the dissenting shareholder's taxpayer identification number
(social security number in the case of an individual, or employer identification
number in the case of other dissenting shareholders of Alec Bradley Cigar) on a
Form W-9 and to certify that such number is correct. Withholding may also apply
to Alec Bradley Cigar dissenting shareholders who are otherwise exempt from such
withholding, such as a foreign person, if such person fails to properly document
its status as an exempt recipient. Each dissenting shareholder of Alec Bradley
Cigar, and, if applicable, each other payee, should complete and sign a Form W-9
to provide the information and certification necessary to avoid backup
withholding, unless an applicable exemption exists and is proved in a manner
satisfactory to Alec Bradley Cigar.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE ARE FOR GENERAL INFORMATION
ONLY. YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR TO DETERMINE THE PARTICULAR
TAX CONSEQUENCES TO YOU AS A RESULT OF THE PROPOSED TRANSACTIONS (INCLUDING THE
APPLICABILITY AND EFFECT OF FOREIGN, STATE, LOCAL AND OTHER TAX LAWS).
46
CERTAIN INFORMATION CONCERNING ALEC BRADLEY CIGAR
Important information about Alec Bradley Cigar has been previously
filed with the SEC. The documents listed below are included as appendix to this
information statement:
* Annual Report on Form 10-KSB, as amended, for the year ended
December 31, 2004; and
* Quarterly Report on Form 10-QSB for the nine month period ended
September 30, 2005.
Additionally, the SEC maintains a Web site that contains all documents
Alex Bradley Cigar has previously filed with the SEC. The address of the site is
www.sec.gov.
CERTAIN INFORMATION CONCERNING ONLINE VACATION CENTER HOLDINGS, INC.
OVERVIEW
Online Vacation Center is an internet-based vacation seller focused on
serving the affluent retiree market. Online Vacation Center believes that this
reverse merger into a public company will enable it to grow by acquiring or
merging with well run, profitable, and highly regarded vacation retailers.
Online Vacation Center's telephone number is 954-377-6400 and its web
site is located at www.onlinevacationcenter.com. Information on its web site is
not a part of this information statement.
INDUSTRY BACKGROUND
General
As reported by Travel Weekly, the total domestic US travel market was
estimated at $263.8 billion dollars in 2003. Online Vacation Center's core
target market is the tour and cruise portion of that market, estimated at
approximately $40 billion dollars in 2003.
Management of Online Vacation Center believes that the leisure travel
services industry is highly fragmented and that the combining of complimentary
businesses should produce positive results. In addition, Online Vacation Center
believes significant internal growth opportunities are available to a well
capitalized company providing a broad range of personalized vacation
experiences.
OPERATIONS
General
Online Vacation Center provides vacation services from its call center
located in Plantation, Florida. Sales are completed either via the Internet or
through Online Vacation Center's toll free telephone number (1-800-780-9002).
Online Vacation Center currently employs a sales and marketing team of
approximately 25 persons. Such individuals earn a salary and bonus based on
sales generated. Customers may purchase vacation packages 24-hours a day, seven
days a week, via the Internet or may contact live telephone operators from 9
a.m. (est.) to 8 p.m. (e.s.t.) Monday through Friday and 9 a.m. (e.s.t.) to 5
p.m. (e.s.t.) on weekends.
Marketing
Management of Online Vacation Center believes that it has developed a
complete marketing program utilizing direct mail, outbound telemarketing and
email blasts. By using these methods to repeatedly touch its customers, Online
Vacation Center is able to constantly stay in touch with its customers.
47
INTELLECTUAL PROPERTY
Online Vacation Center has registered two trade names and marks for
Online Vacation Center, Inc.
PERSONNEL
At June 30, 2005, Online Vacation Center had 40 full-time employees. Of
Online Vacation Center's current employees, 25 are sales and marketing
personnel, and 15 hold administrative and executive positions. No personnel are
covered by a collective bargaining agreement. Online Vacation Center's
relationship with its employees is believed to be good.
PROPERTIES
Online Vacation Center has entered into a lease for approximately
10,000 square feet of corporate office space in Plantation, Florida. Monthly
minimum lease payments were $14,829 through December 2004 and increase
approximately three percent each year thereafter. Online Vacation Center must
also pay its proportionate share of building operating expenses. The current
lease term is through June 30, 2008.
Online Vacation Center has the following future minimum lease
obligations at December 31, 2004:
Year Amount
---- ------
2005 $ 251,146
2006 $ 145,562
2007 $ 137,608
2008 $ 76,267
COMPETITION
The travel service industry is extremely competitive and has low
barriers to entry. Online Vacation Center competes with other distributors of
travel services, travel providers, travel agents, tour operators and central
reservation service providers. Companies including, but not limited to
Travelocity, Expedia and Orbitz, have greater experience, brand name recognition
and financial resources than Online Vacation Center. You are urged to review the
risk factor addressing competition.
REGULATION
Online Vacation Center believes it is in compliance with all federal
regulatory requirements, including the CAN-SPAM Act of 2003 which regulates
commercial electronic mail on a nationwide basis. Online Vacation Center adheres
to the law by properly representing the nature of its commercial email messages,
not tampering with source and transmission information and obtaining email
addresses through lawful means.
RELATED PARTY TRANSACTIONS
During 2002, Online Vacation Center received a short-term loan in the
amount of $250,000 from Edward Rudner, its officer, director and majority
shareholder, to fund ongoing operations. The loan has an original maturity date
of September 1, 2003 and interest is payable on a quarterly basis at a rate of
8% per annum. Both principal and interest payments were made during 2003 and
2004 and the loan was paid in full during 2004.
48
LEGAL PROCEEDINGS
Online Vacation Center is involved from time to time in various legal
claims and actions arising in the ordinary course of business. In November 2004,
Online Vacation Center reached a settlement agreement with a travel company
whereby Online Vacation Center paid $200,000 and agreed to pay $175,000 over
twenty months commencing January 2005, with interest on the outstanding balance
at 8% per annum. As a result of the settlement agreement, the difference between
the accrued liability ($640,815) and the settlement sum ($375,000) was recorded
as a gain of $265,815. The gain amount is reflected in its statement of
consolidated operations for the year ended December 31, 2004. In September 2005
Online Vacation Center paid the settlement obligation in full. Online Vacation
Center is not a party to any other material litigation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF ONLINE VACATION CENTER
The following discussion and analysis should be read in conjunction
with the Online Vacation Center financial statements and notes thereto included
elsewhere in this information statement. This discussion contains certain
forward-looking statements that involve risks and uncertainties. Online Vacation
Center's actual results and the timing of certain events could differ materially
from those discussed in these forward-looking statements as a result of certain
factors, including, but not limited to, those set forth herein and elsewhere in
this information statement.
Overview
Online Vacation Center is an internet-based vacation seller, focused
primarily on selling cruises to its customers through its toll-free number and
website. Online Vacation Center operates a reservation center in Plantation,
Florida. Since Online Vacation Center acts as a broker for travel arrangements,
it has no costs and/or risks associated with such inventory. Online Vacation
Center generates revenues from:
o commissions on cruises
o commissions on other travel related products
o commissions on travel insurance
o marketing performed for travel suppliers
Online Vacation Center currently markets its services by:
o telemarketing to its existing customer base
o direct mailing to its existing customer base as well as targeted
prospects
o email blasting to its opt in subscription base
Online Vacation Center's operating expenses include primarily those
items necessary to advertise its services, maintain and staff its travel
reservation and fulfillment center including technological enhancements,
payroll, commissions and benefits, telephone, ticket delivery, general and
administrative expenses including rent and computer maintenance fees; and
interest, fees and expenses associated with financing activities. Online
Vacation Center expects to continue to incur additional operating and selling
expenses as it becomes a SEC reporting company and moves forward with its growth
strategy.
Results of Operations
Year Ended December 31, 2004 Compared To Year Ended December 31, 2003
Revenues. Revenues increased $603,284, or 10.7%, to $6,252,690 for the year
ended December 31, 2004 from $5,649,406 for the year ended December 31, 2003.
Management attributes this increase in revenues to successful marketing
programs.
49
Operating expenses. Operating expenses, which include sales and marketing
expenses and general and administrative expenses, were $5,240,732 for the year
ended December 31, 2004 as compared to $3,950,179 for the year ended December
31, 2003 or an increase of $1,290,553 or 32.7%. The increase was principally due
to an increase in advertising expenses described below. For the year ended
December 31, 2004, sales and marketing expenses were $2,011,445 as compared to
$908,084 for the year ended December 31, 2003, an increase of $1,103,361 or
121.5%. Sales and marketing expenses primarily consist of sales commissions and
marketing expenses. The increase in sales and marketing expenses for the year
ended December 31, 2004 was directly related to higher sales volume. For the
year ended December 31, 2004, general and administrative expenses were
$3,229,287 as compared to $3,042,095 for the year ended December 31, 2003, an
increase of $187,192 or 6.2%. General and administrative expenses primarily
include management compensation. The increase is directly attributable to the
company's growth.
Other Income (Expense).
Other income increased to ($8,476) for the year ended December 31, 2004 as
compared to ($302,834) for the year ended December 31, 2003. The increase in
other income was due a one time settlement gain of $265,815 during the year
ended December 31, 2004. The settlement gain during the year ended December 31,
2004 was offset by an interest expense of $274,291. The interest expense is
associated with the subordinated debentures discussed below.
Nine Months Ended September 30, 2005 Compared to Nine Months Ended
September 30, 2004
Revenues. Revenues increased $1,225,751, or 26%, to $6,001,064 for the nine
months ended September 30, 2005 from $4,775,313 for the nine months ended
September 30, 2004. Management attributes this increase to successful marketing
programs.
Operating expenses. Operating expenses, which include sales and marketing
expenses and general and administrative expenses, were $4,683,486 for the nine
months ended September 30, 2005 as compared to $3,794,081 for the nine months
ended September 30, 2004 or an increase of $889,405 or 23%. The increase was
principally due to an increase in general and administrative expenses and sales
and marketing expenses described below. For the nine months ended September 30,
2005, sales and marketing expenses were $1,784,132 as compared to $1,459,646 for
the nine months ended September 30, 2004, an increase of $324,486 or 22%. The
increase in sales and marketing expenses for the nine months ended September 30,
2005 was due to an increase in marketing efforts and includes expenditures for
e-marketing, direct mail and other third-party advertising outlets. For the nine
months ended September 30, 2005, general and administrative expenses were
$2,899,354 as compared to $2,334,436 for the nine months ended September 30,
2004, an increase of $564,918 or 24%. The increase is primarily attributable to
the company's growth. The increase is also partially due to legal and accounting
expenses incurred during 2005 that are associated with the company's
preparations to go public.
Three Months Ended September 30, 2005 Compared to Three Months Ended
September 30, 2004
Revenues. Revenues increased $110,961, or 7%, to $1,612,857 for the three months
ended September 30, 2005 from $1,501,896 for the three months ended September
30, 2004. Management attributes this increase to successful marketing programs.
Operating expenses. Operating expenses, which include sales and marketing
expenses and general and administrative expenses, were $1,456,168 for the three
months ended September 30, 2005 as compared to $1,216,280 for the three months
ended September 30, 2004 or an increase of $239,888 or 20%. For the three months
ended September 30, 2005, sales and marketing expenses were $519,758 as compared
to $455,207 for the three months ended September 30, 2004, an increase of
$64,551 or 14%. The increase in sales and marketing expenses for the three
months ended September 30, 2005 was due to an increase in marketing efforts and
includes expenditures for e-marketing, direct mail and other third-party
advertising outlets. For the three months ended September 30, 2005, general and
administrative expenses were $936,410 as compared to $761,073 for the three
months ended September 30, 2004, an increase of $175,337 or 23%. The increase is
50
directly attributable to the company's growth. The increase is also partially
due to legal and accounting expenses incurred during 2005 that are associated
with the company's preparations to go public.
Liquidity and Capital Resources
Cash at September 30, 2005 was $2,136,120. Net income provided by
operating activities was $1,011,958 for the year ended December 31, 2004. For
the nine months ended September 30, 2005, net income provided by operating
activities was $1,317,578, primarily as a result of an increase in net income.
At September 30, 2005, Online Vacation Center had a working capital deficit of
$277,574 and an accumulated deficit of $2,704,483. The working capital deficit
and accumulated deficit is principally due to customer deposits of $2,067,911
(which are reflected as a current liability) and outstanding subordinated
debentures in the amount of $3,000,000. Customer deposits are initially
recognized as liabilities and subsequently recognized as revenues upon
completion of passenger travel. Also, as discussed below, subsequent to
September 30, 2005, all outstanding subordinated debentures were converted to
shares of Online Vacation Center's common stock.
On November 16, 2000, Online Vacation Center borrowed $2,000,000
pursuant to an 8% subordinated debenture in the amount of $2,000,000, which was
due on January 1, 2008. On June 27, 2001, Online Vacation Center borrowed
$1,000,000 under an 8% subordinated debenture in the amount of $1,000,000, which
was also due on January 1, 2008. Interest on the debentures was payable on a
quarterly basis. Subsequent to the nine month period ended September 30, 2005,
the debenture holder agreed to convert their debentures into 1,500,310 shares of
Alec Bradley Cigar common stock at the effective date of the share exchange with
Alec Bradley Cigar.
At December 31, 2004 Online Vacation Center had net operating loss
carry-forwards (NOLs) of approximately $3,931,000, which expire between 2020 and
2022. A deferred income tax asset valuation allowance has been established
against a portion of the deferred income tax asset, as management is not certain
that the deferred income tax assets will be fully realized through the
utilization of NOL carryforwards. The company's first profitable year was 2003
and accordingly, the valuation allowance was decreased from 80% to 75% of the
remaining NOL in 2003 and to 65% of the remaining NOL in 2004. In 2005, the
company decreased the valuation allowance to 60%, 55%, and then 50% of the
remaining NOL in each succeeding quarter. The company will continue to assess
the valuation allowance on a quarterly basis.
Management believes that the existing cash and cash expected to be
provided by operating activities will be sufficient to fund the short term
capital and liquidity needs of its operations. Online Vacation Center may need
to seek to sell equity or debt securities or obtain credit lines from financial
institutions to meet its longer-term liquidity and capital requirements, which
includes strategic growth through mergers and acquisitions. There is no
assurance that Online Vacation Center will be able to obtain additional capital
or financing in amounts or on terms acceptable to Online Vacation Center, if at
all or on a timely basis.
Online Vacation Center has historically been dependent on its
relationships with three major cruise lines: Celebrity Cruises, Norwegian Cruise
Line and Royal Caribbean Cruise Line. Online Vacation Center also depends on
third party service providers for processing certain fulfillment services.
The domestic and international leisure travel industry is seasonal. The
results of Online Vacation Center have been subject to quarterly fluctuations
caused primarily by the seasonal variations in the travel industry. Net revenues
and net income are generally higher in the second and fourth quarters. The
company expects seasonality to continue in the future.
51
Recent Accounting Policies
Nonmonetary Exchange
In December 2004, the FASB issued SFAS No. 153, "Exchanges of
Nonmonetary Assets--An Amendment of APB Opinion No. 29, Accounting for
Nonmonetary Transactions" ("SFAS 153"). SFAS 153 eliminates the exception from
fair measurement for nonmonetary exchanges of similar productive assets in
paragraph 21(b) of APB Opinion No. 29, "Accounting for Nonmonetary
Transactions," and replaces it with an exception for exchanges that do not have
commercial substance. SFAS 153 specifies that a nonmonetary exchange has
commercial substance if the future cash flows of the entity expected to change
significantly as a result of the exchange. SFAS 153 is effective for the fiscal
periods beginning after June 15, 2005. The adoption of SFAS 153 is not expected
to have a material impact on Online Vacation Center's current financial
condition or results of operations.
Other-Than-Temporary Impairment of Investments
In March 2004, the EITF of the FASB reached a consensus on Issue No.
03-01, "The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments" ("EITF 03-01"). EITF 03-01 addresses the meaning of
other-than-temporary impairment and its application to debt and equity
securities within the scope of SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS 115") and equity securities that are not
subject to the scope of SFAS 115 and not accounted for under the equity method
of accounting. As of September 30, 2005 and 2004, Online Vacation Center
determined that EITF 03-01 had no impact on its consolidated financial
statements.
Contingently Convertible Instruments
In September 2004, the EITF reached a consensus on Issue No. 04-08,
"The Effect of Contingently Convertible Instruments on Diluted Earnings Per
Share" ("EITF 04-08"), which is effective for reporting periods ending after
December 15, 2004. EITF 04-08 requires companies to include shares issuable
under convertible instruments in diluted earnings per share computations (if
dilutive) regardless of whether the market price trigger (or other contingent
feature) has been met. In addition, prior period earnings per share amounts
presented for comparative purposes must be restated. Online Vacation Center
issued no contingent convertible notes. In accordance with EITF 04-08, Online
Vacation Center determined that there will be no impact on future diluted
earnings per share related to these notes.
Share-Based Payment
In December 2004, the FASB issued a revision of SFAS 123 ("SFAS
123(R)") that will require compensation costs related to share-based payment
transactions to be recognized in the statement of operations. With limited
exceptions, the amount of compensation cost will be measured based on the
grant-date fair value of the equity or liability instruments issued. In
addition, liability awards will be remeasured each reporting period.
Compensation cost will be recognized over the period that an employee provides
service in exchange for the award. SFAS 123(R) replaces SFAS 123 and is
effective as of the first interim period beginning after June 15, 2005. Based on
zero shares and awards outstanding as of September 30, 2005 (and without giving
effect to any awards which may be granted in the remainder of 2005), Online
Vacation Center expects that the adoption of SFAS 123(R) will have no impact on
earnings during 2005.
Critical Accounting Policies
Revenue Recognition
Revenues are derived from transactions where Online Vacation Center is
the merchant of record and determines the price to the customer. Online Vacation
Center has agreements with suppliers for travel packages that Online Vacation
Center sells. Online Vacation Center does not have purchase obligations for
unsold travel packages. Online Vacation Center presents revenue in accordance
with Staff Accounting Bulletin (SAB) No. 104 "Revenue Recognition in Financial
52
Statements" and Emerging Issues Task Force (EITF) Issue No. 99-19, "Reporting
Revenue Gross as a Principal versus Net as an Agent", including the weighing of
the relevant qualitative factors regarding the Company's status as a primary
obligor, and the extent of their pricing latitude. The method of revenue
presentation does not impact operating profit, net income, earnings per share or
cash flows. Based upon the Company's evaluation of sales transactions and in
accordance with the various indicators identified in EITF Issue No. 99-19,
Online Vacation Center's suppliers assume the majority of the business risks
such as providing the service and the risk of unsold travel packages. As such,
all sales transactions are to be recorded at the net amount, which is the amount
charged to the customer less the amount to be paid to the supplier. Sales
transactions are billed to customers at the time of booking, however revenue is
not recognized on the accompanying consolidated financial statements until the
customers' travel occurs.
Online Vacation Center generally recognized advertising revenues
ratably over the advertising period, depending on the terms of the advertising
contract. For the nine-month periods ended September 30, 2005 and 2004, Online
Vacation Center derived no revenues from the sales of advertisements on its
internet website. Online Vacation Center applies EITF Issue No. 99-17,
"Accounting for Advertising Barter Transactions", in the valuation and
recognition of barter arrangements, however, during the current period, there
was no revenue derived from barter agreements.
RISK FACTORS
You are urged to read and carefully consider the following risk
factors.
RISKS RELATING TO THE SALE OF ASSETS AND SHARE EXCHANGE
Alec Bradley Cigar may not realize the anticipated benefits of the share
------------------------------------------------------------------------
exchange and is selling its operating assets to a related party.
----------------------------------------------------------------
As a condition of the share exchange, Alec Bradley Cigar is selling all
of its assets which include its cigar distribution operations. Alan Rubin, the
purchaser, is also Alec Bradley Cigar's majority shareholder, chairman and sole
officer and director. Mr. Rubin is not withdrawing from the cigar distribution
business. Alec Bradley Cigar's decision to withdraw from the cigar business may
be premature. Economic conditions change quickly, and Online Vacation Center's
business plan may never be realized and our stock price will decrease.
Nevertheless, Alec Bradley Cigar's board of directors believes that
selling Alec Bradley Cigar's current business operations and implementing Online
Vacation Center's business will permit the combined companies to achieve a
greater level of success than is possible with Alec Bradley Cigar's current
business. However, there can be no assurance that, following the share exchange,
Online Vacation Center's business will ever achieve a greater level of success.
The share exchange will dilute your percentage ownership of Alec Bradley Cigar's
--------------------------------------------------------------------------------
common stock.
-------------
The share exchange will dilute the percentage ownership held by Alec
Bradley Cigar's shareholders when compared to their ownership prior to the share
exchange. Based upon the estimated capitalization of both Alec Bradley Cigar and
Online Vacation Center, at the effective time of the share exchange Alec Bradley
Cigar's shareholders will hold approximately 9% of Alec Bradley Cigar's
outstanding capital stock following the share exchange.
The aggregate number of shares of Alec Bradley Cigar's common stock issued to
-----------------------------------------------------------------------------
Online Vacation Center shareholders in the share exchange is fixed and will not
-------------------------------------------------------------------------------
be adjusted in the event of any change in the stock price.
----------------------------------------------------------
Under the share exchange agreement, each outstanding share of Online
Vacation Center common stock will be exchanged for 15,000,000 shares of Alec
53
Bradley Cigar's common stock. The number of shares issued to Online Vacation
Center shareholders in the share exchange is fixed and will not be adjusted for
any fluctuation in the market price of Alec Bradley Cigar's common stock.
Even following the share exchange Alec Bradley Cigar may be exposed to
----------------------------------------------------------------------
liabilities resulting from its current business operations.
-----------------------------------------------------------
As a condition to the proposed share exchange with Online Vacation
Center, Alec Bradley Cigar must dispose of all of its assets and liabilities.
Even though Alec Bradley Cigar will have disposed of all such cigar operations
and has been indemnified by Mr. Rubin for claims associated with the operations,
there can be no assurance that a third party will not make claims against Alec
Bradley Cigar for actions taken by the former company.
RISK FACTORS RELATING TO ONLINE VACATION CENTER'S BUSINESS
Online Vacation Center's growth strategy is based on a merger and acquisition
-----------------------------------------------------------------------------
strategy and there can be no assurance that Online Vacation Center will be able
-------------------------------------------------------------------------------
to identify, acquire or profitably manage additional businesses or successfully
-------------------------------------------------------------------------------
integrate acquired businesses into Online Vacation Center without substantial
-----------------------------------------------------------------------------
costs, delays or other operational or financial problems.
---------------------------------------------------------
Online Vacation Center intends to increase its revenues, expand the
markets it serves and increase its services through the acquisition or merger of
additional operating companies. There can be no assurance that Online Vacation
Center will be able to identify, acquire or profitably manage additional
businesses or successfully integrate acquired businesses into Online Vacation
Center without substantial costs, delays or other operational or financial
problems. Increased competition for acquisition or merger candidates may
develop, in which event there may be fewer acquisition and merger opportunities
available to Online Vacation Center, as well as higher acquisition or merger
prices. Further, acquisitions and mergers involve a number of special risks,
including possible adverse effects on Online Vacation Center's operating
results, diversion of management's attention, failure to retain key personnel,
risks associated with unanticipated events or liabilities and amortization of
acquired intangible assets, some or all of which could have a material adverse
effect on Online Vacation Center's business, financial condition and results of
operations. Customer dissatisfaction or performance problems at a single
acquired company could also have an adverse effect on the reputation of Online
Vacation Center. Online Vacation Center may also seek international acquisitions
that may be subject to additional risks associated with doing business in
foreign countries. In addition, there can be no assurance that businesses
acquired will achieve anticipated revenues and earnings.
Since Online Vacation Center may finance future acquisitions and mergers in part
--------------------------------------------------------------------------------
by using shares of its common stock for the consideration to be paid, if in the
-------------------------------------------------------------------------------
event that the common stock does not maintain a sufficient market value, or
---------------------------------------------------------------------------
potential acquisition and merger candidates are otherwise unwilling to accept
-----------------------------------------------------------------------------
common stock as the consideration for the sale of their businesses, Online
--------------------------------------------------------------------------
Vacation Center may be required to issue additional shares of stock or utilize
------------------------------------------------------------------------------
more of its cash resources, if available, in order to maintain its acquisition
------------------------------------------------------------------------------
program.
--------
Online Vacation Center may finance future acquisitions by using shares
of common stock for the consideration to be paid. In the event that the common
stock does not maintain a sufficient market value, or potential acquisition and
merger candidates are otherwise unwilling to accept common stock as part of the
consideration for the sale of their businesses, Online Vacation Center may be
required to utilize more of its cash resources, if available, in order to
maintain its expansion program. If Online Vacation Center has insufficient cash
resources, its growth could be limited unless it is able to obtain additional
capital through debt or equity financings. There can be no assurance that other
financing will be available on terms Online Vacation Center deems acceptable. If
Online Vacation Center is unable to obtain financing sufficient for all of its
desired acquisitions and mergers, it may be unable to fully carry out its
expansion strategy. If funding is insufficient, Online Vacation Center may be
required to delay, reduce the scope of or eliminate some or all of its expansion
programs.
54
Online Vacation Center is dependent upon travel providers for access to their
-----------------------------------------------------------------------------
capacity and the loss of a contract, changes in Online Vacation Center's pricing
--------------------------------------------------------------------------------
agreements or commission schedules or more restricted access to travel
----------------------------------------------------------------------
providers' capacity could materially decrease Online Vacation Center's margins
------------------------------------------------------------------------------
and have a negative effect on Online Vacation Center's business, financial
--------------------------------------------------------------------------
condition and results of operations.
------------------------------------
Online Vacation Center is dependent upon travel providers for access to
their capacity. Other distributors may have similar arrangements with travel
providers, some of which may provide better availability or more competitive
pricing than that offered by Online Vacation Center. Online Vacation Center
anticipates that a significant portion of its revenues will continue to be
derived from the sale of capacity for relatively few travel providers. Online
Vacation Center's agreements with its travel providers can generally be canceled
or modified by the travel provider upon relatively short notice. The loss of a
contract, changes in Online Vacation Center's pricing agreements or commission
schedules or more restricted access to travel providers' capacity could have a
material adverse effect on Online Vacation Center's business, financial
condition and results of operations.
There can be no assurance that Online Vacation Center will be able to
---------------------------------------------------------------------
successfully integrate the operations of future acquisitions and mergers or
---------------------------------------------------------------------------
institute the necessary company-wide systems and procedures to successfully
---------------------------------------------------------------------------
manage the combined enterprise on a profitable basis.
-----------------------------------------------------
Online Vacation Center will rely on the existing reporting systems of
future acquisitions and mergers for financial reporting. There can be no
assurance that the management group will be able to continue to effectively
manage the combined entity or effectively implement and carry out Online
Vacation Center's internal growth strategy and expansion program. The inability
of Online Vacation Center to successfully integrate future acquisitions and
mergers would have a material adverse effect on Online Vacation Center's
business, financial condition and results of operations, and would make it
unlikely that Online Vacation Center's expansion program will continue to be
successful. Further, there can be no assurance that Online Vacation Center's
strategy to become the leading specialized distributor of leisure travel
services will be successful, or that the travelers or travel providers will
accept Online Vacation Center as a distributor of a variety of specialized
travel services.
Online Vacation Center's business is currently dependent upon a number of
-------------------------------------------------------------------------
different information and telecommunication technologies and any failure of this
--------------------------------------------------------------------------------
technology would decrease the company's revenues.
-------------------------------------------------
Online Vacation Center's business is currently dependent upon a number
of different information and telecommunication technologies to facilitate its
access to information and manage a high volume of inbound and outbound calls.
Any failure of this technology would have a material adverse effect on the
company's business, financial condition and results of operations. In addition,
Online Vacation Center is dependent upon certain third party vendors, for access
to certain information. Any failure of these systems or restricted access by
Online Vacation Center would have a material adverse effect on Online Vacation
Center's business, financial condition and results of operations.
There can be no assurance that Online Vacation Center's systems, procedures and
-------------------------------------------------------------------------------
controls will be adequate to support Online Vacation Center's operations as it
------------------------------------------------------------------------------
expands which could significantly increase the company's expenses and delay or
------------------------------------------------------------------------------
prevent growth.
---------------
Online Vacation Center expects to continue to grow internally and
through acquisitions and mergers. Online Vacation Center expects to spend
significant time and effort expanding existing businesses and identifying,
completing and integrating acquisitions and mergers. There can be no assurance
that Online Vacation Center's systems, procedures and controls will be adequate
to support Online Vacation Center's operations as they expand. Any future growth
also will impose significant added responsibilities on members of senior
management, including the need to identify, recruit and integrate new senior
level managers and executives. There can be no assurance that such additional
management will be identified or retained by Online Vacation Center. To the
extent that the company is unable to manage its growth efficiently and
55
effectively, or is unable to attract and retain qualified management, Online
Vacation Center's business, financial condition and results of operations could
be materially adversely affected. While Online Vacation Center has experienced
revenue and earnings growth over the past few years, there can be no assurance
that Online Vacation Center will continue to experience internal growth
comparable to these levels, if at all. Factors affecting the ability of Online
Vacation Center to continue to experience internal growth include, but are not
limited to, the ability to expand the travel services offered, the continued
relationships with certain travel providers and travel agents, the ability to
recruit and retain qualified sales personnel and the ability to cross-sell
services within Online Vacation Center.
Online Vacation Center's revenues and earnings are especially sensitive to
--------------------------------------------------------------------------
global events that are out of its control.
------------------------------------------
Online Vacation Center's results of operations are dependent upon
factors generally affecting the travel industry. Online Vacation Center's
revenues and earnings are especially sensitive to events that affect domestic
and international air travel and vacation. A number of factors could result in
an overall decline in demand for travel, including political instability, armed
hostilities, international terrorism, extreme weather conditions, a rise in fuel
prices, a decline in the value of the U.S. dollar, labor disturbances, excessive
inflation, a general weakening in economic activity and reduced employment in
the U.S. These types of events could have a material adverse effect on Online
Vacation Center's business, financial condition and results of operations.
The domestic and international leisure travel industry is seasonal and subject
------------------------------------------------------------------------------
to quarterly fluctuations caused primarily by the seasonal variations in the
----------------------------------------------------------------------------
travel industry which could have a negative effect on Online Vacation Center's
------------------------------------------------------------------------------
quarterly results of operations.
--------------------------------
The domestic and international leisure travel industry is seasonal. The
results of Online Vacation Center's have been subject to quarterly fluctuations
caused primarily by the seasonal variations in the travel industry. Net revenues
and net income are generally higher in the second and fourth quarters. The
company expects seasonality to continue in the future. The company's quarterly
results of operations may also be subject to fluctuations as a result of the
timing and cost of acquisitions and mergers, changes in the mix of services
offered by Online Vacation Center as a result of acquisitions and mergers,
internal growth rates, fare wars by travel providers, changes in relationships
with certain travel providers, the timing of the payment of overrides by travel
providers, extreme weather conditions or other factors affecting travel.
Unexpected variations in quarterly results could also adversely affect the price
of the common stock, which in turn could limit the ability of Online Vacation
Center to expand.
The travel service industry is extremely competitive and has low barriers to
----------------------------------------------------------------------------
entry.
------
The travel service industry is extremely competitive and has low
barriers to entry. Online Vacation Center competes with other distributors of
travel services, travel providers, travel agents, tour operators and central
reservation service providers, some of which have greater experience, brand name
recognition and/or financial resources than Online Vacation Center. Online
Vacation Center's travel providers may decide to compete more directly with
Online Vacation Center and restrict the availability and/or preferential pricing
of their capacity. In addition, other distributors may have relationships with
certain travel providers providing better availability or more competitive
pricing than that offered by Online Vacation Center. Furthermore, some travel
agents have a strong presence in their geographic area which may make it
difficult for Online Vacation Center to attract customers in those areas.
Online Vacation Center's operations are dependent on the efforts and
--------------------------------------------------------------------
relationships of Edward Rudner will be dependent on the efforts and
-------------------------------------------------------------------
relationships of the principals of future acquisitions and mergers and if any of
--------------------------------------------------------------------------------
these principals become unable to continue in their role, the company's business
--------------------------------------------------------------------------------
could be adversely affected.
----------------------------
Online Vacation Center's operations are dependent on the efforts and
relationships of Edward Rudner. Furthermore, Online Vacation Center will likely
be dependent on the senior management of any businesses acquired in the future.
If any of these individuals become unable to continue in their role the
Company's business or prospects could be adversely affected. Although the
56
Company has entered into an employment agreement with Mr. Rudner, there can be
no assurance that such individual will continue in his present capacity for any
particular period of time.
Subsequent to the acquisition of Online Vacation Center Edward Rudner will have
-------------------------------------------------------------------------------
the ability to control our business and corporate affairs.
----------------------------------------------------------
Subsequent to the acquisition of Online Vacation Center Edward Rudner
and his affiliates will beneficially own shares of common stock representing
approximately 64% of the total voting power of the common stock of our company.
Mr. Rudner will be able to exercise control over Online Vacation Center's
affairs and be able to elect our entire board of directors and to control the
disposition of any matter submitted to a vote of stockholders.
57
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL INFORMATION
PRO FORMA UNAUDITED BALANCE SHEET
Balance Sheet as of September 30, 2005
The following pro forma unaudited consolidated financial information gives
effect to the sale of assets and the share exchange and assumes the transactions
occurred as of September 30, 2005. The pro forma unaudited consolidated
financial information is presented for illustrative purposes only. It is not
necessarily indicative of the operating results or financial position that would
have occurred if the asset sale and share exchange had been consummated at the
beginning of the period indicated, nor is such information indicative of the
future operating results or financial position of Online Vacation Center after
the asset sale and share exchange.
Book Value of
Alec Bradley Book Value of Effect of Post
Alec Sale of prior to Online Vacation exchange Share
Bradley Alec Bradley share exchange Center of shares Exchange
------ ------------ -------------- ------ --------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 53,013 $ (53,013) $ -- $ 2,136,120 $ 2,136,120
Restricted cash -- -- 316,096 316,096
Accounts receivable, net 396,786 (396,786) -- 474,067 474,067
Inventory 223,148 (223,148) -- --
Prepaid expenses and
other current assets 49,110 (49,110) -- 293,356 293,356
----------- ----------- ----------- ----------- ----------- -----------
Total Current Assets 722,057 (722,057) -- 3,219,639 -- 3,219,639
Property and equipment, net 12,492 (12,492) -- 111,228 111,228
Deferred income taxes -- -- 665,249 665,249
Intangible assets, net 7,412 (7,412) -- 45,258 45,258
----------- ----------- ----------- ----------- ----------- -----------
Total Assets $ 741,961 $ (741,961) $ -- $ 4,041,374 $ -- $ 4,041,374
=========== =========== =========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES
Accounts payable and
accrued liabilities $ 337,169 $ (337,169) $ -- $ 887,708 $ 887,708
Note payable - related party 57,974 (57,974) -- --
Payroll taxes payable 5,763 (5,763)
Deferred revenue, net -- -- -- 541,594 541,594
Customer deposits -- -- -- 2,067,911 2,067,911
----------- ----------- ----------- ----------- ----------- -----------
Total Current Liabilities 400,906 (400,906) -- 3,497,213 -- 3,497,213
Subordinate Debentures -- -- -- 3,000,000 (3,000,000) --
----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities 400,906 (400,906) -- 6,497,213 (3,000,000) 3,497,213
----------- ----------- ----------- ----------- ----------- -----------
Shareholders' Equity (Deficiency)
ORIGINAL CAPITAL STRUCTURE
Common stock, $0.0001 par value,
30,000,000 shares authorized,
4,499,777 shares issued and
outstanding 450 (270) 180 --
Common Stock, 20,000,000 shares
authorized at $.001 par value;
171,429 shares issued and
outstanding 171 (171) --
AMENDED CAPITAL STRUCTURE
Common stock, $0.0001 par value,
80,000,000 shares authorized,
16,799,777 shares issued and
outstanding(1) -- -- -- 1,680 1,680
Additional paid-in capital 73,510 (73,690) (180) 248,473 2,998,491 3,246,964
Retained Earnings
(Accumulated deficit) 267,095 (267,095) -- (2,704,483) -- (2,704,483)
----------- ----------- ----------- ----------- ----------- -----------
Total Shareholders' Deficiency 341,055 (341,055) -- (2,455,839) 3,000,000 544,161
----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities & Shareholders'
Deficiency $ 741,961 $ (741,961) $ -- $ 4,041,374 $ -- 4,041,374
=========== =========== =========== =========== =========== ===========
58
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the nine months ended September 30, 2005
The following pro forma unaudited consolidated financial information gives
effect to the sale of assets and the share exchange and assumes the transactions
occurred as of January 1, 2005. The pro forma unaudited consolidated financial
information is presented for illustrative purposes only. It is not necessarily
indicative of the operating results or financial position that would have
occurred if the asset sale and share exchange had been consummated at the
beginning of the period indicated, nor is such information indicative of the
future operating results or financial position of Online Vacation Center after
the asset sale and share exchange.
