EXHIBIT 10.8
MANAGEMENT AGREEMENT
MANAGEMENT AGREEMENT (this "Agreement") entered into as of the ____
day of June, 1997, by and among MC MANAGEMENT, INC., a New Jersey corporation
(the "Management Company"), and 800-JR CIGAR, INC., a Delaware corporation ("JR
Cigar"), recently formed to hold all of the outstanding shares of capital stock
of J.R. Tobacco of America, Inc., Cigars by Santa Clara, N.A., Inc., J.N.R.
Grocery Corp., J.R. Tobacco NC, Inc., J&R Tobacco (New Jersey) Corp., J.R.
Tobacco Company of Michigan, Inc., J.R.-46th Street, Inc., J.R. Tobacco Outlet,
Inc., J.R. Statesville, Inc. and JR Cigar (DC), Inc. (collectively, the
"Constituent Entities" and, together with JR Cigar, the "JR Entities").
WHEREAS, JR Cigar intends to effect a reorganization (the
"Reorganization") pursuant to which the stockholders of the Constituent Entities
will contribute to JR Cigar all of the outstanding shares of capital stock of
the Constituent Entities in exchange for shares of common stock of JR Cigar, all
upon the terms and subject to the conditions set forth in a certain contribution
agreement (the "Contribution Agreement") and, simultaneously therewith, to
conduct an initial public offering of its common stock (the "Offering");
WHEREAS, the Management Company has staff specially skilled in
corporate finance, accounting, telemarketing and other management services;
WHEREAS, prior to the date hereof, the Management Company has become
familiar with the operations and business of the Constituent Entities as a
result of its having provided substantial management services to the Constituent
Entities over the course of the past several years;
WHEREAS, following the consummation of the Reorganization and the
Offering, JR Cigar will require the Management Company's special skills and
services in connection with its general business operations; and
WHEREAS, the Management Company is willing to provide such skills
and services to JR Cigar;
NOW THEREFORE, in consideration of the mutual rights and obligations
set forth herein, the parties hereto, intending to be legally bound, do hereby
agree as follows:
1. Engagement. JR Cigar hereby engages the Management Company upon
the terms and conditions set forth herein to provide management and consulting
services to JR Cigar. These services will be in the field of corporate finance,
accounting, telemarketing and such other management areas as the Management
Company and JR Cigar shall mutually agree.
In consideration of the compensation specified herein, the Management Company
accepts such engagement and agrees to perform the services specified herein.
2. Management Term. The engagement hereunder shall be for an initial
term commencing on the date the Offering is consummated (the "Retention Date")
and expiring on the fifth anniversary thereof and shall automatically be
extended for successive periods of one (1) year each, unless the Management
Company or JR Cigar shall give written notice of termination of the engagement
at the end of the initial term or such one (1) year period, as the case may be,
to the other at least ninety (90) days prior to the end of the initial term or
such one (1) year period, as the case may be, in which case the engagement
hereunder shall terminate at the end of the initial term or such one (1) year
period, as the case may be.
3. Services to be Performed. The Management Company shall devote
such time and efforts to the performance of the management and consulting
services contemplated by this Agreement as JR Cigar and the Management Company
deem necessary or appropriate. However, no precise number of hours is required
to be devoted by the Management Company on a weekly or monthly basis. The
Management Company may perform services under this Agreement directly, through
its employees or agents, or, with the approval of JR Cigar, indirectly through
such outside consultants as the Management Company may engage for such purpose;
provided, however, that the Management Company shall be solely responsible for
any fees due to such outside consultants unless payment therefor is approved by
the Board of Directors of JR Cigar. The Management Company may also be retained
to provide such additional special services to JR Cigar as approved from time to
time by the Board of Directors of JR Cigar, upon terms and conditions mutually
acceptable to the Management Company and JR Cigar. JR Cigar acknowledges that
the Management Company's services to JR Cigar are not exclusive and that the
Management Company and its affiliates (including its officers, directors,
employees, representatives and agents) may render similar services to other
persons; provided, however, that the Management Company shall not render
services to any other entity or person engaged in the business of manufacturing,
distributing or selling tobacco or tobacco-related products during the term of
this Agreement other than to Xxx Xxxxxxx, Xxxxxxx Xxxxxxx or entities controlled
by Xxx Xxxxxxx, Xxxxxxx Xxxxxxx or members of their immediate families; and
provided further, that during the course of and for two years following the
termination of the Management Company's retention by JR Cigar, the Management
Company shall not, without receiving the prior approval of JR Cigar: (i)
directly or indirectly own, manage, control, participate in, consult with,
render services for, or in any manner engage in any business competing with the
businesses of JR Cigar or any of the Constituent Entities, within any
geographical area in which JR Cigar or any of the Constituent Entities engage or
plan to engage in such businesses; (ii) interfere with the relationship between
JR Cigar or any of the Constituent Entities and any employee thereof; (iii)
induce or attempt to induce any customer, supplier, licensee or other entity or
person having a business relationship with JR Cigar or any of the Constituent
Entities to cease doing business with JR Cigar or any of the Constituent
Entities; or (iv) interfere with the relationship between any such customer,
supplier, licensee or other entity or person and JR Cigar or any of the
Constituent Entities.
