As filed with the Securities and Exchange Commission on June 25, 1997
Registration No. 33-________
Securities and Exchange Commission
Washington, D.C. 20549
Form SB-2
Registration Statement under the Securities Act of 1933
PREMIUM CIGARS INTERNATIONAL, LTD.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Arizona 2121 86-0846405
State or jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification No.)
Premium Cigars International, Ltd. Steven A. Lambrecht, CEO
15651 North 83rd Way, Suite 3 15651 North 83rd Way, Suite 3
Scottsdale, Arizona 85260 Scottsdale, Arizona 85260
(602) 922-8887 (602) 922-8887
(Address, including zip code, and telephone (Name, address, and telephone number
number, including, area code, of of agent for service)
registrant's principal executive office)
Copies to:
Charles R. Berry, Esq. Christian J. Hoffmann, III, Esq.
Michael F. Patterson, Esq. Streich Lang, P.A.
Titus, Brueckner & Berry, P.C. One Renaissance Square
7373 North Scottsdale Road, Suite B-252 Two North Central Avenue
Scottsdale Centre Phoenix, Arizona 85004-2391
Scottsdale, Arizona 85253 (602) 229-5200
(602) 483-9600
</TABLE>
Approximate date of proposed sale to the public: As soon as practical on or
after the effective date of this Registration Statement. If any securities being
registered on this Form are to be offered on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act, check the following box. [x]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
<PAGE>
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
Calculation of Registration Fee
=================================================================================================================
Proposed Proposed Amount
Title of each Number of Offering Maximum of
class of securities Securities to be Price Per Aggregate Registration
to be registered Registered Share(1) Offering Price(1) Fee
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value 2,300,000(2) $5.01 $11,523,000 $ 3,491.82
Underwriter's Warrants 200,000(3) $ .01 $ 2,000 $ (4)
Common Stock, no par value 200,000(5) $6.00 $ 1,200,000 $ 363.64
Common Stock, no par value 400,000(6) $2.50 $ 1,000,000 $ 303.03
----------- ----------
TOTALS: $13,725,000 $ 4,158.49
=================================================================================================================
</TABLE>
(1) Estimated solely for purposes of computing the registration fee
pursuant to Rule 457.
(2) Includes 300,000 additional shares of Common Stock which the
Underwriter has the right to purchase to cover over-allotments, if any.
(3) Underwriter's Warrants to purchase Shares equal to 10% of the Shares
sold pursuant to the offering, excluding over-allotments, if any.
(4) Pursuant to Rule 457(g) no fee is being paid.
(5) Issuable upon exercise of Underwriter's Warrants.
(6) Issuable upon exercise of outstanding warrants held by Selling
Shareholders.
ii
<PAGE>
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
iii
<PAGE>
PREMIUM CIGARS INTERNATIONAL, LTD.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
FORM SB-2 ITEM NUMBER AND CAPTION LOCATION OF CAPTION IN PROSPECTUS
<S> <C>
1. Front of Registration Statement and Outside Front Cover Outside Front Cover Page
Page of Prospectus.......................................
2. Inside Front and Outside Back Cover Pages of Prospectus.. Inside Front and Outside Back Cover
3. Summary Information and Risk Factors..................... Prospectus Summary; Risk Factors
4. Use of Proceeds.......................................... Use of Proceeds
5. Determination of Offering Price.......................... Outside Front Cover Page; Price Range of Common
Stock
6. Dilution................................................. Dilution
7. Selling Security Holders ................................ Interim Financing; Selling Shareholders
8. Plan of Distribution..................................... Outside Front Cover Page; Underwriting; Selling
Shareholders
9. Legal Proceedings........................................ Legal Matters
10. Directors, Executive Officers, Promoters and Control Management; Principal Shareholders
Persons..................................................
11. Security Ownership of Certain Beneficial Owners and Principal Shareholders; Certain Transactions
Management...............................................
12. Description of the Securities............................ Description of Securities
13. Interests of named Experts and Counsel................... Legal Matters; Experts
14. Disclosure of Commission Position on Indemnification for Management
Securities Act Liabilities...............................
15. Organization Within Last Five Years...................... Management; Principal Shareholders; Certain
Transactions
16. Description of Business.................................. Prospectus Summary; Business
17. Management's Discussion and Analysis or Plan of Management's Discussion and Analysis of Financial
Operations............................................... Conditions and Results of Operations
18. Description of Property.................................. Business
19. Certain Relationships and Related Transactions........... Certain Transactions
20. Market for Common Equity and Related Stockholder Outside Front Cover Page; Risk Factors; Price
Matters.................................................. Range of Common Stock
21. Executive Compensation................................... Management
22. Financial Statements..................................... Financial Statements
23. Engagement of Independent Accountants.................... Engagement of Independent Accountants
</TABLE>
iv
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION DATED JUNE 25, 1997
PREMIUM CIGARS INTERNATIONAL, LTD.
2,000,000 Shares
Premium Cigars International, Ltd. ("we" or "PCI"), distributes moderately
priced premium cigars and other cigars, which are sold from our humidors placed
primarily in convenience stores in the United States and Canada. By this
Prospectus, we are offering you shares of PCI Common Stock, no par value
("Shares").
This is our initial public offering, and no public market currently exists
for PCI's Shares. We estimate that the initial public offering price will be
$5.01 per Share. The Offering Price per Share will be determined by negotiations
between PCI and the Representative, and may not be indicative of the market
price of, Shares after the Offering. Factors used to determine the initial
public offering price are set forth under "Underwriting."
We will apply to have our Shares listed on The Nasdaq SmallCap System under
the symbol PCIG, on completion of the Offering.
---------------------------
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK AND IMMEDIATE AND
SUBSTANTIAL DILUTION. YOU SHOULD PURCHASE UNITS ONLY IF YOU CAN AFFORD A
COMPLETE LOSS. SEE "RISK FACTORS."
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
======================================================================================================
Price Underwriting Proceeds
to the Discounts and to the
Public Commissions (1) Company (2)
------ --------------- -----------
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................. $5.01 $.50 $4.51
Total (3).................................. $10,020,000 $1,000,000 $9,018,000
======================================================================================================
</TABLE>
The Shares are being offered by the Underwriters when, as and if delivered
to and accepted by the Underwriter and subject to various prior conditions,
including their right to reject orders in whole or in part. W.B. McKee
Securities, Inc. will act as representative of the Underwriters ("Underwriter's
Representative"). We expect that Share certificates will be delivered in
Phoenix, Arizona, on or about _________________, 1997.
W.B. McKEE SECURITIES, INC.
The date of this Prospectus is July __, 1997
<PAGE>
(1) See "Underwriting" for indemnification arrangements with the
Underwriters.
(2) Before deducting expenses estimated at $675,600 which will be paid by
PCI.
(3) PCI has granted the Representative a 45-day option to purchase up to
300,000 additional Shares at the Price to the Public less Underwriting
Discounts and Commissions, solely to cover over-allotments, if any. If
the Representative's option is exercised in full, the total Price to
the Public, Underwriting Discounts and Commissions, and Proceeds to PCI
will be $11,523,000, $1,152,300 and $10,370,700, respectively. See
"Underwriting."
PCI will be subject to certain informational requirements of the Securities
Exchange Act of 1934, as amended, and will file reports and other information
with the Securities and Exchange Commission (the "Commission"). Reports and
other information can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
or at the regional offices of the Commission at Northwestern Atrium Center, 500
West Madison Street, Chicago, Illinois 60661 and Seven World Trade Center, New
York, New York 10048. You can obtain copies of these materials at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. The Commission maintains a World Wide Web site on
the Internet that contains reports, proxy and information statements and other
regarding registrants such as PCI, that file electronically with the Commission.
The address for the Commission's web site is http://www.sec.gov.
We intend to furnish our shareholders annual reports containing audited
financial statements and other appropriate reports. Our fiscal year ends on
March 31.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS OF THIS INITIAL PUBLIC
OFFERING MAY EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF
THE SHARES AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this Prospectus and supplements, including
information incorporated by reference, discuss future expectations, contain
projections of results of operation or financial condition or state other
"forward-looking" information. Those statements are subject to known and unknown
risks, uncertainties and other factors that could cause the actual results to
differ materially from those contemplated by the statements. The forward-looking
information is based on various factors and was derived using numerous
assumptions.
Important factors that may cause the actual results to differ include, without
limitation, the success or failure of our efforts to implement our business
strategy, our ability to raise sufficient capital to purchase cigars and
humidors to meet the aggressive "roll-out" schedules required by our contracts
and commitments with stores and distributors, the effect of a settlement
announced June 20, 1997 of litigation among 40 States and major U.S. tobacco
companies, the lack of any market study, the lack of complete business
projections, our ability to buy quality premium cigars at favorable prices, our
ability to negotiate and maintain favorable distribution arrangements with major
national convenience store chains, the effect of economic conditions, a decision
by major retail chains to remove all tobacco products from their shelves,
changes in governmental regulation, tax rates and similar matters, the ability
to attract and retain quality employees and other risks which will be described
in our future filings with the SEC. We do not promise to update forward-looking
information to reflect actual results or changes in assumptions or other factors
that could affect those statements.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
Prospectus. It is not complete and may not contain all of the information that
is important to you. To understand this initial public offering ("Offering")
fully, you should read the entire Prospectus carefully, including the risk
factors and financial statements.
THE COMPANY
ORGANIZATION; Premium Cigars International, Ltd. ("PCI") is an
OFFICES: Arizona corporation organized in December, 1996.
Its executive offices are located at 15651 North
83rd Way, Suite 3, Scottsdale, Arizona 85260,
telephone (602) 922-8887, or toll-free at (888)
724-1001.
OUR BUSINESS: We distribute cigars throughout the United States
and Canada. We have placed our cigar distribution
program, which includes supplying humidors,
cigars, service and information (the "PCI Cigar
Program") in over 1,400 stores. We are currently
expanding with national retail and distribution
accounts in both the United States and Canada. Our
mission is to place our PCI Cigar Program in every
convenience, gas and high traffic retail outlet.
THE PCI CIGAR Our complete PCI Cigar Program includes: imported,
PROGRAM: hand-rolled, short, medium and long-leaf filler
premium cigars from the Dominican Republic,
Honduras, Mexico, Nicaragua and the Philippines,
as well as domestic machine-made mass market
cigars; in-store, countertop, custom made,
hand-crafted wood and plexiglass humidors;
training materials and telemerchandising support
to individual stores; point-of-purchase
information cards and cigar magazine racks;
telemerchandising for order fulfillment; large,
"walk-in" humidors for distribution center cigar
inventory storage; and a spokesman relationship
with Arie Luyendyk, the recent winner of the
Indianapolis 500.
OUR CUSTOMERS: We sell virtually all of our cigars through
convenience stores, including stores affiliated
with Southland USA and Canada (7-Eleven(TM)),
AM/PM(TM), Circle K(TM), Associated Grocers,
SuperValu(TM)1 and stores supplied by the McLane
Company.
--------------------------------------------------
1 Believed to be trademarks of third parties.
We have no ownership interest in any of the
intellectual property indicated by trademark or
service mark symbols in this Prospectus.
1
<PAGE>
OUR CIGARS: We distribute name-brand and our own private-label
cigars from our humidors. Premium cigars generally
retail from $1 to more than $20. We distribute low
to medium-priced premium cigars, primarily in the
$1 to $8 price range. We also distribute mass
market and little cigars at around $1.
OUR CONCEPT: Premium cigars are a luxury item and are often
purchased on impulse. We seek to capitalize on the
recent growth of the premium cigar market. Based
on reports by the Cigar Association of America,
following several decades of declines in such
sales, premium cigar sales in the United States
increased by 10.7% in 1993, 14.5% in 1994, 30.5%
in 1995 and an estimated 67.0% in 1996.
OUR HISTORY: Because premium cigars require special care
(including humidified storage) and knowledgeable
sales personnel, they were traditionally sold in
tobacco specialty shops. In June 1996, Colin Jones
and Greg Lambrecht, our Vice Presidents of
International and National Sales, through their
wholly-owned companies J&M and Rose Hearts (see
below) developed their concept of selling premium
cigars out of in-store humidors through
convenience stores, grocery stores, and other
retail outlets. They introduced the concept first
in Canada and then in the northwest United States.
CAN-AM; In December 1996, PCI acquired all of the
ROSE HEARTS; outstanding stock of CAN-AM International
AND J&M: Investments Corp., a British Columbia (Canada)
corporation ("CAN-AM"). CAN-AM had previously
acquired the cigar distribution operations,
including cigar accounts, humidors and inventory,
of Rose Hearts, Inc. ("Rose Hearts"), a Washington
corporation wholly-owned by Greg Lambrecht and J&M
Wholesale, Ltd. ("J&M"), a British Columbia
(Canada) corporation wholly-owned by Colin Jones.
J&M began distributing cigars in convenience
stores in Vancouver, B.C., Canada in June 1996.
Rose Hearts began its cigar distribution in
Seattle, Washington in late summer 1996.
2
<PAGE>
CURRENT Currently, we distribute cigars to over 1,400
OPERATIONS: convenience stores and other retailers throughout
Canada and in the states of Washington, Oregon,
California, Arizona, Kansas, Missouri, Utah,
Idaho, Alaska, Nevada, Oklahoma, Texas, Maryland,
Virginia, Colorado, Illinois, Michigan, Wisconsin,
Nebraska, Georgia, Montana and Florida. We have
"master" agreements with, have negotiated and
approved standard form retailer agreements with,
or have other arrangements with, national accounts
to supply cigars and in-store humidors for direct
shipments and delivery and in-store merchandising.
We have developed several relationships with cigar
suppliers and are expanding our commercial ties to
secure a variety of sources for cigars and
accessories. We believe we have the ability to
move quickly in a competitive industry. Over the
next three to five years, we believe that we have
the opportunity to place the PCI Cigar Program in
over 50,000 retail outlets.
THE OFFERING
Securities Offered . . . . . . . . 2,000,000 Shares.
Common Stock Outstanding
at June 24, 1997: . . . . . 1,480,500 shares
Warrants Outstanding
at June 24, 1997: . . . . . 400,000 Common Stock
Purchase Warrants (Bridge Warrants)
Securities to be outstanding
after the offering . . . . . . . . 3,480,500
Use of Proceeds . . . . . . . . . . PCI will use the proceeds to: expand the
PCI Cigar Program, including purchasing
humidors, cigars and accessories; repay
indebtedness; and fund sales and marketing
and working capital.
Risks . . . . . . . . . . . . . . . Investing in the Shares is very risky, and
you should be able to bear a complete loss
of your investment. See "Risks."
Proposed Nasdaq SmallCap Market(sm) Symbols
Common Stock . . . . . . . PCIG
3
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following financial information reflects the operations of PCI (and its
predecessor operations) for the period from June 1, 1996 to March 31, 1997. The
summary financial information has been derived from the financial statements
which appear elsewhere in this Prospectus, and this data should be read in
conjunction with the financial statements of PCI and related notes.
Operations
June 1, 1996
to
March 31, 1997 March 31, 1997
STATEMENT OF OPERATIONS DATA:
Sales............................................... $ 845,571
Net loss............................................ ($153,517)
Net loss per share (1).............................. ($ .10)
Weighted average of shares of Common Stock
outstanding (1)..................................... 1,480,500
BALANCE SHEET DATA:
Working capital..................................... ($82,169)
Total assets........................................ $ 523,461
Total liabilities................................... $ 459,928
Accumulated deficit................................. ($ 153,517)
Shareholders' equity................................ $ 63,533
Net tangible book value per share of
Common Stock........................................ ($ .02)
(1) Shares of Common Stock issued to founders at the time of PCI's organization
are treated as outstanding since inception.
4
<PAGE>
RISKS
Investing in PCI's Shares is very risky; you should be able to bear a
complete loss of your investment. You should carefully consider the following
factors, among others.
Recently Organized Business; Losses During Start-up Operations. PCI was
organized in December, 1996 and acquired a cigar distribution business which
began in June, 1996. PCI, its subsidiary CAN/AM, and the predecessor cigar
distribution operations of J&M and Rose Hearts incurred losses of $153,517, or
$.10 per share, on revenues of $845,571, for the period from June 1, 1996
(inception) to March 31, 1997. Our ability to operate profitably depends on
increasing our sales and distribution channels and a continuing demand for
premium cigars. PCI is also subject to business risks associated with new
business enterprises. We cannot assure you that PCI will operate profitably.
At March 31, 1997, PCI had a net working capital deficit of approximately
$82,169. Our operations were financed to that date through private placements of
Common Stock in 1997, which generated net proceeds of approximately $207,050.
From April to June 1997, we obtained Bridge Financing (as defined below) which
generated net proceeds of $810,000. We believe that net proceeds from this
Offering will be sufficient to fund our operations for the foreseeable future.
However, we cannot assure you that we will not need additional funds or that any
needed funds will be available, if at all, on acceptable terms. If we need
additional funds, our inability to raise them will have an adverse effect on the
operations. If we raise funds by selling equity securities, shareholders may be
diluted.
40-State Tobacco Litigation - Proposed Settlement. On June 20, 1997 the
Attorneys General of 40 States and the major United States Cigarette
manufacturers announced a proposed settlement of a lawsuit filed by the States.
The proposed settlement, which will require that the United States Congress take
certain action, is complex and may change significantly or be rejected. However,
the proposal would require significant changes in the way United States
cigarette and tobacco companies do business. Among other things: the tobacco
companies will pay hundreds of billions of dollars; the FDA could regulate
nicotine as a drug; class action lawsuits and punitive damages would be banned;
and tobacco billboards or sporting event sponsorships would be prohibited. The
potential impact, if any, of the settlement and related legislation on the cigar
industry is uncertain.
Extensive and Increasing Regulation of Tobacco Products. The tobacco
industry in general has been subject to extensive regulation at the federal,
state and local levels. Recent trends have increased regulation of the tobacco
industry. Although regulation initially focused on cigarette manufacturers, it
has begun to have a broader impact on the industry as a whole, and may focus
more directly on cigars in the future. The recent increase in popularity of
cigars could lead to an increase in regulation of cigars. A variety of bills
relating to tobacco issues have been introduced in the U.S. Congress, including
bills that would have (i) prohibited the advertising and promotion of all
tobacco products or restricted or eliminated the deductibility of such
advertising expense, (ii) increased labeling requirements on tobacco products to
include,
5
<PAGE>
among other things, addiction warnings and lists of additives and toxins, (iii)
shifted regulatory control of tobacco products and advertisements from the U.S.
Federal Trade Commission (the "FTC") to the U.S. Food and Drug Administration
(the "FDA"), (iv) increased tobacco excise taxes and (v) required tobacco
companies to pay for health care costs incurred by the federal government in
connection with tobacco related diseases. Hearings have been held on certain of
these proposals; however, to date, none of such proposals have been passed by
Congress. Future enactment of such proposals or similar bills may have an
adverse effect on the results of operations or financial condition of PCI.
In addition, a majority of states restrict or prohibit smoking in certain
public places and restrict the sale of tobacco products to minors. Local
legislative and regulatory bodies also have increasingly moved to curtail
smoking by prohibiting smoking in certain buildings or areas or by requiring
designated "smoking" areas. Further restrictions of a similar nature could have
an adverse effect on our sales or operations, such as banning counter access to
or display of cigars, or decisions by retailers because of public pressure to
stop selling all tobacco products. Numerous proposals also have been considered
at the state and local level restricting smoking in certain public areas,
regulating point of sale placement and promotions and requiring warning labels.
Although federal law has required health warnings on cigarettes since 1965
and on smokeless tobacco since 1986, there is no federal law requiring that
cigars carry such warnings. California, however, requires "clear and reasonable"
warning to consumers who are exposed to chemicals determined by the state to
cause cancer or reproductive toxicity, including tobacco smoke and several of
its constituent chemicals. Similar legislation has been introduced in other
states, but did not pass. We cannot assure you that other states will not enact
similar legislation. Consideration at both the federal and state level also has
been given to consequences of tobacco smoke on others who are not currently
smoking (so called "second-hand" smoke). We cannot assure you that regulation
relating to second hand smoke will not be adopted or that such regulation or
related litigation would not have a material adverse effect on our results of
operations or financial condition.
Increased cigar consumption and the publicity such increase has received
may increase the risk of additional regulation. We cannot predict the ultimate
content, timing or effect of any additional regulation of tobacco products by
any federal, state, local or regulatory body, and we cannot assure you that any
such legislation or regulation would not have a material adverse effect on PCI's
business. See "Business -- Government Regulation; Tobacco Industry Litigation."
Effects of Fluctuations in Cigar Costs and Availability. We seek to
purchase cigars which are manufactured by suppliers outside the United States.
The price and availability of these cigars are subject to numerous factors out
of our control, including weather conditions, foreign government policies,
potential trade restrictions and the overall demand for cigars.
6
<PAGE>
Nature of Convenience Store Distribution Relationships. Although we have
"master" agreements and other arrangements with corporate offices of several
major convenience store chains to place the PCI Cigar Program in corporate and
franchise stores, the nature of the convenience store distribution business is
that all supplier relationships are terminable on short notice (usually on
between 30 and 120 days notice). In addition, while "master" or approved form
agreements may be automatically acceptable for use, participation in the PCI
Cigar Program is usually at the discretion of each local franchise store or each
region of the country. As long as demand for premium cigars remains strong, we
believe that individual stores and regions will participate in our PCI Cigar
Program. However, if sales decline precipitously, stores may terminate
participation quickly.
PCI does not pay "slotting" fees or other inducements to retailers in order
to secure shelf space, which could affect our ability to place product. In
addition, other major manufacturers or distributors may have master agreements
with convenience stores which require "most favorable supplier" treatment of
their tobacco products. This may inhibit PCI's ability to obtain favorable
counter presentation of its humidors.
Historical Dependence on One Supplier. Through March 31, 1997 PCI's largest
supplier accounted for approximately 71% of our Canadian cigar purchases. We
have expanded our sources of supply, and PCI is no longer largely dependent on
one supplier. Nevertheless, problems with our major supplier could have a
significant adverse impact on our operations, particularly in Canada.
Historical Dependence on One Customer Store Group. Corporate and franchise
stores affiliated with one large convenience store chain have accounted for over
82% of our sales. We have expanded our customer base, but we expect that sales
to 7-Eleven stores will continue to account for a substantial percentage of our
sales. Our plans for the coming year include rapidly expanding the number of
7-Eleven stores with our PCI Cigar Program. Problems with 7-Eleven stores, our
major customer in Canada and the United States, could have a substantial adverse
impact on PCI.
Declining Market for Premium Cigars Through 1991. According to industry
sources, the cigar industry was in substantial decline from approximately 1973
to 1991. While premium cigar sales have increased since 1991, we cannot assure
you that recent positive trends will continue. The decrease in cigar sales as
well as the general decline in smoking followed the 1964 report of the United
States Surgeon General. Numerous other subsequent studies stressed the link
between smoking, and medical problems including secondary smoke such as cancer,
heart, respiratory and other diseases. "No smoking" laws, ordinances and
prohibitions on cigar smoking in certain cases may have adversely affected the
sale of cigar products. We believe that these factors may continue to have an
adverse effect upon the cigar industry in general and PCI's business in
particular. While the cigar industry has experienced significantly better trends
in unit sales since 1993, we cannot assure you that the recent positive trends
will continue. We believe that a considerable percentage of the recent increase
in cigar sales, especially with respect to premium cigars, is attributable to
new cigar smokers attracted by the improving image of cigar smoking and the
increased visibility of cigar smoking by celebrities. We cannot assure you that
recent
7
<PAGE>
increases in cigar sales are indicative of long-term trends or that these new
customers will continue to smoke cigars in the future.
Other Tobacco Industry Litigation. In addition to the 40-State litigation
referred to above, the tobacco industry has experienced and is experiencing
significant health-related litigation involving tobacco and health issues.
Plaintiffs in such litigation have sought and are seeking compensatory, and in
some cases punitive, damages for various injuries claimed to result from the use
of tobacco products or exposure to tobacco smoke. The proposed settlement of the
40-State litigation may have a material impact to limit litigation, but we
cannot assure that there would not be an increase in health-related litigation
against the cigarette and smokeless tobacco industries or similar litigation in
the future against the cigar industry. Costs of defending prolonged litigation
and any settlement or successful prosecution of any material health-related
litigation against manufacturers of cigars, cigarettes or smokeless tobacco or
suppliers to the tobacco industry could have a material adverse effect on our
results of operations or financial condition. The recent increase in the sales
of cigars and the publicity such increase has received may have the effect of
increasing the probability of legal claims. Also, a recent study published in
the journal Science reported that a chemical found in tobacco smoke has been
found to cause genetic damage in lung cells that is identical to damage observed
in many malignant tumors of the lung and, thereby, directly links lung cancer to
smoking. The National Cancer Institute also has announced that it will issue a
report in 1997 describing research into cigars and health. This study and this
report could affect pending and future tobacco regulation or litigation relating
to cigar smoking. See "--Extensive and Increasing Regulation of Tobacco
Products; 40-State Tobacco Litigation - Proposed Settlement" and "Business --
Government Regulation, Tobacco Industry -- Litigation."
Risks Relating to Supply of Cigars. We primarily sell moderately-priced
cigars which are hand-rolled or machine-made and use tobacco aged six months to
two years. There is an abundant supply of tobacco available in a number of
countries for the types of cigars we primarily sell. We also, however, sell a
limited number of higher priced premium cigars which require longer-aged
tobacco. Our ability to acquire in the future may be constrained by a shortage
of premium cigars made with longer-aged tobacco. At times, producers have
suspended shipping certain brands of cigars when excessive demand results in a
shortage of properly aged and blended tobacco. Accordingly, we cannot assure
that increases in demand would not adversely affect our ability to acquire
higher priced premium cigars.
Demand for Cigars and Inventory. While the cigar industry has experienced
increasing demand for cigars during the last several years, there can be no
assurance that the trend will continue. If the industry does not continue as we
anticipate or if we experience a reduction in our demand for whatever reason, we
may temporarily accumulate excess inventory which could have an adverse effect
on PCI's business or results of operations.
Social, Political and Economic Risks Associated with Foreign Operations and
International Trade. We purchase virtually all of our premium cigars from
manufacturers located in countries outside of the U.S., including the Dominican
Republic, Mexico, Honduras, Nicaragua and the Philippines. Social, political and
economic conditions inherent in foreign
8
<PAGE>
operations and international trade may change, including changes in the
laws and policies that govern foreign investment and international trade. To a
lesser extent, social, political and economic conditions may cause changes in
U.S. or Canadian laws and regulations relating to foreign investment and trade.
Social, political or economic changes could, among other things, interrupt cigar
supply or cause significant increases in cigar prices. In particular, political
or labor unrest in the Dominican Republic, Mexico or Honduras could interrupt
the production of premium cigars, which would inhibit us from buying inventory.
Accordingly, we cannot assure you that changes in social, political or economic
conditions will not have a material adverse effect on our business.
Risks Relating to Trademarks. A portion of PCI's proposed business involves
supplying exclusive "private label" cigars to certain customers. The brand names
used for such private labels will be important, and we intend to apply for
federal trademark and tradename protection, relying primarily on trademark law
to protect brand names. We do not currently own any federally registered
trademarks or tradenames, and our failure to obtain trademark protection, or
illegal use of any trademarks we may obtain, may have an adverse effect on our
business, financial condition and operating results.
We intend to register our trademarks in the U.S. and Canada. The laws of
countries outside of the U.S. and Canada may afford us little or no effective
protection of trademarks. We do not currently hold the right to use any
trademarks or brand names.
We cannot assure that claims for infringement or invalidity, or claims for
indemnification resulting from infringement claims, will not be asserted or
prosecuted against PCI. Any such claims, with or without merit, could be
time-consuming to defend, result in costly litigation and divert management's
attention and resources.
Competition. The cigar industry in general is dominated by a small number
of companies which are well known to the public. As a distributor of premium
cigars, PCI generally competes with a smaller number of less well-known,
primarily regional, distributors including Southern Wine and Spirits, Specialty
Cigars, Inc., Cohabico, Old Scottsdale Cigar Company, Inc. and many other small
tobacco distributors and jobbers. The larger cigar manufacturing and wholesale
companies such as 800 JR Cigar Company, Inc., Consolidated Cigar Company, Culbro
Corporation, General Cigar Company, Swisher, Caribbean Cigar Company and US
Tobacco have not yet entered the retail distribution market but may do so in the
future. These cigar manufacturing and wholesale companies, along with major
cigarette manufacturers, have larger resources than PCI and would, if they enter
the cigar distribution market, constitute formidable competition of our
business. We cannot assure you that PCI can compete successfully in any market.
See "Business -- Competition."
Shares Issuable Pursuant to Warrants and Options. Currently, other than the
400,000 Bridge Warrants and options to purchase 20,000 shares of Common Stock
held by a director, there are no outstanding warrants or options. The options
held by Mr. Anthony and exercisable at the Offering Price. The Bridge Warrants
are exercisable at 50% of the Share price in this Offering, and Bridge Warrant
holders are likely to exercise them, if at all, at a time when PCI would
otherwise be able to obtain capital on terms more favorable than those provided
in the Bridge Warrants.
9
<PAGE>
Dependence on Management. PCI's business is largely dependent on its
ability to hire and retain quality managers. PCI has employment agreements with
officers and directors Steven A. Lambrecht, Colin Jones and Greg P. Lambrecht
and a Business Consulting Agreement with David S. Hodges. The loss of Messrs.
Steven or Greg Lambrecht, Jones or Hodges could have a material adverse effect
upon our business and prospects. PCI does not currently maintain key-man life
insurance on any of its employees, but is required to maintain $1,000,000 in
key-man life insurance on Steven A. Lambrecht at least until March 31, 2002,
according to the terms of PCI's Underwriting Agreement with the Underwriter.
Limited Insurance Coverage. We carry general liability insurance with an
aggregate limit of $10,000,000, and product liability and health hazard
insurance. These policies also cover our suppliers, manufacturers and retail
outlets, however we cannot assure you that PCI will not be subject to liability
which is not covered beyond the limits of its general liability, product
liability and health hazard insurance coverage, and which may have a material
adverse effect upon its business. See "Business -- Government Regulation;
Tobacco Industry Litigations."
Control by Management. As of June 24, 1997, approximately 76% of the
outstanding Shares were owned by PCI's officers and directors, and they may be
able to elect all of the directors and continue to control PCI. Upon completion
of this offering, and assuming full exercise of the Bridge Warrants, PCI's
officers and directors will own approximately 33% of the then issued and
outstanding shares.
Possible Failure to Obtain Listing on The Nasdaq SmallCap Market(sm) and
Market Illiquidity. We intend to list our Common Stock in The Nasdaq SmallCap
Market. If PCI is unable to satisfy Nasdaq's requirements for continued listing,
the Common Stock will not be listed on The Nasdaq SmallCap Market. In that
event, trading, if any, would be conducted in the over-the-counter market in the
so-called "pink sheets" or the OTC Bulletin Board, established for securities
that do not meet The Nasdaq SmallCap Market listing requirements. Consequently,
the liquidity of our securities could be impaired, not only in the number of
securities which could be bought and sold, but also through delays in the timing
of transactions, reduction in security analysts' and the news media's coverage
of PCI, and lower prices for PCI's securities.
Risks of Low-priced Stocks; Penny Stock Regulations. If our securities are
not listed on The Nasdaq SmallCap Market, they may become subject to Rule 15g-9
under the 1934 Act, which imposes additional sales practice requirements on
broker-dealers which sell such securities to persons other than established
customers and institutional accredited investors. For transactions covered by
this rule, a broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser's written consent to the transaction
prior to sale. Consequently, the rule may affect the ability of broker-dealers
to sell our Shares and may affect the ability of holders to sell PCI Shares in
the secondary market.
The Commission's regulations define a "penny stock" to be any equity
security that has a market price less than $5.00 per share or with an exercise
price of less than $5.00 per share, subject to certain exceptions. The penny
stock restrictions will not apply to PCI Shares
10
<PAGE>
if the Shares are listed on The Nasdaq SmallCap Market and PCI provides certain
price and volume information provided on a current and continuing basis or meet
certain minimum net tangible assets or average revenue criteria. We cannot
assure you that PCI's securities will qualify for exemption from these
restrictions. If PCI's Shares were subject to the penny stock rules, the market
liquidity for the Shares could be severely adversely affected.
No Common Stock Dividends Anticipated. We intend to retain any future
earnings to fund the operation and expansion of our business. We do not
anticipate paying cash dividends on our Common Stock in the foreseeable future.
Shares Eligible for Future Sale. All of the currently issued and
outstanding PCI Shares are "restricted securities" as that term is defined under
Rule 144 promulgated under the Securities Act. Of the 1,480,500 presently
outstanding Shares, none will become eligible for sale pursuant to Rule 144
prior to December 31, 1997. Thereafter, at various times through June 20, 1998,
1,480,500 Shares will become eligible for sale pursuant to Rule 144. However,
the holders of all 1,480,500 Shares have agreed that they will not sell their
shares for eighteen (18) months, respectively, from the date of this Prospectus,
without the prior approval of the Underwriter. We are unable to predict the
effect that sales made under Rule 144 or other sales may have on the then
prevailing market price of the Shares.
Dilution. Purchasers of Shares will experience immediate and substantial
dilution of $2.62 in net tangible book value per Share from the assumed Offering
Price of $5.01. See "Dilution."
No Prior Market for Shares; Determination of Public Offering Price. Prior
to the Offering, there has been no public market for the Shares. We cannot
assure you that any trading market for the Shares will exist following the
Offering or that investors in the Shares will be able to resell their Shares at
or above the Offering Price. The Offering Price for the Shares will be
determined through negotiations between PCI and the Underwriter's
Representative, and may not be indicative of the market price of the Shares
after the Offering. See "Underwriting."
11
<PAGE>
USE OF PROCEEDS
The net proceeds we receive from the sale of 2,000,000 Shares, assuming an
Offering Price of $5.01 per Share, and after deducting underwriting discounts
and commissions and estimated Offering expenses, are estimated to be $8,342,400
($9,650,000 if the Underwriter's over-allotment option is exercised in full). We
expect to use the proceeds (assuming no exercise of the Underwriter's
over-allotment option) as follows:
Application of Approximate Approximate
Net Proceeds Dollar Percentage
-------------- Amount of Net
----------- Proceeds
--------
Repayment of Indebtedness(1)............... $1,000,000 12.0%
Purchase of Cigars and Accessories(2)...... 1,900,000 22.8
Purchase of Humidors(3).................... 4,287,400 51.4
Sales and Marketing (4).................... 700,000 8.4
Working Capital and general corporate
purposes(5)................................ 455,000 5.4
------- ----
Total................................ $8,342,400 100.0%
========== =====
(1) Represents the repayment of the Bridge Notes issued in 1997 with a total
principal amount of $1,000,000. The principal of the Bridge Notes accrues
interest at a rate of 8% per annum until the Offering and at 16% per annum
thereafter. The Bridge Notes are due on the earlier of the consummation of
this Offering or two years from this issuance.
(2) We will need to maintain adequate inventory levels to support high sales
turnover at retail. Stores will keep only enough stock to fill their
countertop humidor due to the care required to maintain cigar freshness. In
addition, deposits are required on some overseas production orders.
(3) Humidors represent a major use of proceeds from PCI to supply thousands of
stores with custom-designed countertop display humidors.
(4) Sales and marketing expendiures represent spending for trade relations
events and support to further develop our relationships with major charge
accounts and national distributors.
(5) We intend to maintain a minimum level of working capital for general
corporate purposes such as advertising, customer education, deposits and
other prepaid assets.
We intend to use these net proceeds to continue, and further accelerate,
the rollout of PCI Cigar Program with national chain accounts throughout the
United States and Canada. Our goal is to reach 10,000 retail outlets by the end
of this fiscal year, March 31, 1998, and add 10,000 stores each year. Our
aggressive growth plans require extensive working capital to supply each store
with a custom designed humidor, premium cigars and accessories.
In addition, we plan to use over $1,000,000 to retire the Bridge Financing
indebtedness and accrued interest. See "INTERIM FINANCING -- Bridge Financing
and Bridge Warrants."
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of PCI as of March 31,
1997, and as adjusted to reflect the sale in April to June 1997 of Bridge
Warrants to purchase 400,000 Common Shares, and giving effect to the sale of
2,000,000 Shares at $5.01 per Share, and exercise of the Bridge Warrants.
MARCH 31, 1997
ACTUAL AS ADJUSTED
------ -----------
(Unaudited)
Long-term liabilities due to Stockholder: $ 110,000 $ 0
Stockholders' equity:
Common Stock, no par value per share,
10,000,000 shares authorized, 1,480,500
shares issued and outstanding and
3,880,500 shares issued and outstanding as
adjusted......................................... 217,050 9,459,450
Accumulated deficit.............................. (153,517) (153,517)
--------- -----------
Total Stockholders' equity......................... 63,533 9,305,933
--------- -----------
Total Capitalization.......................... $ 173,533 $ 9,305,933
========= ===========
DILUTION
The difference between the public offering price per share of Common Stock
and the as adjusted pro forma net tangible book value per share of Common Stock
after this Offering constitutes the dilution to investors in this Offering. Net
tangible book value per share is determined by dividing the net tangible book
value (total assets less intangible assets and total liabilities) by the number
of outstanding shares of Common Stock.
At March 31, 1997, the net tangible book value of the Company was ($22,403)
or ($.02) per share of Common Stock. At March 31, 1997, after giving effect to
the sale of the Common Stock offered hereby at an assumed initial Offering price
of $5.01 per share (less underwriting discounts and commissions and estimated
expenses of this Offering) and the exercise of the Bridge Warrants, the as
adjusted pro forma net tangible book value at that date would be $9,273,547 or
$2.39 per share. This represents an immediate increase in the adjusted pro forma
net tangible book value of $2.41 per share to existing stockholders and an
immediate dilution of $2.62 per share to new investors, or approximately 52% of
the assumed Offering price of $5.01 per share.
13
<PAGE>
The following table illustrates the per share dilution to new investors
without giving effect to the results of operations of PCI subsequent to March
31, 1997:
Assumed public offering price................................. $5.01
Pro forma net tangible book value at March 31, 1997........ ($ .02)
Increase attributable to new investors..................... $2.41
Net tangible book value after Offering........................ $2.39
-----
Dilution to new investors..................................... $2.62
=====
The following table summarizes the number and percentage of shares of
Common Stock purchased from PCI, the amount and percentage of consideration
paid, and the average price per share paid by existing stockholders and by new
investors in this Offering.
Total Consideration
Shares ------------------- Average
Number Percent Amount Percent Price
------ ------- ------ ------- Per
Share
-----
Existing Shareholders 1,480,500 33.15% $ 217,050 1.94% $ .15
Bridge Warrants 400,000 10.31% $ 1,000,000 8.91% $2.50
Public Investors 2,000,000 51.54% $10,020,000 89.15% $5.01
--------- ----- ----------- -----
Total 3,880,500 100.00% $11,237,050 100.00%
========= ====== =========== ======
The above table assumes no exercise of (i) the Underwriters' over-allotment
option, (ii) the Representative's Warrants. "Risk Factors - Immediate and
Substantial Dilution," "Underwriting," and "Description of Securities."
14
<PAGE>
SELECTED HISTORICAL AND PROFORMA CONSOLIDATED FINANCIAL INFORMATION
Set forth below is selected Historical and proforma Consolidated financial
information with respect to PCI from June 1, 1996 (inception of cigar
distribution activities) to March 31, 1997. The selected consolidated financial
information has been derived from the consolidated financial statements which
appear elsewhere in this Prospectus. This data should be read in conjunction
with the consolidated financial statements of PCI and their related notes.
JUNE 1, 1996
TO
MARCH 31, 1997
HISTORICAL PRO FORMA(1)
---------- (Unaudited)
-------------
Consolidated Statement of Operations:
Sales $ 845,571 $ 845,571
Cost of sales 643,790 643,790
--------- ---------
Gross Profit 201,781 201,781
Selling, General and Administrative 333,776 333,776
--------- ---------
Loss from operations (131,995) (131,995)
Interest expense and Miscellaneous 21,522 1,722
Net loss (153,517) (133,717)
========= =========
Weighted average shares outstanding 1,480,500 3,880,500(2)
========= =========
Loss per share $(.10) $(.03)
========= =========
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficiency) (82,169) 9,103,781
Total assets 523,461 9,655,861
Total liabilities 459,928 349,928
Stockholders' equity $ 63,533 $ 9,305,933
(1) Assumes issuance of the Offering receipt conversion of the Bridge
Financing, and conversion of the Warrants.
(2) Assumes issuance of 2,000,000 shares in the Offering and conversion of the
Bridge Warrants into 400,000 shares of common stock.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS
General
PCI was incorporated in Arizona on December 16, 1996, to be a national and
international distributor of fresh, premium cigars in high traffic retail
outlets.
To date, we have placed the PCI Cigar Program, which includes supplying
humidors, cigars, service, and information in over 1,400 stores in the United
States and Canada. We are currently expanding with national retail and
distribution accounts in both countries. Our objective is to place the PCI Cigar
Program in as many high volume convenience, gas, grocery and drug stores and
outlets as possible.
PCI's primary focus is selling premium cigars priced at retail from $1 to
$8. We market a broad range of brands as well as in-house, private label brands.
The original founders, Colin Jones and Greg Lambrecht, have been supplying and
distributing premium cigars through convenience stores and other high volume
outlets since June, 1996, and each has more than 12 years of experience
supplying various consumer products to retail outlets.
PCI has arrangements and agreements with national chain accounts to supply
cigars and in-store humidors for direct delivery distribution and in-store
merchandising in the United States and Canada. Customers include Southland USA
and Southland Canada (7-Eleven). AM/PM, Circle K, Associated Grocers, SuperValu,
McLane Company, and numerous independent accounts.
In addition, PCI has developed several relationships with cigar
manufacturers and suppliers of cigars from the Dominican Republic, Mexico and
the Philippines. The Company is expanding its sources for cigars and
accessories.
PCI has experienced rapid growth in a competitive industry, and we are
working to become an industry leader in distributing cigars to convenience
stores and other high traffic retail outlets. Over the next five years, we
believe that we have the opportunity to place the PCI Cigar Program in over
50,000 retail stores.
You must read the following discussion of the results of the operations and
financial condition of PCI in conjunction with PCI's consolidated financial
statements, including their notes included elsewhere in this Prospectus.
Historical results and percentage relationships among accounts are not
necessarily an indication of trends in operating results for any future period.
The consolidated financial statements present the accounts of PCI and its
wholly-owned subsidiary, CAN-AM, as well as the predecessor cigar sales activity
of J&M and Rose Hearts. All significant intercompany balances and transactions
have been eliminated in consolidation.
16
<PAGE>
Results of Operations
The following table sets forth the percentage of revenue represented by
certain items reflected in PCI's consolidated statements of operations for the
period from the date of inception, June 1, 1996 through March 31, 1997:
Sales 100.0%
Cost of sales 76.1
-----
Gross margin 23.9
Selling, general, and
administrative expenses 39.5
-----
Loss from operations (15.6)
Interest and miscellaneous 2.5
-----
Net Loss (18.1)%
=====
Sales
Sales of cigars and cigar accessories for the ten month period ended March
31, 1997 were $845,571.
Cost of Sales
Cost of sales for the period from the date of inception, June 1, 1996
through March 31, 1997 was $643,790, with a gross profit of approximately 24%.
Our goal is to establish a consistent gross profit percentage in the range of
30% to 35%. Gross profit for the 10-month period ended March 31, 1997 was lower
due to the lack of volume purchase bargaining power during the initial start-up
phase.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses for the period from the date
of inception, June 1, 1996 through March 31, 1997, were $333,776, or 39.5% of
sales. These costs were disproportionately high during the initial 10 months of
operations due to the addition of personnel to establish market positions with
various national chains. In addition, administrative costs increased
significantly as we prepared for our increased volume and the anticipated
Initial Public Offering.
Seasonality
PCI has experienced consistent growth in monthly sales volume throughout
its first year of operations, hampered only by inadequate capital to fund
expansion. However, as PCI increases its market penetration, it may experience
some seasonality in revenues that is not currently discernable.
17
<PAGE>
Liquidity and Capital Resources
PCI requires capital to market its PCI Cigar Program, obtain additional
inventory and humidors to supply its increased distribution network, and develop
the infrastructure necessary to support PCI's expanding business. During the
period from the date of inception, June 1, 1996, through March 31, 1997, PCI
financed its operating and business development activities through Notes Payable
of approximately $180,000, and sales of Common Stock of approximately $207,000.
These funds were used to acquire equipment in the approximate amount of $23,000,
humidors in the approximate amount of $71,000, pay organizational and deferred
offering costs in the approximate amount of $86,000, and advance funds to
affiliates to pay their prior commitments, in the approximate amount of $86,000.
Subsequent to March 31, 1997, PCI obtained additional bridge financing in
the amount of $1,000,000 (inclusive of conversion of existing debt of $100,000)
which has been used primarily to fund additional expansion of operations. PCI
currently has no other credit facilities available.
We believe that the net proceeds of this Offering, together with cash flows
from operations and a business credit line, will be sufficient to meet our
anticipated expansion and working capital needs for the next 24 months. However,
we may raise capital through the issuance of long-term or short- term debt or
the issuance of securities in private or public transactions to fund future
expansion of our business either before or after the end of the 24-month period.
There can be no assurance that acceptable financing for future transactions can
be obtained.
18
<PAGE>
BUSINESS
Introduction
Historically, premium cigars and cigar-related accessories have been sold
through traditional specialty tobacco retail stores. Our PCI Cigar Program
distributes moderately-priced premium and other cigars through convenience
stores, grocery and drug stores, gas stations and other high-traffic retail
locations that traditionally have not sold premium cigars, which require special
care. We have designed, and have manufactured for us, humidors which we deliver
to each store. Our humidors maintain premium cigars in an appropriately
humidified environment, and we periodically re-stock the humidors. PCI currently
distributes premium cigars in 22 of the United States, and in five Canadian
provinces through CAN-AM, a wholly-owned subsidiary. We are expanding our
business with existing and new accounts throughout the United States and Canada.
We are capitalizing on the increase in demand for premium cigars in the
United States and Canada. Using direct delivery, as well as large and small
distributors, we supply and distribute name brands, as well as our own private
label brands of premium and other cigars, at various moderate price levels,
primarily from $1 to $8.
Traditionally, convenience stores, grocery and drug stores, gas stations
and other locations sold cigarettes, little cigars, and non-humified mass market
(dry) cigars such as White Owls(TM), Tipparillos(TM), and Swisher Sweets(TM).
Those stores lacked both access to a supply of fresh (humidified) premium and
other cigars and the expertise to effectively maintain and service premium
cigars. As a result, cigar smokers could buy premium cigars only at specialty
tobacco shops. Our two sales Vice Presidents, Colin Jones and Greg Lambrecht,
have each been in the business of supplying and distributing premium cigars
through convenience stores since June 1996, and each has 12 or more years
experience supplying various other products to convenience store chains and
other retail outlets.
We have developed and will continue to develop relationships with tobacco
suppliers, and are expanding our commercial and technical support systems to (i)
secure a variety of sources for products, (ii) ensure product quality, and (iii)
maximize cost savings.
We have negotiated and have entered into agreements to supply premium and
other cigars and in-store humidors for direct delivery distribution and in-store
merchandising and are currently servicing over 1,400 convenience stores in the
States of: Washington, Oregon, California, Arizona, Texas, Kansas, Missouri,
Utah, Idaho, Alaska, Nevada, Oklahoma, Maryland, Virginia, Colorado, Illinois,
Michigan, Wisconsin, Nebraska, Georgia, Montana and Florida; and in the Canadian
Provinces of: British Columbia, Alberta, Saskatchewan, Manitoba and Ontario. We
have identified more than 10,000 retail outlets as potential PCI accounts in
these states. Our current customers include stores affiliated with Southland
Canada (7-Eleven), Southland USA (7-Eleven), AM/PM, Circle K, SuperValu and
Associated Grocers. Our goal is to place a high quality
19
<PAGE>
humidor selling premium cigars and accessories in every convenience store and
high traffic retail outlet.
The Expanding Cigar Market
In recent years, cigar smoking has regained popularity in the United
States. Consumption and sales of cigars, particularly premium cigars, have
increased significantly since 1993. After declining from its peak in 1964, sales
of cigars in the U.S. increased to 4.4 billion units in 1996 from 3.4 billion
units in 1993. Sales of premium cigars, which had remained essentially flat
since 1981 despite continued declines in mass market cigar sales, increased at a
compound annual unit growth rate ("CAGR") of: 2.4% from 1976 to 1991; 13.9% from
1991 to 1995; and 67.0% from 1995 to 1996. Led by growth in premium cigars, the
U.S. cigar market grew at an annual rate of 8.7% from 1993 to 1996.
The growth rate in premium cigar imports continued to accelerate in 1996
and thus far in 1997. Premium cigar imports in January 1997 more than doubled
compared to January 1996, with almost 24 million cigars imported in January 1997
compared to 11 million cigars in January 1996. (Source: The Cigar Insider).
Sales of premium cigars have more than doubled in the span of three years. Sale
of mass market cigars grew at a CAGR of 7.2% from 3.3 billion units in 1993 to
4.1 billion units in 1996. Overall growth in retail sales of cigars was
primarily a combination of a shift in the sales mix to more expensive cigars as
well as the increased number of cigars being sold.
We believe that the increase in cigar consumption and retail sales is the
result of a number of factors, including:
(i) the improving image of cigar smoking resulting from increased
publicity, including the success of Cigar Aficionado(TM), Cigar Lover(TM),
Smoke(TM) and The Cigar Insider(TM) magazines and the increased visibility
of cigar smoking by celebrities (such as Arnold Schwarzenegger, Mel Gibson,
Demi Moore, Michael Jordan, Wayne Gretzsky and Jack Nicholson);
(ii) the emergence of an expanding base of younger, highly educated,
affluent adults age 25 to 40 and the growing interest of this group in
luxury goods, including premium cigars;
(iii) the increase in the number of "baby boomer" adults over the age
of 40 (a demographic group believed to smoke more cigars than any other
demographic group);
(iv) an increased number of women smoking cigars; and
(v) the proliferation of establishments, such as restaurants and
clubs, where cigar smoking is encouraged, as well as "cigar smokers"
dinners and other special events for cigar smokers.
20
<PAGE>
"Cigars have recaptured their traditional image as a symbol of success,
celebration and achievement it is now seen as an item of quality in keeping with
such other quality items as gourmet coffees, fine wines, beer from
micro-breweries, single malt scotches and single barrel bourbons." (Norman F.
Sharp President, Cigar Association of America).
Categories of Cigars
Cigars are divided into three principal categories: premium cigars, mass
market cigars and little cigars.
Premium Cigars. Most premium cigars are imported, hand-rolled cigars made
with long filler and all natural tobacco leaf. Other moderately-priced premium
cigars use a combination of short and medium filler, are hand-rolled with all
natural wrappers and are kept humidified. The Dominican Republic, Honduras and
Jamaica collectively accounted for approximately 84.0% of premium cigars
imported into the U.S. in 1995. Many of the finest premium cigars sold in the
U.S. trace their roots to pre-Castro Cuba and the Cuban emigres who continued
making premium cigars in Jamaica, Honduras, the Dominican Republic and Florida.
PCI distributes primarily moderately-priced premium cigars, but also distributes
a limited number of higher-priced premium cigars.
Mass Market Cigars. Mass market cigars generally are domestic, machine-made
cigars that use less-expensive short filler tobacco and are made with tobacco
binders and either homogenized sheet wrappers or natural leaf wrappers. Unit
sales of more expensive mass market cigars, using natural leaf wrappers, grew by
12.9% in 1995, as consumers appear to have shifted to more expensive, higher
quality mass market cigars. We distribute a significant number of high quality,
natural leaf wrapper, mass market cigars.
Little Cigars. Little cigars are the lowest priced cigars. Little cigars
weigh less than three pounds per 1,000, and may have filters. Little cigars are
domestic, machine made cigars that use short filler tobacco and homogenized
sheet wrapper. Little cigars are not made with binders. Although little cigars
are traditionally not humidified, we sell little cigars in our custom display
humidors. PCI distributes a significant number of unfiltered little cigars.
The following table illustrates the trends in unit consumption and retail
sales for the premium and mass market segments of the U.S. cigar industry from
1991 to 1996(a):
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
(in millions)
UNIT SALES:
PREMIUM 97.2 98.9 109.5 125.5 163.9 274.3
MASS MARKET 3,433.3 3,419.2 3,313.8 3,592.6 3,806.4 4,122.3
------- ------- ------- ------- ------- -------
TOTAL 3,530.5 3,518.1 3,423.3 3,718.1 3,970.3 4,396.3
======= ======= ======= ======= ======= =======
RETAIL SALES $ 705.0 $ 715.0 $ 730.0 $ 860.0 $1,005.0 --
21
<PAGE>
(a) Source - Cigar Associates of America, Inc. ("CAA"). CAA's premium cigar
data includes cigars imported from seven leading supplier countries,
including the United States. U.S. premium cigar production was
approximately 5.0 million units in 1995.
Currently, all segments of the premium cigar industry are growing rapidly,
from the low and moderately-priced premium cigars which we market to the large
"high priced" cigar brands sold by established cigar/tobacco retail specialty
shops. We believe that large importers and manufacturers of premium cigars will
continue to distribute their nationally advertised, leading brands primarily
through local cigar/tobacco stores. As and if our market demands, we intend to
sell a larger number of higher quality premium cigars.
Cigar Production
According to statistics compiled by The Cigar Insider, the Dominican
Republic produces and exports more premium cigars into the United States than
any other country in the world. It has a strong lead over all other cigar
exporting nations, with nearly 50% of the market. Industry experts rate cigars
manufactured in the Dominican Republic third in the world in quality, trailing
only those from Cuba and Jamaica.
Cuban cigars cannot be exported into the United States as a result of the
1962 trade embargo. Neither PCI nor its wholly-owned subsidiary CAN-AM currently
distributes or engages in any transactions involving Cuban cigars or any
products of Cuban origin in any of their operations, whether in the United
States, Canada or elsewhere. PCI's standard form supplier agreement strictly
prohibits its suppliers from providing any product containing any component of
Cuban origin.