Alec Bradley Online Effect of Post
Alec Sale of prior to Vacation exchange Share
Bradley Alec Bradley share exchange Center of shares Exchange
------- ------------ -------------- ------ --------- --------
NET SALES $ 2,041,951 $ (2,041,951) $ --
Cost of goods sold 1,285,085 (1,285,085) --
------------ ------------ ------------
GROSS PROFIT 756,866 (756,866) --
NET REVENUES $ 6,001,064 $ 6,001,064
OPERATING EXPENSES:
Sales and marketing 343,593 (343,593) -- 1,784,132 1,784,132
General and administrative 368,930 (368,930) -- 2,899,354 2,899,354
------------ ------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 44,343 (44,343) -- 1,317,578 1,317,578
------------ ------------ ------------ ------------ ------------
Other expenses:
Interest expense, net -- -- -- (180,580) (180,580)
------------ ------------ ------------ ------------ ------------
Total other expenses, net -- -- -- (180,580) (180,580)
------------ ------------ ------------ ------------ ------------
Earnings from continuing
operations before provision
for income taxes 44,343 (44,343) -- 1,136,998 $ 1,136,998
Provision (benefit) for
income taxes 7,715 (7,715) -- 25,567 25,567
------------ ------------ ------------ ------------ ------------
NET INCOME $ 36,628 $ (36,628) $ -- $ 1,111,431 1,111,431
============ ============ ============ ============ ============
EARNINGS PER SHARE - Basic $ 0.008 $ 0.014 $ -- $ 6.48 $ 0.066
============ ============ ============ ============ ============
Weighted average
shares outstanding - basic 4,499,777 (2,700,000) 1,799,777 171,429 14,828,571 16,799,777
============ ============ ============ ============ ============ ============
EARNINGS PER SHARE -
Fully Diluted $ 0.008 $ 0.014 $ -- $ 6.48 $ 0.061
============ ============ ============ ============ ============
Weighted average
shares outstanding
- fully diluted(2) 4,499,777 (2,700,000) 1,799,777 171,429 16,328,571 18,299,777
============ ============ ============ ============ ============ ============
59
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the twelve months ended December 31, 2004
The following pro forma unaudited consolidated financial information gives
effect to the sale of assets and the share exchange and assumes the transactions
occurred as of January 1, 2004. The pro forma unaudited consolidated financial
information is presented for illustrative purposes only. It is not necessarily
indicative of the operating results or financial position that would have
occurred if the asset sale and share exchange had been consummated at the
beginning of the period indicated, nor is such information indicative of the
future operating results or financial position of Online Vacation Center after
the asset sale and share exchange.
Alec Bradley Online Effect of Post
Alec Sale of prior to Vacation exchange Share
Bradley Alec Bradley share exchange Center of shares Exchange
------- ------------ -------------- ------ --------- --------
NET SALES $ 2,392,858 $ (2,392,858) $ -
Cost of goods sold 1,450,975 (1,450,975) -
----------- ------------ ------------
GROSS PROFIT 941,883 (941,883) -
NET REVENUES $ 6,252,690 $ 6,252,690
OPERATING EXPENSES:
Sales and marketing 402,595 (402,595) - 2,011,445 2,011,445
General and administrative 441,316 (441,316) - 3,229,287 3,229,287
----------- ------------ ------------ ----------- -----------
INCOME FROM OPERATIONS 97,972 (97,972) - 1,011,958 1,011,958
----------- ------------ ------------ ----------- -----------
Other expenses:
Settlement gain 265,815 265,815
Interest expense, net - - (274,291) (274,291)
----------- -----------
Total other expenses, net - - - (8,476) (8,476)
----------- ------------ ------------ ----------- -----------
Earnings from continuing
operations before provision
for income taxes 97,972 (97,972) - 1,003,482 1,003,482
Provision (benefit) for
income taxes 24,286 (24,286) - (75,813) (75,813)
----------- ------------ ------------ ----------- -----------
NET INCOME $ 73,686 $ (73,686) $ - $ 1,079,295 $ 1,079,295
=========== ============ ============ =========== ===========
EARNINGS PER SHARE - Basic $ 0.016 $ 0.027 $ - $ 6.30 $ 0.064
=========== ============ ============ =========== ===========
Weighted average shares
outstanding - basic 4,499,777 (2,700,000) 1,799,777 171,429 14,828,571 16,799,777
=========== ============ ============ =========== ========== ===========
EARNINGS PER SHARE -
Fully Diluted $ 0.016 $ 0.027 $ - $ 6.30 $ 0.059
=========== ============ ============ =========== ===========
Weighted average shares
outstanding - fully diluted(2) 4,499,777 (2,700,000) 1,799,777 171,429 16,328,571 18,299,777
=========== ============ ============ =========== ========== ===========
60
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FOOTNOTES
(1) Reconciliation of common shares outstanding:
Common stock outstanding as of September 30, 2005 4,499,777
Shares returned to treasury in the sale of assets (2,700,000)
Issuance of common stock pursuant to share exchange agreement 15,000,000
-------------
Common stock outstanding upon completion of transaction 16,799,777
=============
(2) Weighted average shares outstanding:
Stock options to be issued as of the effective date of the share exchange
include the following:
700,000 to Edward B. Rudner 700,000
600,000 to Richard Anthony McKinnon 600,000
200,000 to Brian Froelich 200,000
------------
Total stock options outstanding as of the effective date of the share exchange 1,500,000
============
SCHEDULE
Per Share Information for Shareholder Groups
Public Shareholders,
Online Vacation Center not including Alan Rubin Alan Rubin
Before After Before After Before After
------ ----- ------ ----- ------ -----
Book Value per Share $(14.33) $0.03 $0.08 $0.03 $0.08 N/A
Total Book Value (2,455,839) 485,864 121,632 51,980 219,423 347,371
EPS - 9 months 2005 $6.48 $0.07 $0.01 $0.07 $0.01 N/A
EPS - 2004 $6.30 $0.06 $0.02 $0.06 $0.02 N/A
The per share amounts are not applicable. After the share exchange, Alan Rubin
will own 100% of the cigar business, therefore the number of shares outstanding
is irrelevant.
61
RIGHTS OF DISSENTING SHAREHOLDERS
Set forth below is a summary of dissenters' rights available to Alec
Bradley Cigar's shareholders relating to the sale of assets and elimination of
preemptive rights. This summary is not intended to be a complete statement of
applicable Florida law and is qualified in its entirety by reference to Article
XIII, Chapter 607 of the FBCA, set forth in its entirety as Appendix F.
Right to Dissent. Shareholders of Alec Bradley Cigar are entitled to
dissent from the sale of assets and elimination of preemptive rights discussed
in this information statement and obtain payment of the fair value of their
shares if and when the proposals are effectuated. A shareholder entitled to
dissent and to obtain payment for the shareholder's shares under Chapter 607 of
the FBCA may not challenge the corporate action(s) creating the right to dissent
unless the action is unlawful or fraudulent with respect to the shareholder or
the corporation.
Under Section 607.1302 of the FBCA, a record shareholder may assert
dissenters' rights as to fewer than all the shares registered in the record
shareholder's name.
Procedure for Exercise of Dissenters' Rights. The notice accompanying
the information statement states that shareholders are entitled to assert
dissenters' rights under Chapter 607 of the FBCA. An Alec Bradley Cigar
shareholder who wishes to assert dissenters' rights must cause Alec Bradley
Cigar to receive written notice of the shareholder's intention to demand payment
for the shareholder's shares within 20 days of receipt of this information
statement.
A SHAREHOLDER WHO DOES NOT SATISFY THE FOREGOING REQUIREMENTS WILL NOT BE
ENTITLED TO DEMAND PAYMENT FOR HIS OR HER SHARES UNDER CHAPTER 607 OF THE FBCA.
Once the proposals become effective, Alec Bradley Cigar must deliver a
written appraisal notice and an appraisal form to all shareholders who have
complied with the notice of intent to demand payment. Appraisal notice must be
sent no earlier than the date the corporate action became effective and no later
than 10 days after such date and must provide a form that specifies the date the
proposals became effective and that provides for the shareholders to: (1) state
their name, address, number of shares as to which the shareholder asserts
appraisal rights, and (2) accept Alec Bradley Cigar's appraisal offer or (if the
shareholder does not accept the offer) provide for the shareholder's estimated
fair value of the shares and the demand for the payment of the shareholder's
estimated value plus interest
The appraisal form must be received by Alec Bradley Cigar no fewer than
40 nor more than 60 days after the appraisal notice and form was originally sent
by Alec Bradley Cigar. IF SUCH FORM IS NOT RECEIVED WITHIN THIS TIME PERIOD THEN
THE SHAREHOLDER SHALL HAVE WAIVED THE RIGHT TO DEMAND APPRAISAL WITH RESPECT TO
THE SHARES.
A shareholder who wishes to exercise appraisal rights must execute and
return the form received and, in the case of certificated shares, deposit the
shareholder certificates with Alec Bradley Cigar Company. Once a shareholder
deposits that shareholder's certificate or, in the case of uncertificated
shares, returns the executed forms, that shareholder loses all rights as a
shareholder, unless the shareholder withdraws his notice.
If the shareholder states on the appraisal form that the shareholder
accepts the offer of Alec Bradley Cigar to pay the estimated fair value for the
shares, Alec Bradley Cigar shall make such payment to the shareholder within 90
days after its receipt of the form from the shareholder.
Judicial Appraisal of Shares. If a demand for payment made by a
dissatisfied dissenter as set forth above is unresolved, Alec Bradley Cigar may,
within 60 days after receiving the payment demand, commence a proceeding and
petition a court to determine the fair value of the shares. Alec Bradley Cigar
must commence the proceeding described above in any court of competent
jurisdiction in Broward County, Florida. Alec Bradley Cigar must make all
62
dissenters whose demands remain unresolved parties to the proceeding as in an
action against their shares, and all parties must be served with a copy of the
petition. The jurisdiction of the court in which the proceeding is commenced is
plenary and exclusive. One or more persons may be appointed by the court as
appraisers to receive evidence and recommend a decision on the question of fair
value. The proceeding will be entitled to the same discovery rights as parties
in other civil proceedings. Each dissenter made a party to the proceeding will
be entitled to judgment for the amount, if any, by which the court finds the
fair value of the dissenter's shares exceeds the amount paid by Alec Bradley
Cigar, or the fair value of a dissenters' shares for which Alec Bradley Cigar
elected to withhold payment.
The court in an appraisal proceeding will determine the costs and
expenses of the proceeding, including the reasonable compensation and expenses
of appraisers appointed by the court. The court will assess the costs against
Alec Bradley Cigar, but all or any part of such costs and expenses may be
apportioned and assessed as the court deems equitable against any or all of the
dissenting shareholders who are parties to the proceeding, to whom Alec Bradley
Cigar has made an offer to pay for the shares, if the court finds that the
action of such shareholders in failing to accept such offer was arbitrary,
vexatious, or not in good faith. Such expenses shall include reasonable
compensation for, and reasonable expenses of, the appraisers, but shall exclude
the fees and expenses of counsel for, and experts employed by, any party. If the
fair value of the shares, as determined, materially exceeds the amount which
Alec Bradley Cigar offered to pay therefore or if no offer was made the court in
its discretion may award to any shareholder who is a party to the proceeding
such sum as the court determines to be reasonable compensation to any attorney
or expert employed by the shareholder in the proceeding.
By Order of the Board of Directors
Alec Bradley Cigar Corporation
/s/ Alan Rubin
--------------
Alan Rubin
Chief Executive Officer
63
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 and 2003
TABLE OF CONTENTS
Page
----
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Changes in Shareholders' Deficiency F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7 - F-18
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the board of directors and shareholders of
Online Vacation Center Holdings, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Online Vacation
Center Holdings, Inc. and Subsidiary as of December 31, 2004 and 2003 and the
related consolidated statements of operations, changes in shareholders'
deficiency and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Online Vacation
Center Holdings, Inc. and Subsidiary as of December 31, 2004 and 2003 and the
results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Jewett, Schwartz & Associates
Hollywood, Florida
March 3, 2005
F-2
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31,
-------------------------------------------
2004 2003
--------------------- ---------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,176,923 $ 425,984
Restricted cash 315,176 489,904
Accounts receivable, net 323,906 154,367
Prepaid expenses and other current assets 328,450 243,020
--------------------- ---------------------
Total Current Assets 2,144,455 1,313,275
PROPERTY AND EQUIPMENT, NET 115,722 117,737
DEFERRED INCOME TAXES 627,290 551,477
INTAGIBLE ASSETS, NET 48,090 51,867
--------------------- ---------------------
TOTAL ASSETS $ 2,935,557 $ 2,034,356
===================== =====================
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 778,605 $ 716,814
Deferred revenue, net 408,584 264,370
Customer deposits 2,149,389 1,241,796
Settlement obligation, current portion 96,250 632,942
Notes payable - current - 825,000
--------------------- ---------------------
Total Current Liabilities 3,432,828 3,680,922
Settlement obligation, non-current portion 70,000 -
Subordinated Debentures 3,000,000 3,000,000
--------------------- ---------------------
TOTAL LIABILITIES 6,502,828 6,680,922
--------------------- ---------------------
Comitments and contingencies (Note 12)
SHAREHOLDERS' DEFICIENCY:
Common Stock, 20,000,000 shares authorized at
$.001 par value; 171,429 shares issued and outstanding 171 171
Additional paid-in capital 248,473 248,473
Accumulated deficit (3,815,915) (4,895,210)
--------------------- ---------------------
Total Shareholders' Deficiency (3,567,271) (4,646,566)
--------------------- ---------------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY $ 2,935,557 $ 2,034,356
===================== =====================
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
F-3
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31,
2004 2003
--------------------- --------------------
NET REVENUES $ 6,252,690 $ 5,649,406
OPERATING EXPENSES:
Sales and marketing 2,011,445 908,084
General and administrative 3,229,287 3,042,095
--------------------- --------------------
INCOME FROM OPERATIONS 1,011,958 1,699,227
--------------------- --------------------
Other income (expense):
Settlement gain 265,815 -
Interest expense, net (274,291) (302,834)
--------------------- --------------------
Total other expense, net (8,476) (302,834)
--------------------- --------------------
Earnings from continuing operations
before provision for income taxes 1,003,482 1,396,393
Provision (benefit) for income taxes (75,813) 2,812
--------------------- --------------------
NET INCOME $ 1,079,295 $ 1,393,581
===================== ====================
EARNINGS PER SHARE - Basic and diluted $ 6.30 $ 8.13
===================== ====================
Weighted average shares outstanding - basic and diluted 171,429 171,429
===================== ====================
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
F-4
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIENCY
Common Stock
20,000,000 shares authorized Additional Accumulated
Shares $0.001 par value Paid-in Capital Deficit Total
-------------------------------------- ---------------- ----------------- ----------------
Balance - December 31, 2002 171,429 $ 171 $ 248,473 $ (6,288,791) $ (6,040,147)
Net income - - - 1,393,581 1,393,581
------------ --------------------- ---------------- ----------------- ----------------
Balance - December 31, 2003 171,429 171 248,473 (4,895,210) $ (4,646,566)
Net income - - - 1,079,295 1,079,295
------------ --------------------- ---------------- ----------------- ----------------
Balance - December 31, 2004 171,429 $ 171 $ 248,473 $ (3,815,915) $ (3,567,271)
============ ===================== ================ ================= ================
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
F-5
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
2004 2003
--------------------- ------------------------
Cash Flows from Operating Activities:
Net income $ 1,079,295 $ 1,393,581
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for bad debts 5,000 4,003
Depreciation and amortization 71,616 129,129
Goodwill impairment - 61,575
Deferred income taxes (75,813) 2,812
Changes in operating assets and liabilities:
Accounts receivable (174,539) 218,505
Prepaid expenses and other current assets (85,430) 1,324,641
Accounts payable and accrued expenses 61,791 269,990
Deferred revenue 144,214 75,239
Customer deposits 907,593 (5,317,078)
Settlement obligation (466,692) 632,942
--------------------- ------------------------
Net cash provided by (used in) operating activities 1,467,035 (1,204,661)
--------------------- ------------------------
Cash Flows from Investing Activities:
Return of investment in restricted cash 174,728 555,456
Purchases of property and equipment (65,824) -
Disposal of property and equipment - 5,119
--------------------- ------------------------
Net cash provided by (used in) investing activities 108,904 560,575
--------------------- ------------------------
Cash Flows from Financing Activities:
Repayment of notes payable to related party (75,000) (175,000)
Proceeds from notes payable - current - 250,000
Repayment of notes payble - current (750,000) -
--------------------- ------------------------
Net cash provided by (used in) financing activities (825,000) 75,000
--------------------- ------------------------
Net increase (decrease) in cash and cash equivalents 750,939 (569,086)
Cash and cash equivalents, beginning of year 425,984 995,070
--------------------- ------------------------
Cash and cash equivalents, end of year $ 1,176,923 $ 425,984
===================== ========================
Supplemental Disclosure of Cash Flow Information:
------------------------------------------------
Cash paid for interest $ 260,821 $ 307,303
===================== ========================
Cash paid for taxes $ - $ -
===================== ========================
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
F-6
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
NOTE 1 - ORGANIZATION
Overview
--------
Online Vacation Center Holdings, Inc. and Subsidiary (the "Company") is a
Florida holding company incorporated on October 2, 2000, which provides
cruise travel services through its wholly owned subsidiary Online Vacation
Center, Inc.
History
-------
On March 2, 2001, pursuant to a Stock Purchase Agreement effective as of
December 31, 2000, the Company purchased all the common stock of Travel
Trails, Inc. d/b/a McMichael's Travel Shoppe, ("TTI") an American Express
Travel Services Representative travel agency located in Broward County,
Florida. The acquisition was accounted for using the purchase method of
accounting and the cash consideration paid was $67,000, excluding
capitalized acquisition costs of approximately $10,000. Effective as of the
date of the Stock Purchase Agreement TTI changed its name to Online
Vacation Center, Inc.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of
Online Vacation Center Holdings, Inc. and its wholly owned subsidiary. All
significant intercompany transactions and balances have been eliminated in
consolidation.
Use of Estimates
----------------
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements. These
estimates and assumptions also affect the reported amounts of revenues and
costs and expenses during the reporting period. Management evaluates these
estimates and assumptions on a regular basis. Actual results could differ
from those estimates.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. At December 31,
2004 and 2003, cash and cash equivalents include cash on hand and cash in
the bank.
F-7
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
Revenue Recognition
-------------------
Revenues are derived from transactions where the Company is the merchant of
record and determines the price to the customer. The Company has agreements
with suppliers for travel packages that the Company sells. The Company does
not have purchase obligations for unsold travel packages. The Company
presents revenue in accordance with Staff Accounting Bulleting (SAB) No.
104 "Revenue Recognition in Financial Statements" and Emerging Issues Task
Force (EITF) Issue No. 99-19, "Reporting Revenue Gross as a Principal
versus Net as an Agent", including the weighing of the relevant qualitative
factors regarding the Company's status as the primary obligor, and the
extent of their pricing latitude. The method of revenue presentation does
not impact operating profit, net income, earnings per share or cash flows
but rather revenues and operating expenses. Based upon the Company's
evaluation of sales transactions and in accordance with the various
indicators identified in EITF No. 99-19, the Company's suppliers assume the
majority of the business risks which include providing the service and the
risk of unsold travel packages. As such, all sales transactions are
recorded at the net amount, which is the amount charged to the customer
less the amount to be paid to the supplier. Revenues are billed to
customers at the time of booking and are included in deferred revenue on
the accompanying consolidated balance sheet until the customers' travel
occurs, at which point revenues are recognized.
The Company generally recognizes advertising revenues ratably over the
advertising period, depending on the terms of the advertising contract. For
the years ended December 31, 2004 and 2003 the Company derived no revenues
from the sales of advertisements on its internet website. The Company
applies EITF 99-17, Accounting for Advertising Barter Transactions, in the
valuation and recognition of barter arrangements, however, during fiscal
years 2004 and 2003 there was no revenue derived from barter arrangements.
Concentration of Credit Risk
----------------------------
The Company's business is subject to certain risks and concentrations
including dependence on relationships with travel suppliers (primarily
cruise lines), exposure to risks associated with online commerce security
and credit card fraud. The Company is highly dependent on its relationships
with three major cruise lines: Celebrity Cruises, Norwegian Cruise Line and
Royal Caribbean Cruises. The Company also depends on third party service
providers for processing certain fulfillment services.
Concentrations of credit with respect to accounts receivable are limited
because of the Company's policy to require deposits from customers, the
number of customers comprising the client base and their dispersion across
geographical locations.
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist primarily of cash and cash
equivalents and marketable securities. Cash equivalents and marketable
securities are of high-quality short to intermediate term agency
securities, all of which are maintained with quality financial institutions
of high credit. Cash and cash equivalents are maintained with financial
institutions and are in excess of Federal Deposit Insurance Corporation
("FDIC") insurance limits. At December 31, 2004 and 2003 the balances at
various financial institutions over the FDIC insured balances relating to
F-8
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
cash and cash equivalents and restricted cash are approximately $1.3
million and $582,000, respectively.
Accounts Receivable
-------------------
Accounts receivable are generally due 90-days prior to customer travel
dates and are stated at amounts due from customers net of an allowance for
doubtful accounts. Accounts outstanding longer than the contractual payment
terms are considered past due. The Company determines its allowance by
considering a number of factors, including the length of time trade
accounts receivable are past due, the Company's previous loss history, the
specific customer's current ability to pay its obligation to the Company
and the condition of the general economy and the industry as a whole. The
Company writes off accounts receivable when they become uncollectible, and
payments subsequently received on such receivables are credited to the
allowance for doubtful accounts. At December 31, 2004 and 2003, allowance
for doubtful accounts was $5,000 and $4,003, respectively.
Property and Equipment
----------------------
Property and equipment, including significant improvements, are recorded at
cost. Repairs and maintenance and any gains or losses on dispositions are
recognized as incurred. Depreciation and amortization is provided for on a
straight-line basis to allocate the cost of depreciable assets to
operations over their estimated service lives.
Depreciation/
Amortization
Asset Category Period
-------------- -------------
Office equipment 2 to 3 Years
Furniture & fixture 5 to 7 Years
Leasehold improvements 6.5 Years
Capitalized relocation costs 3 to 5 Years
Goodwill and Indefinite-Lived Purchased Intangible Assets
---------------------------------------------------------
In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets,"
goodwill acquired in business combinations is assigned to reporting units
that are expected to benefit from the synergies of the combination as of
the acquisition date. The Company assesses goodwill and indefinite-lived
intangible assets for impairment annually at the beginning of the fourth
quarter, or more frequently if events and circumstances indicate impairment
may have occurred in accordance with SFAS No. 142. If the carrying value of
a reporting unit's goodwill exceeds its implied fair value, the Company
records an impairment loss equal to the difference. SFAS No. 142 also
requires that the fair value of indefinite-lived purchased intangible
assets be estimated and compared to the carrying value. The Company
recognizes an impairment loss when the estimated fair value of the
indefinite-lived purchased intangible assets is less than the carrying
value.
F-9
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
Long-Lived Assets
-----------------
The Company's accounting policy regarding the assessment of the
recoverability of the carrying value of long-lived assets, including
property and equipment and purchased intangible assets with finite lives,
is to review the carrying value of the assets if the facts and
circumstances suggest that they may be impaired. If this review indicates
that the carrying value will not be recoverable, as determined based on the
projected undiscounted future cash flows, the carrying value is reduced to
its estimated fair value.
Advertising Costs
-----------------
Substantially all advertising costs are charged to expense as incurred and
principally represent direct mail costs and online advertising, including
fees paid to search engines and distribution partners. Direct mail
advertising costs are recorded as prepaid expenses and charged to expense
as consumed. Advertising expense for the years ended December 31, 2004 and
2003 was $977,762 and $323,887, respectively.
Income Taxes
------------
The Company accounts for income taxes under the liability method and
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates in effect for the year in which those temporary differences are
expected to be recovered or settled.
Earnings Per Share
------------------
Basic earnings per share is computed by dividing net income available to
common shareholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share reflects the
potential dilution that could occur if stock options and other commitments
to issue common stock were exercised or equity awards vest resulting in the
issuance of common stock that could share in the earnings of the Company.
Stock-Based Compensation
------------------------
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation Transition and Disclosure" ("SFAS No. 148") which amends FASB
Statement No. 123 "Accounting for Stock-Based Compensation" ("SFAS No.
123"). SFAS No. 148 provides alternative methods of transition for a
voluntary change to the fair value-based method of accounting for
stock-based employee compensation and amends the disclosure requirements of
SFAS No. 123. The Company adopted the expense recognition provision of SFAS
123 and is providing expense for stock based compensation for grants made
on and after January 1, 2003 on a prospective basis as provided by SFAS
148, and will continue to provide pro forma information in the notes to
financial statements to provide the results as if all equity awards issued
in prior years were being expensed. There was no stock based compensation
granted during the years ended December 31, 2004 and 2003, respectively.
F-10
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
Recent Accounting Pronouncements
--------------------------------
Other-Than-Temporary Impairment of Investments
In March 2004, the EITF of the FASB reached a consensus on Issue No. 03-01,
"The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments" ("EITF 03-01"). EITF 03-01 addresses the meaning of
other-than-temporary impairment and its application to debt and equity
securities within the scope of SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115") and equity
securities that are not subject to the scope of SFAS 115 and not accounted
for under the equity method of accounting. As of December 31, 2004, the
Company determined that EITF 03-01 had no impact on its consolidated
financial statements.
Contingently Convertible Instruments
In September 2004, the EITF reached a consensus on Issue No. 04-08, "The
Effect of Contingently Convertible Instruments on Diluted Earnings Per
Share" ("EITF 04-08"), which is effective for reporting periods ending
after December 15, 2004. EITF 04-08 requires companies to include shares
issuable under convertible instruments in diluted earnings per share
computations (if dilutive) regardless of whether the market price trigger
(or other contingent feature) has been met. In addition, prior period
earnings per share amounts presented for comparative purposes must be
restated. The Company issued no contingent convertible notes. In accordance
with EITF 04-08, the Company determined that there will be no impact on
future diluted earnings per share related to these notes.
Share-Based Payment
In December 2004, the FASB issued a revision of SFAS 123 ("SFAS 123(R)")
that will require compensation costs related to share-based payment
transactions to be recognized in the statement of operations. With limited
exceptions, the amount of compensation cost will be measured based on the
grant-date fair value of the equity or liability instruments issued. In
addition, liability awards will be remeasured each reporting period.
Compensation cost will be recognized over the period that an employee
provides service in exchange for the award. SFAS 123(R) replaces SFAS 123
and is effective as of the first interim period beginning after June 15,
2005. Based on zero shares and awards outstanding as of December 31, 2004
(and without giving effect to any awards which may be granted in 2005), the
Company expects that the adoption of SFAS 123(R) will have no impact on
earnings during 2005.
Nonmonetary Exchange
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets--An Amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions" ("SFAS 153"). SFAS 153 eliminates the exception from fair
measurement for nonmonetary exchanges of similar productive assets in
paragraph 21(b) of APB Opinion No. 29, "Accounting for Nonmonetary
Transactions," and replaces it with an exception for exchanges that do not
have commercial substance. SFAS 153 specifies that a nonmonetary exchange
has commercial substance if the future cash flows of the entity expected to
change significantly as a result of the exchange. SFAS 153 is effective for
F-11
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
the fiscal periods beginning after June 15, 2005. The adoption of SFAS 153
is not expected to have a material impact on the Company's current
financial condition or results of operations.
Off-Balance Sheet Arrangements
------------------------------
The Company has not entered into any off-balance sheet arrangements that
have or are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources
and would be considered material to shareholders. Certain officers and
directors of the Company have provided personal guarantees to our various
lenders as required for the extension of credit to the Company.
NOTE 3 - PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
December 31,
-------------------------------------
2004 2003
--------------- ---------------
Prepaid expenses $ 199,286 $ 198,468
Restricted deposits with suppliers 129,164 44,552
--------------- ---------------
Prepaid expenses and other current assets $ 328,450 $ 243,020
=============== ===============
NOTE 4 - PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following:
December 31,
2004 2003
--------------- ---------------
Office equipment $ 365,252 $ 306,078
Furniture & fixture 54,327 54,327
Leasehold improvements 67,368 60,718
Capitalized relocation costs 17,746 17,746
--------------- ---------------
504,693 438,869
Less: Accumulated depreciation (388,971) (321,132)
--------------- ---------------
Property and equipment, net $ 115,722 $ 117,737
=============== ===============
NOTE 5 - INTANGIBLE ASSETS, NET
The acquisition of TTI was accounted for using the purchase method of
accounting and goodwill was recorded as a result of this transaction. The
Company assesses goodwill and indefinite-lived intangible assets for
F-12
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
impairment annually at the beginning of the fourth quarter, or more
frequently if events and circumstances indicate impairment may have
occurred in accordance with SFAS No. 142. During 2003 the Company
determined that the carrying value of the goodwill relating to the TTI
acquisition exceeded its implied fair value. The Company recorded an
impairment charge related to the write-down of the TTI goodwill of $61,575,
before tax, which was recorded as a component of operating income in the
accompanying statement of operations. The write-down was determined by
comparing the fair value of the business and the implied value of the
goodwill with the carrying amounts on the balance sheet. The write-down
primarily resulted from the lack of benefit associated with the TTI
acquisition. The goodwill impairment charge recorded in 2003 resulted from
the Company's annual impairment review for goodwill and intangible assets,
which took place in the fourth quarter in conjunction with the preparation
of our year-end financial statements. At December 31, 2004 and 2003 there
was no goodwill in the accompanying consolidated balance sheets.
During 2002 the company purchased the rights to the Renaissance Cruises
name and customer database. The Company also registered two trade names and
marks for Online Vacation Center, Inc. These costs were capitalized and are
being amortized over the expected 15-year useful lives of the trademarks.
Intangible assets consist of the following:
December 31,
2004 2003
--------------- ---------------
Renaissance Cruises $ 50,000 $ 50,000
Other trademarks 6,642 6,642
--------------- ---------------
56,642 56,642
Less: Accumulated amortization (8,552) (4,775)
--------------- ---------------
Intangible assets, net $ 48,090 $ 51,867
=============== ===============
NOTE 6 - DEFERRED REVENUES
Deferred revenue consists of sales commission received from suppliers in
advance of passenger cruise travel dates, net of cancellations. The advance
sales commission is considered unearned revenue and recorded as deferred
revenue in the accompanying balance sheets. At December 31, 2004 and 2003
deferred revenues were $408,584 and $264,370, respectively.
NOTE 7 - CUSTOMER DEPOSITS
Deposits received from customers in advance of passenger cruise travel
dates are considered unearned revenues and recorded as customer deposit
liabilities in the accompanying balance sheets. Customer deposits are
subsequently recognized as revenues upon completion of passenger travel. At
December 31, 2004 and 2003 customer deposits were $2,149,389 and
$1,241,796, respectively.
F-13
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
NOTE 8 - SUBORDINATE DEBENTURES
On November 16, 2000 the Company issued an 8% Subordinate Debenture (the
"Debenture") in the amount of $2,000,000 to Pacific Tour Services, Inc. and
is due on January 1, 2008. The Debenture accrues interest on the unpaid
principal balance at a rate of 8% per annum. Interest is payable on a
quarterly basis on December 31, March 31, June 30 and September 30 of each
year that the Debenture remains outstanding. Under the terms of the
Debenture, the President of the Company is required to own no less than 51%
of the voting stock of the Company. In the event of default the interest
rate shall increase from 8% to 18% per year and shall continue at that rate
until the event of default is cured.
On June 27, 2001 the Company issued an 8% Subordinate Debenture (the
"Debenture") in the amount of $1,000,000 to Pacific Tour Services, Inc. and
is due on January 1, 2008. The Debenture accrues interest on the unpaid
principal balance at a rate of 8% per annum. Interest is payable on a
quarterly basis on December 31, March 31, June 30 and September 30 of each
year that the Debenture remains outstanding. Under the terms of the
Debenture, the President of the Company is required to own no less than 51%
of the voting stock of the Company. In the event of default the interest
rate shall increase from 8% to 18% per year and shall continue at that rate
until the event of default is cured.
F-14
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
NOTE 9 -NOTES PAYABLE - CURRENT
Notes payable - current consists of the following:
December 31,
--------------------------------------
2004 2003
---------------- ----------------
Promissory Note of $500,000 issued on December 1, 2002 to Pacific Cruise
Services, Inc.; due on the earlier of September 1, 2003 or removal of
president; interest rate of 8% per annum on principal balance outstanding;
paid in full during 2004. $ - $ 500,000
Short-term loan in the amount of $250,000 received on December 30, 2002
from an officer, director and majority shareholder of the Company with an
original maturity date of September 1, 2003; interest payable quarterly at
a rate of 8% per annum; principal and interest payments were made during
2003 and 2004; paid in full during 2004. See Note 11. - 75,000
Promissory Note of $150,000 issued on March 17, 2003 to Pacific Cruise
Services, Inc.; due on the earlier of September 1, 2003 or removal of
president; interest rate of 8% per annum on principal balance outstanding;
paid in full during 2004. - 150,000
Promissory Note of $100,000 issued on April 10, 2003 to Pacific Cruise
Services, Inc.; due on the earlier of September 1, 2003 or removal of
president; interest rate of 8% per annum on principal balance outstanding;
paid in full during 2004. - 100,000
---------------- ----------------
Notes payable - current $ - $ 825,000
================ ================
NOTE 10 - INCOME TAXES
The provision (benefit) for income taxes from continued operations for the
years ended December 31, 2004 and 2003 consist of the following:
December 31,
-------------------------------------
2004 2003
--------------- ---------------
Current:
Federal $ 357,476 $ 488,738
State 56,175 76,801
--------------- ---------------
413,651 565,539
Tax (benefit) from the
decrease in valuation allowance (489,464) (562,727)
--------------- ---------------
Provision (benefit) for income taxes, net $ (75,813) $ 2,812
=============== ===============
F-15
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
The difference between income tax expense computed by applying the federal
statutory corporate tax rate and actual income tax expense is as follows:
December 31,
--------------------------------------
2004 2003
---------------- ----------------
Statutory federal income tax rate 35.0% 35.0%
Decrease in valuation allowance (47.9)% (40.3)%
State income taxes and other (5.5)% 5.5%
---------------- ----------------
Effective tax rate (18.4)% 0.2%
================ ================
Deferred income taxes result from temporary differences in the recognition
of income and expenses for the financial reporting purposes and for tax
purposes. The tax effect of these temporary differences representing
deferred tax asset and liabilities result principally from the following:
December 31,
-------------------------------------
2004 2003
--------------- ---------------
Net operating loss carry-
forwards expiring after the year 2017 $ 1,776,000 $ 2,172,000
Depreciation and amortization 11,000 30,000
Other 5,000 4,000
--------------- ---------------
Deferred income tax asset $ 1,792,000 $ 2,206,000
=============== ===============
The net deferred tax assets and liabilities are comprised of the following:
December 31,
--------------------------------------
2004 2003
---------------- ----------------
Deferred tax assets
Current $ - $ -
Non-current 1,792,258 2,205,908
---------------- ----------------
1,792,258 2,205,908
Less valuation allowance (1,164,968) (1,654,431)
================ ================
Net deferred income tax asset $ 627,290 $ 551,477
================ ================
F-16
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
NOTE 11 - RELATED PARTY TRANSACTIONS
During 2002 the Company received a short-term loan in the amount of
$250,000 from an officer, director and majority shareholder of the Company
to fund ongoing operations. The loan has an original maturity date of
September 1, 2003 and interest is payable on a quarterly basis at a rate of
8% per annum. Both principal and interest payments were made during 2003
and 2004 and the loan was paid in full during 2004.
NOTE 12 - COMMITMENTS AND CONTIGENCIES
Lease Commitments
-----------------
The Company has entered into a lease for corporate office space in
Plantation, Florida. Monthly minimum lease payments were $14,829 through
December 2004 and increase approximately three percent each year
thereafter. The Company must also pay its proportionate share of building
operating expenses. The initial lease term ends on June 30, 2005 but this
was extended in December 2004 for another three-year period ending on June
30, 2008.
The Company has the following future minimum lease obligations at December
31, 2004:
Year Amount
---- ------------------
2005 $ 251,146
2006 $ 145,562
2007 $ 137,608
2008 $ 61,267
2009 and thereafter $ -
Executive Employment Agreement
------------------------------
In November 2000, the Company entered into an Executive Employment
Agreement with an officer, director and majority shareholder of the
Company. Under the terms of the agreement the Company agreed to pay the
executive a base salary plus bonus with annual incremental increases and
annual renewals for a period of no less than three years. At December 31,
2004 the Company has an obligation under the terms of this agreement for
compensation and benefits in the amount of $637,551, $675,804 and $716,352
for the years 2005, 2006 and 2007, respectively.
Benefit Plan
------------
The Company participates in a multi-employer 401 (k) Plan administered by a
professional employer organization the Company retains for administering
payroll and employee benefits programs. Contributions to the Plan are at
the discretion of the Company's board of directors. No contributions were
approved as of December 31, 2004 and 2003, respectively.