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4. Compensation; Expense Reimbursement.
4.1 Signing Bonus; Management Fees. In consideration of the
Management Company providing management and consulting services to JR Cigar, JR
Cigar shall pay the Management Company management fees in an aggregate amount
equal to the percentages of gross product sales by the JR Cigar Entities as set
forth on the attached Schedule I. An estimate of such fee payable for each month
shall be paid in advance on the first day of such month based upon the
projections of JR Cigar of gross product sales for such month and shall be
adjusted, as necessary, to reflect the actual fee payable for such month within
30 days after the close of such month.
4.2 Expenses. The Management Company will assume and pay all
expenses that relate to the services it performs hereunder, including, without
limitation, expenses on account of rent, utilities, insurance, office supplies,
office equipment, travel, entertainment and salaries, other compensation, fringe
benefits and expenses of the Management Company's officers, directors, employees
and agents; provided, however, that the Management Company shall not be required
to pay (and if paid by the Management Company, the Management Company shall be
reimbursed by JR Cigar for payments of): (i) taxes relating to the business or
operations of JR Cigar, (ii) professional fees and expenses relating to the
business or operations of JR Cigar, including, without limitation, legal,
auditing, accounting and investment banking fees and expenses and (iii) all
other extraordinary costs and expenses properly borne by JR Cigar.
4.3 Other Interests; Director Fees and Expenses. It is understood
that any stockholder, director, officer, employee or agent of the Management
Company may be a stockholder of, or otherwise have an interest in, JR Cigar. Any
affiliates (including directors, officers, employees, agents or representatives)
of the Management Company or any investors in the Management Company who serve
as directors of JR Cigar and who are not employees of JR Cigar may be paid
customary director fees paid to non-employee directors of JR Cigar and will be
reimbursed by JR Cigar for all of their reasonable out-of-pocket costs and
expenses in connection therewith.
5. Confidentiality. The Management Company shall maintain secrecy
with respect to all non-public information of JR Cigar which may come into its
possession as a result of performance of services under this Agreement
(including, without limitation, client lists and trade secrets), and shall use
its best efforts to ensure that its affiliates (including its officers,
directors, employees, representatives and agents) also maintain the secrecy of
such information, except for any such information which is required to be
disclosed by the Management Company or its affiliates pursuant to law.
6. Indemnification. JR Cigar agrees to indemnify the Management
Company and its affiliates in accordance with the Indemnification Agreement
attached as Exhibit A, which Indemnification Agreement is being executed and
delivered simultaneously with the execution and delivery of this Agreement.
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7. Notices. All notices hereunder, to be effective, shall be in
writing and shall be personally delivered, transmitted by facsimile with
confirmation of receipt or mailed by certified mail, postage prepaid, as
follows:
(i) If to the Management Company:
MC Management, Inc.
000 Xxxxx 00 Xxxx
Xxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxxx Xxxxxxxx
Fax: (000) 000-0000
(ii) If to JR Cigar:
JR CIGAR, Inc.
000 Xxxxx 00 Xxxx
Xxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxx X. Xxxxxxx
Fax: (000) 000-0000
8. Entire Agreement; Cancellation of Prior Agreements. Effective the
Retention Date, this Agreement shall constitute the entire agreement between the
parties hereto with regard to the subject matter hereof, superseding all prior
understandings and agreements, whether written or oral, and all prior agreements
between the Management Company and the Constituent Entities shall terminate.
9. Modifications. This Agreement may not be amended or revised
except by a writing signed by the parties.
10. Successors and Assigns. This Agreement shall be binding upon and
insure to the benefit of the parties and their respective successors and
assigns, but may not be assigned by either party without the prior written
consent of the other.
11. Captions. Captions have been inserted solely for convenience of
reference and in no way define, limit or describe the scope or substance of any
provisions of this Agreement.
12. Severability. The provisions of this Agreement are severable,
and the invalidity of any provision shall not affect the validity of any other
provision.
13. Governing Law. This Agreement shall be construed under and
governed by the laws of the State of New Jersey applicable to agreements made
and to be wholly performed therein.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
MC MANAGEMENT, INC.
By:
----------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: President
800-JR CIGAR, INC.
By:
----------------------------
Name: Xxxxx X. Xxxxxxx
Title: President
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SCHEDULE I
Management Fees
Cigarette Sales Other Product Sales
--------------- -------------------
J.R. Tobacco of America, Inc. 1.00% 2.90%
Cigars by Santa Clara, N.A., Inc. 1.00% 2.90%
J.R. Tobacco NC, Inc. 1.00% 0.5%
J.N.R. Grocery Corp. 1.00% 0.5%
J&R Tobacco (New Jersey) Corp. 1.00% 0.5%
J.R. Tobacco Company of Michigan, Inc. 1.00% 0.5%
J.R.-46th Street, Inc. 1.00% 0.5%
J.R. Tobacco Outlet, Inc. 1.00% 0.5%
J.R. Statesville, Inc. 1.00% 0.5%
JR Cigar (DC), Inc. 1.00% 0.5%
SCHEDULE A
June __, 1997
Indemnification Agreement
MC Management, Inc.