Cigar Purchasing; Private Label and Custom Brands
Although historically PCI's largest supplier accounted for approximately
71% of our cigar purchases (and a higher percentage in Canada), we currently
purchase cigars and accessories from over 19 different sources. As we have
increased the volume of our cigar purchases, vendors have offered more favorable
terms.
We have an exclusive supply contract with a company in the Dominican
Republic which currently can manufacture 60,000 cigars a month and potentially
source up to an additional 240,000 premium cigars per month. This contract
expires in July 1997, and is currently being renegotiated. We currently purchase
cigars manufactured in the Dominican Republic, Mexico, Honduras, Nicaragua and
the Philippines, and are working to establish relationships with additional
cigar manufacturers in the Dominican Republic.
In addition to brands distributed by our suppliers, we also sell private
label cigars manufactured to our specifications by various suppliers.
22
<PAGE>
We are negotiating with additional suppliers and customers to expand our private
label operations, although we cannot assure that we will be successful. We will
continue to purchase cigars manufactured by others as they become available on
the open market, from time to time. Our cigars are generally purchased from
various suppliers to meet demands at our sales price points.
The recently publicized shortage of premium cigars has focused on the large
importers and manufacturers that distribute well known "high priced" premium
cigars to the local cigar/tobacco stores. We believe that the shelves of local
cigar/tobacco stores have been, and will continue to be, low on stock due to
brand name manufacturers not being able to meet the demand for their high
priced, premium cigars. Supplies of the moderately-priced premium cigars we sell
have remained more than adequate.
Our Expansion Plans
Our strategy for continuing growth and achieving earnings involves filling
a market niche by providing affordable, premium cigars that are conveniently
accessible to the cigar smoking public. The PCI Cigar Program includes several
components, including:
Cigar Purchasing and Supply. Most of the cigars we sell are high quality,
low to medium priced, premium cigars that are currently available in large
quantities and are affordable.
We do business with, and are continually negotiating agreements with, cigar
importers and manufacturers which have relationships with tobacco plantations in
the Dominican Republic and Mexico. The Dominican plantations with which we deal
are located in the same valley which produces tobacco used in high priced
premium cigars, and we believe that our suppliers produce cigars of similar high
quality. However, we believe we can purchase and distribute these cigars at
significantly lower prices than those made by the brand name manufacturers. We
intend to maintain the manufacturers' labels which they use in their Country's
local markets, and have begun to create our own private labels which may be
banded on these premium cigars.
We believe that we have built satisfactory supply relationships and are
currently working with various cigar importers to assure that PCI will have an
adequate supply of cigars at each key retail price point. We anticipate rapid
expansion during the next few years, and we expect to add new suppliers to
broaden our access to quality cigar and cigar accessories. We are also securing
rights to distribute and place several different in-store humidors.
Regional Direct Distribution and Sales Companies. We have entered into
arrangements or agreements with three regional direct distribution and sales
companies to supply them with premium cigars and in-store humidors in mass
quantities. These regional direct distribution and sales companies will, in
turn, sell, deliver direct to the stores, service, and merchandise the PCI Cigar
Program. We have provided distributors with large humidors for quantity storage
of cigars at distribution warehouses. We believe that these relationships will
23
<PAGE>
allow us to expand the PCI Cigar Program rapidly throughout the western United
States. We intend to continue to utilize and expand this sales, distribution and
merchandising strategy with similar regional direct distribution and sales
companies throughout the rest of the U.S. and possibly Canada.
Price Point Supply Systems. We have developed a price point based ordering
system to eliminate complications of brand-specific product ordering, minimize
stock shortages, and more effectively meet demand. We group our cigars by retail
price point. Store personnel simply select the amount of cigars needed at each
price point and phone or fax in the order. We then fill the order with cigars in
stock which fall within the price point grouping. It is possible to order cigars
by name, but the PCI Cigar Program provides that if a particular brand is not in
stock when the order is taken, then a comparable cigar within the price point
will be substituted.
Extensive Education and Training Program. We believe that proper education,
training, and support of store personnel can enhance the PCI Cigar Program by
providing knowledge and awareness of brand popularity, cigar characteristics,
care of humidors, and proven selling techniques. We have developed the "Premium
Cigars International Comprehensive Guide to Premium Cigars" for distribution to
store managers and employees, and a separate comprehensive package for
distributors that introduces and explains the PCI Cigar Program in detail.
State of the Art Management/Accounting Information Systems. Customer
service and support are key factors in the success of the PCI Cigar Program. We
have acquired and are implementing a modern, mid-sized integrated information
system throughout PCI to support a business strategy which includes call
management, order entry, credit and collection, inventory management, accounting
and reporting, and decision management tools.
Utilizing Distribution Companies And Telemarketing. We are expanding the
PCI Cigar Program through the McLane Company and other distributors that
currently deliver items every day to convenience stores, grocery stores, gas
stations and restaurants throughout the United States and Canada. We believe we
can use established national distributors to enable us to expand rapidly to
thousands of stores who are already serviced by these large distributors. By
using distributors, we can consolidate the invoicing of thousands of stores and
drop ship large quantities of cigars and humidors to the distributors' regional
warehouses or distribution centers for delivery directly to retail stores. We
plan to increase the number of telemarketers we use so that stores being
serviced by distributors will be called regularly to check on supply, chart
sales, give tips on selling and placement of the humidors, and ensure that the
store managers know how to care for the humidors.
Advertising and Promotions; Spokesperson. We intend to support the
distribution of our cigars through advertising in numerous publications,
including Cigar Aficionado, Smoke, Cigar Lovers, The Cigar Insider and other
publications oriented to the type of person whom, we believe, smokes premium
cigars. We also intend to expand our advertising and marketing through
promotions
24
<PAGE>
distributed at our points of sale and through direct mail, and participation in
trade shows. Recently we signed an agreement with Arie Luyendyk, winner of this
year's Indianapolis 500, to be a spokesperson for PCI. Our logo is displayed on
his helmet, and he will support us through personal appearances.
Company History
PCI was incorporated in Arizona in December, 1996, and shortly thereafter
acquired CAN-AM International Investments Inc., a Canadian corporation
("CAN-AM") which owned all cigar accounts, inventory and humidors formerly owned
by Rose Hearts Inc. ("Rose Hearts") of Seattle, Washington, and J&M Wholesale,
Inc. ("J&M") located near Vancouver, B.C.
PCI's National and International Sales Managers, Colin Jones and Greg
Lambrecht, through J&M and Rose Hearts, respectively, developed their concept of
selling premium cigars using in-store countertop humidors in convenience stores,
grocery stores and other retail outlet markets in June of 1996. Colin Jones owns
and operates J&M, a 12-year old regional supplier and distributor of impulse
purchase products to the convenience store market in British Columbia, Canada.
Greg Lambrecht owns and operates Rose Hearts, a 14-year old supplier and
distributor of impulse purchase products to convenience stores and grocery
stores in the northwestern United States including Washington, Oregon, Northern
California, and Montana.
Canadian Sales; CAN-AM. With an average of over 12 years of distribution
experience in the convenience store industry, Colin Jones and Greg Lambrecht
created a new company, CAN-AM, to establish a premium cigar program with
7-Eleven in five Canadian Provinces. They believe that CAN-AM was the first
company to market premium cigars sold out of in-store humidors to a Canadian
national convenience store chain.
The first major presentation of what is now the PCI Cigar Program was to
Southland Corporation of Canada (7-Eleven). An initial test was conducted in 45
stores in Vancouver, B.C. and 15 stores in Edmonton, Alberta, with a possibility
of expansion in 60 days if the test market was successful. After three weeks,
the premium cigar program was so successful that 7-Eleven began a national
program, and the PCI Cigar Program is currently in all 464 7-Eleven stores
across Canada. With a warehouse near Vancouver B.C., a national distribution
system, and a telemarketing service, current CAN-AM sales to 625 stores are
approximately $400,000 (unaudited) per quarter or $1,600,000 (unaudited) per
year.
CAN-AM secured a strong foothold in the convenience industry with 7-Eleven
stores, and is pursuing expansion through chains such as Mac's and Petro-Canada,
as well as other independent retail outlets. Numerous retail outlets have
approached CAN-AM to supply them with the PCI Cigar Program. Over the past
several months, CAN-AM has secured over 625 retail outlets in Canada and is
rapidly expanding to large chain stores and through distributors.
U.S. Sales. Our United States operations distribute to 802 stores in 18
states. PCI U.S. sales in the month of June will be approximately $150,000
(unaudited), or $1,800,000 (unaudited) per year.
25
<PAGE>
Rose Hearts. The PCI Cigar Program has been established in the northwest
United States by Rose Hearts and Greg Lambrecht. Rose Hearts, as a distributor,
services PCI Cigar Program accounts in stores affiliated with 7-Eleven, Circle
K, AM/PM, and other chains in Washington, Oregon, Idaho, northern California and
Alaska. We intend to expand into other stores across the region.
7-Eleven. Largely because of the success of the PCI Cigar Program with
Southland Canada, PCI and Southland USA have negotiated and signed a master
agreement to establish the PCI Cigar Program in all 7-Eleven corporate stores
and in all franchise stores that request the PCI Cigar Program. There are over
5,300 7-Eleven stores across the United States. Under this agreement, we intend
to add 500 stores a month through June, at which time we hope to increase to
1,000 new stores a month until our 7-Eleven rollout is complete. We currently
have a list of over 2,000 7-Eleven stores that are currently approved for
delivery of humidors and cigars in June and July. We expect to be in the
majority of those stores by the end of 1997.
McLane. We have been negotiating with the McLane Company ("McLane") for a
master agreement to place and service the PCI Cigar Program in Circle K and
other retail accounts which McLane services in the United States. Our
competitors are vying for that agreement. McLane distributes products to over
35,000 retail outlets nationwide. We believe that currently PCIis the largest
supplier of premium cigars to McLane, but we are not its sole supplier of
humidors or premium cigars. We now distribute to two of McLane's 16 divisions,
and are negotiating with other divisions. In addition to placing the PCI Cigar
Program in Circle K stores in Las Vegas and one McLane account in Arizona, we
have placed a large distributor humidor in Goodyear, Arizona, through which
McLane services its Sun West Division (Arizona and Nevada).
AM/PM. We have executed an agreement with AM/PM to place the PCI Cigar
Program in AM/PM convenience stores in Washington and Oregon. We have placed
humidors in 21 stores, and will roll out to over 100 stores, with the potential
of nearly 200 stores. If initial results are successful, we intend to present
the PCI Cigar Program to AM/PM nationwide.
Associated Grocers. We have executed an agency contract with Associated
Grocers to distribute the PCI Cigar Program to Associated Grocers' retail
outlets (421 stores) in the Northwest. We have placed humidors in over 20
Associated Grocers stores.
TexacoStar Mart. We service 22 Texaco Star Mart convenience stores in the
Northwest, and are negotiating to expand the PCI Cigar Program with Texaco.
Overall Marketing. Colin Jones and Greg Lambrecht each have been in the
impulse item distribution business for over 12 years and have established
relationships with many accounts across the United States that represent
additional retail outlets not yet selling premium cigars. PCI officers attended
the National Association of Convenience Stores ("NACS") in Las Vegas and
displayed our premium cigars and in-store humidors. Our humidors advertise the
PCI
26
<PAGE>
logo, name, and toll free number. We recently hired a celebrity spokesman, Arie
Luyendyk, to help promote the PCI Cigar Program.
We intend to grow rapidly by expanding the PCI Cigar Program distributing
moderately-priced name brand and private label quality premium cigars and other
cigars, in-store humidors, direct marketing, in-store merchandising,
telemarketing, and education and training to retail outlets in the US and
Canada. PCI has grown quickly with investor capital and bridge financing, but we
have reached a point where substantial outside capital is needed to maintain
expansion of the PCI Cigar Program.
Products
The PCI Cigar Program. We offer a "full service" program to convenience
stores and gas station outlets, grocery stores, and other high volume retail
stores. To effectively place premium cigars and in-store humidors, we use direct
distribution, and distribution through independent local/regional and national
distributors. We offer and recommend that a PCI sales representative visit each
local area to educate store managers and regional supervisors about the PCI
Cigar Program. This presentation is accompanied by the PCI "Guide to Premium
Cigars" that reviews the types of premium cigars by taste, smell, country of
origin, and, most importantly, how to effectively sell premium cigars.
The on-going success of our "full service" PCI Cigar Program depends, in
part, on tele-merchandising. Our employees call store managers at retail outlet
locations periodically to ask specific questions relating to sales volume,
humidity levels, and placement of humidors. We analyze customer feedback and
make recommendations on cigar brands and price points based upon the customer
profile and experience of a retail location. This system has been working
effectively in Canada for several months, and is being implemented in the U.S.
Humidors. We provide, and retain ownership of, all countertop humidors
shipped to retail outlets. Our humidors provide an attractive product display
and increase shelf space available for PCI's products. In addition, we have
designed and attached a magazine rack, which can be used to display and sell
trade magazines such as Cigar Aficionado and Smoke. The celebrity covers used by
such magazines, when displayed in the magazine rack provide high impact, point
of purchase signage.
Each PCI in-store humidor is a sealed case or box that displays premium
cigars in an optimal environment of humidity. Our in-store humidors come in
varying sizes that can store and display 50 to 400 cigars. The most popular
humidor is a stained, hand-made wood case with a clear plexiglass lid, which
holds 75 to 125 cigars.
PCI's in-store humidors are designed to be placed on store countertops next
to the cash register for maximum exposure. Each in-store humidor is equipped
with a humidifier unit and a humidity gauge to indicate when to soak the
humidifier in purified water. We designed a long- lasting Spanish cedar humidor
to maintain constant humidity. Point of purchase signs which
27
<PAGE>
describe the characteristics of the cigars, such as the name of the cigar,
country origin of the tobacco, size, flavor, and price are placed on the front
of each stock keeping unit ("SKU") in the in-store humidors.
Our Cigars. We distribute moderately-priced imported premium cigars, a
limited number of higher-priced finest quality premium cigars, and a significant
number of mass-market and little cigars, as well as certain accessories. We
currently distribute over 60 brands of cigars.
Premium Cigars. Our premium cigars are generally hand-rolled and sell at
retail price points above $1.00/cigar. Through the PCI Cigar Program we
distribute primarily large premium cigars with long-filler, long/medium, and
medium/short filler tobacco and high quality, natural leaf wrappers and binders.
In order to make hand-made cigars, binder tobacco is hand-wrapped around filler
to create the "bunch" which is placed into a mold. Then, "wrapper" tobacco is
hand-wrapped around the bunch, creating a premium cigar.
The manufacturing process for premium cigars includes the selection,
purchase and aging of the tobacco and hand rolling of the cigars. Tobacco is
selected based upon its flavor and quality. The availability and quality of
tobacco varies from season to season as a result of such factors as weather
conditions and the demand for the tobacco.
The taste of the cigar is based on the quality and/or blend of the tobacco.
We do our best to select premium cigars with a blend of imported fine aged
tobaccos. After tobacco is grown, it is typically aged for periods of between
three months to three years. The time period for aging cigar tobacco has been
substantially reduced in recent months due to the high demand for leaf tobacco
used for cigar manufacturing worldwide.
The cigar industry in general has recently experienced shortages in
high-priced premium cigars because of shortages of certain types of the longest
aged and highest priced natural wrapper and long filler. Currently, there is an
abundant supply from a number of countries of the moderately-priced premium
cigars of the types distributed by PCI. Although the shortages have not
materially impacted cigar production to date, we cannot assure that future
shortages will not have an adverse effect on the PCI Cigar Program.
Mass Market Cigars. Mass market cigars are machine-made and generally have
a retail price point of $1.00/cigar or less. Mass market cigars use less
expensive tobacco than premium cigars. Manufacturers use a variety of techniques
and grades of tobacco to produce mass market cigars that sell at PCI's low price
points. Mass market cigars include large cigars (weighing three pounds/1,000
cigars) and little cigars (weighing less than three pounds/1,000 cigars). We
purchase significant quantities of mass market cigars from several sources for
sale at our lowest price point.
Mass market large cigars combine natural leaf wrapper and man-made binder
made from tobacco ingredients instead of natural binder, with filler threshed
into short, tobacco ingredients
28
<PAGE>
replacing natural tobacco leaf. Flavoring and/or plastic tips are often added to
popularly priced mass market large cigars.
Price Point Supplies. Our PCI Cigar Program currently provides each
customer with a number of cigars at each price point established between PCI and
the specific store or distributor. This strategy allows us to substitute various
premium cigar brands in each price group, depending upon supplies available from
time to time. Our typical humidor displays premium cigars in three or five
different price point SKUs. In addition, we maintain large custom-designed
display case humidors with eight or more price point SKUs for selected high-
volume locations.
Competition
The cigar distribution industry is dominated by a small number of companies
which are well known to the public. We believe that, as a distributor of premium
cigars, PCI competes with a smaller number of primarily regional distributors
including Southern Wine and Spirits, Specialty Cigars, Inc., Cohabico, Old
Scottsdale Cigar Company, Inc., and many other small tobacco distributors and
jobbers. A number of larger, well-known cigar manufacturing and wholesale
companies, along with major cigarette manufacturers, have not yet entered the
retail distribution market, including 800 JR Cigar Company, Inc., Consolidated
Cigar Company, Culbro Corporation, General Cigar Company, Swisher, Caribbean
Cigar Company, US Tobacco and others. Those companies may do so in the future.
Many existing and potential competitors have larger resources than PCI and
would, if they enter the Cigar distribution market, constitute formidable
competition of our business. We cannot assure you that PCI can compete
successfully in any market.
Government Regulation; Tobacco Industry Litigation
General. The tobacco industry in general has been subject to regulation by
Federal, state and local governments, and recent trends have been toward
increased regulation. Regulations include labeling requirements, limitations on
advertising and prohibition of sales to minors, laws restricting smoking from
public places including offices, office buildings, restaurants and other eating
establishments. In addition, cigars have been subject to excise taxation at the
Federal, state and local level, and those taxes may increase in the future.
Tobacco products are especially likely to be subject to increases in excise
taxation. Future regulations and tax policies may have a material adverse affect
upon the ability of cigar companies, including PCI, to generate revenue and
profits.
Excise Taxes.
Federal Taxes. Effective January 1, 1991, the federal excise tax rate on
large cigars (weighing more than three pounds per thousand cigars) was increased
to 10.625%, capped at $25.00 per thousand cigars, and again increased to 12.75%,
capped at $30.00 per thousand
29
<PAGE>
cigars, effective January 1, 1993. However, the base on which the federal excise
tax is calculated was lowered effective January 1, 1991 to the manufacturer's
selling price, net of the federal excise tax and certain other exclusions. The
excise tax on pipe tobacco increased effective January 1, 1993 to $0.675 per
pound. The federal excise tax on little cigars (weighing less than three pounds
per thousand cigars) increased from $0.75 per thousand cigars to $0.9375 per
thousand cigars effective January 1, 1991. The excise tax on little cigars
increased to $1.125 per thousand cigars effective January 1, 1993. We do not
believe that the current level of excise taxes will have a material adverse
effect on our business, but we cannot assure that additional increases will not
have a material adverse effect on our business.
State and Local Taxes. Cigars and pipe tobacco are also subject to certain
state and local taxes. Deficit concerns at the state level continue to exert
pressure to increase tobacco taxes. Since 1964, the number of states that tax
cigars has risen from six to 42. State excise taxes generally range from 2% to
75% of the wholesale purchase price, and are not subject to caps similar to the
federal cigar excise tax. In addition, seven states have increased existing
taxes on large cigars since 1988. Five states tax little cigars at the same
rates as cigarettes, and four of these states have increased their cigarette
taxes since 1988.
State cigar excise taxes are not subject to caps similar to the federal
cigar excise tax. Increases in such state excise taxes or new state excise taxes
may in the future have a material adverse effect on our business.
Health Regulations. Cigars, like other tobacco products, are subject to
regulation in the U.S. at the federal, state and local levels. Together with
changing public attitudes toward smoking, a constant expansion of smoking
regulations since the early 1970s has been a major cause for a substantial
decline in consumption. Moreover, the trend is toward increasing regulation of
the tobacco industry.
Federal Regulation. In recent years, a variety of bills relating to tobacco
issues have been introduced in the Congress of the United States, including
bills that would have: prohibited the advertising and promotion of all tobacco
products and/or restricted or eliminated the deductibility of such advertising
expenses; set a federal minimum age of 18 years for use of tobacco products;
increased labelling requirements on tobacco products to include, among other
things, addiction warnings and lists of additives and toxins; modified federal
preemption of state laws to allow state courts to hold tobacco manufacturers
liable under common law or state statutes; and shifted regulatory control of
tobacco products and advertisements from the Federal Trade Commission to the
U.S. Food and Drug Administration (the "FDA"). In addition, in recent years,
there have been proposals to increase excise taxes on cigarettes. In some cases,
hearings were held, but only one of these proposals was enacted. That law
requires states, in order to receive full funding for federal substance abuse
block grants, to establish a maximum age of 18 years for the sale of tobacco
products along with an appropriate enforcement program. The law requires that
states report on their enforcement efforts. Future enactment of the other bills
may have an adverse effect on the sales or operations of PCI.
30
<PAGE>
EPA Litigation. The U.S. Environmental Protection Agency (the "EPA") has
recently published a report with respect to the respiratory health effects of
passive smoking, which report concluded that widespread exposure to
environmental tobacco smoke presents a serious and substantial public health
impact. In June 1993, Philip Morris and five other representatives of the
tobacco manufacturing and distribution industries filed suit against the EPA
seeking a declaration that the EPA does not have the statutory authority to
regulate environmental tobacco smoke, and that, in view of the available
scientific evidence and the EPA's failure to follow its own guidelines in making
the determination, the EPA's final risk assessment was arbitrary and capricious.
The litigation is still pending.
FDA Regulation. The FDA has proposed rules to regulate cigarettes and
smokeless tobacco in order to protect minors. Although the FDA has defined
cigarettes in such a way as to include little cigars, the ruling does not
directly impact large cigars. However, once the FDA has successfully exerted
authority over any one tobacco product, the practical impact may be felt by
distributors and manufacturers of any tobacco product. If the FDA is successful,
this may have long-term repercussions on the larger cigar industry. The major
tobacco companies and advertising companies recently brought an action in
federal court in North Carolina challenging FDA regulation of tobacco products.
The trial court ruled, on April 25, 1997, that the FDA may regulate tobacco
products under the Federal Food, Drug and Cosmetic Act. The court certified its
order for immediate appeal and the ultimate resolution of the litigation is
still pending.
State Regulation. In addition, the majority of states restrict or prohibit
smoking in certain public places and restrict the sale of tobacco products to
minors. Places where the majority of states have prohibited smoking include: any
public building designated as non-smoking; elevators; public transportation;
educational facilities; health care facilities; restaurants and workplaces.
Local legislative and regulatory bodies have also increasingly moved to curtail
smoking by prohibiting smoking in certain buildings or areas or by requiring
designated "smoking" areas. In a few states, legislation has been introduced,
but has not passed, which would require all little cigars sold in those states
to be "fire-safe" little cigars, i.e., cigars which extinguish themselves if not
continuously smoked. Passage of this type of legislation and any other related
legislation could have a materially adverse effect on PCI's cigar business.
Currently, the federal Consumer Product Safety Commission is working to
establish such standards for cigarettes. The enabling legislation, as originally
proposed, included little cigars. However, little cigars were deleted due to the
lack of information on fires caused by these products.
California-Proposition 65. Although federal law has required health
warnings on cigarettes since 1965, there is no federal law requiring that cigars
or pipe tobacco carry such warnings. However, California requires "clear and
reasonable" warnings to consumers who are exposed to chemicals known to the
state to cause cancer or reproductive toxicity, including tobacco smoke and
several of its constituent chemicals. Violations of this law, Proposition 65,
can result in a civil penalty not to exceed $2,500 per day for each violation.
Although similar legislation has been introduced in other states, no action has
been taken.
31
<PAGE>
During 1988, 26 manufacturers of tobacco products, including the largest
mass-marketers of cigars, entered into a settlement of legal proceedings filed
against them pursuant to Proposition 65. Under the terms of the settlement, the
defendants agreed to label retail packages or containers of cigars, pipe
tobaccos and other smoking tobaccos other than cigarettes manufactured or
imported for sale in California with the following specified warning label:
"This Product Contains/Produces Chemicals Known To The State of California To
Cause Cancer, And Birth Defects or Other Reproductive Harm." Although the
settlement of the Proposition 65 litigation by its terms only impacts
California, it is not practical for national cigar manufacturers to confine
their warning labels to cigars earmarked for sale in California. Consequently,
since 1988, most boxes of mass market cigars manufactured in the United States
carry cancer warning labels.
Tobacco Industry Litigation. Historically, the cigar industry has not
experienced material health-related litigation. However, litigation against
leading United States cigarette manufacturers seeking compensatory and, in some
cases, punitive damages for cancer and other health effects alleged to have
resulted from cigarette smoking is pending.
Proposed Settlement with States. Several states have sued tobacco companies
seeking to recover the monetary benefits paid under Medicaid to treat residents
allegedly suffering from tobacco-related illnesses. On June 20, 1997 the
Attorneys General of 40 States and the major United States tobacco companies
announced a proposed settlement of the litigation, which, if approved by the
United States Congress, would require significant changes in the way United
States cigarette and tobacco companies do business. The potential impact, if
any, on the cigar industry is uncertain.
As announced, the proposed settlement would include, among other things:
o U.S. tobacco companies will pay $360 billion in the first 25 years,
and then $15 billion a year.
o The Food and Drug Administration could regulate nicotine as a drug but
could not ban it until 2009.
o Sick smokers can still sue the industry. Any money they won would come
out of an annual $5 billion tobacco company fund. Smokers also could
receive punitive damages for any future wrongdoing by tobacco
companies out of that fund.
o All class-action lawsuits against the industry are banned.
o No tobacco billboards or other outdoor ads.
o No humans or cartoons in ads or on cigarette packs.
32
<PAGE>
o No brand-name sponsorship of sporting events.
o Text-only ads in magazines with significant youth readership.
o No Internet advertising.
o No "product placement" in movies and on TV.
o Black labels covering the top fourth of cigarette packs, including
"Cigarettes are addictive" and "Smoking can kill you."
o A cigarette vending machine ban; no self-service displays; cigarettes
and smokeless tobacco sold only behind store counters.
o Industry will pay fines if smoking by youths fails to drop by 30
percent in five years, 50 percent in seven years and 60 percent in 10
years. The penalty is $80 million per percentage point by which the
target is missed.
o No smoking in public places and most workplaces unless there are
separately ventilated smoking areas.
Other State Actions. Florida and Massachusetts have enacted statutes
permitting suit against the tobacco companies to recoup such Medicaid costs, and
recently, one defendant has entered into a settlement with such plaintiff
states, which provides that the settling defendant will, among other things, pay
a portion of its profits in the future to the plaintiff. Under the Florida
statute, many of the tobacco companies' traditional defenses, such as assumption
of risk, are vitiated. The statute also permits the state to establish causation
(that smoking causes cancer, heart disease and other ailments) through the use
of purely statistical evidence. The tobacco companies have filed suit
challenging the Florida law as unconstitutional.
Class Actions. A class action suit, Castano v. American Tobacco, et al. has
been filed in federal district court in New Orleans against the entire cigarette
industry. On February 17, 1995, the district court granted plaintiffs' motion
for class certification with regard to the liability issues of fraud, breach of
warranty (express or implied), intentional tort, negligence and strict liability
as well as the issues of consumer protection and punitive damages. The court
defined the class as "all nicotine-dependent persons in the United States," "the
estates, representatives, and administrators of these nicotine-dependent
cigarette smokers," and "the spouses, children, relatives and 'significant
others' of these nicotine-dependent cigarette smokers as their heirs or
survivors." The court defined "nicotine-dependent" to mean "all cigarette
smokers who have been diagnosed by a medical practitioner as nicotine-dependent;
and/or all regular cigarette smokers who were or have been advised by a medical
practitioner that smoking has had or will have adverse health consequences who
thereafter do not or have not quit smoking." In May 1996, the Fifth Circuit
Court of Appeals reversed a Louisiana district court's certification of a
nationwide class consisting essentially of nicotine dependent cigarette smokers.
Notwithstanding the dismissal, new class actions asserting claims similar to
those in Castano
33
<PAGE>
have recently been filed in certain states. To date, two pending class actions
against major cigarette manufacturers have been certified. The first case is
limited to Florida citizens allegedly injured by their addiction to cigarettes;
the other is limited to flight attendants allegedly injured through exposure to
secondhand smoke.
In another decision, Cipollone v. Liggett Group, Inc., 112 S. Ct. 2608
(1992), the United States Supreme Court held that certain federal legislation
applicable specifically to cigarette manufacturers preempts claims based on
failure to warn consumers about the health hazards of smoking, but does not
preempt claims based on express warranty, misrepresentation and fraud, or
conspiracy. Although we believe that the effect of the Cipollone decision, which
involved cigarette smoking, will not have a material adverse effect on PCI
operations, there can be no assurance of what the ultimate effect, if any, of
the Cipollone decision or the pending cigarette industry litigation, or
cigarette and tobacco regulation, will be on the cigar industry. Although there
are numerous differences between the cigar industry and the cigarette industry,
the outcome of pending and future cigarette litigation may encourage various
parties to bring suits on various grounds against cigar industry participants.
While it is impossible to quantify what effect, if any, any such litigation may
have on our operations, we cannot assure you that such litigation would not have
a material adverse effect on our operations.
OSHA Regulations. The federal Occupational Safety and Health Administration
(OSHA) has proposed an indoor air quality regulation covering the workplace that
seeks to eliminate nonsmoker exposure to environmental tobacco smoke. Under the
proposed regulation, smoking must be banned entirely from the workplace or
restricted to designated areas of the workplace that meet certain criteria. The
proposed regulation covers all indoor workplaces under OSHA jurisdiction,
including, for example, private residences used as workplaces, hotels and
motels, private offices, restaurants, bars and vehicles used as workplaces. The
tobacco industry is challenging the proposed OSHA regulation on legal,
scientific and practical grounds. It also contends that the proposed regulation
ignores reasonable alternatives. There is no guaranty, however, that this
challenge will be successful. Although we do not believe that the proposed OSHA
regulation would have a material adverse effect on the cigar industry or PCI,
there are no assurances that such regulation would not adversely impact PCI.
Intellectual Property Rights
We have obtained trademark registrations from the Arizona Secretary of
State's office for the name "Premium Cigars International" and the initials
"PCI." PCI has not yet filed any tradename or trademark registration
applications with the United States Patent and Trademark Office. No assurance
can be given that PCI will be granted the right to use any trademarks or
tradenames. PCI owns no patents.
34
<PAGE>
Facilities
PCI subleases, from an independent third party, approximately 8,500 square
feet for its corporate offices, warehouse, humidor storage and distribution
facilities located in the Scottsdale Airpark area of Scottsdale, Arizona. The
written sublease agreement expires on May 31, 1999. The annual rent for the
first year is approximately $83,571 and the annual rent for the second year is
approximately $85,609.
CAN-AM occupies approximately 1,900 square feet of an office/warehouse
facility in Burnaby, British Columbia (a suburb of Vancouver). CAN-AM's
corporate offices, a walk-in humidor and warehouse space are leased on a
month-to-month basis for approximately $1,000 per month.
Distribution of products in the Northwest United States is handled through
the Rose Hearts facility near Seattle, Washington.
We believe that our distribution facilities are adequate for our present
needs. However, we intend to lease additional space for distribution facilities
within and outside the United States and believe that additional space will be
available at commercially reasonable rents.
Employees
As of June 24, 1997, PCI had 17 full time employees, of which five were
executive and administrative, five were sales and marketing, and seven were
warehouse and distribution personnel. None of PCI's employees are represented by
a labor union and PCI believes that employee relations are good.
Legal Proceedings
PCI is not a party to any pending lawsuits, nor do we know of any potential
claims which, in the aggregate, could have a material adverse effect on PCI's
financial position.
35
<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of PCI are as follows:
NAME AGE POSITION
William L. Anthony 54 Chairman of the Board of
Directors and Consultant
Steven A. Lambrecht 46 Director, President and Chief
Executive Officer
David S. Hodges 41 Director and Consultant
Colin A. Jones 31 Director, Vice President of
International Sales
Greg P. Lambrecht 35 Secretary, Treasurer, Vice
President of National Sales
Karissa B. Nisted 41 Chief Financial Officer and
Controller
Scott I. Lambrecht 26 Assistant Secretary
Jim Stanley 34 Vice President of Purchasing
William L. Anthony has been Chairman of the Board since June 20, 1997 and a
consultant to PCI since April 1, 1997. He has agreed to serve as PCI's Chairman
for a period of up to five years. He has 30 years of business and management
experience and a "Big Six" accounting background with the New York office of
KPMG Peat Marwick, LLP. Mr. Anthony worked for The Dial Corp from 1984 until
August, 1996 culminating his position as Executive Vice President for the
Consumer Product Division with annual revenue in excess of $1,000,000,000. He
has held key management positions with Bechtel, the U.S. Chamber of Commerce,
MAPCO and The Dial Corp. He is the owner, President and sole shareholder of
Quality Computer Services, Inc. He received both a B.B.A. and an M.A. in
Accounting from the University of Mississippi in 1965 and 1966 respectively. Mr.
Anthony was certified as a public accountant in Louisiana in 1969.
Steven A. Lambrecht has been a director and PCI's Chief Executive Officer
since December 31, 1996. He has also served as PCI's President since May 3, 1997
and as Chairman of the Board from December 31, 1996 to June 20, 1997. He has 23
years of marketing and sales experience and 17 years of management experience;
most of his business experience has been in real estate development and
construction. He is the owner of Forum Import/Export
36
<PAGE>
Company, a sole proprietorship, and was co-owner of Forum Development and
Construction Company, Inc., a Washington corporation. He also founded Scottsdale
Development and Construction Company, Inc., an Arizona corporation, in 1992. He
has developed and sold over 20 million dollars worth of real estate since 1974.
Steven A. Lambrecht is the brother of Greg P. Lambrecht and the father of Scott
I. Lambrecht.
David S. Hodges has been a director since June 20, 1997 and has been a
consultant to PCI since June 2, 1997. From April 1, 1997 to May 31, 1997, Mr.
Hodges served PCI in a financial management capacity. From February, 1997 to
April, 1997, Mr. Hodges served as Chief Financial Officer of Pro-Innovative
Concepts, Inc., a Phoenix, Arizona premium promotion company. From January 1994
to September 1996 he was the Controller of The Dial Corp's Household Consumer
Products Division. From 1984 to 1992 he served the R.J. Reynolds Tobacco Company
in various financial and management positions. From 1980 to 1984, he served as a
Senior Auditor and Consultant for public and private clients of Price Waterhouse
LLP, a "Big Six" independent public accounting firm. Mr. Hodges received a
B.S.B.A in accounting from John Carroll University of Cleveland, Ohio in 1978
and an M.B.A. in Finance from the University of North Carolina at Greensboro,
North Carolina in 1980. He is a Certified Public Accountant in the State of
North Carolina and a member of both the American Institute of Certified Public
Accountants and the North Carolina Association of Certified Public Accountants.
Colin A. Jones has been a Director and Vice President of International
Sales for PCI since May 3, 1997. He is a founder, the Co-Chairman and the
President International Sales, PCI's wholly-owned subsidiary CAN-AM. He has 12
years of experience managing, marketing and selling in the convenience store and
grocery store market sectors. In 1985, he founded J&M Wholesale, Ltd., a British
Columbia corporation which delivers various wholesale products primarily to
convenience store accounts in Canada. He continues to be the President and Chief
Executive Officer of J&M. Under his employment agreement, Mr. Jones is obligated
to devote his full working time to PCI. Mr. Jones studied Business
Administration at Douglas College of New Westminster, British Columbia, Canada.
Greg P. Lambrecht has been the Secretary, Treasurer and Vice President of
National Sales of PCI since May 31, 1997. He is the Co-Chairman and the
President, National Sales, of PCI's wholly-owned subsidiary CAN-AM. He has 14
years of experience managing, marketing and selling to the convenience store and
grocery store market. In 1984, he founded Rose Hearts, Inc., a Washington
company which delivers various impulse purchase products to over 1,200
individual accounts in Washington, Oregon and California. He graduated with a
B.A. in Communications from Western Washington University in 1984. Under his
employment agreement, Mr. Lambrecht is obligated to devote his full working time
to PCI. Greg P. Lambrecht is the brother of Steven A. Lambrecht and the uncle of
Scott I. Lambrecht.
Karissa B. Nisted has been the Chief Financial Officer since June 20, 1997
and has been the Controller of PCI since May 1, 1997. She served as Controller
of Parkway Manufacturing, Inc. of Phoenix, Arizona from May 1995 to April 1997.
From January 1994 to March 1995 she was the Controller of Guzman, a Tempe,
Arizona construction firm. From July 1991 to October
37
<PAGE>
1993 she was the Controller of Coxreels, a Tempe, Arizona manufacturing company.
In 1990 and 1991 she performed accounting management for Arizona Precision Sheet
Metal, a Phoenix, Arizona manufacturing company. Ms. Nisted has over 19 years'
experience in accounting and financial management, including audit and tax
experience with Arthur Andersen & Company of Phoenix, Arizona. Ms. Nisted
received a B.B.A. in Accounting from Texas A&M University in 1978.
Scott I. Lambrecht has been the Assistant Secretary of PCI since May 31,
1997. He served as a director from December 31, 1996 to February 17, 1997 and as
PCI's interim President from December 31, 1996 to May 3, 1997. From July 1993
through December 1996 he served as President of SDCC, Inc., a Scottsdale,
Arizona general contracting firm owned by Steve Lambrecht. He received a
Bachelors degree in Construction Management in 1993 from Arizona State
University in Tempe, Arizona. Scott Lambrecht is the son of Steven A. Lambrecht
and the nephew of Greg P. Lambrecht.
Jim Stanley has been Vice President of Purchasing since June 20, 1997. He
served as Purchasing Director for PCI since November of 1996. From May 1996 to
October 1996 he served as an Account Executive for Computer Credit Insurance
Corp. of Brea, California in the real estate loan and mortgage insurance market.
From November 1995 to May 1996 he was an Account Executive for Senior Estate
Services, a Bellevue, Washington estate planning and investment firm. From June
1994 to November 1995 he was Operations Manager for Promark Armrest, Inc. of
Everett, Washington, a product development firm. He has over five years
additional experience in the restaurant industry. Mr. Stanley received a B.A. in
Business Administration from Washington State University in 1985.
All directors hold office until the next election of directors at the
annual shareholders meeting or until their successors have been elected and
qualified. The Board of Directors currently consists of four (4) members. Upon
completion of the Offering, and for five years thereafter, the Representative,
W.B. McKee Securities, Inc., has the right to nominate one (1) member of the
Board of Directors to serve the standard term of a director. The Bylaws permit
the Board of Directors to determine the size of the Board within a range that
the shareholders have set which is currently one (1) to nine (9) members.
Executive Compensation
PCI was incorporated in December 1996 and did not commence operations until
December 31, 1996. Neither PCI nor its wholly-owned subsidiary, CAN-AM, paid any
compensation to any of its executive officers prior to January 1, 1997. The
following table sets forth the annual and long-term compensation for PCI's Chief
Executive Officer from January 1, 1997 through the completion of the fiscal year
ended March 31, 1997. No other officers received reportable remuneration.
38
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities All
Annual Restricted Under- Other
Compen- Stock lying LTIP Compen-
Name and sation Award(s) Options/ Payouts sation
Principal Position Year Salary($) Bonus($) ($) ($) SARs(#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Steven A. Lambrecht, 1997 $7,500 -- -- -- -- -- --
Chairman of the
Board, Chief
Executive Officer
</TABLE>
Steven A. Lambrecht has an at-will Employment Agreement with PCI as Chief
Executive Officer dated June 13, 1997 under which, effective May 1, 1997, he is
to receive an annual salary of $60,000. He will be entitled to additional
benefits, such as stock options and bonuses which may be offered in the future
to comparable executives. If PCI terminates his employment for any reason other
than for cause, as defined in the agreement, PCI must continue paying him his
then-current compensation on a regular basis and premiums for continued health
insurance coverage for nine (9) months.
Colin A. Jones has an at-will Employment Agreement with PCI as Vice
President of International Sales dated June 13, 1997 under which, effective May
1, 1997, he is to receive an annual salary of $60,000. He is also entitled to a
one-time management fee of $80,000, payable over a 16-month period commencing
July 1, 1997 at $5,000 per month, to compensate him for his expertise in sales,
marketing, operations, management and existing contacts with major retail
distributors. He has agreed to devote his full time to PCI activities, and will
be entitled to additional benefits, such as stock options and bonuses which may
be offered in the future to comparable executives. If PCI terminates his
employment for any reason other than for cause, as defined in the agreement, PCI
must continue paying him his then-current compensation on a regular basis and
premiums for continued health insurance coverage for nine (9) months.
Greg P. Lambrecht has an at-will Employment Agreement with PCI as Vice
President of International Sales dated June 13, 1997 under which, effective May
1, 1997, he is to receive an annual salary of $60,000. He is also entitled to a
one-time management fee of $80,000, payable over a 16-month period commencing
July 1, 1997 at $5,000 per month, to compensate him for his expertise in sales,
marketing, operations, management and existing contacts with major retail
distributors. He has agreed to devote his full time to PCI activities, and will
be entitled to additional benefits, such as stock options and bonuses which may
be offered in the future to comparable executives. If PCI terminates his
employment for any reason other than for cause, as defined in the agreement, PCI
must continue paying him his then-current compensation on a regular basis and
premiums for continued health insurance coverage for nine (9) months.
39
<PAGE>
We also have arrangements with the following consultants, each of whom is
also a director.
David S. Hodges is a director. He has a Business Consulting Agreement with
PCI dated June 2, 1997 under which Mr. Hodges is to assist PCI with this
Offering and additional projects related to strategic planning, budgeting,
accounting and reporting, business analysis, information systems and operations
as requested by PCI's management. Mr. Hodges receives $60 per hour and
reimbursement for business expenses and health care coverage during the term of
the agreement. Upon completion of this Offering, PCI or Mr. Hodges can elect to
terminate the hourly payment agreement and PCI will instead pay Mr. Hodges,
biweekly payments of $4,800 each for a maximum six month period.
William L. Anthony, the Chairman of PCI's Board, has also acted as a
consultant to PCI since April 1, 1997. He has not yet been compensated for his
consulting services, but PCI has agreed to pay him $2,000 per month and to
reimburse certain expenses.
PCI has reimbursed David S. Hodges for $1,200 in attorney's fees related to
the negotiation of his consulting relationship and has agreed to reimburse Greg
P. Lambrecht and Colin A. Jones for approximately $6,000 in attorneys fees
related to the negotiation of various personal agreements or agreements of J&M
or Rose Hearts with PCI. Neither of the law firms involved have any affiliation
with PCI.
PCI has no standing arrangements to compensate directors. After PCI
completes this Offering, PCI will determine appropriate director compensation,
which may include an annual retainer fee and/or a fee for each meeting attended,
plus reasonable out-of-pocket expenses.
CERTAIN TRANSACTIONS
CAN-AM Acquisition of J&M and Rose Hearts. On December 31, 1996, CAN-AM
issued shares of its stock in exchange for the assets and liabilities of the
cigar operations of J&M and Rose Hearts, including the cigar distribution
accounts of each entity. PCI director and Vice President of International Sales
Colin A. Jones is the President and sole shareholder of J&M. PCI Secretary,
Treasurer and Vice President of National Sales Greg P. Lambrecht is the
President and sole shareholder of Rose Hearts. Messrs. Jones and Greg Lambrecht
owned one hundred percent (100%) of its voting stock of CAN-AM, and three others
held non-voting shares. As set forth in PCI's consolidated financial statements
for the fiscal year ended March 31, 1997, the cost of the net assets to J&M and
Rose Hearts and the amount at which CAN-AM acquired the net assets was the same
as its historical net cost in J&M and Rose Hearts. The combined cost, net of
liabilities assumed, was approximately $1,000.
40
<PAGE>
PCI Acquisition of CAN-AM. Subsequent to the asset purchase transactions,
but also on December 31, 1996, PCI acquired all of the issued and outstanding
shares of CAN-AM in exchange of PCI shares. As adjusted by the May 31, 1997 3:1
stock split (as defined below "3:1 Stock Split"), and including shares issued on
December 31, 1996 and January 9, 1997, CAN-AM's five shareholders received
817,500 shares of PCI Common Stock, representing all of the then-issued and
outstanding shares of Common Stock of PCI. Mr. Jones received 371,250 or 45.4%
and Greg Lambrecht received 363,750 or 44.5%.
Jones/Lambrecht Notes Receivable. On December 31, 1996, Colin A. Jones and
Greg P. Lambrecht each made long term promissory notes to PCI for $43,112.50.
The notes accrue interest at six percent (6%) and all interest and principal are
due on March 31, 1999. The notes relate to CAN-AM receivables which accrued
prior to PCI's acquisition of all of CAN-AM's outstanding stock on December 31,
1996.
J&M Management Agreement. On January 1, 1997, CAN-AM entered a Management
Agreement with J&M to enable CAN-AM to reimburse J&M for any services provided
to CAN- AM or on CAN-AM's behalf during the transition of J&M's Canadian
operations to CAN-AM. J&M is to receive no additional sum, fee or commission
other than reimbursement for J&M's expenses which are directly incurred in
providing services to or on behalf of CAN-AM. At CAN-AM's sole discretion,
CAN-AM may offset the reimbursement due under the Management Agreement against
any related-party receivable that CAN-AM may owe to J&M.
J&M, as a Canadian corporation wholly-owned by Colin A. Jones, continues to
distribute certain wholesale and impulse purchase items to convenience stores
and other accounts entirely located in Canada. J&M has, in the past, distributed
certain cigars of Cuban origin to its convenience store accounts. Neither PCI
nor its wholly-owned Canadian subsidiary CAN-AM currently distributes any cigars
or other products of Cuban origin either in the United States or Canada. PCI's
standard form supplier agreement strictly prohibits its suppliers from providing
any product containing any component of Cuban origin.
Luyendyk Endorsement Agreement. On May 1, 1997, PCI entered an Endorsement
Agreement with Arie Luyendyk under which PCI would issue 15,000 shares of Common
Stock (as adjusted for the 3:1 Stock Split) to Mr. Luyendyk subject to a
six-month vesting schedule. In order to meet its obligations under the
Endorsement Agreement without diluting the relative security positions of other
shareholders prior to the Offering, PCI repurchased 15,000 (as adjusted by the
3:1 Stock Split) shares of its Common Stock from its Chief Executive Officer and
Chairman, Steven A. Lambrecht, at $0.33 per share.
Rose Hearts Distributorship Agreement. On June 13, 1997, PCI entered a
Distributorship Agreement with Rose Hearts for the non-exclusive distribution to
Associated Grocers, SuperValu and other accounts in the states of Alaska, Idaho,
Oregon, Washington and Northern California. The agreement provides that any
master agreement with a national PCI account or national distributor shall
supersede the Rose Hearts agreement. The commission payable to Rose Hearts,
under the agreement will be no greater than that paid to national
distributorship accounts. Greg P. Lambrecht is the President and sole
shareholder of Rose Hearts and the Secretary, Treasurer, Vice President of
National Sales and a substantial shareholder of PCI.
Barton Financing Settlement. On June 13, 1997, PCI entered a Full
Settlement and Full Release of Equity Interest agreement among CAN-AM, Rose
Hearts, J&M, Greg P.
41
<PAGE>
Lambrecht, Colin A. Jones, Greg S. Barton and two of Mr. Barton's lenders. The
agreement settled potential equity claims by Mr. Barton and his lenders
regarding a September 5, 1996 loan for $110,000 at an annual interest rate of
36% to Rose Hearts, J&M, Greg P. Lambrecht, Colin A. Jones and CAN-AM. CAN-AM
had expressly accepted liability for the loan under the terms of each of the
Asset Purchase Agreements with J&M and Rose Hearts on December 31, 1996. As a
result of the settlement, PCI will repay $10,000 to one of Mr. Barton's lenders,
the loan was reduced to $100,000 and Mr. Barton converted the loan into Bridge
Financing (See "INTERIM FINANCING - Bridge Financing"), which includes an 8%
Note and warrants to purchase 40,000 shares of PCI Common Stock at fifty percent
(50%) of the Offering Price. Greg P. Barton is a 7.56% beneficial owner of PCI's
Common Stock. Greg P. Lambrecht and Colin A. Jones own and control Rose Hearts
and J&M, respectively, are officers and directors of CAN-AM and are controlling
shareholders, officers and/or a director of PCI.
Barton and Mullavey Loans. On or about June 18, 1996, Greg S. Barton loaned
Greg P. Lambrecht and Rose Hearts $50,000 in a transaction which included an
option for Mr. Barton to convert the debt to equity of Rose Hearts. Between
approximately May and September 1996, Ben P. Mullavey, a prior Rose Hearts
consultant, loaned $50,000 to Rose Hearts in an undocumented transaction and
provided consulting services to Rose Hearts. PCI, Rose Hearts and Greg P.
Lambrecht agree that the Barton and Mullavey loans are solely Rose Hearts' debt
obligations which CAN-AM did not assume as a part of the December 31, 1996 Asset
Purchase Agreement for Rose Hearts' cigar operations. Ben P. Mullavey has
communicated to PCI that he believes he has rights to convert his debt to Common
Stock of PCI. Greg P. Lambrecht and Rose Hearts are negotiating with Messrs.
Barton and Mullavey regarding a settlement of their claims, but PCI will not be
a party to any settlement and will not directly issue any Common Stock to Barton
or Mullavey.
Lambrecht/LBIC Stock Sale. On June 17, 1997, Steven A. Lambrecht sold
20,000 shares of PCI Common Stock to Life of Boston Insurance Company, an
Oklahoma corporation ("LBIC"). The Lambrecht-LBIC transaction was to provide
additional incentive to LBIC to invest the final $250,000 to complete the Bridge
Financing (See "INTERIM FINANCING - Bridge Financing"). Steven A. Lambrecht is
PCI's President and Chief Executive Officer, and the beneficial owner of 13.34%
of PCI's Common Stock. Lincoln Heritage Life Insurance Company, an Illinois
corporation ("Lincoln"), owns 79% of the stock of LBIC. The Londen Insurance
Group, an Arizona holding corporation, is the sole shareholder of Lincoln and
the beneficial owner of the Shares of Common Stock held by LBIC and the Bridge
Warrants held by Boston and Lincoln.
Anthony Stock Purchase and Option Agreement. On June 20, 1997, William L.
Anthony entered an Agreement to purchase 66,000 shares of PCI Common Stock for
$22,000 from Steven A. Lambrecht (60,000), Colin A. Jones (3,000) and Greg P.
Lambrecht (3,000). PCI, also a party to the Agreement, granted Anthony a
non-qualified stock option to purchase 20,000 shares at the Offering price from
the effective date of the Offering and for one (1) year thereafter. PCI also
agreed to obtain, within 30 days after completion of this Offering to
42
<PAGE>
purchase officer and director insurance at coverage levels which are standard
for distribution companies comparable to PCI. Anthony agreed to serve as
Chairman of the Board for up to five (5) years, subject to appropriate approvals
and the provisions of PCI's Bylaws.
Lambrecht/Stanley Stock Sale. On June 20, 1997, Steven A. Lambrecht sold
15,000 shares of PCI Common Stock to James B. Stanley for $5,000. James B.
Stanley is PCI's Vice President of Purchasing.
PRINCIPAL SHAREHOLDERS
Security Ownership of Certain Beneficial Owners, Management
The following tables set forth certain information regarding shares of
common stock beneficially owned as of June 24, 1997 by (i) each person or group
known to PCI, which beneficially owns more than 5% of the common stock; (ii)
each of PCI's officers and directors; and (iii) all officers and directors as a
group. The percentage of beneficial ownership is based on 1,480,500 shares
outstanding on June 24, 1997 as adjusted for the 3:1 Stock Split plus, for each
person or group, any securities that person or group has the right to acquire
within 60 days pursuant to options, warrants, conversion privileges or other
rights. Unless otherwise indicated, the following persons have sole voting and
investment power with respect to the number of shares set forth opposite their
names:
43
<PAGE>
Security Ownership of Certain Beneficial Owners
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Title of Name and Address of Amount and Nature of Percent
Class Beneficial Owner Beneficial Ownership of Class
- ----- ---------------- -------------------- --------
<S> <C> <C> <C>
Common Colin Jones 368,250 24.87%
15651 N. 83rd Way #3
Scottsdale, AZ 85260
Common Greg P. Lambrecht 360,750(2) 24.37
15651 N. 83rd Way #3
Scottsdale, AZ 85260
Common Steven A. Lambrecht 197,500(2) 13.34
15651 N. 83rd Way #3
Scottsdale, AZ 85260
Common Lincoln Heritage Life [220,000](1)(3) 13.09
Insurance Company
4343 E. Camelback Rd. #400
Phoenix, Arizona 85018
Common Londen Insurance Group [220,000](1)(3) 13.09
4343 E. Camelback Rd. #400
Phoenix, Arizona 85018
Common Life of Boston [120,000](1)(3) 7.59
Insurance Company
4343 E. Camelback Rd. #400
Phoenix, Arizona 85018
Common Greg S. Barton [115,000](1) 7.56
17403 NE 45th Street
Redmond, WA 98036
Common William L. Anthony [106,000](1) 6.54
15651 N. 83rd Way #3
Scottsdale, AZ 85260
Common Peter G. Charleston 90,000(2) 6.08
15651 N. 83rd Way #3
Scottsdale, AZ 85260
Common Scott I. Lambrecht 86,250(2) 5.83
15651 N. 83rd Way #3
Scottsdale, AZ 85260
Common Corey A. Lambrecht 75,000(2) 5.07%
15651 N. 83rd Way #3
Scottsdale, AZ 85260
</TABLE>
44
<PAGE>
(1) Includes shares which may be beneficially acquired by the exercise of stock
warrants within 60 days as follows: Greg S. Barton, [40,000] @@________,
William L. Anthony [40,000] @@_________, Lincoln Heritage Life Insurance
Company, [200,000] @@________, Life of Boston Insurance Company [100,000]
@@_________.