F-17
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
Settlement Obligation
---------------------
The Company is involved from time to time in various legal claims and
actions arising in the ordinary course of business. In November 2004, the
Company reached a settlement agreement with a travel company whereby the
Company paid $200,000 and agreed to pay $175,000 over twenty months
commencing January 2005 with interest on the outstanding balance at 8% per
annum. As a result of the settlement the Company recognized a gain of
$265,815 in the accompanying statement of consolidated operations for the
year ended December 31, 2004,
Regulatory Matters
------------------
The Company believes it is compliance with all federal regulatory
requirements, including the CAN-SPAM Act of 2003 which regulates commercial
electronic mail on a nationwide basis. The Company adheres to the law by
properly representing the nature of its commercial email messages, not
tampering with source and transmission information and obtaining email
addresses through lawful means.
F-18
ONLINE VACATION CENTER HOLDINGS, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005
(Unaudited)
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
TABLE OF CONTENTS
Page
----
Condensed Consolidated Balance Sheets F-3
Condensed Consolidated Statements of Operations F-4 - F-5
Condensed Consolidated Statements of Cash Flows F-6
Notes to Condensed Consolidated Financial Statements F-7 - F-15
F-2
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2005 2004
------------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,136,120 $ 1,176,923
Restricted cash 316,096 315,176
Accounts receivable, net 474,067 323,906
Prepaid expenses and other current assets 293,356 328,450
----------- -----------
Total Current Assets 3,219,639 2,144,455
Property and equipment, net 111,228 115,722
Deferred income taxes 665,249 627,290
Intangible assets, net 45,258 48,090
----------- -----------
Total Assets $ 4,041,374 $ 2,935,557
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 887,708 $ 778,605
Deferred revenue, net 541,594 408,584
Customer deposits 2,067,911 2,149,389
Settlement obligation, current portion -- 96,250
----------- -----------
Total Current Liabilities 3,497,213 3,432,828
Settlement obligation, non-current portion -- 70,000
Subordinate Debentures 3,000,000 3,000,000
----------- -----------
Total Liabilities 6,497,213 6,502,828
----------- -----------
Shareholders' Deficiency
Common Stock, 20,000,000 shares authorized at
$.001 par value; 171,429 shares issued and outstanding 171 171
Additional paid-in capital 248,473 248,473
Accumulated deficit (2,704,483) (3,815,915)
----------- -----------
Total Shareholders' Deficiency (2,455,839) (3,567,271)
----------- -----------
Total Liabilities & Shareholders' Deficiency $ 4,041,374 $ 2,935,557
=========== ===========
F-3
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended September 30,
2005 2004
----------- -----------
(Unaudited)
NET REVENUES $ 1,612,857 $ 1,501,896
OPERATING EXPENSES:
Sales and marketing 519,758 455,207
General and administrative 936,410 761,073
----------- -----------
INCOME FROM OPERATIONS 156,689 285,616
----------- -----------
Other expenses:
Interest expense, net (59,387) (66,938)
----------- -----------
Total other expenses, net (59,387) (66,938)
----------- -----------
Earnings from continuing operations
before provision for income taxes 97,302 218,678
Provision for income taxes (43,720) 30,998
----------- -----------
NET INCOME $ 141,022 $ 187,680
=========== ===========
EARNINGS PER SHARE - Basic and diluted $ 0.82 $ 1.09
=========== ===========
Weighted average shares outstanding - basic and diluted 171,429 171,429
=========== ===========
F-4
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the nine months ended September 30,
2005 2004
----------- -----------
(Unaudited)
NET REVENUES $ 6,001,064 $ 4,775,313
OPERATING EXPENSES:
Sales and marketing 1,784,132 1,459,646
General and administrative 2,899,354 2,334,436
----------- -----------
INCOME FROM OPERATIONS 1,317,578 981,232
----------- -----------
Other expenses:
Interest expense, net (180,580) (210,971)
----------- -----------
Total other expenses, net (180,580) (210,971)
----------- -----------
Earnings from continuing operations
before provision for income taxes 1,136,998 770,261
Provision for income taxes 25,567 (108,872)
----------- -----------
NET INCOME $ 1,111,431 $ 879,133
=========== ===========
EARNINGS PER SHARE - Basic and diluted $ 6.48 $ 5.13
=========== ===========
Weighted average shares outstanding - basic and diluted 171,429 171,429
=========== ===========
F-5
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30,
2005 2004
----------- -----------
(Unaudited)
Cash Flows from Operating Activities:
Net income $ 1,111,431 $ 879,133
Adjustments to reconcile to net cash inflow from operating activities:
Provision for bad debts 3,509 --
Depreciation and amortization 51,727 57,509
Deferred income taxes (37,959) (108,872)
Changes in operating assets and liabilities:
Accounts receivable (153,670) (207,239)
Prepaid expenses and other current assets 35,094 (134,399)
Accounts payable and accrued expenses 109,103 94,034
Deferred revenue 133,010 20,101
Customer deposits (81,478) 502,386
Settlement obligation (166,250) 4,412
----------- -----------
Net cash provided by operating activities 1,004,518 1,107,064
----------- -----------
Cash Flows from Investing Activities:
Return of investment in restricted cash (920) 161,222
Purchases of property and equipment (44,401) (52,773)
----------- -----------
Net cash (used in) provided by investing activities (45,321) 108,449
----------- -----------
Cash Flows from Financing Activities:
Repayment of notes payable to related party -- (75,000)
Repayments to notes payable - current -- (450,000)
----------- -----------
Net cash (used in) financing activities -- (525,000)
----------- -----------
Net increase in cash and cash equivalents 959,197 690,514
Cash and cash equivalents, beginning of year 1,176,923 425,984
----------- -----------
Cash and cash equivalents, end of year $ 2,136,120 $ 1,116,498
=========== ===========
F-6
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BACKGROUND
Overview
--------
Online Vacation Center Holdings, Inc. (the "Company") is a Florida holding
company incorporated on October 2, 2000, which provides cruise travel
services through its wholly owned subsidiary Online Vacation Center, Inc.
History
-------
On March 2, 2001, pursuant to a Stock Purchase Agreement effective as of
December 31, 2000, the Company purchased all the common stock of Travel
Trails, Inc. d/b/a Mc Michael's Travel Shoppe, ("TTI") an American Express
Travel Services Representative travel agency located in Broward County,
Florida. The acquisition was accounted for using the purchase method of
accounting and the cash consideration paid was $67,000, excluding
capitalized acquisition costs of approximately $10,000. Effective as of the
date of the Stock Purchase Agreement TTI changed its name to Online
Vacation Center, Inc.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of
Online Vacation Center Holdings, Inc. and its wholly owned subsidiary. All
significant intercompany transactions and balances have been eliminated.
Use of estimates
----------------
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial
statements. These estimates and assumptions also affect the reported
amounts of revenues, costs and expenses during the reporting period.
Management evaluates these estimates and assumptions on a regular basis.
Actual results could differ from those estimates.
Interim Financial Statements
----------------------------
The interim financial statements presented herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations. The interim
financial statements should be read in conjunction with the Company's
annual financial statements, notes and accounting policies included in the
Company's year-end financial statements as of December 31, 2004. In the
opinion of management, all adjustments (consisting only of normal recurring
adjustments) which are necessary to provide a fair presentation of
financial position as of September 30, 2005 and the related operating
results and cash flows for the interim period presented have been made. The
results of operations, for the period presented are not necessarily
indicative of the results to be expected for the year.
F-7
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. At September 30,
2005 and December 31, 2004, cash and cash equivalents include cash on hand
and cash in the bank.
Restricted Cash
---------------
Restricted cash consists of collateral for two letters of credit and a
reserve for credit card processing. The Company's credit card processor,
Global Payments, holds a $280,000 reserve for credit cards processed.
Global Payments will hold this reserve for as long as the Company uses them
as their credit card processor. Certificates of deposit of $35,000 are
collateral for two outstanding letters of credit due to expire in 2006. The
letters of credit are required by industry and state regulations and will
be renewed.
Revenue Recognition
-------------------
Revenues are derived from transactions where the Company is the merchant of
record and determines the price to the customer. The Company has agreements
with suppliers for travel packages that the Company sells. The Company does
not have purchase obligations for unsold travel packages. The Company
presents revenue in accordance with Staff Accounting Bulletin (SAB) No. 104
"Revenue Recognition in Financial Statements" and Emerging Issues Task
Force (EITF) Issue No. 99-19, "Reporting Revenue Gross as a Principal
versus Net as an Agent", including the weighing of the relevant qualitative
factors regarding the Company's status as a primary obligor, and the extent
of their pricing latitude. The method of revenue presentation does not
impact operating profit, net income, earnings per share or cash flows.
Based upon the Company's evaluation of sales transactions and in accordance
with the various indicators identified in EITF Issue No. 99-19, the
Company's suppliers assume the majority of the business risks such as
providing the service and the risk of unsold travel packages. As such, all
sales transactions are to be recorded at the net amount, which is the
amount charged to the customer less the amount to be paid to the supplier.
Sales transactions are billed to customers at the time of booking, however
revenue is not recognized on the accompanying consolidated financial
statements until the customers' travel occurs.
The Company generally recognized advertising revenues ratably over the
advertising period, depending on the terms of the advertising contract. For
the three-month periods ended September 30, 2005 and 2004, the Company
derived no revenues from the sales of advertisements on its internet
website. The Company applies EITF Issue No. 99-17, "Accounting for
Advertising Barter Transactions", in the valuation and recognition of
barter arrangements, however, during the current period, there was no
revenue derived from barter agreements.
Concentration of Credit Risk
----------------------------
The Company's business is subject to certain risks and concentrations
including dependence on relationships with travel suppliers (primarily
cruise lines), and to a lesser extent, exposure to risks associated with
online commerce security and credit card fraud. The Company is highly
dependent on its relationships with three major cruise lines: Celebrity
Cruises, Norwegian Cruise Line, and Royal Caribbean Cruise Line. The
Company also depends on third party service providers for processing
certain fulfillment services.
F-8
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Concentrations of credit risk with respect to client accounts receivable
are limited because of the Company's policy to require deposits from
customers, the number of customers comprising the client base and their
dispersion across geographical locations.
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist primarily of cash and bank
certificates of deposit. These accounts are maintained with financial
institutions insured by the Federal Deposit Insurance Corporation (FDIC) up
to $100,000. At September 30, 2005 and December 31, 2004 the balances at
various financial institutions over the FDIC insured limit relating to cash
and cash equivalents and restricted cash were approximately $2.0 million
and $1.3 million, respectively.
Accounts Receivable
-------------------
Suppliers generally pay commissions between 60 days before to 90 days after
travel has commenced. The Company determines its allowance by considering a
number of factors, including the length of time trade accounts receivable
are past due, the Company's previous loss history, the specific supplier's
current ability to pay its obligation to the Company and the condition of
the general economy and the industry as a whole. The Company writes off
accounts receivable when they become uncollectible, and payments
subsequently received on such receivables are recognized as revenue in the
period received. At September 30, 2005 and December 31, 2004, the allowance
for doubtful accounts was $7,826 and $5,000, respectively.
Property and Equipment
----------------------
Property and equipment, including significant improvements, are recorded at
cost. Repairs and maintenance and any gains or losses on dispositions are
recognized as incurred. Depreciation and amortization are provided for on a
straight-line basis to allocate the cost of depreciable assets to
operations over their estimated service lives.
Depreciation/
Amortization
Asset Category Period
-------------- -------------
Office equipment 2 to 3 Years
Furniture & fixture 5 to 7 Years
Leasehold improvements 6.5 Years
Goodwill and Indefinite-Lived Purchased Intangible Assets
---------------------------------------------------------
In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets,"
goodwill acquired in business combinations is assigned to reporting units
that are expected to benefit from the synergies of the combination as of
the acquisition date. The Company assesses goodwill and indefinite-lived
intangible assets for impairment annually at the beginning of the fourth
quarter, or more frequently if events and circumstances indicate impairment
may have occurred in accordance with SFAS No. 142. If the carrying value of
a reporting unit's goodwill exceeds its implied fair value, the Company
records an impairment loss equal to the difference. SFAS No. 142 also
requires that the fair value of indefinite-lived purchased intangible
assets be estimated and compared to the carrying value. The Company
recognizes an impairment loss when the estimated fair value of the
indefinite-lived purchased intangible assets is less than the carrying
value.
F-9
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Long-Lived Assets
-----------------
The Company's accounting policy regarding the assessment of the
recoverability of the carrying value of long-lived assets, including
property and equipment and purchased intangible assets with finite lives,
is to review the carrying value of the assets if the facts and
circumstances suggest that they may be impaired. If this review indicates
that the carrying value will not be recoverable, as determined based on the
projected undiscounted future cash flows, the carrying value is reduced to
its estimated fair value.
Advertising Costs
-----------------
Substantially all advertising costs are charged to expense as incurred and
principally represent direct mail costs and online advertising, including
fees paid to search engines and distribution partners. Direct mail
advertising costs are recorded as prepaid expenses and charged to expense
as consumed. Advertising expense for the three-month period ended September
30, 2005 and 2004 was $275,696 and $205,309, respectively.
Comprehensive Income
--------------------
Comprehensive income is comprised of net income and other comprehensive
income. Other comprehensive income includes certain changes in equity that
are excluded from net income. At September 30, 2005, there were no items to
be included in accumulated other comprehensive income.
Income Taxes
------------
The Company accounts for income taxes under the liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are expected to be
recovered or settled.
Earnings Per Share
------------------
Basic earnings per share is computed by dividing net income available to
common shareholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share reflects the
potential dilution that could occur if stock options and other commitments
to issue common stock were exercised or equity awards vest resulting in the
issuance of common stock that could share in the earnings of the Company.
As of September 30, 2005, there were no potential dilutive instruments that
could result in share dilution.
Stock-Based Compensation
------------------------
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation Transition and Disclosure" ("SFAS No. 148") which amends FASB
Statement No. 123 "Accounting for Stock-Based Compensation" ("SFAS No.
123"). SFAS No. 148 provides alternative methods of transition for a
voluntary change to the fair value-based method of accounting for
stock-based employee compensation and amends the disclosure requirements of
SFAS No. 123. The Company adopted the expense recognition provision of SFAS
123 and is providing expense for stock based compensation for grants made
on and after January 1, 2003 on a prospective basis as provided by SFAS
148, and will continue to provide pro forma information in the notes to
F-10
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
financial statements to provide the results as if all equity awards issued
in prior years were being expensed. There was no stock based compensation
granted during the three-month periods ended September 30, 2005 and 2004,
respectively.
Recent Accounting Pronouncements
--------------------------------
Other-Than-Temporary Impairment of Investments
In March 2004, the EITF of the FASB reached a consensus on Issue No. 03-01,
"The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments" ("EITF 03-01"). EITF 03-01 addresses the meaning of
other-than-temporary impairment and its application to debt and equity
securities within the scope of SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115") and equity
securities that are not subject to the scope of SFAS 115 and not accounted
for under the equity method of accounting. As of September 30, 2005 and
2004, the Company determined that EITF 03-01 had no impact on its
consolidated financial statements.
Contingently Convertible Instruments
In September 2004, the EITF reached a consensus on Issue No. 04-08, "The
Effect of Contingently Convertible Instruments on Diluted Earnings Per
Share" ("EITF 04-08"), which is effective for reporting periods ending
after December 15, 2004. EITF 04-08 requires companies to include shares
issuable under convertible instruments in diluted earnings per share
computations (if dilutive) regardless of whether the market price trigger
(or other contingent feature) has been met. In addition, prior period
earnings per share amounts presented for comparative purposes must be
restated. The Company issued no contingent convertible notes. In accordance
with EITF 04-08, the Company determined that there will be no impact on
future diluted earnings per share related to these notes.
Share-Based Payment
In December 2004, the FASB issued a revision of SFAS 123 ("SFAS 123(R)")
that will require compensation costs related to share-based payment
transactions to be recognized in the statement of operations. With limited
exceptions, the amount of compensation cost will be measured based on the
grant-date fair value of the equity or liability instruments issued. In
addition, liability awards will be remeasured each reporting period.
Compensation cost will be recognized over the period that an employee
provides service in exchange for the award. SFAS 123(R) replaces SFAS 123
and is effective as of the first interim period beginning after June 15,
2005. Based on zero shares and awards outstanding as of September 30, 2005
(and without giving effect to any awards which may be granted in the
remainder of 2005), the Company expects that the adoption of SFAS 123(R)
will have no impact on earnings during 2005.
Nonmonetary Exchange
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets--An Amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions" ("SFAS 153"). SFAS 153 eliminates the exception from fair
measurement for nonmonetary exchanges of similar productive assets in
paragraph 21(b) of APB Opinion No. 29, "Accounting for Nonmonetary
Transactions," and replaces it with an exception for exchanges that do not
have commercial substance. SFAS 153 specifies that a nonmonetary exchange
has commercial substance if the future cash flows of the entity expected to
change significantly as a result of the exchange. SFAS 153 is effective for
F-11
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
the fiscal periods beginning after June 15, 2005. The adoption of SFAS 153
is not expected to have a material impact on the Company's current
financial condition or results of operations.
Off-Balance Sheet Arrangements
------------------------------
The Company has not entered into any off-balance sheet arrangements that
have or are reasonably likely to have a current or future effect on the
Company's financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources and would be considered material to shareholders. Certain
officers and directors of the Company have provided personal guarantees to
various lenders as required for the extension of credit to the Company.
NOTE 3 - PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
September 30, December 31,
--------------- ---------------
2005 2004
--------------- ---------------
Prepaid expenses $ 230,888 $ 199,286
Restricted deposits with suppliers 62,469 129,164
--------------- ---------------
Prepaid expenses and other current assets $ 293,356 $ 328,450
=============== ===============
NOTE 4 - PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following:
September 30, December 31,
--------------- ---------------
2005 2004
--------------- ---------------
Office equipment $ 340,797 $ 365,252
Furniture & fixture 54,327 54,327
Leasehold improvements 67,368 67,368
Capitalized relocation costs 0 17,746
--------------- ---------------
462,492 504,693
Less: Accumulated depreciation (351,264) (388,971)
--------------- ---------------
Property and equipment, net $ 111,228 $ 115,722
=============== ===============
NOTE 5 - INTANGIBLE ASSETS, NET
The acquisition of TTI was accounted for using the purchase method of
accounting and goodwill was recorded as a result of this transaction. The
Company assesses goodwill and indefinite-lived intangible assets for
impairment annually at the beginning of the fourth quarter, or more
frequently if events and circumstances indicate impairment may have
occurred in accordance with SFAS No. 142. During 2003 the Company
determined that the carrying value of the goodwill relating to the TTI
acquisition exceeded its implied fair value. The Company recorded an
impairment charge related to the write-down of the TTI goodwill of $61,575,
before tax, which was recorded as a component of operating income in the
F-12
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
accompanying statement of operations. The write-down was determined by
comparing the fair value of the business and the implied value of the
goodwill with the carrying amounts on the balance sheet. The write-down
primarily resulted from the lack of benefit associated with the TTI
acquisition. The goodwill impairment charge recorded in 2003 resulted from
the Company's annual impairment review for goodwill and intangible assets,
which took place in the fourth quarter in conjunction with the preparation
of year-end financial statements. At September 30, 2005 and December 31,
2004 there was no goodwill in the accompanying consolidated balance sheets.
During 2002 the company purchased the rights to the Renaissance Cruises
name and customer database. The Company also registered two trade names and
marks for Online Vacation Center, Inc. These costs were capitalized and are
being amortized over the expected 15-year useful lives of the trademarks.
Intangible assets consist of the following:
September 30, December 31,
--------------- ---------------
2005 2004
--------------- ---------------
Renaissance Cruises $ 50,000 $ 50,000
Other trademarks 6,642 6,642
--------------- ---------------
56,642 56,642
Less: Accumulated amortization (11,384) (8,552)
--------------- ---------------
Intangible assets, net $ 45,258 $ 48,090
=============== ===============
NOTE 6 - DEFERRED REVENUES
Deferred revenue consists of sales commission received from suppliers in
advance of passenger cruise travel dates, net of cancellations. The advance
sales commission is considered unearned revenue and recorded as deferred
revenue in the accompanying balance sheets. At September 30, 2005 and
December 31, 2004, deferred revenues were $541,594 and $408,584,
respectively.
NOTE 7 - CUSTOMER DEPOSITS
Deposits received from customers in advance of passenger cruise travel
dates are considered unearned revenues and recorded as customer deposit
liabilities in the accompanying balance sheets. Customer deposits are
subsequently recognized as revenues upon completion of passenger travel. At
September 30, 2005 and December 31, 2004, customer deposits were $2,067,911
and $2,149,389, respectively.
NOTE 8 - SUBORDINATE DEBENTURES
On November 16, 2000 the Company issued an 8% Subordinate Debenture (the
"Debenture") in the amount of $2,000,000 to Pacific Tour Services, Inc.
that is due on January 1, 2008. The Debenture accrues interest on the
unpaid principal balance at a rate of 8% per annum. Interest is payable on
a quarterly basis on December 31, March 31, June 30 and September 30 of
each year that the Debenture remains outstanding. Under the terms of the
Debenture, the President of the Company is required to own no less than 51%
of the voting stock of the Company. In the event of default the interest
F-13
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
rate shall increase from 8% to 18% per year and shall continue at that rate
until the event of default is cured.
On June 27, 2001 the Company issued an 8% Subordinate Debenture (the
"Debenture") in the amount of $1,000,000 to Pacific Tour Services, Inc.
that is due on January 1, 2008. The Debenture accrues interest on the
unpaid principal balance at a rate of 8% per annum. Interest is payable on
a quarterly basis on December 31, March 31, June 30 and September 30 of
each year that the Debenture remains outstanding. Under the terms of the
Debenture, the President of the Company is required to own no less than 51%
of the voting stock of the Company. In the event of default the interest
rate shall increase from 8% to 18% per year and shall continue at that rate
until the event of default is cured.
NOTE 9 - INCOME TAXES
A reconciliation of the difference between the expected provision for
income taxes using the federal statutory tax rate and the Company's actual
provision is as follows:
September 30,
----------------------------------
2005 2004
----------- ------------
Statutory federal income tax rate 35.0 % 35.0 %
Change in valuation allowance (85.4)% (26.3)%
State income taxes and other 5.5 % 5.5 %
----------- ------------
Effective tax rate (44.9)% 14.2 %
=========== ============
NOTE 10 - COMMITMENTS AND CONTIGENCIES
Lease Commitments
-----------------
The Company has entered into a lease for corporate office space in
Plantation, Florida. Monthly minimum lease payments were $14,829 through
June 2005 and increase approximately three percent each year thereafter.
The Company must also pay its proportionate share of building operating
expenses. The initial lease term ended on June 30, 2005 but was extended in
December 2004 for another three-year period ending on June 30, 2008.
The Company has the following future minimum lease obligations at September
30, 2005:
Year Amount
---- ------------------
2005 $ 68,712
2006 $ 226,763
2007 $ 140,758
2008 $ 61,267
2009 and thereafter $ --
Executive Employment Agreement
------------------------------
In November 2000, the Company entered into an Executive Employment
Agreement with an officer, director and majority shareholder of the
F-14
ONLINE VACATION CENTER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Company. Under the terms of the agreement the Company agreed to pay the
executive a base salary plus bonus with annual incremental increases and
annual renewals for a period of no less than three years. At September 30,
2005 the Company has obligations under the terms of this agreement for
compensation and benefits in the amounts of $165,093, $675,804 and $716,352
for the three-month period ended December 31, 2005 and the years 2006 and
2007, respectively.
Benefit Plan
------------
The Company participates in a multi-employer 401 (k) Plan administered by a
professional employer organization the Company retains for administering
payroll and employee benefits programs. Contributions to the Plan are at
the discretion of the Company's board of directors. No contributions were
approved as of September 30, 2005.
Regulatory Matters
------------------
The Company believes it is in compliance with all federal regulatory
requirements, including the CAN-SPAM Act of 2003 which regulates commercial
electronic mail on a nationwide basis. The Company adheres to the law by
properly representing the nature of its commercial email messages, not
tampering with source and transmission information and obtaining email
addresses through lawful means.
Share Exchange Agreement
------------------------
In August 2005, the Company entered into a share exchange agreement with
Alec Bradley Cigar Corporation ("AB"). Under the terms of the agreement, AB
intends to acquire all of the outstanding common stock of the Company
through a share exchange with the shareholders of the Company. In
consideration for the exchange, AB will issue the shareholders of the
Company 15,000,000 shares of AB's restricted common stock.
The Subordinate Debentures, as referenced in note 8, will be exchanged into
shares of common stock of the Company and then subsequently exchanged for
common stock of AB, in accordance with the share exchange agreement. These
shares are part of the total 15,000,000 shares. Any outstanding and unpaid
interest as of the effective date of the share exchange agreement shall be
paid in cash.
F-15
APPENDIX A
----------
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") made as of the 25th day of
August, 2005, by and between Alec Bradley Cigar Corporation, a Florida
corporation (the "Seller") and Alan Rubin or his assigns (Alan Rubin and his
assignees are collective referred to as the "Buyer").
RECITALS:
WHEREAS, the Board of Directors and management of the Seller believe
that it is in the best interest of the Seller and that the success of the Seller
will be better achieved by the disposition of its assets and all of the
liabilities associated with the operations and business of the Seller that
comprise its cigar importing and distribution operations (the "Division");
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained in this Agreement, the parties hereto
agree as follows:
SECTION 1. SALE AND PURCHASE OF ASSETS
Upon the terms and subject to the conditions of this Agreement, the
Buyer will at the Closing (as hereinafter defined), acquire from the Seller for
2,700,000 shares (the "Shares") of the Seller's common stock owned by the Buyer
(the "Purchase Price"), the assets which are more completely described on
Exhibit 1 hereof (collectively the "Assets");
SECTION 2. ASSUMPTION OF LIABILITIES
The Buyer shall assume all of Seller's liabilities including all
liabilities associated with the business and operations of the Division, whether
or not such liabilities are reflected on the books or records of Seller on the
date hereof or on the Closing Date (collective all of the aforementioned
liabilities are collectively the "Liabilities").
SECTION 3. EFFECTIVE DATE AND THE CLOSING
The effective date (the "Effective Date") of this transaction shall be
simultaneous with the closing of the Share Exchange Agreement (the "Share
Exchange") between Online Vacation Center Holdings, Inc. ("Acquisition Target")
and the Seller. The closing of the transaction contemplated herein (the
"Closing") shall occur at a mutually agreeable time and place, on the earliest
practicable date following the day on which all of the obligations and
conditions precedent herein are complied with but in no event later than the
date of the Share Exchange.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller, to the best of its knowledge, makes the representations and
warranties to Buyer set forth below.
4.1 Corporate Power of Seller. Seller has the full legal right and
power and all authority and approval required to enter into, execute and deliver
this Agreement and to perform fully its obligations hereunder.
4.2 Due Authority. Seller has all power and authority necessary to
enable it to carry out the transactions contemplated by this Agreement. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated by them have been authorized by all necessary
corporate action on the part of Seller. This Agreement is a valid and binding
agreement of Seller, enforceable against the Sellers in accordance with its
terms. Neither the execution and delivery of this Agreement by the Seller nor
the consummation of the transactions contemplated by this Agreement will
violate, result in a breach of, or constitute a default under, any agreement or
instrument to which Seller is a party or by which the Seller is bound, or any
order, rule or regulation of any court or governmental agency having
jurisdiction over the Seller.
4.3 No Consents. No governmental filings, authorizations, approvals or
consents are required to permit Seller to fulfill all of their respective
obligations under this Agreement.
4.4 No Breach. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(i) violate any provision of the Certificate of Incorporation of Seller; (ii)
violate, conflict with or result in the breach of any of the terms of, result in
a material modification of, otherwise give any other contracting party the right
to terminate, or constitute (or with notice or lapse of time or both) a default
under any contract or other agreement to which the Seller is a party; (iii)
violate any order, judgment, injunction, award or decree of any court,
arbitrator or governmental or regulatory body against, or binding upon Seller,
or upon the properties or business of the Seller; or (iv) violate any statute,
law or regulation of any jurisdiction applicable to the Seller.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer, to the best of its knowledge, represents and warrants to Seller
as follows:
5.1 Corporate Power of Buyer. Buyer has the full legal right and power
and all authority and approval required to enter into, execute and deliver this
Agreement and to perform fully its obligations hereunder.
5.2 Due Authority. Buyer has all power and authority necessary to
enable it to carry out the transactions contemplated by this Agreement. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated by it have been authorized by all necessary action on
the part of Buyer. This Agreement is a valid and binding agreement of Buyer,
enforceable against Buyer in accordance with its terms. Neither the execution
and delivery of this Agreement by Buyer nor the consummation of the transactions
contemplated by this Agreement will violate, result in a breach of, or
constitute a default under, any agreement or instrument to which Buyer is a
party or by which Buyer is bound, or any order, rule or regulation of any court
or governmental agency having jurisdiction over Buyer.
5.3 No Breach. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(i) violate, conflict with or result in the breach of any of the terms of,
result in a material modification of, otherwise give any other contracting party
the right to terminate, or constitute (or with notice or lapse of time or both)
a default under any contract or other agreement to which Buyer is a party; (ii)
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violate any order, judgment, injunction, award or decree of any court,
arbitrator or governmental or regulatory body against, or binding upon Buyer, or
upon the properties or business of Buyer; or (iii) violate any statute, law or
regulation of any jurisdiction applicable to Buyer.
5.4 Ownership of the Shares. The Buyer is the lawful owner of the
Shares, free and clear of all security interests, liens, encumbrances, equities
and other charges. The Buyer is not a party to any agreement, written or oral,
creating rights in respect to the Shares in any third person or relating to the
voting rights of the Shares.
SECTION 6. COVENANTS
6.1 Seller's Cooperation After the Closing; Further Action. At any
time, and from time to time after the Closing, the Seller shall execute and
deliver to the Buyer such other instruments and take such other actions as the
Buyer may reasonably request more effectively to vest title of the Division in
the Buyer and, to the full extent permitted by law, to put the Buyer in actual
possession and operating control of the Division. Each of the parties hereto
shall use all reasonable efforts to take, or cause to be taken, all appropriate
action, do or cause to be done, all things necessary, proper or advisable under
applicable laws, and execute and deliver such documents and other papers, as may
be required to carry out the provisions of this Agreement and to consummate and
make effective the transactions contemplated hereby.
6.2 Regular Course of Business. Except as otherwise consented to or
approved by Buyer in writing, until the Closing, Seller covenants and agrees
(and will cause) that the Division will operate in the ordinary course,
diligently and in good faith, consistent with past management practices.
SECTION 7. INDEMNITY
7.1 Indemnification by Buyer. Buyer jointly and severally, agrees to
indemnify, defend and hold harmless Seller, and the respective officers,
representatives, agents, employees of the Seller and successors and assigns of
the Seller from and against:
(1) Any and all losses resulting from any misrepresentation or
breach of any representation or warranty or non-fulfillment of any
covenant or agreement on the part of Buyer under the terms of this
Agreement;
(2) Any liability or assessment relating to any losses
(including tax liability or assessment) related to Seller, the
Division, the Assets or this Agreement or the transactions contemplated
hereby;
(3) All actions, suits, proceedings, arbitration's, demands,
assessments, judgments, costs and expenses, including attorney's fees
and disbursements, incident to the foregoing; and
(4) All claims, demands, losses, costs, expenses, obligations,
liabilities, damages, recoveries and deficiencies, including interest,
penalties, and reasonable attorney fees, that they shall incur or
suffer, which result from or relate to any activities of the Division
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or Buyer prior to, on or subsequent to the Closing Date or which result
from or relate to any breach of, or failure by Buyer to perform any of
its representations, warranties, covenants or agreements in this
Agreement or in any schedule, certificate, exhibit or other instrument
furnished or to be furnished by Buyer under this Agreement.
7.2 Indemnification by Seller. Seller agrees to indemnify, defend and
hold harmless Buyer, and the respective officers, representatives, agents,
employees of the Buyer from and against all claims, demands, losses, costs,
expenses, obligations, liabilities, damages, recoveries and deficiencies,
including interest, penalties, and reasonable attorney fees, that they shall
incur or suffer, which result from or relate to any activities of the Seller
subsequent to the Closing Date or which result from or relate to any breach of,
or failure by Seller to perform any of its representations, warranties,
covenants or agreements in this Agreement or in any schedule, certificate,
exhibit or other instrument furnished or to be furnished by Seller under this
Agreement.
7.3 Indemnification Procedure. A party (an "Indemnified Party") seeking
indemnification shall give prompt notice to the other party (the "Indemnifying
Party") of any claim for indemnification arising under this Article 4. The
Indemnifying Party shall have the right to assume and to control the defense of
any such claim with counsel reasonably acceptable to such Indemnified Party, at
the Indemnifying Party's own cost and expense, including the cost and expense of
reasonable attorneys' fees and disbursements in connection with such defense, in
which event the Indemnifying Party shall not be obligated to pay the fees and
disbursements of separate counsel for such in such action. In the event,
however, that such Indemnified Party's legal counsel shall determine that
defenses may be available to such Indemnified Party that are different from or
in addition to those available to the Indemnifying Party, in that there could
reasonably be expected to be a conflict of interest if such Indemnifying Party
and the Indemnified Party have common counsel in any such proceeding, or if the
Indemnified Party has not assumed the defense of the action or proceedings, then
such Indemnifying Party may employ separate counsel to represent or defend such
Indemnified Party, and the Indemnifying Party shall pay the reasonable fees and
disbursements of counsel for such Indemnified Party. No settlement of any such
claim or payment in connection with any such settlement shall be made without
the prior consent of the Indemnifying Party which consent shall not be
unreasonably withheld.
SECTION 8. CONDITIONS PRECEDENT
8.1 Conditions Precedent to Sellers Obligations. The Seller's
obligations hereunder shall be subject to the satisfaction, at or before the
Closing, of all the conditions set forth in this Section 8.1. The Seller may
waive any or all of these conditions in whole or in part without prior notice;
so long as such waiver is in writing; and provided, however, that no such waiver
of a condition shall constitute a waiver by the Seller of any other condition of
or any of the Seller's rights or remedies at law or in equity, if Buyer shall be
in default of any of its representations, warranties, or covenants under this
Agreement.
(1) Performance. Buyer shall have performed, satisfied, and
complied with all covenants, agreements and conditions required by this
Agreement to be performed or complied with by it, on or before the
Closing Date, and the representations and warranties contained herein
shall be true and correct as of the Closing.
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(2) Absence of Litigation. No action, suit or proceeding
before any court or any governmental body or authority, pertaining to
the transaction contemplated by this Agreement or to its consummation,
shall have been instituted against any party hereto on or before the
Closing Date.
(3) Fairness Opinion. The Seller shall have received a written
opinion acceptable to the Seller, in its sole discretion, stating that
the consideration to be received by the Seller pursuant to this
Agreement is fair to the Seller and its shareholders from a financial
point of view.
(4) Approval and Consummation of Agreement. The Agreement
shall have been adopted by the affirmative vote of a majority of all
the votes cast of the Seller at a special meeting of the Seller's
shareholders, or as otherwise required and in accordance with the
Articles of Incorporation of the Seller and the Florida Business
Corporation Law.
(5) Approval of Acquisition Target. The Board of Directors of
Acquisition Target shall have approved this Agreement and made a
determination that the directors of the Seller acted in good faith and
in the best interest of Seller in all ways related to or in connection
with the transaction contemplated by this Agreement.
(6) Release of Seller. Buyer shall have released Seller for
all claims of the Division and shall have executed a release
substantially in a form approved by the Seller.
8.2 Conditions Precedent to Buyer's Obligations. The Buyer's
obligations hereunder shall be subject to the satisfaction, at or before the
Closing, of all the conditions set forth in this Section 8.2. The Buyer may
waive any or all of these conditions in whole or in part without prior notice;
so long as such waiver is in writing; and provided, however, that no such waiver
of a condition shall constitute a waiver by the Buyer of any other condition of
or any of the Buyer's rights or remedies at law or in equity, if Seller shall be
in default of any of its representations, warranties, or covenants under this
Agreement.
(1) Performance. Seller shall have performed, satisfied, and
complied with all covenants, agreements and conditions required by this
Agreement to be performed or complied with by it, on or before the
Closing Date, and the representations and warranties contained herein
shall be true and correct as of the Closing.
(2) Absence of Litigation. No action, suit or proceeding
before any court or any governmental body or authority, pertaining to
the transaction contemplated by this Agreement or to its consummation,
shall have been instituted against any party hereto on or before the
Closing Date.
SECTION 9. MISCELLANEOUS
9.1 Notices. Any notice or other communication required or which may
given hereunder shall be in writing and shall be delivered personally,
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telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered, or express mail, postage prepaid, and shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission or
if mailed, four (4) days after the date of mailing, as follows:
If to Seller:
3400 S.W. 26th Terrace, Suite A-1
Dania, Florida 33312
If to Buyer:
3400 S.W. 26th Terrace, Suite A-1
Dania, Florida 33312
Any party may by notice given in accordance with this Section to the other
parties designate another address or person for receipt of notice hereunder.
9.2 Entire Agreement. This Agreement and any collateral agreement
executed in connection with the consummation of the transactions contemplated
herein contain the entire agreement among the parties with respect to the
subject matter hereof and related transactions, and supersede all prior
agreements, written or oral, with respect thereto.