000 Xxxxx 00 Xxxx
Xxxxxxxx, Xxx Xxxxxx 00000
Ladies and Gentlemen:
As part of the consideration for the agreement of MC Management,
Inc., a New Jersey corporation (the "Management Company"), to furnish services
to 800-JR CIGAR, Inc., a Delaware corporation ("JR Cigar"), pursuant to the
terms of the Management Agreement, dated as of June __, 1997, between the
Management Company and JR Cigar (the "Management Agreement"), JR Cigar agrees to
indemnify and hold harmless the Management Company and its affiliates and the
respective officers, directors, employees and agents of and persons controlling
the Management Company or any of its affiliates within the meaning of either
Section 15 of the Securities Act of 1933, as amended, or Section 20 of the
Securities Exchange Act of 1934, as amended, and each of their respective
successors and assigns (individually, an "Indemnified Party" and collectively,
the "Indemnified Parties") from and against, and JR Cigar agrees that no
Indemnified Person shall have any liability to JR Cigar or any of its
affiliates, security holders or creditors for, all claims, liabilities,
expenses, losses or damages (or actions or proceedings in respect thereof)
(collectively, "Losses") relating to or arising out of actions taken (or omitted
to be taken) by any of the Indemnified Parties pursuant to the Management
Agreement or any Indemnified Party's role in connection therewith; provided,
however, that JR Cigar shall not be responsible in any such case for any Losses
to the extent that it is finally judicially determined that such Losses resulted
solely from actions taken or omitted to be taken by an Indemnified Party due to
such Indemnified Party's gross negligence or willful misconduct.
Promptly after receipt by an Indemnified Party of notice of any
complaint or the commencement of any action or proceeding with respect to which
indemnification may be sought against JR Cigar, such Indemnified Party will
notify JR Cigar in writing of the receipt or commencement thereof, but failure
to notify JR Cigar will relieve JR Cigar from any liability which it may have
hereunder only if, and to the extent that, such failure results in the
forfeiture of substantial rights and defenses, and will not in any event relieve
JR Cigar from any other obligation to any Indemnified Party other than under
this Indemnification Agreement. JR Cigar shall assume the defense of such action
(including payment of fees and disbursements of counsel) insofar as such action
shall relate to any alleged liability in respect of which indemnity
may be sought against JR Cigar. An Indemnified Party shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and disbursements of such counsel shall be at the expense
of such Indemnified Party unless employment of such counsel has been
specifically authorized by JR Cigar in writing.
JR Cigar shall authorize separate counsel for an Indemnified Party
if the named parties to any action (including any impleaded parties) include JR
Cigar (or any of the directors of JR Cigar) and such Indemnified Party and (i)
in the good faith judgment of such Indemnified Party the use of joint counsel
would present such counsel with an actual or potential conflict of interest, or
(ii) an Indemnified Party shall have been advised by counsel that there may be
one or more legal defenses available to it which are different from or
additional to those available to JR Cigar (or its directors(s)).
JR Cigar will reimburse each Indemnified Party for all expenses
(including fees and disbursements of counsel authorized by JR Cigar) as they are
incurred by such Indemnified Party in connection with investigating, preparing
for or defending any action, claim or proceeding ("Action") referred to above
(or enforcing this Agreement, the Management Agreement of which this agreement
forms a part or any related agreement), whether or not any Indemnified Party is
or becomes a party to any Action, and whether or not such Action is initiated
or brought by the Management Company. JR Cigar further agrees that JR Cigar
will not settle, compromise or consent to the entry of any judgment in any
pending or threatened Action in respect of which indemnification may be sought
hereunder (whether or not an Indemnified Party is a party therein) unless JR
Cigar has given the Management Company reasonable prior written notice thereof
and obtained an unconditional release of each Indemnified Party from all
liability arising therefrom. An Indemnified Party shall not be liable to JR
Cigar or to any other person in connection with the services which it renders
pursuant to the Management Agreement, except for such Indemnified Party's gross
negligence or willful misconduct judicially determined as aforesaid. The
indemnification and expense reimbursement obligations that JR Cigar has under
this Agreement shall be in addition to any liability JR Cigar may otherwise
have.
The provisions of this Agreement shall apply to the Management
Company's services under the Management Agreement and any modification thereof
and shall remain in full force and effect regardless of the completion or
termination of the Management Agreement. This Agreement and any other agreements
relating hereto shall be governed by and construed in
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accordance with the laws of the State of New Jersey, without regard to
principles of conflicts of law.
Very truly yours,
800-JR CIGAR, INC.
By:
----------------------------
Name: Xxxxx X. Xxxxxxx
Title: President
Agreed to and accepted
this ___ day of June, 1997
MC MANAGEMENT, INC.
By:
-----------------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: President
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