(2) Steven A. Lambrecht is the brother of Greg P. Lambrecht, the father of
Corey A. Lambrecht and Scott I. Lambrecht and the uncle of Peter G.
Charleston. Each of the Lambrechts and Mr. Charleston disclaims any
beneficial interest in the shares held by the others.
(3) The Londen Insurance Group is the sole shareholder of the Lincoln Heritage
Life Insurance Company. Lincoln Heritage Life Insurance Company owns 79% of
the shares of Life of Boston Insurance Company.
45
<PAGE>
Security Ownership of Management
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Title of Name and Address of Amount and Nature of Percent
Class Beneficial Owner Beneficial Ownership of Class
- ----- ---------------- -------------------- --------
<S> <C> <C> <C>
Common Colin Jones 368,250 24.87%
15651 N. 83rd Way #3
Scottsdale, AZ 85260
Common Greg P. Lambrecht 360,750(2) 24.37
15651 N. 83rd Way #3
Scottsdale, AZ 85260
Common Steven A. Lambrecht 197,500(2) 13.34
15651 N. 83rd Way #3
Scottsdale, AZ 85260
Common William L. Anthony [106,000](1) 6.54
15651 N. 83rd Way #3
Scottsdale, AZ 85260
Common Scott I. Lambrecht 86,250(2) 5.83
15651 N. 83rd Way #3
Scottsdale, AZ 85260
Common David S. Hodges [20,000](1) 1.33
15651 N. 83rd Way #3
Scottsdale, AZ 85260
Common James B. Stanley 26,250 1.77
15651 N. 83rd Way #3
Scottsdale, AZ 85260
------------------------------------------------------------------------------
Common All Officers and Directors 1,165,000(1)(2) 75.62%
as a group (7 persons)
</TABLE>
(1) Includes shares which may be acquired by the exercise of options or
warrants within 60 days as follows: William L. Anthony, [40,000] @@_______
shares, David S. Hodges, [20,000] @@ _________ shares.
46
<PAGE>
(2) Steven A. Lambrecht is the brother of Greg P. Lambrecht and the father of
Corey A. Lambrecht and Scott I. Lambrecht. Each of the Lambrechts disclaims
any beneficial interest in the shares held by the others.
Shareholders and Voting Agreement. On January 1, 1997, certain shareholders
entered a Shareholders and Voting Agreement. On May 31, 1997, the agreement was
terminated by a majority vote of the board of directors and a majority vote of
the total outstanding shares of PCI. Among other terms, the agreement (i)
required the offer of the parties' shares to the other parties to the agreement
or PCI prior to offering such shares to a third party, (ii) required parties to
maintain confidentiality of PCI confidential information, (iii) restricted any
party from competing withPCI at any time the party held PCI shares, and (iv)
contained a voting agreement to break a deadlock between an even number of
directors by electing (an) additional director(s).
INTERIM FINANCING AND SELLING SHAREHOLDERS
Bridge Financing and Bridge Warrants. Between March and June 1997, ten (10)
accredited investors ("Bridge Investors") loaned PCI a total amount of
$1,000,000 (the "Bridge Financing") in cash or conversion of prior debt of
CAN-AM. The Underwriter's Representative, W.B. McKee Securities, Inc., was PCI's
consultant for the Bridge Financing. Inreturn for their loans, Bridge Investors
received promissory notes from PCI ("Bridge Notes") and warrants to purchase
shares of PCI Common Stock at fifty percent (50%) of the Offering Price ("Bridge
Warrants").
47
<PAGE>
The following sets forth the names of the Bridge Investors, who are also
selling shareholders ("Selling Shareholders") in this Offering, the amount of
their investment, the number of shares of Common Stock that they are entitled to
purchase under the Bridge Warrants, and the percentage of their beneficial
ownership before and after the Offering:
<TABLE>
<CAPTION>
Number of
Common Shares Percent Percent
Entitled to Owned Owned
Loan Purchase/Shares Prior to After
Name Amount Being Offered Offering Offering
- ---- ------ ------------- -------- --------
<S> <C> <C> <C> <C>
Walter Adrushenko $ 50,000 [20,000]_________ 1.33 (6)
William L. Anthony(1) $ 50,000 [20,000]_________ 6.54(5) 5.73
Greg S. Barton $ 100,000(4) [40,000]_________ 7.56(5) 5.07
Mary A. Davis $ 100,000 [40,000]_________ 2.63 (6)
David S. Hodges(1) $ 50,000 [20,000]_________ 1.33 (6)
Anthony Holden $ 50,000 [20,000]_________ 1.33 (6)
William B. McKee(2) $ 50,000 [20,000]_________ 1.33 (6)
Life of Boston Insurance $ 250,000 [100,000]________ 7.59(5) 1.35
Company(3)
Lincoln Heritage Life $ 250,000 [100,000]________ 13.09(5) 1.35
Insurance Company(3)
Martin B. Perlman $ 50,000 [20,000]_________ 1.33 (6)
----------
Totals: $1,000,000 400,000
</TABLE>
(1) Messrs. Anthony and Hodges are directors and consultants to PCI. See
"Management."
(2) Principal of W.B. McKee Securities, Inc., the Underwriter's Representative
of the securities issued under this Prospectus.
(3) Beneficially owned and controlled by the Londen Insurance Group.
(4) Conversion of debt of CAN-AM. See "Certain Transactions."
(5) Includes other beneficial holdings of such persons as follows: William L.
Anthony, 86,000, Greg S. Barton, 75,000, Life of Boston Insurance Company,
20,000, Lincoln Heritage Life Insurance Company, 120,000.
(6) Less than 1%.
The Bridge Notes accrue eight percent (8%) annual interest until the
closing of the Offering under this Prospectus. After the Offering closes, the
Bridge Notes bear interest at sixteen percent (16%). PCI intends to repay the
Bridge Notes using proceeds from the Offering.
48
<PAGE>
Holders may exercise Bridge Warrants during the five-year period commencing
on the completion date of the Offering. It is possible that federal or state
regulators, the NASD, marketofficials or the Underwriter may require contractual
restrictions for a period following the date of this Prospectus. The Bridge
Warrants contain anti-dilution provisions.
Proceeds from the Bridge Financing were used to purchase cigars, humidors
and related items and capital equipment and pay salaries, business expenses and
office costs, and professional and consulting fees.
Sales By Selling Shareholders. PCI will not receive any proceeds from the
sale by the Selling Shareholders of the shares of Common Stock being sold by
them. Shares being sold pursuant to this Prospectus may be sold from time to
time in transactions (which may include block transactions by or for the account
of the Selling Shareholders) in the over-the-counter market, on the Nasdaq
SmallCap Market or in negotiated transactions, a combination of such methods or
otherwise. Sales may be made at fixed prices which may be changed, at market
prices or in negotiated transactions, a combination of such methods or
otherwise, and securities may be transferred by gift.
Selling Shareholders may sell their shares directly to purchasers, through
broker-dealers acting as agents for the Selling Shareholders, or to
broker-dealers who may purchase shares as principals and thereafter sell the
securities from time to time in the over-the-counter market, in negotiated
transactions or otherwise. The broker-dealers, if any, may receive compensation
in the form of discounts, concessions or commissions from the Selling
Shareholders and/or the purchasers from whom such broker-dealer may act as
agents or to whom they may sell as principals or otherwise (which compensation
as to a particular broker-dealer may exceed customary commissions).
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Selling Shareholder's securities may not
simultaneously engage in market-making activities with respect to any securities
of PCI during the applicable "cooling-off" period (at least two and possibly
nine business days) prior to the commencement of such distribution. Accordingly,
in the event Underwriters of PCI's initial public offering is engaged in a
distribution of a Selling Shareholder's securities, it will not be able to make
a market in PCI's securities during the applicable restrictive period. However,
the Underwriters have not agreed to and are not obligated to act as
broker-dealer in the sale of any Selling Shareholder's securities and the
Selling Shareholders may be required, and in the event the Underwriter is a
market-maker, will likely be required, to sell such securities through another
broker-dealer. In addition, each Selling Shareholder desiring to sell securities
will be subject to the applicable provisions of the Exchange Act and the rules
and regulations thereunder, including without limitation Rules 10b-6 and 10b-7,
which provisions may limit the timing of the purchases and sales of shares of
PCI's securities by such Selling Shareholders.
The Selling Shareholders and broker-dealers, if any, acting in connection
with such sales might be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act
49
<PAGE>
and any commission received by them and any profit on the resale of the
securities might be deemed to be underwriting discount and commissions under the
Securities Act.
We have informed the Selling Shareholders that the anti-manipulative rules
under the Securities Exchange Act of 1934, Rules 10b-2, 10b-6 and 10b-7, may
apply to their sales in the market and has furnished each of the Selling
Shareholders with a copy of these rules. PCI has also informed the Selling
Shareholders of the need for delivery of copies of this Prospectus.
DESCRIPTION OF SECURITIES
General. PCI is authorized to issue 10,000,000 shares of Common Stock, no
par value.
Stock Split. On May 31, 1997, PCI's shareholders unanimously approved a
three-for-one forward stock split ("3:1 Stock Split"), whereby each issued and
outstanding share of PCI's Common Stock was reclassified as three (3) shares of
Common Stock, no par value. The 3:1 Stock Split did not affect the number of
shares of Common Stock which may be acquired by the holdersof the Bridge
Warrants, because the anti-dilution provisions of the Bridge Warrants are only
affected by reclassifications which occur after the date of this Prospectus.
Common Stock. Holders of Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of stockholders. Holders
of Common Stock are entitled to share in such dividends as the Board of
Directors, in its discretion, may declare from funds legally available. In the
event of liquidation, each outstanding share entitles its holder to participate
ratably in the assets remaining after payment of liabilities. Presently
1,480,500 shares of Common Stock are issued and outstanding, and upon completion
of this Offering, assuming the Underwriters do not exercise their over-allotment
option, 3,480,500 shares of Common Stock will be outstanding.
Stockholders have no preemptive or other rights to subscribe for or
purchase additional shares of any class of stock or of any other securities of
PCI, and there are no redemption or sinking fund provisions with regard to the
Common Stock. All outstanding shares of Common Stock are, and those issuable
upon exercise of the outstanding Warrants will be when issued, validly issued,
fully paid, and nonassessable. Stockholders have cumulative voting rights as
provided by Arizona law.
Shares Eligible for Future Sale. Other than the outstanding shares of
Common Stock issued pursuant to this Offering, all of the presently issued and
outstanding shares of Common Stock are "restricted securities" as that term is
defined under Rule 144 promulgated under the
50
<PAGE>
Securities Act. Rule 144 governs resales of restricted securities for the
account of any person (other than an issuer), and restricted and unrestricted
securities for the account of an "affiliate" of the issuer. Restricted
securities generally include any securities acquired directly or indirectly from
an issuer or its affiliates which were not issued or sold in connection with a
public offering registered under the Securities Act. An affiliate of the issuer
is any person who directly or indirectly controls, is controlled by, or is under
common control with, the issuer. Affiliates of PCI may include its directors,
executive officers and persons directly or indirectly owning 10% or more of the
outstanding Common Stock. Under Rule 144, unregistered resales of restricted
Common Stock cannot be made until the restricted shares have been held for one
year from the later of its acquisition from PCI or an affiliate of PCI.
Thereafter, shares of Common Stock may be resold without registration subject to
Rule 144's volume limitation, aggregation, broker transaction, notice filing
requirements, and requirements concerning publicly available information about
PCI (the "Applicable Requirements"). Resales by PCI's affiliates of restricted
and unrestricted Common Stock are subject to the Applicable Requirements. The
volume limitations provide that a person (or persons who must aggregate their
sales) cannot, within any three-month period, sell more than the greater of (i)
one percent of the then outstanding shares, or (ii) the average weekly reported
trading volume during the four calendar weeks preceding each such sale. A person
who is not deemed an "affiliate" of PCI and who has beneficially owned shares
for at least two years would be entitled to sell such shares under Rule 144
without regard to the Applicable Requirements.
If a public market develops for PCI's Common Stock, PCI is unable to
predict the effect that sales made under Rule 144 or other sales may have on the
then prevailing market price of the Common Stock. Of the 1,480,500 presently
outstanding shares of Common Stock, other than those issued in this Offering, no
shares of Common Stock will become eligible for sale pursuant to Rule 144 prior
to December 31, 1997. Thereafter, at various times through March 10, 1998,
1,480,500 shares of Common Stock will become eligible for sale pursuant to Rule
144.
In addition, the holders of all 1,480,500 shares of Common Stock currently
issued have agreed that they will not sell their shares for 18 months from the
date of this Prospectus, without the prior approval of the Underwriter.
Transfer Agent
The transfer agent ("Transfer Agent") for the Common Stock and Warrant
Agent for the Underwriter Warrants is American Securities Transfer & Trust,
Inc., 1825 Lawrence Street, Suite 444, Denver, Colorado 80202-1817, (303)
298-5370.
DIVIDEND POLICY
PCI has never declared or paid a cash dividend on its Shares. We currently
intend to retain any earnings to fund the development and growth of our business
and we do not anticipate paying any cash dividends in the foreseeable future.
The payment of cash dividends will be
51
<PAGE>
considered by PCI's Board of Directors based upon its results of operations,
cash flows, financial condition and liquidity.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below have severally agreed to purchase from PCI the
following number of Shares set forth opposite their names at the public offering
price, less the underwriting discounts and commissions set forth on the cover
page of this Prospectus:
Underwriter Number of Shares
----------- ----------------
W.B. McKee Securities, Inc. ________________
_____________________________________ ________________
_____________________________________ ________________
Total
================
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all Shares offered hereby if any of the Shares are
purchased.
W.B. McKee Securities, Inc. (the "Representative") as representative of the
Underwriters, has advised PCI that the Underwriters propose to offer the shares
purchased by them directly to the public at the offering price set forth on the
cover page of this Prospectus and to certain dealers at a price that represents
a concession of $________ per Share, or ______% per Share. After the initial
public offering of the Shares, the offering price and the selling terms may be
changed by the Underwriters.
We have granted the Representative, as an Over-Allotment Option exercisable
not later than 45 days after the date of this Prospectus, the option to purchase
up to _______ Shares (equal to 15% of the number of Shares sold in the
offering), at the public offering price, less the underwriting discounts and
commissions set forth on the cover page of this Prospectus, solely for the
purpose of covering any over-allotments.
We have agreed to pay the Representative a non-accountable expense
allowance in the amount of 3% of the Offering proceeds received from the sale of
the Shares, which is estimated at $__________, $25,000 of which has already been
paid, or $_____________ if the Over-Allotment Option is exercised.
52
<PAGE>
At the closing of this Offering, PCI will sell to the Representative, at a
price of $.01 each, Representative's Warrants to purchase up to ______ shares
(one share for every ten shares sold in this Offering, exclusive of Warrants
sold under the Over-Allotment Option). Each Representative's Warrant will be
exercisable for a four-year period, commencing one year from the date of this
Prospectus, at an exercise price equal to $________ per share (120% of the
public offering price of the shares). Upon exercise of cash Representative's
Warrant we will issue one share of Common Stock The Representative's Warrants
will contain anti-dilution provisions providing for appropriate adjustments in
the event of any recapitalization, reclassification, stock dividend, stock split
or similar transaction by PCI. The Representative's Warrants do not entitle the
Representative to any rights as a shareholder of PCI until they are exercised.
The Representative's Warrants may not be transferred for one year from the date
of this Prospectus, except to officers of the Representative. After one year
from the date of this Prospectus, if a transfer of a Representative's Warrant
occurs to a party not an officer of the Representative, then the
Representative's Warrant transferred must be immediately exercised.
For the period during which the Representative's Warrant is exercisable,
the holder(s) will have the opportunity to profit from a rise in the market
value of the Common Stock, with a resulting dilution in the interest of the
other stockholders of PCI. The holder(s) of the Representative's Warrants can be
expected to exercise them at a time when PCI would, in all likelihood, be able
to obtain any needed capital from an offering of its unissued Common Stock on
terms more favorable to PCI than those provided for in the Representative's
Warrant. Such facts may adversely affect the terms on which PCI can obtain
additional financing.
We have granted certain demand and piggyback registration rights with
respect to the securities issuable upon exercise of the Representative's
Warrants under the Securities Act. PCI will register the shares underlying the
Representative's Warrants and Representative's Stock Warrants. The
Representative's Unit Warrants provide that on one occasion, upon the request of
the Representative, at any time during the five-year period commencing one year
after the date of this Prospectus, PCI will prepare and file a post-effective
amendment or new registration statement permitting the sale of the
Representative's
53
<PAGE>
Warrants and/or underlying securities and use its best efforts to keep the
registration statement under the Securities Act effective for a nine-month
period following the effective date. We will bear the cost of such amendment or
registration statement. If PCI files a registration statement under the
Securities Act relating to an equity offering at any time during the five-year
period following the date of this Prospectus, the holders of the
Representative's Unit Warrants or underlying securities will have the right,
subject to certain conditions, to include in such registration statement all or
part of the underlying securities at the request of the holders.
PCI, any selling security holders and the Representative have agreed to
indemnify each other against certain liabilities in connection with the
Registration Statement, including liabilities under the Securities Act. Such
indemnification is limited or unavailable in certain circumstances, including
where legally unavailable.
All of the present shareholders of PCI have agreed not to offer, sell or
otherwise dispose of any such outstanding Common Stock or Common Stock issuable
upon exercisable of options for a period of eighteen months after completion of
this Offering without prior consent of the Representative. See "PRINCIPAL
STOCKHOLDERS."
Uponclosing of the Offering, the Representative will have the right to
nominate one member of the Board of Directors to serve for a five (5) year term.
The foregoing is a brief summary of certain provisions of the Underwriting
Agreement and does not purport to be a complete statement of its terms and
conditions. A copy of the Underwriting Agreement is on file with the Commission
as an exhibit to the Registration Statement of which this Prospectus is a part.
See "AVAILABLE INFORMATION."
LEGAL MATTERS
Titus, Brueckner & Berry, P.C., 7373 North Scottsdale Road, Scottsdale
Centre, Suite B-252, Scottsdale, Arizona 85253, counsel for PCI, will give their
opinion that the shares of Common Stock offered in this Prospectus are validly
authorized and issued. Streich Lang, P.A. has represented the Representative in
connection with this Offering.
EXPERTS
The financial statements of PCI included in this Prospectus have been
audited by Semple & Cooper, LLP, independent certified public accountants, as
stated in their report which immediately precedes the financial statements. We
include the financial statements in reliance on Semple & Cooper, LLP's report
which was given on the authority of that firm as experts in accounting and
auditing.
54
<PAGE>
Engagement of Independent Accountants
Semple & Cooper, LLP ("Semple & Cooper") was engaged in 1997 to audit the
consolidated financial statements of PCI for the period beginning June 1, 1996
and ending March 31, 1997. Neither PCI nor CAN-AM had previously engaged
independent accountants to audit their financial statements. General due
diligence disclosures were made to Semple & Cooper in the normal course of
Semple & Cooper's decision regarding whether to undertake the audit. The Company
was not provided with either written or oral advice as to accounting, auditing
or financial reporting issues arising from any discussion with Semple & Cooper
concerning the application of accounting principles to a specific or completed
transaction, the type of audit opinion, or any disagreement, which was an
important factor in the decision to engage Semple & Cooper. The Company is aware
of no disagreements or reportable events with respect to its relationship with
Semple & Cooper.
GLOSSARY
Applicable Requirements Resale restrictions required by SEC
Regulation ss. 230.144 ("Rule 144"), including
holding period, volume limitation, aggregation,
broker transaction, notice filing and availability
of public information requirements.
Bridge Warrants Warrants to purchase shares of PCI's Common Stock
at 50% of the Offering Price.
Bridge Financing Interim financing of $1,000,000 from nine
investors between March and June 1997; Investors
received a promissory note ("Bridge Note") for the
amount of their investment and a warrant ("Bridge
Warrant") to purchase shares of PCI's Common Stock
at 50% of the Offering Price.
CAN-AM CAN-AM International Investments Corp., a British
Columbia (Canada) corporation and wholly-owned
subsidiary of PCI. All of PCI's Canadian cigar
operations are conducted through CAN-AM.
EPA The U.S. Environmental Protection Agency.
Exchange Act The Securities Exchange Act of 1934, as amended.
FDA The U.S. Food and Drug Administration.
FTC The Federal Trade Commission.
55
<PAGE>
J&M J&M Wholesale, Ltd., a British Columbia (Canada)
corporation wholly-owned and controlled by Colin
A. Jones, who is an officer and director of CAN-AM
and an officer, director and controlling
shareholder of PCI.
Master Agreement A form retailer or regional distribution agreement
that PCI negotiated with a major convenience store
chain, which approved for use by retail stores or
regional distribution centers within the chain,
but which must be accepted by each individual
store or distribution region which wishes to
participate in the PCI Cigar Program.
Merchandising Full-service in-store support of a retail location
including cleaning, supplying and maintaining the
humidor, rotating stock and providing training to
store management and personnel.
NACS National Association of Convenience Stores.
Nasdaq SmallCap Market An interdealer quotation system for smaller
companies operated by Nasdaq.
Nasdaq The National Automated Dealer Quotation System
operated by The Nasdaq Stock Market, Inc.
Offering Price The price per share printed on the cover of this
Prospectus.
Offering PCI's initial public offering of its Shares under
this Prospectus and registered under its
Registration Statement on Form SB-2.
Over-Allotment-Option Options that PCI has granted to the Underwriter,
exercisable for 45 days from the date of this
Prospectus, to purchase up to an additional
300,000 Shares to cover excess allotments for the
Shares Offered.
PCI Premium Cigars International, Ltd.
PCI Cigar Program PCI's cigar distribution program, including
premium and mass market cigars, humidors, service,
training and sales.
Prospectus This document.
Registration Statement PCI's Registration Statement on Form SB-2 filed
with the SEC as of the date of this Prospectus,
which includes exhibits and other information that
is not included in this Prospectus.
56
<PAGE>
Representative W.B. McKee Securities, Inc.
Representative Warrants Warrants to purchase 200,000 Shares exercisable at
120% of the Offering Price; issued to the
Underwriter as additional compensation.
Rose Hearts Rose Hearts, Inc, a Washington corporation that is
wholly-owned and controlled by Greg P. Lambrecht,
who is an officer and director of CAN-AM and an
officer and controlling shareholder of PCI.
SEC The Securities and Exchange Commission.
Securities Act The Securities Act of 1933, as amended.
Share One of the shares of PCI's Common Stock, no par
value.
3:1 Stock Split A 3:1 forward split of PCI's shares of Common
Stock, approved by PCI's shareholders on May 31,
1997.
Transfer Agent and Warrant American Securities Transfer & Trust, Inc.
Agent
Underwriter W.B. McKee Securities, Inc. and others who may be
named in a syndicate of co-underwriters.
Underwriting Discount Compensation to the Underwriter in the form of a
10% discount of Underwriter's purchase price from
the Offering Price at which the Underwriter will
sell the Shares.
"We" Premium Cigars International, Ltd.
ADDITIONAL INFORMATION
PCI filed a Registration Statement on Form SB-2 with the SEC relating to
the securities offered in this Prospectus. This Prospectus does not contain all
of the information included in the Registration Statement. For further
information about PCI and the securities we are offering in this Prospectus,
refer to the Registration Statement and its exhibits. The statements we make in
this Prospectus regarding the content of any contract or other document are
necessarily not complete, and you may examine the copy of the contract or other
document that we filed as an exhibit to the Registration Statement. All our
statements about all such contracts or other
57
<PAGE>
documents are qualified in their entirety by referring you to the exhibits to
the Registration Statement.
FINANCIAL STATEMENTS
Index to Financial Statements
Independent Auditor's Report ............................................. F-2
Consolidated Balance Sheet ............................................... F-3
Consolidated Statement of Operations ..................................... F-4
Consolidated Statement of Changes in Stockholders' Equity ................ F-5
Consolidated Statement of Cash Flows ..................................... F-6
Notes to Consolidated Financial Statements ............................... F-7
58
<PAGE>
PREMIUM CIGARS INTERNATIONAL, LTD.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
For The Period From The Date of
Inception, June 1, 1996
Through March 31, 1997
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To The Board of Directors of
Premium Cigars International, Ltd.
We have audited the accompanying consolidated balance sheet of Premium Cigars
International, Ltd. and Subsidiary as of March 31, 1997, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the period from the date of inception, June 1, 1996 through March 31,
1997. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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 financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audit provides 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 Premium Cigars
International, Ltd. and Subsidiary as of March 31, 1997, and the results of its
operations, changes in stockholders' equity, and its cash flows for the period
from the date of inception, June 1, 1996 through March 31, 1997, in conformity
with generally accepted accounting principles.
Semple & Cooper, L.L.P.
Phoenix, Arizona
June 18, 1997
<PAGE>
PREMIUM CIGARS INTERNATIONAL, LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
March 31, 1997
ASSETS
Current Assets:
Cash and cash equivalents (Note 1) $ 53,018
Accounts receivable (Notes 1 and 2)
- trade 64,300
- related parties 8,497
Inventory (Notes 1 and 3) 126,337
Prepaid expenses 15,607
---------
Total Current Assets 267,759
---------
Property and Equipment, Net (Notes 1 and 4) 23,055
---------
Other Assets:
Humidors, net (Note 1) 60,486
Notes receivable - related parties (Note 2) 86,225
Organizational costs, net (Note 1) 32,386
Deferred costs (Note 1) 53,550
---------
232,647
---------
$ 523,461
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable (Note 5) $ 50,000
Notes payable - related parties, current portion (Note 2) 19,641
Accounts payable - trade 109,254
Accrued expenses
- tobacco taxes 100,333
- other 70,700
---------
Total Current Liabilities 349,928
---------
Long-Term Liabilities:
Notes payable - related parties, long-term portion (Note 2) 110,000
---------
Commitments: (Note 7) --
---------
Stockholders' Equity:(Note 8)
Common stock - no par value, 10,000,000 shares authorized,
1,480,500 shares issued and outstanding 217,050
Accumulated deficit (153,517)
---------
Total Stockholders' Equity 63,533
---------
Total Liabilities and Stockholders' Equity $ 523,461
=========
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-2
<PAGE>
PREMIUM CIGARS INTERNATIONAL, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
For The Period From The Date of Inception,
June 1, 1996 Through March 31, 1997
Net Sales $ 845,571
Cost of Sales 643,790
-----------
Gross Profit 201,781
-----------
Selling, General and Administrative 333,776
-----------
Loss from Operations (131,995)
-----------
Other Income (Expense):
Interest Expense (21,292)
Other 963
Foreign currency transaction loss (1,193)
-----------
(21,522)
-----------
Net Loss $ (153,517)
===========
Loss per Share (Note 1) $ (.10)
===========
Weighted Average Number of Shares Outstanding 1,480,500
===========
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-3
<PAGE>
PREMIUM CIGARS INTERNATIONAL, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For The Period From The Date of Inception,
June 1, 1996 Through March 31, 1997
Common Stock Total
--------------------- Accumulated Stockholders'
Shares Amount Deficit Equity
------ ------ ------- ------
Balance, June 1, 1996 -- $ -- $ -- $ --
Shares issued for
cash 1,450,500 207,050 -- 207,050
Shares issued for
services 30,000 10,000 -- 10,000
Net loss -- -- (153,517) (153,517)
--------- --------- --------- ---------
Balance, March 31,
1997 1,480,500 $ 217,050 $(153,517) $ 63,533
========= ========= ========= =========
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-4
<PAGE>
PREMIUM CIGARS INTERNATIONAL, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
For The Period From The Date of Inception,
June 1, 1996 Through March 31, 1997
Increase (Decrease) in Cash and Cash Equivalents:
Cash flows from operating activities:
Cash received from customers $ 782,234
Cash paid to suppliers and employees (827,701)
Interest paid (21,292)
---------
Net cash used for operating activities 66,759
---------
Cash flows from investing activities:
Purchase of property and equipment (23,302)
Purchase of humidors (71,451)
Disbursements for notes receivable - related parties (86,225)
Organizational costs (32,386)
Deferred offering costs (53,550)
---------
Net cash used by investing activities (266,914)
---------
Cash flows from financing activities:
Proceeds from notes payable 50,000
Proceeds from note payable - related party 129,641
Proceeds from issuance of common stock 207,050
---------
Net cash provided by financing activities 386,691
---------
Net increase in cash and cash equivalents 53,018
Cash and cash equivalents at beginning of period --
---------
Cash and cash equivalents at end of period $ 53,018
=========
Reconciliation of Net Loss to Net Cash used for
Operating Activities:
Net Loss $(153,517)
---------
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 11,212
Stock issued for services 10,000
Changes in Assets and Liabilities:
Accounts receivable
- trade (64,300)
- related parties (8,497)
Inventory (126,337)
Prepaid expenses (15,607)
Accounts payable
- trade 109,254
Accrued expenses
- tobacco taxes 100,333
- other 70,700
---------
86,758
---------
Net cash used for operating activities $ (66,759)
=========
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-5
<PAGE>
PREMIUM CIGARS INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies, Nature of Operations and
Use of Estimates:
Nature of Operations:
Premium Cigars International, Ltd. (the "Company") is a Corporation
organized under the laws of the State of Arizona on December 16, 1996.
CAN-AM International Investments Corp. (CAN-AM), a British Columbia
Canadian corporation, was incorporated on June 20, 1996. The Company
acquired all of the outstanding stock of CAN-AM on December 31, 1996.
The principal business purpose of the Company is the distribution of
premium cigars using countertop humidors in convenience stores, grocery
stores and other retail outlet markets. The Company conducts business
throughout the United States. The Company's wholly-owned subsidiary,
CAN-AM, operates throughout greater Canada.
Significant Transactions:
Prior to January 1, 1997, CAN-AM acquired all existing cigar accounts,
cigar related inventory, humidors, other assets and the related trade
accounts payable and tobaco tax liabilities from J&M Wholesale, Ltd. and
Rose Hearts, Inc. These corporations were owned by the principal
stockholders of Premium Cigars International, Ltd. As all acquisitions
and account purchases were consummated within a controlled group, the
cigar operations of J&M Wholesale, Ltd. and Rose Hearts, Inc. are
included in the accompanying financial statements from the date of
commencement of cigar sales, June 1, 1996.
Principles of Consolidation:
The consolidated financial statements include the activity of Premium
Cigars International, Ltd., together with its wholly-owned subsidiary,
CAN-AM, and its predecessors cigar related activity of J&M Wholesale,
Ltd. and Rose Hearts, Inc. The activity of CAN-AM and its predecessors
is included in the consolidated financial statements from the date of
commencement of cigar operations, June 1, 1996. All significant
intercompany accounts and transactions have been eliminated.
Pervasiveness of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, and liabilities
and disclosure of contingent assets and liabilities, at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents:
Cash equivalents are considered to be all highly liquid investments
purchased with a maturity of three (3) months or less.
Accounts Receivable - Trade:
Accounts receivable - trade represents amounts earned but not collected
in connection with the sale of cigars and cigar accessories.
The Company follows the allowance method of recognizing uncollectible
accounts receivable. The allowance method recognizes bad debt expense as
a percentage of accounts receivable based on a review of individual
accounts outstanding. In the opinion of the management, all accounts
receivable outstanding at March 31, 1997, are considered fully
collectible and therefore, no allowance has been provided for
potentially uncollectible accounts receivable.
F-6
<PAGE>
PREMIUM CIGARS INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Policies, Nature of Operations and Use
of Estimates: (Continued)
Inventory:
Inventory quantities and valuation were determined based upon a physical
count, and pricing of same at March 31, 1997. Inventory is stated at the
lower of cost, first-in, first-out method, or market. Inventory
quantities are reviewed for obsolescence periodically.
Property and Equipment:
Property and equipment are recorded at cost. Depreciation is provided
for on the straight-line method, over the following estimated useful
lives.
Equipment 5-7 years
Furniture and fixtures 5-7 years
Maintenance and repairs that neither materially add to the value of the
property nor appreciably prolong its life are charged to expense as
incurred. Betterments or renewals are capitalized when incurred.
Depreciation expense was $247 for the period from the date of inception,
June 1, 1996 through March 31, 1997.
Humidors:
Humidors are used primarily to display cigars available for sale at
retail outlets. The humidors are being amortized ratably over a two (2)
year period. For the period from the date of inception, June 1, 1996
through March 31, 1997, amortization expense was $10,965.
Organization Costs:
Organization costs consist of costs incurred in relation to the
formation of the Corporation and its wholly-owned subsidiary. These
costs are being amortized ratably over five (5) years.
Deferred Costs:
Deferred costs primarily represent costs incurred in connection with the
Company's proposed Initial Public Offering of its common stock and will
be offset against the proceeds of the offering, or expensed if not
successful.
Income Taxes:
Deferred income taxes are provided on an asset and liability method,
whereby deferred tax assets are recognized for deductible temporary
differences and operating loss carryforwards. Deferred tax liabilities
are recognized for taxable temporary differences. Deferred tax assets
are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
F-7
<PAGE>
PREMIUM CIGARS INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Policies, Nature of Operations and Use
of Estimates: (Continued)
Translation of Foreign Currencies:
Account balances and transactions denominated in foreign currencies and
the accounts of the Corporation's foreign operations have been
translated into United States funds, as follows:
Assets and liabilities at the rates of exchange prevailing at
the balance sheet date;
Revenue and expenses at average exchange rates for the period in
which the transaction occurred;
Exchange gains and losses arising from foreign currency
transactions are included in the determination of net earnings
for the period;
Exchange gains and losses arising from the translation of the
Corporation's foreign operations are deferred and included as a
separate component of stockholders' equity.
Loss Per Share:
During the period ended March 31, 1997, the Company's Board of Directors
approved an Initial Public Offering of its common stock. The Initial
Public Offering price to the public is expected to be $5.01 per share.
Pursuant to the Securities and Exchange Commission rules, common stock
issued for consideration below the $5.01 per share Initial Public
Offering price during the twelve (12) months prior to filing the
Registration Statement, have been included in the weighted average
number of shares outstanding from the beginning of the period.
2. Related Party Transactions:
Accounts Receivable - Related Parties:
Accounts receivable - related parties as of March 31, 1997 are, in the
opinion of management, short-term in nature and are non-interest
bearing.
Notes Receivable - Related Parties:
As of March 31, 1997, notes receivable - related parties are comprised
of 6% interest bearing notes from the principal stockholders in the
amount of $86,225. The notes receivable are due on March 31, 1999.
Notes Payable - Related Parties:
At March 31, 1997, notes payable related parties consist of the
following:
Non-interest bearing note to a stockholder, due on demand;
unsecured $ 19,641
36% interest bearing note to a stockholder, with monthly
interest-only payments, due May, 1998; unsecured 110,000
---------
129,641
Less: current portion (19,641)
---------
$ 110,000
=========
F-8
<PAGE>
PREMIUM CIGARS INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Related Party Transactions: (Continued)
Notes Payable - Related Parties: (Continued)
For the period from the date of inception, June 1, 1996 through March
31, 1997, the Company incurred interest expense in relation to the above
notes payable from related parties in the approximate amount of $19,800.
Subsequent Related Party Transactions:
Subsequent to the balance sheet date, the following related party
transactions occurred:
The Company paid $10,000 of principal on the $110,000 note payable to a
stockholder, and converted the remaining balance into additional bridge
financing, with terms in accordance therewith (See Note 12).
The Company entered into a distributorship agreement with a related
entity allowing for payments of ten percent (10%) to twenty-two percent
(22%) of the sales price as an account servicing fee.
3. Inventory:
As of March 31, 1997, inventory consists of the following:
Cigars $124,684
Cigar accessories 1,653
--------
$126,337
========
4. Property and Equipment:
At March 31, 1997, property and equipment consists of the following:
Equipment $ 3,090
Furniture and fixtures 10,212
--------
13,302
Less: accumulated depreciation (247)
--------
13,055
Equipment held for sale 10,000
--------
$ 23,055
========
5. Note Payable:
As of March 31, 1997, the note payable consists of a $50,000 operating
line of credit with Biltmore Investors Bank, with interest at two
percent (2%) above the lenders index rate. The note is due December 18,
1997, and is secured by various assets.
F-9
<PAGE>
PREMIUM CIGARS INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Income Taxes:
At March 31, 1997, the Company has available approximately $150,000 of
U.S operating loss carryforwards that may be applied against future
taxable income and will expire in 2012. In addition, the Company has a
Canadian net operating loss carryforward in the approximate amount of
$25,000, expiring through 2004.
The Company has established a valuation allowance equal to the full
amount of the deferred tax asset of approximately $70,000, resulting
from the loss carryforwards. The Company established an allowance
because the utilization of the loss carryforwards is uncertain.
7. Commitments:
Employment Agreements:
The Company has entered into employment agreements with three (3)
officers of the Corporation. The agreements are cancellable at any time
by either party. The Company has agreed to pay two (2) of the officers a
management fee in the amount of $80,000. The fee is to be paid over a
sixteen (16) month period. In addition, the Company has retained a
consultant to assist with the Initial Public Offering, for a minimum fee
of $62,400.
Operating Leases:
The Company leased office and warehouse space in Scottsdale, Arizona in
May, 1997, under a non-cancellable operating lease agreement, expiring
May 31, 1999. The terms of the lease provide for monthly payments
ranging from $5,878 to $7,134. The lease terms also require the Company
to pay common area maintenance, taxes, and certain other incidental
costs.
A schedule of future minimum lease payments due under the
non-cancellable operating lease agreements for each of the next three
(3) years, is as follows:
Year Ending
March 31, Amount
--------- ------
1998 $ 75,521
1999 85,270
2000 14,268
--------
$175,059
========
As this lease was executed subsequent to the year end, there was no rent
expense under the aforementioned operating lease agreement for the
period from the date of inception, June 1, 1996 through March 31, 1997.
8. Stockholders' Equity:
Common Stock Split:
In May, 1997, the Company declared a three for one split of its common
stock. The accompanying consolidated financial statements give
retroactive effect to the stock split.
Proposed Offering:
The Company is currently in the process of filing a Form SB-2
Registration Statement with the Securities and Exchange Commission to
register its common stock for sale to the public. The offering is
intended to issue 2,000,000 common shares at $5.01 per share.
F-10
<PAGE>
PREMIUM CIGARS INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Foreign Currency:
Foreign currency transactions resulted in an aggregate exchange loss of
$1,193 for the period from the date of inception, June 1, 1996 through
March 31, 1997. Foreign currency translation gains or losses were
immaterial for the period.
10. Statements of Cash Flows:
Non-Cash Financing and Investing Activities:
During the period ended March 31, 1997, the Company recognized a
financing activity that affected its assets, liabilities and equity, but
did not result in cash receipts or payments. This non-cash activity is
as follows:
Issuance of 30,000 shares of common stock valued at $10,000 for
services rendered.
11. Economic Dependency:
For the period from the date of inception, June 1, 1996 through March
31, 1997, the Company's largest supplier accounted for approximately
seventy-one percent (71%) of the Company's cigar purchases. As of March
31, 1997, this supplier had an account payable balance of approximately
$15,000.
For the period from the date of inception, June 1, 1996 through March
31, 1997, the Company's largest customer accounted for approximately
eighty-two percent (82%) of the Company's sales. As of March 31, 1997,
there are accounts receivable of approximately $50,000 due from this
customer.
12. Subsequent Events:
In April 1997, the Company obtained a $650,000 bridge financing loan,
with interest at 8% per annum, and net proceeds of $585,000 due the
earlier of the date of the closing of an Initial Public Offering, or six
(6) months after the offering date, with interest at 16% per annum after
this period if not paid in full. In addition, $100,000 of related party
debt was converted to the same terms as the bridge financing. In June,
1997, an additional $250,000 of bridge financing loans were made, with
net proceeds of $225,000, under the same terms. The bridge financing
also allows the debt holder to exercise a warrant to buy common stock at
fifty percent (50%) of the proposed Initial Public Offering price, with
the number of shares equal to the financing amount divided by the
exercise price.
In April, 1997, the Company paid its line of credit in full and
terminated the agreement.
F-11
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING
BEEN AUTHORIZED BY PCI OR BY THE UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WAS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE CIRCUMSTANCES OF PCI OF THE FACTS HEREIN SET
FORTH SINCE THE DATE OF THIS PROSPECTUS.
-------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary........................................................... 1
Summary Financial Information................................................ 4
Risks........................................................................ 5
Use of Proceeds.............................................................. 12
Capitalization............................................................... 13
Dilution..................................................................... 13
Selected Historical and Pro Forma Financial Information...................... 15
Management's Discussion and Analysis of Results of Operations................ 16
Business..................................................................... 19
Management................................................................... 36
Certain Transactions......................................................... 40
Principal Shareholders....................................................... 43
Interim Financing and Selling Shareholders................................... 47
Description of Securities.................................................... 50
Dividend Policy.............................................................. 52
Underwriting................................................................. 53
Legal Matters................................................................ 55
Experts...................................................................... 55
Glossary..................................................................... 56
Additional Information....................................................... 58
Financial Statements......................................................... 59
-------------------
UNTIL ______________, 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THE DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
59
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
PCI's Articles of Incorporation provide that no Director or former Director
shall be liable to PCI or its shareholders for monetary damages or for breach of
fiduciary duty or for any action taken or any failure to take any action as a
director or officer. The Articles continue that the liability of Directors is
limited or eliminated to the fullest extent permitted by law and provide that no
repeal or modification of such limitation of liability may adversely affect any
right or protection of a director or officer existing at the time of such repeal
or modification.
Generally, Arizona statutory law permits indemnification of an officer or
director if such individual acted in good faith and with respect to conduct of
an official capacity, in a manner heor she reasonably believed to be in the best
interests of the corporation and in all other cases, at least not opposed to the
corporation's best interests, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
A corporation may never indemnify any director who is adjudged liable to the
corporation or who is adjudged, regardless of the nature of the proceeding,
liable on the basis that the director received an improper personal benefit.
Unless a corporation's articles of incorporation provide otherwise, a
corporation must indemnify a director or officer who is the prevailing party on
merits or otherwise for the director's or officer's reasonable expenses in the
defense of a proceeding to which the director or officer was a party because he
or she is or was a director or officer of the corporation. PCI has not entered
any agreement with its current directors and executive officers pursuant to
which it is obligated to indemnify those persons.
At present, PCI is not aware of any pending or threatened litigation or
proceeding involving a director, officer, employee or agent of PCI in which
indemnification would be required or permitted.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, offices or controlling persons of the registrant,
pursuant to the foregoing provisions, orotherwise, the registrant has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II 1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC registration fee........................................ $ 9,075.76
NASD corporate finance filing fee........................... $____________*
Nasdaq SmallCap Market listing fee.......................... $____________*
Legal fees.................................................. $175,000**
Miscellaneous............................................... $____________*
Total.................................................. $_____________
- -----------------------
* To be supplied by amendment.
** Estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is information concerning the issuance by PCI of its
securities since its organization in December 1996 (other than securities issued
in this Offering). All such securities are restricted securities and the
certificates bear restrictive legends. All share issuances are adjusted to
reflect the effect of the 3:1 Stock Split.
(a) In connection with PCI's acquisition of all of the issued and
outstanding shares of CAN-AM on December 31, 1996, aggregated with additional
Shares issued for the same consideration on January 9, 1997, PCI issued 817,500
Shares of Common Stock to the following founders, employees or consultants in a
stock-for-stock transaction for shares of CAN-AM:
Name Shares Consideration
---- ------ -------------
Greg P. Lambrecht 363,750 95 CAN-AM "A" Shares (non-voting)
1 CAN-AM "B" Share (voting)
Colin A. Jones 371,250 95 CAN-AM "A" Shares (non-voting)
1 CAN-AM "B" Share (voting)
Greg S. Barton 22,500 6 CAN-AM "A" Shares (non-voting)
Daniel C. Goldman 52,500 4 CAN-AM "A" Shares (non-voting)
Pat Quadrelli 7,500 2 CAN-AM "A" Shares (non-voting)
-------
Total: 817,500 Shares
The issuance of the Common Stock was exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof.
II 2
<PAGE>
(b) On January 9, 1997, PCI issued 15,000 shares of Common Stock to Mike
Rocha as compensation for past services provided to PCI. The issuance of the
Common Stock was exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof.
(c) From January 9 to 12, 1997, PCI issued shares of Common Stock to
certain directors, officers, employees, consultants and accredited investors for
cash as follows:
Name Shares Consideration
---- ------ -------------
Lorraine Shelley 82,500 $ 27,200
Kathy Keil 82,500 $ 27,200
Scott I. Lambrecht 86,250 $ 25,500
Steven A. Lambrecht 82,500 $ 27,200
Corey A. Lambrecht 75,000 $ 27,200
Jim Stanley 11,250 $ 10,000
Greg S. Barton 52,500 $ 50,000
------- --------
Total: 472,500 $194,300
The issuance of the Common Stock was exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof.
(d) On March 5, 1997, PCI's Board of Directors authorized a private
placement of a maximum of 120,000 Shares of PCI Common Stock to its existing
shareholders and on March 10, 1997 PCI issued the following additional Shares of
Common Stock to its existing shareholders in exchange for cash:
Name Shares Consideration
---- ------ -------------
Peter G. Charleston 90,000 $ 3,750
Steven A. Lambrecht 60,000 $10,000
Murphy Pierson 15,000 $ 1,250
Daniel C. Goldman 10,500 $ 1,750
------- -------
Total: 175,500 $16,750
The issuance of the Common Stock was exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof.
(e) As described above under "INTERIM FINANCING - Bridge Financing,"
between March and June 1997, ten (10) accredited Bridge Investors loaned PCI a
total amount of $1,000,000 in increments of $50,000, in cash or conversion of
prior debt of CAN-AM. In return for their loan, the Bridge Investors received a
Bridge Note from PCI in the amount of their loan and Bridge Warrants to purchase
shares of PCI Common Stock at fifty percent (50%) of the Offering Price printed
in this Prospectus. The names of the Bridge Investors, the amount of their
investment and the number of shares of Common Stock that they are entitled to
purchase
II 3
<PAGE>
under the Bridge Warrants are set forth in the Prospectus under "INTERIM
FINANCING - Bridge Financing."
The issuance of the Bridge Notes and Bridge Warrants was exempt from the
registration requirements of the Securities Act pursuant to Section 4(2) thereof
and Rule 506 of the SEC.
(f) As described above under "CERTAIN TRANSACTIONS," on May 1, 1997, PCI
entered an Endorsement Agreement with Arie Luyendyk, an accredited investor,
under which PCI would issue 15,000 shares of Common Stock to Mr. Luyendyk
subject to a six-month vesting schedule. In order to meet its obligations under
the Endorsement Agreement without diluting the relative security positions of
other shareholders prior to the Offering, PCI repurchased 15,000 (as adjusted by
the 3:1 Stock Split) shares of its Common Stock from its Chief Executive Officer
and Chairman, Steven A. Lambrecht at $0.33 per share. The issuance of the Shares
of Common Stock to Mr. Luyendyk were exempt from the registration requirements
of the Securities Act pursuant to Section 4(2) thereof.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
1.1 Form of Underwriting Agreement.
1.2 Form of Lock-Up Agreement.
1.3 Form of Master Agreement Among Underwriters
1.4 Form of Selected Dealer's Agreement
3.1 Articles of Incorporation of PCI.
3.2 By-Laws, as amended of PCI.
3.3 Certificate of Incorporation and Company Act Memorandum of
CAN-AM.
4.1 Pages from Articles of Incorporation and Bylaws defining the
rights of security holders.
4.2 Specimen Common Stock Certificate.
4.3 Underwriter's Common Stock Purchase Warrant
II 4
<PAGE>
4.4 Investment Banking Agreement dated December 14, 1996 between
Registrant and Underwriter.
4.5 Letter of Intent dated March 31, 1997 between Registrant and
Underwriter.
4.6 Form of Subscription to Acquire Warrant between Registrant
and Bridge Investors to which the Form of Bridge Note and
Form of Bridge Warrant are exhibits.
5.1 Opinion of Titus, Brueckner & Berry, P.C. (To be filed by
Amendment)
9.1 Shareholders and Voting Agreement, dated January 1, 1997
(terminated May 31, 1997).
10.1 Business Loan Agreement, dated September 5, 1996, among Greg
S. Barton, Rose Hearts, Inc., Greg P. Lambrecht, J&M
Wholesale, Ltd., Colin A. Jones, and CAN-AM.
10.2 Asset Purchase Agreement, dated December 31, 1996, between
CAN-AM International Investments Corp. and Rose Hearts, Inc.
10.3 Asset Purchase Agreement, dated December 31, 1996, between
CAN-AM International Investments Corp. and J&M Wholesale,
Ltd.
10.4 Promissory Note, dated December 31, 1996, between Colin A.
Jones and PCI
10.5 Promissory Note, dated December 31, 1996, between Greg P.
Lambrecht and PCI
10.6 Management Agreement, dated January 1, 1997, between CAN-
AM International Investment Corp. and J&M Wholesale, Ltd.
10.7(1) Letter Agreement for Supply of Brand Name and Private Label
Cigars, dated January 7, 1997, between Registrant and TSG
Import, Export and Manufacturing Corporation.
10.8(1) Cigar Display and Merchandising Agreement, dated April 1,
1997, between the Registrant and The Southland Corporation
(7-Eleven Stores/U.S.A.).
10.9(1) Agency Relationship Agreement, dated April 8, 1997, between
the Registrant and Associated Grocers, Inc.
10.10(1) Retailer Agreement, dated April 15, 1997, between the
Registrant and Arizona Region, Region 3100, Circle K Stores,
Inc.
II 5
<PAGE>
10.11(1) Retailer Agreement, dated April 29, 1997, between the
Registrant and Express Stop, Inc.
10.12 Endorsement Agreement, dated May 1, 1997, between the
Registrant and Arie Luyendyk.
10.13 Standard Sublease, dated May 5, 1997, between the Registrant
and Michael R. Ellison, Inc.
10.14(1) Agency Relationship Agreement, dated May 8, 1997, between
the Registrant and SuperValu, Inc.
10.15(1) Retailer Agreement, dated May 22, 1997, between the
Registrant and Prestige Stations, Inc. (AM/PM Stores).
10.16 Business Consulting Agreement, dated June 2, 1997, between
the Registrant and David S. Hodges.
10.17 Employment Agreement, dated June 13, 1997, between the
Registrant and Steven A. Lambrecht.
10.18 Employment Agreement, dated June 13, 1997, between the
Registrant and Greg P. Lambrecht.
10.19 Employment Agreement, dated June 13, 1997, between the
Registrant and Colin A. Jones.
10.20(1) Distributorship Agreement, dated June 13, 1997, between the
Registrant and Rose Hearts, Inc.
10.21 Settlement and Full Release of Equity Interest, dated June
13, 1997, among the Registrant and Greg P. Lambrecht, Colin
A. Jones, Rose Hearts, Inc., CAN-AM International Investment
Corp., J&M Wholesale Ltd., Greg S. Barton, Lucille B. Barnes
and Kelli D. Martin.
10.22 Agreement, dated June 20, 1997 by and between Steven A.
Lambrecht, Greg P. Lambrecht, Colin A. Jones, William B.
Anthony and PCI.
10.23 Stock Purchase Agreement, dated June 20, 1997 between Steven
A. Lambrecht and James. B. Stanley. (To be filed by
Amendment)
II 6
<PAGE>
11.1 Statement Regarding Computation of Per Share Earnings.
16.1 Response Letter from Semple & Cooper, LLP Regarding the
Disclosure under "CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE"
21.1 Subsidiary List.
23.1 Consent of Semple & Cooper, LLP. See "CONSENT OF INDEPENDENT
CERTIFIED ACCOUNTANTS."
23.2 Consent of Titus, Brueckner & Berry, P.C. (included in
Exhibit 5.1).
27.1 Financial Data Schedule.
(1) Omitted and filed separately with the Commission pursuant to the
Confidential Treatment provisions of Regulationss.230.406.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
II 7
<PAGE>
(2) For determining liability under the Securities Act, to treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
(3) To remove from the registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) To provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to permit
prompt delivery to each purchaser.
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officer or controlling
persons of the registrant, pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered hereunder,
the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
(6) For determining any liability under the Securities Act, to treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the issuer under Rule 424(b)(I), or (4) or
497(h) under the Securities Act as part of this registration statement
as of the time the Commission declared it effective.
(7) For determining any liability under the Securities Act, to treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the
initial bona fide offering of those securities.
II 8
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Scottsdale, State of Arizona on this the 23rd day of June, 1997.
PREMIUM CIGARS INTERNATIONAL, LTD.
By: /s/ Steven A. Lambrecht
----------------------------------------
Steven A. Lambrecht
President and Chief Executive Officer
By: /s/ Greg P. Lambrecht
----------------------------------------
Greg P. Lambrecht
Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
Date Signature Title
- ---- --------- -----
June 23, 1997 /s/ William L. Anthony Chairman of the Board
-----------------------------
William L. Anthony
June 23, 1997 /s/ Steven A. Lambrecht Director
-----------------------------
Steven A. Lambrecht
June 23, 1997 /s/ Colin A. Jones Director
-----------------------------
Colin A. Jones
June 23, 1997 /s/ David S. Hodges Director
-----------------------------
David S. Hodges
June 24, 1997 /s/ Karissa B. Nisted Chief Financial Officer
-----------------------------
Karissa B. Nisted
II 9
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the inclusion
of our report dated June 18, 1997, on the consolidated financial statements of
Premium Cigars International, Ltd. and subsidiary for the year ended March 31,
1997 in the Company's Form SB-2 Registration Statement for the year then ended
and to the reference to us under the caption "Experts" contained in the
Prospectus
SEMPLE & COOPER, LLP
Phoenix, Arizona
June 24, 1997
II 10
PREMIUM CIGARS INTERNATIONAL, LTD.