9.3 Waivers and Amendments. This Agreement may be amended, modified,
superseded, canceled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by the parties or, in the
case of a waiver, by the party waiving compliance.
9.4 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Florida applicable to agreements made
and to be performed entirely within such State and jurisdiction shall be in
Broward County, Florida.
9.5 Headings. The headings in this Agreement are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
9.6 Severability. If any term or provision of this Agreement, or the
application thereof to any person or circumstance shall, to any extent, be
determined by a court of competent jurisdiction to be invalid or unenforceable,
the remainder of this Agreement or the application of such term or provision to
persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term and provision of
this Agreement shall be valid and enforced to the fullest extent permitted by
law.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
SELLER:
ALEC BRADLEY CIGAR CORPORATION
By:/s/ Alan Rubin
------------------------
Name: Alan Rubin
----------------------
Its: President
-----------------------
BUYER:
/s/ Alan Rubin
---------------------------
ALAN RUBIN
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EXHIBIT 1
DESCRIPTION OF ASSETS
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APPENDIX B
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SHARE EXCHANGE AGREEMENT
THIS SHARE EXCHANGE AGREEMENT ("Agreement"), dated as of August 25,
2005, is by and among Alec Bradley Cigar Corporation, a Florida corporation (the
"Company") and Online Vacation Center Holdings, Inc., a Florida corporation
("Acquisition"); and the shareholders of Acquisition identified on Schedule 1.1,
constituting all of the shareholders of Acquisition (hereinafter collectively
referred to as the "Shareholders").
W I T N E S S E T H:
WHEREAS, the Shareholders own 100% of the issued and outstanding
capital stock of Acquisition (the "Equity Interests");
WHEREAS, Acquisition currently provides vacation services through its
wholly owned operating subsidiary, Online Vacation Center, Inc.;
WHEREAS, the Company desires to acquire from the Shareholders, and the
Shareholders desire to sell to the Company, all of the Equity Interests in
exchange (the "Exchange") for the issuance by the Company of an aggregate of up
to 15,000,000 shares (the "Company Shares") of the Company's common stock, par
value $.0001 per share (the "Company Common Stock") making Acquisition a
wholly-owned subsidiary of the Company, on the terms and conditions set forth
below;
NOW, THEREFORE, in consideration of the promises and of the mutual
representations, warranties and agreements set forth herein, the parties hereto
agree as follows:
ARTICLE I
EXCHANGE
1.1 Exchange. Subject to (i) the terms and conditions of this Agreement
on the Closing Date (as hereinafter defined):
(a) The Company shall issue and deliver the Company Shares to the
Shareholders allocated in the amounts designated on Schedule 1.1, which Shares
shall constitute approximately 89% of the Company's issued and outstanding
capital stock on a fully diluted basis after giving effect to the Exchange and
Asset Purchase Agreement (as hereinafter defined).
(b) As the consideration, the Shareholders shall transfer to the
Company the Equity Interests in Acquisition.
1.2 Time and Place of Closing. The closing of the transactions
contemplated hereby (the "Closing") shall take place at the offices of Adorno &
Yoss, LLP, 350 East Las Olas Boulevard, Suite 1700, Fort Lauderdale, Florida
33301 on the first business day following the effectiveness of the Information
Statement described herein (the "Closing Date") or at such other place as the
Company and Acquisition may agree.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Acquisition and the Shareholders
that as of the Closing of this Agreement and the closing of the Asset Purchase
Agreement dated even herewith by and between Alan Rubin and the Company ("Asset
Purchase Agreement"):
2.1 Due Organization and Qualification; Due Authorization.
(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of formation, with full
corporate power and authority to own, lease and operate its respective business
and properties and to carry on its respective business in the places and in the
manner as presently conducted or proposed to be conducted. The Company is in
good standing as a foreign corporation in each jurisdiction in which the
properties owned, leased or operated, or the business conducted, by it requires
such qualification except for any such failure, which when taken together with
all other failures, is not likely to have a material adverse effect on the
business of the Company taken as a whole.
(b) The Company does not own, directly or indirectly, any capital
stock, equity or interest in any corporation, firm, partnership, joint venture
or other entity.
(c) The Company has all requisite corporate power and authority to
execute and deliver this Agreement, and to consummate the transactions
contemplated hereby and thereby. The Company has taken all corporate action
necessary for the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby, and this Agreement constitutes the
valid and binding obligation of the Company, enforceable against the Company in
accordance with its respective terms, except as may be affected by bankruptcy,
insolvency, moratoria or other similar laws affecting the enforcement of
creditors' rights generally and subject to the qualification that the
availability of equitable remedies is subject to the discretion of the court
before which any proceeding therefore may be brought.
2.2 No Conflicts or Defaults. The execution and delivery of this
Agreement by the Company and the consummation of the transactions contemplated
hereby do not and shall not (a) contravene the Articles of Incorporation or
Bylaws of the Company or (b) with or without the giving of notice or the passage
of time (i) violate, conflict with, or result in a breach of, or a default or
loss of rights under, any material covenant, agreement, mortgage, indenture,
lease, instrument, permit or license to which the Company is a party or by which
the Company is bound, or any judgment, order or decree, or any law, rule or
regulation to which the Company is subject, (ii) result in the creation of, or
give any party the right to create, any lien, charge, encumbrance or any other
right or adverse interest ("Liens") upon any of the assets of the Company, (iii)
terminate or give any party the right to terminate, amend, abandon or refuse to
perform, any material agreement, arrangement or commitment to which the Company
is a party or by which the Company's assets are bound, or (iv) accelerate or
modify, or give any party the right to accelerate or modify, the time within
which, or the terms under which, the Company is to perform any duties or
obligations or receive any rights or benefits under any material agreement,
arrangement or commitment to which it is a party.
2
2.3 Capitalization. The authorized capital stock of the Company
immediately prior to giving effect to the Asset Purchase Agreement consists of
30,000,000 shares of Common Stock par value $.0001 per share, of which 1,799,777
shares are issued and outstanding and 1,000,000 shares of Preferred Stock, none
of which are outstanding. All of the outstanding shares of capital stock are,
and the Company Shares when issued in accordance with the terms hereof will be,
duly authorized, validly issued, fully paid and non-assessable, and have not
been or, with respect to the Company Shares, will not be, issued in violation of
any preemptive right of stockholders. The Company Shares are not subject to any
preemptive or subscription right, any voting trust agreement or other contract,
agreement, arrangement, option, warrant, call, commitment or other right of any
character obligating or entitling the Company to issue, sell, redeem or
repurchase any of its securities, and there is no outstanding security of any
kind convertible into or exchangeable for Common Stock. The Company has not
granted registration rights to any person.
2.4 Financial Statements. Schedule 2.4 contains copies of the
consolidated balance sheet of the Company at December 31, 2004 and the related
statements of operations, stockholders' equity and cash flows for the fiscal
year then ended, including the notes thereto, as audited by Jewett, Schwartz &
Associates, certified public accountants and the unaudited balance sheet of the
Company at June 30, 2005, and the related consolidated statements of operations,
stockholders' equity and cash flows for the six month period then ended prepared
by the Company's management (the "Company Financial Statements"). The Company
Financial Statements have been prepared in accordance with U.S. generally
accepted accounting principles applied on a basis consistent throughout all
periods presented, subject to, in the case of the interim statements, audit
adjustments, which are not expected to be material. Such statements present
fairly the financial position of the Company as of the dates and for the periods
indicated. The books of account and other financial records of the Company have
been maintained in accordance with good business practices.
2.5 Further Financial Matters. The Company does not have any
liabilities or obligations, whether secured or unsecured, accrued, determined,
absolute or contingent, asserted or unasserted or otherwise, which are required
to be reflected or reserved in a balance sheet or the notes thereto under
generally accepted accounting principles, but which are not reflected in the
Company Financial Statements.
2.6 Taxes. The Company has filed all United States federal, state,
county, local and foreign national, provincial and local returns and reports
which were required to be filed on or prior to the date hereof in respect of all
income, withholding, franchise, payroll, excise, property, sales, use, value
added or other taxes or levies, imposts, duties, license and registration fees,
charges, assessments or withholdings of any nature whatsoever (together,
"Taxes"), and has paid all Taxes (and any related penalties, fines and interest)
which have become due pursuant to such returns or reports or pursuant to any
assessment which has become payable, or, to the extent its liability for any
Taxes (and any related penalties, fines and interest) has not been fully
discharged, the same have been properly reflected as a liability on the books
and records of the Company and adequate reserves therefore have been
established. All such returns and reports filed on or prior to the date hereof
have been properly prepared and are true, correct (and to the extent such
returns reflect judgments made by the Company, as the case may be, such
judgments were reasonable under the circumstances) and complete in all material
respects. No tax return or tax
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return liability of the Company or such subsidiary has been audited or,
presently under audit. The Company has not given or been requested to give
waivers of any statute of limitations relating to the payment of any Taxes (or
any related penalties, fines and interest). There are no claims pending or, to
the knowledge of the Company, threatened, against the Company or such subsidiary
for past due Taxes. All payments for withholding taxes, unemployment insurance
and other amounts required to be paid for periods prior to the date hereof to
any governmental authority in respect of employment obligations of the Company
or such subsidiary, including, without limitation, amounts payable pursuant to
the Federal Insurance Contributions Act, have been paid or shall be paid prior
to the Closing and have been duly provided for on the books and records of the
Company and in the Company Financial Statements.
2.7 Indebtedness; Contracts; No Defaults.
(a) There are no material instruments, agreements, indentures,
mortgages, guarantees, notes, commitments, accommodations, letters of credit or
other arrangements or understandings, whether written or oral, to which the
Company is a party (collectively, the "Company Agreements").
(b) Neither the Company nor, to the Company's knowledge, any other
person or entity is in breach in any material respect of, or in default in any
material respect under, any material contract, agreement, arrangement,
commitment or plan to which the Company is a party, and no event or action has
occurred, is pending or is threatened, which, after the giving of notice,
passage of time or otherwise, would constitute or result in such a material
breach or material default by the Company or, to the knowledge of the Company,
any other person or entity. The Company has not received any notice of default
under any contract, agreement, arrangement, commitment or plan to which it is a
party, which default has not been cured to the satisfaction of, or duly waived
by, the party claiming such default on or before the date hereof.
2.8 Personal Property. The Company has good and marketable title to all
of its tangible personal property and assets, including, without limitation, all
of the assets reflected in the Company Financial Statements that have not been
disposed of in the ordinary course of business or pursuant to the Asset Purchase
Agreement and such property is free and clear of all Liens or mortgages.
2.9 Real Property.
(a) Schedule 2.9 sets forth a true and complete list of all property
owned by, or leased or subleased by or to, the Company.
(b) Except as set forth on Schedule 2.9, each lease to which the
Company is a party is valid, binding and in full force and effect with respect
to the Company and no notice of default or termination under any such lease is
outstanding.
2.10 Compliance with Law. The Company is not conducting its business or
affairs in violation of any applicable foreign, federal, state or local law,
ordinance, rule, regulation, court or administrative order, decree or process,
or any requirement of insurance carriers. The Company has not received any
notice of violation or claimed violation of any such law, ordinance, rule,
regulation, order, decree, process or requirement.
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2.11 No Adverse Changes. There have not been (a) any material adverse
change in the business, prospects, the financial or other condition, or the
respective assets or liabilities of the Company or any subsidiary of the Company
as reflected in the Company Financial Statements, (b) any material loss
sustained by the Company or any subsidiary of the Company, including, but not
limited to any loss on account of theft, fire, flood, explosion, accident or
other calamity, whether or not insured, which has materially and adversely
interfered, or may materially and adversely interfere, with the operation of the
Company's or such subsidiary's business, or (c) any event, condition or state of
facts, including, without limitation, the enactment, adoption or promulgation of
any law, rule or regulation, the occurrence of which materially and adversely
does or would affect the results of operations or the business or financial
condition of the Company or any subsidiary of the Company.
2.12 Litigation. (a) There is no claim, dispute, action, suit,
proceeding or investigation pending or, to the knowledge of the Company,
threatened, against or affecting the business of the Company or challenging the
validity or propriety of the transactions contemplated by this Agreement, at law
or in equity or admiralty or before any federal, state, local, foreign or other
governmental authority, board, agency, commission or instrumentality, nor to the
knowledge of the Company, has any such claim, dispute, action, suit, proceeding
or investigation been pending or threatened, during the 12-month period
preceding the date hereof; (b) there is no outstanding judgment, order, writ,
ruling, injunction, stipulation or decree of any court, arbitrator or federal,
state, local, foreign or other governmental authority, board, agency, commission
or instrumentality, against or materially affecting the business of the Company
and (c) the Company has not received any written or verbal inquiry from any
federal, state, local, foreign or other governmental authority, board, agency,
commission or instrumentality concerning the possible violation of any law, rule
or regulation or any matter disclosed in respect of its business.
2.13 Insurance. The Company maintains insurance against all risks
customarily insured against by companies in its industry. All such policies are
in full force and effect, and no subsidiary has received any notice from any
insurance company suspending, revoking, modifying or canceling (or threatening
such action) any insurance policy issued to the Company or subsidiary.
2.14 Articles of Incorporation and By-laws; Minute Books. The copies of
the Articles of Incorporation and Bylaws of the Company and all amendments to
each are true, correct and complete. The minute books of the Company contain
true and complete records of all meetings and consents in lieu of meetings of
its Board of Directors (and any committees thereof), or similar governing
bodies, since the time of its organization.
2.15 Employee Benefit Plans. Except as set forth on Schedule 2.15, the
Company does not maintain, nor has the Company maintained in the past, any
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), or any plans, programs,
policies, practices, arrangements or contracts (whether group or individual)
providing for payments, benefits or reimbursements to employees of the Company,
former employees, their beneficiaries and dependents under which such employees,
former employees, their beneficiaries and dependents are covered through an
employment relationship with the Company, any entity required to be aggregated
in a controlled group or affiliated service group with the Company for purposes
of ERISA or the Internal Revenue Code of 1986 (the "Code")
5
(including, without limitation, under Section 414(b), (c), (m) or (o) of the
Code or Section 4001 of ERISA, at any relevant time ("Benefit Plans").
2.16 Patents; Trademarks and Intellectual Property Rights. Except as
provided on Schedule 2.16, the Company does not own or possesses any material
patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information, Internet web site(s) or proprietary rights of any nature.
2.17 Affiliate Transactions. Except as disclosed in the Asset Purchase
Agreement or periodic and annual reports filed with the SEC pursuant to the
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), neither the Company nor any officer, director or employee of the Company
(or any of the relatives or Affiliates of any of the aforementioned Persons) is
a party to any agreement, contract, commitment or transaction with the Company
or affecting the business of the Company, or has any interest in any property,
whether real, personal or mixed, or tangible or intangible, used in or necessary
to the Company which will subject the Company to any liability or obligation
from and after the Closing Date.
2.18 Trading. The Company's Common Stock is currently listed for
trading on the Over the Counter Bulletin Board, ("OTCBB") and the Company has
received no notice that its Common Stock is subject to being delisted therefrom.
2.19 Compliance. The Company has complied in all material respects with
all applicable foreign, federal and state laws, rules and regulations,
including, without limitation, the requirements of the Exchange Act and the
Securities Act of 1933, as amended (the "Securities Act") and is current in its
filings.
2.20 Filings. None of the filings made by the Company under the
Securities Act or the Exchange Act make any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements made,
in light of the circumstances under which they were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACQUISITION
Acquisition represents and warrants to the Company that now and/or as
of the Closing:
3.1 Due Organization and Qualification; Subsidiaries; Due
Authorization.
(a) Acquisition and each subsidiary of Acquisition is an entity duly
organized, validly existing and in good standing under the laws of its
jurisdiction of formation, with full power and authority to own, lease and
operate its business and properties and to carry on its business in the places
and in the manner as presently conducted or proposed to be conducted.
Acquisition and each subsidiary of Acquisition is in good standing as a foreign
corporation in each jurisdiction in which the properties owned, leased or
operated, or the business conducted, by it requires such qualification except
for any such failure, which when taken together with all other failures, is not
likely to have a material adverse effect on the business of Acquisition taken as
a whole.
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(b) Acquisition and each subsidiary of Acquisition does not own,
directly or indirectly, any capital stock, equity or interest in any
corporation, firm, partnership, joint venture or other entity, except as set
forth on Schedule 3.1.
(c) Acquisition has requisite power and authority to execute and
deliver this Agreement, and to consummate the transactions contemplated hereby
and thereby. Acquisition has taken all action necessary for the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby, and this Agreement constitutes the valid and binding obligation of
Acquisition, enforceable against Acquisition in accordance with its terms,
except as may be affected by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally and subject to the
qualification that the availability of equitable remedies is subject to the
discretion of the court before which any proceeding therefore may be brought.
3.2 Information Supplied for Information Statement. The information
supplied by Acquisition for inclusion in the information statement filed with
the SEC in connection with this Agreement at the time the information statement
is declared effective by the SEC shall not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The information
supplied by Acquisition for inclusion in the information statement to be sent to
the shareholders of the Company in connection with the solicitation of proxies
for the Company shareholder vote shall not, on the date the information
statement is first mailed to the shareholders of the Company, contain any
statement which, at such time, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they are
made, not false or misleading; or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Company shareholder vote which has become false
or misleading. If at any time prior to the Company's special meeting of
shareholders any event or information should be discovered by the Company which
should be set forth in a supplement to the information statement, Acquisition
shall promptly inform the shareholders of the Company.
3.3 No Conflicts or Defaults. The execution and delivery of this
Agreement by Acquisition and the consummation of the transactions contemplated
hereby do not and shall not (a) contravene the organizational documents of
Acquisition or any subsidiary, or (b) with or without the giving of notice or
the passage of time, (i) violate, conflict with, or result in a breach of, or a
default or loss of rights under, any material covenant, agreement, mortgage,
indenture, lease, instrument, permit or license to which Acquisition or such
subsidiary is a party or by which Acquisition or such subsidiary or any of their
respective assets are bound, or any judgment, order or decree, or any law, rule
or regulation to which Acquisition, such subsidiary or any of their respective
assets are subject, (ii) result in the creation of, or give any party the right
to create, any Lien upon any of the assets of any subsidiary, or (iii) terminate
or give any party the right to terminate, amend, abandon or refuse to perform,
any material agreement, arrangement or commitment to which any subsidiary is a
party or by which any subsidiary or any of its assets are bound, or (iv)
accelerate or modify, or give any party the right to accelerate or modify, the
time within which, or the terms under which any subsidiary is to perform any
7
duties or obligations or receive any rights or benefits under any material
agreement, arrangement or commitment to which it is a party.
3.4 Capitalization. Set forth on Schedule 3.4 is a list of all
Shareholder Equity Interests, setting forth the names, addresses and number of
shares owned. All of the Equity Interests are, and when transferred in
accordance with the terms hereof, will be, duly authorized, validly issued,
fully paid and nonassessable, and have not been or will not be transferred in
violation of any rights of third parties. The Equity Interests are not subject
to any preemptive or subscription right, any voting trust agreement or other
contract, agreement, arrangement, option, warrant, call, commitment or other
right of any character obligating or entitling any Shareholder to issue, sell,
redeem or repurchase any Equity Interest, and there is no outstanding security
of any kind convertible into or exchangeable for shares.
3.5 Financial Statements. Schedule 3.5 contains copies of the
consolidated balance sheet of Acquisition and its subsidiaries at December 31,
2004 and the related statements of operations, stockholders' equity and cash
flows for the fiscal year then ended, including the notes thereto, as audited by
Jewett, Schwartz & Associates, certified public accountants and the unaudited
balance sheet of the Acquisition at June 30, 2005, and the related consolidated
statements of operations, stockholders' equity and cash flows for the six month
period then ended prepared by the Acquisition's management (the "Acquisition
Financial Statements").
3.6 Further Financial Matters. Except as set forth on Schedule 3.6,
Acquisition has no material liabilities or obligations, whether secured or
unsecured, accrued, determined, absolute or contingent, asserted or unasserted
or otherwise, which are required to be reflected or reserved in a balance sheet
or the notes thereto under generally accepted accounting principles, but which
are not reflected in the Acquisition Financial Statements.
3.7 Taxes. Except as indicated on Schedule 3.7, Acquisition has
complied with all relevant legal requirements relating to registration or
notification for taxation purposes. All tax returns and reports filed on or
prior to the date hereof have been properly prepared and are true, correct (and
to the extent such returns reflect judgments made by the subsidiaries, such
judgments were reasonable under the circumstances) and complete in all material
respects. Except as indicated on Schedule 3.7, no extension for the filing of
any such return or report is currently in effect. Except as indicated on
Schedule 3.7, no tax return or tax return liability of Acquisition has been
audited or, presently under audit. All taxes which have been asserted to be
payable as a result of any audits have been paid or have been provided for in
the Acquisition Financial Statements. Except as indicated on Schedule 3.7,
Acquisition has not given or been requested to give waivers of any statute of
limitations relating to the payment of any Taxes (or any related penalties,
fines and interest). Except as indicated on Schedule 3.7, all payments for
withholding taxes, unemployment insurance and other amounts required to be paid
for periods prior to the date hereof to any governmental authority in respect of
employment obligations of the subsidiaries have been paid or shall be paid prior
to the Closing and have been duly provided for on the books and records of
Acquisition and in the Acquisition Financial Statements.
8
3.8 Indebtedness; Contracts; No Defaults.
(a) Schedule 3.8 sets forth a true, complete and correct list of all
material instruments, agreements, indentures, mortgages, guarantees, notes,
commitments, accommodations, letters of credit or other arrangements or
understandings, whether written or oral, to which the subsidiaries are a party
(collectively, the "Acquisition Operating Agreements"). An agreement shall not
be considered material for the purposes of this Section 3.8(a) if it provides
for expenditures or receipts of less than US $100,000 and has been entered into
by any subsidiary in the ordinary course of business. The Acquisition Operating
Agreements constitute all of the contracts, agreements, understandings and
arrangements required for the operation of the business of Acquisition or which
have a material effect thereon. Copies of all such material written Acquisition
Operating Agreements have previously been delivered or otherwise made available
to the Company and such copies are true, complete and correct as of the date
hereof.
(b) Except as disclosed on Schedule 3.8, neither Acquisition or any
subsidiary of Acquisition nor, to Acquisition's knowledge, any other person or
entity, is not in breach in any material respect of, or in default in any
material respect under, any material contract, agreement, arrangement,
commitment or plan to which Acquisition or any subsidiary of Acquisition is a
party, and no event or action has occurred, is pending or is threatened, which,
after the giving of notice, passage of time or otherwise, would constitute or
result in such a material breach or material default by such subsidiary to the
knowledge of any other person or entity. No subsidiary has received any notice
of default under any contract, agreement, arrangement, commitment or plan to
which it is a party, which default has not been cured to the satisfaction of, or
duly waived by, the party claiming such default on or before the date hereof.
3.9 Personal Property. Except as set forth on Schedule 3.9, Acquisition
has good and marketable title to all of its tangible personal property and
assets, including, without limitation, all of the assets reflected in the
Acquisition Financial Statements that have not been disposed of in the ordinary
course of business since June 30, 2005, free and clear of all Liens or
mortgages, except for any Lien for current taxes not yet due and payable and
such restrictions, if any, on the disposition of securities as may be imposed by
federal or applicable state securities laws.
3.10 Real Property.
(a) Schedule 3.10 sets forth a true and complete list of all real
property owned by, or leased or subleased by or to, Acquisition or its
subsidiaries.
(b) Except as set forth on Schedule 3.10, each lease to which
Acquisition or its subsidiaries are a party is valid, binding and in full force
and effect with respect to Acquisition or such subsidiary and, to the knowledge
of Acquisition, all other parties thereto; no notice of default or termination
under any such lease is outstanding.
3.11 Compliance with Law. Except as set forth on Schedule 3.11,
Acquisition and each subsidiary is conducting its respective business or affairs
in material compliance with applicable law, ordinance, rule, regulation, court
or administrative order, decree or process, or any requirement of insurance
carriers. Neither Acquisition nor any subsidiary has received any notice of
9
violation or claimed violation of any such law, ordinance, rule, regulation,
order, decree, process or requirement.
3.12 No Adverse Changes. Except as set forth on Schedule 3.12, since
June 30, 2005, there has not been (a) any material adverse change in the
business, prospects, the financial or other condition, or the respective assets
or liabilities of Acquisition and its subsidiaries as reflected in the
Acquisition Financial Statements, (b) any material loss sustained by Acquisition
and its subsidiaries, including, but not limited to any loss on account of
theft, fire, flood, explosion, accident or other calamity, whether or not
insured, which has materially and adversely interfered, or may materially and
adversely interfere, with the operation of Acquisition's business, or (c) to the
best knowledge of Acquisition, any event, condition or state of facts,
including, without limitation, the enactment, adoption or promulgation of any
law, rule or regulation, the occurrence of which materially and adversely does
or would affect the results of operations or the business or financial condition
of Acquisition.
3.13 Litigation. Except as set forth on Schedule 3.13, (a) there is no
claim, dispute, action, suit, proceeding or investigation pending or, to the
knowledge of Acquisition threatened, against or affecting the business of
Acquisition or any of its subsidiaries, or challenging the validity or propriety
of the transactions contemplated by this Agreement, at law or in equity or
admiralty or before any authority, board, agency, commission or instrumentality,
nor to the knowledge of Acquisition, has any such claim, dispute, action, suit,
proceeding or investigation been pending or threatened, during the 12-month
period preceding the date hereof; (b) there is no outstanding judgment, order,
writ, ruling, injunction, stipulation or decree of any court, arbitrator or
federal, state, local, foreign or other governmental authority, board, agency,
commission or instrumentality, against or materially affecting the business of
Acquisition or any of its subsidiaries; and (c) Acquisition has not received nor
has any subsidiary received any written or verbal inquiry from any federal,
state, local, foreign or other governmental authority, board, agency, commission
or instrumentality concerning the possible violation of any law, rule or
regulation or any matter disclosed in respect of its business.
3.14 Insurance. Acquisition and its subsidiaries maintain insurance
against all risks customarily insured against by companies in its industry. All
such policies are in full force and effect, and no subsidiary has received any
notice from any insurance company suspending, revoking, modifying or canceling
(or threatening such action) any insurance policy issued to Acquisition or
subsidiary.
3.15 Articles of Incorporation; Minute Books. The copies of the
Articles of Incorporation of Acquisition and its subsidiaries, and all
amendments to each are true, correct and complete. The minute books of
Acquisition and its subsidiaries contain true and complete records of all
meetings and consents in lieu of meetings of their Board of Directors (and any
committees thereof), or similar governing bodies, since the time of their
respective organization. The stock records of Acquisition are true, correct and
complete.
3.16 Employee Benefit Plans. Except as set forth on Schedule 3.16,
Acquisition does not have in existence any share incentive, share option scheme
or profit sharing bonus or other such incentive scheme for any of its directors
or employees. Except as set forth on Schedule 3.16 or required under the
applicable laws, there are no arrangements, schemes, customs or practices
10
(whether legally enforceable or not) in operation for the payment of or
contributions towards any provident fund, pensions, allowances, lump sums or
other like benefits on retirement or on death or during periods of sickness or
disablement for the benefit of any director or former director or employee or
former employee or for the benefit of the dependents of any such persons nor has
any proposal been announced to establish any such agreement or agreements.
3.17 Patents; Trademarks and Intellectual Property Rights. Acquisition
and each subsidiary owns or possesses sufficient legal rights to all patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, internet web site(s) proprietary rights and processes necessary for
its business as now conducted without any conflict with or infringement of the
rights of others. Except as set forth on Schedule 3.17, there are no outstanding
options, licenses or agreements of any kind relating to the foregoing, and no
subsidiary is bound by, or a party to, any options, licenses or agreements of
any kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights and
processes of any other person or entity.
3.18 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried without the intervention of
any Person in such a manner as to give rise to any valid claim by any Person
against any Shareholder for a finder's fee, brokerage commission or similar
payment.
3.19 Purchase for Investment.
(a) The Shareholders are acquiring the Company Shares for investment
for their own account and not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and the Shareholders have no present
intention of selling, granting any participation in, or otherwise distributing
the same. The Shareholders further represent that they do not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person, with respect to any of the
Company Shares.
(b) Acquisition and the Shareholders understand that the Company Shares
are not registered under the Securities Act on the ground that the sale and the
issuance of securities hereunder is exempt from registration under the
Securities Act pursuant to Section 4(2) thereof, and that the Company's reliance
on such exemption is predicated on Acquisition's and the Shareholders'
representations set forth herein. Each Shareholder is deemed to be an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D
under the Securities Act.
3.20 Investment Experience. Each Shareholder acknowledges that it can
bear the economic risk of its investment, and has such knowledge and experience
in financial and business matters that it is capable of evaluating the merits
and risks of the investment in the Company Shares.
3.21 Information. Acquisition and the Shareholders have carefully
reviewed such information as Acquisition and the Shareholders deemed necessary
to evaluate an investment in the Company Shares. To the full satisfaction of
Acquisition and the Shareholders, it has been furnished all materials that it
has requested relating to the Company and the issuance of the Company Shares
11
hereunder, and Acquisition and each Shareholder has been afforded the
opportunity to ask questions of representatives of the Company to obtain any
information necessary to verify the accuracy of any representations or
information made or given to Acquisition and the Shareholders. Notwithstanding
the foregoing, nothing herein shall derogate from or otherwise modify the
representations and warranties of the Company set forth in this Agreement, on
which Acquisition and each Shareholder has relied in making an Exchange of the
Equity Interests of the Company Shares.
3.22 Restricted Securities. Acquisition and each Shareholder
understands that the Company Shares may not be sold, transferred, or otherwise
disposed of without registration under the Act or an exemption there from, and
that in the absence of an effective registration statement covering the Company
Shares or any available exemption from registration under the Securities Act,
the Company Shares must be held indefinitely. Acquisition and each Shareholder
is aware that the Company Shares may not be sold pursuant to Rule 144
promulgated under the Securities Act unless all of the conditions of that Rule
are met. Among the conditions for use of Rule 144 may be the availability of
current information to the public about the Company.
ARTICLE IV
INDEMNIFICATION
4.1 Indemnity of Acquisition and the Shareholders. The Company agrees
to jointly and severally defend, indemnify and hold harmless Acquisition and the
Shareholders from and against, and to reimburse Acquisition and the Shareholders
with respect to, all liabilities, losses, costs and expenses, including, without
limitation, reasonable attorneys' fees and disbursements, asserted against or
incurred by Acquisition by reason of, arising out of, or in connection with any
material breach of any representation or warranty contained in this Agreement
made by the Company or in any document or certificate delivered by the Company
pursuant to the provisions of this Agreement or in connection with the
transactions contemplated thereby.
4.2 Indemnity of the Company. Acquisition jointly and severally agree
to defend, indemnify and hold harmless the Company from and against, and to
reimburse the Company with respect to, all liabilities, losses, costs and
expenses, including, without limitation, reasonable attorneys' fees and
disbursements, asserted against or incurred by the Company by reason of, arising
out of, or in connection with any material breach of any representation or
warranty contained in this Agreement and made by Acquisition or any Shareholder
or in any document or certificate delivered by Acquisition or any Shareholder
pursuant to the provisions of this Agreement or in connection with the
transactions contemplated thereby.
4.3 Indemnification Procedure. A party (an "Indemnified Party") seeking
indemnification shall give prompt notice to the other party (the "Indemnifying
Party") of any claim for indemnification arising under this Article 4. The
Indemnifying Party shall have the right to assume and to control the defense of
any such claim with counsel reasonably acceptable to such Indemnified Party, at
the Indemnifying Party's own cost and expense, including the cost and expense of
reasonable attorneys' fees and disbursements in connection with such defense, in
which event the Indemnifying Party shall not be obligated to pay the fees and
disbursements of separate counsel for such in such action. In the event,
however, that such Indemnified Party's legal counsel shall determine that
12
defenses may be available to such Indemnified Party that are different from or
in addition to those available to the Indemnifying Party, in that there could
reasonably be expected to be a conflict of interest if such Indemnifying Party
and the Indemnified Party have common counsel in any such proceeding, or if the
Indemnified Party has not assumed the defense of the action or proceedings, then
such Indemnifying Party may employ separate counsel to represent or defend such
Indemnified Party, and the Indemnifying Party shall pay the reasonable fees and
disbursements of counsel for such Indemnified Party. No settlement of any such
claim or payment in connection with any such settlement shall be made without
the prior consent of the Indemnifying Party which consent shall not be
unreasonably withheld.
ARTICLE V
DELIVERIES
5.1 Items to be delivered to Acquisition and the Shareholders prior to
or at Closing by the Company.
(a) articles of incorporation and amendments thereto, bylaws and
amendments thereto, certificate of good standing in the Company's state of
incorporation;
(b) all applicable schedules hereto;
(c) all minutes and resolutions of board of director and shareholder
meetings in possession of the Company;
(d) shareholder list of the Company;
(e) all financial statements and tax returns in possession of the
Company;
(f) resolution from the Company's current director appointing designees
of Acquisition to the Company's Board of Directors;
(g) letters of resignation from the Company's current officer and
director to be effective upon Closing and after the appointments described in
this section;
(h) certificates representing Company Shares issued in the
denominations as set forth opposite the respective names of the Shareholders as
set forth on Schedule 1.1 on or before the Closing, duly authorized, validly
issued, fully paid for and non-assessable;
(i) copies of board, and if applicable, shareholder resolutions
approving this transaction and authorizing the issuances of the shares hereto;
and
(j) any other document reasonably requested by Acquisition that it
deems necessary for the consummation of this transaction.
13
5.2 Items to be delivered to the Company prior to or at Closing by
Acquisition.
(a) articles of incorporation and amendments thereto and amendments
thereto with respect to Acquisition and each subsidiary;
(b) all applicable schedules hereto;
(c) all minutes and resolutions of board of directors and shareholder
meetings of Acquisition and each subsidiary in possession of Acquisition;
(d) shareholder list of Acquisition;
(e) all financial statements and tax returns in possession of
Acquisition;
(f) resolution from Acquisition's current directors appointing
designees of Acquisition to the Company's Board of Directors;
(g) copies of board and shareholder resolutions approving the Exchange;
and
(h) any other document reasonably requested by the Company that it
deems necessary for the consummation of this transaction.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions Precedent to Closing. The obligations of the parties
under this Agreement shall be and are subject to fulfillment, prior to or at the
Closing, of each of the following conditions any of which may be waived by the
parties:
(a) The SEC shall have been given the opportunity to review this
Agreement and the transactions disclosed in the information statement.
(b) That each of the representations and warranties of the parties
contained herein shall be true and correct at the time of the Closing Date as if
such representations and warranties were made at such time.
(c) That the parties shall have performed or complied with all
agreements, terms and conditions required by this Agreement to be performed or
complied with by them prior to or at the time of the Closing.
(d) No material adverse change shall have occurred in the financial,
business or trading conditions of the Company (excluding disposal of its
subsidiaries) or Acquisition from the date hereof up to and including the
Closing Date.
6.2 Conditions to Obligations of the Company. The obligations of the
Company shall be subject to fulfillment by Acquisition and/or the Shareholders
prior to or at the Closing of each of the following conditions, any of which may
be waived by the Company:
14
(a) Acquisition shall have paid the costs and expenses of the Company
as provided in Section 12.11.
(b) Acquisition shall have no more than 1,899,777 shares of its common
stock outstanding.
(c) The Company shall have executed a Lock Up Agreement with Alan Rubin
and the shareholders of the Company listed on Schedule 6.3(e), (i) restricting
such shareholders from selling or transferring his or her share ownership in the
Company for a period of 12 months from the Closing Date and (ii) providing for
other Company obligations.
6.3 Conditions to Obligations of Acquisition. The obligations of
Acquisition shall be subject to fulfillment by the Company prior to or at the
Closing of each of the following conditions, any of which may be waived by
Acquisition:
(a) The Company shall have delivered evidence reasonably satisfactory
to Acquisition regarding the approval of the shareholders of the Company for
this Agreement and the sale of the Company's assets referred to in the Asset
Purchase Agreement.
(b) As of the Closing, the Company shall have transferred all of its
assets (including equity interests in its subsidiaries) and assigned all of its
liabilities whatsoever, contingent or otherwise, to the effect that immediately
prior to the Exchange, the Company will have no assets nor liabilities exceeding
$1,000. All such transfers shall be made under the Asset Purchase Agreement.
(c) Less than 10% of the shareholders of the Company shall have
exercised their dissenters' rights in respect to the transactions related to the
Asset Purchase Agreement.
(d) Alan Rubin and the shareholders of the Company listed on Schedule
6.3(e) shall have executed a Lock Up Agreement, restricting such shareholders
from selling or transferring his or her share ownership in the Company for a
period of 12 months from the Closing Date.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Company Special Meeting or Information Statement. The Company shall
(i) in accordance with the Florida Business Corporation Act, its Articles of
Incorporation and Bylaws, duly call, give notice of, convene and hold a special
meeting of the Company shareholders or receive a written consent from a majority
of the Company's shareholders for the purpose of voting upon the approval of (a)
this Agreement, (b) the Asset Purchase Agreement, (c) an amendment to its
Articles of Incorporation changing the Company's corporate name, (d) an
amendment to its Articles of Incorporation eliminating preemptive rights, (e) an
amendment to its Articles of Incorporation increasing its authorized common
stock, (f) adopting a Management and Director Equity Incentive and Compensation
Plan and (g) any related proposals; and (ii) recommend that the Company
shareholders vote in favor of all such matters.
15
7.2 Further Action; Consents; Filings. Upon the terms and subject to
the conditions hereof, each of the parties hereto shall (i) use all commercially
reasonable efforts to take, or cause to be taken, all appropriate action and do,
or cause to be done, all things necessary, proper or advisable under applicable
law or otherwise to consummate and make effective the Exchange and this
Agreement, (ii) use all reasonable efforts to obtain from third parties any
consents, licenses, permits, waivers, approvals, authorizations or orders
required to be obtained or made by Acquisition or the Company or any Acquisition
subsidiary, in connection with the authorization, execution and delivery of this
Agreement and the consummation of the Exchange and the other transactions
contemplated by this Agreement and (iii) make all necessary filings, and
thereafter make any other required submissions, with respect to this Agreement,
the asset sale and the other transactions contemplated by this Agreement that
are required under any applicable law.
7.3 Fairness Opinions. On or prior to the Closing, the parties shall
have received an opinion or opinions from an investment banking firm or other
business evaluation firm mutually acceptable to the Company and Acquisition,
addressed to the board of directors of the Company, to the effect that this
Agreement, the Asset Purchase Agreement and related transactions contemplated by
this Agreement are fair to the stockholders of the Company from a financial
point of view.
ARTICLE VIII
COVENANTS
8.1 Shareholders Vote. As soon as practicable after the date hereof,
the Company shall (a) cause the preparation and filing with the Securities and
Exchange Commission an information statement with respect to this Agreement, the
Asset Purchase Agreement, and the amendment to the articles of incorporation
changing the Company's name terminating preemptive rights, increasing the
authorized common stock and adopting a Management and Director Equity Incentive
Plan, and (b) obtain the consent of a majority of its shareholders.
8.2 OTCBB Listing. Acquisition shall provide such information as may be
reasonably requested by OTCBB relating to the continued listing of the Company's
Common Stock on OTCBB.
8.3 Shareholders Consent. Each of the Shareholders agree to the
Exchange of their Equity Interest for the Company Shares.
ARTICLE IX
NO PUBLIC DISCLOSURE
9.1 No Public Disclosure. Without the prior written consent of the
others, none of the Company or Acquisition will, and will each cause their
respective representatives not to, make any release to the press or other public
disclosure with respect to either the fact that discussions or negotiations have
taken place concerning the transactions contemplated by this Agreement, the
existence or contents of this Agreement or any prior correspondence relating to
this transactions contemplated by this Agreement, except for such public
disclosure as may be necessary, in the written opinion of outside counsel
(reasonably
16
satisfactory to the other parties) for the party proposing to make the
disclosure not to be in violation of or default under any applicable law,
regulation or governmental order. If either party proposes to make any
disclosure based upon such an opinion, that party will deliver a copy of such
opinion to the other party, together with the text of the proposed disclosure,
as far in advance of its disclosure as is practicable, and will in good faith
consult with and consider the suggestions of the other party concerning the
nature and scope of the information it proposes to disclose.
ARTICLE X
CONFIDENTIAL INFORMATION
10.1 Confidential Information. In connection with the negotiation of
this Agreement and the consummation of the transactions contemplated hereby,
each party hereto will have access to data and confidential information relating
to the other party. Each party hereto shall treat such data and information as
confidential, preserve the confidentiality thereof and not duplicate or use such
data or information, except in connection with the transactions contemplated
hereby, and in the event of the termination of this Agreement for any reason
whatsoever, each party hereto shall return to the other all documents, work
papers and other material (including all copies thereof) obtained in connection
with the transactions contemplated hereby and will use reasonable efforts,
including instructing its employees who have had access to such information, to
keep confidential and not to use any such data or information; provided,
however, that such obligations shall not apply to any data and information (i)
which at the time of disclosure, is available publicly, (ii) which, after
disclosure, becomes available publicly through no fault of the receiving party,
(iii) which the receiving party knew or to which the receiving party had access
prior to disclosure by the disclosing party, (iv) which is required by law,
regulation or exchange rule, or in connection with legal process, to be
disclosed, (v) which is disclosed by a receiving party to its attorneys or
accountants, who shall respect the above restrictions, or (vi) which is obtained
in connection with any Tax matters and is disclosed in connection with the
filing of Tax returns or claims for refund or in conducting an audit or other
proceeding.
ARTICLE XI
TERMINATION
11.1 Termination. This Agreement may be terminated at any time before
or, at Closing, by:
(a) The mutual agreement of the constituent parties;
(b) Any party if:
(i) Any provision of this Agreement applicable to a party
shall be materially untrue or fail to be accomplished;
(ii) Any legal proceeding shall have been instituted or shall
be imminently threatening to delay, restrain or prevent the consummation of this
Agreement; or
17
(iii) If by December 31, 2005, the conditions precedents to
Closing are not satisfied.
11.2 Effect of Termination. In the event of termination of this
Agreement pursuant to Section 11.1, this Agreement shall become void, there
shall be no liability under this Agreement on the part of the Company or
Acquisition or any of their respective officers or directors, and all rights and
obligations of each party hereto shall cease, except as otherwise provided in
this Agreement, including, but not limited to Section 12.11.
ARTICLE XII
MISCELLANEOUS
12.1 Survival of Representations, Warranties and Agreements. All
representations and warranties and statements made by a party to in this
Agreement or in any document or certificate delivered pursuant hereto shall
survive the Closing Date for so long as the applicable statute of limitations
shall remain open. Each of the parties hereto is executing and carrying out the
provisions of this agreement in reliance upon the representations, warranties
and covenants and agreements contained in this agreement or at the closing of
the transactions herein provided for and not upon any investigation which it
might have made or any representations, warranty, agreement, promise or
information, written or oral, made by the other party or any other person other
than as specifically set forth herein.
12.2 Access to Books and Records. During the course of this transaction
through Closing, each party agrees to make available for inspection all
corporate books, records and assets, and otherwise afford to each other and
their respective representatives, reasonable access to all documentation and
other information concerning the business, financial and legal conditions of
each other for the purpose of conducting a due diligence investigation thereof.
Such due diligence investigation shall be for the purpose of satisfying each
party as to the business, financial and legal condition of each other for the
purpose of determining the desirability of consummating the proposed
transaction. The Parties further agree to keep confidential and not use for
their own benefit, except in accordance with this Agreement any information or
documentation obtained in connection with any such investigation.
12.3 Further Assurances. If, at any time after the Closing, the parties
shall consider or be advised that any further deeds, assignments or assurances
in law or that any other things are necessary, desirable or proper to complete
the merger in accordance with the terms of this agreement or to vest, perfect or
confirm, of record or otherwise, the title to any property or rights of the
parties hereto, the Parties agree that their proper officers and directors shall
execute and deliver all such proper deeds, assignments and assurances in law and
do all things necessary, desirable or proper to vest, perfect or confirm title
to such property or rights and otherwise to carry out the purpose of this
Agreement, and that the proper officers and directors the parties are fully
authorized to take any and all such action.
12.4 Notice. All communications, notices, requests, consents or demands
given or required under this Agreement shall be in writing and shall be deemed
18
to have been duly given when delivered to, or received by prepaid registered or
certified mail or recognized overnight courier addressed to, or upon receipt of
a facsimile sent to, the party for whom intended, as follows, or to such other
address or facsimile number as may be furnished by such party by notice in the
manner provided herein:
If to the Company:
Alec Bradley Cigar Corporation
3400 S.W. 26th Terrace, Suite A-1
Dania, Florida 33312
Attention: President
Tel: 954-321-5991
Fax: 954-321-9968
If to Acquisition:
Online Vacation Center Holdings, Inc.
1801 N.W. 66th Avenue
Plantation, Florida 33313
Attention: President
Tel: 954-377-6366
Fax: 954-377-6368
If to the Shareholders:
1801 N.W. 66th Avenue
Plantation, Florida 33313
Tel: 954-377-6366
Fax: 954-377-6368
Or such other as Acquisition may notify to the other parties
to the Agreement by not less than five (5) Business Day's
notice.
12.5 Entire Agreement. This Agreement, the Schedules and any
instruments and agreements to be executed pursuant to this Agreement, sets forth
the entire understanding of the parties hereto with respect to its subject
matter, merges and supersedes all prior and contemporaneous understandings with
respect to its subject matter and may not be waived or modified, in whole or in
part, except by a writing signed by each of the parties hereto. No waiver of any
provision of this Agreement in any instance shall be deemed to be a waiver of
the same or any other provision in any other instance. Failure of any party to
enforce any provision of this Agreement shall not be construed as a waiver of
its rights under such provision.
12.6 Successors and Assigns. This Agreement shall be binding upon,
enforceable against and inure to the benefit of, the parties hereto and their
respective heirs, administrators, executors, personal representatives,
successors and assigns, and nothing herein is intended to confer any right,
remedy or benefit upon any other person. This Agreement may not be assigned by
any party hereto except with the prior written consent of the other parties,
which consent shall not be unreasonably withheld.
19
12.7 Governing Law. This Agreement shall in all respects be governed by
and construed in accordance with the laws of the State of Florida are applicable
to agreements made and fully to be performed in such state, without giving
effect to conflicts of law principles.
12.8 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.9 Construction. Headings contained in this Agreement are for
convenience only and shall not be used in the interpretation of this Agreement.
References herein to Articles, Sections and Exhibits are to the articles,
sections and exhibits, respectively, of this Agreement. The Disclosure Schedules
are hereby incorporated herein by reference and made a part of this Agreement.
As used herein, the singular includes the plural, and the masculine, feminine
and neuter gender each includes the others where the context so indicates.
12.10 Severability. If any provision of this Agreement is held to be
invalid or unenforceable by a court of competent jurisdiction, this Agreement
shall be interpreted and enforceable as if such provision were severed or
limited, but only to the extent necessary to render such provision and this
Agreement enforceable.
12.11 Costs and Expenses. Acquisition shall be responsible for all of
its expenses and its shareholders expenses incurred in connection with this
Agreement and the transactions in connection herewith, including the fees to any
brokers or financial advisors employed by Acquisition. The Company shall be
responsible for all of its expenses incurred in connection with this Agreement
and the transactions in connection herewith, including the fees of any brokers
or financial advisors employed by the Company. However, personal expenses
incurred by Alan Rubin in connection with the Asset Purchase Agreement shall be
assumed by Mr. Rubin. Notwithstanding the provisions herein, Acquisition shall
pay or reimburse the Company for any costs and expenses associated with the
fairness opinion(s) required for the consummation of this Agreement and/or the
Asset Purchase Agreement. Acquisition shall be responsible for all costs
(including legal fees and expenses) associated with the Information Statement to
be filed with the Securities and Exchange Commission. In addition, Acquisition
shall pay the Company's legal fees (estimated to be approximately $5,000) and
accounting fees in connection with this Agreement and the transactions in
connection herewith.
20
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first set forth above.
ALEC BRADLEY CIGAR CORPORATION
By: /s/ Alan Rubin
---------------------
Alan Rubin, President
ONLINE VACATION CENTER HOLDINGS, INC.
By: /s/ Edward B. Rudner
--------------------
Name: Edward B. Rudner
Title: President
21
DISCLOSURE SCHEDULES
22
APPENDIX C
----------
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF ALEC BRADLEY CIGAR CORPORATION
Pursuant to Section 607.10003 and 607.1007 of the Business Corporation
Act of the State of Florida, the undersigned, being the Director and President
of ALEC BRADLEY CIGAR CORPORATION (hereinafter the "Corporation"), a Florida
corporation, and desiring to amend and restate its Articles of Incorporation,
does hereby certify:
FIRST: The Articles of Incorporation of the Corporation were filed with
the Secretary of State of Florida on July 15, 1996, Document No. P96000059979.
SECOND: These Amended and Restated Articles of Incorporation, which
supersede the original Articles of Incorporation and all amendments to them,
were adopted by all of the Directors of the Corporation and a majority of its
shareholders on ___________, 2005. To effect the foregoing, the text of the
Articles of Incorporation is hereby restated and amended as herein set forth in
full:
ARTICLE I
NAME
The name of the Corporation is ONLINE VACATION CENTER HOLDINGS CORP.
ARTICLE II
PURPOSE
The Corporation may transact any and all lawful business for which
corporations may be organized under the Florida Business Corporation Act.
ARTICLE III
CAPITAL STOCK
A. The Company is authorized to issue 80,000,000 shares of Common
Stock, which shall be designated "Common Stock," with a par value of $.0001 per
share.
B. The Company is authorized to issue 1,000,000 shares of Preferred
Stock, with a par value of $.0001 per share.
ARTICLE IV
CORPORATE LIFE
The life of the corporation is perpetual.
ARTICLE V
PRINCIPAL OFFICE AND MAILING ADDRESS
The principal office and mailing address of the Corporation is:
1801 N.W. 66th Avenue
Plantation, Florida 33313
ARTICLE VI
INITIAL BOARD OF DIRECTORS
The corporation shall have one (1) director(s) initially. The number of
directors may be either increased or diminished from time to time by the Bylaws,
but shall never be less than one (1).
ARTICLE VII
REGISTERED OFFICE AND AGENT
The street address of the Corporation's registered office is: 1801 N.W.
66th Avenue, Plantation, Florida 33313. The name of the Corporation's registered
agent at that office is: Edward B. Rudner.
ARTICLE VIII
BYLAWS
The power to adopt, alter, amend or repeal Bylaws, shall be vested in
the Board of Directors and Shareholders.
ARTICLE IX
AFFILIATED TRANSACTIONS
The Corporation expressly elects not to be governed by Section 607.0901
of the Florida Business Corporation Act, as amended from time to time, relating
to affiliated transactions.
ARTICLE X
CONTROL SHARE ACQUISITIONS
The Corporation expressly elects not to be governed by Section 607.0902
of the Florida Business Corporation Act, as amended from time to time, relating
to control share acquisitions.
ARTICLE XI
INDEMNIFICATION
To the fullest extent permitted by the Florida Business Corporation
Act, the Corporation shall indemnify, or advance expenses to, any person made,
or threatened to be made, a party to any action, suit or proceeding by reason of
the fact that such person (i) is or was a director of the Corporation; (ii) is
2
or was serving at the request of the Corporation as a director of another
corporation, provided that such person is or was at the time a director of the
Corporation; or (iv)is or was serving at the request of the Corporation as an
officer of another Corporation, provided that such person is or was at the time
a director of the corporation or a director of such other corporation, serving
at the request of the Corporation. Unless otherwise expressly prohibited by the
Florida Business Corporation Act, and except as otherwise provided in the
previous sentence, the Board of Directors of the Corporation shall have the sole
and exclusive discretion, on such terms and conditions as it shall determine, to
indemnify, or advance expenses to, any person made, or threatened to be made, a
party to any action, suit, or proceeding by reason of the fact such person is or
was an officer, employee or agent of the Corporation as an officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise. No person falling within the purview of this paragraph may apply for
indemnification or advancement of expenses to any court of competent
jurisdiction.
THIRD: The foregoing amendments were adopted by all of the Directors
and the majority holders of the Common stock of the Corporation pursuant to
sections 607.0821 and 607.0704 of the Florida Business Corporation Act on
________, 2005. Therefore, the number of votes cast for the amendment to the
Corporation's Articles of Incorporation was sufficient for approval.
IN WITNESS WHEREOF, the undersigned has executed these Amended and
Restated Articles of Incorporation this ____ day of ____________, 2005.
------------------------------------
Alan Rubin, Director and President
3
APPENDIX D
----------
2005 MANAGEMENT AND DIRECTOR EQUITY
INCENTIVE AND COMPENSATION PLAN
Section 1. Purposes of Plan.
----------------
The purpose of this 2005 Management and Director Equity Incentive and
Compensation Plan (the "Plan") of ONLINE VACATION CENTER HOLDINGS CORP., a
Florida corporation (the "Company"), is to advance the interests of the Company
and its stockholders by providing a means of attracting and retaining key
employees, directors and consultants for the Company and its subsidiary
corporations. In order to serve this purpose, the Plan encourages and enables
key employees, directors and consultants to participate in the Company's future
prosperity and growth by providing them with incentives and compensation based
on the Company's performance, development, and financial success. These
objectives will be promoted by granting to key employees equity-based awards in
the form of: (a) Incentive Stock Options ("ISOs"), which are intended to qualify
under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code");
and (b) shares of the Company's common stock, $0.0001 par value (the "Shares"),
(or their economic equivalent) that will be subject to a vesting schedule based
on certain performance objectives ("Performance Shares"). In addition, key
employees, directors and consultants may receive (i) stock options which are not
intended to qualify as ISOs ("NQSOs") (ISOs and NQSOs are referred to together
hereinafter generally as "Stock Options") and (ii) Shares that will be subject
to a vesting schedule based on the recipient's continued employment ("Restricted
Shares"). These awards are referred to generally hereafter as the "Awards"). For
purposes of this Plan, "subsidiary" shall mean a subsidiary corporation as
defined in Section 424(f) of the Code.
Section 2. Administration of Plan.
-----------------------
The Plan shall be administered by a committee of directors (the
"Committee"). The members of the Committee shall serve at the pleasure of the
Board of Directors of the Company (the "Board"), which may remove members from
the Committee or appoint new members to the Committee from time to time, and
members of the Committee may resign by written notice to the Chairman of the
Board or the Secretary of the Company. The Committee shall have the power and
authority to: (a) select Eligible Employees (as defined in Section 3, below) as
recipients of Awards (such recipients, "Participants"); (b) grant Stock Options,
Restricted Shares, or Performances Shares, or any combination thereof; (c)
determine the number and type of Awards to be granted; (d) determined the terms
and conditions, not inconsistent with the terms hereof, of any Award, including
without limitation, time and performance restrictions; (e) adopt, alter, and
repeal such administrative rules, guidelines, and practices governing the Plan
as it shall, from time to time, deem advisable; (f) interpret the terms and
provisions of the Plan and any Award granted and any agreements relating
thereto; and (g) take any other actions the Committee considers appropriate in
connection with, and otherwise supervise the administration of, the Plan. All
decisions made by the Committee pursuant to the provisions hereof, including
without limitation, decisions with respect to employees to be granted Awards and
the number and type of Awards, shall be made in the Committee's sole discretion
and shall be final and binding on all persons.
Section 3. Participants in Plan.
--------------------
The persons eligible to receive Awards under the Plan ("Eligible
Employees") shall include officers, directors, other key employees and
consultants of the Company or one or more of its subsidiaries who, in the
opinion of the Committee, have responsibilities affecting the management,
development, or financial success of the Company or such subsidiaries; provided,
however, that with respect to ISOs and Performance Shares, the persons eligible
to receive such awards shall be limited to officers or other key employees
designated by the Committee.
Section 4. Shares Subject to Plan.
----------------------
The maximum aggregate number of Shares which may be issued under the
Plan shall be 2,500,000 Shares. The Shares which may be issued under the Plan
may be authorized but unissued Shares or issued Shares reacquired by the Company
and held as treasury Shares.
If any Shares that have previously been the subject of a Stock Option
cease to be the subject of a Stock Option (other than by reason of exercise), or
if any Restricted Shares or Performance Shares granted hereunder are forfeited
by the holder, or if any Stock Option or other Award terminates without a
payment or transfer being made to the Award recipient in the form of Shares, or
if any Shares (whether or not restricted) previously distributed under the Plan
are returned to the Company in connection with the exercise of an Award
(including without limitation in payment of the exercise price or tax
withholding), such Shares shall again be available for distribution in
connection with future Awards under the Plan.
Section 5. Grant of Awards.
---------------
ISOs, NQSOs, Restricted Shares, and Performance Shares may be granted
alone or in addition to other Awards granted under the Plan. Any Awards granted
under the Plan shall be in such form as the Committee may from time to time
approve, consistent with the Plan, and the provisions of Awards need not be the
same with respect to each Participant.
Each Award granted under the Plan shall be authorized by the Committee
and shall be evidenced by a written Stock Option Agreement, Restricted Share
Agreement, or Performance Share Agreement, as the case may be (collectively,
"Award Agreements"), in the form approved by the Committee from time to time,
which shall be dated as of the date approved by the Committee in connection with
the grant, signed by an officer of the Company authorized by the Committee, and
signed by the Participant, and which shall describe the Award and state that the
Award is subject to all the terms and provisions of the Plan and such other
terms and provisions, not inconsistent with the Plan, as the Committee may
approve. The date on which the Committee approves the granting of an Award shall
be deemed to be the date on which the Award is granted for all purposes, unless
the Committee otherwise specifies in its approval. The granting of an Award
under the Plan, however, shall be effective only if and when a written Award
Agreement is duly executed and delivered by or on behalf of the Company and the
Participants.
2
Section 6. Stock Options.
-------------
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions not
inconsistent with the terms of the Plan as the Committee deems appropriate. Each
Stock Option grant shall be evidenced by a written Stock Option Agreement,
executed as set forth in Section 5, above, which shall be consistent with the
Plan, including without limitation the following provisions:
(a) Exercise Price.
---------------
The exercise price per Share issuable upon exercise of an ISO shall be
no less than the fair market value per Share on the date the ISO is granted;
provided that if the Participant at the time an ISO is granted owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any subsidiary, the exercise price per Share shall be at
least 110% of the fair market value of the Shares subject to the ISO on the date
of grant. The exercise price per Share issuable upon exercise of an NQSO shall
be no less than one hundred percent (100%) of the fair market value per Share on
the date the NQSO is granted. For the purposes of the Plan, the fair market
value of the Shares shall mean, as of any given date, the (i) last reported sale
price on the New York Stock Exchange on the most recent previous trading day,
(ii) last reported sale price on The Nasdaq Stock Market on the most recent
previous trading day, (iii) mean between the high and low bid and ask prices, as
reported by the National Association of Securities Dealers, Inc. on the most
recent previous trading day, or (iv) last reported sale price on any other stock
exchange on which the Shares are listed on the most recent previous trading day,
whichever is applicable; provided that if none of the foregoing is applicable,
then the fair market value of the Shares shall be the value determined in good
faith by the Committee, in its sole discretion.
(b) Vesting and Exercise of Options.
--------------------------------
A Stock Option shall be exercisable only with respect to the Shares
which have become vested pursuant to the terms of that Stock Option. Each Stock
Option shall become vested with respect to Shares subject to that Stock Option
on such date or dates and on the basis of such other criteria, including without
limitation, the performance of the Company, as the Committee may determine, in
its discretion, and as shall be specified in the applicable Stock Option
Agreement. The Committee shall have the authority, in its discretion, to
accelerate the time at which a Stock Option shall be exercisable whenever it may
determine that such action is appropriate by reason of changes in applicable tax
or other law or other changes in circumstances occurring after the grant of such
Stock Option.
(c) Term.
----
No Stock Option shall be exercisable after the expiration of ten years
from the date on which that Stock Option is granted. With respect to ISOs, if
the Participant at the time the ISO is granted owns stock possessing more than
10% of the total combined voting power of all classes of stock of the Company or
any subsidiary, the ISO shall not be exercisable after the expiration of five
years from the date on which the ISO is granted.
3
(d) Method of Exercise.
------------------
A Stock Option may be exercised, in whole or in part, by giving written
notice to the Company stating the number of Shares (which must be a whole
number) to be purchased. Upon receipt of payment of the full purchase price for
such Shares by certified or bank cashier's check or other form of payment
acceptable to the Company, or, if approved by the Committee, by (i) delivery of
unrestricted Shares having a fair market value on the date of such delivery
equal to the total exercise price, (ii) surrender of Shares subject to the Stock
Option which have a fair market value equal to the total exercise price at the
time of exercise (which may include Shares to be issued pursuant to the exercise
of a Stock Option), or (iii) a combination of the preceding methods, and subject
to compliance with all other terms and conditions of the Plan and the Stock
Option Agreement relating to such Stock Option, the Company shall issue, as soon
as reasonably practicable after receipt of such payment, such Shares to the
person entitled to receive such Shares, or such person's designated
representative. Such Shares may be issued in the form of a certificate, by book
entry, or otherwise, in the Company's sole discretion.
(e) Restrictions on Shares Subject to Stock Options.
------------------------------------------------
Shares issued upon the exercise of any Stock Option may be made subject
to such disposition, transferability or other restrictions or conditions as the
Committee may determine, in its discretion, and as shall be set forth in the
applicable Stock Option Agreement.
(f) Transferability.
---------------
Except as provided in this paragraph, Stock Options shall not be
transferable, and any attempted transfer (other than as provided in this
paragraph) shall be null and void. Except for Stock Options transferred as
provided in this paragraph, all Stock Options shall be exercisable during a
Participant's lifetime only by the Participant or the Participant's legal
representative. Without limiting the generality of the foregoing, (i) ISOs may
be transferred only upon the Participant's death and only by will or the laws of
descent and distribution and, in the case of such a transfer, shall be
exercisable only by the transferee or such transferee's legal representative,
(ii) NQSOs may be transferred by will or the laws of descent and distribution
and, in the case of such a transfer, shall be exercisable only by the transferee
or such transferee's legal representative, and (iii) the Committee may, in its
sole discretion and in the manner established by the Committee, provide for the
irrevocable transfer, without payment of consideration, of any NQSO by a
Participant to such Participant's spouse, children, grandchildren, nieces, or
nephews or to the trustee of a trust for the principal benefit of one or more
such persons or to a partnership whose only partners are one or more such
persons, and, in the case of such transfer, such NQSO shall be exercisable only
by the transferee or such transferee's legal representative.
(g) Termination of Employment by Reason of Death or Disability.
-----------------------------------------------------------
If a Participant's employment, membership on the Board of Directors of
the Company or engagement as a consultant to the Company terminates by reason of
the Participant's death or permanent disability (as defined in Section 22(e)(3)
of the Code with respect to ISOs, and, with respect to NQSOs, as defined by the
Committee in its sole discretion at the time of grant and set forth in the Stock
Option Agreement), then (i) unless otherwise determined by the Committee within
4
60 days of such death or disability, to the extent a Stock Option held by such
Participant is not vested as of the date of death or disability, such Stock
Option shall automatically terminate on such date, and (ii) to the extent a
Stock Option held by such Participant is vested (whether pursuant to its terms,
a determination of the Committee under the preceding clause (i), or otherwise)
as of the date of death or disability, such Stock Option may thereafter be
exercised by the Participant, the legal representative of the Participant's
estate, the legatee of the Participant under the will of the Participant, or the
distributee of the Participant's estate, whichever is applicable, for a period
of one year (or, with respect to NQSOs, such other period as the Committee may
specify at or after grant or death or disability) from the date of death or
disability or until the expiration of the stated term of such Stock Option,
whichever period is shorter.
(h) Termination of Employment by Reason of Retirement.
--------------------------------------------------
If a Participant's employment, membership on the Board of Directors of
the Company or engagement as a consultant to the Company terminates by reason of
the Participant's retirement, then each NQSO held by such Participant may
thereafter be exercised by the Participant according to its terms, including
without limitation, for such period after such termination as shall be set forth
in the applicable Stock Option Agreement, and each ISO held by such Participant
may thereafter be exercised by the Participant for a period of 90 days from the
date of such termination of employment, or until the expiration of the stated
term of such ISO, whichever period is shorter. For purposes of the Plan,
"retirement" shall mean voluntary termination of employment with the Company and
its subsidiaries, membership on the Board of Directors of the Company and its
subsidiaries or engagement as a consultant to the Company and its subsidiaries
by a Participant after attaining age 65 and having at least two years of service
with the Company or any one or more of its subsidiaries or, in the case of a
director, completion of a number of years of service on the Board of Directors
of the Company as specified in the Stock Option Agreement or, in the case of a
consultant, completion of a number of years of service to the Company as a
consultant as specified in the Stock Option Agreement.
(i) Other Termination of Employment.
--------------------------------
If a Participant's employment, membership on the Board of Directors of
the Company or engagement as a consultant to the Company terminates for any
reason other than death, disability, or retirement, then (i) to the extent any
Stock Option held by such Participant is not vested as of the date of such
termination, such Stock Option shall automatically terminate on such date; and
(ii) to the extent any Stock Option held by such Participant is vested as of the
date of such termination, such Stock Option may thereafter be exercised for a
period of 90 days (or, with respect to NQSOs, such other period as the Committee
may specify at or after grant or termination of employment) from the date of
such termination or until the expiration of the stated term of such Stock
Option, whichever period is shorter; provided that, upon the termination of the
Participant's employment, membership on the Board of Directors or engagement as
a consultant by the Company or its subsidiaries for Cause (as defined in an
applicable Stock Option Agreement), any and all unexercised Stock Options
granted to such Participant shall immediately lapse and be of no further force
or effect. For purposes of the Plan, whether termination of a Participant's
employment by, membership on the Board of Directors of the Company or engagement
5
as a consultant is for "Cause" shall be determined by the Committee, in its sole
discretion.
(j) Effect of Termination of Participant's Employment on Transferee.
----------------------------------------------------------------
Except as otherwise permitted by the Committee in its sole discretion,
no Stock Option held by a transferee of a Participant pursuant to Section
6(f)(iii), above, shall remain exercisable for any period of time longer than
would otherwise be permitted under Section 6(g), (h), and (i) without
specification of other periods by the Committee as provided herein.
(k) ISO Limitations and Savings Clause.
-----------------------------------
The aggregate fair market value (determined as of the time of grant) of
the Shares with respect to which ISOs are exercisable for the first time by the
Participant during any calendar year under the Plan and any other stock option
plan of the Company and its affiliates shall not exceed $100,000 unless
otherwise permitted by Code Section 422 as an unused limit carryover to such
year.
Any provision of the Plan to the contrary notwithstanding, without the
consent of each Participant affected, no provision of the Plan relating to ISOs
shall be interpreted, amended, or altered, nor shall any discretion or authority
granted under the Plan be so exercised, so as to disqualify the Plan under
Section 422 of the Code or so as to disqualify any ISO under such Code Section
422.
Section 7. Restricted Shares.
-----------------
Restricted Shares awarded under the Plan shall be subject to the
following terms and conditions and such additional terms and conditions not
inconsistent with the terms of the Plan as the Committee deems appropriate. Each
Restricted Share grant shall be evidenced by a written Restricted Share
Agreement, executed as set forth in Section 5, above, which shall be consistent
with the Plan, including without limitation the following provisions:
(a) Price.
------
The purchase price for Restricted Shares shall be any price set by the
Committee but may not be less than the par value of such Restricted Shares.
Payment in full of the purchase price, if any, shall be made by certified or
bank cashier's check or other form of payment acceptable to the Company, or, if
approved by the Committee, by (i) delivery of unrestricted Shares having a fair
market value on the date of such delivery equal to the total purchase price, or
(ii) a combination of the preceding methods.
(b) Acceptance of Restricted Shares.
--------------------------------
At the time of the Restricted Share Award, the Committee may determine
that such Shares shall, after vesting, be further restricted as to
transferability or be subject to repurchase by the Company or forfeiture upon
the occurrence of certain events determined by the Committee, in its sole
discretion, and specified in the Restricted Share Agreement. Awards of
Restricted Shares must be accepted by the Participant within 30 days (or such
other period as the Committee may specify at grant) after the grant date by
6
executing the Restricted Share Agreement. The Participant shall not have any
rights with respect to the grant of Restricted Shares unless and until the
Participant has executed the Restricted Share Agreement, delivered a fully
executed copy thereof to the Company, and otherwise complied with the applicable
terms and conditions of the Award.
(c) Share Restrictions.
-------------------
Subject to the provisions of the Plan and the applicable Restricted
Share Agreement, during such period as may be set by the Committee, in its
discretion, and as shall be set forth in the applicable Restricted Share
Agreement (the "Restriction Period"), the Participant shall not be permitted to
sell, transfer, pledge, assign, or otherwise encumber the Restricted Shares. The
Committee shall have the authority, in its sole discretion, to accelerate the
time at which any or all of the restrictions shall lapse with respect to any
Restricted Shares. Unless otherwise determined by the Committee at or after
grant or termination of the Participant's employment, Board membership or
engagement, if the Participant's employment by, membership on the Board of
Directors of or engagement as a consultant to the Company and its subsidiaries
terminates during the Restriction Period, all Restricted Shares held by such
Participant and still subject to restriction shall be forfeited by the
Participant, and the Company shall repay to such Participant the purchase price
paid by such Participant for such forfeited Restricted Shares.
(d) Stock Issuances and Restrictive Legends.
----------------------------------------
Upon execution and delivery of the Restricted Share Agreement as
described above and receipt of payment of the full purchase price, if any, for
the Restricted Shares subject to such Restricted Share Agreement, the Company
shall, as soon as reasonably practicable thereafter, issue the Restricted
Shares. Restricted Shares may be issued in the form of a certificate, by book
entry, or otherwise, in the Company's sole discretion, and shall bear an
appropriate restrictive legend. Notwithstanding the foregoing to the contrary,
the Committee may, in its sole discretion, issue Restricted Shares (whether or
not such Restricted Shares are, at the time of such issuance, the subject of an
Award) to the trustee of a trust set up by the Committee, consistent with the
terms and conditions of the Plan, to hold such Restricted Shares until the
restrictions thereon have lapsed (in full or in part, in the Committee's sole
discretion), and the Committee may require that, as a condition of any
Restricted Share Award, the Participant shall have delivered to the Company or
such trustee, as appropriate, a stock power, endorsed in blank, relating to the
Restricted Shares covered by the Award.
(e) Shareholder Rights.
-------------------
Unless otherwise provided in the applicable Restricted Share Agreement,
no Participant (or his executor or administrator or other transferee) shall have
any rights of a shareholder in the Company with respect to the Restricted Shares
covered by an Award unless and until the Restricted Shares have been duly issued
and delivered to him under the Plan.
7
(f) Expiration of Restriction Period.
---------------------------------
Upon the expiration of the Restriction Period without prior forfeiture
of the Restricted Shares (or rights thereto) subject to such Restriction Period,
unrestricted Shares shall be issued and delivered to the Participant.
Section 8. Performance Shares.
-------------------
Performance Shares awarded under the Plan shall be subject to the
following terms and conditions and such additional terms and conditions not
inconsistent with the terms of the Plan as the Committee deems appropriate. Each
Performance Share grant shall be evidenced by a written Performance Share
Agreement, executed as set forth in Section 5, above, which shall be consistent
with the Plan, including without limitation the following provisions:
(a) Performance Periods and Goals.
-----------------------------
(i) The performance period for each Award of Performance
Shares shall be of such duration as the Committee shall establish at the time of
the Award (the "Performance Period"). There may be more than one Award in
existence at any one time, and Performance Periods may differ.
(ii) At the time of each Award of Performance Shares, the
Committee shall establish a range of performance goals (the "Performance Goals")
to be achieved during the Performance Period. The Performance Goals shall be
determined by the Committee using such measures of the performance of the
Company over the Performance Period as the Committee shall select, including
without limitation earnings, return on capital, or any performance goal approved
by the shareholders of the Company in accordance with Section 162(m) of the
Code. Performance Shares awarded to Participants will be earned as determined by
the Committee with respect to the attainment of the Performance Goals set for
the Performance Period. Attainment of the highest Performance Goal for the
Performance Period will be 100% of the Performance Shares awarded for the
Performance Period; failure to attain the lowest Performance Goal for the
Performance Period will earn none of the Performance Shares awarded for the
Performance Period.
(iii) Attainment of the Performance Goals will be calculated
from the consolidated financial statements of the Company but shall exclude (A)
the effects of changes in federal income tax rates, (B) the effects of unusual,
non-recurring, and extraordinary items as defined by Generally Accepted
Accounting Principles ("GAAP"), and (C) the cumulative effect of changes in
accounting principles in accordance with GAAP. The Performance Goals may vary
for different Performance Periods and need not be the same for each Participant
receiving an Award for a Performance Period. The Committee may, in its sole
discretion, subject to the limitations of Section 17, vary the terms and
conditions of any Performance Share Award, including without limitation the
Performance Period and Performance Goals, without shareholder approval, as
applied to any recipient who is not a "covered employee" with respect to the
Company as defined in Section 162(m) of the Code. In the event applicable tax or
securities laws change to permit the Committee discretion to alter the governing
performance measures as they pertain to covered employees without obtaining
shareholder approval of such changes, the Committee shall have sole discretion
to make such changes without obtaining shareholder approval.
8
(b) Price.
------
The purchase price for Performance Shares shall be any price set by the
Committee but may not be less than the par value of such Performance Shares.
Payment in full of the purchase price, if any, shall be made by certified of
bank cashier's check or other form of payment acceptable to the Company, or, if
approved by the Committee, by (i) delivery of unrestricted Shares having a fair
market value on the date of such delivery equal to the total purchase price, or
(ii) a combination of the preceding methods.
(c) Acceptance of Performance Shares.