2,000,000 Shares of Common Stock
UNDERWRITING AGREEMENT
(the "Agreement")
____________, 1997
W. B. McKee Securities, Inc.
3003 North Central Avenue
Suite 100
Phoenix, Arizona 85012
Ladies and Gentlemen:
Premium Cigars International, Ltd., an Arizona corporation ("Company"),
proposes to sell an aggregate of 2,000,000 shares of common stock, no par value
per share ("Firm Stock"), to W. B. McKee Securities, Inc. ("Representative") on
the terms and conditions set forth herein. The Company also proposes to sell, at
the Representative's option, an aggregate of up to 300,000 additional shares of
Comon Stock (the "Option Stock") as discussed more thoroughly in Section 2
below. The Company further agrees to issue, upon the Closing Date as hereafter
defined in Section 2, the Representative's warrants more fully discussed in
Section 4(o) below ("Representative's Warrants").
The Firm Stock and the Option Stock are herein collectively called the
"Stock."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. Representations and Warranties of the Company. The Company
represents, warrants and agrees as follows:
<PAGE>
(a) A registration statement on Form SB-2 (File No.
333-__________ with respect to the Firm Stock and Option Stock has been prepared
by the Company in conformity with the requirements of the Securities Act of
1933, as amended ("Act"), and the rules and regulations ("Rules and
Regulations") of the Securities and Exchange Commission ("Commission")
thereunder and has been filed with the Commission under the Act. Copies of such
registration statement, including any pre-effective and post-effective
amendments thereto, the preliminary prospectus (meeting the requirements of Rule
430A of the Rules and Regulations) contained therein and the exhibits, financial
statements and schedules, as finally amended and revised, have heretofore been
delivered by the Company to the Representative. Such registration statement is
herein referred to as the "Registration Statement," upon filing of the
prospectus referred to below with the Commission, shall be deemed to include all
information omitted therefrom in reliance upon Rule 430A and contained in the
prospectus referred to below, has been declared effective by the Commission
under the Act. The form of prospectus first filed by the Company with the
Commission pursuant to its Rule 424(b) and Rule 430A is herein referred to as
the "Prospectus." Such preliminary prospectus included in the Registration
Statement prior to the time it becomes effective is herein referred to as a
"Preliminary Prospectus."
(b) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Arizona, with full corporate power and corporate authority to own or lease its
properties and conduct its business as described in the Registration Statement;
the Company is duly qualified to transact business in all jurisdictions in which
the conduct of its business requires such qualification, except where the
failure to qualify would not have a material adverse effect upon the business or
property of the Company.
(c) The Company has authorized and outstanding capital stock
as set forth under the heading "Capitalization" in the Prospectus; the
outstanding shares of Common Stock of the Company have been duly authorized and
validly issued, are fully paid and nonassessable and have been issued in
compliance with all federal and state securities laws; all of the Units to be
issued and sold by the Company pursuant to this Agreement have been duly
authorized and, when issued and paid for as contemplated herein, the components
thereof will be validly issued, fully paid and nonassessable; and no preemptive
rights of stockholders exist with respect to any of the Units or the issue and
sale thereof; no stockholder of the Company has any right pursuant to any
agreement which has not been waived or honored to require the Company to
register the sale of any securities owned by such stockholder under the Act in
the public offering contemplated herein except as disclosed in the Registration
Statement; all necessary and proper corporate proceedings have been taken to
validly authorize such Units and no further approval or authority of the
stockholders or the Board of Directors of the Company is required for the
issuance and sale of the Units to be sold by the Company as contemplated herein.
(d) The Common Stock of the Company conforms in all material
respects to the description thereof in the Registration Statement. Except as
specifically disclosed in the Registration Statement and the financial
statements of the Company and the related notes thereto, the Company does not
have outstanding any options to purchase, or any preemptive rights or other
-2-
<PAGE>
rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell shares of its
capital stock or any such options, rights, convertible securities or
obligations. The descriptions of the Company's stock option and other
stock-based plans, and of the options or other rights granted and exercised
thereunder, set forth in the Prospectus, are accurate summaries and fairly
present the information required to be shown with respect to such plans and
rights in all material respects. The Company and its affiliates are not
currently offering any securities other than the Firm Stock and Option Stock,
nor have they offered or sold any of the Company's securities, except as
described in the Registration Statement.
(e) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus relating to the proposed
offering of the Firm Stock nor instituted or threatened instituting proceedings
for that purpose. The Registration Statement contains, and the Prospectus and
any amendments or supplements thereto will contain, all statements which are
required to be stated therein by and in all respects conform or will conform, as
the case may be, to the requirements of, the Act and the Rules and Regulations.
Neither the Registration Statement nor any amendment thereto, and neither the
Prospectus nor any supplement thereto, contains or will contain as the case may
be, any untrue statement of a material fact or omits or will omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no representations or
warranties as to information contained in or omitted from the Registration
Statement or the Prospectus, or any such amendment or supplement, in reliance
upon, and in conformity with, written information furnished to the Company by or
on behalf of any underwriter through the Representative, specifically for use in
the preparation thereof.
(f) The financial statements of the Company, together with
related notes and schedules as set forth in the Registration Statement, present
fairly in all material respects the financial position and the results of
operations of the Company, at the indicated dates and for the indicated periods.
Such financial statements, schedules and related notes have been prepared in
accordance with generally accepted accounting principles, consistently applied
throughout the periods involved, and all adjustments necessary for a fair
presentation of results for such periods have been made. The summary and
selected financial and statistical data and schedules included in the
Registration Statement present fairly the information shown therein and have
been compiled on a basis consistent with the financial statements presented
therein. No other financial statements or schedules are required to be included
in the Registration Statement.
(g) There is no action, suit or proceeding pending or, to the
best knowledge of the Company, after due inquiry, threatened against the Company
before any court or regulatory, governmental or administrative agency or body,
which might result in a material adverse change in the business or financial
condition of the Company, except as set forth in the Registration Statement. The
Company is not subject to the provisions of any injunction, judgment, decree or
order of any court, regulatory body, administrative agency or other governmental
body or arbitral
-3-
<PAGE>
forum, which might result in a material adverse change in the business, assets
or condition of the Company.
(h) The Company has good and marketable title to all of the
properties and assets reflected in either the financial statements or as
described in the Registration Statement and such properties and assets are not
subject to liens, mortgages, security interests, pledges or encumbrances of any
kind, except for such encumbrances that, individually or in the aggregate, would
not have a material adverse effect on the business or financial condition of the
Company. The Company occupies its leased properties under valid and binding
leases conforming in all material respects to the description thereof set forth
in the Registration Statement.
(i) The Company has filed all federal, state, local and
foreign income tax returns which have been required to be filed and has paid all
taxes indicated by said returns and has paid all tax assessments received by it.
There is no income, sales, use, transfer or other tax deficiency or assessment
which has been or might reasonably be expected to be asserted or threatened
against the Company which might result in a material adverse change in the
business or financial condition of the Company. The Company has paid all sales,
use, transfer and other taxes applicable to it and its business and operations.
(j) Since the respective dates as of which information is
given in the Registration Statement, as it may be amended or supplemented, (i)
there has not been any material adverse change in or affecting the condition,
financial or otherwise, of the Company or the earnings, business affairs,
management, or business prospects of the Company, whether or not occurring in
the ordinary course of business, (ii) there has not been any transaction entered
into by the Company, other than transactions in the ordinary course of business
or transactions specifically described in the Registration Statement as it may
be amended or supplemented, (iii) the Company has not sustained any material
loss or interference with its businesses or properties from fire, flood,
windstorm, accident or other calamity, (iv) the Company has not paid or declared
any dividends or other distribution with respect to its capital stock and the
Company is not in default in the payment of principal of or interest on any
outstanding debt obligations, and (v) there has not been any change in the
capital stock (other than the sale of the Units or the exercise of outstanding
stock options or warrants as described in the Registration Statement) or
material increase in indebtedness of the Company. The Company does not have any
material contingent obligation which is not disclosed in the Registration
Statement (or contained in the financial statements or related notes thereto),
as such may be amended or supplemented.
(k) The Company is not in violation or default under any
provision of its articles of incorporation or bylaws or any of its agreements,
leases, license, contracts, franchises, mortgages, permits, deeds of trust,
indentures or other instruments or obligations to which the Company is a party
or by which it or any of its properties is bound or may be materially affected
(collectively, "Contracts"), where such violation or default would have a
material adverse effect on the business or financial condition of the Company.
-4-
<PAGE>
(l) The execution and performance of this Agreement and the
consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of, or violation of, any of the terms or
provisions of, or constitute, either by itself or upon notice or the passage of
time or both, a default under, any Contract to which the Company is a party or
by which the Company or any of its property may be bound or affected, except
where such breach, violation or default would not have a material adverse effect
on the business or financial condition of the Company, or violate any of the
provisions of the articles of incorporation or bylaws of the Company or violate
any order, judgment, statute, rule or regulation applicable to the Company of
any court or of any regulatory, administrative or governmental body or agency or
arbitral forum having jurisdiction over the Company or any of its property.
(m) The Company has the legal right, corporate power and
corporate authority to enter into this Agreement and perform the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by the Company and is legally binding upon and enforceable against the
Company in accordance with its terms (except as the enforceability may be
subject to or limited by bankruptcy, insolvency, reorganization, arrangement,
moratorium or other similar laws affecting the rights of creditors generally and
subject to the effect of general principles of equity).
(n) Each approval, registration, qualification, license,
permit, consent, order, authorization, designation, declaration or filing by or
with any regulatory, administrative or other governmental body or agency
necessary in connection with the execution and delivery by the Company of this
Agreement and the consummation of the transactions herein contemplated (except
such additional actions as may be required by the National Association of
Securities Dealers, Inc. ("NASD") or may be necessary to qualify the Stock for
public offering under state securities or Blue Sky laws has been obtained or
made and each is in full force and effect.
(o) The Company is not an owner or assignee of any patents or
patent rights; the Company is not aware of any pending or threatened action,
suit, proceeding or claim by others, either domestically or internationally,
that the Company is violating any patents, patent rights, copyrights, trademarks
or trademark rights, service marks, trade names, licenses or royalty
arrangements, or rights thereto of others, or governmental, regulatory or
administrative authorizations, orders, permits, certificates and consents.
(p) There are no Contracts or other documents required to be
described in the Registration Statement or to be filed as exhibits to the
Registration Statement by the Act or by the Rules and Regulations which have not
been described or filed as required.
(q) The Company is conducting business in compliance with all
applicable laws, rules and regulations of the jurisdictions in which it is
conducting business, except where the failure to so comply would not have a
material adverse effect on the business or financial condition of the Company.
The Company possesses adequate certificates or permits issued by the appropriate
federal, state and local regulatory authorities necessary to conduct its
business and to
-5-
<PAGE>
retain possession of its properties. The Company has not received any notice of
any proceeding relating to the revocation or modification of any of these
certificates or permits.
(r) All transactions among the Company and the officers,
directors, and affiliates of the Company have been accurately disclosed in the
Prospectus, to the extent required to be disclosed in the Prospectus in
accordance with the Act and the Rules and Regulations. As used in this
Agreement, the term "affiliate" shall mean a person or entity controlling,
controlled by or under common control with any specified person or entity, or
the ability to direct, directly or indirectly, the management or policies of the
controlled person or entity, whether through the ownership of voting securities,
by contract, positions of employment, family relationships, service as an
officer, director or partner of the person or entity, or otherwise.
(s) The Company has not, directly or indirectly, (i) made any
unlawful contribution to any candidate for public office, or failed to disclose
fully any contribution in violation of law, or (ii) made any payment to any
federal, state, local or foreign governmental officer or official, or other
person charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any other such
jurisdiction.
(t) The Company maintains insurance of the types and in the
amounts which it deems adequate for its business and which is customary for
companies in its industry, including, but not limited to, general liability
insurance and insurance covering all real and person property owned or leased by
the Company against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against, all of which insurance is in full force and
effect.
(u) Semple & Cooper LLP, who have certified the financial
statements filed with the Commission as part of the Registration Statement, are
independent public accountants as required by the Act and the Rules and
Regulations.
(v) The Company has taken all appropriate steps reasonably
necessary to assure that no offering, sale or other disposition of any Common
Stock of the Company will be made for a period of eighteen months after the date
of the Prospectus. The Company will also take steps to assure that no director,
executive officer or 5% or greater stockholder will sell or otherwise dispose of
any shares of Common Stock held by them for a period of eighteen (18) months
after the date of the Prospectus.
(w) As of the effective date hereof, the Company is classified
as a "C" corporation with the Internal Revenue Service.
(x) The Company's board of directors consists of those persons
listed in the Prospectus. Except as disclosed in the Prospectus, none of such
persons is employed by the Company nor is any of them affiliated with the
Company, except for service on its board of directors.
-6-
<PAGE>
(y) Except as provided for herein, no broker's or finder's
fees or commissions are due and payable by the Company, and none will be paid by
it.
(z) The Company is eligible to use Form SB-2 for the
registration of the Stock.
(aa) Neither the Company, nor to its knowledge, any person
other than any underwriter, has made any representation, promise or warranty,
whether verbal or in writing, to anyone, whether an existing stockholder or not,
that any of the Stock will be reserved for or directed to them during the
proposed public offering.
2. Purchase, Sale and Delivery of the Firm Stock. On the basis of the
representations, warranties and covenants herein contained, and subject to the
conditions herein set forth, the Company agrees to sell to the Representative
and the Representative agrees to purchase, at the gross price per share of
Common Stock indicated in the Prospectus ("Initial Price") less the
Representative's discount of ten percent (10%) of the Initial Price of the Firm
Stock.
Payment for the Firm Stock to be sold hereunder is to be made by bank
wire or certified or bank cashier's check(s) drawn to the order of the Company
for the Firm Stock, against delivery of certificates therefor to the
Representative. Such payment and delivery are to be made at the offices of
Streich Lang, P.A., Renaissance One, Two N. Central Avenue, Phoenix, Arizona
85004, at 10:00 a.m., M.S.T., on ____________, 19__ (the third business day
after the date of this Agreement), such time and date being herein referred to
as the "Closing Date." (As used herein, "business day" means a day on which the
Nasdaq is open for trading and on which banks in Arizona are open for business
and not permitted by law or executive order to be closed.) The certificates for
the Firm Stock shall be in definitive form with engraved borders and will be
delivered two full business days prior to the Closing Date to W. B. McKee
Securities, Inc., Attention: _______________, 3003 North Central Avenue, Suite
100, Phoenix, Arizona 85012, in such denominations and in such registrations as
the Representative requests in writing not later than the second full business
day prior to the Closing Date, and will be made available for inspection by the
Representative at least two business days prior to the Closing Date at the
offices of Streich Lang, P.A., Renaissance One, Two N. Central Avenue, Phoenix,
Arizona 85004.
In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
grants an option to the Representative to purchase the Option Stock at the
Initial Price, less the Representative's discount. The maximum number of shares
of Option Stock to be sold by the Company is equal to fifteen percent (15%) of
the number of shares of Firm Stock. The option granted hereby may be exercised
in whole or in part, but only once, and at any time upon written notice given
within 30 days after the Closing Date, by the Representative, to the Company, as
the case may be, setting forth the number of shares of Option Stock as to which
the Representative is exercising the option, the names and denominations in
which the Option Stock is to be registered and the time and date at which such
certificates are to be delivered. The certificates for the Option Stock are to
be delivered to a location designated by the Representative no later than one
full business day after
-7-
<PAGE>
the exercise of such option (such time and date being herein referred to as the
"Option Closing Date"). The option with respect to the Option Stock granted
hereunder may be exercised solely to cover over-allotments in the sale of the
Firm Stock by the Representative or to permit purchases by the Representative to
the extent permitted by law. The Representative may cancel such option at any
time, in whole or in part, prior to its expiration, by giving written notice of
such cancellation to the Company. To the extent, if any, that the option is
exercised, payment for the Option Stock shall be made on the Option Closing Date
by bank wire or certified or bank cashier's check(s) drawn to the order of the
Company, for the Option Stock against delivery of certificates therefor at the
offices of the Representatives noted above.
3. Offering by the Representative. It is understood that the
Representative is to make a public offering of the Firm Stock as soon as the
Representative deems it advisable to do so. The shares of Firm Stock are to be
initially offered to the public at the Initial Price set forth in the
Prospectus. The Representative may from time to time thereafter change the
public offering prices and other selling terms. To the extent, if at all, that
any Option Stock is purchased pursuant to Section 2 hereof, the Representative
will offer them to the public on the foregoing terms.
The Representative shall have the right to associate with other dealers
as it may determine and shall have the right to grant to such persons such
concessions out of the underwriting discount to be received by the
Representative as it may determine, under and pursuant to a Master Selected
Dealers' Agreement in the form filed as an exhibit to the Registration
Statement.
4. Covenants of the Company. The Company covenants and agrees with the
Representative that:
(a) The Company will (i) prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a prospectus
containing information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Rules and Regulations and
(ii) not file any amendment to the Registration Statement or supplement to the
Prospectus of which the Representative shall not previously have been advised
and furnished with a copy or to which the Representative shall have reasonably
objected in writing or which is not in compliance with the Rules and
Regulations.
(b) The Company will advise the Representative promptly and
will confirm such advice in writing (i) when the Registration Statement has
become effective, (ii) of any request of the Commission for amendment of the
Registration Statement or for supplement to the Prospectus or for any additional
information, or (iii) of the issuance by the Commission or any state securities
commission of any stop order suspending the effectiveness of the Registration
Statement or the use of the Prospectus or of the institution of any proceedings
for that purpose, and the Company will use its best efforts to prevent the
issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.
-8-
<PAGE>
(c) The Company will cooperate with the Representative in
endeavoring to qualify the Stock for sale under the securities laws of such
jurisdictions as the Representative may have reasonably requested in writing and
will make such applications, file such documents, furnish such information and
take such other actions as may be reasonably required by federal or state
securities laws or regulations (including but not limited to appointing
additional independent directors or advisors to the board of directors) whether
before, during or after the offering. The Company will, from time to time,
prepare and file such statements, reports, and other documents, as are or may be
required to continue such qualifications in effect for so long a period as the
Representative may reasonably request for distribution of the Sock; provided,
however, that the Company shall not be required to register or qualify as a
foreign corporation or to take any action that would subject it to service of
process in suits, other than relating to the sale of the Stock, in any
jurisdiction where it is not now so subject.
(d) The Company will qualify the Stock for trading on the
National Association of Securities Dealers Automated Quotation System ("Nasdaq")
Small Cap Market and use best efforts to maintain such listing (or a listing on
another national securities exchange) thereafter for a period of no less than
five (5) years.
(e) The Company will make such applications, file such
documents, and furnish such information as necessary to list the Company's
securities in the securities listing manuals of Standard & Poor's Corporation or
Moody's Industrial Services contemporaneous with the filing of the Prospectus
with the Commission, and shall maintain listing in such manuals thereafter for a
period of no less than five years. The Company will take such other similar
steps as are reasonably necessary to obtain exemptions for secondary trading of
the Company's securities in various U.S. jurisdictions specified by the
Representative.
(f) The Company will deliver to, or upon the order of, the
Representative, from time to time, as many copies of any Preliminary Prospectus
as the Representative may request. The Company will deliver to, or upon the
order of, the Representative during the period when delivery of a Prospectus is
required under the Act, as many copies of the Prospectus in final form, or as
thereafter amended or supplemented, as the Representative may request. The
Company will deliver to the Representative at or before the Closing Date, five
signed copies of the Registration Statement and all amendments thereto,
including all exhibits filed therewith, and will deliver to the Representative
such number of copies of the Registration Statement, without exhibits, but
including any information incorporated by reference, and of all amendments
thereto, as the Representative may request.
(g) If during the period in which a Prospectus is required by
law to be delivered by an underwriter or dealer any event shall occur as a
result of which, in the judgment of the Company or in the opinion of counsel for
the Representative, it becomes necessary to amend or supplement the Prospectus
in order to make the statements therein not misleading, or, if it is necessary
at any time to amend or supplement the Prospectus to comply with any law, the
Company promptly will prepare and file with the Commission an appropriate
amendment to the
-9-
<PAGE>
Registration Statement or supplement to the Prospectus so that the Registration
Statement, including the Prospectus as so amended or supplemented, will not be
misleading, or so that the Registration Statement, including the Prospectus,
will comply with law.
(h) The Company will make generally available to its
stockholders, as soon as it is practicable to do so, but in any event not later
than 15 months after the effective date of the Registration Statement, an
earnings statement in reasonable detail, covering a period of at least 12
consecutive months beginning after the effective date of the Registration
Statement, which earnings statement shall satisfy the requirements of Section 11
(a) of the Act and Rule 158 of the Rules and Regulations and will advise the
Representative in writing when such statement has been so made available and
will furnish the Representative with a true and correct copy thereof.
(i) The Company will apply the net proceeds of the sale of the
Stock sold by it in accordance with the statements under the caption "USE OF
PROCEEDS" in the Prospectus. Prior to the application of such net proceeds, the
Company will invest or reinvest such proceeds only in Eligible Investments. For
the purposes of this Agreement, "Eligible Investments" shall mean the following
investments so long as they have maturities of one year or less: (i) obligations
issued or guaranteed by the United States or by any person controlled or
supervised by or acting as an instrumentality of the United States pursuant to
authority granted by Congress; (ii) obligations issued or guaranteed by any
state or political subdivision thereof rated either Aa or higher, or MIG 1 or
higher, by Moody's Investors Service, Inc. or AA or higher, or an equivalent, by
Standard & Poor's Corporation, both of New York, New York, or their successors;
(iii) commercial or finance paper which is rated either Prime-1 or higher or an
equivalent by Moody's Investors Services, Inc. or A-1 or higher or an equivalent
by Standard & Poor's Corporation, both of New York, New York, or their
successors; and (iv) certificates of deposit or time deposits of banks or trust
companies, organized under the laws of the United States, having a minimum
equity of $250,000,000.
(j) The Company has required each of its directors, executive
officers and 5% or greater shareholders to enter into agreements not to sell any
shares of the Company's Common Stock for eighteen months after the date of the
Prospectus. The Company has furnished the Representative with an executed copy
of each such agreement substantially in the form attached as Schedule I.
(k) The Company shall make original documents and other
information relating to the Company's affairs available upon request to the
Representative and to its counsel at the Company's office for inspection and
copies of any such documents will be furnished upon request to the
Representative and to its counsel. Included within the documents made available
have been at least the articles of incorporation and all amendments thereto, the
bylaws and all amendments thereto, minutes of all of the meetings of the
incorporators, directors and stockholders, all financial statements and copies
of all Contracts to which the Company is a party or in which the Company has an
interest.
-10-
<PAGE>
(l) The Company has appointed American Securities Transfer &
Trust, Inc., 1825 Lawrence Street, Suite 444, Denver, CO 80202-1817, as the
Company's transfer agent and registrar, respectively. Unless the Representative
otherwise consents in writing, the Company will continue to retain a transfer
agent reasonably satisfactory to the Representative for a period of one year
following the Closing. The Company will make arrangements to have available at
the office of the transfer agent sufficient quantities of certificates
representing as may be needed for the quick and efficient transfer of the Units
as contemplated hereunder and for the one year period following the Closing.
(m) Except with the Representative's approval, the Company
agrees that the Company will not do any of the following for 180 days after the
Closing Date or the Option Closing Date, whichever occurs later:
(i) Undertake or authorize any change in its capital
structure or authorize, issue or permit any public or private
offering of additional securities;
(ii) Authorize, create, issue or sell any funded
obligations, notes or other evidences of indebtedness, except
in the ordinary course of business; or
(iii) Consolidate or merge with or into any other
corporation or effect a material corporate reorganization of
the Company.
(n) The Company shall deliver to the Representative __________
warrants ("Representative's Warrants") to purchase, for a price of $.01 per
Representative's Warrant, up to __________ shares of the Company's Common Stock,
which entitles the Representative to purchase one share of common stock at an
exercise price per Representative's Warrant equal to ________% of the aggregate
of the Initial Purchase Price. The Representative's Warrants shall be in the
form attached hereto as Appendix "A." The terms of the Common Stock issuable
upon exercise of the Representative's Warrants shall be identical to those as
offered to the public. The Representative's Warrants shall be exercisable at any
time commencing one year from the effective date of the Registration Statement
and continuing for four years thereafter.
(i) The Company shall reserve and at all times have
available a sufficient number of shares of its Common Stock to
be issued upon the exercise of the Representative's Warrants.
(ii) The Company and the Representative agree that
the Representative may designate that the Representative's
Warrants be issued in varying amounts directly to its
officers, partners, other underwriters and selling group
members. However, such designation will only be made by the
Representative if it determines and substantiates to the
Company that such issuance will not violate the applicable
rules of the NASD. The Representative and the Company agree
that any transfers
-11-
<PAGE>
of the Representative's Warrants will only be made if they do
not violate the registration provisions of the Act.
(iii) Upon written request of the Representative or
the then holder(s) of at least fifty percent (50%) of (i) the
total unexercised Representative's Warrants (based on the
shares of Common Stock purchasable directly or indirectly
thereunder) and (b) the shares of Common Stock included in the
Representative's Warrants issued upon the exercise of the
Representative's Warrants, made at any time within the period
commencing one (1) year from the Effective Date and ending
four (4) years thereafter, the Company will file on no more
than one (1) occasion a Registration Statement under the Act,
registering or qualifying, as the case may be, the
Representative's Warrants and/or all of the securities
underlying them provided that the Company has available
current financial statements. The Company agrees to use its
best efforts to cause the above filings to be declared
effective by the Commission. All expenses of such
registrations or qualifications, including, but not limited
to, legal, accounting, printing and mailing fees will be borne
by the Company.
(iv) In addition to the above, the Company
understands and agrees that if, at any time during the term of
the Representative's Warrants, it files a post-effective
amendment or new registration statement with the Commission
pursuant to the Act, or files a Notification on Form 1-A under
the Act for a public offering of securities, either for the
account of the Company or for the account of any other person,
the Company, at its own expense, will offer to said holder(s)
the opportunity to register or qualify the Representative's
Warrants and/or all of the securities underlying them for
offering to the public. This right shall be prior to any
registration rights granted by the Company to holders of the
Company's currently outstanding securities.
(o) For a period of five years from the Effective Date, the
Company shall provide the Representative with routine internal forecasts if any
such reports are prepared by the Company for general dissemination.
(p) During the period of the proposed public offering and for
12 months from the effective date of the Registration Statement, the Company
will not, without the Representative's prior written consent, sell, contract to
sell, issue for other purposes or otherwise dispose of any securities of the
Company other than (a) shares of Common Stock issuable on the exercise of any
options, warrants, or other rights which are disclosed in the Prospectus and (b)
shares of Common Stock issuable upon the exercise of options granted to
employees, officers or directors after the date of this Agreement if such
options are reasonable and are granted in good faith and at prices which are not
less than 85% of the fair market value of the Common Stock on the date of grant
of such options.
-12-
<PAGE>
(q) For a period commencing on the date hereof and ending 12
months after the date of the Prospectus, neither the Company nor any of its
officers or directors will hold discussions with any member of the news media or
issue news releases or other publicity about the Company regarding the financial
condition of any significant event of the Company without the approval of the
Company's legal counsel named in the Prospectus under the heading "Legal," or
such other counsel as may be approved by the Representative. During such period,
the Company will deliver to the Representative copies of such news releases or
other publicity about the Company promptly after distribution thereof.
(r) The Company will appoint, as a member of its Board of
Directors for a period of not less than five (5) years from the date of the
Prospectus, an individual designated by the Representative, such term to
commence upon the Closing Date. Such designee shall be entitled to receive
reimbursement for all reasonable costs incurred in attending such meetings,
including, but not limited to, food, lodging and transportation.
(s) The Company will employ an investor relations firm
reasonably acceptable to the Representative upon completion of the offering.
(t) The Company will retain an analyst reasonably satisfactory
to the Representative after the completion of the offering, to prepare and
distribute a research report at the end of the quiet period and six months
thereafter.
5. Costs and Expenses. The Company will pay or cause to be paid all
costs, expenses and fees in connection with the offering or incident to the
performance of the obligations of the Company under this Agreement, including,
without limiting the generality of the foregoing, the following: (a) all
expenses (including any transfer taxes) incurred in connection with the delivery
to the Representative of the Stock sold hereunder; (b) all fees and expenses
(including, without limitation, fees and expenses of the Company's accountants
and counsel, but excluding fees and expenses of counsel for the Representative)
in connection with the preparation, printing, filing, delivery and shipping of
the Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), Preliminary Prospectuses and the Prospectus as
amended or supplemented, and any Blue Sky Memoranda; (c) all filing fees and
fees and disbursements incurred in connection with the qualification of the
Stock under the applicable state securities laws; (d) filing and listing fees of
the Commission, NASD, Nasdaq, and any other similar entity in connection with
the offering; (e) the cost of printing certificates representing the Stock; (f)
the costs and charges of any transfer agent or registrar; (g) the costs of
preparing, printing and distributing bound volumes for the Representative and
their counsel; and (h) the costs of placing "tombstone advertisements" in any
publications which may be selected by the Representative, and all other costs
and expenses incident to the performance of its obligations under this Agreement
which are not otherwise provided for in this Section. The Company shall use a
printer acceptable to the Representative. Any transfer taxes imposed on the sale
of the Stock to the Representative will be paid by the Company. Additionally,
the Company shall pay to the Representative a non-accountable expense allowance
of 3% of the gross amount to be raised hereunder, payable at the
-13-
<PAGE>
Closing(s), of which $25,000 has already been paid by the Company in connection
with this offering. Any amounts advanced, on a non-accountable basis, to the
Representative on or before the date hereof, which shall be credited to the
allowance noted above. This expense allowance is in addition to the
Representative's discount. The Representative shall be responsible for the fees
of its counsel, except as noted otherwise in this Section 5. The Company shall
not be required to pay for any of the Representative's other expenses, except
that if this Agreement shall not be consummated because the conditions in
Section 7 hereof are not satisfied, or because this Agreement is terminated by
the Representative pursuant to Section 6 hereof, or by reason of any failure,
refusal or inability on the part of the Company to perform any undertaking or
satisfy any condition of this Agreement or to comply with any of the terms
hereof on its part to be performed, unless such failure to satisfy said
condition or to comply with said terms be due solely to the default of the
Representative, then the Company shall reimburse the Representative solely on an
accountable basis for out-of-pocket expenses, including fees and disbursements
of counsel, incurred in connection with investigating, marketing and proposing
to market the Units or in contemplation of performing its obligations hereunder.
6. Conditions of Obligations of the Representative. The obligations of
the Representative to purchase the Firm Stock on the Closing Date and the Option
Stock, if any, on the Option Closing Date are subject to the accuracy, as of the
Closing Date or the Option Closing Date, as the case may be, of the
representations and warranties of the Company contained herein, and to the
performance by the Company of its covenants and obligations hereunder and to the
following additional conditions:
(a) The Registration Statement shall have become effective not
later than ______________, 1997, or such later date and time as may be consented
to in writing by the Representative. No stop order suspending the effectiveness
of the Registration Statement, as amended from time to time, shall have been
issued and no proceedings for that purpose shall have been taken or, to the best
knowledge of the Company, after due inquiry, shall be contemplated by the
Commission or any state securities commission.
(b) The Representative shall have received on the Closing Date
or the Option Closing Date, as the case may be, the opinion of Titus, Brueckner
& Berry, P.C., counsel for the Company, dated the Closing Date or the Option
Closing Date, as the case may be, addressed to the Representative substantially
in the form and to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, with full corporate
power and corporate authority to own or lease its properties
and conduct its business as described in the Registration
Statement; the Company is duly qualified to transact business
in all jurisdictions in which the conduct of its business
requires such qualification, except where the failure to
qualify would not have a material adverse affect upon the
business or financial condition of the Company.
-14-
<PAGE>
(ii) To the best of such counsel's knowledge, the
Company has authorized and outstanding capital stock as set
forth under the caption "Capitalization" in the Prospectus;
the outstanding shares of Common Stock of the Company have
been duly authorized and validly issued, are fully paid and
nonassessable.
(iii) All of the Stock to be issued and sold by the
Company pursuant to this Agreement have been duly authorized
by all necessary corporate action and, when issued and paid
for as contemplated herein, will be validly issued, fully paid
and nonassessable. Further, to the best of such counsel's
knowledge, no preemptive rights of stockholders exist with
respect to any of the Units or the issue and sale thereof; no
stockholder of the Company has any right pursuant to any
agreement which has not been waived or honored to require the
Company to register the sale of any securities owned by such
stockholder under the Act in the public offering contemplated
herein; and no further approval or authority of the
stockholders or the Board of Directors of the Company is
required for the issuance and sale of the Stock to be sold by
the Company as contemplated herein.
(iv) The certificates evidencing the Stock to be
delivered hereunder are in due and proper form under Delaware
law and the Stock conforms in all material respects to the
description thereof contained in the Prospectus.
(v) Except as specifically disclosed in the
Registration Statement and the financial statements of the
Company, and the related notes thereto, to the best of such
counsel's knowledge, the Company does not have outstanding any
options to purchase, or any preemptive rights or other rights
to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or
sell its capital stock or any such options, rights,
convertible securities or obligations. The descriptions of the
Company's stock option and other stock-based plans, and any
other options or warrants heretofore granted by the Company,
set forth in the Prospectus are accurate summaries and fairly
present the information required to be shown with respect to
such plans and rights in all material respects.
(vi) The Registration Statement has become effective
under the Act and to the best of such counsel's knowledge no
stop order proceedings with respect thereto have been
instituted or are pending or threatened under the Act and
nothing has come to such counsel's attention to lead them to
believe that such proceedings are contemplated; any required
filing of the Prospectus and any supplement thereto pursuant
to Rule 424(b) of the Rules and Regulations has been made in
the manner and within the time period required by such Rule
424(b).
(vii) The Registration Statement, all Preliminary
Prospectuses, the Prospectus and each amendment or supplement
thereto comply as to form in all
-15-
<PAGE>
material respects with the requirements of the Act and the
Rules and Regulations (except that such counsel need express
no opinion as to the financial statements, schedules and other
financial and statistical information included therein).
(viii) Such counsel does not know of any Contracts or
other documents required to be filed as exhibits to the
Registration Statement or described in the Registration
Statement or the Prospectus which are required to be filed or
described, which are not so filed or described as required,
and such Contracts and documents as are summarized in the
Registration Statement or the Prospectus are fairly summarized
in all material respects.
(ix) There is no action or suit pending before any
court of the United States of a character required to be
disclosed in the Prospectus pursuant to the Act and the Rules
and Regulations; there is no action, suit or proceeding
threatened against the Company before any U.S. court or
regulatory, governmental or administrative agency or arbitral
forum of a character required to be disclosed in the
Prospectus pursuant to the Act and the Rules and Regulations;
to the best of such counsel's knowledge, the Company is not a
party or subject to the provisions of any injunction,
judgment, decree or order of any court, regulatory body,
administrative agency or other governmental body or agency or
arbitral forum. Nothing has come to the attention of such
counsel that would suggest that the Company is not conducting
business in compliance with all applicable laws, statutes,
rules and regulations of the State of Arizona and of the
United States of America, except where the failure to so
comply would not have a material adverse effect on the
business or financial condition of the Company.
(x) The execution and performance of this Agreement
and the consummation of the transactions herein contemplated
do not and will not conflict with or result in the breach of,
or violation of, any of the terms or provisions of, or
constitute, either by itself or upon notice or the passage of
time or both, a default under, any Contract to which the
Company is a party or by which the Company or any of its
property may be bound or affected, except where such breach,
violation or default would not have a material adverse effect
on the business or financial condition of the Company, or
violate any of the provisions of the articles of incorporation
or bylaws of the Company or violate any statute, judgment,
decree, order, rule or regulation known to such counsel or any
court or of any governmental, regulatory or administrative
body or agency or arbitral forum having jurisdiction over the
Company or any its property.
(xi) The Company is not in violation or default under
any provision of any of its certificate of incorporation or
bylaws and the Company is not in violation or of default under
any Contracts to which the Company is a party or by which it
or any of its properties is bound or may be affected, except
where such violation
-16-
<PAGE>
or default would not have a material adverse effect on the
business or financial condition of the Company.
(xii) The Company has the corporate power and
authority to enter into this Agreement on behalf of itself and
perform the transactions contemplated hereby. This Agreement
has been duly authorized, executed and delivered by the
Company. This Agreement is the legal, valid and binding
obligation of the Company, enforceable in accordance with its
terms, subject to customary exceptions for bankruptcy,
insolvency, reorganization, arrangement, moratorium or similar
laws relating to or affecting the rights of creditors
generally and except that enforceability may be subject to the
effect of general principles of equity, except to the extent
that the enforceability of the indemnification provisions of
this Agreement may be limited by consideration of public
policy under federal and state securities laws.
(xiii) All approvals, consents, orders,
authorizations, designations, registrations, permits,
qualifications, licenses, declarations or filings by or with
any regulatory, administrative or governmental body necessary
in connection with the execution and delivery by the Company
of this Agreement and the consummation of the transactions
herein contemplated (other than as may be required by the NASD
as to which such counsel need express no opinion) have been
obtained or made and all are in full force and effect.
In rendering such opinion such counsel may rely as to matters governed
by the laws other than Federal laws of the United States of America on local
counsel in applicable jurisdictions, provided that such counsel shall state that
they believe that they and the Representative are justified in relying on such
other counsel. As to factual matters, such counsel may rely on certificates
(provided at Closing and available to the Representative and its counsel)
obtained from directors and officers of the Company, its stockholders, and from
public officials. Matters stated to counsel's knowledge need be based only on
the actual knowledge of the attorneys involved in the representation of the
Company. In addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the attention of such
counsel which leads them to believe that the Registration Statement, or any
amendment thereto, at the time the Registration Statement or amendment became
effective, contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading or the Prospectus or any amendment or supplement thereto, at the
time it was filed pursuant to Rule 424(b) or at the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading (except that such counsel need express no
view as to financial statements, schedules and other financial information and
statistical data and information included therein).
-17-
<PAGE>
Such counsel shall permit Streich Lang, P.A. to rely upon such opinion in
rendering its opinion under Section 6(c).
(c) The Representative shall have received from Streich Lang,
P.A., counsel for the Representative, an opinion dated the Closing Date or the
Option Closing Date, as the case may be, substantially to the effect that: (i)
the Company is a validly organized and existing corporation under the laws of
the State of Arizona; (ii) the Company has authorized and outstanding capital
stock as set forth under the caption "Capitalization" in the Prospectus; the
authorized shares of the Company's Common Stock have been duly authorized; to
the best of such counsel's knowledge, the outstanding shares of the Company's
Common Stock have been duly authorized and validly issued and are fully paid and
nonassessable; all of the Units conform to the description thereof contained in
the Prospectus; the Stock to be sold by the Company pursuant to this Agreement
has been duly authorized and will be validly issued, fully paid and
nonassessable when issued and paid for as contemplated by this Agreement; and no
preemptive rights of stockholders exist with respect to any of the Stock or the
issue and sale thereof; (iii) the Registration Statement has become effective
under the Act and to the best of the knowledge of such counsel, no stop order
proceedings with respect thereto have been instituted or are pending or
threatened under the Act; (iv) the Registration Statement, all Preliminary
Prospectuses, the Prospectus and each amendment or supplement thereto comply as
to form in all material respects with the requirements of the Act and the
applicable Rules and Regulations thereunder (except that such counsel need
express no opinion as to the financial statements, schedules and other financial
or statistical information included therein); and (v) this Agreement has been
duly authorized, executed and delivered by the Company. In rendering such
opinion, Streich Lang, P.A. may rely on the opinion of counsel referred to in
paragraph (b) of this Section 6. In addition to the matters set forth above,
such opinion shall also include a statement to the effect that nothing has come
to the attention of such counsel which leads them to believe that the
Registration Statement, the Prospectus or any amendment thereto contains any
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
or the Prospectus or any amendment or supplement thereto, at the time it was
filed pursuant to Rule 424(b) or at the Closing Date or the Option Closing Date,
as the case may be, contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading (except that such counsel need express no view as to financial
statements, schedules and other financial information included therein). With
respect to such statement, Streich Lang, P.A. may state that their belief is
based upon the procedures set forth therein, but is without independent check
and verification.
(d) The Representative shall have received at or prior to the
effective date of the Registration Statement, and at the Closing Date, from
Streich Lang, a memorandum or summary, in form and substance satisfactory to the
Representative, with respect to the qualification for offering and sale by the
Representative of the Stock under the state securities or Blue Sky laws of such
jurisdictions as the Representative may have designated to the Company.
-18-
<PAGE>
(e) The Representative shall have received on the date hereof
and on the Closing Date and the Option Closing Date, as the case may be, a
signed letter from Semple & Cooper, LLP, auditors for the Company, dated the
date hereof, the Closing Date and the Option Closing Date, as the case may be,
which shall confirm, on the basis of a review in accordance with the procedures
set forth in the letter signed by such firm and dated and delivered to the
Representative on the date noted above the following matters:
(i) They are independent public accountants with
respect to the Company within the meaning of the Act.
(ii) The financial statements and schedules included
in the Registration Statement and Prospectus covered by their
reports therein set forth comply as to form in all material
respects with the applicable accounting requirements of the
Act.
(iii) On the basis of procedures (but not an
examination in accordance with generally accepted auditing
standards) consisting of a reading of the minutes of meetings
and consents of the shareholders and board of directors of the
Company and the committees of such board subsequent to
December 31, 1996, as set forth in the minute books of the
Company, inquiries of officers and other employees of the
Company who have responsibilities for financial and accounting
matters with respect to transactions and events subsequent to
December 31, 1996, and such other specified procedures and
inquires to a date not more than five days prior to the date
of such letter, nothing has come to their attention which in
their judgment would indicate that (A) with respect to the
period subsequent to December 31, 1996, there were, as of the
date of the most recent available monthly consolidated
financial statements of the Company and, as of a specified
date not more than five days prior to the date of such letter,
any changes in the capital stock or long-term indebtedness of
the Company or payment or declaration of any dividend or other
distribution, or decrease in net current assets, total assets
or net stockholder's equity, in each case as compared with the
amounts shown in the most recent audited consolidated
financial statements included in the Registration Statement
and the Prospectus, except for changes or decreases which the
Registration Statement and the Prospectus disclose have
occurred or may occur or which are set forth in such letter or
(B) during the period from December 31, 1996, to the date of
the most recent available monthly unaudited consolidated
financial statements of the Company and to a specified date
not more than five days prior to the date of such letter,
there was any decrease, as compared with the corresponding
period in the prior fiscal year, in total revenues or total or
per share net income, except for decreases which the
Registration Statement and the Prospectus disclose have
occurred or may occur or which are set forth in such letter.
-19-
<PAGE>
(iv) Stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and
earnings and other financial information pertaining to the
Company set forth in the Registration Statement and the
Prospectus, which have been specified by the Representative,
to the extent that such amounts, numbers and percentages and
information may be derived from the general accounting and
financial records of the Company and its subsidiaries or from
schedules furnished by the Company, and excluding any
questions requiring an interpretation by legal counsel, with
the results obtained from the application of specified
reasonings, inquiries and other appropriate procedures
specified by the Representative (which procedures do not
constitute an examination in accordance with generally
accepted auditing standards) set forth in such letter
heretofore delivered, and found them to be in agreement.
(v) Such other matters as may be reasonably requested
by the Representative. All such letters shall be in form and
substance satisfactory to the Representative and its counsel.
(f) The Representative shall have received on the Closing Date
or the Option Closing Date, as the case may be, a certificate or certificates of
the Chief Executive Officer and the Chief Financial Officer of the Company to
the effect that, as of the Closing Date or the Option Closing Date, as the case
may be, each of them jointly and represents as follows:
(i) The Registration Statement has become effective
under the Act and no stop order suspending the effectiveness
of the Registration Statement has been issued, and no
proceedings for such purpose have been taken or are, to the
best of their knowledge, after due inquiry, contemplated or
threatened by the Commission or any state securities
commissions.
(ii) They do not know of any investigation,
litigation, or proceeding instituted or threatened against the
Company of a character required to be disclosed in the
Registration Statement which is not so disclosed; they do not
know of any Contract or other document required to be filed as
an exhibit to the Registration Statement which is not so
filed; and the representations and warranties of the Company
contained in the Agreement are true and correct in all
material respects as of the Closing Date or the Option Closing
Date, as the case may be, as if such representations and
warranties were made as of such date.
(iii) They have carefully examined the Registration
Statement and the Prospectus and, in their opinion, as of the
effective date of the Registration Statement, the statements
contained in the Registration Statement were and are correct,
in all material respects, and such Registration Statement and
Prospectus do not omit to state a material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which
-20-
<PAGE>
they were made, not misleading and, in their opinion, since
the effective date of the Registration Statement, no event has
occurred which should be set forth in a supplement to or an
amendment of the Prospectus which has not been so set forth in
such supplement or amendment.
(g) The Company shall have furnished to the Representative
such further certificates and documents confirming the representations,
warranties and covenants contained herein and related matters as the
Representative may reasonably have requested. Each such certificate shall be
deemed a representation and warranty of the Company as to the statements made
therein.
The opinions and certificates described in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
respects satisfactory to the Representative to Streich Lang, P.A., counsel for
the Representative.
If any of the conditions herein above provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Representative hereunder may be terminated by
the Representative by notifying the Company of such termination in writing or by
telegram at or prior to the Closing Date or the Option Closing Date, as the case
may be. In such event, the Company and the Representative shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 8
hereof).
7. Conditions of the Obligations of the Company. The obligations of the
Company to sell and deliver the Units required to be delivered as and when
specified in this Agreement are subject to the conditions that at the Closing
Date or the Option Closing Date, as the case may be, no stop order suspending
the effectiveness of the Registration Statement shall have been issued and in
effect or proceedings therefor initiated or threatened.
8. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Representative and its respective affiliates, directors, officers, partners,
employees, agents, counsel, and representatives, (collectively, "Underwriter
Parties") against any losses, claims, damages or liabilities to which such
Underwriter Parties or any one or more of them may become subject under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of or are based upon (i) any
failure by the Company or any of its affiliates, directors, officers, employees,
agents, counsel, and representatives (collectively, the "Company Parties") to
perform any obligation hereunder or any other agreement among any of the Company
Parties and any of the Underwriter Parties, (ii) any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement,
any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto, or (iii) the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances under which
-21-
<PAGE>
they were made, and will reimburse each Underwriter Party for any legal or other
expenses incurred by such Underwriter Party in connection with investigating or
defending any such loss, claim, damage, liability, action or proceeding;
provided, however, that (X) the Company will not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement, or alleged untrue statement, or omission or
alleged omission made in the Registration Statement, any Preliminary Prospectus,
the Prospectus, or such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by or through the
Representative specifically for use in the preparation thereof (which the
parties hereto agree is limited solely to that information contained in the last
paragraph on the cover page and the paragraph relating to stabilization on page
2 of the Prospectus or Preliminary Prospectus and in the section thereof
entitled "Underwriting"), and (Y) such indemnity with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter Parties from whom
the person asserting any such loss, claim, damage or liability purchased the
Stock which is the subject thereof if such person did not receive a copy of the
Prospectus (or the Prospectus as amended or supplemented at or prior to the
confirmation of the sale or such Stock to such person in any case where such
delivery is required by the Act and the untrue statement or omission of a
material fact contained in such Preliminary Prospectus was corrected in the
Prospectus (or the Prospectus as amended or supplemented.) This indemnity
agreement will be in addition to any liability which the Company may otherwise
have.
(b) The Representative will indemnify and hold harmless the
Company Parties against any losses, claims, damages or liabilities to which the
Company Parties or any one or more of them may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any failure
by the Underwriter Parties to perform any obligations hereunder or any other
agreement among any of the Underwriter Parties and any of the Company Parties,
(ii) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or (iii) the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances under which they were made; and will reimburse any legal or other
expense reasonably incurred by the Company Parties in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding; provided, however, that the Representative will be liable in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representative
specifically for use in the preparation thereof (which the parties hereto agree
is limited solely to that information contained in the last paragraph on the
cover page and the paragraph relating to stabilization on page 2 of the
Prospectus or Preliminary Prospectus and in the section thereof entitled
"Underwriting"). This indemnity agreement will be in addition to any liability
which the Representative may otherwise have.
-22-
<PAGE>
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity maybe sought pursuant to this Section 8, such person ("indemnified
party") shall promptly notify the person against whom such indemnity may be
sought (the "indemnifying party") in writing. No indemnification provided for in
Section 8(a) or (b) shall be available to any party who shall fail to give
notice as provided in this Section 8(c) if the party to whom notice was not
given was unaware of the proceeding to which such notice would have related and
was prejudiced by the failure to give such notice, but the failure to give such
notice shall not relieve the indemnifying party or parties from any liability
which it or they may have to the indemnified party for contribution or otherwise
than on account of the provisions of Section 8(a) or (b). In case any such
proceeding shall be brought against any indemnified party and it shall notify
the indemnifying party or the commencement thereof, the indemnifying party shall
be entitled to participate therein and, to the extent that it shall wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party and shall
pay as incurred the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel at its own expense. Notwithstanding the foregoing, the
indemnifying party shall pay as incurred the fees and expenses of the counsel
retained by the indemnified party in the event (i) the indemnifying party and
the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. It is understood
that the indemnifying party shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees
and expenses of more than one separate firm for all such indemnified parties.
Such firm shall be designated in writing by the Representative in the case of
parties indemnified pursuant to Sections 8(a) and by the Company in the case of
parties indemnified pursuant to Section 8(b). The indemnifying party shall not
be liable for any settlement of any proceeding effected without its written
consent but if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party from
and against any loss or liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Representative on the other from the offering of the Stock. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under Section 8(c) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company on the one hand and the Representative on the
-23-
<PAGE>
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Representative on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bear to
the total underwriting fees and commissions received by the Representative, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company on the one hand or the Representative on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Representative agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 8(d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
referred to above in this Section 8(d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim.
(e) In any proceeding relating to the Registration Statement,
any Preliminary Prospectus, the Prospectus or any supplement or amendment
thereto, each party against whom contribution may be sought under this Section 8
hereby consents to the jurisdiction of any court having jurisdiction over any
other contributing party, agrees that process issuing from such court may be
served upon him or it by any other contributing party and consents to the
service of such process and agrees that any other contributing party may join
him or it as an additional defendant in any such proceeding in which such other
contributing party is a party.
9. Notices. All communications hereunder shall be in writing and,
except as otherwise provided herein, will be mailed, delivered, telecopied, or
telegraphed and confirmed as follows: if to the Representative, to W. B. McKee
Securities, Inc., 3003 North Central Avenue, Suite 100, Phoenix, Arizona 85012;
Telephone (602) 954-7365; Fax (602) 266-5774, Attention: Gary J. Sherman, with a
copy to Streich Lang, P.A., Renaissance One, Two N. Central Avenue, Phoenix,
Arizona 85004; Telephone (602) 229-5200; Fax (602) 229-5690; Attention:
Christian J. Hoffmann, III, Esq.; if to the Company, to Premium Cigars
International, Ltd., 10855 N. Frank Lloyd Wright Blvd., Suite 100-102,
Scottsdale, Arizona 85259; telephone, (602) 922-8887; Fax (602) ___-____;
Attention: Steven J. Lambrecht, President; with a copy to Titus, Brueckner &
Berry, 7373 North Scottsdale Road, Suite B-252, Scottsdale, Arizona 85253-3527,
Attention: Charles R. Berry, Esq.; telephone (602) 483-9600; fax (602) 483-3215.
-24-
<PAGE>
10. Termination. This Agreement may be terminated by the Representative
by notice to the Company as follows:
(a) at any time prior to the earlier of (i) the time the Firm
Stock is released by the Representative for sale by notice to the
Representative, or (ii) 5:00 P.M., M.S.T., on the first business day following
the date of this Agreement;
(b) at any time prior to the Closing itself if any of the
following has occurred: (i) since the respective dates as of which information
is given in the Registration Statement and the Prospectus, any material adverse
change or any development involving a prospective material adverse change in or
affecting the business or financial condition of the Company, or the earnings,
business affairs, management or business prospects of the Company, whether or
not arising in the ordinary course of business, (ii) any outbreak of hostilities
or other national or international calamity or crisis or change in economic or
political conditions if the effect of such outbreak, calamity, crisis or change
on the financial markets or economic conditions would, in reasonable judgment of
the Representative, have a material adverse effect on the securities markets in
the United States, (iii) suspension of trading in securities on the Nasdaq or
the New York Stock Exchange, Inc. or the American Stock Exchange or limitation
on prices (other than limitations on hours or numbers of days of trading) for
securities on either such Exchange, (iv) the enactment, publication, decree or
other promulgation of any federal or state statute, regulation, rule or order of
any court or other governmental authority which in the reasonable opinion of the
Representative materially and adversely affects or will materially or adversely
affect the business or operations of the Company, (v) declaration of a banking
moratorium by either federal or Arizona authorities or (vi) the taking of any
action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in the reasonable opinion of the Representative
have a material adverse effect on the securities markets in the United States or
the business prospects of the Company; or
(c) as provided in Section 6 of this Agreement.
This Agreement also may be terminated by the Representative, by notice
to the Company, as to any obligation of the Representative to purchase the
Option Stock, upon the occurrence at any time at or prior to the Option Closing
Date of any of the events described in subparagraph (b) above or as provided in
Section 6 of this Agreement.
11. Successors. This Agreement has been and is made solely for the
benefit of the Representative and the Company and their respective successors,
executors, administrators, heirs and assigns, and the Underwriter Parties and
Company Parties referred to herein, and no other person will have any right or
obligation hereunder. The term "successors" shall not include any purchaser of
the Units merely because of such purchase.
12. Miscellaneous. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations and warranties in
this Agreement shall remain
-25-
<PAGE>
in full force and effect regardless of (a) any termination of this Agreement,
(b) any investigation made by or on behalf of any Underwriter Party, or by or on
behalf of any Company Party and (c) delivery of and payment for the Units under
this Agreement.