---------------------------------
At the time of the Performance Share Award, the Committee may determine
that such Shares shall, after vesting pursuant to the Performance Period and
Performance Goal provisions described above, be further restricted as to
transferability or be subject to repurchase by the Company or forfeiture upon
the occurrence of certain events determined by the Committee, in its sole
discretion, and specified in the Performance Share Agreement. Awards of
Performance Shares must be accepted by the Participant within 30 days (or such
other period as the Committee may specify at grant) after the grant date by
executing the Performance Share Agreement. The Participant shall not have any
rights with respect to the grant of Performance Shares unless and until the
Participant has executed the Performance Share Agreement, delivered a fully
executed copy thereof to the Company, and otherwise complied with the applicable
terms and conditions of the Award.
(d) Share Restrictions.
------------------
Subject to the provisions of the Plan and the applicable Performance
Share Agreement, during the Performance Period and any additional Restriction
Period (as defined in Section 7(c), above), the Participant shall not be
permitted to sell, transfer, pledge, assign, or otherwise encumber the
Performance Shares. The Committee shall have the authority, in its sole
discretion, to accelerate the time at which any or all of the restrictions shall
lapse with respect to any Performance Shares. Unless otherwise determined by the
Committee at or after grant or termination of the Participant's employment,
Board membership or engagement, if the Participant's employment by, membership
on the Board of Directors of or engagement as a consultant to the Company and
its subsidiaries terminates during the Performance Period or the Restriction
Period, all Performance Shares held by such Participant and still subject to
restriction shall be forfeited by the Participant, and the Company shall repay
to such Participant the purchase price paid by such Participant for such
forfeited Performance Shares.
(e) Stock Issuances and Restrictive Legends.
----------------------------------------
Despite the execution and delivery of the Performance Share Agreement
as described above, the Company shall have no obligation to issue the
Performance Shares prior to the vesting of the Performance Shares, provided that
the Company shall issue the Performance Shares as soon as reasonably practicable
after such vesting and after payment in full of the purchase price, if any, for
such Performance Shares. Performance Shares may be issued, whenever issued, in
9
the form of a certificate, by book entry, or otherwise, in the Company's sole
discretion, and shall bear such restrictive legend as is consistent with
applicable restrictions, if any, including without limitation those represented
by the Performance Period and Performance Goals and those described in Section
8(d), above. The Committee may require that, whenever issued, the Performance
Shares be issued to and held by the Company or a trustee until the restrictions
on such Performance Shares have lapsed (in full or in part), and that, as a
condition of any Performance Share Award, the Participant shall have delivered a
stock power, endorsed in blank, relating to the Performance Shares covered by
the Award.
(f) Shareholder Rights.
-------------------
Unless otherwise provided in the applicable Performance Share
Agreement, no Participant (or his executor or administrator or other transferee)
shall have any rights of a shareholder in the Company with respect to the
Performance Shares covered by an Award unless and until the Performance Shares
have been duly issued and delivered to him under the Plan.
(g) Expiration of Restricted Period.
-------------------------------
Subject to fulfillment of the terms and conditions of the applicable
Performance Share Agreement and any other vesting requirements related to the
applicable Performance Period or Performance Goals, upon the expiration of the
Restriction Period without prior forfeiture of the Performance Shares (or rights
thereto) subject to such Restriction Period, unrestricted Shares shall be issued
and delivered to the Participant.
(h) Termination of Employment.
-------------------------
If a Participant's employment by the Company and its subsidiaries,
membership on the Board of Directors of the Company and its subsidiaries or
engagement as a consultant to the Company and its subsidiaries terminates before
the end of any Performance Period with the consent of the Committee, or upon the
Participant's death, retirement (as defined in Section 6(h), above), or
disability (as defined by the Committee in its discretion at the time of grant
and set forth in the Performance Share Agreement), the Committee, taking into
consideration the performance of such Participant and the performance of the
Company over the Performance Period, may authorize the issuance to such
Participant (or his legal representative or designated beneficiary) of all or a
portion of the Performance Shares which would have been issued to him had his
employment, Board membership or engagement continued to the end of the
Performance Period. If the Participant's employment by the Company and its
subsidiaries, membership on the Board of Directors of the Company and its
subsidiaries or engagement as a consultant to the Company and its subsidiaries
terminates before the end of any Performance Period for any other reason, all
Performance Shares shall be forfeited.
(i) Election to Receive Cash in Lieu of Shares.
------------------------------------------
Notwithstanding the foregoing to the contrary (but subject to any
shareholder approval or other requirements of Section 162(m) of the Code), the
Committee may, in its sole discretion and as set forth in the applicable
Performance Share Agreement, provide the Participant with the option to elect to
receive, instead of Performance Shares, cash in an amount determined pursuant to
such Performance Share Agreement including, without limitation, any one or more
10
of the following: (i) the fair market value of the number of Shares subject to
the Performance Share Agreement as of the date thereof, (ii) part or all of any
increase in such fair market value since such date, (iii) part or all of any
dividends paid or payable on the number of Shares subject to such Performance
Share Agreement since the date thereof, (iv) any other amounts which, in the
Committee's sole discretion and as set forth in the applicable Performance Share
Agreement, are reasonably related to the achievement of the applicable
Performance Goals, or (v) any combination of the foregoing. Such election and
any cash payment resulting therefrom shall be made at such time or times as
shall be specified in the Performance Share Agreement.
Section 9. Restriction on Exercise After Termination.
-----------------------------------------
Notwithstanding any provision of this Plan to the contrary, no
unexercised right created under this Plan (an "Unexercised Right") and held by a
Participant on the date of termination of such Participant's employment,
membership on the Board of Directors of the Company or engagement as a
consultant for any reason shall be exercisable after such termination if, prior
to such exercise, the Participant (a) takes other employment or renders services
to others without the written consent of the Company, (b) violates any
non-competition, confidentiality, conflict of interest, or similar provision set
forth in the Award Agreement pursuant to which such Unexercised Right was
awarded, or (c) otherwise conducts himself in a manner adversely affecting the
Company in the sole discretion of the Committee.
Section 10. Withholding Tax.
---------------
The Company, at its option, shall have the right to require the
Participant or any other person receiving Shares, Restricted Shares, or
Performance Shares (including cash in lieu of Performance Shares) to pay the
Company the amount of any taxes which the Company is required to withhold with
respect to such Shares, Restricted Shares, or Performance Shares or, in lieu of
such payment, to retain or sell without notice a number of such Shares
sufficient to cover the amount required to be so withheld. The Company, at its
option, shall have the right to deduct from all dividends paid with respect to
Shares, Restricted Shares, and Performance Shares the amount of any taxes which
the Company is required to withhold with respect to such dividend payments. The
Company, at its option, shall also have the right to require a Participant to
pay to the Company the amount of any taxes which the Company is required to
withhold with respect to the receipt by the Participant of Shares pursuant to
the exercise of a Stock Option, or, in lieu thereof, to retain, or sell without
notice, a number of Shares sufficient to cover the amount required to be
withheld. The obligations of the Company under the Plan shall be conditional on
such payment or other arrangements acceptable to the Company.
Section 11. Securities Law Restrictions.
---------------------------
No right under the Plan shall be exercisable and no Share shall be
delivered under the Plan except in compliance with all applicable federal and
state securities laws and regulations. The Company shall not be required to
deliver any Shares or other securities under the Plan prior to such registration
or other qualification of such Shares or other securities under any state or
federal law, rule, or regulation as the Committee shall determine to be
necessary or advisable.
11
The Committee may require each person acquiring Shares under the Plan
(a) to represent and warrant to and agree with the Company in writing that such
person is acquiring the Shares without a view to the distribution thereof, and
(b) to make such additional representations, warranties, and agreements with
respect to the investment intent of such person or persons as the Committee may
reasonably request. Any certificates for such Shares may include any legend
which the Committee deems appropriate to reflect any restrictions on transfer.
All Shares or other securities delivered under the Plan shall be
subject to such stop-transfer orders and other restrictions as the Committee may
deem advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Shares are
then listed, and any applicable federal or state securities law, and the
Committee may cause a legend or legends to be put on any certificates evidencing
such Shares to make appropriate reference to such restrictions.
Section 12. Change in Control.
-----------------
(a) Accelerated Vesting and Company Purchase Option.
-----------------------------------------------
Notwithstanding any provision of this Plan or any Award
Agreement to the contrary (unless such Award Agreement contains a provision
referring specifically to this Section 12 and stating that this Section 12 shall
not be applicable to the Award evidenced by such Award Agreement), if a Change
in Control (each as defined below) occurs, then the Company may, at its option,
terminate any or all unexercised Stock Options and portions thereof not more
than 30 days after such Change in Control. In connection with any such
termination, the Company may, in its sole discretion, with respect to each Stock
Option so terminated, pay to the Participant (or such Participant's transferee,
if applicable) theretofore holding such Stock Option cash in an amount equal to
the difference between the fair market value (as defined in Section 6(a), above)
of the Shares subject to the Stock Option at the time the company exercises its
option under this Section 12(a) and the exercise price of the Stock Option; and
provided further that if such fair market value is less than such exercise
price, then the Committee may, in its discretion, terminate such Stock Option
without any payment.
(b) Definition of Change in Control.
--------------------------------
For purposes of the Plan, a "Change in Control" shall mean the
happening of any of the following:
(i) When any "person" as defined in Section 3(a)(9) of the
1934 Act and as used in Sections 13(d) and 14(d) thereof, including a "group" as
defined in Section 13(d) of the 1934 Act, but excluding the Company, any
subsidiary of the Company, and any employee benefit plan sponsored or maintained
by the Company or any subsidiary of the Company (including any trustee of such
plan acting as trustee), directly or indirectly, becomes the "beneficial owner"
(as defined in Rule 13d-3 under the 1934 Act) of securities of the Company
representing 50% or more of the combined voting power of the Company's then
outstanding securities;
12
(ii) When, during any period of 18 consecutive months during
the existence of the Plan, the individuals who, at the beginning of such period,
constitute the Board (the "Incumbent Directors") cease for any reason other than
death to constitute at least a majority of the Board; provided, however, that a
director who was not a director at the beginning of such 18-month period shall
be deemed to have satisfied such 18-month requirement (and be an Incumbent
Director) if such director was elected by, or on the recommendation of or with
the approval of, at least two-thirds of the directors who then qualified as
Incumbent Directors either actually (because they were directors at the
beginning of such 18-month period) or by prior operation of this Section
12(b)(ii); or
(iii) The occurrence of a transaction requiring stockholder
approval for the acquisition of the Company by an entity other than the Company,
a subsidiary of the Company, or any of their respective affiliates through
purchase of assets, by merger, or otherwise.
Notwithstanding the foregoing to the contrary, a change in
control shall not be deemed to be a Change in Control for purposes of this Plan
if the Incumbent Directors of the Board approve or had approved such change (A)
described in Sections 12(b)(i), (ii), (iii), or 12(c)(i) of this Plan, or (B)
prior to the commencement by any person other than the Company of a tender offer
for Shares.
Section 13. Changes in Capital Structure.
----------------------------
In the event the Company changes its outstanding Shares by reason of
stock splits, stock dividends, or any other increase or reduction of the number
of outstanding Shares without receiving consideration in the form of money,
services, or property deemed appropriate by the Board, in its sole discretion,
the aggregate number of Shares subject to the Plan shall be proportionately
adjusted and the number of Shares and the exercise price for each Share subject
to the unexercised portion of any then-outstanding Award shall be
proportionately adjusted with the objective that the Participant's proportionate
interest in the Company shall remain the same as before the change without any
change in the total exercise price applicable to the unexercised portion of any
then-outstanding Awards, all as determined by the Committee in its sole
discretion.
In the event of any other recapitalization or any merger,
consolidation, or other reorganization of the Company, the Committee shall make
such adjustment, if any, as it may deem appropriate to accurately reflect the
number and kind of shares deliverable, and the exercise prices payable, upon
subsequent exercise of any then-outstanding Awards, as determined by the
Committee in its sole discretion.
The Committee's determination of the adjustments appropriate to be made
under this Section 13 shall be conclusive upon all Participants under the Plan.
Section 14. No Enlargement of Employee Rights.
---------------------------------
The adoption of this Plan and the grant of one or more Awards to an
employee of the Company or any of its subsidiaries shall not confer any right to
the employee to continue in the employ of the Company or any such subsidiary and
shall not restrict or interfere in any way with the fight of his employer to
terminate his employment at any time, with or without cause.
13
Section 15. Rights as a Shareholder.
-----------------------
No Participant or his executor or administrator or other transferee
shall have any rights of a stockholder in the Company with respect to the Shares
covered by an Award unless and until such Shares have been duly issued and
delivered to him under the Plan.
Section 16. Acceleration of Rights.
----------------------
The Committee shall have the authority, in its discretion, to
accelerate the time at which a Stock Option or other Award right shall be
exercisable whenever it may determine that such action is appropriate by reason
of changes in applicable tax or other laws or other changes in circumstances
occurring after the grant of the Award.
Section 17. Interpretation, Amendment, or Termination of the Plan.
-----------------------------------------------------
The interpretation by the Committee of any provision of the Plan or of
any Award Agreement executed pursuant to the grant of an Award under the Plan
shall be final and conclusive upon all Participants or transferees under the
Plan. The Board, without further action on the part of the shareholders of the
Company, may from time to time alter, amend, or suspend the Plan or may at any
time terminate the Plan, provided that: (a) no such action shall materially and
adversely affect any outstanding Stock Option or other right under the Plan
without the consent of the holder of such Stock Option or other right; and (b)
except for the adjustments provided for in Section 13, above, no amendment may
be made by Board action without shareholder approval if the amendment would (i)
materially increase the benefits accruing to Participants under the Plan, (ii)
materially increase the number of Shares which may be issued under the Plan,
(iii) materially modify the requirements as to eligibility for participation in
the Plan, (iv) extend the maximum option period of Stock Options, or (v) effect
any other change which requires shareholder approval under applicable law or
regulation. Subject to the above provisions, the Board shall have authority to
amend the Plan to take into account changes in applicable tax and securities
laws and accounting rules, as well as other developments.
Section 18. Unfunded Status of the Plan.
---------------------------
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments or deliveries of Shares not
yet made by the Company to a Participant or transferee nothing contained herein
shall give any such Participant or transferee any rights that are greater than
those of a general creditor of the Company. The Committee may authorize the
creation of trusts or other arrangements to meet obligations created under the
Plan to deliver Shares or payments hereunder consistent with the foregoing.
Section 19. Protection of Board and Committee.
---------------------------------
No member of the Board or the Committee shall have any liability for
any determination or other action made or taken in good faith with respect to
the Plan or any Award granted under the Plan.
14
Section 20. Government Regulations.
----------------------
Notwithstanding any provision of the Plan or any Award Agreement
executed pursuant to the Plan, the Company's obligations under the Plan and such
Award Agreement shall be subject to all applicable laws, rules, and regulations
and to such approvals as may be required by any governmental or regulatory
agencies, including without limitation any stock exchange on which the Company's
Shares may then be listed.
Section 21. Governing Law.
-------------
The Plan shall be construed under and governed by the laws of the State
of Florida.
Section 22. Genders and Numbers.
-------------------
When permitted by the context, each pronoun used in the Plan shall
include the same pronoun in other genders and numbers.
Section 23. Captions.
--------
The captions of the various sections of the Plan are not part of the
context of the Plan, but are only labels to assist in locating those sections,
and shall be ignored in construing the Plan.
Section 24. Effective Date.
--------------
The Plan shall be effective as of the execution date below. The Plan
shall be submitted to the shareholders of the Company for approval and
ratification as soon as practicable but in any event not later than 12 months
after the adoption of the Plan by the Board. If the Plan is not approved and
ratified by the shareholders of the Company within 12 months after the adoption
of the Plan by the Board, the Plan and all Awards granted under the Plan shall
became null and void and have no further force or effect.
Section 25. Term of Plan.
------- ------------
No Award shall be granted pursuant to the Plan on or after 10th
Anniversary of Effective Date, but Awards granted prior to such tenth
anniversary may extend beyond that date.
Section 26. Private Company Provisions.
--------------------------
(a) Restrictive Legend.
------------------
If one or more Stock Options or other rights under the Plan are
exercised pursuant to exemptions from the Federal and state securities laws: (a)
any Shares issued upon exercise of those Stock Options or rights may not be sold
or otherwise transferred, and the Company shall not be required to transfer any
such Shares, unless they have been registered under the Federal and state
securities laws or a valid exemption from such registration is available; and
(b) the Company may cause each certificate or other documentation evidencing the
15
ownership of any Shares issued upon exercise of those Stock Options or rights to
be imprinted with a legend in the following form:
The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
any state securities law and may not be sold or otherwise
transferred without such registration unless a valid exemption
from such registration is available and the corporation has
received an opinion of, or satisfactory to, its counsel that
such transfer would not violate any Federal or state
securities laws.
(b) Restriction on Transfers.
------------------------
No Shares awarded under the Plan or issued upon exercise of a Stock
Option or other right under the Plan may be sold or otherwise transferred while
the holder of those Shares is an employee of the Company or any subsidiary
corporation.
(c) Purchase Option.
----------------
If any Participant ceases to be an employee of the Company and its
subsidiary corporations, a member of the Board of Directors of the Company and
its subsidiaries or a consultant to the Company and its subsidiaries for any
reason (including, without limitation, his death, disability, retirement,
resignation, replacement discharge, or any other reason), then the Company shall
have the exclusive right and option to purchase from such Participant, the
executor or administrator of his estate, or his other successor in interest, as
the case may be (for purposes of this subsection, the "Selling Shareholder"),
any or all of the Shares which may have been purchased by or awarded to the
Participant under the Plan (including without limitation any Shares purchased
upon exercise of a Stock Option or other right after termination of the
Participant's employment, engagement or Board membership and any additional
Shares which the Participant may have received as a result of any stock splits,
stock dividends, or similar sources as a result of receiving Shares under the
Plan).
In order to exercise its purchase option under this subsection, the
Company shall give written notice to the Selling Shareholder, stating that the
Company thereby exercises its option under this subsection, at any time after
termination of the Participant's employment. The purchase price for the Shares
under this subsection shall be equal to: (i) the fair market value of the total
shareholders' equity of the Company, as determined by an appraisal which shall
be made by an independent firm of certified public accountants selected by the
Board and which shall be approved by the Board, if such appraisal was so made
and approved not earlier than 15 months prior to the termination of the
Participant's employment or, if not, a new appraisal made by such an independent
firm and approved by the Board, plus or minus any increases or decreases in the
book value of the total shareholders' equity of the Company from the effective
date of such appraisal to the last day of the calendar month of termination of
the Participant's employment (whether such termination was before or after the
effective date of such appraisal), divided by (ii) the total outstanding common
shares of the Company as of the last day of that calendar month, calculated on a
fully diluted basis under generally accepted accounting principles. In the event
of any disagreement between the Selling Shareholder and the Company concerning
calculation of the purchase price for the Shares under this subsection, the
calculation shall be made by any independent firm of certified public
accountants selected by the Board, whose determination shall be final and
16
conclusive on all interested parties. All costs of any such appraisal shall be
borne by the Company, and all costs of any calculation of the purchase price by
an independent firm of certified public accountants to resolve any such
disagreement shall be borne equally by the Selling Shareholder and the Company.
If the Company exercises its option under this subsection, the purchase
and sale of the Shares shall be closed within 20 business days after
determination of the purchase price, at a time and place reasonably specified by
the Company. At the closing, the Selling Shareholder shall assign and transfer
the Shares to the Company free and clear of all encumbrances or other claims,
and the Company shall execute and deliver to the Selling Shareholder the
Company's promissory note: (i) dated as of the closing date, (ii) payable to the
order of the Selling Shareholder, (iii) in a principal amount equal to the full
purchase price, (iv) payable on or before the first anniversary of the closing
date, (v) with interest payable at maturity calculated on the unpaid principal
amount from the closing date to the payment date at a rate per annum equal to
the then-current yield-to-maturity on United States Treasury securities of
comparable maturity, as determined in good faith by the Company, plus 100 basis
points. The Company may elect, in its discretion, to pay all or any part of the
purchase price by good and sufficient check at the closing, in which event the
Company's promissory note shall be eliminated or reduced by that amount, as the
case may be. The Company may prepay its promissory note at any time without
penalty.
Section 27. Savings Clause.
---------------
In case any one or more of the provisions of this Plan or any Award
shall be held invalid, illegal, or unenforceable in any respect, the validity,
legality, and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby, and the invalid, illegal, or unenforceable
provision shall be deemed null and void; however, to the extent permissible by
law, any provision which could be deemed null and void shall first be construed,
interpreted, or revised retroactively to permit this Plan or such Award, as
applicable, to be construed so as to foster the intent of this Plan. This Plan
and all Awards are intended to comply in all respects with applicable law and
regulation, including Section 422 of the Code, Rule l6b-3 under the 1934 Act
(with respect to persons subject to Section 16 of the 1934 Act ("Reporting
Persons")), and Section 162(m) of the Code (with respect to covered employees as
defined under Section 162(m) of the Code ("Covered Employees")). In case any one
or more of the provisions of this Plan or any Award shall be held to violate or
be unenforceable in any respect under Code Section 422, Rule 16b-3, or Code
Section 162(m), then, to the extent permissible by law, any provision which
could be deemed to violate or be unenforceable under Code Section 422, Rule
16b-3, or Code Section 162(m) shall first be construed, interpreted, or revised
retroactively to permit the Plan or such Award, as applicable, to be in
compliance with Code Section 422, Rule 16b-3, and Code Section 162(m).
Notwithstanding anything in this Plan to the contrary, the Committee, in its
sole discretion, may bifurcate the Plan so as to restrict, limit, or condition
the use of any provision of this Plan to Participants who are Reporting Persons
or Covered Employees without so restricting, limiting, or conditioning this Plan
with respect to other Participants.
17
Executed this ___ day of _________, 2005.
ONLINE VACATION CENTER HOLDINGS CORP.
By:
--------------------------------------
Name:
------------------------------------
Its:
-------------------------------------
18
APPENDIX E
----------
September 30, 2005
Board of Directors
Alec Bradley Cigar Corp.
3400 SW 26th Terrace
Dania, FL 33313
Gentlemen:
We have been advised that, pursuant to the Asset Purchase Agreement, dated as of
August 25, 2005 (the "Asset Purchase Agreement"), by and between Alec Bradley
Cigar Corp. (the "Company") and Alan Rubin or his assigns, Mr. Rubin will
exchange 2,700,000 shares of the Company's common stock (the "Rubin Shares") for
substantially all of the Company's assets and substantially all of its
liabilities (the "Rubin Transaction"). We have been further advised that, in
conjunction with the Rubin Transaction, and pursuant to the Share Exchange
Agreement, dated as of August 25, 2005 (the "Share Exchange Agreement"), by and
among the Company, Online Vacation Center Holdings, Inc. ("OVC"), and the
stockholders of OVC, the Company will acquire 100% of the issued and outstanding
capital stock of OVC in exchange for the issuance by the Company of 15,000,000
shares (the "OVC Transaction") to the OVC stockholders. The Rubin Transaction
and the OVC Transaction are hereinafter collectively, the "Transaction".
We have been retained to render an opinion as to whether, on the date of such
opinion, the Transaction is fair, from a financial point of view, to the
Company's nonaffiliated stockholders.
We have not been requested to opine as to, and the opinion does not in any
manner address, the relative merits of the Transaction as compared to any
alternative business strategy that might exist for the Company, the decision on
whether the Company should complete the Transaction, or other alternatives to
the Transaction that might exist for the Company. The amount of the
consideration in each of the Rubin Transaction and the OVC Transaction was
determined pursuant to negotiations between the Company and the relevant parties
and not pursuant to recommendations of Capitalink.
Board of Directors
Alec Bradley Cigar Corp.
September 30, 2005
Page 2
In arriving at our opinion, we took into account an assessment of general
economic, market and financial conditions as well as our experience in
connection with similar transactions and securities valuations generally and,
among other things:
o Reviewed the Asset Purchase Agreement and the Share Exchange Agreement.
o Reviewed publicly available financial information and other data with
respect to the Company, including the Annual Report on Form 10-KSB for
the year ended December 31, 2004, the amended Annual Report on 10-KSB/A
for the year ended December 31, 2004, the Quarterly Report on Form
10-QSB for the six months ended June 30, 2005, and the Special Report
on Form 8-K dated August 25, 2005.
o Reviewed non-public financial information and other data with respect
to the Company, including the internal financial statements for the
eight months ended August 31, 2005.
o Reviewed non-public financial information and other data with respect
to OVC, including the audited financial statements for the twelve
months ended December 31, 2003 and 2004, the unaudited financial
statements for the six months ended June 30, 2005, and the unaudited
internal balance sheet as of August 31, 2005.
o Reviewed and analyzed the Transaction's pro forma impact on the
Company's capitalization.
o Reviewed and analyzed the Transaction's pro forma impact on the
Company's securities outstanding and stockholder ownership.
o Considered the historical financial results and present financial
condition of the Company and OVC.
o Reviewed and compared the trading of, and the trading market for the
Company's common stock, with publicly-traded companies that were deemed
to have characteristics comparable to the Company, and a general market
index.
o Reviewed and analyzed certain financial characteristics of
publicly-traded companies that were deemed to have characteristics
comparable to each of the Company and OVC.
o Reviewed and analyzed certain financial characteristics of target
companies in transactions where such target company was deemed to have
characteristics comparable to those of the Company and OVC.
o Reviewed and discussed with representatives of the Company and OVC
certain financial and operating information furnished by them,
including financial analyses with respect to the business and
operations of the Company and OVC.
o Performed such other analyses and examinations as were deemed
appropriate.
Board of Directors
Alec Bradley Cigar Corp.
September 30, 2005
Page 3
In arriving at our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was used by us
without assuming any responsibility for any independent verification of any such
information and we have further relied upon the assurances of Company and OVC
management that they are not aware of any facts or circumstances that would make
any such information inaccurate or misleading. With respect to the financial
information utilized, we assumed that such information has been reasonably
prepared on a basis reflecting the best currently available estimates and
judgments, and that such information provides a reasonable basis upon which we
could make our analysis and form an opinion. We have not made a physical
inspection of the properties and facilities of the Company or OVC and have not
made or obtained any evaluations or appraisals of the Company or OVC assets or
liabilities (contingent or otherwise). We have not attempted to confirm whether
the Company or OVC have good title to their respective assets.
We assumed that the Transaction will be consummated in a manner that complies in
all respects with the applicable provisions of the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, and all other
applicable federal and state statues, rules and regulations. We assumed that
each of the Rubin Transaction, the OVC Transaction and the Transaction will be
consummated substantially in accordance with the terms set forth in the Asset
Purchase Agreement and Share Exchange Agreement, without any further amendments
thereto, and that any amendments, revisions or waivers thereto will not be
detrimental to the nonaffiliated stockholders of the Company.
Our analysis and opinion are necessarily based upon market, economic and other
conditions, as they exist on, and could be evaluated as of September 30, 2005.
Accordingly, although subsequent developments may affect our opinion, we do not
assume any obligation to update, review or reaffirm our opinion.
Our opinion is for the use and benefit of the Company's Board of Directors in
connection with its consideration of the Transaction and is not intended to be
and does not constitute a recommendation to any stockholder of the Company
whether such stockholder should take any action, if required, in connection with
the contemplated Transaction. Capitalink does not express any opinion as to the
future performance of the Company or OVC, or the price at which the Company's
common stock would trade at any time in the future.
Based upon and subject to the foregoing, it is our opinion that, as of the date
of this letter, the Transaction is fair, from a financial point of view, to the
Company's nonaffiliated stockholders.
In connection with our services, we have previously received a retainer and will
receive the balance of our fee upon the rendering of this opinion. Neither
Capitalink nor its principals beneficially own any interest in the Company or
OVC. Capitalink has not provided any other services to the Company or OVC and
Capitalink's fee for providing the fairness opinion is not contingent on the
completion of the Transaction. In addition, the Company has agreed to indemnify
us for certain liabilities that may arise out of the rendering this opinion.
Board of Directors
Alec Bradley Cigar Corp.
September 30, 2005
Page 4
Our opinion is for the use and benefit of the Board of Directors and is rendered
in connection with its consideration of the Transaction and may not be used by
the Company for any other purpose or reproduced, disseminated, quoted or
referred to by the Company at any time, in any manner or for any purpose,
without the prior written consent of Capitalink, except that this opinion may be
reproduced in full in, and references to the opinion and to Capitalink and its
relationship with the Company may be included in filings made by the Company
with the Securities and Exchange Commission, if required by Securities and
Exchange Commission rules, and in any proxy statement or similar disclosure
document disseminated to shareholders if required by the Securities and Exchange
Commission rules.
Very truly yours,
Capitalink, L.C.
APPENDIX F
----------
FLORIDA STATUTES
607.1301 Appraisal rights; definitions.--The following definitions apply to ss.
607.1302-607.1333:
(1) "Affiliate" means a person that directly or indirectly through one or more
intermediaries controls, is controlled by, or is under common control with
another person or is a senior executive thereof. For purposes of s.
607.1302(2)(d), a person is deemed to be an affiliate of its senior executives.
(2) "Beneficial shareholder" means a person who is the beneficial owner of
shares held in a voting trust or by a nominee on the beneficial owner's behalf.
(3) "Corporation" means the issuer of the shares held by a shareholder demanding
appraisal and, for matters covered in ss. 607.1322-607.1333, includes the
surviving entity in a merger.
(4) "Fair value" means the value of the corporation's shares determined:
(a) Immediately before the effectuation of the corporate action to which the
shareholder objects.
(b) Using customary and current valuation concepts and techniques generally
employed for similar businesses in the context of the transaction requiring
appraisal, excluding any appreciation or depreciation in anticipation of the
corporate action unless exclusion would be inequitable to the corporation and
its remaining shareholders.
(5) "Interest" means interest from the effective date of the corporate action
until the date of payment, at the rate of interest on judgments in this state on
the effective date of the corporate action.
(6) "Preferred shares" means a class or series of shares the holders of which
have preference over any other class or series with respect to distributions.
(7) "Record shareholder" means the person in whose name shares are registered in
the records of the corporation or the beneficial owner of shares to the extent
of the rights granted by a nominee certificate on file with the corporation.
(8) "Senior executive" means the chief executive officer, chief operating
officer, chief financial officer, or anyone in charge of a principal business
unit or function.
(9) "Shareholder" means both a record shareholder and a beneficial shareholder.
607.1302 Right of shareholders to appraisal.--
(1) A shareholder is entitled to appraisal rights, and to obtain payment of the
fair value of that shareholder's shares, in the event of any of the following
corporate actions:
(a) Consummation of a merger to which the corporation is a party if shareholder
approval is required for the merger by s. 607.1103 and the shareholder is
entitled to vote on the merger or if the corporation is a subsidiary and the
merger is governed by s. 607.1104;
(b) Consummation of a share exchange to which the corporation is a party as the
corporation whose shares will be acquired if the shareholder is entitled to vote
on the exchange, except that appraisal rights shall not be available to any
shareholder of the corporation with respect to any class or series of shares of
the corporation that is not exchanged;
(c) Consummation of a disposition of assets pursuant to s. 607.1202 if the
shareholder is entitled to vote on the disposition, including a sale in
dissolution but not including a sale pursuant to court order or a sale for cash
pursuant to a plan by which all or substantially all of the net proceeds of the
sale will be distributed to the shareholders within 1 year after the date of
sale;
(d) Any other amendment to the articles of incorporation, merger, share
exchange, or disposition of assets to the extent provided by the articles of
incorporation, bylaws, or a resolution of the board of directors, except that no
bylaw or board resolution providing for appraisal rights may be amended or
otherwise altered except by shareholder approval; or
(e) With regard to a class of shares prescribed in the articles of incorporation
prior to October 1, 2003, including any shares within that class subsequently
authorized by amendment, any amendment of the articles of incorporation if the
shareholder is entitled to vote on the amendment and if such amendment would
adversely affect such shareholder by:
1. Altering or abolishing any preemptive rights attached to any of his or her
shares;
2. Altering or abolishing the voting rights pertaining to any of his or her
shares, except as such rights may be affected by the voting rights of new shares
then being authorized of any existing or new class or series of shares;
3. Effecting an exchange, cancellation, or reclassification of any of his or her
shares, when such exchange, cancellation, or reclassification would alter or
abolish the shareholder's voting rights or alter his or her percentage of equity
in the corporation, or effecting a reduction or cancellation of accrued
dividends or other arrearages in respect to such shares;
4. Reducing the stated redemption price of any of the shareholder's redeemable
shares, altering or abolishing any provision relating to any sinking fund for
the redemption or purchase of any of his or her shares, or making any of his or
her shares subject to redemption when they are not otherwise redeemable;
5. Making noncumulative, in whole or in part, dividends of any of the
shareholder's preferred shares which had theretofore been cumulative;
6. Reducing the stated dividend preference of any of the shareholder's preferred
shares; or
7. Reducing any stated preferential amount payable on any of the shareholder's
preferred shares upon voluntary or involuntary liquidation.
(2) Notwithstanding subsection (1), the availability of appraisal rights under
paragraphs (1)(a), (b), (c), and (d) shall be limited in accordance with the
following provisions:
(a) Appraisal rights shall not be available for the holders of shares of any
class or series of shares which is:
1. Listed on the New York Stock Exchange or the American Stock Exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc.; or
2
2. Not so listed or designated, but has at least 2,000 shareholders and the
outstanding shares of such class or series have a market value of at least $10
million, exclusive of the value of such shares held by its subsidiaries, senior
executives, directors, and beneficial shareholders owning more than 10 percent
of such shares.
(b) The applicability of paragraph (a) shall be determined as of:
1. The record date fixed to determine the shareholders entitled to receive
notice of, and to vote at, the meeting of shareholders to act upon the corporate
action requiring appraisal rights; or
2. If there will be no meeting of shareholders, the close of business on the day
on which the board of directors adopts the resolution recommending such
corporate action.
(c) Paragraph (a) shall not be applicable and appraisal rights shall be
available pursuant to subsection (1) for the holders of any class or series of
shares who are required by the terms of the corporate action requiring appraisal
rights to accept for such shares anything other than cash or shares of any class
or any series of shares of any corporation, or any other proprietary interest of
any other entity, that satisfies the standards set forth in paragraph (a) at the
time the corporate action becomes effective.
(d) Paragraph (a) shall not be applicable and appraisal rights shall be
available pursuant to subsection (1) for the holders of any class or series of
shares if:
1. Any of the shares or assets of the corporation are being acquired or
converted, whether by merger, share exchange, or otherwise, pursuant to the
corporate action by a person, or by an affiliate of a person, who:
a. Is, or at any time in the 1-year period immediately preceding approval by the
board of directors of the corporate action requiring appraisal rights was, the
beneficial owner of 20 percent or more of the voting power of the corporation,
excluding any shares acquired pursuant to an offer for all shares having voting
power if such offer was made within 1 year prior to the corporate action
requiring appraisal rights for consideration of the same kind and of a value
equal to or less than that paid in connection with the corporate action; or
b. Directly or indirectly has, or at any time in the 1-year period immediately
preceding approval by the board of directors of the corporation of the corporate
action requiring appraisal rights had, the power, contractually or otherwise, to
cause the appointment or election of 25 percent or more of the directors to the
board of directors of the corporation; or
2. Any of the shares or assets of the corporation are being acquired or
converted, whether by merger, share exchange, or otherwise, pursuant to such
corporate action by a person, or by an affiliate of a person, who is, or at any
time in the 1-year period immediately preceding approval by the board of
directors of the corporate action requiring appraisal rights was, a senior
executive or director of the corporation or a senior executive of any affiliate
thereof, and that senior executive or director will receive, as a result of the
corporate action, a financial benefit not generally available to other
shareholders as such, other than:
a. Employment, consulting, retirement, or similar benefits established
separately and not as part of or in contemplation of the corporate action;
b. Employment, consulting, retirement, or similar benefits established in
contemplation of, or as part of, the corporate action that are not more
favorable than those existing before the corporate action or, if more favorable,
3
that have been approved on behalf of the corporation in the same manner as is
provided in s. 607.0832; or
c. In the case of a director of the corporation who will, in the corporate
action, become a director of the acquiring entity in the corporate action or one
of its affiliates, rights and benefits as a director that are provided on the
same basis as those afforded by the acquiring entity generally to other
directors of such entity or such affiliate.
(e) For the purposes of paragraph (d) only, the term "beneficial owner" means
any person who, directly or indirectly, through any contract, arrangement, or
understanding, other than a revocable proxy, has or shares the power to vote, or
to direct the voting of, shares, provided that a member of a national securities
exchange shall not be deemed to be a beneficial owner of securities held
directly or indirectly by it on behalf of another person solely because such
member is the recordholder of such securities if the member is precluded by the
rules of such exchange from voting without instruction on contested matters or
matters that may affect substantially the rights or privileges of the holders of
the securities to be voted. When two or more persons agree to act together for
the purpose of voting their shares of the corporation, each member of the group
formed thereby shall be deemed to have acquired beneficial ownership, as of the
date of such agreement, of all voting shares of the corporation beneficially
owned by any member of the group.
(3) Notwithstanding any other provision of this section, the articles of
incorporation as originally filed or any amendment thereto may limit or
eliminate appraisal rights for any class or series of preferred shares, but any
such limitation or elimination contained in an amendment to the articles of
incorporation that limits or eliminates appraisal rights for any of such shares
that are outstanding immediately prior to the effective date of such amendment
or that the corporation is or may be required to issue or sell thereafter
pursuant to any conversion, exchange, or other right existing immediately before
the effective date of such amendment shall not apply to any corporate action
that becomes effective within 1 year of that date if such action would otherwise
afford appraisal rights.
(4) A shareholder entitled to appraisal rights under this chapter may not
challenge a completed corporate action for which appraisal rights are available
unless such corporate action:
(a) Was not effectuated in accordance with the applicable provisions of this
section or the corporation's articles of incorporation, bylaws, or board of
directors' resolution authorizing the corporate action; or
(b) Was procured as a result of fraud or material misrepresentation.
607.1303 Assertion of rights by nominees and beneficial owners.--
(1) A record shareholder may assert appraisal rights as to fewer than all the
shares registered in the record shareholder's name but owned by a beneficial
shareholder only if the record shareholder objects with respect to all shares of
the class or series owned by the beneficial shareholder and notifies the
corporation in writing of the name and address of each beneficial shareholder on
whose behalf appraisal rights are being asserted. The rights of a record
shareholder who asserts appraisal rights for only part of the shares held of
record in the record shareholder's name under this subsection shall be
determined as if the shares as to which the record shareholder objects and the
record shareholder's other shares were registered in the names of different
record shareholders.
(2) A beneficial shareholder may assert appraisal rights as to shares of any
4
class or series held on behalf of the shareholder only if such shareholder:
(a) Submits to the corporation the record shareholder's written consent to the
assertion of such rights no later than the date referred to in s.
607.1322(2)(b)2.
(b) Does so with respect to all shares of the class or series that are
beneficially owned by the beneficial shareholder.
607.1320 Notice of appraisal rights.--
(1) If proposed corporate action described in s. 607.1302(1) is to be submitted
to a vote at a shareholders' meeting, the meeting notice must state that the
corporation has concluded that shareholders are, are not, or may be entitled to
assert appraisal rights under this chapter. If the corporation concludes that
appraisal rights are or may be available, a copy of ss. 607.1301-607.1333 must
accompany the meeting notice sent to those record shareholders entitled to
exercise appraisal rights.
(2) In a merger pursuant to s. 607.1104, the parent corporation must notify in
writing all record shareholders of the subsidiary who are entitled to assert
appraisal rights that the corporate action became effective. Such notice must be
sent within 10 days after the corporate action became effective and include the
materials described in s. 607.1322.
(3) If the proposed corporate action described in s. 607.1302(1) is to be
approved other than by a shareholders' meeting, the notice referred to in
subsection (1) must be sent to all shareholders at the time that consents are
first solicited pursuant to s. 607.0704, whether or not consents are solicited
from all shareholders, and include the materials described in s. 607.1322.
607.1321 Notice of intent to demand payment.--
(1) If proposed corporate action requiring appraisal rights under s. 607.1302 is
submitted to a vote at a shareholders' meeting, or is submitted to a shareholder
pursuant to a consent vote under s. 607.0704, a shareholder who wishes to assert
appraisal rights with respect to any class or series of shares:
(a) Must deliver to the corporation before the vote is taken, or within 20 days
after receiving the notice pursuant to s. 607.1320(3) if action is to be taken
without a shareholder meeting, written notice of the shareholder's intent to
demand payment if the proposed action is effectuated.
(b) Must not vote, or cause or permit to be voted, any shares of such class or
series in favor of the proposed action. (2) A shareholder who does not satisfy
the requirements of subsection (1) is not entitled to payment under this
chapter.
607.1322 Appraisal notice and form.--
(1) If proposed corporate action requiring appraisal rights under s. 607.1302(1)
becomes effective, the corporation must deliver a written appraisal notice and
form required by paragraph (2)(a) to all shareholders who satisfied the
requirements of s. 607.1321. In the case of a merger under s. 607.1104, the
parent must deliver a written appraisal notice and form to all record
shareholders who may be entitled to assert appraisal rights.
(2) The appraisal notice must be sent no earlier than the date the corporate
action became effective and no later than 10 days after such date and must:
(a) Supply a form that specifies the date that the corporate action became
effective and that provides for the shareholder to state:
5
1. The shareholder's name and address.
2. The number, classes, and series of shares as to which the shareholder
asserts appraisal rights.
3. That the shareholder did not vote for the transaction.
4. Whether the shareholder accepts the corporation's offer as stated in
subparagraph (b)4.
5. If the offer is not accepted, the shareholder's estimated fair value of the
shares and a demand for payment of the shareholder's estimated value plus
interest.
(b) State:
1. Where the form must be sent and where certificates for certificated shares
must be deposited and the date by which those certificates must be deposited,
which date may not be earlier than the date for receiving the required form
under subparagraph 2.
2. A date by which the corporation must receive the form, which date may not be
fewer than 40 nor more than 60 days after the date the subsection (1) appraisal
notice and form are sent, and state that the shareholder shall have waived the
right to demand appraisal with respect to the shares unless the form is received
by the corporation by such specified date.
3. The corporation's estimate of the fair value of the shares.
4. An offer to each shareholder who is entitled to appraisal rights to pay the
corporation's estimate of fair value set forth in subparagraph 3. 5. That, if
requested in writing, the corporation will provide to the shareholder so
requesting, within 10 days after the date specified in subparagraph 2., the
number of shareholders who return the forms by the specified date and the total
number of shares owned by them.
6. The date by which the notice to withdraw under s. 607.1323 must be received,
which date must be within 20 days after the date specified in subparagraph 2.
(c) Be accompanied by:
1. Financial statements of the corporation that issued the shares to be
appraised, consisting of a balance sheet as of the end of the fiscal year ending
not more than 15 months prior to the date of the corporation's appraisal notice,
an income statement for that year, a cash flow statement for that year, and the
latest available interim financial statements, if any.
2. A copy of ss. 607.1301-607.1333.
607.1323 Perfection of rights; right to withdraw.--
(1) A shareholder who wishes to exercise appraisal rights must execute and
return the form received pursuant to s. 607.1322(1) and, in the case of
certificated shares, deposit the shareholder's certificates in accordance with
the terms of the notice by the date referred to in the notice pursuant to s.
607.1322(2)(b)2. Once a shareholder deposits that shareholder's certificates or,
in the case of uncertificated shares, returns the executed forms, that
shareholder loses all rights as a shareholder, unless the shareholder withdraws
pursuant to subsection (2).
(2) A shareholder who has complied with subsection (1) may nevertheless decline
to exercise appraisal rights and withdraw from the appraisal process by so
6
notifying the corporation in writing by the date set forth in the appraisal
notice pursuant to s. 607.1322(2)(b)6. A shareholder who fails to so withdraw
from the appraisal process may not thereafter withdraw without the corporation's
written consent.
(3) A shareholder who does not execute and return the form and, in the case of
certificated shares, deposit that shareholder's share certificates if required,
each by the date set forth in the notice described in subsection (2), shall not
be entitled to payment under this chapter.
607.1324 Shareholder's acceptance of corporation's offer.--
(1) If the shareholder states on the form provided in s. 607.1322(1) that the
shareholder accepts the offer of the corporation to pay the corporation's
estimated fair value for the shares, the corporation shall make such payment to
the shareholder within 90 days after the corporation's receipt of the form from
the shareholder.
(2) Upon payment of the agreed value, the shareholder shall cease to have any
interest in the shares.
607.1326 Procedure if shareholder is dissatisfied with offer.--
(1) A shareholder who is dissatisfied with the corporation's offer as set forth
pursuant to s. 607.1322(2)(b)4. must notify the corporation on the form provided
pursuant to s. 607.1322(1) of that shareholder's estimate of the fair value of
the shares and demand payment of that estimate plus interest.
(2) A shareholder who fails to notify the corporation in writing of that
shareholder's demand to be paid the shareholder's stated estimate of the fair
value plus interest under subsection (1) within the timeframe set forth in s.
607.1322(2)(b)2. waives the right to demand payment under this section and shall
be entitled only to the payment offered by the corporation pursuant to s.
607.1322(2)(b)4.
607.1330 Court action.--
(1) If a shareholder makes demand for payment under s. 607.1326 which remains
unsettled, the corporation shall commence a proceeding within 60 days after
receiving the payment demand and petition the court to determine the fair value
of the shares and accrued interest. If the corporation does not commence the
proceeding within the 60-day period, any shareholder who has made a demand
pursuant to s. 607.1326 may commence the proceeding in the name of the
corporation.
(2) The proceeding shall be commenced in the appropriate court of the county in
which the corporation's principal office, or, if none, its registered office, in
this state is located. If the corporation is a foreign corporation without a
registered office in this state, the proceeding shall be commenced in the county
in this state in which the principal office or registered office of the domestic
corporation merged with the foreign corporation was located at the time of the
transaction.
(3) All shareholders, whether or not residents of this state, whose demands
remain unsettled shall be made parties to the proceeding as in an action against
their shares. The corporation shall serve a copy of the initial pleading in such
proceeding upon each shareholder party who is a resident of this state in the
manner provided by law for the service of a summons and complaint and upon each
nonresident shareholder party by registered or certified mail or by publication
as provided by law.
7
(4) The jurisdiction of the court in which the proceeding is commenced under
subsection (2) is plenary and exclusive. If it so elects, the court may appoint
one or more persons as appraisers to receive evidence and recommend a decision
on the question of fair value. The appraisers shall have the powers described in
the order appointing them or in any amendment to the order. The shareholders
demanding appraisal rights are entitled to the same discovery rights as parties
in other civil proceedings. There shall be no right to a jury trial.
(5) Each shareholder made a party to the proceeding is entitled to judgment for
the amount of the fair value of such shareholder's shares, plus interest, as
found by the court.
(6) The corporation shall pay each such shareholder the amount found to be due
within 10 days after final determination of the proceedings. Upon payment of the
judgment, the shareholder shall cease to have any interest in the shares.
607.1331 Court costs and counsel fees.--
(1) The court in an appraisal proceeding shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
shareholders demanding appraisal, in amounts the court finds equitable, to the
extent the court finds such shareholders acted arbitrarily, vexatiously, or not
in good faith with respect to the rights provided by this chapter.
(2) The court in an appraisal proceeding may also assess the fees and expenses
of counsel and experts for the respective parties, in amounts the court finds
equitable:
(a) Against the corporation and in favor of any or all shareholders demanding
appraisal if the court finds the corporation did not substantially comply with
ss. 607.1320 and 607.1322; or
(b) Against either the corporation or a shareholder demanding appraisal, in
favor of any other party, if the court finds that the party against whom the
fees and expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by this chapter.
(3) If the court in an appraisal proceeding finds that the services of counsel
for any shareholder were of substantial benefit to other shareholders similarly
situated, and that the fees for those services should not be assessed against
the corporation, the court may award to such counsel reasonable fees to be paid
out of the amounts awarded the shareholders who were benefited.
(4) To the extent the corporation fails to make a required payment pursuant to
s. 607.1324, the shareholder may sue directly for the amount owed and, to the
extent successful, shall be entitled to recover from the corporation all costs
and expenses of the suit, including counsel fees.
607.1332 Disposition of acquired shares.-- Shares acquired by a corporation
pursuant to payment of the agreed value thereof or pursuant to payment of the
judgment entered therefor, as provided in this chapter, may be held and disposed
of by such corporation as authorized but unissued shares of the corporation,
except that, in the case of a merger or share exchange, they may be held and
disposed of as the plan of merger or share exchange otherwise provides. The
shares of the surviving corporation into which the shares of such shareholders
demanding appraisal rights would have been converted had they assented to the
merger shall have the status of authorized but unissued shares of the surviving
corporation.
8
607.1333 Limitation on corporate payment.--
(1) No payment shall be made to a shareholder seeking appraisal rights if, at
the time of payment, the corporation is unable to meet the distribution
standards of s. 607.06401. In such event, the shareholder shall, at the
shareholder's option:
(a) Withdraw his or her notice of intent to assert appraisal rights, which shall
in such event be deemed withdrawn with the consent of the corporation; or
(b) Retain his or her status as a claimant against the corporation and, if it is
liquidated, be subordinated to the rights of creditors of the corporation, but
have rights superior to the shareholders not asserting appraisal rights, and if
it is not liquidated, retain his or her right to be paid for the shares, which
right the corporation shall be obliged to satisfy when the restrictions of this
section do not apply.
(2) The shareholder shall exercise the option under paragraph (1)(a) or
paragraph (b) by written notice filed with the corporation within 30 days after
the corporation has given written notice that the payment for shares cannot be
made because of the restrictions of this section. If the shareholder fails to
exercise the option, the shareholder shall be deemed to have withdrawn his or
her notice of intent to assert appraisal rights.
9
APPENDIX G
----------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No 1. to
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
-----------------
Commission file number 0-32137
Alec Bradley Cigar Corporation
------------------------------
(Name of Small Business Issuer in its Charter)
Florida 65-0701352
------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3400 S.W. 26th Terrace, #A-1, Dania, Florida 33312
--------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(954) 321-5991
--------------
(Issuer's Telephone Number)
Securities registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.0001 par value
------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $2,392,858
State the aggregate market value of the voting stock held by non-affiliates
(1,104,777) computed by reference to the price at which the stock was sold, or
the average bid and asked prices of such stock, as of a specified date within
the past 60 days ($.15 on March 25, 2005). $165,716.55.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: March 25, 2005: 4,499,777 Shares of
Common Stock.
Transitional Small Business Disclosure Format (Check One):
Yes [ ] No [X]
DOCUMENTS INCORPORATED BY REFERENCE
- None -
TABLE OF CONTENTS
PART I
------
Item 1 Description of Business............................................................ 3
Item 2 Description of Property............................................................ 7
Item 3 Legal Proceedings.................................................................. 7
Item 4 Submissions of Matters to a Vote of Security Holders............................... 7
PART II
-------
Item 5 Market for Common Equity, Related Stockholder Matters
And Small Business Issuer Purchases of Equity Securities......................... 8
Item 6 Management's Discussion and Analysis or Plan of Operation.......................... 8
Item 7 Financial Statements............................................................... 12
Item 8 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.............................................. 12
Item 8A Controls and Procedures............................................................ 13
Item 8B Other information.................................................................. 13
PART III
--------
Item 9 Directors and Executive Officers of Registrant
Compliance With Section 16(a) of the Exchange Act................................ 13
Item 10 Executive Compensation............................................................. 14
Item 11 Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters....................................... 15
Item 12 Certain Relationships and Related Transactions..................................... 15
Item 13 Exhibits, Lists and Reports on Form 8-K............................................ 16
Item 14 Principal Accounting Fees and Services............................................. 16
2
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Alec Bradley Cigars was organized under the laws of the State of
Florida on July 15, 1996. The Company is an importer and distributor of cigars.
The Company's executive offices are located at 3400 SW 26 Terrace # A-1, Dania,
Florida 33312 and its telephone number is (954) 321-5991.
DESCRIPTION OF OPERATIONS
The Company is a cigar importer and distributor. The Company initially
imported and distributed a line of cigars to golf pro shops and country clubs
nationwide under the name "Bogey's Stogies." The Company currently imports and
distributes several cigar lines.
The Company primarily sells to two types of customers:
1. Distributors, including wine and liquor wholesalers; and
2. Retailers, which includes tobacco shops, convenience stores, bars,
restaurants and country clubs.
BACKGROUND OF THE INDUSTRY
In 1993 the cigar industry began to experience a dramatic increase in
demand from consumers. This created a sizable increase in the number of both
cigar manufacturers and retail tobacconists and distributors. Through the end of
1997, many of the cigar manufacturers were able to sell their entire production.
However, by early 1998, the supply of cigars from the larger manufacturers
exceeded demand from the retail tobacconists and distributors thereby causing
the market to be flooded with cigars. This had an adverse effect on
manufacturers, retailers and distributors. However, Bureau of Alcohol, Tobacco
and Firearms Monthly Statistical Releases show that the industry remains strong.
Recent statistical releases indicate that cigars are being imported from foreign
manufacturers at increasing levels. These releases can be found at
www.atf.treas.gov.
COMPANY CIGARS
Cigars distributed by the Company include, but are not limited to, the
following:
Trilogy
-------
Trilogy is one of the most unique cigar in today's market features the
new triangular Trilogy Press. Each of the three blends (Cameroon, Corojo, and
Maduro) is specifically designed to enhance the flavor characteristics of the
wrapper. Trilogy is available in boxes of 20 cigars.
3
Trilogy Ovation
---------------
Like Trilogy, our Trilogy Ovation offers a choice of Cameroon, Corojo
and Maduro wrappers. Each blend is a bold version of our original Trilogy and is
available in 2 sizes, with a 54 ring in lengths of 5 1/4 and 6 1/2. Trilogy
Ovation is available in a lacquered humidor box of 20 cigars.
Special Blends
--------------
Special Blends is a hand made cigar from the Dominican Republic.
Special Blends are packaged in bundles of 25 and wood bulk packages of 100
cigars. This cigar retails from $1.50 to $2.50 per cigar.
Spirit of Cuba
--------------
Spirit of Cuba is hand made in Honduras. This sandwich filler cigar is
priced at a retail level of under $35.00 a box and comes in Connecticut Shade,
Habano, and Corojo wrappers. It is available in Churchill and Robusto sizes in
boxes of 25.
Occidental Reserve
------------------
Occidental Reserve is a premium cigar manufactured by one of the top
producers of premium cigars in the Dominican Republic. The Occidental Reserve is
produced with filler from the Dominican Republica and is finished with a US
Connecticut wrapper. We believe this cigar directly competes in quality with
cigars that are priced higher than the retail cost of the Occidental Reserve. It
is available in 5 of the most popular sizes, a corona, robusto, toro, churchill
and torpedo, and is sold in bundles of 25. The Occidental Reserve is also
available in a Broadleaf Maduro wrapper.
Havana Sun Grown
----------------
Havana Sun Grown is a ultra premium cigar hand rolled in the Dominican
Republic. This cigar is a medium to full bodied cigar with complex flavor
profiles. It is unique in that the wrapper is a US Connecticut - Havana hybrid,
which is only available on this cigar. The Havana Sun Grown is available in the
same sizes as our Occidental Reserve. Packaged in wooden boxes of 20 cigars,
this cigar retails under $5.00 making it a very affordable super premium cigar.
Pryme Limited Edition Gold Series
---------------------------------
Pryme Gold Series is a limited edition release and is limited not by
choice but by necessity. The supply of wrapper in the construction of Pryme is
the dark Ecuador corona leaf and is very limited. Only 10 percent of the annual
yield can be classified as wrapper and only the top 20 percent was graded and
chosen for Pryme's production. Only 1,500 numbered boxes per size will be
produced. This cigar is available in 4 sizes and packaged in a wooden box of 20
cigars.
PURCHASING AND DISTRIBUTION
The Company purchases and imports the majority of its cigars from cigar
manufacturing plants in Honduras, Nicaragua and the Dominican Republic.
4
Occidental Cigar Corporation, the Company's supplier from the Dominican
Republic, is a leading manufacturer of premium cigars. They produce the
Company's Occidental Reserve, Special Blends and Havana Sun Grown cigar lines.
Located in Santiago, Dominican Republic, Occidental Cigar Corporation occupies a
20,000 square foot building and produces 15,000,000 cigars annually. Occidental
Cigar Corporation stocks over 3 years of raw material that includes wrapper,
filler and binder. This stock of raw material assures consistent quality and
sufficient production supply for several years.
Tabacalera Endemano, located in Danli, Honduras, is the Company's
supplier of the Company's Spirit of Cuba cigars.
Latin Cigars de Honduras, located in Danli, Honduras is the Company's
supplier of the Trilogy, Ovation Maduro and Cameroon lines.
The Company does not have any agreements with cigar manufacturers.
Purchases are made on a per order basis. The Company pays all shipping costs.
CUSTOMERS
The Company has increased its customer base to approximately 1,000
customers. The Company's biggest customer represented approximately 6% of total
sales revenue. Presently, the Company does not have any customers who account
for more than 6% of the Company's sales. In 2004, the Company's 5 largest
customers accounted for an aggregate of approximately 15% of total sales.
OTHER PROJECTS
As the Company continues to expand and improve on its current wholesale
and retail programs, it maintains its focus on creating ways of supplying cigars
to the public. These include:
Mail Order Companies
--------------------
The Company's intent is to focus on dealing with catalog companies with
large sources of distribution. To date, the Company has 2 active mail order
customers. Mail order companies generally sell to the final consumers, which
will continue to help bring public awareness to the Company's product lines.
Payment received when selling to a catalog company has not been significantly
less than payments received from traditional customers.
Alec Bradley Direct
-------------------
The Company has created a direct sales approach, which includes
bi-monthly marketing via fax and daily in-house telemarketing. In order to
increase distribution and product exposure, the Company has approached wholesale
distributors and is hiring additional independent brokers to help support the
retailers and introduce the Company's products to new customers. However, by
marketing via broadcast fax and an in-house telemarketing staff the Company will
continue to create and nurture relationships directly with the customers.
5
Personalized and Customized Cigar Band Program
----------------------------------------------
Alec Bradley, in conjunction with an outside consultant, has developed
a computer system for creating high quality, metallic ink cigar label bands.
This technology allows the Company to produce small run (25 to 3,000) high
quality personalized and customized private labeled cigars for a corporation,
bar, restaurant or event. The Company receives additional revenues from this
technology by selling personalized and customized bands to corporations, bars,
restaurants and special events on a per order basis.
The Company is able to create house brands for retail tobacconists
utilizing the Occidental Reserve cigar and attaching customized private label
cigar rings. The Company, on a per order basis, can provide a customer with a
personally labeled cigar. Customers are under no contractual obligations, as
they purchase personalized cigars on an order per order basis. These retail
tobacconists who normally cannot order large enough quantities to entice a
manufacturer to make a personalized product, can benefit by being able to order
small quantities from the Company as needed from this program. Management
believes the Company will gain additional revenues by selling small quantities
of personalized and custom cigars at slightly higher profit margins. No
contracts are required for this program.
The Company has produced custom bands for the Gulfstream Race Track,
the Carquest Bowl, Tyson Foods, and many restaurants.
COMPETITION
The Company experiences competition with respect to its cigar
distribution. The cigar distribution industry is highly competitive. The Company
believes that as a distributor of premium cigars, it competes with a smaller
number of domestic and foreign companies that specialize in premium cigars, and
certain larger companies that maintain premium cigar lines, including Altadis
and Swedish Match. The Company competes effectively within this industry by
consistently purchasing high quality cigars and distributing them at an
affordable price to its customers. The Company believes that it can grow by
following this fundamental principle. The Company is continually seeking
manufacturers that can provide the highest quality cigars at the lowest possible
prices.
GOVERNMENT REGULATION
The Company as an importer of cigars is required to have an importer
permit from the Department of the Treasury, Bureau of Alcohol, Tobacco and
Firearms. The Company applied for and has been granted Permit Number FL-TI-127.
Management believes any future regulations including affixing warning labels on
products, the tobacco buyout assessment, regulations on tobacco advertising, and
limits on public smoking areas will be met with full compliance and will not
affect the Company's potential for continued growth. We believe the material
costs to comply with governmental regulation will be negligible. Furthermore,
management anticipates that there are no additional existing or probable
governmental regulation to effect its business. The Company complies with all
environmental laws. The costs of compliance with such laws are not material to
the Company.
6
RESEARCH AND DEVELOPMENT
Currently, the Company is not involved in any research and development
projects. Over the past two years, the Company has not spent any capital on
research and development. The Company does not plan on incurring any research
and development costs in the near future.
EMPLOYEES
The Company currently employs five individuals and has nine independent
sales representatives. Of its employees, two are engaged in sales and marketing;
two in executive and administrative roles; and the remaining employee is engaged
in shipping and receiving. None of the Company's employees are covered by any
labor union. The Company believes its relationships with its employees are
generally good. The Company does not have employment contracts or agreements
with any of its employees.
TRADEMARKS
The Company has trademarked the name Bogey's Stogies. The Company has
applied for other trademarks for the cigars it distributes including Occidental
Reserve, Trilogy, Spirit of Cuba, Special Blends, Double Broadleaf, Pryme, and
Havana Sun Grown, but these applications are pending.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company previously occupied office and warehouse facilities
pursuant to a month-to-month operating lease agreement. Rent expense for the
years ended December 31, 2004 and 2003 was approximately $30,000 and $16,200,
respectively. During 2004, the Company's monthly rent payments for the premises
increased from $1,400 to $1,600 per month. During the second fiscal quarter 2004
the Company entered into a new lease agreement for office and warehouse
facilities. Future minimum payments under the new lease agreement are currently
as follows:
Year Amount
---- ------
2005 $ 36,000
2006 $ 36,000
2007 $ 9,000
ITEM 3. LEGAL PROCEEDINGS.
As of the date of this report, the Company is not a party to any
pending legal proceeding and is not aware of any threatened legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
7
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
ISSUER PURCHASES OF EQUITY SECURITIES
MARKET FOR COMMON EQUITY
The Company's Common Stock currently trades on the OTC Bulletin Board
under the symbol ABDC. The stock is thinly traded and transactions in the stock
are sporadic and infrequent. On March 25, 2005, the Closing bid and asked price
of our Common Stock was $.15. The following table sets forth the high and low
bid quotations for the Common Stock for the periods indicated. These quotations,
as reported by Bloomberg, reflect prices between dealers, do not include retail
mark-ups, markdowns, commissions and may not necessarily represent actual
transactions.
Period High Low
------ ------ -----
1st quarter 2003 $0.03 $0.03
2nd quarter 2003 $0.04 $0.02
3rd quarter 2003 $0.08 $0.02
4th quarter 2003 $0.08 $0.04
1st quarter 2004 $0.18 $0.04
2nd quarter 2004 $0.20 $0.10
3rd quarter 2004 $0.20 $0.05
4th quarter 2004 $0.25 $0.10
As of the date of this report, there were approximately 50 holders of
record of the Company's Common Stock.
The Company has never paid a cash dividend on its Common Stock nor does
the Company anticipate paying cash dividends on its Common Stock in the near
future. It is the present policy of the Company not to pay cash dividends on the
Common Stock but to retain earnings, if any, to fund growth and expansion. Any
payment of cash dividends on the Common Stock in the future will be dependent
upon the Company's financial condition, results of operations, current and
anticipated cash requirements, plan for expansion, as well as other factors the
Board of Directors deems relevant.
RECENT SALES OF UNREGISTERED SECURITIES AND OTHER MATTERS
None.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
INTRODUCTION
The following discussion is based upon, and should be read in
conjunction with, the audited consolidated financial statements of the Company
as of and for the years ended December 31, 2004 and 2003, together with the
notes to the financial statements.
8
RESULTS OF OPERATIONS
Year ended December 31, 2004 as compared to year ended December 31, 2003
Revenues
Revenues for 2004 were $2,392,858, a decrease of $2,416 from $2,395,274
for 2003. The Company's sales of its Trilogy line of cigars decreased by
approximately $275,000 from 2003 to 2004 and the Company eliminated two lines
(Criollo 98 and gourmet flavored cigars), which accounted for an additional
$108,000 decrease in sales in 2004 as compared to 2003. To offset these losses
in sales, the Company introduced its Pryme line during the 4th quarter of 2004.
Sales were over $100,000 during the limited sales period. The Company's Spirit
of Cuba line introduced in late 2003 increased over $140,000 in sales in 2004 as
compared to 2003. While gross volume remained relatively flat, the Company had
an increase in sales of the number of units resulting from the sale of lower
cost cigars. The Company's gross profit was $941,883, an increase of $25,406, or
2.8%, from $916,477. The increase in gross profit is attributable to the change
in the product sales mix.
As a result of increasing the number of sales representatives the
Company has increased its number of customers to over 1,000. This caused a
reduction in sales concentration from 2003 when the largest customer accounted
for approximately 25% of sale as compared to 2004 when the three largest
customers account for less than 18% as a group. As such, the Company does not
currently rely on any of its customers for a material amount of its revenues.
Selling Expenses
Selling expenses for 2004 were $402,595, an increase of $43,343, or
12.1%, from $359,252 in 2003. Selling expenses include all compensation and
related benefits for the sales personnel and advertising and promotional costs.
The increase in selling expenses was primarily attributable to the increase in
advertising costs of approximately $38,000 in 2004 as compared to 2003. Selling
expenses represented 16.9% of revenues in 2004, compared to 15.0% in 2003.
General and administrative expenses
General and administrative expenses for 2004 were $441,316, an increase
of $17,404, or 4.1%, from $423,912 in 2003. General and administrative expenses
primarily include salaries, supplies, and general operating expenses. The
increase in general and administrative expenses is attributable to the increases
in rent and occupancy costs of $21,000 and local travel of $11,000 partially
offset by reductions in payroll and related taxes $21,500. General and
administrative expenses represented 18.4% of revenues in 2004, compared to 17.7%
in 2003.
Liquidity and Capital Resources
During 2004, cash utilized by operations was approximately $92,600 and
primarily resulted from decreases in accounts payable of $286,405, taxes payable
of $20,055 and an increase supplies inventories of $32,300. This was offset by
income from operations plus the effect of non-cash items (depreciation expense).
The Company's cash balance as of December 31, 2004 increased by approximately
$5,300 from December 31, 2003 to $113,617.
9
The Company's working capital was approximately $282,100 at December
31, 2004, compared to approximately $227,000 at December 31, 2003. The increase
in working capital was primarily attributable to Company profits of
approximately $73,700 plus the effect of net of non-cash items (depreciation
expense) of approximately $4,100. This increase was partially offset by
purchases of other non-current assets (trademarks, equipment and security
deposits).
The Company has negotiated with major suppliers extended credit terms
for new products being developed through these suppliers. The Company has
established a $100,000 line of credit with its bank, which renews in March 2005.
Additionally, the Company has received a term loan from its officer and director
in the amount of $150,474. This loan is repayable in monthly installments of
$10,000 plus interest payable at 5% per month and matures in December 2005.
In late 2004, the Company launched its "Pryme Limited Edition Gold
Series" line of cigar targeted at the upper mid-range customer, which has been
well received by the cigar smoking community. During mid-year 2005, the Company
plans to launch an "Alec Bradley Medalist Label" targeted at the mid-range
retail customer. The Company is continuing its development of new product blends
to expand its sales.
Management believes that the cash generated from the Company's
operations and the existing credit terms will be adequate to support its
short-term cash requirements for capital expenditures and maintenance of working
capital.
ACCOUNTING POLICIES
Basis of Accounting
The financial statements are prepared using the accrual basis of
accounting where revenues are recognized upon shipment of merchandise to the
customer and expenses are recognized in the period in which they are incurred.
This basis of accounting conforms to accounting principles generally accepted in
the United States of America.
Income Taxes
The Company uses the asset and liability method of accounting for
income taxes as required by Statement of Financial Accounting Standards ("SFAS")
No. 109, Accounting for Income Taxes. SFAS No. 109 requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the carrying amounts and the tax basis of certain
assets and liabilities. Deferred income taxes are measured by the current
enacted tax rates. Deferred tax expense (benefit) is the result of changes in
the deferred tax asset and liability. Valuation allowances are used to reduce
deferred tax assets to the amount considered likely to be realized.
Inventory
Inventory consists primarily of cigars, humidors, displays, boxes and
labels and is stated at the lower of cost (first-in, first-out) or market.
10
Furniture and Equipment
Furniture and equipment are recorded at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets
ranging from five to seven years.
Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from those
estimates.
Comprehensive Income or Loss
The Company has no components of other comprehensive income or loss.
Accordingly, net income or loss equals comprehensive income or loss for all
periods presented.
CRITICAL ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has recently issued
several new accounting pronouncements which may apply to the Company.
In April 2002, the FASB issued Statement No. 145 Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical
Corrections. This statement rescinds FASB Statement No. 4, Reporting Gains and
Losses from Extinguishment of Debt, and FASB Statement No. 64, Extinguishments
of Debt Made to Satisfy Sinking-Fund Requirements. Any gain or loss on the
extinguishment of debt that was classified as an extraordinary item in prior
periods has been reclassified into continuing operations.
In June 2002, the FASB issued Statement No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This statement requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. Prior to this statement, a liability was
recognized when the entity committed to an exit plan. Management believes that
this statement will not have a material impact on the Company's financial
statements; however, the statement will result in a change in accounting policy
associated with the recognition of liabilities in connection with future
restructuring charges.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees Including Indirect
Guarantees of Indebtedness of Others. This interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. This interpretation does not prescribe a specific
approach for subsequently measuring the guarantor's recognized liability over
the term of the related guarantee. This interpretation also incorporates,
without change, the guidance in FASB Interpretation No. 34, Disclosure of
Indirect Guarantees of Indebtedness of Others, which is being superseded.
In December 2002, the FASB issued Statement No. 148 Accounting for
Stock-Based Compensation - Transition and Disclosure. This statement amends FASB
Statement No. 123, Accounting for Stock-Based Compensation, to provide
11
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this
statement amends the disclosure requirements of FASB Statement No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results.
In January 2003, the FASB issued Interpretation No. 46 Consolidation of
Variable Interest Entities. The interpretation defines a variable interest
entity as corporation, partnership, trust or any other legal structure used for
business purposes that either (a) does not have equity investors with voting
rights nor (b) has equity investors that do not provide sufficient financial
resources for the equity to support its activities. A variable interest entity
often holds financial assets, including loans or receivables, real estate or
other property. A variable interest entity may be essentially passive or it may
engage in research and development or other activities on behalf of another
company. This interpretation requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns or both. The Company would have to
consolidate any of its variable interest entities that meet the above criteria
as of July 1, 2003. The interpretation also requires disclosures about variable
interest entities that the company is not required to consolidate but in which
it has a significant variable interest. Management is in the process of
determining if its interests in unconsolidated entities qualify as variable
interest entities and, if so, whether the assets, liabilities, non-controlling
interest, and results of activities are required to be included in the Company's
consolidated financial statements.
In May 2003, the FASB issued Statement No. 150 Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity. This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. The Statement requires that an issuer classify a financial instrument
that is within its scope as a liability (or an asset in some circumstances).
Many of those instruments were previously classified as equity. The Company is
currently classifying financial instruments within the scope of this Statement
in accordance with this Statement. This Statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. Management does not believe that this Statement will have a material
impact on the Company's financial statements.
ITEM 7. FINANCIAL STATEMENTS.
The information required by Item 310 (a) of Regulation S-B is included
herein elsewhere in this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
12
ITEM 8A. CONTROLS AND PROCEDURES.
Evaluation of disclosure controls and procedures
As of the end of the period covered by this report, the Company carried
out an evaluation of the effectiveness of the design and operation of its
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. This
evaluation was done under the supervision and with the participation of the
Company's Principal Executive Officer and Principal Financial Officer. Based
upon that evaluation, the Principal Executive Officer and Principal Financial
Officer concluded that the Company's disclosure controls and procedures are
effective in gathering, analyzing and disclosing information needed to satisfy
the Company's disclosure obligations under the Exchange Act.
Changes in internal controls
There were no significant changes in the Company's internal controls or
in other factors that could significantly affect those controls since the most
recent evaluation of such controls.
ITEM 8B. OTHER INFORMATION
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
The Directors and Executive Officers of the Company are as follows:
Name Age Positions Held
---- --- --------------
Alan V. Rubin 43 Director, Chief Executive Officer,
President and Principal Financial Officer
Alan Rubin has served as a director and officer of the Company since
its inception. Alan Rubin served as vice president of All Point Screw Bolt &
Specialty Co., a distributor and direct importer of fasteners and building
products from 1984 to 1996. Mr. Rubin attended the University of Florida.
The Company's directors are elected at the annual meeting of
stockholders and hold office for one year and until their successors are elected
and qualified. The Company's officers are appointed by the Board of Directors
and serve at the pleasure of the Board. The Directors do not currently receive
fees for their services as directors.
Code of Ethics
During the year ended December 31, 2003, the Company adopted a Code of
Ethics. The code applies to the Company's officers and directors. The code
provides written standards that are designed to deter wrongdoing and promote:
(1) honest and ethical conduct; (2) full, fair, accurate, timely and
understandable disclosure; (3) compliance with applicable laws and regulations;
13
(4) prompt reporting of internal violations of the code; and (5) accountability
for the adherence to the code.
Committees
To date, the Company has not established a compensation or audit
committee. The board of directors, solely consisting of Alan Rubin, reviews the
professional services provided by the Company's independent auditors, the
independence of the Company's auditors from its management, the Company's annual
financial statements and its system of internal accounting controls. Alan Rubin
does not qualify as a "financial expert" as defined under Item 401 of Regulation
S-B.
Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of its outstanding common stock to file with the SEC initial reports of
ownership and reports of changes in ownership of common stock. These persons are
required by SEC regulation to furnish the Company with copies of these reports
they file.
To the Company's knowledge, based on a review of the copies of reports
furnished to it, Section 16(a) filing requirements applicable to the Company's
officers, directors and greater than ten percent beneficial owners were
complied with on a timely basis for the period which this report relates.
ITEM 10. EXECUTIVE COMPENSATION
Executive Compensation
Commencing January 2001, Mr. Rubin has been paid a weekly salary of
$2,000 as economic conditions permit the Company to do so. When the payment of
his salary is not feasible, no accrual will be made on the Company's financial
records, rather the expense will be accrued as a capital contribution.