This Agreement and any notices delivered hereunder may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. This Agreement and
any and all notices may be delivered by telecopy and shall be effective upon
receipt, with the original of such document to be deposited promptly in the U.S.
Mail.
This Agreement and all disputes and controversies relating hereto or in
connection with the transactions contemplated hereby shall be governed by, and
construed in accordance with, the laws of the State of Arizona.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-26-
<PAGE>
If the foregoing agreement is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the
Representative in accordance with its terms as of the date first above written.
Sincerely yours,
PREMIUM CIGARS INTERNATIONAL,
LTD.
By
-------------------------------------
Steven J. Lambrecht
President
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of ___________, 1997.
W. B. MCKEE SECURITIES, INC.
By
-------------------------------
Gary J. Sherman
President
-27-
<PAGE>
SCHEDULE I
W. B. McKee Securities, Inc.
3003 North Central Avenue
Suite 100
Phoenix, Arizona 85012
Gentlemen:
The undersigned is the holder of shares of capital stock or has the
right to acquire shares of capital stock of Premium Cigars International
("Company"). I acknowledge and understand that you are acting as the
Representative in the proposed public offering of shares of Common Stock of the
Company as set forth in a Prospectus dated __________, 1997, which I have
reviewed. In connection with your agreeing to so act, the undersigned hereby
undertakes and agrees with you that during the period of eighteen (18) months
from the date of the Prospectus, the undersigned will not offer for sale, sell
or otherwise dispose of, directly or indirectly, any shares of Common Stock of
the Company, in any manner whatsoever whether pursuant to Rule 144 under the
Securities Act of 1933 or otherwise. The undersigned further understands that
the Company will take such steps as may be necessary to enforce the foregoing
provisions and restrict the sale or transfer of the shares as provided herein
including, but not limited to, notification to the Company's transfer agent
regarding any such restrictions; and the undersigned hereby agrees to and
authorizes any actions and acknowledges that the Company and you are relying
upon this Agreement in taking any such actions.
Very truly yours,
----------------------------------------
----------------------------------------
Number of Shares
-28-
<PAGE>
DRAFT - JUNE 19, 1997
PREMIUM CIGARS INTERNATIONAL, LTD.
LOCK-UP AGREEMENT
June_, 1997
W.B. McKee Securities, Inc.
3003 North Central Avenue
Suite 100
Phoenix, Arizona 85012
Re: Lock-Up Agreement
Ladies and Gentlemen:
The undersigned understands that you, as representatives (the
"Representatives"), propose to enter into an Underwriting Agreement on behalf of
the several Underwriters named on [Schedule I] to such agreement (collectively,
the "Underwriters"), with Premium Cigars International, Ltd. (the "Company")
providing for an initial public offering of the Common Stock of the Company (the
"Shares") pursuant to a Registration Statement on Form SB-2 filed with the
Securities and Exchange Commission (the "SEC").
In consideration of the agreement by the Underwriters to offer and sell the
Shares, and of other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the undersigned agrees, for a
period of eighteen months from the effective date of the public offering of the
Shares, that the undersigned will not offer to sell, sell, contract to sell,
grant any option to purchase, make any short sale or otherwise dispose of any
Shares or any other securities of the Company that are substantially similar to
the Shares, including but not limited to any securities of the Company that are
convertible into or exchangeable for, or that represent the right to receive,
Common Stock of the Company or any such similar securities, whether now owned or
hereafter acquired, owned directly by the undersigned or with respect to which
the undersigned has beneficial ownership, within the rules and regulations of
the SEC (collectively, the "Undersigned's Shares").
<PAGE>
- -----------------
June ___ ,1997
Page -2-
- -----------------
The foregoing restriction is expressly agreed to preclude the undersigned
from engaging in any hedging or other transaction which is designed to or
reasonably expected to lead to or result in a sale or disposition of the Shares
even if such Shares would be disposed of by someone other than the undersigned.
Such prohibited hedging or other transactions would include without limitation
any short sale or any purchase, sale or grant of any right (including without
limitation any put or call option) with respect to any of the Shares or with
respect to any security that includes, relates to or derives any significant
part of its value from such Shares.
Notwithstanding the foregoing, the undersigned may transfer the
Undersigned's Shares (i) as a bona fide gift or gifts, provided that the donee
or donees thereof agree to be bound by the restrictions set forth herein, (ii)
as a transfer to any trust for the direct or indirect benefit of the undersigned
or the immediate family of the undersigned, provided that the trustee of the
trust agrees to be he bound by the restrictions set forth herein, and provided
further that any such transfer shall not involve a disposition for value, or
(iii) with the prior written consent of [ ] on behalf of the Underwriters. For
purposes of this Lock-Up Agreement, "immediate family" shall mean any
relationship by blood, marriage or adoption, not more remote than first cousin.
The undersigned also agrees and consents to the entry of stop transfer
instructions with the Company's transfer agent and registrar against the
transfer of the Undersigned's Shares except in compliance with the foregoing
restrictions.
The undersigned understands that the Company and the Underwriters are
relying upon this Lock-Up Agreement in proceeding toward consummation of the
offering. The undersigned further understands that this Lock-Up Agreement is
irrevocable and shall be binding upon the undersigned's heirs, legal
representatives, successors and assigns.
Very truly yours,
Name of Stockholder: ________________________
Signature: __________________________________
Title: ______________________________________
MASTER AGREEMENT AMONG UNDERWRITERS
__________________, 1997
W. B. McKee Securities, Inc.
3003 North Central Avenue, Suite 100
Phoenix, Arizona 85012
Ladies and Gentlemen:
We understand that you may act from time to time as Representative of
the several underwriters of offerings of securities to be conducted by you. We
further understand that this Agreement shall apply to and govern our
participation in any such offerings of securities in which we elect to act as
underwriters after receipt from you of an invitation by telecopy, telegram or
other written form of communication or telephone call (confirmed immediately in
writing) ("Invitation Telecopy") which will identify the issuer, describe the
securities to be offered and state the amount of securities to be underwritten
by us (subject to increase as provided in the applicable Underwriting
Agreement). Prior to the commencement of the offering, you will notify us by
telecopy, telegram or other written form of communication or telephone call
(confirmed immediately in writing) of the terms of any particular offering of
securities ("Terms Telecopy"), it being understood that the terms and conditions
set forth herein and therein shall be applicable only in public offerings with
respect to which you have expressly informed us that such terms and conditions
shall be applicable.
The Terms Telecopy shall specify the price at which the securities are
to be purchased by the underwriters (or the formula for establishing the maximum
purchase price) and certain other terms of the offering, including without
limitation and as applicable, the initial public offering price (or the formula
for determining such price), the interest or dividend rate (or the method by
which such rate is to be determined), whether the Underwriting Agreement
provides the underwriters with an option to purchase option securities, the
Selected Dealer's concession, the amount of any reallowance, the management fee
and information with respect to the trustee, if any.
This Agreement, as amended or supplemented by the Invitation Telecopy,
shall become effective with respect to our participation in an offering of
securities if you have received our acceptance of the Invitation Telecopy, which
acceptance will be by telecopy, telegram or in such other form as may be
specified in the Invitation Telecopy and if you have not received a
communication from us revoking our acceptance in the manner and within the time
period specified in the Invitation Telecopy or the Terms Telecopy. Our
acceptance will constitute an affirmation that, except as otherwise stated in
such acceptance, each statement included in the Underwriters' Questionnaire set
forth as Exhibit A hereto (or that you may have otherwise furnished to us) is
correct.
As used herein, "this Agreement" refers to this Agreement together with
any Invitation Telecopy and Terms Telecopy (which may be combined in a single
communication), "Company" refers to the issuer of the securities in an offering
to which this Agreement relates, "Securities" refers to those securities offered
in an offering to which this Agreement relates, "Option Securities" refers to
those securities covered by any option provided the underwriters to purchase
additional securities to cover over-allotments, "you" or "Representative" refers
to W. B. McKee Securities, Inc., "Underwriter" refers to those underwriters
(including the
-1-
<PAGE>
Representative), our "underwriting obligation" refers to the amount of
Securities that we agree in the Underwriting Agreement to purchase, subject to
increase as provided in the Underwriting Agreement, but without giving effect to
any reduction for our portion of any Securities sold pursuant to Delayed
Delivery Contracts (as defined in Section 4(b) hereof) and "our Securities"
refers to the Securities comprising our underwriting obligation.
1. Registration Statement and Prospectus. You will furnish to us, to
the extent made available by the Company, copies of the registration statement,
the related prospectus and the amendment(s) thereto (excluding exhibits but
including any documents incorporated by reference therein) filed with the
Securities and Exchange Commission ("Commission") in respect of the Securities,
and our acceptance of the Invitation Telecopy with respect to an offering of
Securities will serve to confirm that we are willing to accept the
responsibility of an Underwriter thereunder and to proceed as therein
contemplated. Such acceptance will further confirm that the statements made
under the heading "Underwriting" in the proposed final form of prospectus,
insofar as they relate to us, do not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. As hereinafter
mentioned, the "Registration Statement" and the "Prospectus" refer to the
Registration Statement and the Prospectus included as a part thereof, in the
form in which the Registration Statement becomes effective and the form in which
the Prospectus is filed pursuant to Rule 424(b) under the Securities Act of
1933, as amended ("Act") with respect to the Securities. Each preliminary
prospectus with respect to the Securities is herein referred to as a
"Preliminary Prospectus." You have our consent to the use of our name in the
Prospectus and any Preliminary Prospectus, as one of the Underwriters. You are
authorized, with the approval of counsel for the Representative, to approve on
our behalf any further amendments or supplements to the Registration Statement
or the Prospectus which may be necessary or appropriate.
2. Authority. We authorize you on our behalf to negotiate the terms of,
and to execute and deliver, an underwriting agreement or purchase agreement
among the Company, the selling security holders, if any ("Selling
Securityholders") and the Underwriters relating to the Securities ("Underwriting
Agreement"). As used herein the term "Underwriting Agreement" includes any
pricing agreement relating to the Securities. We further authorize you to
consent to such changes in or waivers of compliance with the Underwriting
Agreement as in your judgment do not materially and adversely affect our rights
and obligations and to execute on our behalf any supplementary agreement with
the Company or the Selling Securityholders, if any. We authorize you to act as
Representative under this Agreement and, as Representative, to exercise all
authority and discretion vested in the Underwriters or in the Representative by
the provisions of the Underwriting Agreement and to take such action as you deem
advisable in connection with the performance of the Underwriting Agreement and
this Agreement, and the purchase, carrying, sale and distribution of the
Securities. Without limiting the foregoing, we authorize you to (a) make changes
in those who are to be Underwriters and in the amount of Securities to be
purchased by them, provided that the original underwriting obligation of any
Underwriter shall not be changed without the consent of such Underwriter, (b)
determine all matters relating to advertising and communications with dealers or
others, (c) extend the time within which the Registration Statement may become
effective by not more than 24 hours, (d) postpone the closing date and (e)
exercise any right of cancellation or termination.
3. Compensation. As compensation for your services as Representative in
connection with the purchase of the Securities and the management of the public
offering thereof, we agree to pay you and we authorize you to charge our account
with an amount equal to the management fee specified in the Terms Telecopy.
-2-
<PAGE>
4. Terms of the Public Offering.
(a) We authorize you, as Representative of the several
Underwriters, to manage the underwriting and the public offering of the
Securities and to take such action in connection therewith and in connection
with the purchase, carrying and resale of the Securities as you in your sole
discretion deem appropriate or desirable. Without limiting the foregoing, we
authorize you to determine (i) with respect to offerings using formula pricing,
the initial public offering price and the price at which the Securities are to
be purchased in accordance with the Underwriting Agreement and (ii) whether to
purchase any Option Securities and the amount, if any, of the Option Securities
to be so purchased. You are also authorized to make any changes in the public
offering price or other terms of the offering, the concession to Selected
Dealers (hereinafter defined) and the reallowance to dealers, after the initial
public offering of the Securities.
We further authorize you for our account to reserve, offer for sale,
and deliver against payment therefor, such amount of Securities as you may
determine to (a) various members of the National Association of Securities
Dealers, Inc. ("NASD"), including you and any of the other Underwriters, or
foreign dealers who are not eligible for membership in the NASD and who agree
not to reoffer, resell or deliver the Securities in the United States or to
persons who they have reason to believe are residents of the United States
("Selected Dealers"), at the public offering price, less a concession not in
excess of the Selected Dealers concession set forth in the Terms Telecopy; and
(b) institutions, trustees and individuals ("Special Purchasers"), at the public
offering price. Except for sales which are designated by a purchaser to be for
the account of a particular Underwriter, sales made by you to Special Purchasers
for our account shall be as nearly as practicable in the same proportion to all
such sales as the amount which our underwriting obligation bears to the total
underwriting. Sales made by you to Selected Dealers for our account shall be
approximately in the proportion that the amount of our Securities reserved for
such sales bears to the total Securities so reserved for sale to such dealers.
In making direct sales of the Securities, the several Underwriters may
allow and the Selected Dealers, if any, may reallow, such concession or
concessions not in excess of the amount set forth in the Terms Telecopy (a) to
dealers who are members of the NASD and who agree to comply with Section 24 of
Article III of the Rules of Fair Practice of the NASD or (b) to foreign dealers
who are not eligible for membership in the NASD and who agree not to reoffer,
resell or deliver the Securities in the United States or to persons whom they
have reason to believe are residents of the United States and who agree to
comply with the NASD's Interpretation with Respect to Free-Riding and
Withholding, and to comply, as though they were a member of the NASD, with the
provisions of Sections 8, 24 and 36 of such Rules of Fair Practice and to comply
with Section 25 thereof as that Section applies to a non-member foreign dealer.
At any time prior to the termination of this Agreement with respect to
the Securities, any of the Securities purchased by us, which are reserved by you
for sale for our account as set forth above but not sold, may, on our request,
and at your discretion, be released to us for direct sale, and the Securities so
released to us shall no longer be deemed reserved for sale by you. From time to
time prior to the termination of this Agreement with respect to the Securities,
on your request, we shall advise you of the amount of the Securities remaining
unsold which were retained by or released to us for direct sale, or if any other
securities are delivered to us pursuant to Section 8 hereof, and, on your
request, we shall release to you any such securities remaining unsold for sale
by you for our account.
The Underwriters and the Selected Dealers may with your consent
purchase Securities from and sell Securities to each other at the public
offering price less a concession not in excess of the concession to Selected
Dealers.
-3-
<PAGE>
If immediately prior to the filing of the Registration Statement
relating to the Securities the Company was not subject to the requirements of
Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), we will not sell to any account over which we exercise
discretionary authority.
(b) If contemplated by the terms of offering of the
Securities, arrangements may be made for the sale of Securities pursuant to
delayed delivery contracts between the Company and purchasers ("Delayed Delivery
Contracts"). We authorize you to act on our behalf in arranging any Delayed
Delivery Contracts, and we agree that all such arrangements will be made only
through you, directly or through Selected Dealers (including Underwriters acting
as Selected Dealers), to whom you may pay a commission.
Reservations of our Securities as contemplated by the preceding
paragraphs of this Section may include reservations of Securities for sale
pursuant to Delayed Delivery Contracts. Except for sales of Securities pursuant
to Delayed Delivery Contracts which you determine in your sole discretion were
directed by a purchaser to a particular Underwriter or were made pursuant to
arrangements made by a particular Underwriter through you, sales of reserved
Securities pursuant to Delayed Delivery Contracts not arranged through Selected
Dealers shall be as nearly as practicable in proportion to the respective
underwriting obligations of the Underwriters. Sales of reserved Securities
pursuant to Delayed Delivery Contracts arranged through Selected Dealers shall
be as nearly as practicable in proportion to the respective reservations of
Securities as you may determine.
The total amount of Securities to be purchased by the Underwriters
pursuant to the Underwriting Agreement will be reduced by any Securities sold
pursuant to Delayed Delivery Contracts ("Contract Securities"), and the amount
of Securities to be purchased by us will be reduced by the amount of Contract
Securities which you determine were sold pursuant to arrangements made for our
account as contemplated by the preceding paragraph of this Section.
The fee payable by the Company to Underwriters with respect to Contract
Securities shall be credited to our account based upon the amount of Contract
Securities attributed to us as specified in the preceding paragraph.
If the amount of Contract Securities attributed to us plus the amount
of other Securities sold by us or for our account exceeds our underwriting
obligation, there shall be credited to us with respect to such excess amount of
Securities only the amount of the commission payable to Selected Dealers in
respect of Contract Securities.
The commissions payable to Selected Dealers in respect of sales of
Contract Securities arranged through them shall be charged to each Underwriter
in the proportion which the amount of Securities of such Underwriter reserved
and sold pursuant to Delayed Delivery Contracts arranged through Selected
Dealers bears to the total Securities so reserved and sold.
After, and only after, advice from you that the Securities are released
for public offering, will we offer to the public in conformity with the terms of
the offering as set forth in the Prospectus or any amendment or supplement
thereto such of the Securities to be purchased by us as you advise us are not
reserved.
We will comply with any and all restrictions which may be set forth in
the invitation. The initial public advertisement with respect to the Securities
shall appear on such date, and shall include the names of such of the
Underwriters, as you may determine.
5. Additional Provisions Regarding Sales. Any Securities sold by us
(otherwise than through you) which you purchase in the open market or otherwise
prior to the termination of this Agreement as provided
-4-
<PAGE>
in Section 9, shall be repurchased by us on demand at the cost to you of such
purchase plus commissions, taxes on redelivery, accrued interest and dividends.
Securities delivered on such repurchase need not be the identical Securities so
purchased. In lieu of such repurchase, you may, in your discretion, sell for our
account the Securities so purchased and debit or credit our account for the loss
of profit resulting from such sale, or charge our account with an amount not in
excess of the Selected Dealers' concession with respect to such Securities.
Sales of Securities among the Underwriters may be made with your prior
consent or as you may deem advisable for state securities law purposes.
In connection with offers to sell and sales of Securities, we will
comply with all applicable laws and all applicable rules, regulations and
interpretations of all governmental agencies and self-regulatory organizations.
6. Payment and Delivery. At or before such time, on such dates and at
such places as you may specify in the Invitation Telecopy, we will deliver to
you or your agent, wire funds, or a certified or bank cashier's check payable to
the order of W. B. McKee Securities, Inc., in an amount equal to the gross
initial public offering price. You agree to pay us the Selected Dealers'
concession in accordance with this Agreement and the Invitation Telecopy, along
with all accrued simple interest thereon at the Prime Rate then in effect as
referenced by Bank One, Arizona, NA, within 45 days of the termination of this
Agreement. We authorize you to make payment for our account of the purchase
price for the Securities to be purchased by us against delivery to you of such
Securities (which may be in temporary form), and the difference between such
purchase price of the Securities and the amount of our funds delivered to you
therefor shall be credited to our account. You shall deliver to us the
Securities retained by us for direct sale as soon as practicable after your
receipt of the Securities.
We agree that delivery of any Securities purchased by us shall be made
through the facilities of the Depository Trust Company if we are a member
thereof, unless we are otherwise notified by you in your discretion. If we are
not a member of the Depository Trust Company, such delivery shall be made
through a correspondent who is such a member, if we shall have furnished
instructions to you naming such correspondent, unless we are otherwise notified
by you in your discretion.
We authorize you to hold and deliver to Selected Dealers and Special
Purchasers against payment the portion of our Securities reserved by you for
offering to them. Upon receiving payment for the Securities so sold for our
account, you will remit to us promptly an amount equal to either the purchase
price stated in the Underwriting Agreement or the net sales proceeds, as you may
elect.
In connection with the purchase or carrying for our account of any
Securities under this Agreement or the Underwriting Agreement, we authorize you,
in your discretion, to advance your own funds for our account, or, as
Representative, to arrange and make loans on our behalf and for our account and
to execute and deliver any notes or other instruments and hold or pledge as
security any of our Securities, or any securities acquired pursuant to Section 8
hereof, as may be necessary or advisable in your discretion. Our obligation in
respect to any such loans shall be several and not joint. Any lending bank is
hereby authorized to rely upon your instructions in all matters relating to any
such loans.
You may deliver to us from time to time, for carrying purposes only,
any Securities reserved but which have not been sold or paid for. We will
redeliver to you on demand any Securities so delivered to us for carrying
purposes.
7. Allocation of Expenses. We agree to pay and authorize you to charge
our account with all transfer taxes on sales made by you for our account and our
proportionate share, based upon our underwriting
-5-
<PAGE>
obligation, of all other expenses incurred by you under the terms of this
Agreement and the Underwriting Agreement. With respect to the offering of
Securities pursuant to this Agreement, the respective accounts of the
Underwriters shall be settled as promptly as practicable after the termination
of this Agreement designated in Section 10(b). Your determination of the amount
and the allocation of any such charges or expenses shall be final and
conclusive.
We authorize you to charge our account for any and all expenses
incurred by you in connection with the purchase and sale of the Securities or
preparations therefor. We agree that all expenses of a general nature incurred
by you shall be borne by us based upon our respective underwriting obligations.
You may at any time make partial distributions of credit balances or call for
payment of debit balances. Any of our funds in your hands may be held with your
general funds without accountability for interest. Notwithstanding any
settlement, we will remain liable for any taxes on transfers for our account. In
the event we fail to fulfill our obligation hereunder, the expenses chargeable
to us pursuant to this agreement and not paid, as well as any additional
expenses arising from such default, may be charged against the other
underwriters not so defaulting in the same proportions as their respective
underwriting obligations, without, however, relieving us from our liability
therefor. Your ascertainment of all expenses and apportionment thereof shall be
conclusive.
8. Stabilization and Other Matters. We authorize you, in your
discretion, to make purchases and sales of Securities, any other securities of
the Company of the same class and series, any securities of the Company into
which the Securities are convertible and any securities of the Company that you
may specify in writing, in the open market or otherwise, for long or short
account, on such terms and at such prices as you may determine, and to
over-allot in arranging sales of Securities. It is understood that you may have
made purchases of outstanding securities of the Company for stabilizing purposes
prior to the time when this Agreement became binding upon us with respect to the
offering of the Securities, and we agree that any securities so purchased shall
be treated as having been purchased for the respective accounts of the
Underwriters pursuant to the foregoing authorization. We authorize you to cover
any short position incurred pursuant to this Section by purchasing securities on
such terms and in such manner as you deem advisable. At no time shall our net
commitment either for long or short accounts (except for over-allotments which
may be covered by the purchase of Option Securities) under the foregoing
provisions of this Section exceed an amount equal to fifteen percent (15%) of
our underwriting obligation as it relates to the aggregate underwriting
obligations of all Underwriters. On demand, we will take up and pay for at cost
any securities so purchased and deliver any of said securities so sold or
overallotted for our account, and if any other Underwriter shall fail to comply
with such a demand, we will assume our proportionate share of such obligations,
based upon our underwriting obligation as related to the aggregate underwriting
obligations of all non-defaulting Underwriters, without, however, relieving such
defaulting Underwriter from its liability therefor. The existence of this
provision is no assurance that the price of the Securities or other securities
of the Company will be stabilized or that stabilizing, if commenced, may not be
discontinued at any time.
We agree to advise you from time to time upon your request of the
amount of our Securities retained by us remaining unsold and will upon your
request sell to you for the accounts of one or more of the several Underwriters
such amount of such Securities as you may designate at such price, not less than
the public offering price less the Underwriter's Discount concession nor more
than the initial public offering price, as you may determine.
If prior to the termination of this Agreement, you shall purchase or
contract to purchase any of the Securities which were sold by us (otherwise than
through you) pursuant to this Agreement, in your discretion you may (a) sell for
our account the Securities so purchased and debit or credit our account for the
loss or profit resulting from such sale, (b) charge our account with an amount
equal to the Underwriter's Discount with respect thereto and credit such amount
against the cost thereof or (c) require us to repurchase such Securities at a
price equal to the total cost of such purchase made by you as Representative,
including discount and
-6-
<PAGE>
commissions, if any, and transfer tax on the redelivery. Certificates for the
Securities delivered on such repurchase need not be identical to the
certificates so purchased by you.
We understand that, in the event that you effect stabilization pursuant
to this Section, you will notify us promptly of the date and time when the first
stabilizing purchase is effected and the date and time when stabilizing is
terminated. We agree that stabilizing by us may be effected only with the
consent of W. B. McKee Securities, Inc., and we will furnish W. B. McKee
Securities, Inc. with such information and reports relating to such
stabilization as are required by the rules and regulations of the Commission
under the Exchange Act.
We authorize you, in your sole discretion, to exercise any
over-allotment option in whole or in part or to cancel the same at such time as
you may determine. To the extent, if at all, that you exercise such option, we
agree to take down and pay for our portion of such Option Securities in the
proportion that our underwriting obligation bears to the underwriting
obligations of all Underwriters. You will advise us of the amount of our Option
Securities, and we will offer such Option Securities to the public in conformity
with the terms of the offering set forth in the Prospectus.
9. Open Market Transactions. We and you agree that, until the
termination of the provisions of this Section of this Agreement with respect to
the Securities, neither we nor you will make purchases or sales of the
Securities or securities exchangeable for, convertible into, or exercisable
against the Securities, any security of the same class and series as the
Securities and any right to purchase the Securities or any such security,
including trading in any put or call option on any such security other than (a)
as provided for in this Agreement or in the Underwriting Agreement or (b) as a
broker in executing unsolicited orders.
We represent that we have not participated in any transaction
prohibited by the preceding paragraph and that we have at all times complied
with the provisions of Rule 10b-6 of the Commission applicable to the offering
of the Securities.
10. Termination and Settlement.
(a) This Agreement may be terminated by any party hereto upon
five (5) business days' written notice to the other parties; provided, however,
that as to any notice received after this Agreement shall have become effective,
as provided in the third paragraph of this Agreement, with respect to any
offering of Securities, this Agreement shall remain in full force and effect as
to such offering of Securities and shall terminate with respect to such offering
and all previous offerings in accordance with the provisions of paragraph (b) of
this Section.
(b) With respect to each offering of Securities pursuant to
this Agreement, this Agreement shall terminate forty-five (45) days after the
initial public offering date of the Securities, or at such earlier date as you
may determine in your discretion, or may be extended by you, in your discretion,
for an additional period or periods not exceeding fifteen (15) days in the
aggregate, in each case, except as otherwise provided herein. You may, in your
discretion, on notice to us prior to such time terminate the effectiveness of
Section 9 of this Agreement.
Upon termination of this Agreement with respect to the offering of the
Securities, or prior thereto at your discretion, you shall deliver to us any of
the Securities purchased by us from the Company and the Selling Securityholders,
if any, and held by you for sale for our account but not sold and paid for and
any other securities of the Company which are held by you for our account
pursuant to the provisions of Section 9 hereof.
-7-
<PAGE>
As promptly as possible after the termination of this Agreement with
respect to the offering of the Securities, the accounts arising pursuant thereto
shall be settled and paid. The determination by you of the amounts to be paid to
or by us hereunder shall be final and conclusive.
(c) Notwithstanding anything in this Agreement to the
contrary, our obligations under Section 7, 13 and 14 shall survive the
termination of this Agreement pursuant to paragraph (a) or (b) of this Section.
11. Default by Underwriter. Default by one or more Underwriters under
counterparts to this Agreement executed by such Underwriters or under the
Underwriting Agreement will not release the other Underwriters from their
obligations or affect the liability of any defaulting Underwriter to the other
Underwriters for damages resulting from such default. If one or more
Underwriters default under the Underwriting Agreement, you may arrange for the
purchase by one or more non-defaulting Underwriters of Securities not taken up
by the defaulting Underwriter or Underwriters and we will, at your request,
increase pro rata with the other non-defaulting Underwriters the amount of our
underwriting obligation by an amount not exceeding ten percent (10%) of our
underwriting obligation with respect to the Securities.
12. Legal Qualifications. You shall inform us, upon request, of the
states and other jurisdictions of the United States in which it is believed that
the Securities are qualified for sale under, or are exempt from the requirements
of, their respective securities laws, but you assume no responsibility with
respect to our right or the right of any Underwriter or other person to sell
Securities in any jurisdiction. You are authorized to file with the Department
of State of the State of New York a Further State Notice with respect to the
Securities, if you determine to sell any of the Securities in New York and if a
Further State Notice shall be necessary.
If we propose to offer Securities outside of the United States, its
territories or its possessions, we shall so notify you and designate the nations
in which such offering is proposed, and we will take, at our own expense, such
action, if any, as may be necessary to comply with the laws of each foreign
jurisdiction in which we propose to offer Securities.
13. Liability of Representative. You shall be under no liability
(except for your own want of good faith and for obligations expressly assumed by
you hereunder) for or in respect of: the validity or value of, or title to, any
of the Securities; the form of, or the statements contained in, or the validity
of, the Registration Statement, any Preliminary Prospectus, the Prospectus, or
any amendment or supplement thereto, or any other letters or instruments
executed by or on behalf of the Company, any Selling Securityholder or other
persons; the form or validity of the Underwriting Agreement or this Agreement;
the delivery of the Securities; the performance by the Company, the Selling
Securityholders or others of any agreement on its or their part; or any matter
in connection with any of the foregoing. Nothing in this Section 13, however,
shall be deemed to relieve you from any liability imposed by the Act.
14. Indemnification and Claims. We agree to indemnify, hold harmless
and reimburse each other Underwriter, their respective affiliates, directors,
officers, employees, agents, counsel, representatives, and participants
(collectively, "Underwriter Parties") to the extent, and upon the terms that we
will agree, as one of the Underwriters, to indemnify, hold harmless and
reimburse the Company, the Selling Securityholders, if any, and certain other
persons pursuant to the Underwriting Agreement. This indemnity agreement shall
remain in full force and effect regardless of any investigation made by or on
behalf of such other Underwriter Parties or any statement made to the Commission
as to the results thereof.
In the event that at any time any person other than an Underwriter
Party asserts a claim against one or more of the Underwriters or against you as
Representative of the Underwriters arising out of an alleged untrue
-8-
<PAGE>
statement or omission in the Registration Statement, any Preliminary Prospectus
or the Prospectus or any amendment or supplement thereto or documents
incorporated by reference therein or relating to any transaction contemplated by
this Agreement, we authorize you to make such investigation, to retain such
counsel for the Underwriters and to take such action in the defense of such
claim as you may deem necessary or advisable. You may settle such claim with the
approval of a majority in interest of the Underwriters. We will pay our
proportionate share (based upon our underwriting obligation) of all expenses
incurred by you, including the fees and expenses of counsel for the
Underwriters, in investigating and defending against such claim and our
proportionate share of the aggregate liability incurred by all Underwriters in
respect of such claim after deducting any contribution or indemnification
obtained pursuant to the Underwriting Agreement, or otherwise, from persons
other than Underwriters, whether such liability is the result of a judgment
against one or more of the Underwriters or the result of any such settlement. We
and any other Underwriter may retain separate counsel at our own expense. A
claim against or liability incurred by a person who controls an Underwriter
shall be deemed to have been made against or incurred by such Underwriter. In
the event of default by us in respect of our obligations under this Section,
each non-defaulting Underwriter shall assume its proportionate share of our
obligations without relieving us of our liability hereunder.
15. Distribution of Prospectuses and Other Matters. We are familiar
with Release No. 4968 under the Act and Rule 15c2-8 under the Exchange Act,
relating to the distribution of preliminary and final prospectuses, and we
confirm that we will comply therewith, to the extent applicable, in connection
with any sale of Securities. You shall cause to be made available to us, to the
extent made available to you by the Company, such number of copies of the
Prospectus and any Preliminary Prospectuses as we may reasonably request for
purposes contemplated by the Exchange Act and the rules and regulations
thereunder.
We agree to keep an accurate record of the distribution (including
dates, number of copies and persons to whom sent) by us of the Registration
Statement, any amendment thereto and any related Preliminary Prospectus and
supplement thereto and also agree, upon request by W. B. McKee Securities, Inc.
to furnish promptly to the persons who received copies of the above, copies of
any subsequent amendment to the Registration Statement or any revised
Preliminary Prospectus or any revised Preliminary Prospectus supplement or of
any memorandum furnished to us outlining changes in any such document.
16. Miscellaneous. Nothing in this Agreement shall constitute you or us
partners or joint venturers with you, or with the other Underwriters and the
obligations of each of you, ourselves and of each of the other Underwriters are
several and not joint. We elect to be excluded from the application of
Subchapter K, Chapter 1, Subtitle A, of the Internal Revenue Code of 1986, as
amended.
Your authority under this Agreement and under the Underwriting
Agreement as Representative may be exercised solely by W. B. McKee Securities,
Inc.
Any notice from you to us shall be deemed duly given if hand-delivered,
telecopied, telegraphed or telephoned (and confirmed immediately in writing) to
us at the address set forth in the Terms Telecopy to us. Any notice from us to
you shall be deemed duly given if hand-delivered, telecopied, telegraphed or
telephoned (and confirmed immediately in writing) to W. B. McKee Securities,
Inc., 3003 North Central Avenue, Suite 100, Phoenix, Arizona 85012, Attention:
Mark Jazwin.
We confirm that we are actually engaged in the investment banking or
securities business and are either (a) a member of the NASD and our commitment
to purchase shares pursuant to the Underwriting Agreement will not result in a
violation of the financial responsibility requirements of Rule 15c-3-1 of the
Commission, or of any similar provisions of any applicable rules of any
securities exchange to which we are subject or of any restriction imposed upon
us by any such exchange or any governmental authority or (b) a foreign dealer
not eligible for membership in the NASD who hereby agrees to make no sales
within the United States, its
-9-
<PAGE>
territories or its possessions (except that we may participate in sales to
Special Purchasers under Section 4 hereof) or to persons who are citizens
thereof or resident therein. In making sales of Securities, if we are such a
member, we agree to comply with all applicable rules of the NASD, including,
without limitation, the NASD's Interpretation with Respect to Free-Riding and
Withholding and Section 24 of Article III of the NASD's Rules of Fair Practice,
or, if we are such a foreign dealer, we agree to comply with such Interpretation
and Sections 8, 24 and 36 of such Article as though we were such a member and
Section 25 of such Article as that Section applies to a non-member foreign
dealer.
This Agreement in all respects shall be governed by the laws of Arizona
and shall inure to the benefit of and be binding upon the successors, assigns,
executors and administrators of the parties hereto. It is being executed by us
and delivered to you, in duplicate, and we request that you confirm by
signature, in the space provided below, and return one copy to us.
Very truly yours,
-----------------------------------------------
(Name of Firm exactly as it should appear
in any Registration Statement or advertisement)
By
---------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
Address:
---------------------------------------
Telephone: (____)
-----------------------------
Telecopier: (____)
-----------------------------
Confirmed as of the date first above written:
W. B. McKEE SECURITIES, INC.
By:
-------------------------------------------
Mark Jazwin
-10-
PREMIUM CIGARS INTERNATIONAL, LTD.
SELECTED DEALERS AGREEMENT
_____________________, 1997
Ladies and Gentlemen:
1. We, as representative ("Representative") named in the Prospectus
dated ___________, 1997 ("Prospectus") are offering for sale an aggregate of
2,000,000 shares of common stock, no par value ("Common Stock") of Premium
Cigars International, Ltd., an Arizona corporation ("Company"). The shares are
herein referred to as the "Firm Shares." In addition, we are offering up to
300,000 additional shares of Common Stock ("Option Shares") to cover
over-allotments. The Firm Shares and the Option Shares are hereinafter referred
to as the "Securities." The Securities and the terms under which they are to be
offered for sale by the Representative are more particularly described in the
Prospectus.
2. The Securities are to be offered to the public by the Representative
at the price per Unit indicated in our purchase wire (herein called the
"Offering Price"), in accordance with the terms of the offering thereof set
forth in the Prospectus.
3. The Representative is offering, subject to the terms and conditions
hereof, a portion of the Securities for sale to certain dealers ("Dealers") as
principals at the full Offering Price, with later payment to you for the
concession and any accrued interest thereon. The offering of Securities to
Dealers may be made on the basis of reservations or allotments against
subscriptions. We will advise you by telecopies of the method and terms of the
offering. Acceptance of any reserved Securities received at the offices of W. B.
McKee Securities, Inc. in Phoenix, Arizona, after the time specified therefor in
the telecopy, and any subscriptions for Securities, will be subject to rejection
in whole or in part. Subscription books may be closed by us at any time without
notice and the right is reserved to reject any subscription in whole or in part.
Upon receipt of the aforementioned telecopy, the Securities purchased by you may
be re-offered to the public in conformity with the terms of offering set forth
in the Prospectus. You may, in accordance with the rules of the National
Association of Securities Dealers, Inc. ("NASD") allow a discount from the
Offering Price of not more than the amount indicated in our purchase wire with
respect to Securities sold by you to any other dealer or broker. Dealers must be
either (i) members in good standing of the NASD or (ii) dealers with their
principal places of business located outside the United States, its territories
and its possessions and not registered as brokers or dealers under the
Securities Exchange Act of 1934, as amended ("Exchange Act"), who have agreed
not to make any sales within the United States, its territories and its
possessions or to persons who are nationals thereof or residents therein.
Dealers must also agree to comply with the provisions of Section 24 of Articles
III of the Rules of Fair Practice of the NASD, and, if any such dealer is a
foreign dealer and not a member of the NASD, such foreign dealer must also
comply with the NASD's Interpretation with Respect to Free-Riding and
Withholding, and with the provisions of
-1-
<PAGE>
Sections 8 and 36 of Article III of such Rules of Fair Practice, as though it
were a member of the NASD and to comply with Section 25 of Article III thereof
as that Section applies to non-member foreign dealers. Each of the underwriters
has agreed that, during the term of this Agreement, it will be governed by the
terms and conditions hereof.
4. On behalf of the several underwriters we shall act as Representative
under this Agreement and shall have full authority to take such action as we may
deem advisable in respect of all matters pertaining to the public offering of
the Securities.
5. If you desire to purchase any of the Securities, your application
should reach us promptly by telephone or telecopy at the office of W.B. McKee
Securities, Inc., 3003 North Central Avenue, Suite 100, Phoenix, Arizona 85012,
telephone number (602) 954-7365, fax number (602) 266-5774, Attention: Gary J.
Sherman. We reserve the right to reject subscriptions in whole or in part, to
make allotments and to close the subscription books at any time without notice.
The number of Securities allotted to you will be confirmed, subject to the terms
and conditions of this Agreement.
6. The privilege of subscribing for the Securities is extended to you
on behalf of the Representative as it may lawfully sell the Securities to
dealers in your state or other jurisdictions.
7. With respect to purchase and sale:
a. Offering. Any Securities purchased by you under the terms
of this Agreement may be immediately re-offered to the public in accordance with
the terms of the offering thereof set forth herein and in the Prospectus,
subject to the securities or blue sky laws of the various states or other
jurisdictions. Neither you nor any other person is or has been authorized to
give any information or to make any representations in connection with the sales
of Securities other than as contained in the Prospectus.
b. Penalty Bid. If you have received Securities purchased by
you pursuant to this Agreement, which prior to the later of (i) the termination
of the effectiveness of this Agreement with respect to the offering of such
Securities; or (ii) the covering by the Representative of any short position
created by the Representative in connection with the offering of such
Securities, the Representative may have purchased or contracted to purchase for
the account of any Dealer (whether such Securities have been sold or loaned by
you), then you agree to pay the Representative on demand for the accounts of the
several underwriters an amount equal to the Selected Dealers' concession and, in
addition, the Representative may charge you with any broker's commission and
transfer tax paid in connection with such purchase or contract to purchase.
Securities delivered on such repurchases need not be the identical Securities
originally purchased. With respect to any such repurchased Securities as to
which you have not yet received, you shall be responsible for any such broker's
commission and transfer tax and the Representative shall not be obligated to pay
any Selected Dealers' concession as to such Securities.
c. Accounting for Allotment. You agree to advise us from time
to time, upon request, of the number of Securities purchased by you hereunder
and remaining unsold at the time of such request, and if in our opinion any such
Securities shall be needed to make delivery of the Securities sold for the
account of the Representative, you will, forthwith upon our request, grant to us
for the account or accounts of any Dealer the right, exercisable promptly after
receipt of notice from you that such right has been granted, to purchase, at the
Public Offering Price less the selling concession or such part thereof as we
shall determine, such number of Securities owned by you as shall have been
specified in our request.
-2-
<PAGE>
d. Expenses. No expenses shall be charged to Selected Dealers.
A single transfer tax, if payable, upon the sale of the Securities by the
Representative to you will be paid when such Securities are delivered to you.
However, you shall pay any transfer tax on sales of Securities by you and you
shall pay your proportionate share of any transfer tax (other than the single
transfer tax described above) in the event that any such tax shall from time to
time be assessed against you and other Selected Dealers as a group or otherwise.
8. The provisions of Section 7 hereof will terminate when we shall have
determined that the public offering of the Securities has been completed and
upon telecopied notice to you of such termination, but, if not theretofore
terminated, they will terminate at the close of business on the forty-fifth
(45th) full business day after the date of the final Prospectus; provided,
however, that we shall have the right to extend such provisions for a further
period or periods, not exceeding fifteen (15) full business days in the
aggregate upon notice to you.
9. On becoming a Selected Dealer, and in offering and selling the
Securities, you agree to comply with all the applicable requirements of the
Securities Act of 1933, as amended ("1933 Act"), and the Exchange Act. You
confirm to you are familiar with Rule 15c2-8 under the Exchange Act relating to
the distribution of preliminary and final prospectuses for securities of an
issuer (whether or not the issuer is subject to the reporting requirements of
Sections 13 or 15(d) of the Exchange Act) and confirm that you have complied and
will comply therewith. We hereby confirm that we will make available to you such
number of copies of the Prospectus (as amended or supplemented) as you may
reasonably request for the purposes contemplated by the 1933 Act or the Exchange
Act, or the rules and regulations thereunder.
10. For the purpose of stabilizing the market in the Securities, we
have been authorized to over-allot, and to make purchases and sales of the
Securities of the Company.
11. You agree not to bid for, purchase, attempt to induce others to
purchase, or sell, directly or indirectly, any Securities, or any other
securities of the Issuer of the same class and series as the Securities or any
other securities of the Issuer or the right or option to purchase any securities
of the Issuer or any guarantor of the Securities, except as brokers pursuant to
unsolicited orders and as otherwise provided in this Agreement. You also agree
not to effect or attempt to induce others to effect, directly or indirectly, any
transactions in or relating to put or call options on any securities of the
Issuer, except to the extent permitted by Rule 10b-6 under the Exchange Act as
interpreted by the Securities and Exchange Commission.
12. Upon application, you will be informed as to the states and other
jurisdictions in which we have been advised that he Securities have been
qualified for sale (or are exempt from such qualification) under the respective
securities or blue sky laws of such states and other jurisdictions, but the
Representative does not assume any obligation or responsibility as to the right
of any Selected Dealer to sell the Securities in any state or other jurisdiction
or as to the eligibility of the Securities for sale therein.
13. No Selected Dealer is authorized to act as our agent or as agent
for the Representative, or otherwise to act on behalf of the Representative, in
offering or selling the Securities to the public or otherwise to furnish any
information or make any representation except as contained in the Prospectus.
14. Nothing will constitute the Selected Dealers an association or
other separate entity or partners with the Representative or with each other,
but you will be responsible for your share of any
-3-
<PAGE>
liability or expense based on any claim to the contrary. We shall not be under
any liability for or in respect of the value or validity of form of the
Securities, the delivery of the certificates for the Securities, the performance
by anyone of any agreement on its part, the qualification of the Securities for
sale under the laws of any jurisdiction, or for or in respect of any other
matter relating to this Agreement, except for lack of good faith and for
obligations expressly assumed by us in this Agreement and no obligation on our
part shall be implied herefrom. The foregoing provisions shall not be deemed a
waiver of any liability imposed under the 1933 Act or the Exchange Act.
15. Securities sold to you hereunder shall be paid for in an amount
equal to the initial public offering price therefor, with the Selected Dealers'
concession and simple interest thereon at the Prime Rate then in effect as
referenced by Bank One, Arizona, NA, paid to you by the Representative within 45
days of the termination of this Agreement, at 9:00 a.m., M.S.T., Phoenix time on
the date on which the Dealers are required to purchase the Securities by
delivery to the Representative at the offices of W. B. McKee Securities, Inc.,
3003 North Central Avenue, Suite 100, Phoenix, Arizona 85012, telephone number
(602) 954-7365, fax number (602) 266-5774, in current clearing house funds,
payable to the order of W. B. McKee Securities, Inc. for the benefit of Premium
Cigars International, Ltd.. Delivery of certificates for the Securities will be
made after closing of the offering. If you are a member of, or clear through a
member of, the Depository Trust Company ("DTC"), we may, in our discretion,
delivery your Securities through the facilities of DTC.
Payment for Securities purchased by you is to be made at the
initial public Offering Price, with the Selected Dealers' concession and any
interest thereon to which you may be entitled will be paid to you upon the later
to occur of i) the termination of the effectiveness of this Agreement with
respect to the offering of such Securities; or ii) the covering by the
Representative of any short position created by the Representative in connection
with the offering of such Securities.
16. Notices to the Representative should be addressed in care of W. B.
McKee Securities, Inc., 3003 North Central Avenue, Suite 100, Phoenix, Arizona
85012, telephone number (602) 954-7365, fax number (602) 266-5774, Attention:
Gary J. Sherman. Notices to you shall be deemed to have been duly given if
telegraphed or mailed to you at the address to which this letter is addressed.
17. If you desire to purchase any of the Securities on the terms and
conditions set forth herein, please confirm your application by signing and
returning to us your confirmation on the duplicate copy of this letter enclosed
herewith, even though you may have previously advised us thereof by telephone or
telecopy. Our signature hereon may be by facsimile.
-4-
<PAGE>
Sincerely yours,
W. B. MCKEE SECURITIES, INC.
By
----------------------------------
Gary J. Sherman
President
-5-
<PAGE>
W. B. McKee Securities, Inc.
3003 North Central Avenue
Suite 100
Phoenix, Arizona 85012
Dear Sirs:
We hereby subscribe for ________________________________ shares of
Common Stock, no par value, of Premium Cigars International, Ltd. ("Securities")
in accordance with the terms and conditions stated in the foregoing letter. We
hereby acknowledge receipt of the Prospectus referred to in the first paragraph
thereof relating to said Securities. We further state that in purchasing said
Securities we have relied upon the Prospectus and upon no other statement
whatsoever, whether written or oral. We confirm that we are a dealer actually
engaged in the investment banking or securities business and that we are either
(i) a member in good standing of the NASD or (ii) a dealer with its principal
place of business located outside the United States, its territories and its
possessions and not registered as a broker or dealer under the Securities
Exchange Act of 1934, who hereby agrees not to make any sales within the United
States, its territories or its possessions or to persons who are nationals there
or residents therein. We hereby agree to comply with the provisions of Section
24 of Article III of the Rules of Fair Practice of the NASD, and if we are a
foreign dealer and not a member of the NASD, we also agree to comply with the
NASD's Interpretation with Respect to Free-Riding and Withholding, and with the
provisions of Sections 8 and 36 of Article III of such Rules of Fair Practice,
as though we were a member of the NASD, and to comply with Section 25 of Article
III thereof as that Section applies to non-member foreign dealers.
----------------------------------------
(Please type or print name of firm)
----------------------------------------
----------------------------------------
(Please type or print address of firm)
By
----------------------------------------
Its
----------------------------------------
-6-
<PAGE>
Please complete and return with one executed copy of the Selected Dealers
Agreement.
Firm Name:
-----------------------------------
Address:
Street:
--------------------
City:
----------------------
State:
---------------------
Zip Code:
------------------
Phone Number:
--------------------------------
Fax Number:
----------------------------------
Contact Person:
------------------------------
Tax I.D. #:
----------------------------------
DTC#:
----------------------------------------
ABA #:
---------------------------------------
Corporate Delivery Instructions:
--------------------------
--------------------------
Government Delivery Instructions:
--------------------------
--------------------------
-7-
EXPEDITED
AT CORP COMMISSION
FILED
DEC 18 4:31 PM '96
AUTH Priscilla Wells
DATE 12-16-96
TECH _______________
DATE _______________
0794500-8
ARTICLES OF INCORPORATION
OF
PREMIUM CIGARS INTERNATIONAL, LTD.
ARTICLE I
The name of this Corporation shall be Premium Cigars International, Ltd.
ARTICLE II
The authorized capital stock of this Corporation shall be ten-million
(10,000,000) shares of non-assessable Common Stock with no par value per share.
The shares of capital stock of this Corporation shall be issuable for such
consideration as is specified by the Board of Directors in its sole discretion
(provided the same is not inconsistent with applicable law or the express
provisions of these Articles), and upon receipt by this Corporation of the
consideration so specified, the issued shares shall be deemed to be fully paid
and non-assessable for all purposes. The Board of Directors of the Corporation
shall have the authority to establish differing series of stock and to determine
the relative rights and preferences between classes and series.
ARTICLE III
Until changed, the known place of business of the Corporation shall be as
follows: 10855 North Frank Lloyd Wright Boulevard, Suite 102, Scottsdale,
Arizona 85259. The place of business shall be subject to change hereafter in
accordance with applicable law.
ARTICLE IV
The character of the business which the Corporation initially intends to
conduct is as follows: importation and supply of cigars to wholesale
distributors. This statement shall not be construed to limit in any way the
character of business which the Corporation ultimately conducts.
ARTICLE V
No Director or former Director shall be liable to the Corporation or its
shareholders for monetary damages for breach of fiduciary duty or for any action
taken or any failure to take any action as a director or officer. The liability
of Directors is limited or eliminated to the fullest extent permitted by law. No
repeal or modification of this Article by the shareholders of the Corporation
will adversely affect any right or protection of a director or officer existing
at the time of such repeal or modification.
<PAGE>
ARTICLE VI
This Corporation hereby appoints Bonn, Luscher, Padden & Wilkins,
Chartered, 805 North Second Street, Phoenix, Arizona 85004 as the statutory
agent of this Corporation. The Board of Directors, at any time, may effect the
revocation of this or any other appointment of such agent.
ARTICLE VII
The business and affairs of this Corporation shall be conducted by a Board
of Directors which shall initially consist of two (2) members. Thereafter, the
size of the Board shall be as established in the Corporation's Bylaws.
The following named persons shall constitute the first Board of Directors
until the first annual meeting of shareholders or until their successors are
elected and qualify:
Lorraine Shelley Scott Lambrecht
12832 North 14th Drive 10855 N. Frank Lloyd Wright Blvd.
Phoenix, Arizona 85029 Suite 102
Scottsdale, Arizona 85259
The Board of Directors may establish committees from time to time in
accordance with applicable law.
ARTICLE VIII
The incorporators of the Corporation and their addresses are as follows:
Lorraine Shelley Scott Lambrecht
12832 North 14th Drive 10855 N. Frank Lloyd Wright Blvd.
Phoenix, Arizona 85029 Suite 102
Scottsdale, Arizona 85259
IN WITNESS WHEREOF, the undersigned have caused these Articles to be
executed as of the 16th day of December, 1996.
/s/ Lorraine Shelley
------------------------------
Lorraine Shelley, Incorporator
/s/ Scott Lambrecht
------------------------------
Scott Lambrecht, Incorporator
2
<PAGE>
STATE OF ARIZONA )
) SS.
County of Maricopa )
On this, the 16th day of December, 1996 before me, the undersigned Notary
Public, personally appeared Lorraine Shelley and Scott Lambrecht, known to me to
be the persons whose names are subscribed to the within instrument, and
acknowledged that they executed the same for the purposes therein contained.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
[SEAL] OFFICIAL SEAL
ANITA ALLMON
Notary Public - State of Arizona /s/ Anita Allmon
MARICOPA COUNTY -----------------------------------
My Comm. Expires July 31, 1997 Notary Public
My Commission Expires:
7-31-97
- -----------------------
3
AMENDED AND RESTATED BYLAWS
OF
PREMIUM CIGARS INTERNATIONAL, LTD.
Adopted as of the 3rd day of May, 1997.
<PAGE>
ARTICLE I - OFFICES............................................................4
Section 1. Known Place of Business....................................4
Section 2. Other Offices..............................................4
ARTICLE II - SHAREHOLDERS......................................................4
Section 1. Annual Meeting.............................................4
Section 2. Special Meeting............................................4
Section 3. Place of Meeting...........................................4
Section 4. Notice of Meeting..........................................4
Section 5. Fixing Date for Determination of Shareholders Record.......5
Section 6. Voting Record..............................................5
Section 7. Quorum and Manner or Acting................................5
Section 8. Voting of Shares of Stock..................................6
Section 9. Organization...............................................7
Section 10. Order of Business..........................................7
Section 11. Election of Directors......................................7
Section 12. Action By Shareholders Without a Meeting...................7
Section 13. Irregularities.............................................7
ARTICLE III - BOARD OF DIRECTORS...............................................7
Section 1. General Powers.............................................7
Section 2. Number and Term of Office..................................7
Section 3. Place of Meeting...........................................8
Section 4. First Meeting..............................................8
Section 5. Regular Meetings...........................................8
Section 6. Special Meetings; Notice...................................8
Section 7. Quorum and Manner of Acting................................8
Section 8. Organization...............................................9
Section 9. Action by Directors Without a Meeting......................9
Section 10. Resignations...............................................9
Section 11. Removal of Directors.......................................9
Section 12. Vacancies..................................................9
Section 13. Compensation...............................................9
ARTICLE IV - OFFICERS.........................................................10
Section 1. Number....................................................10
Section 2. Election and Term of Office...............................10
Section 3. Agents....................................................10
Section 4. Removal...................................................10
Section 5. Resignations..............................................10
Section 6. Vacancies.................................................10
Section 7. Chairman of the Board.....................................10
2
<PAGE>
Section 8. President/Chief Executive Officer..........................11
Section 9. Vice President.............................................11
Section 10. Secretary..................................................11
Section 11. Treasurer..................................................12
Section 12. Assistant Officers.........................................12
ARTICLE V - COMMITTEES........................................................12
Section 1. Executive Committee: How Constituted and Powers............12
Section 2. Executive Committee: Organization..........................12
Section 3. Executive Committee: Meetings..............................13
Section 4. Executive Committee: Quorum and Manner of Acting...........13
Section 5. Other Committees...........................................13
Section 6. Resignations...............................................13
Section 7. Vacancies..................................................14
Section 8. Compensation...............................................14
Section 9. Dissolution of Committees: Removal of Committee Members....14
ARTICLE VI - CONTRACTS, CHECKS, DRAFTS, BANK
ACCOUNTS, SECURITIES OF OTHER CORPORATIONS...............................14
Section 1. Execution of Contracts.....................................14
Section 2. Attestation................................................14
Section 3. Loans......................................................14
Section 4. Checks, Drafts.............................................15
Section 5. Deposits...................................................15
Section 6. Proxies in Respect of Stock or Other Securities of Other
Corporations...............................................15
ARTICLE VII - STOCK...........................................................15
Section 1. Certificates...............................................15
Section 2. Transfers of Stock.........................................16
Section 3. Regulations................................................16
ARTICLE VIII - DIVIDENDS......................................................16
ARTICLE IX - SEAL.............................................................16
ARTICLE X - AMENDMENTS........................................................16
3
<PAGE>
ARTICLE I - OFFICES
Section 1. Known Place of Business. The known place of business of the
Corporation, which shall also be known as its principal place of business, shall
be at the address so designated in the Articles of Incorporation, or if no
address is so designated, at the address of the Corporation's statutory agent as
set forth in the Articles of Incorporation. The address of the Corporation's
known place of business may be changed from time to time by the Board in the
manner provided in the Arizona Revised Statutes and without amending the
Articles of Incorporation.