The following table sets forth compensation awarded to, earned by or
paid to our sole officer and director for the past 3 years. We have not granted
any stock options, restricted stock awards or stock appreciation rights or made
any long term incentive plan payments.
Summary Compensation Table
--------------------------
Other Annual
Name Year Salary($) Bonus($) Compensation
---- ---- --------- -------- ------------
Alan Rubin 2004 $104,000 $ 2,000 $15,912(3)
2003 $104,000 $10,000 $12,300(1)
2002 $104,000 $10,000 $23,550(2)
(1) Mr. Rubin received approximately $525 per month for automobile lease
expenses and approximately $500 per month for automobile expense
reimbursement. In addition, the Company has paid Mr. Rubin's health
insurance.
(2) Includes 250,000 shares of common stock issued in June 2002 valued at
$11,250.
(3) Mr. Rubin received approximately $826 per month for automobile lease
expenses and approximately $500 per month for automobile expense
reimbursement. In addition, the Company has paid Mr. Rubin's health
insurance.
14
Stock Options and SARs
Since inception, the Company has issued no stock options nor SARs.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of the date of this report, there were 4,499,777 shares of the
Company's Common Stock issued and outstanding. The following table sets forth
information with respect to the beneficial ownership of each class of voting
securities of the Company by: (1) each person known by the Company to be the
owner of more than 5% of the outstanding shares of any class of voting
securities; (2) each officer and director; and (3) all officers and directors as
a group.
Beneficial Ownership
--------------------
Name and Address Shares % of Shares
---------------- ------ -----------
Alan V. Rubin
3400 S.W. 26th Terrace, #A-1
Dania, FL 33312 2,895,000 64.3%
Bruce A. Ginsberg
2523 Monterey Court
Weston, FL 33327 500,000 11.1%
All Executive Officers
and Directors as a Group (1 person) 2,895,000 64.3%
Securities Authorized for Issuance Under Compensation Plans
The Company has not authorized any equity compensation plan, nor has
the Company issued any securities pursuant to an equity plan.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 13, 2004, the Company entered into an unsecured financing
agreement with its sole officer. Under the agreement, the Company borrowed
$150,474 and will repay the loan over a period of not more than 15 months
beginning September 2004, at a rate of at least $10,000 per month plus interest
payable at 5% per annum. As of December 31, 2004, the remaining principal
balance on the loan was $120,474. Interest expense paid on this loan was $2,232
for 2004. The officer and the Company agreed to defer one month's payment until
December 31, 2004 with the final payment due by December 31, 2005.
15
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit
Number Description
------ -----------
3.0 Articles of Incorporation(1)
3.1 Amendment to Articles of Incorporation(1)
3.2 Bylaws(1)
14.0 Code of Ethics(3)
16.2 Letter from Former Independent Auditor(2)
21 Subsidiaries(1)
31.1 Rule 13a-14(a)/15d-4(a) Certification of Principal Executive
Officer
31.2 Rule 13a-14(a)/15d-4(a) Certification of Principal Financial
Officer
32.1 Section 1350 Certification of Principal Executive Officer
32.2 Section 1350 Certification of Principal Financial Officer
(1) Previously filed on Form 10-SB Registration Statement dated December 19,
2000.
(2) Previously filed on Form 8-K Current Report dated March 27, 2003.
(3) Previously filed on the Annual Report on Form 10-KSB for fiscal year
ended December 31, 2004
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fees to Auditors.
Year ended December 31, 2004
Audit Fees: The aggregate fees, including expenses, billed by the
Company's principal accountant in connection with the audit of our consolidated
financial statements for the most recent fiscal year and for the review of our
financial information included in our Annual Report on Form 10-KSB; and our
quarterly reports on Form 10-QSB during the fiscal year ending December 31, 2004
was $15,630.
Audit Related Fees: The aggregate fees, including expenses, billed by
the Company's principal accountant for services reasonably related to the audit
for the year ended December 31, 2004 were $-0-.
Tax Fees: The aggregate fees, including expenses, billed by the
Company's principal accountant for tax services were $-0-.
All Other Fees: The aggregate fees, including expenses, billed for all
other services rendered to the Company by its principal accountant during year
2004 was $-0-.
16
The Board of Directors has considered whether the provisions of the
services covered above under the captions "Financial Information Systems Design
and Implementation Fees" and "All Other Fees" is compatible with maintaining the
auditor's independence.
Year ended December 31, 2003
Audit Fees: The aggregate fees, including expenses, billed by the
Company's principal accountant in connection with the audit of our consolidated
financial statements for the most recent fiscal year and for the review of our
financial information included in our Annual Report on Form 10-KSB; and our
quarterly reports on Form 10-QSB during the fiscal year ending December 31, 2003
was $11,102.00.
Audit Related Fees: The aggregate fees, including expenses, billed by
the Company's principal accountant for services reasonably related to the audit
for the year ended December 31, 2003 were $-0-.
Tax Fees: The aggregate fees, including expenses, billed by the
Company's principal accountant for tax services were $-0-.
All Other Fees: The aggregate fees, including expenses, billed for all
other services rendered to the Company by its principal accountant during year
2003 was $-0-.
17
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ALEC BRADLEY CIGAR CORPORATION
Date: March 29, 2005 By: /s/ Alan Rubin
----------------------------------------
Alan Rubin, Principal Executive
Officer and Principal Financial Officer
18
ALEC BRADLEY CIGAR CORPORATION
FINANCIAL STATEMENTS
CONTENTS
--------
Page
------------
Report of Independent Registered Public Accounting Firm F-2
Balance Sheet F-3
Statements of Operations F-4
Statements of Changes in Shareholders' Equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7-12
F-1
Report of Independent Registered Public Accounting Firm
To the board of directors and shareholders of
Alec Bradley Cigar Corporation
Dania, Florida
We have audited the accompanying balance sheet of Alec Bradley Cigar Corporation
as of December 31, 2004 and the related statements of operations, shareholders'
equity, and cash flows for the years ended December 31, 2004 and 2003. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards of Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Alec Bradley Cigar Corporation
as of December 31, 2004, and the results of its operations and its cash flows
for the years ended December 31, 2004 and 2003 in conformity with accounting
principles generally accepted in the United States.
JEWETT, SCHWARTZ & ASSOCIATES
Hollywood, Florida
March 18, 2005
F-2
ALEC BRADLEY CIGAR CORPORATION
BALANCE SHEET
As of December 31, 2004
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 113,617
Accounts receivable, net of allowance for doubtful accounts of $4,155 134,037
Inventory 170,590
Prepaid expenses and other current assets 101,328
------------------
TOTAL CURRENT ASSETS 519,572
------------------
FURNITURE AND EQUIPMENT, NET 14,888
INTANGIBLE ASSETS 7,412
------------------
TOTAL ASSETS $ 541,872
==================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 105,475
Note payable - related party 120,474
Income taxes payable 11,495
------------------
TOTAL CURRENT LIABILITIES 237,444
------------------
SHAREHOLDERS' EQUITY:
Common stock, $0.0001 par value, 30,000,000 shares
authorized, 4,499,777 shares issued and outstanding 450
Additional paid-in capital 73,510
Retained earnings 230,468
------------------
TOTAL SHAREHOLDERS' EQUITY 304,428
------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 541,872
==================
The accompanying notes are an integral part of these financial statements.
F-3
ALEC BRADLEY CIGAR CORPORATION
STATEMENTS OF INCOME
For the Years Ended December 31,
2004 2003
---------------- -----------------
NET SALES $ 2,392,858 $ 2,395,274
Cost of goods sold 1,450,975 1,478,797
---------------- -----------------
GROSS PROFIT 941,883 916,477
---------------- -----------------
Operating expenses
Selling expenses 402,595 359,252
General and administrative expenses 441,316 423,912
---------------- -----------------
Total operating expenses 843,911 783,164
---------------- -----------------
INCOME BEFORE PROVISION FOR INCOME TAXES 97,972 133,313
Provision for income taxes 24,286 38,712
---------------- -----------------
NET INCOME $ 73,686 $ 94,601
================ =================
Weighted average common shares outstanding - basic and diluted 4,499,777 4,639,800
================ =================
Earnings per share - basic and diluted $ 0.02 $ 0.02
================ =================
The accompanying notes are an integral part of these financial statements.
F-4
ALEC BRADLEY CIGAR CORPORATION
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 2004 and 2003
Retained
Common Stock Additional Earnings
---------------------------------- Paid-in (Accumulated
Shares Amount Capital Deficit) Total
----------------- ------------ --------------- ----------------- ----------------
BALANCE AT DECEMBER 31, 2002 4,899,777 $ 490 $ 479,055 $ (343,404) $ 136,141
Cancellation of common stock (400,000) (40) 40 - -
Adjustment for termination of
Subchapter S election (Note 5) - - (405,585) 405,585 -
Net Income - - - 94,601 94,601
----------------- ------------ --------------- ----------------- ----------------
BALANCE AT DECEMBER 31, 2003 4,499,777 $ 450 $ 73,510 $ 156,782 $ 230,742
Net Income - - - 73,686 73,686
----------------- ------------ --------------- ----------------- ----------------
BALANCE AT DECEMBER 31, 2004 4,499,777 $ 450 $ 73,510 $ 230,468 $ 304,428
================= ============ =============== ================= ================
The accompanying notes are an integral part of these financial statements.
F-5
ALEC BRADLEY CIGAR CORPORATION
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
2004 2003
---------------- -----------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 73,686 $ 94,601
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,080 4,467
Changes in current assets and liabilities:
Accounts receivable 10,909 (41,322)
Inventory 157,478 (19,618)
Prepaid expenses (32,323) (48,793)
Accounts payable (286,405) 41,512
Increase (decrease) in income taxes payable (20,055) 31,502
---------------- -----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES (92,630) 62,349
---------------- -----------------
CASH FLOW FROM INVESTING ACTIVITIES:
Payment of security deposits (1,015) -
Purchase of trademarks (5,600) -
Purchase of furniture and equipment (15,973) -
---------------- -----------------
NET CASH USED IN INVESTING ACTIVITIES (22,588) -
---------------- -----------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from line of credit 100,000 -
Repayment on line of credit (100,000) -
Advances from shareholder 150,474 -
Repayment of note from shareholder (30,000) -
---------------- -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 120,474 -
---------------- -----------------
Net Increase in Cash and Cash Equivalents 5,256 62,349
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 108,361 46,012
---------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 113,617 $ 108,361
================ =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 5,258 $ 2,740
================ =================
Cash paid for income taxes $ 24,286 $ 36,493
================ =================
The accompanying notes are an integral part of these financial statements.
F-6
ALEC BRADLEY CIGAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2004 and 2003
NOTE 1 - SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization - Alec Bradley Cigar Corp. (the "Company"), a Florida
corporation, was incorporated in July 1996. The Company imports and
distributes cigars throughout the Unites States and Canada, with
corporate offices located in Dania, Florida.
Basis of Accounting - The financial statements are prepared using the
accrual basis of accounting where revenues are recognized upon shipment
of merchandise to customers and expenses are recognized in the period
in which they are incurred. This basis of accounting conforms to
accounting principles generally accepted in the United States of
America.
Cash and Cash Equivalents - The Company considers all highly liquid
debt securities purchased with original or remaining maturities of
three months or less to be cash equivalents. The carrying value of cash
equivalents approximates fair value.
Inventories - Inventories consists primarily of cigars, humidors,
displays, boxes and labels and is stated at the lower of cost or market
value using the first in, first out (FIFO) method of accounting.
Furniture and Equipment, net - Furniture and equipment are recorded at
cost, net of accumulated depreciation. Depreciation expense is computed
using the straight-line method of accounting over the estimated useful
lives of the assets ranging from five to seven years.
Impairment of Long Lived Assets and Long Lived Assets to be Disposed Of
- In August 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets" which
supersedes both SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and the
accounting and reporting provisions of Accounting Practice Bulletin
("APB") Opinion No. 30, "Reporting the Results of Operations --
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," for the disposal of a segment of a business (as
previously defined in that opinion).
This statement establishes the accounting model for long-lived assets
to be disposed of by sale and applies to all long-lived assets,
including discontinued operations. This statement requires those
long-lived assets be measured at the lower of carrying amount or fair
value less cost to sell, whether reported in continuing operations or
discontinued operations. Therefore, discontinued operations will no
longer be measured at net realizable value or include amounts for
operating losses that have not yet occurred. The Company adopted SFAS
No. 144 in the fiscal year ending October 31, 2002.
SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for
recognizing and measuring impairment losses on long-lived assets held
for use and long-lived assets to be disposed of by sale, while also
resolving significant implementation issues associated with SFAS No.
121.
F-7
ALEC BRADLEY CIGAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2004 and 2003
Intangible Assets, net - The Company accounts for intangible assets in
accordance with SFAS 142. Generally, intangible assets with indefinite
lives, and goodwill, are no longer amortized; they are carried at lower
of cost or market and subject to annual impairment evaluation, or
interim impairment evaluation if an interim triggering event occurs,
using a new fair market value method. Intangible assets with finite
lives are amortized over those lives, with no stipulated maximum, and
an impairment test is performed only when a triggering event occurs.
Such assets are amortized on a straight-line basis over the estimated
useful life of the asset. Intangible assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. If the fair value is less than the
carrying amount of the asset, an impairment loss is then recognized.
Intangible assets consists primarily of trademarks, whereby the Company
incurred registration and legal fees of approximately $15,000 to
license the trademark.
Revenue Recognition - Sales and the related cost of sales are
recognized upon shipment of products in accordance with the US
Securities and Exchange Commission Staff Accounting Bulletin ("SAB")
No. 104. The Company generally accepts returns of cigars that are stale
or damaged in transit. Sales revenue is recorded net of anticipated
returns based on historical experience. Sales returns are not material
to the financial statements.
Advertising Costs - Advertising costs are charged to expense during the
period in which they are incurred. Advertising expenses for the years
ended December 31, 2004 and 2003 approximated $61,000 and $23,300,
respectively.
Income Taxes - The Company uses the asset and liability method of
accounting for income taxes as required by Statement of Financial
Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes.
SFAS No. 109 requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary
differences between the carrying amounts and the tax basis of certain
assets and liabilities. Deferred income taxes are measured by the
current enacted tax rates. Deferred tax expense (benefit) is the result
of changes in the deferred tax asset and liability. Valuation
allowances are used to reduce deferred tax assets to the amount
considered likely to be realized.
Credit Risk - Financial instruments, which potentially subject the
Company to concentration of credit risk, consist principally of cash
and trade accounts receivable. The Company places its cash with high
credit financial institutions. However, the Company occasionally
maintains cash balances in excess of the F.D.I.C. insurance limits,
thereby failing to limit the amount of credit exposure to any one
financial institution. Concentrations of credit risk with respect to
trade accounts receivable are reduced due to the Company's large number
of customers. The Company conducts ongoing credit evaluations of its
customers and generally does not require collateral or other security
from these customers.
F-8
ALEC BRADLEY CIGAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2004 and 2003
The Company purchases and imports the majority of its cigars from cigar
manufacturing plants in Honduras and the Dominican Republic. The
Company does not have any agreements with cigar manufacturers.
Purchases are made on a per order basis. Although the Company believes
there are alternative sources for its products, a change in suppliers
could cause delays in the Company's operations, which could adversely
affect its operating results.
Stock Issued For Services - The value of stock issued for services is
based on management's estimate of the fair value of the Company's stock
at the date of issue or the fair value of the services received,
whichever is more reliably measurable.
Earnings per Share - Basic and diluted earnings per common share are
based on the weighted average number of shares outstanding of 4,499,777
and 4,693,800 for the years ended December 31, 2004 and 2003,
respectively. There are no common stock equivalents or other dilutive
items in the aforementioned periods presented.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and disclosure of contingent assets
and liabilities, at the date of these financial statements, and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications - Certain amounts in the prior years' financial
statements have been reclassified to conform to the current year's
presentation.
Recent Authoritative Pronouncements - The Financial Accounting
Standards Board has recently issued several new accounting
pronouncements which may apply to the Company.
In May 2003, the FASB issued Statement No. 149; "Amendment of Statement
133 on Derivative Instruments and Hedging Activities". This Statement
establishes standards for certain changes in the accounting treatment
of derivative contracts. SFAS 149 is effective for contracts entered
into or modified after June 30, 2003, except for certain provisions
that relate to Statement No. 133 implementation issues that have been
effective for fiscal quarters that began prior to June 15, 2003, which
should continue to be applied in accordance with their respective
effective dates. The guidance should be applied prospectively. The
adoption of Statement No. 149 is not expected to have a material impact
on the Company's financial position, results of operations, or
liquidity.
In May 2003, the FASB issued Statement No. 150 "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity". This Statement establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. The Statement requires
that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those
instruments were previously classified as equity. The Company is
currently classifying financial instruments within the scope of this
F-9
ALEC BRADLEY CIGAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2004 and 2003
Statement in accordance with this Statement. This Statement is
effective for financial instruments entered into or modified after May
31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. Management does not
believe that this Statement will have a material impact on the
Company's financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities". This interpretation
represents an interpretation of Accounting Research Bulletin No. 51.
The accounting research bulletin requires that a Company's financial
statements include subsidiaries in which the Company has a controlling
financial interest. Financial statement interpretation No. 46 gives
guidance on identifying variable interest entities and on assessing
whether a Company's investment in a variable interest entity requires
consolidation thereof. This interpretation is effective immediately for
investments made in variable interest entities after January 31, 2003
and it is effective in the first fiscal year or interim period
beginning after June 15, 2003 for investments in variable interest
entities made prior to February 1, 2003. The adoption of FASB
Interpretation No. 46 is not expected to have a material impact on the
Company's financial position, results of operations or liquidity.
NOTE 2- FURNITURE AND EQUIPMENT, NET
Furniture and equipment, net consist of the following as of December
31,
2004
-------------
Computer and office equipment $ 23,095
Furniture and fixtures 11,107
-------------
34,202
Less accumulated depreciation 19,314
-------------
$ 14,888
=============
Depreciation expense approximated $2,300 and $3,000, for the years
ended December 31, 2004 and 2003, respectively.
NOTE 3- LINE OF CREDIT
In March 2004, the Company established a revolving credit facility with
a financial institution in the amount of $100,000. The credit facility
bears interest on funds outstanding at a daily rate of 2.0% above
F-10
ALEC BRADLEY CIGAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2004 and 2003
Prime, as defined, not to exceed 7.5%. The credit facility matures and
is due and payable in full in March 2005. The Company paid down the
line of credit in full. Upon maturity using funds from its note payable
to a related party, see note 4.
NOTE 4- NOTE PAYABLE TO RELATED PARTY
On August 13, 2004 the Company entered into an unsecured financing
agreement with a shareholder and officer of the company. Under the
agreement, the Company borrowed $150,474 from the officer and will
repay the loan over a period of not more than 15 months beginning
September 2004 at a rate of at least $10,000 per month plus interest
payable at 5% per annum. As of December 31, 2004 the remaining
principle balance on the loan was $120,474. Interest expense paid on
this loan was $2,232 for 2004. The lender and the Company agreed to
defer one month's payment until December 31, 2004 with the final
payment due by December 31, 2005.
NOTE 5- INCOME TAXES
Deferred income taxes arise from timing differences resulting from
income and expense items reported for financial accounting and tax
purposes in different periods. A deferred tax asset valuation allowance
is recorded when it is more likely than not that deferred tax assets
will not be realized. There are no deferred taxes as of December 31,
2004.
The provision for income taxes is comprised of the following:
2004 2003
------------- -------------
Current federal tax provision $ 22,077 $ 35,706
Current state and local tax provision 2,209 3,006
------------- -------------
Total provision for income taxes $ 24,286 $ 38,712
============= =============
The difference between income tax expense computed by applying the
federal statutory corporate tax rate and actual income tax expense is
as follows:
2004 2003
------------- ------------
Statutory federal income tax rate 22 % 34 %
Non-deductible permanent items - % (6) %
State income taxes, net of federal benefit 2 % 1 %
------------- ------------
Effective income tax rate 24 % 29 %
============= ============
F-11
ALEC BRADLEY CIGAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2004 and 2003
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Lease - In March 2004, the Company agreed to occupy new office and
warehouse facilities under the terms of a three- year non-cancelable
operating lease agreement. During 2004, the Company's monthly rent
payments for the premises increased from $1,600 to $3,000 per month.
Future minimum payments under this non-cancelable lease are as follows
as of December 31, 2004:
Year Amount
----- ----------
2005 $ 36,000
2006 36,000
2007 9,000
2008 and thereafter -
----------
Total minimum lease payments $ 81,000
==========
Rent expense for the years ended December 31, 2004 and 2003 was $30,134
and $16,200, respectively.
NOTE 7- SHAREHOLDERS' EQUITY
Retained earnings - For income tax purposes, the Company terminated its
S corporation election on January 1, 2001. Accordingly, net losses and
related timing differences for periods prior to January 1, 2001 were
included in the individual tax returns of the S corporation
shareholders and are not available to offset taxable income of the
Company in subsequent periods. During 2003, the Company made the
appropriate accounting adjustment to reduce additional paid-in capital
by an amount of $405,585, equal to its remaining accumulated deficit as
of December 31, 2000. The net effect of this adjustment to
shareholders' equity is zero and the Company has retained earnings of
$156,782 as of December 31, 2003.
Common Stock Issuance - In June 2002, the Company issued an aggregate
of 415,000 shares of its common stock to certain employees and
consultants in exchange for services provided to the Company. The
Company valued these common shares at their fair market value of
$19,500 on the date of issuance.
Cancellation of Common Stock - In September 2003, the Company redeemed
400,000 shares of its common stock. All such shares were cancelled.
F-12
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2005.
------------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ______________________ to _____________________.
Commission file number: 0-32137
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ALEC BRADLEY CIGAR CORPORATION
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 65-0701352
--------------------------------------------------------------------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
3400 S.W. 26th Terrace, Suite A-1, Dania, Florida 33312
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 321-5991
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such report(s), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
As of November 10, 2005, there were 4,499,777 shares of Common Stock, par value
$.0001 per share, outstanding.
I N D E X
---------
Page
----
PART I. FINANCIAL INFORMATION.
---------------------
Item 1. Financial Statements (Unaudited). 3
Condensed Balance Sheets 3
Condensed Statements of Operations 4
Condensed Statements of Cash Flows 5
Notes to the Condensed Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. 8
Item 3. Controls and Procedures. 10
PART II: OTHER INFORMATION
------- -----------------
Item 1: Legal Proceedings 11
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 11
Item 3: Defaults upon Senior Securities 11
Item 4: Submission of Matters to a vote of Securities Holders 11
Item 5: Other Information 12
Item 6: Exhibits 12
Signature 13
2
PART I: FINANCIAL INFORMATION
------ ---------------------
ITEM 1. Financial Statements (Unaudited)
--------------------
ALEC BRADLEY CIGAR CORPORATION
CONDENSED BALANCE SHEETS
------------------------
September 30, December 31,
2005 2004
------------- ------------
(Unaudited)
ASSETS
------
Current Assets:
Cash and cash equivalents $ 53,013 $113,617
Accounts receivable, net 396,786 134,037
Inventory 223,148 170,590
Prepaid expenses and other current assets 49,110 101,328
-------- --------
Total Current Assets 722,057 519,572
Furniture and equipment, net 12,492 14,888
Intangible assets 7,412 7,412
-------- --------
Total Assets $741,961 $541,872
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable and accrued expenses $337,169 $105,475
Note payable - related party 57,974 120,474
Income taxes payable -- 11,495
Payroll taxes payable 5,763 --
-------- --------
Total Current Liabilities 400,906 237,444
-------- --------
Shareholders' Equity:
Common stock, $0.0001 par value, 30,000,000 shares
authorized, 4,499,777 shares issued and outstanding 450 450
Additional paid-in capital 73,510 73,510
Retained earnings 267,095 230,468
-------- --------
Total Shareholders' Equity 341,055 304,428
-------- --------
Total Liabilities and Shareholders' Equity $741,961 $541,872
======== ========
The accompanying notes are an integral part of these financial statements.
3
ALEC BRADLEY CIGAR CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
----------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
NET SALES $ 949,936 $ 801,717 $2,041,951 $1,803,414
Cost of goods sold 614,322 492,762 1,285,085 1,099,157
---------- ---------- ---------- ----------
GROSS PROFIT 335,614 308,955 756,866 704,257
---------- ---------- ---------- ----------
Operating Expenses
Selling expenses 134,826 142,814 343,593 289,719
General and administrative Expenses 115,764 112,031 368,930 324,237
---------- ---------- ---------- ----------
Total operating expenses 250,590 254,845 712,523 613,956
---------- ---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 85,024 54,110 44,343 90,301
Provision for income taxes 7,715 18,163 7,715 24,286
---------- ---------- ---------- ----------
Net Income (Loss) $ 77,309 $ 35,947 $ 36,628 $ 66,015
========== ========== ========== ==========
Earnings per share - basic and diluted $ 0.017 $ 0.008 $ 0.008 $ 0.015
========== ========== ========== ==========
Weighted average number of common shares
outstanding - basic and diluted 4,499,777 4,499,777 4,499,777 4,499,777
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
4
ALEC BRADLEY CIGAR CORPORATION
STATEMENTS OF CASH FLOWS
------------------------
Nine Months Ended September 30,
2005 2004
---------- ----------
(Unaudited) (Unaudited)
Cash Flows From Operating Activities:
Net Income $ 36,628 $ 66,015
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for bad debts 1,753 --
Depreciation and amortization 2,394 4,463
Changes in current assets and liabilities:
Accounts receivable (264,502) (117,674)
Inventory (52,558) 13,165
Prepaid expenses 52,218 (43,679)
Accounts payable and accrued expenses 231,694 (88,378)
Payroll tax deduction payable 5,764 (28,618)
Accrued income taxes payable (11,495) 2,239
--------- ---------
Net Cash Provided by (Used in) Operating Activities 1,896 (192,467)
--------- ---------
Cash Flows from Investing Activities:
Purchase of equipment -- (5,740)
--------- ---------
Net Cash Used in Investing Activities -- (5,740)
--------- ---------
Cash Flows from Financing Activities:
Proceeds from long term debt financing -- 134,974
Repayment of shareholder loan (62,500) --
--------- ---------
Net cash Provided by (Used in) Financing Activities (62,500) 134,974
--------- ---------
Net Decrease in Cash and Cash Equivalents (60,604) (63,233)
Cash and Cash Equivalents - Beginning of Period $ 113,617 $ 108,361
--------- ---------
Cash and Cash Equivalents - End of Period $ 53,013 $ 45,128
========= =========
The accompanying notes are an integral part of these financial statements.
5
Alec Bradley Cigar Corporation
Notes to Financial Statements
(Unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Alec Bradley Cigar Corporation (the "Company"), a Florida
corporation, was organized in July 1996. The Company imports and distributes
cigars domestically, with offices located in Dania, Florida.
Basis of Accounting - The financial statements are prepared using the accrual
basis of accounting where revenues are recognized upon shipment of merchandise
to the customer and expenses are recognized in the period in which they are
incurred. This basis of accounting conforms to accounting principles generally
accepted in the United States of America.
Earnings per Common Share - Basic and diluted earnings per common share are
based on the weighted average number of shares outstanding of 4,499,777 for the
nine months ended September 30, 2005 and 2004, respectively. There are no common
stock equivalents or other dilutive items in the aforementioned periods
presented.
Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual results could differ from
those estimates.
Interim Financial Statements - The interim financial statements presented herein
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations. The interim
financial statements should be read in conjunction with the Company's annual
financial statements, notes and accounting policies included in the Company's
annual report on Form 10-KSB for the year ended December 31, 2004 as filed with
the SEC. In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) which are necessary to provide a fair presentation
of financial position as of September 30, 2005 and the related operating results
and cash flows for the interim period presented have been made. The results of
operations, for the period presented are not necessarily indicative of the
results to be expected for the year.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
Lease - In March 2004, the Company agreed to occupy new office and warehouse
facilities under the terms of a three year non-cancelable operating lease
agreement. Future minimum payments under this non-cancelable lease are as
follows as of September 30, 2005:
Year Amount
---- -------------
2005 $ 9,000
2006 $ 36,000
2007 $ 9,000
-------------
Total minimum lease payments $ 54,000
=============
6
Alec Bradley Cigar Corporation
Notes to Financial Statements
(Unaudited)
Share Exchange Agreement - On August 25, 2005, the Company entered into a share
exchange agreement to acquire Online Vacation Center Holdings, Inc., a Florida
corporation. The Company intends to acquire all of the outstanding common stock
of Online Vacation Center Holdings through a share exchange with the
shareholders of Online Vacation Center Holdings. In consideration for the
exchange, the Company will issue the shareholders of Online Vacation Center
Holdings 15,000,000 shares of the Company's restricted common stock. The asset
purchase agreement provides for the sale of all of the assets of the Company to
the chief executive officer and principal shareholder of the Company for a total
purchase price of 2,700,000 shares of the Company's common stock owned by the
chief executive officer and principal shareholder of the Company.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
Alec Bradley Cigar Corporation (the "Company") is an importer and
distributor of cigars. The Company primarily sells to two types of customers:
(1) distributors, including but not limited to wine and liquor wholesalers; and
(2) retailers, including but not limited to tobacco shops, convenience stores,
bars, restaurants and country clubs.
Management's discussion and analysis contains various forward-looking
statements. These statements consist of any statement other than a recitation of
historical fact and can be identified by the use of forward-looking terminology
such as "may," "expect," "anticipate," "estimate" or "continue" or use of
negative or other variations or comparable terminology.
The Company cautions that these statements are further qualified by
important factors that could cause actual results to differ materially from
those contained in the forward-looking statements, that these forward-looking
statements are necessarily speculative, and there are certain risks and
uncertainties that could cause actual events or results to differ materially
from those referred to in such forward-looking statements.
The following discussion should be read in conjunction with the
information contained in the financial information and the notes thereto
appearing elsewhere in this report.
Results of Operations
Nine months ending September 30, 2005 Compared to September 30, 2004
Revenues
Revenues for the nine months ended September 30, 2005 were
approximately $2,042,000; an increase of $238,600, or 13.2%, from approximately
$1,803,400 for the nine-month period ended September 30, 2004. This was
attributable to the continuing success of the Company's cigars lines and
aggressive marketing by the Company during the first nine months of 2005. The
Company's gross profit increased for 2005 as compared to 2004 to $757,000 from
$704,000, an increase of $53,000, or 7.5%. The increase in gross profit dollars
was directly attributable to the increase in sales volume.
Selling Expenses
Selling expenses for the nine-month period ended September 30, 2005
were approximately $344,000, an increase of $54,000, or 18.6%, from
approximately $290,000 in the nine months ended September 30, 2004. Selling
expenses include all compensation and related benefits for the sales personnel
and advertising and promotional costs. This increase was primarily attributable
to the increase in advertising expenses. Selling expenses represented 16.8% of
revenues in the nine-month period ended September 30, 2005, compared to 16.1% in
nine months ended September 30, 2004.
General and administrative expenses
General and administrative expenses for 2005 were approximately
$369,000, an increase of $45,000, or 13.8%, from approximately $324,000 in 2004.
8
General and administrative expenses primarily include salaries, supplies, and
general operating expenses. The increase in general and administrative expenses
is principally attributable to increases in professional fees ($18,000), payroll
($9,000), rent ($7,000). General and administrative expenses represented 18.1%
of revenues in 2005, compared to 18.0% in 2004.
Three Months ending September 30, 2005 Compared to Three Months ending
September 30, 2004
Revenues
Revenues for the three months ended September 30, 2005 were
approximately $950,000, an increase of $148,000, or 18.4% from approximately
$802,000 for the three months ended September 30, 2004. This was attributable to
the aggressive advertising and marketing of the Company during the second and
third quarters of 2005. Historically, the quarter ending September 30 is the
highest sales quarter of the year. The Company's gross profit increased for the
three months ended September 30, 2005 as compared to the three months ended
September 30, 2004 from approximately $309,000 to approximately $336,000, an
increase of $27,000, or 8.7%. Gross profit, as a percentage of sales, was 35.3%
and 38.5%, respectively for the three-month periods ending September 30, 2005
and 2004. The increase in gross profit dollars was directly attributable to the
increase in sales.
Selling Expenses
Selling expenses for the three months ended September 30, 2005 were
approximately $135,000, a decrease of $7,800, or 5.5%, from approximately
$142,800 for the three months ended September 30, 2004. Selling expenses include
all compensation and related benefits for the sales personnel and advertising
and promotional costs. Selling expenses represented 14.2% of revenues for the
three months ended September 30, 2005, as compared to 17.8% for the three months
ended September 30, 2004. The increase was primarily attributable to the
increase in sales commissions paid to outside salespersons and increased trade
show expenses.
General and administrative expenses
General and administrative expenses for the three months ended
September 30, 2005 were approximately $116,000, an increase of $4,000, or 3.6%,
from approximately $112,000 for the three months ended September 30, 2004.
General and administrative expenses primarily include salaries, supplies, and
general operating expenses. General and administrative expenses represented
12.2% of revenues for the three months ended September 30, 2005, compared to
13.9% for the three months ended September 30, 2004.
Liquidity and Capital Resources
As of September 30, 2005, the Company had cash and cash equivalents of
$53,013 and accumulated earnings of $267,095. For the nine months ended
September 30, 2005, the Company used cash from operations to reduce accounts
payable. This was primarily funded from the income from operations, advances
from the Company's majority shareholder plus the effect of net of non-cash items
(depreciation expense). The Company's cash balance as of September 30, 2005
decreased by $60,604 from $113,617 as of December 31, 2004 to $53,013.
As of September 30 2005, the Company's accounts receivable was
$396,786. The Company expects sales for the remainder of the year to remain
strong. As of September 30, 2005, the Company's working capital was
approximately $321,000.
9
The Company has negotiated with its major suppliers to obtain extended
credit terms for new products being developed through these suppliers. The
Company has a credit facility provided by the Company's majority stockholder and
executive officer in excess of $150,000. The Company believes the credit
facility interest rate is lower than standard bank facilities (5.0%). Management
believes that the cash generated from the Company's operations and credit terms
and credit facility will be adequate to support its short-term cash requirements
for capital expenditures and maintenance of working capital.
ITEM 3. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company's management, with the participation of the Company's
principal executive officer and principal financial officer, evaluated the
effectiveness of the Company's disclosure controls and procedures as of the end
of the period covered by this report. The term "disclosure controls and
procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act,
means controls and other procedures of a company that are designed to ensure
that information required to be disclosed by a company in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by a company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the Company's
management, including its principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required disclosure.
Management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving their
objectives and management necessarily applies its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. Based on the
evaluation of the Company's disclosure controls and procedures as of the end of
the period covered by this report, the Company's principal executive officer and
principal financial officer concluded that, as of such date, the Company's
disclosure controls and procedures were effective.
Changes in Internal Controls
No change in the Company's internal control over financial reporting
occurred during the last fiscal quarter of the period covered by this report
that has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
10
PART II: OTHER INFORMATION
ITEM 1: Legal Proceedings
None.
ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds
None.
ITEM 3: Defaults upon Senior Securities
None.
ITEM 4: Submission of Matters to a vote of Securities Holders
On August 25, 2005, the Company entered into a share exchange agreement
to acquire Online Vacation Center Holdings, Inc., a Florida corporation. The
Company intends to acquire all of the outstanding common stock of Online
Vacation Center Holdings through a share exchange with the shareholders of
Online Vacation Center Holdings. In consideration for the exchange, the Company
will issue the shareholders of Online Vacation Center Holdings 15,000,000 shares
of the Company's restricted common stock.
In connection with the acquisition, the Company would sell all of its
assets which consist of its cigar importing and distribution operations. These
assets would be sold to Alan Rubin, the chief executive officer and principal
shareholder of the Company. The asset purchase agreement provides for the sale
of all of the assets of the Company to Alan Rubin for a total purchase price of
2,700,000 shares of the Company's common stock owned by Mr. Rubin. In addition,
Mr. Rubin would assume all of the liabilities of the Company as of the date of
the asset purchase.
The proposed asset sale requires majority shareholder approval pursuant
to Florida law. On August 25, 2005, Alan Rubin and Bruce Ginsberg, owners of a
majority of the Company's common stock (an aggregate of 3,395,000 shares),
approved the asset sale by written shareholder consent. The Company has filed a
preliminary information statement with the Securities and Exchange Commission.
In addition to the sale of assets, a majority of the Company's shareholders also
approved the following proposals (which are conditions to the share exchange):
* to amend the Company's articles of incorporation to eliminate
preemptive rights provided to its shareholders;
* to amend the Company's articles of incorporation to change its
name to Online Vacation Center Holdings Corp;
* to amend the Company's articles of incorporation to increase its
authorized common stock to 80,000,000 shares; and
* to adopt a 2005 Management and Director Equity Incentive and
Compensation Plan.
11
ITEM 5: Other Information
None.
ITEM 6: Exhibits
31.1 302 Certification (CEO)
31.2 302 Certification (Principal Financial Officer)
32.1 906 Certification (CEO)
32.2 906 Certification (Principal Financial Officer)
12
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned.
ALEC BRADLEY CIGAR CORPORATION
By: /s/ Alan Rubin
---------------------------------------
Alan Rubin, Principal Executive Officer
and Principal Financial Officer
DATED: November 10, 2005
13