Section 2. Other Offices. In addition to its known place of business, the
Corporation may maintain offices at such other place or places, either within or
without the State of Arizona, as may be designated from time to time by the
Board, or as the business of the Corporation may require.
ARTICLE II - SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the shareholders shall be
held on the first Monday of April of each calendar year, or if that day is a
legal holiday in Arizona, then on the next day thereafter which is not a legal
holiday, for the purpose of electing Directors and for the transaction of other
business as may properly come before the meeting. If the election of Directors
is not held on the day designated herein for any annual meeting of the
shareholders, or any adjournment thereof, the Directors shall cause the election
to be held at a special meeting of the shareholders as soon thereafter as
convenient.
Section 2. Special Meeting. Special meetings of the shareholders may be
called for any purpose or purposes at any time by the Chairman of the Board,
President, a Vice President or the Board,and shall be called by the Chairman of
the Board or President at the request of the holders of not less than one-tenth
(1/10) of all outstanding stock of the Corporation entitled to vote at such
meeting, or otherwise as provided by the Arizona Revised Statutes and Section 12
of Article II of these Bylaws.
Section 3. Place of Meeting. Annual and special meetings of the
shareholders shall be held at the principal place of business of the
Corporation, unless a different place, either within or without the State or
Arizona, is specified in the notice of such meeting, or in the event of a waiver
of notice of such meeting, in such waiver of notice.
Section 4. Notice of Meeting. Written notice stating the place, date and
hour of the meeting and, in the case of a special meeting, the purposes for
which the meeting is called, shall be delivered to each shareholder of record
entitled to vote at such meeting not less than ten (10) nor more than sixty (60)
days before the date of the meeting, either personally or by mail, by an officer
of the Corporation at the direction of the person or persons calling the
meeting. If mailed, notice shall be deemed to be delivered when mailed to the
shareholder at his or her address as it appears on the stock transfer books of
the Corporation. Notice need not be given of an adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken,
4
<PAGE>
provided that such adjournment is for less than thirty (30) days and further
provided that a new record date is not fixed for the adjourned meeting, in
either of which events, written notice of the adjourned meeting shall be given
to each shareholder of record entitled to vote at such meeting. At any adjourned
meeting, any business may be transacted which might have been transacted at the
meeting as originally noticed. A written waiver of notice, whether given before
or after the meeting to which it relates , shall be equivalent to the giving of
notice of such meeting to the shareholder or shareholders signing such waiver.
Attendance of a shareholder at a meeting shall constitute a waiver of notice of
such meeting, except when the shareholder attends for the express purpose of
objecting to the transaction of any business because the meeting is not lawfully
called or convened.
Section 5. Fixing Date for Determination of Shareholders Record. In order
that the Corporation may determine the shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjourment thereof, or to express
consent to corporate action in writing without a meeting, or to receive payment
of any dividend or other distribution or allotment of any rights, or to exercise
any rights in respect of any other change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board may fix in advance a
record date, which shall not be more than seventy (70) nor less than ten (10)
days prior to the date of such meeting or such action, as the case may be. If
the Board has not fixed a record date for determining the shareholders entitled
to notice of or to vote at a meeting of shareholders, the record date shall be
at four o'clock in the afternoon on the day before the day on which notice is
given, or if notice is waived, at the commencement of the meeting. If the Board
has not fixed a record date for determining shareholders for any other purpose,
the record date shall be at the close of business on the day before the Board
adopts the resolution relating thereto. A determination of shareholders of
record entitled to notice of or to vote at a meeting of shareholders shall apply
to any adjournment of the meeting if such adjournment or adjournments do not
exceed thirty (30) days in the aggregate; provided, however, that the Board may
fix a new record date for the adjourned meeting.
Section 6. Voting Record. The Secretary or other officer having charge of
the stock transfer books of the Corporation shall make, or cause to be made, a
complete record of the shareholders entitled to vote at a meeting of
shareholders or any adjourment thereof, arranged in alphabetical order, with the
address of and the number of shares held by each shareholder. Such record shall
be produced and kept open at the time and place of the meeting and shall be
subject to inspection by the shareholders during the entire time of the meeting
for the purposes thereof. Failure to comply with the requirements of this
Section 6, however, shall not affect the validity of any action taken at any
such meeting.
Section 7. Quorum and Manner of Acting. At any meeting of the shareholders,
the presence, in person or by proxy, of the holders of a majority of the
outstanding stock entitled to vote shall constitute a quorum. All shares
represented and entitled to vote on any single subject matter which may be
brought before the meeting shall be counted for quorum purposes. Only those
shares entitled to vote on a particular subject matter shall be counted for the
purpose of voting on that subjict matter, Business may be conducted once a
quorum is present and may continue to be conducted until adjourment without
rescheduling, notwithstanding the withdrawal or temporary
5
<PAGE>
absence of shareholders leaving less than a quorum. Except as otherwise provided
in the Arizona Revised Statutes, the affirmative vote of the holders of a
majority of the shares of stock then represented at the meeting and entitled to
vote on the subject matter under consideration shall be the act of the
shareholders; provided, however, that if the shares of stock then represented
are less than the number required to consitute a quorum, the affirmative vote
must be such as would constitute a majority if a quorum were present, except
that the affirmative vote of the holders of a majority of the shares of stock
then present is sufficient in all cases to adjourn a meeting.
Section 8. Voting of Shares of Stock. Each shareholder shall be entitled to
one vote or corresponding fraction thereof for each share stock or fraction
thereof standing in its name on the books of the Corporation on the record date.
A shareholder may vote either in person or by proxy executed in writing by the
shareholder or by its duly authorized attorney in fact, but no such proxy shall
be voted or acted upon after eleven (11) months from the date of its execution
unless the proxy provides for a longer period. Shares of its own stock belonging
to the Corporation or to another corporation, if a majority of the shares of
stock entitled to vote in the election of directors of such other corporation is
held directly or indirectly by the Corporation, shall neither be entitled to
vote nor counted for quorum purposes; provided however, that the foregoing shall
not be construed as limiting the right of the Corporation to vote its own stock
when held by it in a fiduciary capacity. Shares of stock held by a trustee,
other than a trustee in bankruptcy, may not be voted by such trustee without a
transfer of such shares into its name. Shares of stock held by or under the
control of a receiver or trustee in bankruptcy may be voted by such receiver or
trustee, either in person or by proxy, without a transfer thereof into its name
if authority so to do is contained in an appropriate order of the court by which
such receiver or trustee was appointed. A person whose stock is pledged shall be
entitled to vote such stock unless the stock has been transferred into the name
of the pledgee on the books of the Corporation, in which case only the pledgee
or its proxy shall be entitled to vote such stock. If shares of stock stand of
record in the names of two or more persons, whether fiduciaries, members of a
partnership, joint tenants, tenants in common, tenants by the entirety, tenants
by community property or otherwise, or if two or more persons have the same
fiduciary relationship respecting the same shares of stock, unless the
Corporation is given written notice in the manner required by the Arizona
Revised Statutes to the contrary and is furnished with a copy of the instrument
or order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (I) if only
one votes, his or her act binds all;(ii) if more than one vote, the act of the
majority so voting binds all; (iii) if more than one vote, but the vote is
evenly split on any particular matter, each faction may vote the shares in
question proportionally. If any tenacy is held in unequal interests, the
majority or even split, for the purpose of the preceding sentence, shall be a
majority or even split in interst. Unless demanded by a shareholder present in
person or by proxy at any meeting of the sharehloders and entitled to vote
thereat, or unless so directed by the chairman of the meeting, the vote thereat
on any question need not be by ballot. If such demand or direction is made, a
vote by ballot shall be taken, and each ballot shall be signed by the
shareholder voting, or by its proxy, and shall state the number of shares voted.
6
<PAGE>
Section 9. Organization. At such meeting of the shareholders, the Chairman
of the Board, or, if he or she is absent thereform, the President, or , if he or
she is absent thereforom, another officer of the Corporation chosen as chairman
of such meeting by a majority in voting interest of the shareholders present in
person or by proxy and entitled to vote thereat, or, if all the officers of the
Corporation are absent thereform, a shareholder of record so chosen, shall act
as chairman of the meeting and preside thereat. The Secetary, or, if he or she
is absent from the meeting or is required pursuant to the provisions of this
Section 9 to act as chariman of such meeting, the person (who shall be an
Assisant Secretary, if any and if present) whom the chairman of the meeting
shall appoint shall act as secretaty of the meeting and keep the minutes
thereof.
Section 10. Order of Business. The order of business at each meeting of the
shareholders shall be determined by chairman of such meeting, but the order of
business may be changed by the vote of a majority in voting interest of those
present in person or by proxy at such meeting and entitled to vote thereat.
Section 11. Election of Directors. At each election of Directors, each
shareholder entitled to vote thereat shall have the right to vote, in person or
by proxy, the number of shares of stock owned by such shareholder for as many
persons as there are Directors to be elected and for whose election he or she
has a right to vote, or to cumulate its votes by giving one candidate as many
votes as the number of such Directors multiplied by the number of its shares of
stock shall equal, or by distributing such votes on the same principle among any
number of candidates. The candidates receiving the greatest number of votes, up
to the number of Directors to be elected, shall be the Directors.
Section 12. Action By Shareholders Without a Meeting. Any action required
or permitted to be taken at a meeting of the shareholders may be taken without a
meeting, without notice and without a vote, if a consent in writing, setting
forth the action so taken, is signed by all shareholders entitled to vote with
respect to the subject matter thereof.
Section 13. Irregularities. All informalities and irregularities at any
meeting of the shareholders with respect to calls, notices of meeting, the
manner of voting, the form of proxies and credentials, and the method of
ascertaining those present shall be deemed waived if no objection is made at the
meeting.
ARTICLE III - BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the Corporation
shall be managed by the Board of Directors.
Section 2. Number and Term of Office. Subject to the requirements of the
Arizona Revised Statutes, the Board may from time to time determine the number
of Directors. Untill the Board shall otherwise determine, the number of
Directors shall be that number comprising the initial Board as set forth in the
Articles of Incorporation. Each Director shall hold office until his or her
7
<PAGE>
successor is elected, or until his or her death, or until his or her earlier
resignation or removal in the manner hereinafter provided.
Section 3. Place of Meeting. The Board may hold its meetings at such place
or places, within or without the State of Arizona, as the Board may from time to
time by resolution determine or as shall be designated in any notices or waivers
of notice thereof. Any such meeting, whether regular or special, may be held by
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting in such manner shall consitute presence in person at such meeting.
Section 4. First Meeting. As soon as practicable after each annual election
of Directors and on the same day, the Board may meet for the purpose of
organization and the transaction of other business at the place where regular
meetings of the Board are held, and no notice of such meeting shall be necessary
in order to legally hold the meeting, provided that a quorum is present. If such
meeting is not held as provided above, the meeting may be held at such time and
place as shall be specfied in notice given as hereinafter provided for a special
meeting of the Board, or in the event of waiver of notice as specified in the
written waiver of notice.
Section 5. Regular Meetings. Regular meetings of the Board may be held
without notice at such times as the Board shall from time to time by resolution
determine. If any day fixed for a regular meeting shall be legal holiday in
Arizona, the meeting that would otherwise be held on that day shall be held at
the same hour on the next succeeding business day.
Section 6. Special Meetings: Notice. Special meetings of the Board shall be
held whenever called by the Chairman of the Board, the President, the Secretary
or a majority of the Directors at the time in office. Notice shall be given, in
the manner hereinafter provided, of each such special meeting, which notice
shall state the time and place of such meeting, but need not state the purposes
thereof. Except as otherwise provided in Section 7 of this Article III, notice
of each such meeting shall be mailed to each Director, addressed to him or her
at his or her residence or usual place of business, at least two (2) days before
the day on which such meeting is to be held, or shall be sent addressed to him
or her at such place by telegraph, cable, wireless or other form of recorded
communication or delivered personally or by telephone not later than the day
before the day on which such meeting is to be held. A written waiver of notice,
whether given before or after the meeting to which it relates, shall be
equivalent to the giving of notice of such meeting to which it relates, shall be
equivalent to the giving of notice of such meeting to the Director or Directors
signing such waiver. Attendance of a Director at a special meeting of the Board
shall consitute a waiver of notice of such meeting, except when he or she
attends the meeting for the express purpose of objecting to the transaction of
any business because the meeting is not lawfully called or convened.
Section 7. Quorum and Manner of Acting. A majority of the whole Board shall
be present in person at any meeting of the Board in order to constitute a quorum
for the transaction of business at such meeting, and except as otherwise
specified in these Bylaws, and except also as otherwise expressly provided by
the Arizona Revised Statutes, the vote of a majority of the Directors
8
<PAGE>
present at any such meeting at which a quorum is present shall be the act of the
Board. In the absence of a quorum from any such meeting, a majority of the
Directors present thereat may adjourn such meeting from time to time to another
time or place, without notice other than announcement at the meeting, until a
quorum shall be present thereat. The Directors shall act only as a board and the
individual Directors shall have no power as such.
Section 8. Organization. At each meeting of the Board, the Chairman of the
Board, or, if he or she is absent therefrom, the President, or if he is absent
therefrom, a Director chosen by a majority of the Directors present thereat,
shall act as chairman of such meeting and preside thereat. The Secretary, or if
he or she is absent, the person (who shall be an Assistant Secretary, if any and
if present) whom the chairman of such meeting shall appoint, shall act as
Secretary of such meeting and keep the minutes thereof.
Section 9. Actions by Directors Without a Meeting. Any action required or
permitted to be taken at a meeting of the Board may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, is signed by all Directors entitled to vote with respect to
the subject matter thereof.
Section 10. Resignations. Any Director may resign at any given time by
giving written notice of his or her resignation to the Corporation. Any such
resignation shall take effect at the time specified therein, or, if the time
when it shall become effective is not specified therein, it shall take effect
immediatedy upon its receipt by the President or the Secretary; and, unless
otherwise specified therein, the acceptance of such registration shall not be
necessary to make it effective.
Section 11. Removal of Directors. Directors may be removed, with or without
cause, as provided from time to time by the Arizona Revised Statutes as then in
effect.
Section 12. Vacancies. Any vacancy occurring in the Board, and any newly
created directorship, may be filled by a majority of the Directors then in
office, including any Director whose resignation from the Board becomes
effective at a future time, provided that the number of Directors then in office
is not less than a quorum of the whole Board, or by a sole remaining Director.
If at any time the Corporation has no Directors in office, any officer or any
shareholder or any fiduciary entrusted with responsibility for the person or
estate of a shareholder may call a special meeting of the shareholders for the
purpose of filling cacancies in the Board.
Section 13. Compensation. Unless otherwise expressly provided by resolution
adopted by the Board, no Director shall receive any cpmpensation for his or her
services as a Director. The Board may at any time and from time to time by
resolution provide that Directors shall be paid a fixed sum for attendance at
each meeting of the Board or a stated salary as Director. In addition, the Board
may at any time and from time to time by resolution provide that Directors hall
be paid their actual expenses, if any, of attendance at each meeting of the
Board. Nothing in this section shall be construed as precluding any Director
from serving the Corporation in any other capacity and receiving compensation
therefor, but the Board may by resolution provide that any Director receiving
9
<PAGE>
compensation for his or services to the Corporation in any other capacity shall
not receive additional compensation for his or her services as a Director.
ARTICLE IV - OFFICERS
Section 1. Number. The Corporation shall have the following officers: a
Chairmanof the Board (who shall be a Director), a President, a Vice President, a
secretary, and a Treasurer. At the discretion of the Board, the Corporation may
also have additional Vice Presidents, one or more Assistant Vice Presidents, one
or more Assistant Secretaries and one or more Assistant Treasurers. Any two or
more offices may be held by the same person, except the offices of President and
Secretary.
Section 2. Election and Term of Office. The offices of the Corporation
shall be elected annually by the Board. Each such officer shall hold office
until his or her successor is duly elected or appointed or until his or her
earlier death or resignation or removal in the manner hereinafter provided.
Section 3. Agents. In addition to the officers mentioned in Section 1 of
this Article IV, the Board may appoint such agents as the Board may deem
necessary or advisable, each of which agents shall have such authority and
perform such duties as are provided in these Bylaws or as the Board may from
time to time determine. The Board may delegate to any officer or to any
committee the power to appoint or remove any such agents.
Section 4. Removal. Any officer may be removed, with or without cause, at
any time by a resolution adopted by a majority of the whole Board.
Section 5. Resignations. Any officer may resign at any time by giving
written notice of his or her resignation to the Board, the Chairman of the
Board, the President or the Secretary. Any such resignation shall take effect at
the time specified therein, or, if the time when it shall become effective is
not specified therin, it shall take effect immediately upon its receipt by the
Board, the Chairman of the Board, the President or the Secretary; and, unless
otherwise specified therin, the acceptance of such resignations shall not be
necessary to make if effective.
Section 6. Vacancies. A vacancy in any office due to death, resignation,
removal, disqualification or any other cause may be filled for the unexpired
portion of the term thereof by the Board.
Section 7. Chairman of the Board. The Chairman of the Board shall; (a)
preside at all meetings of the stockholders and at all meetings of the Board;
(b) make a report of the state of the business of the Corporation at each annual
meeting of the stockholders and (c) see that all orders and resolutions of the
Board are carried into effect. In general, the Chairman of the Board shall
perform all duties incident to the office of the Chairman of the Board and such
other duties as from time to time may be assigned to him or her by the Board.
10
<PAGE>
Section 8. President/ Chief Executive Officer. The President shall be the
Chief Executive Oficer of the Corporation and shall have, subject to the control
of the Board, general and active supervision and direction over the business and
affairs of the Corporation and over its several officers. At the request of the
Chairman of the Board, or in case of his or her absence or inability to act, the
president shall perform the duties of the Chairman of the Board and, when so
acting, shall have all the powers of, and be subject to all the restrictions
upon, the Chairman of the Board. The President may sign, with the Secretary or
Assistant Secretary, certificates for stock of the Corporation. He may sign,
execute and deliver in the name of the Corporation all deeds, mortgages, bonds,
contracts or other instruments authorized by the Board, except in cases where
the signing, execution or delivery thereof is expressly delegated by the Board
or by these Bylaws to some other officer or agent of the Corporation or where
any of them are required by law otherwise to be signed, executed or delivered,
and he may cause the corporate seal, if any, to be affixed to any instrument
which requires it. In general, the President shall perform all duties incident
to the office of the President and such other duties as from time to time may be
assigned to him or her by the Board.
Section 9. Vice President. The Vice President and any additional Vice
Presidents shall have such powers and perform such duties as the Chairman of the
Board, the President or the Board may from time to time prescribe and shall
perform such other duties as may be prescribed by these Bylaws. At the request
of the President, or in case of his or her absence or inability to act, the Vice
President shal perform the duties of the President and, when so acting, shall
have all the powers of, and be subject to al the restrictions upon, the
President, In the event that there is more than one Vice President, the Board
shall designate which Vice President is to act for the President.
Section 10. Secretary. The Secretary shall: (a) record all the proceedings
for the meetings of the shareholders, the Board and the Executive Committee, if
any in one or more books kept for that purpose; (b) see that all notices are
duly given in accordance with the provisions of these Bylaws or a required by
law; (c) be the custodian of all contracts, deeds, documents, all other indicia
of the title to properties owned by the Corporation and of its other corporate
records (except accounting records) and of the corporate seal, if any, and affix
such seal to all documents the execution of which on behalf of the Corporation
under its seal is duly authorized; (d) sign, with the Chairman of the Board, the
President or a Vice President, certificates for stock of the Corporation; (e)
have charge, directly or through the transfer clerk or transfer clerks, transfer
agent or transfer agents and registrar or registrars appointed as provided in
Section 3 of Article VII of these Bylaws, of the issue, transfer and
registration of certificates for stock of the Corporation and of the records
thereof, such records to be kept in such manner as to show at any time the
amount of the stock of the Corporation issued and outstanding, the manner in
which and the time when such stock was paid for, the names, alphabetically
arranged, and the addressed of the holders of record thereof, the number of
shares held by each, and the time when each became a holder of record; (f) upon
request, exhibit or cause to be exhibited at all reasonable times to any
Director such records of the issue, transfer and registration of the
certificates for stock of the Corporation; (g) see that the books, reports,
statements, certificates and all other documents and records required by law are
properly kept and filed; and (h) see that the duties prescribed by Section 6 of
Article II of these Bylaws are performed. In general, the Secretary
11
<PAGE>
shall perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him or her by the Chairman of the
Board, the President or the Board.
Section 11. Treasurer. If required by the Board, the Treasurer shall give a
bond for the faithful discharge of his or her duties in such sum and with such
surety of sureties as the Board shall determine. The Treasurer shall: (a) have
charge and custody of, and be responsible for, all funds, securities, notes and
valuable effects of the Corporation; (b) receive and give receipt for moneys due
and payable to the Corporation from any sources whatsoever; (c) deposit all such
moneys to the credit of the Corporation or otherwise as the Board, the Chairman
of the Board, or the President shall direct in such banks, trust companies or
other depositories as shall be selected in accordance with the provisions of
Article VI of these Bylaws; (e) be responsible for the accuracy of the amounts
of, and cause to be preserved proper vouchers for, all moneys so disbursed; (f)
have the right to require from time to time reports or statements giving such
information as he or she may desire with respect to any and all financial
transactions of the Chairman of the Board, the President or the Board, whenever
they, respectively, shall request him or her to so do, an account of the
financial condition of the Corporation and of all his or her transactions as
Treasurer; and (h) upon request, exhibit or cause to be exhibited at all
reasonable times the cash books and other records to the Chairman of the Board,
the President or any of the Directors of the Corporation. In general, the
Treasurer shall perform all duties incident to the office of Treasurer and such
other duties as from time to time may be assigned to him or her by the Chairman
of the Board, the President or the Board.
Section 12. Assistant Officers. Any persons elected as assistant officers
shall assist in the performance of the duties of the designated office and such
other duties as shall be assigned to them by the Vice President, Secretary or
Treasurer, as the case may be, or by the Board or the President.
ARTICLE V - COMMITTEES
Section 1. Executive Committee: How Constituted and Powers. The Board, by
resolution adopted by a majority of the whole Board, may designate one or more
of the Directors then in office, who shall include the Chairman of the Board, to
constitute an Executive Committee, which shall have and may exercise between
meetings of the Board all the delegable powers of the Board to the extent not
expressly prohibited by the Arizona Revised Statutes or by resolution of the
Board. The Board may designate one or more Directors as alternate members of the
Committee who may replace any absent or disqualified member at any meeting of
the Committee. Each member of the Executive Committee shall continue to be a
member thereof only during the pleasure of a majority of the whole Board.
Section 2. Executive Committee: Organization. The Chairman of the Board
shall act as chairman at all meetigs of the Executive Committee and the
Secretary shall act as secretary thereof. In case of the absence from any
meeting of the Chairman of the Board or the Secretary, the Committee may appoint
a chairman or secretary, as the case may be, of the meeting.
12
<PAGE>
Section 3. Executive Committee: Meetings. Regular meetings of the Executive
Committee may be held without notice on such days and at such places, within or
without the State of Arizona, as shall be fixed by resolution adopted by a
majority of the Committee and communicated to all its members. Special meetins
of the Committee shall be held whenever called by the Chairman of the Board or a
majority of the members thereof then in office. Notice of each such special
meeting of the Executive Committee shall be given in the manner provided in
Section 6 of Article III of these Bylaws for special meetings of the Board.
Notice of any such meeting of the Executive Committee, however need not be given
to any member of the Committee if waived by him or her in writing or by
telegraph, cable, wireless or other form of recorded communication either before
or after the meeting, or if he or she is present at such meeting, except when he
or she attends for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened. Subject to the
provisions of this Article V, the Committee, by resolution adopted by a majority
of the whole Committee, shall fix its own rules of proceedure and it shall keep
a record of its proceedings and report them to the board at the next regular
meeting thereof after such proceedings have been taken. All such proceedings
shall be subject to revision or alteration by the Board; provided, however, that
third parties shall not be prejudiced by any such revision or alteration.
Section 4. Executive Committee: Quorum and Manner of Acting. A majority of
the Executive Committee shall constitute a quorum for the transaction of
business, and, except as specified in Section 3 of this Article V, the act of a
majority of those present at a meeting thereof at which a quorum is present
shall be the act of the Committee. The members of the Committee shall act only
as a committee, and the individual members shall have no power as such.
Section 5. Other Committees. The Board, by resolution adopted by a majority
of the whole Board, may constitute other committees, which shall in each case
consist of one or more of the Directors and, at the discretion of the Board,
such officers who are not Directors. The Board may designate one or more
Directors or officers who are not Directors as alternate members of any
committee who may replace any absent or disqualified member at any meeting of
the committee. Each such committee shall have and may exercise such powers as
the Board may determine and specify in the respective resolutions appointing
them; provided, however, that (a) unless all of the members of any committee
shall be Directors, such committee shall not have authority to exercise any of
the powers of the Board in the management of the business and affairs of the
Corporation, and (b) if any committee shall have the power to determine the
amounts of the respective fixed salaries of the officers of the Corporation or
any of them, such committee shall not consist of not less than three (3) members
and none of its members shall have any vote in the determination of the amount
that shall be paid to him or her as a fixed salary. A majority of all the
members of any such committee may fix its rules of procedure, determine its
action and fix the time and place, whether within or without the State of
Arizona, of its meetings and specify what notice thereof, if any, shall be
given, unless the Board shall otherwise by resolution provide.
Section 6. Resignations. Any member of the Executive Committee or any other
committee may resign therefrom at any time by giving written notice of his or
her resignation to the Chairman of the Board, the President or the Secretary.
Any such resignation shall take effect at the
13
<PAGE>
time specified therein, or if the time when it shall become effective is not
specified therein, it shall take effect immediately upon its receipt by the
Chairman of the Board, the President or the Secretary; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 7. Vacancies. Any vacancy in the Executive Committee or any other
committee shall be filled by the vote of a majority of the whole Board.
Section 8. Compensation. Unless otherwise expressly provided by resolution
adopted by the Board, no member of the Executive Committee or any other
committee shall receive any compensation for his or her services as a committee
member. The Board may at any time and from time to time by resolution provide
that committee members shall be paid a fixed sum for attendance at each
committee meeting or a stated salary as a committee member. In addition, the
Board may at any time and from time to time by re solution provided that such
committee members shall be paid for their actual expenses, if any, of attendance
at each committee meeting. Nothing in this section shall be construed as
precluding any committee member from serving the Corporation in any other
capacity and receiving compensation therefor, but the Board may by resolution
provide that any committee member receiving compensation for his or her services
to the Corporation in any other capacity shall not receive additional
compensation for his or he r services as a committee member.
Section 9. Dissolution of Committees; Removal of Committee Members. The
Board, by resolution adopted by a majority of the whole Board, may, with or
without cause, dissolve the Executive Committee or any other committee, and,
with or without cause, remove any member thereof.
ARTICLE VI I CONTRACTS, CHECKS, DRAFTS, BANK
ACCOUNTS, SECURITIES OF OTHER CORPORATIONS
Section 1. Execution of Contracts. Except as otherwise required by law or
by these Bylaws, any contract or other instrument may be executed and delivered
in the name of the Corporation and on its behalf by the Chairman of the Board,
the President or a Vice President. In addition, the Board may authorize any
other officer or officers or agents to execute and deliver any contract or other
instrument in the name of the Corporation and on its behalf, and such authority
may be general or confined to specific instances as the Board may by resolution
determine.
Section 2. Attestation Any Vice President, the Secretary, or any Assistant
Secretary may attest the execution of any instrument or document by the Chairman
of the Board, the President or any other duly authorized officer or agent of the
Corporation and may affix the corporate seal, if any, in witness thereof, but
neither such attestation nor the affixing of a corporate seal shall be requisite
to the validity of any such document or instrument.
Section 3. Loans. Unless the Board shall otherwise determine, the Chairman
of the Board or the President, acting together with any one of the following
officers, to-wit: the Vice
14
<PAGE>
President, the Treasurer or the Secretary, may effect loans and advances at any
time for the Corporation from any bank, trust company or other institution or
from any firm or individual and, for such loans and advances, may make, execute
and deliver promissory notes or other evidences of indebtedness of the
Corporation , but no officer or officers shall mortgage, pledge, hypothecate or
otherwise transfer for security any property owned or held by the Corporation
except when authorized by a resolution adopted by the Board.
Section 4. Checks, Drafts. All checks, drafts, orders for the payment of
money, bills of lading, warehouse receipts, obligations, bills of exchange and
insurance certificates shall be signed or endorsed (except endorsements for
collection for the account of the Corporation or for deposit to its credit,
which shall be governed by the provisions of Section 5 of this Article VI) by
such officer or officers or agent or agents of the Corporation and in such
manner as shall from time to time be determined by resolution of the Board.
Section 5. Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation or
otherwise as the Board, the Chairman of the Board or the President shall direct
in general or special accounts at such banks, trust companies, savings and loan
associations, or other depositories as the Board may select or as may be
selected by any officer or officers or agent or agents of the Corporation to
whom power in that respect has been delegated by the Board. For the purpose of
deposit and for the purpose of collection for the account of the Corporation,
checks, drafts and other orders for the payment of money which are payable to
the order of the Corporation may be endorsed, assigned and delivered by any
officer or agent of the Corporation. the Board may make such special rules and
regulations with respect to such accounts, not inconsistent with the provisions
of these Bylaws, as it may deem expedient.
Section 6. Proxies in Respect of Stock or Other Securities of Other
Corporations. Unless otherwise provided by resolution adopted by the Board, the
Chairman of the Board, the President or any Vice President may exercise in the
name and on behalf of the Corporation the powers and rights which the
Corporation may have as the holder of stock or other securities in any other
corporation, including without limitation the right to vote or consent with
respect to such stock or other securities.
ARTICLE VII - STOCK
Section 1. Certificates. Every holder of stock in the Corporation shall be
entitled to have a certificate signed by or in the name of the Corporation by
the Chairman of the Board , the President or a Vice President and by the
Secretary or an Assistant Secretary. The signatures of such officers upon such
certificate may be facsimiles if the certificate is manually signed by a
transfer agent or registered by a registrar, other than the Corporation itself
or one of its employees. If any officer who has signed or whose facsimile
signature has been placed upon a certificate had ceased for any reason to be
such officer prior to issuance of the certificate, the certificate may be issued
with the same effect as if that person were such officer at the date of issue.
All certificates for stock of the Corporation shall be consecutively numbered,
shall state the number of shares represented thereby and shall
15
<PAGE>
otherwise be in such form as shall be determined by the Board, subject to such
requirements as are imposed by the Arizona Revised Statutes. The names and
addressed of the persons to whom the shares represented by certificates are
issued shall be entered on the stock transfer books of the Corporation, together
with the number of shares and the date of issue, and in the case of
cancellation, the date of cancellation. Cerificates surrendered to the
Corporation for transfer shall be canceled, and no new certificate shall be
issued for such shares until the original certificate had been canceled; except
that in the case of a lost, destroyed or mutilated certificate, a new cerificate
may be issued therefor upon such terms and indemnity to the Corporation as the
Board may Prescribe.
Section 2. Transfer of Stock. Transfers of shares of stock of the
Corporation shall be made only on the stock transfer books of the Corporation by
the holder of record thereof or by its legal representative or attorney in fact,
who shall furnish proper evidence of authority to transfer to the Secretary, or
transfer clerk or a transfer agent, and upon surrender of the certificate or
certificates for such shares property endorsed and payment of all taxes thereon.
The person whose name shares of stock stand on the books of the Corporation
shall be deemed the owner thereof for all purposed as regards the Corporation.
Section 3. Regulations. The Board may make such rules and regulations as it
may deem expedient, not inconsistent with the Bylaws, concerning the issue,
transfer and registration of certificates for stock of the Corporation. The
Board may appoint, or authorize any officer or officers or any committee to
appoint, one or more transfer clerks or one or more transfer agents and one or
more registrars, and may require all certificates for stock to bear the
signature or signatures of any of them.
ARTICLE VIII - DIVIDENDS
The Board may from time to time declare, and the Corporation may pay,
dividends on its outstanding shares of stock in the manner and upon the terms
and conditions provided in the Arizona Revised Statutes.
ARTICLE IX - SEAL
A corporate seal shall not be requisite to the validity of any instrument
executed by or on behalf of the Corporation. Nevertheless, if in any instance a
corporate seal is used, the same shall be in the form of a circle and shall bear
the full name of the Corporation and the year and state of incorporation, or
words and figures of similar import.
ARTICLE X - AMENDMENTS
The Bylaws may be repealed, altered or amended, and new Bylaws may be
adopted, at any time only by majority vote of the Board.
16
<PAGE>
ADOPTED by the Board of Directors of the Corporation at Phoenix, Arizona,
as of the 3rd day of May, 1997.
/s/ Steve Lambrecht
----------------------------------
Steve Lambrecht
Director
/s/ Colin Jones
----------------------------------
Colin Jones
Director
17
[SEAL] Province of Ministry of Corporate and Personal
British Columbia Finance and Property Registries
Corporate Relations 940 Blanshard Street
Victoria
British Columbia
VSW 3E8
- --------------------------------------------------------------------------------
File Number: 522338
CAN - AM INTERNATIONAL INVESTMENTS CORP.
I hereby certify that the documents attached hereto are copies of documents
filed with the Registrar of Companies on June 20, 1998
/s/ John S. Powell
JOHN S. POWELL
Registrar of Companies
[SEAL]
<PAGE>
NUMBER: 522338
[SEAL]
COMPANY ACT
CANADA
PROVINCE OF BRITISH COLUMBIA
CERTIFICATE OF INCORPORATION
I Hereby Certify that
CAN - AM INTERNATIONAL INVESTMENTS CORP.
has this day been incorporated under the Company Act
Issued under my hand at Victoria, British Columbia
on June 20, 1996
/s/ John S. Powell
[SEAL]
JOHN S. POWELL
Registrar of Companies
<PAGE>
================================================================================
FORM I
(Section 5)
COMPANY ACT
MEMORANDUM
================================================================================
I wish to be formed into a Company with limited liability under the Company Act
in pursuance of this Memorandum.
1. The name of the Company is:
CAN - AM INTERNATIONAL INVESTMENTS CORP.
2. The authorized capital of the Company consists of 2,000,000 shares divided
into 500,000 Class "A" non-voting shares without par value and 500,000
Class "B" voting shares without par value and 1,000,000 Class "C"
non-voting, redeemable, Preferred shares with a par value of $1.00 each
3. There shall attach to the shares of the Company the rights, privileges,
restrictions and limitation described in the Articles of the Company and
amendments thereto.
4. I agree to take the number, class and kind of shares in the Company set
opposite my name.
- --------------------------------------------------------------------------------
FULL NAMES, RESIDENT ADDRESSES NUMBER OF SHARES
& OCCUPATION OF SUBSCRIBERS TAKEN BY SUBSCRIBER
- --------------------------------------------------------------------------------
/s/ Colin Andrew Jones
- ------------------------------
COLIN ANDREW JONES 1 CLASS "B" VOTING
Businessman
Apt. 606 - 888 Pacific Blvd.
Vancouver, B.C. V6Z 1S4
TOTAL SHARES TAKEN: 1 CLASS "B" VOTING
- --------------------------------------------------------------------------------
DATED at the City of Surrey, Province of British Columbia, this 19th day of
June, 1996.
<PAGE>
ARTICLES
--------
OF
CAN - AM INTERNATIONAL INVESTMNTS CORP.
Table of Contents
-----------------
PART ARTICLE SUBJECT
- ---- ------- -------
1 INTERPRETATION
1.1 Definition
Construction of Words
1.2 Definitions same as Company Act
1.3 Interpretation Act Rules of Construction Apply
2 SHARES
2.1 Member entitled to Certificate
2.2 Replacement of Lost or Defaced Certificate
2.3 Execution of Certificates
2.4 Recognition of Trusts
3 ISSUE OF SHARES
3.1 Directors Authorized
3.2 Conditions of A11otment
3.3 Commissions and Brokerage
3.4 Conditions of Issue
4 SHARE REGISTERS
4.1 Registers of Member, Transfers and Allotments
4.2 Branch Registers of Members
4.3 No Closing of Register of Member
5 TRANSFER AND TRANSMISSION OF SHARES
5.1 Transfer of Shares
5.1 Execution of Instrument of Transfer
5.3 Enquiry as to Title not Required
5.4 Submission of Instruments of Transfer
5.5 Transfer Fee
5.6 Personal Representative Recognized on Death
5.7 Death or Bankruptcy
5.8 Persons in Representative Capacity
<PAGE>
II
PART ARTICLE SUBJECT
- ---- ------- -------
6 ALTERATION OF CAPITAL
6.1 Increase of Authorized Capital
6.2 Other Capital Alterations
6.3 Creation, Variation and Abrogation of Special Rights
and Restrictions
6.4 Consent of Class Required
6.5 Special Rights of Conversion
6.6 Class Meetings of Members
7 PURCHASE AND REDEMPTION OF SHARES
7.1 Company Authorized to Purchase or Redeem its Shares
7.2 & 7.3 Redemption of Shares
8 BORROWING POWERS
8.1 Powers of Directors
8.2 Special Rights Attached to and Negotiability of Debt
Obligations
8.3 Register of Debenture holders
8.4 Execution of Debt Obligations
8.5 Register of Indebtedness
9 GENERAL MEETINGS
9.1 Annual General Meetings
9.2 Waiver of Annual General Meetings
9.3 Classification of General Heatings
9.4 Calling of Meetings
9.5 Advance Notice for Election of Directors
9.6 Notice for General Meeting
9.7 Waiver or Reduction of Notice
9.8 Notice of Special Business at General Meeting
10 PROCEEDINGS AT GENERAL MEETINGS
10.1 Special Business
10.2 Requirement of Quorum
10.3 Quorum
10.4 Lack of Quorum
10.5 Chairman
10.6 Alternate Chairman
10.7 Adjournments
10.8 Resolutions Need Not Be Seconded
<PAGE>
III
PART ARTICLE SUBJECT
- ---- ------- -------
10 PROCEEDINGS AT GENERAL MEETINGS Continued
10.9 Decisions by Show of Hands or Poll
10.10 Casting Vote
10.11 Manner of Taking Poll
10.12 Retention of Ballots Cast on a Poll
10.13 Casting of Votes
10.14 Ordinary Resolution Sufficient
11 VOTES OF MEMBERS
11.1 Number of Votes Per Share of Member
11.2 Votes of Persons in Representative Capacity
11.3 Representative of a Corporate Member
11.4 Votes by Joint Holders
11.5 Votes by Committee for a Member
11.6 Appointment of Proxyholders
11.7 Execution of Form of Proxy
11.8 Deposit of Proxy
11.9 Form of Proxy
11.10 Validity of Proxy Vote
11.11 Revocation of Proxy
12 DIRECTORS
12.1 Number of Directors
12.2 Remuneration and Expenses of Directors
12.3 Qualification of Directors
13 ELECTION AND REMOVAL OF DIRECTORS
13.1 Election at Annual General Meetings
13.2 Eligibility of Retiring Director
13.3 Continuance of Directors
13.4 Election of Less than Required Number of Directors
13.5 Filling & Casual Vacancy
13.6 Additional Directors
13.7 Alternate Directors
13.8 Termination of Directorship
13.9 Removal of Directors
14 POWER AND DUTIES OF DIRECTORS
14.1 Management of Affairs and Business
14.2 Appointment of Attorney
<PAGE>
IV
PART ARTICLE SUBJECT
- ---- ------- -------
15 DISCLOSURE OF INTEREST OF DIRECTORS
15.1 Disclosure of Conflicting Interest
l5.2 Voting and Quorum Re: Proposed Contract
15.3 Director May Hold Office or Place of Profit with
Company
l5.4 Director Acting in Professional Capacity
15.5 Director Receiving Remuneration from Other Interests
16 PROCEEDINGS OF DIRECTORS
16.1 Chairman and Alternate
16.2 Meetings - Procedure
16.3 Meetings by Conference Telephone
16.4 Notice of Meeting
16.5 Waiver of Notice of Meetings
16.6 Quorum
16.7 Continuing Directors May Act During Vacancy
16.8 Validity of Acts of Directors
16.9 Resolution in Writing Effective
17 EXECUTIVE AND OTHER COMMITTEES
17.1 Appointment of Executive Committee
17.2 Appointment of Committees
17.3 Procedure at Meetings
18 OFFICERS
18.1 President and Secretary Required
18.2 Persons Holding More Than One Office and Remuneration
18.3 Disclosure of Conflicting Interest
19 INDEMNITY AND PROTECTION OF DIRECTORS, OFFICERS AND EMPLOYEES
19.1 Indemnification of Directors
19.2 Indemnification of Officers, Employees, Agents
19.3 Indemnification not validated by non-compliance
19.4 Company May Purchase Insurance
<PAGE>
V
PART ARTICLE SUBJECT
- ---- ------- -------
20 DIVIDENDS AND RESERVES
20.1 Declaration of Dividends
20.2 Declared Dividend Date
20.3 Proportionate to Number of Shares Held
20.4 Reserves
20.5 Receipts from Joint Holders
20.6 No Interest on Dividends
20.7 Payment of Dividends
20.8 Capitalization of Undistributed Surplus
21 DOCUMENTS, RECORDS AND REPORTS
21.1 Documents to be Kept
21.2 Accounts to be Kept
21.3 Inspection of Accounts
21.4 & 21.5 Financial Statements and Reports
22 NOTICES
22.1 Method of Giving Notice
22.2 Notice to Joint Holder
22.3 Notice to Personal Representative
22.4 Persons to Receive Notice
23 RECORD DATES
23.1 Record Date
23.2 No Closure of Register of Members
24 SEAL
24.1 Affixation of Seal to Documents
24.2 Mechanical Reproduction of Signatures
24.3 Official Seal for Other Jurisdictions
25 PROHIBITIONS
25.1 Number of Members
25.2 No Securities to be offered to the Public
25.3 Restrictions on Transfers of Shares
26 RESTRICTIONS ON SHARE TRANSFERS
26.1 Offer to other Members
<PAGE>
VI
PART ARTICLE SUBJECT
- ---- ------- -------
26 RESTRICTIONS ON SHARE TRANSFERS Continued
26.2 Directors may decline to Register Transfers
27 SPECIAL RIGHTS AND RESTRICTIONS
27.1 - 27.5 Rights, Powers, Privileges, Restrictions and Limitations
attached to Respective Shares
<PAGE>
PROVINCE OF BRITISH COLUMBIA
COMPANY ACT
ARTICLES OF
CAN - AM INTERNATIONAL INVESTMENTS CORP.
PART 1
INTERPRETATION
--------------
1.1 In these Articles, unless there is something in the subject or context
inconsistent therewith:
"Board" and "the Directors" or "the directors" mean the Directors or sole
Director of the Company for the time being.
"Company Act" means the Company Act, R.S.B.C. 1979, C. 59, as from time to
time enacted, and all amendments thereto, and includes the regulations made
pursuant thereto.
"seal" means the common seal of the Company.
"month" means calendar month.
"registered owner" or "registered holder" when used with respect to a share
in the authorized capital of the Company means the person registered in the
Register of Members in respect of such share.
Expression referring to writing shall be construed as including references
to printing, lithography, typewriting, photography and other modes of
representing or reproducing words in a visible form.
Words importing the singular include the plural and vice versa; and words
importing male persons include female persons; and words importing persons shall
include corporations.
1.2 The meaning of any words or phrases defined in the Company shall, if not
inconsistent with the subject or context, bear the same meaning in these
Articles.
1.3 The Rules of Construction contained in the Interpretation Act shall apply,
mutatis mutandis, to the interpretation of these Articles.
PART 2
SHARES AND SHARE CERTIFICATES
-----------------------------
2.1 Every Member is entitled, without charge, to one certificate representing
the share or shares of each class held by him, provided that, in respect of a
share or shares held jointly by several persons, the Company shall not be bound
to issue more than one certificate, and delivery of a certificate for a share to
one of several joint registered
<PAGE>
-2-
shareholders or to his duly authorized agent shall be sufficient delivery to
all; and provided owner that the Company shall not be bound to issue
certificates representing redeemable shares, if such shares are to be redeemed
within one month of the date on which they were allotted. Any share certificate
may be sent through the mail by registered prepaid mail to the Member entitled
thereto, and neither the Company nor any transfer agent shall be liable nor any
loss occasioned to the Member owing to any such share certificate so sent being
lost in the mail or stolen.
2.2 If a share certificate:
a. is worn out or defaced, the Directors shall, upon production to them of
the said certificate and upon such other terms, if any, as they may think
fit, order the said certificate to be cancelled and shall issue a new
certificate in lieu thereof;
b. is lost, stolen or destroyed, then, upon proof thereof to the
satisfaction of the Directors and upon such indemnity, if any, as the
Directors deem adequate being given a new share certificate in lieu thereof
shall be issued to the person entitled to such lost, stolen or destroyed
certificate; or
c. represents more than one share and the registered owner thereof
surrenders it to the Company with a written request that the Company issue
in his name two or more certificates each representing a specified number
of shares and in the aggregate representing the same number of shares as
the certificate so surrendered, the Company shall cancel the certificate so
surrendered and issue in lieu thereof certificates in accordance with such
request,
such sum, not exceeding one dollar, as the Directors may from time to time fix,
shall be paid to the Company for each certificate to be issued under this
Article.
2.3 Every share certificate shall be signed manually by at least one Officer or
Director of the Company, or by or on behalf of a registrar, branch registrar,
transfer agent or branch transfer agent of the Company and any additional
signatures may be printed or otherwise mechanically reproduced and, in such
event, a certificate so signed is as valid as if signed manually,
notwithstanding that any person whose signature is so printed or mechanically
reproduced shall have ceased to hold the office that he is stated on such
certificate to hold at the date of the issue of a share certificate.
2.4 Except as required by law, statute or these Articles, no person shall be
recognized by the Company as holding any share upon any trust, and the Company
shall not be bound by or compelled in any way to recognize (even when having
notice thereof) any equitable, contingent, future or partial interest in any
share or in any fractional part of a share or (except only as by law, statute or
these Articles provided or as ordered by a court of competent jurisdiction) any
other rights in respect of any share except an absolute right to the entirety
thereof in its registered holder.
PART 3
ISSUE OF SHARES
---------------
3.1 Subject to Article 3.2 and to any direction to the contrary contained in a
resolution passed at a General Meeting authorizing any increase or alteration of
capital, the
<PAGE>
-3-
shares shall be under the control of the Directors who may, subject to the
rights of the owners of the shares of the Company for the time being issued,
issue, allot, sell or otherwise dispose of, and/or grant options on or otherwise
deal in, shares authorized but not outstanding at such times, to such persons
(including Directors), in such manner, upon such terms and conditions, and at
such price for such consideration, as they, in their absolute discretion, may
determine.
3.2 If the Company is, or becomes, a company which is not a reporting company
and the Directors are required by the Company Act before allotting any shares to
offer them pro rata to the Members, the Directors shall, before allotting any
shares, comply with the applicable provisions of the Company Act.
3.3 Subject to the provisions of the Company Act, the Company, or the Directors
on behalf of the Company, may pay a commission or allow a discount to any person
in consideration of his subscribing or agreeing to subscribe, whether absolutely
or conditionally, for any shares in the Company, or procuring or agreeing to
procure subscriptions, whether absolutely or conditionally, for any such shares,
provided that, if the Company is not a specially limited company, the rate of
the commission and discount shall not in the aggregate exceed 25 per centum of
the amount of the subscription price of such shares.
3.4 No share may be issued until it is fully paid and the Company shall have
received the full consideration therefore in cash, property or past services
actually performed for the Company. The value of property or services for the
purpose of this Article shall be the value determined by the Directors by
Resolution to be, in all circumstances of the transaction, the fair market value
thereof.
PART 4
SHARE REGISTERS
---------------
4.1 The Company shall keep or cause to be kept a register of Members, a
register of transfers and a register of allotments within British Columbia, all
as required by the Company Act, and may combine one or more of such registers.
If the Company's capital shall consist of more than one class of shares, a
separate register of Members, register of transfers and register of allotments
may be kept in respect of each class of shares. The Directors on behalf of the
Company may appoint a trust company to keep the register of Members, register of
transfers and register of allotments or, if there is more than one class of
shares, the Directors may appoint a trust company, which need not be the same
trust company, to keep the register of Members, the register of transfers and
the register of allotments for each class of share. The Directors on behalf of
the Company may also appoint one or more trust companies, including the trust
company which keeps the said registers of its shares or of a class thereof, as
transfer agent for its shares or such class thereof, as the case may be, and the
same or another trust company or companies as registrar for its shares or such
class thereof, as the case may be. The Directors may terminate the appointment
of any such class thereof, as the case may be. The Directors may terminate the
appointment of any such trust company at any time and may appoint another trust
company in its place.
4.2 Unless prohibited by the Company Act, the Company may keep or cause to be
kept one or more branch registers of Members at such place or places as the
Directors may from time to time determine.
<PAGE>
-4-
The Company shall not at any time close its register of Members.
PART 5
TRANSFER AND TRANSMISSION OF SHARES
-----------------------------------
5.1 Subject to the provisions of the Memorandum and of these Articles that may
be applicable, any Member may transfer any of his shares by instrument in
writing executed by or on behalf of such Member and delivered to the Company or
its transfer agent. The instrument of transfer of any share of the Company shall
be in the form, if any, on the back of the Company's share certificates or in
such form as the Directors may from time to time approve. Except to the extent
that the Company Act may otherwise provide, the transferor shall be deemed to
remain the holder of the shares until the name of the transferee is entered in
the register of Members or a branch register of Members in respect thereof.
5.2 The signature of the registered owner of any shares, or of his duly
authorized Attorney, upon an authorized instrument of transfer shall constitute
a complete and sufficient authority to the Company, its Directors, Officers and
agents to register, in the name of the transferee as named in the instrument of
transfer, the number of shares specified therein or, if no number is specified,
all the shares of the registered owner represented by share certificate
deposited with the instrument of transfer. If no transferee is named in the
instrument of transfer, th e instrument of transfer shall constitute a complete
and sufficient authority to the Company, its Directors, Officers and agents to
register, in the name of the person on whose behalf any certificate for the
shares to be transferred is deposited with the Company for the purpose of having
the transfer registered, the number of shares specified in the instrument of
transfer or, if no number is specified, all the shares represented by all share
certificates deposited with the instrument of transfer.
5.3 Neither the Company nor any Director, Officer or agent thereof shall be
bound to inquire into the title of the person named in the form of transfer as
transferee, or, if no person is named therein as transferee, of the person on
whose behalf the certificate is deposited with the Company for the purpose of
having the transfer registered or be liable to any claim by such registered
owner or by any intermediate owner or holder of the certificate or of any of the
shares represented thereby or any interest therein for registering the transfer,
and the transfer, when registered, shall confer upon the person in whose name
the shares have been registered a valid title to such shares.
5.4 Every instrument of transfer shall be executed by the transferor and left at
the registered office of the Company or at the office of its transfer agent or
registrar for registration together with the share certificate for the shares to
be transferred and such other evidence, if any, as the Directors or the transfer
agent or registrar may require to prove the title of the transferor or his right
to transfer the shares and the right of the transferee to have the transfer
registered. All instruments of transfer where the transfer is registered shall
be retained by the Company or its transfer agent or registrar and any instrument
of transfer, where the transfer is not registered, shall be returned to the
person depositing the same together with the share certificate which accompanied
the same when tendered for registration.
5.5 There shall be paid to the Company in respect of the registration of any
transfer such sum, if any, as the Directors may from time to time determine.
5.6 In the case of the death of a Member, the survivor or survivors where the
<PAGE>
-5-
deceased was a joint registered holder, and the legal personal representative of
the deceased owner he was the sole holder, shall be the only persons recognized
by the Company as having any title to his interest in the shares. Before
recognizing any legal personal representative the Directors may require him to
obtain a grant of probate or letters of administration in British Columbia.
5.7 Upon the death or bankruptcy of a Member, his personal representative or
trustee in bankruptcy, although not a Member, shall have the same rights,
privileges and obligations that attach to the shares formerly held by the
deceased or bankrupt Member if the documents required by the Company Act shall
have been deposited at the Company's registered office.
5.8 Any person becoming entitled to a share in consequence of the death or
bankruptcy of a Member, upon such documents and evidence being produced to the
Company as the Company Act requires, or who becomes entitled to a share as a
result of an order of a Court of competent jurisdiction or a statute, has the
right either to be registered as a Member in his representative capacity in
respect of such share, or, if he is a personal representative, instead of being
registered himself, to make such transfer of the share as the deceased or
bankrupt person could have made; but the Directors shall, as regards a transfer
by a personal representative or trustee in bankruptcy, have the same right, if
any, to decline or suspend registration of a transferee as they would have in
the case of a transfer of a share by the deceased or bankrupt person before the
death or bankruptcy.
PART 6
ALTERATION OF CAPITAL
---------------------
6.1 The Company may by Ordinary Resolution filed with the Registrar amend its
Memorandum to increase the authorized capital of the Company by:
a. creating shares with par value or shares without par value, or both;
b. increasing the number of shares with par value or shares without par
value, or both; or
c. increasing the par value of a class of shares with par value, if no
shares of that class are issued.
6.2 The Company may by Special Resolution alter its Memorandum to subdivide,
consolidate, change from shares with pare value to shares without par value, or
from shares without par value to shares with par value, or change the
designation of, all or any of its shares but only to such extent, in such manner
and with such consents of Members holding a class of shares which is the subject
of or affected by such alteration, as the Company Act provides.
6.3 The Company may alter its Memorandum or these Articles:
a. by Special Resolution, to create, define and attach special rights or
restrictions to any shares; and
b. by Special Resolution and by otherwise complying with any applicable
provision of its Memorandum or these Articles, to vary or abrogate any
special rights and restrictions attached to any shares,
<PAGE>
-6-
in each case by filing a certified copy of such Resolution with the
Registrar but no right or special right attached to any issued shares
shall be prejudiced or interferred with unless all Members holding
shares of each class whose right or special right is so prejudiced or
interferred with consent thereto in writing, or unless a Resolution
consenting thereto is passed at a separate class Meeting of the holders
of the shares of each such class by a majority of three-fourths, or
such greater majority as may be specified by the special rights
attached to the class of shares, of the issued shares of such class.
6.4 Notwithstanding such consent in writing or such Resolution, no such
alteration shall be valid as to any part of the issued shares of any class
unless the holders of the rest of the issued shares of such class either all
consent thereto in writing or consent thereto by a Resolution passed by the
votes of Members holding three-fourths of the rest of such shares.
6.5 If the Company is or becomes a reporting company, no Resolution to create,
vary or abrogate any special right of conversion attaching to any class of
shares shall be submitted to any Meeting of Members unless, if so required by
the Company Act, the British Columbia Securities Commission shall have consented
to the Resolution.
6.6 Unless these Articles otherwise provide, the provisions of these Articles
relating to General Meetings shall apply, with the necessary changes and so far
as they are applicable, to a class Meeting of Members holding a particular class
of shares but the quorum at a class Meeting shall be one person holding or
representing by proxy one-third of the shares affected.
PART 7
PURCHASE AND REDEMPTION OF SHARES
---------------------------------
7.1 Subject to the special rights and restrictions attached to any class of
shares, the Company may, by a Resolution of the Directors and in compliance with
the Company Act, purchase any of its shares at the price and upon the terms
specified in such Resolution or redeem any class of its shares in accordance
with the special rights and restrictions attaching thereto.
No such purchase or redemption shall be made if the Company is insolvent at
the time of the proposed purchase or redemption or if the proposed purchase or
redemption would render the Company insolvent. Unless the shares are to be
purchased through a stock exchange or the Company is purchasing the shares from
dissenting Members pursuant to the requirement of the Company Act, the Company
shall make its offer to purchase pro rata to every Member who holds shares of
the class or kind, as the case may be, to be purchased.
7.2 If the Company proposes at its option to redeem some but not all of the
shares of any class, the Directors may, subject to the special rights and
restrictions attached to such class of shares, decide the manner in which the
shares to be redeemed shall be selected.
7.3 Subject to the provisions of the Company Act, any shares purchased or
redeemed by the Company may be sold or issued by it, but, while such shares are
held by the Company, it shall not exercise any vote in respect of these shares
and no dividend shall be paid thereon.
<PAGE>
-7-
PART 8
BORROWING POWERS
----------------
8.1 The Directors may from time to time on behalf of the Company:
a. borrow money in such manner and amount, on such security, from such
sources and upon such terms and conditions as they think fit;
b. issue bonds, debentures, and other debt obligations either outright or
as security for any liability or obligation of the Company or any other
person; and
c. mortgage, charge, whether by way of specific or floating charge, or
give other security on the undertaking, or on the whole or any part of
the property and assets, of the Company (both present and future).
8.2 Any bonds, debentures or other debt obligations of the Company may be
issued at a discount, premium or otherwise, and with any special privileges as
to redemption, surrender, drawing, allotment of or conversion into or exchange
for shares or other securities, attending and voting at General Meetings of the
Company, appointment of Directors or otherwise and may by their terms be
assignable free from any equities between the Company and the person to whom
they were issued or any subsequent holder thereof, all as the Directors may
determine.
8.3 The Company shall keep or cause to be kept within the Province of British
Columbia in accordance with the Company Act a register of its debentures and a
register of debentureholders, which registers may be combined, and, subject to
the provisions of the Company Act, may keep or cause to be kept one or more
branch registers of its debentureholders at such place or places as the
Directors may from time to time determine and the Directors may be Resolution,
regulation or otherwise make such provisions as they think fit respecting the
keeping of such branch registers.
8.4 Every bond, debenture or other debt obligation of the Company shall be
signed manually by at least one Director or Officer of the Company or by or on
behalf of a trustee, registrar, branch registrar, transfer agent or branch
transfer agent for the bond, debenture or other debt obligation appointed by the
Company or under any instrument under which the bond, debenture or other debt
obligation is issued and any additional signatures may be printed or otherwise
mechanically reproduced thereon and, in such event, a bond, debenture or other
debt obligation so signed is as valid as if signed manually notwithstanding that
any person whose signature is so printed or mechanically reproduced shall have
ceased to hold the office that he is stated on such bond, debenture or other
debt obligation to hold at the date of the issue thereof.
8.5 The Company shall keep or cause to be kept a register of its indebtedness
to every Director or Officer of the Company or an associate of any them in
accordance with the provisions of the Company Act.
PART 9
GENERAL MEETINGS
----------------
9.1 Subject to any extensions of time permitted pursuant to the Company Act,
the
<PAGE>
-8-
First Annual General Meeting of the Company shall be held within fifteen months
from the date of incorporation and thereafter an Annual General Meeting shall be
held once in every calendar year at such time (not being more than thirteen (13)
months after the holding of the last preceding Annual General Meeting) and place
as may be determined by the Directors.
9.2 If the Company is, or becomes, a company which is not reporting Company and
all the Members entitled to attend and vote at and Annual General Meeting
consent in writing to all the business which is required or desired to be
transacted at the Meeting, the Meeting need not be held.
9.3 All General Meetings other than Annual General Meetings are herein referred
to as and may be called "Extraordinary General Meetings".
9.4 The Directors may, whenever they think fit, convene an Extraordinary
General Meeting. An Extraordinary General Meeting, if requisitioned in
accordance with the Company Act, shall be convened by the Directors or, if not
convened by the Directors, may be convened by the Requisitionists as provided in
the Company Act.
9.5 If the Company is or becomes a reporting Company, advance notice of any
General Meeting at which Directors are to be elected shall be published in the
manner required by the Company Act.
9.6 A notice convening a General Meeting specifying the place, the day, and the
hour of the Meeting, and, in case of special business, the general nature of
that business, shall be given as provided in the Company Act and in the manner
hereinafter in these Articles conditioned, or in such other manner (if any) as
may be prescribed by Ordinary Resolution, whether previous notice thereof has
been given or not, to such persons as are entitled by law or under these
Articles to receive such notice from the Company. Accidental omission to give
notice of a Meeting to, or the non-receipt of notice of a Meeting, by any Member
shall not invalidate the proceedings at that Meeting.
9.7 All the Members of the Company entitled to attend and vote at a General
Meeting may, by unanimous consent in writing given before, during or after the
Meeting, or if they are present at the Meeting by a unanimous vote, waive or
reduce the period of notice of such Meeting and an entry in the Minute Book of
such waiver or reduction shall be sufficient evidence of the due convening of
the Meeting.
9.8 Except as otherwise provided by the Company Act, where any special business
at a General Meeting includes considering, approving, ratifying, adopting or
authorizing any document or the execution thereof or the giving of effect
thereto, the notice convening the Meeting shall, with respect to such document,
be sufficient if it states that a copy of the document or proposed document is
or will be available for inspection by Members at the registered office or
records office of the Company or at some other place in British Columbia
designated in the notice during usual business hours up to the date of such
General Meeting.
PART 10
PROCEEDINGS AT GENERAL MEETINGS
-------------------------------
10.1 All business shall be deemed special business which is transacted at:
a. an Extraordinary General Meeting, other than the conduct of, and voting
at, such
<PAGE>
-9-
Meeting; and
b. an Annual General Meeting, with the exception of the conduct of, and
voting at, such Meeting, the consideration of the financial statement
and of the respective reports of the Directors and Auditor, fixing or
changing the number of Directors, approval of a motion to elect two or
more Directors by a single Resolution, the election of Directors, the
appointment of the Auditor, the fixing of the remuneration of the
Auditor and such other business as by these Articles or the Company Act
may be transacted at a General Meeting without prior notice thereof
being given to the Members or any business which is brought under
consideration by the report of the Directors.
10.2 No business, other than election of the chairman or the adjournment of the
Meeting, shall be transacted at any General Meeting unless a quorum of Members,
entitled to attend and vote, is present at the commencement of the Meeting, but
the quorum need not be present throughout the Meeting.
10.3 Save as herein otherwise provided, a quorum shall be two persons present
and being, or representing by proxy, Members holding not less than one-twentieth
of the shares which may be voted at the Meeting. If there is only one Member the
quorum is one person present and being, or representing by proxy, such Member.
The Directors, the Secretary, or, in his absence, and Assistant Secretary, and
the solicitor of the Company shall be entitled to attend any General Meeting but
no such person shall be counted in the quorum or be entitled to vote at any
General Meeting unless he shall be a Member or proxyholder entitled to vote
thereat.
10.4 If within half an hour from the time appointed for a General Meeting a
quorum is not present, the Meeting, if convened upon the requisition of Members,
shall be dissolved. In any other case it shall stand adjourned to the same day
in the next week, at the same time and place, and, if at the adjourned Meeting a
quorum is not present within half an hour from the time appointed for the
Meeting, the person or persons present and being, or representing by proxy, a
Member or Members entitled to attend and vote at the Meeting shall be a quorum.
10.5 The chairman of the Board, if any, or in his absence the President of the
Company or in his absence a Vice-President of the Company, if any, shall be
entitled to preside as chairman at every General Meeting of the Company.
10.6 If at any General Meeting neither the Chairman of the Board nor the
President nor a Vice-President is present within fifteen minutes after the time
appointed for holding the Meeting or is willing to act as Chairman, the
Directors present shall choose one of their number to be Chairman or if all the
Directors present decline to take the chair or shall fail to so choose or if no
Director be present, the Members present shall choose one of their number to be
Chairman.
10.7 The Chairman may and shall, if so directed by the Meeting, adjourn the
Meeting from time to time and from place to place, but no business shall be
transacted at any adjourned Meeting other than the business left unfinished at
the Meeting from which the adjournment took place. When a Meeting is adjourned
for thirty days or more, notice, but not "advance notice," of the adjourned
Meeting shall be given as in the case of an original Meeting. Save as aforesaid,
it shall not be necessary to give any notice of an adjourned Meeting or of the
business to be transacted at an adjourned Meeting.
<PAGE>
-10-
10.8 No motion proposed at a General Meeting need be seconded and the Chairman
may propose or second a motion.
10.9 Subject to the provisions of the Company Act, at any General Meeting a
Resolution put to the vote of the Meeting shall be decided on a show of hands,
unless (before or on the declaration of the result of the show of hands) a poll
is directed by the Chairman or demanded by at lease one Member entitled to vote
who is present in person or by proxy. The Chairman shall declare to the Meeting
the decision on every question in accordance with the result of the show of
hands or the poll, and such decision shall be entered in the book of proceedings
of the Company. A declaration by the Chairman that a Resolution has been
carried, or carried unanimously, or by a particular majority, or lost or not
carried by a particular majority and an entry to that effect in the book of the
proceedings of the Company shall be conclusive evidence of the fact, without
proof of the number or proportion of the votes recorded in favour of, or
against, that Resolution.
10.10 In the case of an equality of votes, whether on a show of hands or on a
poll, the Chairman of the Meeting at which the show of hands takes place or at
which the poll is demanded shall not be entitled to a second or casting vote.
10.11 No poll may be demanded on the election of a Chairman. A poll demanded on
a question of adjournment shall be taken forthwith. A poll demanded on any other
question shall be taken as soon as, in the opinion of the Chairman, is
reasonably convenient, but in no event later than seven days after the Meeting
and at such time and place and in such manner as the Chairman of the Meeting
directs. The result of the poll shall be deemed to be the Resolution of and
passed at the Meeting at which the poll was demanded. Any business other than
that upon which the poll has been demanded may be proceeded with pending the
taking of the poll. A demand for a poll may be withdrawn. In any dispute as to
the admission or rejection of a vote the decision of the Chairman made in good
faith shall be final and conclusive.
10.12 Every ballot cast upon a poll and every proxy appointing a proxyholder who
casts a ballot upon a poll shall be retained by the Secretary for such period
and be subject to such inspection as the Company Act may provide.
10.13 On a poll a person entitled to cast more than one vote need not, if he
votes, use all his votes or cast all the votes he uses in the same way.
10.14 Unless the Company Act, the Memorandum or these Articles otherwise provide
any action to be taken by a Resolution of the Members may be taken by an
Ordinary Resolution.
PART 11
VOTES OF MEMBERS
----------------
11.1 Subject to any special voting rights or restrictions attached to any class
of shares and the restrictions on joint registered holders of shares, on a show
of hands every Member who is present in person and entitled to vote thereat
shall have one vote and on a poll every Member shall have one vote for each
share of which he is the registered holder and may exercise such vote either in
person or by proxyholder.
11.2 Any person who is not registered as a Member but is entitled to vote at any
General Meeting in respect of a share, may vote the share in the same manner as
if he were a Member; but, unless the Directors have previously admitted his
right to vote at that
<PAGE>
- 11 -
[??????]ing in respect of the share, he shall satisfy the Directors of his right
to vote the share before the time for holding the Meeting, or adjourned meeting,
as the case may be, at which he proposes to vote.
11.3 Any corporation not being a subsidiary which is a Member of the Company may
by resolution of its Directors or other governing body authorize such person as
it thinks fit to act as its representative at any General Meeting or class
Meeting. The person so authorized shall be entitled to exercise in respect of
and at such Meeting the same powers on behalf of the corporation which he
represents as that corporation could exercise if it were an individual Member of
the Company personally present, including, without limitation, the right, unless
restricted by such Resolution, to appoint a proxyholder to represent such
corporation, and shall be counted for the purpose of forming a quorum if present
at the Meeting. Evidence of the appointment of any such representative may be
sent to the Company by written instrument, telegram, telex or any method of
transmitting legibly recorded messages. Notwithstanding the foregoing, a
corporation being a Member may appoint a proxyholder.
11.4 In the case of joint registered holders of a share the vote of the senior
who exercises a vote, whether in person or by proxyholder, shall be accepted to
the exclusion of the votes of the other joint registered holders; and for this
purpose seniority shall be determined by the order in which the names stand in
the register of Members. Several legal personal representatives of a deceased
Member whose shares are registered in his sole name shall for the purpose of
this Article be deemed joint registered holders.
11.5 A Member of unsound mind entitled to attend and vote, in respect of whom an
order has been made by any court having jurisdiction, may vote, whether on a
show of hands or on a poll, by his committee, curator bonis, or other person in
the nature of a committee or curator bonis appointed by that court, and any such
committee, curator bonis, or other person may appoint a proxyholder.
11.6 A Member holding more than one share in respect of which he is entitled to
vote shall be entitled to appoint one or more (but not more than five)
proxyholders to attend, act and vote for him on the same occasion. If such a
Member should appoint more than one proxyholder for the same occasion he shall
specify the number of shares each proxyholder shall be entitled to vote. A
Member may also appoint one or more alternate proxyholders to act in the place
and stead of an absent proxyholder.
11.7 A form of proxy shall be in writing under the hand of the appointor or of
his Attorney duly authorized in writing, or, if the appointor is a corporation,
either under the seal of the corporation or under the hand of a duly authorized
Officer or Attorney. A proxyholder need not be a Member of the Company if:
a. the Company is, at the time, a reporting Company; or
b. the Member appointing the proxyholder is a
corporation; or
c. the Company shall have at the time only one Member;
or
d. the persons present in person or by proxy and
entitled to vote at the Meeting by Resolution permit
the proxyholder to attend and vote; for the purpose
of such Resolution the proxyholder shall be counted
in the quorum but shall not be entitled to vote,
<PAGE>
- 12 -
in all other cases a proxyholder must be a Member.
11.8 A form of proxy and the Power of Attorney or other authority, if any, under
which it is signed or a notarially certified copy thereof shall be deposited at
the registered office of the Company or at such other place as is specified for
that purpose in the notice convening the Meeting, not less than 48 hours
(excluding Saturdays, Sundays and holidays) before the time for holding the
Meeting in respect of which the person named in the instrument is appointed. In
addition to any other method of depositing proxies provided for in these
Articles, the Directors may from time to time by Resolution make regulations
relating to the depositing of proxies at any place or places and fixing the time
or times for depositing the proxies not exceeding 48 hours (excluding Saturdays,
Sundays and holidays) preceding the Meeting or adjourned Meeting specified in
the notice calling a Meeting of Members and providing for particulars of such
proxies to be sent to the Company or any agent of the Company in writing or by
letter, telegram, telex or any method of transmitting legibly recorded messages
so as to arrive before the commencement of the Meeting of adjourned Meeting at
the office of the Company or of any agent of the Company appointed for the
purpose of receiving such particulars and providing that proxies so deposited
may be acted upon as though the proxies themselves were deposited as required by
this Part and votes given in accordance with such regulations shall be valid and
shall be counted.
11.9 Unless the Company Act or any other statute or law which is applicable to
the Company or to any class of its shares requires any other form of proxy, a
proxy, whether for a specified Meeting or otherwise, shall be in the form
following, but may also be in any other form that the Directors or the Chairman
of the Meeting shall approve:
The undersigned, being a Member of the above named Company, hereby
appoints________________________, or, failing him, ________________________ , as
Proxyholder for the undersigned to attend, act and vote for and on behalf of the
undersigned at the General Meeting of the Company to be held on the ______ day
of_____, 199_ and at any adjournment thereof.
SIGNED this__________ day of_________, 199_.
Signature of Member_____________________
11.10 A vote given in accordance with the terms of a proxy is valid
notwithstanding the previous death or incapacity of the Member giving the proxy
or the revocation of the proxy or of the authority under which the form of proxy
was executed or the transfer of the share in respect of which the proxy is
given, provided that no notification in writing of such death, incapacity,
revocation or transfer shall have been received at the registered office of the
Company or by the Chairman of the Meeting or adjourned Meeting for which the
proxy was given before the vote is taken.
11.11 Every proxy may be revoked by an instrument in writing:
a. executed by the Member giving the same or by his Attorney
authorized in writing or, where the Member is a corporation, by a
duly authorized Officer or Attorney of the Corporation; and
b. delivered either at the registered office of the Company at any
time up to and
<PAGE>
- 13 -
including the last business day preceding the date of the Meeting,
or any adjournment thereof at which the proxy is to be used, or to
the Chairman of the Meeting on the day of the Meeting or any
adjournment thereof before any vote in respect of which the proxy
is to be used shall have been taken,
in any other manner provided by law.
PART 12
DIRECTORS
---------
12.1 The Subscribers to the Memorandum of the Company are the First Directors.
The Directors to succeed the first Directors may be appointed in writing by a
majority of the subscribers to the Memorandum or at a meeting of the
subscribers, or if not so appointed, they shall be elected by the Members
entitled to vote on the election of Directors and the number of Directors shall
be the same as the number of Directors so appointed or elected. The number of
Directors, excluding additional Directors, may be fixed or changed from time to
time by Ordinary Resolution, whether previous notice thereof has been given or
not, but notwithstanding anything contained in these Articles the number of
Directors shall never be less than one or, if the Company is or becomes a
reporting Company, less than three.
12.2 The remuneration of the Directors as such may from time to time be
determined by the Directors or, if the Directors shall so decide, by the
Members. Such remuneration may be in addition to any salary or other
remuneration paid to any Officer or employee of the Company as such who is also
a Director. The Director shall be repaid such reasonable travelling, hotel and
other expenses as they incur in and about the business of the Company and if any
Director shall perform any professional or other services for the Company that
in the opinion of the Directors are outside the ordinary duties of a Director or
shall otherwise be specially occupied in or about the Company's business, he may
be paid a remuneration to be fixed by the Board, or, at the option of such
Director, by the Company in General Meeting, and such remuneration may be either
in addition to, or in substitution for any other remuneration that he may be
entitled to receive. The Directors on behalf of the Company, unless otherwise
determined by Ordinary Resolution, may pay a gratuity or pension or allowance on
retirement to any Director who has held any salaried office or place of profit
with the Company or to his spouse or dependents and may make contributions to
any fund and pay premiums for the purchase or provision of any such gratuity,
pension or allowance.
12.3 A Director shall not be required to hold a share in the capital of the
Company as qualification for his office but shall be qualified as required by
the Company Act, to become or act as a Director.
PART 13
ELECTION AND REMOVAL OF DIRECTORS
---------------------------------
13.1 At each Annual General Meeting of the Company all the Directors shall
retire and The Members entitled to vote thereat shall elect a Board of Directors
consisting of the number of Directors for the time being fixed pursuant to these
Articles. If the Company is, or becomes, a Company that is not a reporting
Company and the business to be transacted at the Annual General Meeting is
consented to in writing by all the Member who are entitled to attend and vote
thereat such Annual General Meeting shall be deemed for the purpose of this part
to have been held on such written consent becoming effective.
<PAGE>
- 14 -
13.2 A retiring Director shall be eligible for re-election.
13.3 Where the Company fails to hold an Annual General Meeting in accordance
with the Company Act, the Directors then in office shall be deemed to have been
elected or appointed as Directors on the last day on which the Annual General
Meeting could have been held pursuant to these Articles and they may hold office
until other Directors are appointed or elected or until the day on which the
next Annual General Meeting is held.
13.4 If at any General Meeting at which there should be an election of
Directors, the places of any of the retiring Directors are not filled by such
election, such of the retiring Directors who are not re-elected as may be
requested by the newly-elected Directors shall, if willing to do so, continue in
office to complete the number of Directors for the time being fixed pursuant to
these Articles until further new Directors are elected at a General Meeting
convened for the purpose. If any such election or continuance of Directors does
not result in the election or continuance of the number of Directors for the
time being fixed pursuant to these Articles such number shall be fixed at the
number of Directors actually elected or continued in office.
13.5 Any casual vacancy occurring in the Board of Directors may be filled by the
remaining Directors or Director.
13.6 Between successive Annual General Meetings the Directors shall have power
to appoint one or more additional Directors but not more than one-third of the
number of Directors fixed pursuant to these Articles and in effect at the last
General Meeting at which Directors were elected. Any Director so appointed shall
hold office only until the next following Annual General Meeting of the Company,
but shall be eligible for election at such Meeting and so long as he is an
additional Director the number of Directors shall be increased accordingly.
13.7 Any Director may by instrument in writing delivered to the Company appoint
any person to be his alternate to act in his place at Meetings of the Directors
at which he is not present unless the Directors shall have reasonably
disapproved the appointment of such person as an alternate Director and shall
have given notice to that effect to the Director appointing the alternate
Director within a reasonable time after delivery of such instrument to the
Company. Every such alternate shall be entitle to notice of Meetings of the
Directors and to attend and vote as a Director at a Meeting at which the person
appointing him is not personally present, and, if he is a Director, to have a
separate vote on behalf of the Director he is representing in addition to his
own vote. A Director may at any time by instrument, telegram, telex or any
method of transmitting legibly recorded messages delivered to the Company revoke
the appointment of an alternate appointed by him. The remuneration payable to
such an alternate shall be payable out of the remuneration of the Director
appointing him.
13.8 The office of Director shall be vacated if the Director:
a. resigns his office by notice in writing delivered to the registered
office of the Company; or
b. is convicted of an indictable offence and the other Directors shall
have resolved to remove him; or
c. ceases to be qualified to act as a Director pursuant to the Company
Act.
<PAGE>
- 15 -
13.9 The Company may by Special Resolution remove any Director before the
expiration his period of office, and may by an Ordinary Resolution appoint
another person in his stead.
PART 14
POWERS AND DUTIES OF DIRECTORS
------------------------------
14.1 The Directors shall manage, or supervise the management of, the affairs and
business of the Company and shall have the authority to exercise all such powers
of the Company as are not, by the Company Act or by the Memorandum or these
Articles, required to exercised by the Company in General Meeting.
14.2 The Directors may from time to time by Power of Attorney or other inst
rument under the seal, appoint any person to be the Attorney of the Company for
such purposes, and with such powers, authorities and discretions (not exceeding
those vested in or exercisable ????? the Directors under these Articles and
excepting the powers of the Directors relating to the constitution of the Board
and of any of its committees and the appointment or removal of officers and the
power to declare dividends) and for such period, with such remuneration and
subject to such conditions as the Directors may think fit, and any such
appointment may be made in favour of any of the Directors or any of the Members
of the Company or in fayour of any Corporation, or of any of the Members,
Directors, Nominees or Managers of any Corporation, firm or joint venture and
any such Power of Attorney may contain such provisions for the protection or
convenience of persons dealing with such Attorney as the Directors may see fit.
Any such Attorney may be authorized by the Directors to sub-delegate all or any
of the powers, authorities and discretions for the time being vested in him.
PART 15
DISCLOSURE OF INTEREST OF DIRECTORS
-----------------------------------
15.1 A Director who is, in any way, directly or indirectly interested in an
existing or proposed contract of transaction with the Company or who holds any
office or possesses any property whereby, directly or indirectly, a duty or
interest might be created to conflict with his duty or interest as a Director
shall declare the nature and extent of his interest in such contract or
transaction or of the conflict or potential conflict with his duty and interest
as a Director, as the case may be, in accordance with the provisions of the
Company Act.
15.2 A Director shall not vote in respect of any such contract or transaction
with the Company in which he is interested and if he shall do so his vote shall
not be counted, but e shall be counted in the quorum present at the Meeting at
which such vote is taken. subject to the provisions of the Company Act, the
foregoing prohibitions shall not apply to:
a. any such contract or transaction relating to a loan to the Company,
which a Director or a specified corporation or a specified firm in
which he has an interest has guaranteed or joined in guaranteeing the
repayment of the loan or any part of the loan;
b. any contract or transaction made or to be made with, or for the benefit
of a holding Corporation or a subsidiary Corporation of which a
Director is a Director;
<PAGE>
- 16 -
c. any contract by a Director to subscribe for or underwrite shares or
debentures to be issued by the Company or a subsidiary of the Company,
or any contract, arrangement or transaction in which a Director is,
directly or indirectly, interested if all the other Directors are also,
directly or indirectly, interested in the contract, arrangement or
transaction;
d. determining the remuneration of the Directors;
e. purchasing and maintaining insurance to cover Directors against
liability incurred by them as Directors; or
vi. the indemnification of any Director by the Company.
These exceptions may from time to time be suspended or amended to any
extent proved by the Company in General Meeting and permitted by the Company
Act, either generally or in respect of any particular contract or transaction or
for any particular period.
15.3 A Director may hold any office or place of profit with the Company (other
than the office of auditor of the Company) in conjunction with his office of
Director for such period and on such terms (as to remuneration or otherwise) as
the Directors may determine and the Director or intended Director shall be
disqualified by his office from contracting with the Company either with regard
to his tenure of any such other office or place of profit or a vendor, purchaser
or otherwise, and, subject to compliance with the provisions of the Company Act,
no contract or transaction entered into by or on behalf of the Company in which
Director is in any way interested shall be liable to be voided by reason
thereof.
15.4 Subject to compliance with the provisions of the Company Act, a Director or
his firm may act in a professional capacity for the Company (except as auditor
of the Company) and he or his firm shall be entitled to remuneration for
professional services as if he were not a Director.
15.5 A Director may be or become a Director or other Officer or employee of, or
otherwise interested in, any Corporation or firm in which the Company may be
interested as a shareholder or otherwise, and, subject to compliance with the
provisions of the Company Act, such Director shall not be accountable to the
Company any remuneration or other benefits received by him as Director, Officer
or employee of, or from his interest in, such other corporation or firm, unless
the Company in General Meeting otherwise directs.
PART 16
PROCEEDINGS OF DIRECTORS
------------------------
16.1 The Chairman of the Board, if any, or in his absence, the President shall
preside as Chairman at every Meeting of the Directors, or if there is no
Chairman of the Board or neither the Chairman of the Board nor the President is
present within fifteen minutes of the time appointed for holding the Meeting or
is willing to act as Chairman, or, if the Chairman of the Board, if any, and the
President have advised the Secretary that they will not be present at the
Meeting, the Directors present shall choose one of their number to be Chairman
of the Meeting.
16.2 The Directors may meet together for the dispatch of business, adjourn and
<PAGE>
- 17 -
otherwise regulate their Meetings as they think fit. Questions arising at any
Meeting shall be decided by a majority of votes. In case of an equality of votes
the Chairman shall not have a second or casting vote. Meetings of the Board held
at regular intervals may be held at such place, at such time and upon such
notice (if any) as the Board may, by Resolution from time to time determine.
16.3 A Director may participate in a Meeting of the Board or of any committee of
the Directors by means of conference telephones or other communications
facilities by means of which all Directors participating in the meeting can hear
each other and provided that all such Directors agree to such participation. A
Director participating in a Meeting in accordance with this Article shall be
deemed to be present at the Meeting and to have so agreed and shall be counted
in the quorum therefor and be entitled to speak and vote thereat.
16.4 A Director may, and the Secretary or an Assistant Secretary upon request of
a Director shall, call a Meeting of the Board at any time. Reasonable notice of
such Meeting specifying the place, day and hour of such Meeting shall be given
by mail, postage prepaid, addressed to each of the Directors and alternate
Directors at his address as it appears on the books of the Company or by leaving
it at his usual business or residential address or by telephone, telegram,
telex, or any method of transmitting legibly recorded messages. It shall not be
necessary to give notice of a Meeting of Directors to any Director or alternate
Director:
a. who is at the time not in the Province of British Columbia, or
b. if such Meeting is to be held immediately following a General Meeting
at which such Director shall have been elected or is the Meeting of
Directors at which such Director is appointed.
16.5 Any Director of the Company may file with the Secretary a document executed
by him waiving notice of any past, present or future Meeting or Meetings of the
Directors being, or required to have been, sent to him and may at any time
withdraw such waiver with respect to Meetings held thereafter. After filing such
waiver with respect to future Meetings and until such waiver is withdrawn no
notice need be given to such Director and, unless the Director otherwise
requires in writing to the Secretary, to his alternate Director of any Meeting
or Directors and all Meetings of the Directors so held shall be deemed not to be
improperly called or constituted by reason of notice not having been given to
such Directors or alternate Director.
16.6 The quorum necessary for the transaction of the business of the Directors
may be fixed by the Directors and if not so fixed shall be two Directors or, if
the number of Directors is fixed at one, shall be one Director.
16.7 The continuing Directors may act notwithstanding any vacancy in their body,
but, if and so long as their number is reduced below the number fixed pursuant
to these Articles as the necessary quorum of Directors, the continuing Directors
may act for the purpose of increasing the number of Directors to that number, or
of summoning a General Meeting of the Company, but for no other purpose.
16.8 Subject to the provisions of the Company Act, all acts done by any Meeting
of the Directors or of a committee of Directors, or by any person acting as a
Director, shall, notwithstanding that it be afterwards discovered that there was
some defect in the qualification, election or appointment of any such Directors
or of the Members of such
<PAGE>
- l8 -
Committee or person acting as aforesaid, or that they or any of them were
disqualified, be ????? valid as if every such person had been duly elected or
appointed and was qualified to be a Director.
16.9 A Resolution consented to in writing, whether by document, telegram, telex
or any method of transmitting legibly recorded messages or other means, by all
of the Directors shall be as valid and effectual as if it had been passed at a
Meeting of the Directors duly called and held. Such Resolution may be in two or
more counterparts which together shall be deemed to constitute one Resolution in
writing. Such Resolution shall be filed with the minutes of the proceedings of
the Directors and shall be effective on the date stated thereon or on the latest
date stated on any counterpart.
PART 17
EXECUTIVE AND OTHER COMMITTEES
------------------------------
17.1 The Directors may by Resolution appoint an Executive Committee to consist
of such Member or Members of their body as they think fit, which Committee shall
have, and may exercise during the intervals between the Meetings of the Board,
all the powers vested in the Board except the power to fill vacancies in the
Board, the power to change the Membership of, or fill vacancies in, said
Committee or any other Committee of the Board and such other powers, if any, as
may be specified in the Resolution. The said Committee shall keep regular
minutes of its transactions and shall cause them to be recorded in books kept
for that purpose, and shall report the same to the Board of Directors at such
times as the Board of Directors may from time to time require. The Board shall
have the power at any time to revoke or override the authority given to or acts
done by the Executive Committee except as to acts done before such revocation or
overriding and to terminate the appointment or change the Membership of such
Committee and to fill vacancies in it. The Executive Committee may make rules
for the conduct of its business and may appoint such assistants as it may deem
necessary. A majority of the Members of said Committee shall constitute a quorum
thereof.
17.2 The Directors may by Resolution appoint one or more Committees consisting
of such Member or Members of their body as they think fit and may delegate to
any such committee between Meetings of the Board such powers of the Board
(except the power to fill vacancies in the Board and the power to change the
Membership of or fill vacancies in any committee of the Board and the power to
appoint or remove Officers appointed by the Board) subject to such conditions as
may be prescribed in such Resolution, and all committees so appointed shall keep
regular minutes of their transactions and shall cause them to be recorded in
books kept for that purpose, and shall report the same to the Board of Directors
at such times as the Board of Directors may from time to time require. The
Directors shall also have power at any time to revoke or override any authority
given to or acts to be done by any such committees except as to acts done before
such revocation or overriding and to terminate the appointment or change the
Membership of a committee and to fill vacancies in it. Committees may make rules
for the conduct of their business and may appoint such assistants as they may
deem necessary. A majority of the Members of a committee shall constitute a
quorum thereof.
17.3 The Executive Committee and any other committee may meet and adjourn as it
thinks proper. Questions arising at any Meeting shall be determined by a
majority of votes of the Members of the committee present, and in case of an
equality of votes the Chairman shall not make a second or casting vote. A
Resolution approved in writing by all the Members of the Executive Committee or
any other committee shall be as valid and effective as if it had been passed at
a Meeting or such Committee duly called and constituted. Such Resolution may be
<PAGE>
- 19 -
two or more counterparts which together shall be deemed to constitute one
Resolution in voting. Such Resolution shall be filed with the minutes of the
proceedings of the committee and shall be effective on the date stated thereon
or on the latest date stated in any counterpart.
PART 18
OFFICERS
--------
18.1 The Directors shall, from time to time, appoint a President, and a
Secretary. and such other Officers, if any, as the Directors shall determine and
the Directors may, at any time terminate any such appointment. No Officer shall
be appointed unless he is qualified in accordance with the provisions of the
Company Act.
18.2 One person may hold more than one of such offices except that the offices
of President and Secretary must be held by different persons unless the Company
has only one Member. Any person appointed as the Chairman of the Board, the
President or the Managing Director shall be a Director. The other Officers need
not be Directors. The remuneration of the Officers of the Company as such and
the terms and conditions of their tenure of office or employment shall from time
to time be determined by the Directors; such remuneration may be by way of
salary, fees, wages, commission or participation in profits or any other means
or all of these modes and an Officer may in addition to such remuneration be
entitled to receive after he ceases to hold such office or leaves the employment
of the Company a pension or gratuity. The Directors may decide what functions
and duties each Officer shall perform and may entrust to and confer upon him any
of the powers exercisable by them upon such terms and conditions and with such
restrictions as they think fit and may from time to time revoke, withdraw, alter
or vary all or any of such functions, duties and powers. The Secretary shall,
inter alia, perform the functions of the Secretary specified in the Company Act.
18.3 Every Officer of the Company who holds any office or possesses any property
whereby, whether directly or indirectly, duties or interests might be created in
conflict with his duties or interests as an Officer of the Company shall, in
writing, disclose to the President the fact and the nature, character and extent
of the conflict.
PART 19
INDEMNITY AND PROTECTION OF DIRECTORS, OFFICERS, AND EMPLOYEES
--------------------------------------------------------------
19.1 Subject to the provisions of the Company Act, the Directors shall cause the
Company to indemnify a Director or former Director of the Company and the
Directors may cause the Company to indemnify a Director or former Director of a
Corporation of which the Company is or was a Shareholder and the heirs and
personal representatives of any such person against all costs, charges and
expenses, including an amount paid to settle an action or satisfy a judgment,
actually and reasonably incurred by him or them including an amount paid to
settle an action or satisfy a judgment in a civil, criminal or administrative
action or proceeding to which he is or they are made a party by reason of his
being or having been a Director Of the Company or a Director of such
Corporation, including any action brought by the Company or any such
corporation. Each Director of the Company on being elected or appointed shall be
deemed to have contracted with the Company on the terms of the foregoing
indemnity.
19.2 Subject to the provisions of the Company Act, the Directors may cause the
Company to indemnify any Officer, employee or agent of the Company or of a
Corporation of which the
<PAGE>
- 20 -
Company is or was a Shareholder (notwithstanding that he is also a Director) and
his heirs and personal representatives against all costs, charges and expenses
whatsoever incurred by him or them and resulting from his acting as an Officer,
employee or agent of the Company or such Corporation. In addition the Company
shall indemnify the Secretary or an Assistant Secretary of the Company (if he
shall not be a full time employee of the Company and notwithstanding that he is
also a Director ) and his respective heirs and legal representatives against all
costs, charges and expenses whatsoever incurred by him or them and arising out
of the functions assigned to the Secretary by the Company Act or these Articles
and each such Secretary and Assistant Secretary shall on being appointed be
deemed to have contracted with the Company on the terms of the foregoing
indemnity.
19.3 The failure of a Director or Officer of the Company to comply with the
provisions of the Company Act or of the Memorandum or these Articles shall not
invalidate any indemnity to which he is entitled under this Part.
19.4 The Directors may cause the Company to purchase and maintain insurance for
the benefit of any person who is or was serving as a Director, officer, employee
or agent of the Company or as a Director, Officer, employee or agent of any
Corporation of which the Company is or was a Shareholder and his heirs or
personal representatives against any liability incurred by him as such Director,
Officer, employee or agent.
PART 2O
DIVIDENDS AND RESERVE
---------------------
20.1 The Directors may from time to time declare and authorize payment of such
dividends, if any, as they may deem advisable and need not give notice of such
declaration to any Member. No dividend shall be paid otherwise than out of funds
and/or assets properly available for the payment of dividends and a declaration
by the Directors as to the amount of such funds or assets available for
dividends shall be conclusive. The Company may pay any such dividend wholly or
in part by the distribution of specific assets and in particular by paid up
shares, bonds, debentures or other securities of the Company or any other
Corporation or in any one or more such ways as may be authorized by the Company
of the Directors and where any difficulty arises with regard to such a
distribution the Directors may settle the same as they think expedient, and in
particular may fix the value for distribution of Such specific assets or any
part thereof, and may determine that cash payments in substitution for all or
any part of the specific assets to which any Members are entitled shall be made
to any Members on the basis of the value so fixed in order to adjust the rights
of all parties and may vest any such specific assets in trustees for the persons
entitled to the dividend as may seem expedient to the Directors.
20.2 Any dividend declared on shares of any class by the Directors may be made
payable on such date as is fixed by the Directors.
20.3 Subject to the rights of Members, if any, holding shares with special
rights as to dividends, all dividends on shares of any class shall be declared
and paid according to the number of such shares held.
20.4 The Directors may, before declaring any dividend, set aside out of the
funds properly available for the payment of dividends such sums as they think
proper as a reserve or reserves, which shall, at the discretion of the
Directors, be applicable for Meeting contingencies, or for equalizing dividends,
or for any other purpose to which such funds of
<PAGE>
- 21 -
the Company may be properly applied, and pending such application may, at the
like discretion, either be employed in the business of the Company or be
invested in such investments as the Directors may from time to time think fit.
The Directors may also, without placing the same in reserve, carry forward such
funds, which they think prudent not to divide.
20.5 If several persons are registered as joint holders of any share, any one of
them nay give an effective receipt for any dividend, bonuses or other moneys
payable in respect of the share.
20.6 No dividend shall bear interest against the Company. Where the dividend to
which a Member is entitled includes a fraction of a cent, such fraction shall be
disregarded in making payment thereof and such payment shall be deemed to be
payment in full.
20.7 Any dividend, bonuses or other moneys payable in cash in respect of shares
may be paid by cheque or warrant sent through the post directed to the
registered address of the holder, or in the case of joint holders, to the
registered address of that one of the joint holders who is first name on the
register, or to such person and to such address as the holder or joint holders
may direct in writing. Every such cheque or warrant shall be made payable to the
order of the person to whom it is sent. The mailing of such cheque or warrant
shall, to the extent of the sum represented thereby (plus the amount of any tax
required by law to be deducted) discharge all liability for the dividend, unless
such cheque or warrant shall not be paid on presentation or the amount of tax so
deducted shall not be paid to the appropriate taxing authority.
20.8 Notwithstanding anything contained in these Articles the Directors may from
time to time capitalize any undistributed surplus on hand of the Company and may
from time to time issue as fully paid and non-assessable any unissued shares, or
any bonds, debentures or debt obligations of the Company as a dividend
representing such undistributed surplus on hand or any part thereof.
PART 21
DOCUMENTS, RECORDS AND REPORTS
------------------------------
21.1 The Company shall keep at its records office or at such other place as the
Company Act may permit, the documents, copies, registers, minutes, and records
which the Company is required by the Company Act to keep at its records office
or such other place, as the case may be.
21.2 The Company shall cause to be kept proper books of account and accounting
records in respect of all financial and other transactions of the Company in
order properly to record the financial affairs and condition of the Company and
to comply with the Company Act.
21.3 Unless the Directors determine otherwise, or unless otherwise determined by
an Ordinary Resolution, no Member of the Company shall be entitled to inspect
the accounting records of the Company.
21.4 The Directors shall from time to time at the expense of the Company cause
to be prepared and laid before the Company in General Meeting such financial
statements and reports . as are required by the Company Act.
<PAGE>
- 22 -
21.5 Every Member shall be entitled to be furnished once gratis on demand with a
copy of the latest annual financial statement of the Company and, if so required
by the Company Act, a copy of each such annual financial statement and interim
financial statement shall be mailed to each Member.
PART 22
NOTICES
-------
22.1 A notice, statement or report may be given or delivered by the Company to
any Member either by delivery to him personally or by sending it by mail to him
to his address as recorded in the register of Members. Where a notice, statement
or report is sent by mail, service or delivery of the notice, statement or
report shall be deemed to be effected by properly addressing, prepaying and
mailing the notice, statement or report and to have been given on the day
(Saturdays, Sundays and holidays excepted) following the date of mailing. A
certificate signed by the Secretary or other Officer of the Company or of any
other Corporation acting in that behalf for the Company that the letter,
envelope or wrapper containing the notice, statement or report was so addressed,
prepaid and mailed shall be conclusive evidence thereof.
22.2 A notice, statement or report may be given or delivered by the Company to
the joint holders of a share by giving the notice to the joint holder first
named in the Register of Members in respect of the share.
22.3 A notice, statement or report may be given or delivered by the Company to
the persons entitled to a share in consequence of the death, bankruptcy or
incapacity of a Member by sending it through the mail prepaid addressed to them
by name or by the title of representatives of the deceased or incapacitated
person or trustee of the bankrupt, or by any like description, at the address
(if any) supplied to the Company for the purpose by the persons claiming to be
so entitled, or (until such address has been so supplied) by giving the notice
in a manner in which the same might have been given if the death, bankruptcy or
incapacity had not occurred.
22.4 Notice of every General Meeting or Meeting of Members holding a class of
shares shall be given in a manner hereinbefore authorized to every Member
holding at the time of the issue of the notice or the date fixed for determining
the Members entitled to such notice, whichever is the earlier, shares which
confer the right to notice of and to attend and vote at any such Meeting. No
other person except the auditor of the Company and the Directors of the Company
shall be entitled to receive notices of any such Meeting.
PART 23
RECORD DATES
------------
23.1 The Directors may fix in advance a date, which shall not be more than the
maximum number of days permitted by the Company Act preceding the date of any
Meeting of Members or any class thereof or of the payment of any dividend or of
the proposed taking of any other proper action requiring the determination of
Members as the record date for the determination of the Member entitled to
notice of, or to attend and vote at, any such Meeting and any adjournment
thereof, or entitled to receive payment of any such dividend or for any other
proper purpose and, in such case, notwithstanding anything elsewhere contained
in these Articles, only Members of record on the date so fixed shall be deemed
to be Members for the
<PAGE>
- 23 -
purposes aforesaid.
23.2 Where no record date is so fixed for the determination of Members as
provided in the preceding Article the date on which the notice is mailed or on
which the Resolution declaring the dividend is adopted, as the case may be,
shall be the record date for such determination.
PART 24
SEAL
----
24.1 The Directors may provide a seal for the Company and, if they do so, shall
provide for the safe custody of the seal which shall not be affixed to any
instrument except in the presence of the following persons, namely:
a. any two Directors; or
b. one of the Chairman of the Board, the President, the Managing Director,
a Director and a Vice-President together with one of the Secretary, the
Treasurer, the Secretary-Treasurer, and Assistant Secretary, and
Assistant Treasurer and an Assistant Secretary-Treasurer; or
c. if the Company shall have only one Member, the President or the
Secretary; or
d. such person or persons as the Directors may from time to time by
Resolution appoint;
and the said Directors, Officers, person or persons in whose presence the seal
is so affixed to an instrument shall sign such instrument. For the purpose of
Certifying under seal true copies of any document or Resolution the seal may be
affixed in the presence of any one of the foregoing persons.
24.2 To enable the seal of the Company to be affixed to any bonds, debentures,
share certificates, or other securities of the Company, whether in definitive or
interim form, on which facsimiles of any of the signatures of the Directors or
Officers of the Company are, in accordance with the Company Act and/or these
Articles, printed or otherwise mechanically reproduced there may be delivered to
the firm of Company employed to engrave, lithograph or print such definitive or
interim bonds, debentures, share certificates or other securities one or more
unmounted dies reproducing the Company's seal and the Chairman of the Board, the
President, the Managing Director Or a Vice-President and the Secretary,
Treasurer, Secretary-Treasurer, an Assistant Secretary, an Assistant Treasurer
or an Assistant Secretary-Treasurer may by a document authorize such firm or
Company to cause the Company's seal to be affixed to such definitive or interim
bonds, debentures, share certificates or other securities by the use of such
dies. Bonds, debentures, share certificates or other securities to which the
Company's seal has been so affixed shall for all purposes be deemed to be under
and to bear the Company's seal lawfully affixed thereto.
24.3 The Company may have for use in any other province, state, territory or
country an official seal which shall have on its face the name of the province,
state, territory or country where it is to be used and all of the powers
conferred by the Company Act with respect thereto may be exercised by the
Directors or by a duly authorized agent of the Company.
<PAGE>
- 24 -
PART 25
PROHIBITIONS
------------
25.1 The number of Members shall be limited to fifteen.
25.2 No shares or debt obligations issued by the Company shall be offered for
sale to the public.
25.3 No shares shall be transferred without the previous consent of the
Directors expressed by a Resolution of the Board and the Directors shall not be
required to give any reason for refusing to consent to any such proposed
transfer.
PART 26
RESTRICTION ON SHARE TRANSFERS
------------------------------
26.1 No shares in the capital of the Company shall be transferred by any Member,
or the personal representative of any deceased Member or trustee in bankruptcy
of any bankrupt Member, or the liquidator of a Member which is a Corporation,
except under the following conditions:
a. A person (hereinafter referred to as the "Proposing Transferor")
desiring to transfer any share or shares in the Company shall give
notice in writing (hereinafter referred to as the "Transfer Notice") to
the Company that he desires to transfer the same. The Transfer Notice
shall specify the price, which shall be expressed in lawful money of
Canada, and the terms of payment upon which the Proposing Transferor is
prepared to transfer the share or shares and shall constitute the
Company his agent for the sale thereof to any Member or Members of the
Company at the price and upon the terms of payment so specified. The
Transfer Notice shall also state whether or not the Proposing
Transferor has had an offer to purchase the shares or any of them from
or proposes to sell the shares or any of them from, or proposes to sell
the shares or any of them to any particular person or persons who are
not Members and if so the names and addresses of such persons shall
be specified in the Transfer Notice. The Transfer Notice shall
constitute an offer by the Proposing Transferor to the other Members of
the Company holding shares of the class or classes included in the
Transfer Notice and shall not be revocable except with the sanction of
the Directors. If the Transfer Notice pertains to shares of more than
one class then the consideration and terms of payment for each class of
shares shall be stated separately in the Transfer Notice.
b. The Directors shall forthwith upon receipt thereof transmit the
Transfer Notice to each of the Members, other than the Proposing
Transferor, holding shares of the class or classes sen forth in the
Transfer Notice and request the Member to whom the Transfer Notice is
senn to state in writing within 14 days whether he is willing to accept
any, and if so, the maximum number of shares he is willing to accept at
the price and upon the terms specified in the Transfer Notice. A Member
shall only be entitled to purchase shares of the class or classes held
by him.
c. Upon the expiration Of the 14 days notice period referred to in Article
26.1 (b),
<PAGE>
- 25 -
if the Directors shall have received from the Members entitled to
receive the transfer notice sufficient acceptances to take up the full
number of shares offered by the Transfer Notice and, if the Transfer
Notice includes shares of more than one class, sufficient acceptances
from the Members of each class to take up the full number of shares of
each class offered by the Transfer Notice, the Directors shall
thereupon apportion shares so offered among the Members so accepting
and so far as may be, pro rata, according to the number of shares held
by each of them respectively, and in the case of more than one class of
shares, then pro rata in respect of each class. If the Directors shall
not have received sufficient acceptances as aforesaid, they may, but
only with the consent of the Proposing Transferor who shall not be
obliged to sell to Members in the aggregate less than the total number
of shares of one or more classes of shares offered by the Transfer
Notice, apportion the shares so offered among the Members so accepting
so far as may be according to the number of shares held by each
respectively but only up to the amount accepted by such Members
respectively. Upon any such apportionment being made the Proposing
Transferor shall be bound upon payment of the price to transfer the
shares to the respective Members to whom the Directors have apportioned
same. If, in any case, the Proposing Transferor, having become so bound
fails in transferring any share, the Company may receive the purchase
money for that share and shall upon receipt cause the name of the
purchasing Member to be entered in the register as the holder of the
shares and cancel the certificate of the share held by the Proposing
Transferor, whether the same shall be produced to the Company or not,
and shall hold such purchase money in trust for the Proposing
Transferor. The receipt of the Company for the purchase money shall be
a good discharge to the purchasing Member and after his name has been
entered in the register the validity of the proceedings shall not be
questioned by any person.
d. In the event that some or all of the shares offered shall not be sold
under the preceding Articles within the 14 day period referred to in
Article 26.1 (b), the Proposing Transferor shall be at liberty for a
period of 90 days after the expiration of that period to transfer such
of the shares so offered as are not sold to any person provided that he
shall not sell them at a price less than that specified in the Transfer
Notice or on terms more favourable to a purchaser than those specified
in the Transfer Notice.
e. The provisions as to transfer contained in this Article shall not
apply:
i. If before the proposed transfer of shares is made, the transferor
shall obtain consents to the proposed transfer from Members of the
Company, who at the time of the transfer are the registered
holders of two-thirds or more of the issued shares of the class to
be transferred of the Company or if the shares comprise more than
one class, then from the registered holders of two-thirds or more
of the shares of each class to be transferred and such consent
shall be taken to be a waiver of the application to the preceding
Articles as regards such transfer; or
ii. To a transfer of shares desired to be made merely for the purpose
of effectuating the appointment of a new trustee for the Owner
thereof, provided that it is proved to the satisfaction of the
Board that such is the case.
<PAGE>
- 26 -
Notwithstanding anything contained in these Articles the Directors may in
their absolute discretion decline to register any transfer of shares and shall
not be required to disclose their reasons therefor.
PART 27
SPECIAL RIGHTS AND RESTRICTIONS
-------------------------------
27.1 SUBJECT to the powers of the Company to amend the rights, powers,
privileges, restrictions and limitations which shall attach to its shares, the
following rights, powers, privieges, restrictions and limitations shall attach
to the respective shares of the Company, as follows:
27.2 CLASS "A" NON-VOTING SHARES
To the Class "A" non-voting shares, unless specifically permitted by the
Company Act so to do, the holders of the said shares shall not be entitled to
vote at any Annual General Meeting or special Meeting of the Company or to
receive notice thereof.
27.3 CLASS "B" VOTING SHARES
To the Class "B" voting shares, the right to one vote at any Meeting of the
Company in respect to each share held.
CLASS "C" NON-VOTING, REDEEMABLE PREFERRED SHARES
(Hereinafter referred to as Class "C" preferred shares)
To the Class "C" non-voting redeemable ref preferred shares:
i. Unless specifically permitted by the said Company Act so to do,
the holders of the said shares shall not be entitled to vote at
any Annual General Meeting or Special Meeting of the Company or to
receive notice thereof;
ii. The holders of such shares shall be entitled to participate in the
profits or assets of the Company whether by way of dividend or
return of capital, subject to the discretion of the Directors of
the Company;
iii. The Company may redeem the whole or any part of the Class "C"
preferred shares pursuant to the provisions of the Company Act on
payment for each share to be redeemed of the amount paid upon
thereon plus an amount equal to all unpaid dividends; in case a
part only of the then outstanding Class "C" preferred shares is at
any time to be redeemed, the shares so to be redeemed shall be
redeemed pro rata, disregarding fractions, and Directors may make
such adjustments as may be necessary to avoid the redemption of
fractional parts of shares;
iv. In the event of the liquidation, dissolution or winding up of the
Company or other distribution of assets of the Company among its
shareholders for the purpose of winding up its affairs, the
holders of the Class "C" preferred shares shall be entitled to
receive the amount paid up on such
<PAGE>
- 27 -
shares together with all unpaid dividends thereon, before any
amount shall be paid or any property or assets of the Company
distributed to the holders of all other classes of shares. Any
amount so paid on a winding up to the Class "C" preferred
Shareholders shall be applied firstly as repayment of paid up
capital and secondly in payment of dividends remaining unpaid.
After payment to the holders of the Class "C" preferred shares of
the amount so payable to them as above provided they shall not be
entitled to share in any further distribution of the property or
assets of the Company.
27.5 MODIFICATION OF SHARES
The special rights and restrictions attached to any class of
shares in the Company may be modified, abrogated, dealt with or affected with
the sanction of either:
i. a consent in writing signed by the holders of three-fourths of the
issued shares of that class; or
ii. a Resolution passed at a separate General Meeting of the holders
of the issued shares of that class by a majority of not less than
three-fourths of the holders of that class who are present in
person or represented by proxy. To any such General Meeting all of
the provisions of the Company's Articles relating in any manner to
General Meetings or to the proceedings thereat, or to the rights
of Members at or in connection therewith shall, mutatis mutandis,
apply, but so that the necessary quorum shall be two in number of
the holders of shares of the class holding or representing by
proxy fifty-one percent of the issued shares of that class, and
that if at any adjourned Meeting, a quorum is not present, those
Members of the class who are present shall be a quorum.
- ----------------------------------------------------------
FULL NAMES, RESIDENT ADDRESSES NUMBER OF SHARES
OCCUPATIONS OF SUBSCRIBERS TAKEN BY SUBSCRIBER
- -----------------------------------------------------------
/s/ John Andrew Jones 1 Class "B" Voting
- ---------------------
?????606-888 Pacific Blvd.
Vancouver, B.C. V?????? Occupation; Businessman
TOTAL SHARES TAKEN: 1 Class "B" Voting
- -------------------------------------------------
DATED at the District of Surrey, Province of British Columbia, this 19th day of
June ??????????
Witness to the above signature(s): /s/ A. H. Senyk
-----------------------
A.H. SENYK
Barrister & Solicitor
Second Floor 15243 - 91st Ave.
Surrey, B.C. V3R 8P8
Phone: ?????????????
EXPECTED
AI CORP COMMISSION
FILES
ARTICLES OF INCORPORATION Dec 15 4 31 fil '96
OF AT Priscilla Wllie
PREMIUM CIGARS INTERNATIONAL, LTD. DATE 12-16-96
TE??
DATE
0794500-8
ARTICLE I
The name of this Corporation shall be Premium Cigars International,
Ltd.
ARTICLE II
The authorized capital stock of this Corporation shall be ten-million
(10,000,000) shares of non-assessable Common Stock with par value per share. The
shares of capital stock of this Corporation shall be issuable for such
consideration as is specified by the Board of Directors in its sole discretion
(provided the same is not inconsistent with applicable law or the express
provisions of these Articles), and upon receipt by this Corporation of the
consideration so specified, the issued shares shall be deemed to be fully paid
and non-assessable for all purposes. The Board of Directors of the Corporation
shall have the authority to establish differing series of stock and to determine
the relative rights and preferences between classes and series.
ARTICLE III
Until changed, the known place of business of the Corporation shall be
as follows: 10855 North Frank Lloyd Wright Boulevard, Suite 102, Scottsdale,
Arizona 85259. The place of business shall be subject to change hereafter in
accordance with applicable law.
ARTICLE IV
The character of the business which the Corporation initially intends
to conduct is as follows: importation and supply of cigars to wholesale
distributors. This statement shall not be construed to limit in any way the
character of business which the Corporation ultimately conducts.
ARTICLE V
No Director or former Director shall be liable to the Corporation or
its shareholders for monetary damages for breach of fiduciary duty or for any
action taken or any failure to take any action as a director or officer. The
liability of Directors is limited or eliminated to the fullest extent permitted
by law. No repeal or modification of this Article by the shareholders of the
Corporation will adversely affect any right or protection of a director or
officer existing at the time of such repeal or modification.
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
PREMIUM CIGARS INTERNATIONAL, LTD.
Adopted as of the 3rd day of May, 1997.
1
<PAGE>
ARTICLE I - OFFICES
Section 1. Known Place of Business. The known place of business of the
Corporation, which shall also be known as its principal place of business, shall
be at the address so designated in the Articles of Incorporation, or if no
address is so designated, at the address of the Corporation's statutory agent as
set forth in the Articles of Incorporation. The address of the Corporaton's
known place of business may be changed from time to time by the Board in the
manner provided in the Arizona Revised Statutes and without amending the
Articles of Incorporation.
Section 2. Other Offices. In addition to its known place of business,
the Corporation may maintain offices at such other place or places, either
within or without the State of Arizona, as may be designated from time to time
by the Board, or as the business of the Corporation may require.
ARTICLE II - SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the shareholders shall
be held on the first Monday of April of each calendar year, or if that day is a
legal holiday in Arizona, then on the next day thereafter which is not a legal
holiday, for the purpose of electing Directors and for the transaction of such
other business as may properly come before the meeting. If the election of
Directors is not held on the day designated herein for any annual meeting of the
shareholders, or any adjournment thereof, the Directors shall cause the election
to be held at a special meeting of the shareholders as soon thereafter as
convenient.
Section 2. Special Meeting Special meetings of the shareholders may be
called for any purpose or purposes at any time by the Chairman of the Board,
President, a Vice President or the Board, and shall be called by the Chairman of
the Board or President at the request of the holders of not less than one-tenth
(1/10) of all outstanding stock of the Corporation entitled to vote at such
meeting, or otherwise as provided by the Arizona Revised Statutes and Section 12
of Article II of these Bylaws.
Section 3. Place of Meeting. Annual and special meetings of the
shareholders shall be held at the principal place of business of the
Corporation, unless a different place, either within or without the State of
Arizona, is specified in the notice of such meeting, or in the event of a waiver
of notice of such meeting, in such waiver of notice.
Section 4. Notice of Meeting. Written notice stating the place, date
and hour of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called shall be delivered to each shareholder
of record entitled to vote at such meeting not less than ten (10) nor more than
sixty (60) days before the date of the meeting, either personally or by mail, by
an officer of the Corporation at the direction of the person or persons calling
the meeting. If mailed, notice shall be deemed to be delivered when mailed to
the shareholder at his or her address as it appears on the stock transfer books
of the Corporation. Notice need not be given of an adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken,
4
<PAGE>
provided that such adjournment is for less than thirty (30) days and further
provided that a new record date is not fixed for the adjourned meeting, in
either of which events, written notice of the adjourned meeting shall be given
to each shareholder of record entitled to vote at such meeting. At any adjourned
meeting, any business may be transacted which might have been transacted at the
meeting as originally noticed. A written waiver of notice, whether given before
or after the meeting to which it relates, shall be equivalent to the giving of
notice of such meeting to the shareholder or shareholders signing such waiver.
Attendance of a shareholder at a meeting shall constitute a waiver of notice of
such meeting, except when the shareholder attends for the express purpose of
objecting to the transaction of any business because the meeting is not lawfully
called or convened.
Section 5. Fixing Date for Determination of Shareholders Record. In
order that the Corporation may determine the shareholders entitled to notice of
or to vote at any meeting of shareholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or to receive
payment of any dividend or other distribution or allotment of any rights, or to
exercise any rights in respect of any other change, conversion or exchange of
stock or for the purpose of any other lawful action, the Board may fix in
advance a record date, which shall not be more than seventy (70) nor less than
ten (10) days prior to the date of such meeting or such action, as the case may
be. If the Board has not fixed a record date for determining shareholders for
any other purpose, the record date shall be at four o'clock in the afternoon on
the day before the day on which notice is given, or if notice is waived, at the
commencement of the meeting. If the Board has not fixed a record date for
determining shareholders for any other purpose, the record date shall be at the
close of business on the day before the Board adopts the resolution relating
thereto. A determination of shareholders of record entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the meeting
if such adjournment or adjournments do not exceed thirty (30) days in the
aggregate; provided, however, that the Board may fix a new record date for the
adjourned meeting.
Section 6. Voting Record. The Secretary or other officer having charge
of the stock transfer books of the Corporation shall make, or cause to be made,
a complete record of the shareholders entitled to vote at a meeting of
shareholders or any adjournment thereof, arranged in alphabetical order, with
the address of and the number of shares held by each shareholder. Such record
shall be produced and kept open at the time and place of the meeting and shall
be subject to inspection by the shareholders during the entire time of the
meeting for the purposes thereof. Failure to comply with the requirements of
this Section 6, however, shall not affect the validity of any action taken at
any such meeting.
Section 7. Quorum and Manner of Acting. At any meeting of the
shareholders, the presence, in person or by proxy, of the holders of a majority
of the outstanding stock entitled to vote shall constitute a quorum. All shares
represented and entitled to vote on any single subject matter which may be
brought before the meeting shall be counted for the purpose of voting on that
subject matter. Business may be conducted once a quorum is present and may
continue to be conducted until adjournment without rescheduling, notwithstanding
the withdrawal or temporary
5
<PAGE>
absence of shareholders leaving less than a quorum. Except as otherwise provided
in the Arizona Revised Statutes, the affirmative vote of the holders of a
majority of the shares of stock then represented at the meeting and entitled to
vote on the subject matter under consideration shall be the act of the
shareholders; provided; however, that if the shares of stock then represented
are less than the number required to constitute a quorum, the affirmative vote
must be such as would constitute a majority if a quorum were present, except
that the affirmative vote of the holders of a majority of the shares of stock
then present is sufficient in all cases to adjourn a meeting.
Section 8. Voting of Shares of Stock. Each shareholder shall be
entitled to one vote or corresponding fraction thereof for each share of stock
or fraction thereof standing in its name on the books of the Corporation on the
record date. A shareholder may vote either in person or by proxy executed in
writing by the shareholder or by its duly authorized attorney in fact, but no
such proxy shall be voted or acted upon after eleven (11) months from the date
of its execution unless the proxy provides for a longer period. Shares of its
own stock belonging to the Corporation or to another corporation, if a majority
of the shares of stock entitled to vote in the election of directors of such
other corporation is held directly or indirectly by the Corporation, shall
neither be entitled to vote nor counted for quorum purposes; provided however,
that the foregoing shall not be construed as limiting the right of the
Corporation to vote its own stock when held by it in a fiduciary capacity.
Shares of stock held by a trustee, other than a trustee in bankruptcy, may not
be voted by such trustee without a transfer of such shares into its name. Shares
of stock held by or under the control of a receiver or trustee in bankruptcy may
be voted by such receiver or trustee, either in person or by proxy, without a
transfer thereof into its name if authority so to do is contained in an
appropriate order of the court by which such receiver or trustee was appointed.
A person whose stock is pledged shall be entitled to vote such stock unless the
stock has been transferred into the name of the pledgee on the books of the
Corporation, in which case only the pledgee or its proxy shall be entitled to
vote such stock. If shares of stock stand of record in the names of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, tenants by the entirety, tenants by community property or otherwise,
or if two or more persons have the same fiduciary relationship respecting the
same shares of stock, unless the fiduciary relationship respecting the same
shares of stock, unless the fiduciary relationship respecting the same shares of
stock, unless the Corporation is given written notice in the manner required by
the Arizona Revised Statutes to the contrary and is furnished with a copy of the
instrument or order appointing them or creating the relationship wherein it is
so provided, their acts with respect to voting shall have the following effect:
(i) if only one votes, his or her act binds all; (ii) if more than one vote, the
act of the majority so voting binds all; and (iii) if more than one vote, but
the vote is evenly split on any particular matter, each faction may vote the
shares in question proportionally. If any tenancy is held in unequal interests,
the majority or even split, for the purpose of the preceding sentence, shall be
a majority or even split in interest. Unless demanded by a shareholder present
in person or by proxy at any meeting of the shareholders and entitled to vote
thereat, or unless so directed by the chairman of the meeting, the vote thereat
on any question need not be by ballot. If such demand or direction is made, a
vote by ballot shall be taken, and each ballot shall be signed by the
shareholder voting, or by its proxy, and shall state the number of shares voted.
6
<PAGE>
Section 9. Organization. At such meeting of the shareholders, the
Chairman of the Board, or, if he or she is absent therefrom, the President, or,
if he or she is absent therefrom, another officer of the Corporation chosen as
chairman of such meeting by a majority in voting interest of the shareholders
present in person or by proxy and entitled to vote thereat, or, if all the
officers of the Corporation are absent therefrom, a shareholder of record so
chosen, shall act as chairman of the meeting and preside thereat. The Secretary,
or, if he or she is absent from the meeting or is required pursuant to the
provisions of this Section 9 to act as chairman of such meeting, the person (who
shall be an Assistant Secretary, if any and if present) whom the chairman of the
meeting shall appoint shall act as secretary of the meeting and keep the minutes
thereof.
Section 10. Order of Business. The order of business at each meeting of
the shareholders shall be determined by the chairman of such meeting, but the
order of business may be changed by the vote of a majority in voting interest of
those present in person or by proxy at such meeting and entitled to vote
thereat.
Section 11. Election of Directors. At each election of Directors, each
shareholder entitled to vote thereat shall have the right to vote, in person or
by proxy, the number of shares of stock owned by such shareholder for as many
persons as there are Directors to be elected and for whose election he or she
has a right to vote, or to cumulate its votes by giving one candidate as many
votes as the number of such Directors multiplied by the number of its shares of
stock shall equal, or by distributing such votes on the same principle among any
number of candidates. The candidates receiving the greatest number of votes, up
to the number of Directors to be elected, shall be the Directors.
Section 12. Action By Shareholders Without a Meeting. Any action
required or permitted to be taken at a meeting of the shareholders may be taken
without a meeting, without notice and without a vote, if a consent in writing,
setting forth the action so taken, is signed by all shareholders entitled to
vote with respect to the subject matter thereof.
Section 13. Irregularities. All informalities and irregularities at any
meeting of the shareholders with respect to calls, notices of meeting, the
manner of voting, the form of proxies and credentials, and the method of
ascertaining those present shall be deemed waived if no objection is made at the
meeting.
ARTICLE III - BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the Corporation
shall be managed by the Board of Directors.
Section 2. Number and Term of Office. Subject to the requirements of
the Arizona Revised Statutes, the Board may from time to time determine the
number of Directors. Until the Board shall otherwise determine, the number of
Directors shall be that number comprising the initial Board as set forth in the
Articles of Incorporation. Each Director shall hold office until his or her
7
<PAGE>
President, the Treasurer or the Secretary, may effect loans and advances at any
time for the Corporation from any bank, trust company or other institution or
from any firm or individual and, for such loans and advances, may make, execute
and deliver promissory notes or other evidences of indebtedness of the
Corporation, but no officer or officers shall mortgage, pledge, hypothecate or
otherwise transfer for security any property owned or held by the Corporation
except when authorized by resolution adopted by the Board,
Section 4. Checks, Drafts. All checks, drafts, orders for the payment
of money, bills of lading, warehouse receipts, obligations, bills of exchange
and insurance certificates shall be signed or endorsed (except endorsements for
collection for the account of the Corporation or for deposit to its credit,
which shall be governed by the provisions of Section 5 of this Article VI) by
such officer or officers or agent or agents of the Corporation and in such
manner as shall from time to time be determined by resolution of the Board.
Section 5. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
or otherwise as the Board, the Chairman of the Board or the President shall
direct in general or special accounts at such banks, trust companies, savings
and loan associations, or other depositories as the Board may select or as may
be selected by any officer or officers or agent or agents of the Corporation to
whom power is that respect has been delegated by the Board. For the pupose of
deposits and for the purpose of collection for the account of the Corporation,
checks, drafts and other orders for the payment of money which are payable to
the order of the Corporation may be endorsed, assigned and delivered by any
officer or agent of the Corporation. The Board may make such special rules and
regulations with respect to such accounts, not inconsistent with the provisions
of these Bylaws, as it may deem expedient.
Section 6. Proxies in Respect of Stock or Other Securities of Other
Corporations. Unless otherwise provided by resolution adopted by the Board, the
Chairman of the Board, the President or any Vice President may exercise in the
name and on behalf of the Corporation the powers and rights which the
Corporation may have as the holder of stock or other securities in any other
coporation, including without limitation the right to vote or consent with
respect to such stock or other securities.
ARTICLE VII - STOCK
Section 1. Certificates. Every holder of stock in the Corporation shall
be entitled to have a certificate signed by or in the name of the Corporation by
the Chairman of the Board, the President or a Vice President and by the
Secretary or an Assistant Secretary. The signatures of such officers upon such
certificate may be facsimiles if the certificate is manually signed by a
transfer agent or registered by a registrar, other than the Corporation itself
or one of its employees. If any officer who has signed or whose facsimile
signature has been placed upon a certificate has ceased for any reason to be
such officer prior to issuance of the certificate, the certificate may be issued
with the same effect as if that person were such officer at the date of issue.
All certificates for stock of the Corporation shall be consecutively numbered,
shall state the number of shares represented thereby and shall
15
<PAGE>
otherwise be in such form as shall be determined by the Board, subject to such
requirements as are imposed by the Arizona Revised Statutes. The names and
addresses of the persons to whom the shares represented by certificates are
issued shall be entered on the stock transfer books of the Corporation, together
with the number of shares and the date of issue, and in the case of
cancellation, the date of cancellation. Certificates surrendered to the
Corporation for transfer shall be canceled, and no new certificate shall be
issued for such shares until the original certificate has been canceled; except
that in the case of a lost, destroyed or mutilated certificate, a new
certificate may be issued therefor upon such terms and indemnity to the
Corporation as the Board may prescribe.
Section 2. Transfers of Stock. Transfers of shares of stock of the
Corporation shall be made only on the stock transfer books of the Corporation by
the holder of record thereof or by its legal representative or attorney in fact,
who shall furnish proper evidence of authority to transfer to the Secretary, or
a transfer clerk or a transfer agent, and upon surrender of the certificate or
certificates for such shares property endorsed and payment of all taxes thereon.
The person whose name shares of stock stand on the books of the Corporation
shall be deemed the owner thereof for all purposes as regards the Corporation.
Section 3. Regulations. The Board may make such rules and regulations
as it may deem expedient, not inconsistent with they Bylaws, concerning the
issue, transfer and registration of certificates for stock of the Corporation.
The Board may appoint, or authorize any officer or officers or any committee to
appoint, one or more transfer clerks or one or more transfer agents and one or
more registrars, and may require all certificates for stock to bear the
signature or signatures of any of them.
ARTICLE VIII - DIVIDENDS
The Board may from time to time declare, and the Corporation may pay,
dividends on its outstanding shares of stock in the manner and upon the terms
and conditions provided in the Arizona Revised Statutes.
ARTICLE IX - SEAL
A corporate seal shall not be requisite to the validity of any
instrument executed by or on behalf of the Corporation. Nevertheless, if any
instance a corporate seal is used, the same shall be in the form of a circle and
shall bear the full name of the Corporation and the year and state of
incorporation, or words and figures of similar import.
ARTICLE X - AMENDMENTS
These Bylaws may be repealed, altered or amended, and new Bylwaws may
be adopted, at any time only by majority vote of the Board.
16
INCORPORATED UNDER THE LAWS OF THE STATE OF ARIZONA
PREMIUM CIGARS
INTERNATIONAL, LTD.
This certifies that SPECIMEN is the owner of
_________________________________________________________________ fully paid and
non-assessable Shares of the above Corporation transferable only on the books of
the Corporation by the holder hereof in person or by duly authorized Attorney
upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
Dated ______________________________
PREMIUM CIGARS INTERNATIONAL, LTD.
UNDERWRITER'S COMMON STOCK PURCHASE WARRANT
PREMIUM CIGARS INTERNATIONAL, LTD. (the "Company"), an Arizona
corporation, hereby certifies that, for an aggregate consideration of
_______________ ($_____), W.B. McKee Securities, Inc. is entitled, subject to
the term set forth below, at any time and from time to time, but not earlier
than one year nor more than five years from __________, 1997 (the "Issue Date"),
to purchase from the Company _______________ (_____) shares of Common Stock, no
par value (each "Share" and together the "Shares") of the Company at the
purchase price per Share of $_____ (the purchase price per Share, as adjusted
from time to time pursuant to the provisions hereunder set forth, being referred
to herein as the "Exercise Price"). The Issue Date shall be the effective date
of the Registration Statement. The Shares issuable upon exercise of this
Underwriter's Common Stock Purchase Warrant (the "Warrant") have the same
respective terms as the shares of Common Stock offered by the Company's
Registration Statement on Form SB-2 (File No. 33-__________) dated __________,
1997 (the "Registration Statement"). This Warrant and all rights hereunder, to
the extent such rights shall not have been exercised, shall terminate and become
null and void to the extent the holder fails to exercise any portion of this
Warrant prior to 5:00 p.m., Mountain Standard Time, on __________, 2002. This
right is conditioned upon the sale by the Underwriter of _____ shares of Common
Stock as provided in the Registration Statement.
1. Registration.
a. The Company agrees for a period of four years commencing
one year after the Issue Date, that if during such four-year period, no current
registration statement by the Company is on file with the U.S. Securities and
Exchange Commission covering the securities underlying this Warrant upon receipt
of a written request from the holder of this Warrant or a majority of the
securities issued or issuable hereunder, it will prepare and file under the
Securities Act of 1933, as amended (the "Act"), one (but only one) registration
statement or Notification on Form 1-A, if then required, in order to permit a
public offering of the securities then underlying this Warrant, and will use its
best efforts to cause such registration statement or Notification to become
effective at the earliest possible date and to remain effective for a period not
to exceed 270 days. The Company will bear the cost of such registration
statement, including but not limited to counsel fees of the Company and
disbursements, accountants' fees and printing costs, if any, but excluding the
fees of counsel and others hired by the holder. The Company also agrees that it
will furnish to you opinions of counsel to the same effect as provided in
Section 6(b) of the Underwriting Agreement entered into by the parties hereto on
__________________, 1997 (the "Underwriting Agreement"), to the extent then
applicable, except that such opinions shall relate to such registration
statement and to the securities which shall be offered thereby. The Company and
you further agree that as to such registration statement, the provisions of
Section 6(d) of the Underwriting Agreement shall apply, except that the Company
shall be required to qualify the
-1-
<PAGE>
securities underlying this Warrant only in a reasonable number of jurisdictions
under the circumstances. Additionally, if at any time within five (5) years from
Issue Date, the Company or any successor intends to file a Notification on Form
1-A under the Act or a registration statement relating to a public offering of
its securities under the Act, it will offer upon 15 days' written notice to the
holder of this Warrant or the holders of the underlying securities (the
"Holders") to include the securities underlying this Warrant in such
registration statement at the expense of the Company, limited in the case of a
Regulation A Offering to the amount of the available exemption; provided that if
such public offering is on a firmly underwritten basis, such securities may be
excluded to the extent the managing underwriter thereof advises the Company and
the Holders in writing that inclusion of such securities would impair the
underwritten offering of securities for the account of the Company.
b. If at the time of any request to register the securities
underlying this Warrant, the Company is engaged or has fixed plans to engage
within thirty (30) days of the time of the request in a registered public
offering as to which the securities underlying this Warrant may be included or
is engaged in any other activity which, in the good faith determination of the
Company's Board of Directors, would be adversely affected by the requested
registration to the material detriment of the Company, then the Company may at
its option direct that such request be delayed for a period not in excess of
three (3) months from the effective date of such offering or the date of
commencement of such other material activity, as the case may be, such right to
delay a request to be exercised by the Company not more than once in any
two-year period.
2. Exercise of Warrant.
a. All or any part of this Warrant may be exercised by the
holder by surrendering it, with the form of subscription at the end hereof duly
executed by such holder, to the Company's transfer agent accompanied by payment
in full, in cash or by certified or official bank check, of the Exercise Price
payable in respect of all or part of this Warrant being exercised. If less than
the entire Warrant is exercised, the Company shall, upon such exercise, execute
and deliver to the holder thereof a new warrant in the same form as this Warrant
evidencing that Warrant to the extent not exercised.
b. The Company shall, at the time of any exercise of all or
part of this Warrant, upon the request of the holder hereof, acknowledge in
writing its continuing obligation to afford to such holder any rights to which
such holders shall continue to be entitled after such exercise in accordance
with the provisions of this Warrant, provided that if the holder of this Warrant
shall fail to make any such request, such failure shall not affect the
continuing obligations of the Company to afford to such holder any such rights.
3. Fractional Shares. No fractional securities or scrip representing
fractional securities shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called upon any such exercise hereof, the
Company shall pay to the holder an amount in
-2-
<PAGE>
cash equal to such fraction multiplied by the current market value of such
fractional securities, determined as follows:
a. If the security is listed on a national securities exchange
or admitted to unlisted trading privileges on such exchange, the current value
shall be the last reported sale price of the security on such exchange on the
last business day prior to the date of exercise of this Warrant, or if no such
sale is made on such day, the average closing bid and asked prices for such day
on such exchange; or
b. If the security is not listed or admitted to unlisted
trading privileges, the current value shall be the last reported sale price or
the mean of the last reported bid and asked prices reported by the National
Association of Securities Dealers Quotation System (or, if not so quoted on
NASDAQ, by the National Quotation Bureau, Inc.) on the last business day prior
to the date of the exercise of this Warrant; or
c. If the security is not so listed or admitted to unlisted
trading privileges and prices are not reported on NASDAQ, the current value
shall be an amount, not less than the book value, determined in such reasonable
manner as may be prescribed by the Board of Directors of the Company.
4. Exchange, Assignment, or Loss of Warrant. This Warrant is
exchangeable, without expense, at the option of the holder, upon presentation
and surrender hereof to the transfer agent for other Warrants of different
denominations entitling the holder thereof to purchase in the aggregate the same
number of securities purchased hereunder. This Warrant is restricted from sale,
transfer, assignment, or hypothecation except to officers of W.B. McKee
Securities, Inc. and by operation of law. Any such assignment shall be made by
surrender of this Warrant to ____________ (the "Transfer Agent") with the Form
of Assignment annexed hereto duly executed and funds sufficient to pay any
transfer tax; whereupon the Transfer Agent shall, without charge, cause to be
executed and delivered a new Warrant in the name of the assignee named in such
instrument or assignment and this Warrant shall promptly be canceled. This
Warrant may be divided or combined with other Warrants that carry the same
rights upon presentation hereof to the office of the Transfer Agent together
with a written notice specifying the names and denomination in which new
Warrants are to be issued and signed by the holder hereof. The term "Warrant" as
used herein includes any Warrants issued in substitution for or replacement of
this Warrant, or into which this Warrant may be divided or exchanged. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft or
destruction of reasonably satisfactory indemnification including a surety bond,
and upon surrender and cancellation of this Warrant, if mutilated, the Transfer
Agent will cause to be executed and delivered a new Warrant of like tenor and
date. Any such new Warrant executed and delivered shall constitute an additional
contractual obligation on the part of the Company, whether or not this Warrant
so lost, stolen, destroyed, or mutilated shall be at any time enforceable by
anyone.
-3-
<PAGE>
5. Rights of the Holder. The holder of this Warrant shall not, by
virtue hereof, be entitled to any rights of a stockholder in the Company, either
at law or equity, and the rights of the holder are limited to those expressed in
this Warrant.
6. Adjustments.
a. The number of securities purchasable on exercise of this
Warrant and the purchase prices therefor shall be subject to adjustment from
time to time in the event that the Company shall: (1) pay a dividend in, or make
a distribution of, shares of Common Stock, (2) subdivide its outstanding shares
of Common Stock into a greater number of shares, (3) combine its outstanding
shares of Common Stock into a smaller number of shares, or (4) spin-off a
subsidiary by distributing, as a dividend or otherwise, shares of the subsidiary
to its stockholders. In any such case, the total number of shares and the number
of shares or other units of such total securities purchasable on exercise of
this Warrant immediately prior thereto shall be adjusted so that the holder
shall be entitled to receive, at the same aggregate purchase price, the number
of shares of Common Stock and the number of shares or other units of such other
securities that the holder would have owned or would have been entitled to
receive immediately following the occurrence of any of the events described
above had this Warrant been exercised in full immediately prior to the
occurrence (or applicable record date) of such event. An adjustment made
pursuant to this Section 6(a) shall, in the case of a stock dividend or
distribution, be made as of the record date and, in the case of a subdivision or
combination, be made as of the effective date thereof. If, as a result of any
adjustment pursuant to this Section 6(a), the holder shall become entitled to
receive shares of two or more classes of series of securities of the Company,
the Board of Directors of the Company shall equitably determine the allocation
of the adjusted purchase price between or among shares or other units of such
classes or series and shall notify the holder of such allocation.
b. In the event of any reorganization or recapitalization of
the Company or in the event the Company consolidates with or merges into another
entity or transfers all or substantially all of its assets to another entity,
then and in each such event, the holder, on exercise of this Warrant as provided
herein, at any time after the consummation of such reorganization,
recapitalization, consolidation, merger or transfer, shall be entitled, and the
documents executed to effectuate such event shall so provide, to receive the
stock or other securities or property to which the holder would have been
entitled upon such consummation if the holder had exercised this Warrant
immediately prior thereto. In such case, the terms of this Warrant shall survive
the consummation of any such reorganization, recapitalization, consolidation,
merger or transfer and shall be applicable to the shares of stock or other
securities or property receivable on the exercise of this Warrant after such
consummation.
c. Whenever a reference is made in this Section 6 to the issue
or sale of shares of Common Stock, the term "Common Stock" shall mean the Common
Stock of the Company of the class authorized as of the date hereof and any other
class stock ranking on a parity with such Common Stock.
-4-
<PAGE>
d. Whenever the number of securities purchasable upon exercise
of this Warrant or the purchase prices thereof shall be adjusted as required
herein, the Company shall forthwith file in the custody of its secretary at its
principal office, and with its Transfer Agent, an officer's certificate showing
the adjusted number or price determined as herein provided and setting forth in
detail the facts requiring such adjustment. Each such officer's certificate
shall be made available at all reasonable times for inspection by the holder and
the Company shall, forthwith after such adjustment, deliver a copy of such
certificate to the holder.
e. The Company will not, by amendment of its certificate of
incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issuance or sale of securities or
any other voluntary action avoid or seek to avoid the performance of any of the
terms of this Warrant, but will at all times in good faith take all necessary
action to carry out the intent of all such terms. Without limiting the
generality of the foregoing, the Company (1) will not increase the par value, of
any securities receivable on exercise of this Warrant above the amount payable
therefor on such exercise, (2) will take all action as may be necessary or
appropriate so that the Company may validly and legally issue fully paid and
nonassessable shares (or other securities or property deliverable hereunder)
upon the exercise of this Warrant, and (3) will not transfer all or
substantially all of its assets to any other person (corporate or otherwise), or
consolidate with or merge into any other person or permit any such person to
consolidate with or merge into the Company (if the Company is not the surviving
person), unless such other person shall be bound by all the terms of this
Warrant. If any event occurs as to which the other provisions of this Warrant
are not strictly applicable or if strictly applicable would not fairly protect
the purchase rights of this Warrant in accordance with the essential intent and
principles of such provisions, then the Board of Directors shall make an
adjustment in the application of such provisions, in accordance with such
essential intent and principles, in order to protect such purchase rights. This
Warrant shall bind the successors and assigns of the Company.
7. Notices of Record Dates, Etc.
a. If the Company shall fix a record date of the holders of
Common Stock (or other securities at the time deliverable on exercise of this
Warrant) for the purpose of entitling or enabling them to receive any dividends
or other distribution, or to receive any right to subscribe for or purchase any
shares of any class of any securities, or to receive any other right
contemplated by Section 6 or otherwise; or
b. In the event of any reorganization or recapitalization of
the Company, any reclassification of the capital stock of the Company, any
consolidation or merger of the Company with or into another corporation or any
transfer of all or substantially all of the assets of the Company to another
entity; or
c. In the event of the voluntary or involuntary dissolution,
liquidation or winding up of the Company, then, in any such event, the Company
shall mail or cause to be
-5-
<PAGE>
mailed to the holder a notice specifying, as the case may be, (1) the date on
which a record is to be taken for the purpose of such dividend, distribution or
right and stating the amount and character of such dividend, distribution or
right, or (2) the date on which a record is to be taken for the purpose of
voting on or approving such reorganization, recapitalization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding up and
the date on which such event is to take place and the time, if any is to be
fixed, as of which the holder of record of Common Stock (or any other securities
at the time deliverable on exercise of this Warrant) shall be entitled to
exchange its shares of Common Stock (or such other securities) for securities or
other property deliverable on such reorganization, recapitalization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding up. Such notice shall be mailed at the same date as the Company shall
inform its stockholders.
8. Reservation of Shares. The Company shall at all times reserve, for
the purpose of issuance on exercise of this Warrant such number of shares of
Common Stock or such class or classes of capital stock or other securities as
shall from time to time be sufficient to comply with this Warrant, the Warrants
and the Company shall take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized and unissued shares of Common
Stock or such other class or classes of capital stock or other securities to
such number as shall be sufficient for that purpose.
9. Approvals. The Company shall from time to time use its best efforts
to obtain and continue in effect any and all permits, consents, registrations,
qualifications and approvals of governmental agencies and authorities and to
make all filings under applicable securities laws that may be or become
necessary in connection with the issuance, sale, transfer and delivery of this
Warrant and the issuance of securities on any exercise hereof, and if any such
permits, consent, qualifications, registrations, approvals or filings are not
obtained or continued in effect as required, the Company shall immediately
notify the holder thereof. Nothing contained in this Section 9 shall in any way
expand, alter or limit the rights of the holder set forth in Section 1 hereof.
10. Survival. All agreements, covenants, representations and warranties
herein shall survive the execution and delivery of this Warrant and any
investigation at any time made by or on behalf of any parties hereto and the
exercise, sale and purchase of this Warrant and any other securities or property
issuable on exercise hereof.
11. Remedies. The Company agrees that the remedies at law of the
holder, in the event of any default or threatened default by the Company in the
performance or compliance with any of the terms of this Warrant, may not be
adequate and such terms may, in addition to and not in lieu of any other remedy,
be specifically enforced by a decree of specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
-6-
<PAGE>
12. Notices. All demands, notices, consents and other communications to
be given hereunder shall be in writing and shall be deemed duly given when
delivered personally or five days after being mailed by first class mail,
postage prepaid, properly addressed, if to the Company at
_________________________________________________________________, or if to the
holder at 3003 North Central Avenue, Suite 100, Phoenix, Arizona 85012. The
Company and each holder may change such address at any time or times by notice
hereunder to the other.
13. Amendments; Waivers; Terminations; Governing Law; Headings. This
Warrant and any term hereof may be changed, waived, discharged or terminated
only by an instrument in writing signed by the party against which enforcement
of such change, waiver, discharge or termination is sought. This Warrant shall
be governed by and construed and interpreted in accordance with the laws of the
State of Arizona. The headings in this Warrant are for convenience of reference
only and are not part of this Warrant.
-7-
<PAGE>
DATED: ________________
PREMIUM CIGARS INTERNATIONAL, LTD.
an Arizona corporation
By
--------------------------------
Steven J. Lambrecht,
----------
ATTEST:
By
-------------------------------
, Secretary
-------------------------------
-8-
<PAGE>
FORM OF ASSIGNMENT
(To be executed upon transfer of Warrant)
FOR VALUE RECEIVED, ____________________________ hereby sells, assigns
and transfers to _____________________________________________________________
the within Underwriter's Common Stock Purchase Warrant, together with all
rights, title and interest therein, and does hereby irrevocably constitute and
appoint attorney to transfer such Underwriter's Common Stock Purchase Warrant on
the warrant register of Premium Cigars International, Ltd., with full power of
substitution.
Signature:
------------------------------
DATED: , 19
------------------- --
Signature Guaranteed:
------------------------------
-9-
<PAGE>
SUBSCRIPTION
(To be completed and signed only upon an exercise
of the Underwriter's Common Stock Purchase Warrant in whole or in part)
TO:
--------------------------------------------------------
as Transfer Agent for Premium Cigars International, Ltd.
__________________________
The undersigned, the Holder of the attached Underwriter's Common Stock
Purchase Warrant, hereby irrevocably elects to exercise the purchase right
represented by the Underwriter's Common Stock Purchase Warrant for, and to
purchase thereunder, ____ Shares (as such terms are defined in the Underwriter's
Common Stock purchase Warrant dated , 1997, from Premium Cigars International,
Ltd.) or other securities or property, and herewith makes payment of $ therefor
in cash or by certified or official bank check. The undersigned hereby requests
that the Certificate(s) for such shares, or other securities or property, be
issued in the name(s) and delivered to the address(es) as follows:
Name:
-----------------------------------------
Address:
-----------------------------------------
Deliver to:
-----------------------------------------
Address:
-----------------------------------------
If the foregoing Subscription evidences an exercise of the
Underwriter's Common Stock Purchase Warrant to purchase fewer than all of the
Shares (or other securities or property) to which the undersigned is entitled
under such Underwriter's Common Stock Purchase Warrant, please issue a new
Underwriter's Common Stock Purchase Warrant, of like tenor, for the remaining
Shares (or other securities or property) in the name(s), and deliver the same to
the address(es), as follows:
Name:
-----------------------------------------
Address:
-----------------------------------------
DATED: , 19 .
----------------------------- --
-10-
<PAGE>
--------------------------------
(Name of Holder)
--------------------------------
(Signature of Holder or
Authorized Signatory)
--------------------------------
(Social Security or Taxpayer
Identification Number of Holder)
-11-
INVESTMENT BANKING AGREEMENT
This agreement made by and between PREMIUM CIGARS INTERNATIONAL, having
its business offices at 11259 East Via Linda, Scottsdale, Arizona 85259 (the
"Company") and W.B. MCKEE SECURITIES, INC. (the "Consultant") with principal
offices at 3003 North Central Avenue, Suite 100, Phoenix, Arizona 85012.
Because the Company desires to retain the Consultant and the Consultant
desires to be retained by the Company, all pursuant to the terms and conditions
hereinafter set forth; and in consideration of the foregoing and the mutual
promises and covenants herein contained, the parties agree as follows:
1. Retention. The Company hereby retains the consultant to perform
consulting services related to corporate finance and other matters on an
exclusive basis, and the Consultant hereby accepts such retention and shall
perform for the Company the duties described herein to the best of its ability.
In this regard, subject to paragraph 12 hereof, Consultant shall devote such
business time and attention to matters on which the Company, through its Chief
Operating Officer, shall request its services.
a) The Consultant agrees to the extent reasonably required in the
conduct of the business of the Company, to utilize its best efforts to
provide review, advice, analysis, consultation, recommendations and
other services to the Company which may include the following:
(i) Based upon our discussions and preliminary information
submitted by the Company to us, but subject to our due diligence,
and the successful completion of a merger between the company and
an existing public shall, we hereby confirm in principle our
interest in underwriting, on a firm commitment basis, a secondary
public offering of the Company's securities.
(ii) analyze and assess financing alternatives for the
Company for raising capital to finance acquisition equity
holders, provide advice on the Company's market valuation, and
examine potential sources for private offerings of the Company's
securities; assist the Company in its negotiations with financing
sources;
(iii) review and make written recommendations regarding
budgets, business plans and financial projections;
(iv) review and make written recommendations regarding the
Company's managerial and financial requirements and corporate
focus;
(v) advise with regard to shareholder relations and public
relations matters, including the preparation of and dissemination
of financing documents to certain of the Consultant's clients and
other members of the financial community (as determined by the
Consultant);
(vi) attend quarterly Board of Directors meetings as an
non-voting observer. The Company will pay Consultatn no
compensation for attending these meetings, but will pay all
out-of-pocket expenses relating to the attendance by the
Consultant.
b) The Consultant agrees to use its best efforts in a timely
fashion in the furnishing of advice and recommendations, and for this
purpose the Consultant shall at all times maintain or keep available an
adequate organization of personnel or a network of outside
professionals for the performance of its obligations under this
Agreement. In order to allow the Consultant to be kept current with the
coroporate affairs of the Company, at the Consultant's request, the
Company will provide "due diligence" presentations to Registered
representatives of the Consultant. The dates and locations for
presentations will be mutually agreed upon between the Company and the
Consultant. The Consultant may
<PAGE>
Premium Cigars 2
12/14/96
request the Company to present due diligence presentations to other
broker dealers and/or investors at appropriate periods of time.
2. Term. The Consultant's retention hereunder shall be for a trem of
eighteen months commencing on the day this agreement is signed. The Company
shall have the option to extend the term of this Agreement by written notice to
Consultant for an additional six months term ("Extension Term"). This Agreement
may be terminated by either party upon 30 days written notice to the other.
3. Compensation.
a) The Company shall pay the Consultant a non refundable
retainer, payable in the amount of $25,000 upon the signing of this agreement.
The retainer will be credited against success fees from a public offering of the
Company's securities.
(b) If the Company announces or enters into an agreement with
respect to a Transaction either during the term of Consultant's engagement
hereunder or at any time during a period of 12 months following the effective
date of termination of Consultant's engagement hereunder and the party or
parties to the Transaction were identified by Consultant or whether Consultant
rendered advice concerning the Transaction, and such transaction is thereafter
consummated, the Company shall pay to the Consultant 10% of the total
Consideration paid in each of such Transactions.
4. Securities Offerings. In the event of a private and/or public
offering of the of the Company's securities, the Company shall pay the
Consultant a commission fee equal to 10% of gross equity proceeds plus a 3% non
accountable expense allowance and 7% of any gross debt proceeds resulting from
the closing, or each closing, of the offering.
a) As additional compensation, the Company will grant to the
Consultant warrants (Warrants) to purchase that number of shares of its
securities which will equal ten percent (10%) of the post money isued securities
upon the closing the Offering. The exercise price of the warrants wil be 120% of
the issued price of the securities and the Warrants will have a term of five (5)
years from the date of this Agreement and will contain certain anti-dilution
provisions acceptable to the Consultant. The Warrants will have a value of $.001
per Warrant.
5. Right of First Refusal. The Consultant shall have the right of first
refusal, on the same or better terms as offered by a bona fide third party
investment banker, to participate as Underwriter, Co-Underwriter or Placement
Agent for any public or private offering of the securities of the Company or any
successor to the Company or any officer or director of the Company or any
stockholder of the Company owning beneficially at least 5% of the Company's
Common Stock. The Company shall provide Consultant written notice of such
proposed terms and Consultant shall have fifteen (15) days thereafter to
exercise its right of first refusal.
6. Expenses. The Company agrees to reimburse the Consultant for
reasonable expenses incurred by the Consultant in connection with srvices
rendered hereunder. Such expenses, if greater than $300 per month, shall be
reimbursed only if they have been incurred with the prior written approval of
the Company.
7. Company Expenses. The Company shall bear all costs and expense
incident to the issuance, offer, sale and delivery of the Shares or Debt
Instruments, including any legal and accounting fees, expenses of Company due
diligence meetings, costs of any printing and mailing of the Offering or
supporting documents, including supplements and amendments.
8. Liability of Consultant. The Consultant shall have no liability with
respect to decisions made or actions taken by the Company in reliance on advice
or recommendations given by Consultant or transactions presented to the Company
by the Consultant. The Company agrees to
<PAGE>
Premium Cigars 3
12/14/96
indemnify and hold harmless the Consultant and its affiliates, the respective
directors, officers, partners, agents and employees and each other person, if
any, controlling the Consultant or any of its affiliates (collectively the
"Consultant Parties"), to the full extent lawful, form and against all losses
claims, damages, liabilites and expenses incurred by them (including attorney's
fees and disbursements) that result from actions taken or omitted to be taken
(including any untrue statements made or any statements omitted to be made) by
the Company, its agents or employees. The Consultant will indemnify and hold
harmless the Company and the respective directors, officers, agents and
employees of the Company (the "Company Parties") from and against all losses,
claims, damages, liabilities and expenses that result from bad faith, gross
negligence or unauthorized representations of the Consultant; provided, however,
in no event shall the Consultant be responsible for any amount in excess of the
compensation paid to the Consultant under the Agreement. Each person or entity
seeking indemnification hereunder shall promptly notify the Company, or the
Consultant as applicable, of any loss, claim, damage or expenses for which the
Company or the Consultant as applicable, may become liable pursuant to this
Section, shall not pay, settle or acknowledge liability under any such claim
without consent of the party liable for indemnification, and shall permit the
Company or Consultant as applicable a reasonable opportunity to cure any
underlying problem or to mitigate actual or potential damages. The scope of this
indemnification between the Consultant and the Company shall be limited to, and
pertain only to certain transactions contemplated or entered into pursuant to
this letter of engagement.
The Company or the Consultant, as applicable, shall have the
opportunity to defend any claim for which it may be liable hereunder, provided
it notifies the party claiming the right to indemnification within 15 days of
notice of the claim.
The rights stated pursuant to the preceding two paragraphs shall be in
addition to any rights that the Consultant, the Company, or any other person
entitled to indemnification may have in common law or otherwise, including, but
not limited to, any right to contribution.
9. Status of Consultant. The Consultant shall be deemed to be an
independent contractor. The Consultant shall have no authority to, and shall
not, bind the Company to any agreement or obligation with a third party. Nothing
in this Agreement will constitute the parties here to co-partners or
joint-ventures with each other.
10. Other Activities of Consultant. The Company recognizes that the
Consultant now renders, and may continue to render, financial consulting and
other investment banking services similar to those services being rendered under
this Agreement to other companies, some of which may conduct business and
activities similar to those of the Company. The Consultant shall not be required
to devote its full time and attention to the performance of its duties under
this Agreement, but shall devote only so much of its time and attention as it
deems reasonable or necessary for such puposes.
11. Control. Nothing contained herein shall be deemed to require the
Company to take any action contrary to its Certificate of Incorporation or
By-Laws, or any applicable statute or regulation, or to deprive its Board of
Directors of their responsibility for any control of the conduct of the affairs
of the Company.
12. Due Diligence of Consultant. The Consultant may be required, in
connection with its technical and due diligence investigation, to retain third
parties for technical advice and assistance. The Company shall bear the costs of
such third parties, provided the Company has approved the costs in advance.
13. Notices. Any notices hereunder shall be sent to the Company and the
Consultant at their respective addresses above set forth. Any notice shall be
given by registered or certified mail, postage prepaid, and shall be deemed to
have been given when deposited in the United States
<PAGE>
Premium Cigars 4
12/14/96
mail. Either party may designate any other address to which notice shall be
given, by giving written notice to the other of such change of address in the
manner herein provided.
14. Governing Law. This Agreement has been made in the State of Arizona
and shall be construed and governed in accordance with the laws thereof without
regard to conflicts of laws. In the event that disagreement arises between the
parties to this contract, and these parties are unable to resolve them, then
these parties agree to settle those disagreements through the use of a duly
licensed and current arbitrator.
15. Entire Agreement. This Agreement contains the entire agreement
between the parties, may not be altered or modified, except in writing and
signed by the party to be charged thereby and supersedes any and all previous
agreements between the parties.
16. Conditions. This agreement is conditioned by the Consultants
acceptance of a Letter of Understanding from current equity holders stating
sellers terms. In addition, the Company agrees to expeditiously provide 5 year
projections, a revised organizational chart, and a current business plan.
17. Binding Effect. This Agreement shall be binding upon the parties
hereto and their respective heirs, administrators, successors, and assignees.
Merger and Acquisition Agreement
This will confirm the understanding and agreement (the "Agreement")
between W.B. McKee Securities, Inc. ("Consultant") and Premium Cigars
International, Inc. (the "Company") as follows:
1. The Company hereby engages Consultant and Consultant hereby accepts such a
engagement, as the Company's agent for the purpose of (a) identifying
opportunities for a transaction involving the Company including, without
limitation, the sale of the Company, or any of its businesses, assets, or
properties, or the purchase by the Company of other companies, or any of their
businesses, assets, or properties, (b) advising the Company concerning
opportunities for such a transaction and (c) as requested by the Company,
participating on the Company's behalf in negotiations concerning such a
transaction or assisting the Company in structuring such transaction.
2. For the purposes of this Agreement:
(a) A "Transaction" shall mean any transaction or series or combination
of transactions involving the Company, other than in the ordinary course of
trade or business, whereby, directly or indirectly, control of, or a material
interest in any business, assets or properties is sold, purchased, leased or
otherwise transferred, including, without limitation, a sale, purchase or
exchange of capital stock or assets, a lease of assets with or without a
purchase option, a merger or consolidation, a tender or exchange offer, a
leveraged buy-out, a restructu9ring, a recapitalization, a repurchase of capital
stock, an extraordinary dividend or distribution (whether cash, property,
securities or a combination thereof), a liquidation, the formation of a joint
venture or partnership, a minority investment or any other similar transaction.
(b) "Consideration" shall mean the total value of all cash, securities,
other property and any other consideration, including, without limitation, any
contingent, earned or other consideration paid or payable, directly or
indirectly, in connection with a Transaction and consideration shall be
determined at the closing. The value of any such securities (whether debt or
equity) or other property shall be determined as follows: (1) the value of
securities that are freely tradable in an established public market shall be the
last closing market price of such securities which are not prior to the public
announcement of the Transaction; and (2) the value of securities which are not
freely tradable or which have no established public market, or if the
consideration consists of property
<PAGE>
Premium Cigars 5
12/14/96
other than securities, the value of such securities or other property shall be
the fair market value thereof as mutually agreed by the Company and Consultant.
Consideration shall also be deemed to include any indebtedness, including,
without limitation, pension liabilities, guarantees and other obligations
assumed, directly or indirectly, in connection with, or which survives the
closing of, a Transaction. If the consideration to be paid is computed or
payable in any foreign currency, the value of such foreign currency shall, for
the purpose hereof, be converted into U.S. Dollars at the prevailing exchange
rate on the dates on which such consideration is payable.
3. The term of Consultant's engagement hereunder shall extend for eighteen (18)
months from the date of the signing of this agreement. Either party may
terminate Consultant's engagement hereunder at any time, with or without cause,
by giving the other party at least 30 days prior written notice.
4. The Company shall furnish to Consultant the names of all parties with which
the Company has had discussions or contact prior to the date hereof concerning a
Transaction.
5. As compensation for the services rendered by Consultant hereunder, the
Company shall pay Consultant as follows:
(a) If the Company announces or enters into an agreement with respect
to a Transaction either during the term of Consultant's engagement hereunder or
at any time during a period of 12 months following the effective date of
termination of Consultant's engagement hereunder and the party or parties to the
Transaction were identified by Consultant or whether Consultant rendered advice
concerning the Transaction and such Transaction is thereafter consummated, the
Company shall pay to Consultant the following percentages of the total
Consideration paid in each of such Transactions:
Total Consideration Percent
------------------- -------
On amounts under $3,000,000 5.0%
On amounts between $3,000,000
and $5,000,000 plus 2.5%
On amounts between $5,000,000
and $10,000,000 plus 2.0%
On amounts over $10,000,000 1.0%
(b) Compensation which is payable to Consultant pursuant to
subparagraph 5(a) shall be paid by the Company to Consultant at the closing of
any Transaction.
6. The Company shall reimburse Consultant, for its out-of-pocket and incidental
expenses incurred in connection with its engagement hereunder promptly as
requested, including the fees and expenses of in legal counsel and those of any
advisor retained by Consultant.
7. Because Consultant will be acting on behalf of the Company in connection with
this engagement, the Company agrees to indemnify Consultant as set forth in a
separate letter agreement dated the date hereof between Consultant and the
Company and attached as Rider 1 to this Agreement.
8. Consultant shall have the right to place advertisements in financial and
other newspapers and journals at its own expense describing its services to the
Company hereunder.
9. Any advice, either oral or written, provided to the Company by Consultant
hereunder shall not be publicly disclosed or made available to their parties
without the prior written consent of Consultant. In addition, Consultant may not
be otherwise publicly referred to without its prior consent.
<PAGE>
Premium Cigars 6
12/14/96
10. In connection with Consultant's engagement, the Company will furnish
Consultant with all information concerning the Company which Consultant
reasonably deems appropriate and will provide Consultant with access to the
Company's officers, directors, accountants, counsel and other, advisers. The
Company represents and warrants to Consultant that all such information
concerning the Company and its affiliates is and will be true and accurate in
all material respects and does not and will not contain any untrue statement or
material fact or omit to state a material fact necessary in order to make the
statements therein not misleading in light of the circumstances under which such
statements are made. The Company acknowledges and agrees that Consultant will be
using and relying upon such information supplied by the Company and its
officers, agents and others and any other publicly available information
concerning the Company and its affiliates and any prospective acquirer of the
Company, its business or assets without any independent investigation or
verification thereof or independent appraisal by Consultant of the Company and
business or assets.
11. The benefits of this Agreement, together with the separate indemnity letter,
shall inure to the respective successors and assigns of the parties hereto and
of the indemnified parties hereunder and their successors, assigns and
representatives, and the obligations and liabilities assumed in this Agreement
by the parties hereto shall be binding upon their respective successors and
assigns.
12. This Agreement may not be amended or modified except in writing and shall be
governed by and construed in accordance with the laws of the State of Arizona,
without regard to principles of conflicts of laws.
RIDER 1 TO MERGER & ACQUISITION AGREEMENT
CONFIDENTIAL INDEMNIFICATION AGREEMENT
In connection with the Merger & Acquisition Agreement, dated December 13, 1996,
between W.B. McKee Securities, Inc. ("Consultant") and Premium Cigars
International ("the Company"), the Company hereby agrees to indemnify and hold
harmless Consultant, their respective directors, officers, controlling persons
(within the meaning of Section 15 of The Securities Exchange Act of 1934), if
any, (collectively, "Indemnified Persons" and individually, and "Indemnified
Person's") from and against any and all claims, liabilities, losses, damages and
expenses incurred by any Indemnified Person (including fees and disbursements of
Consultant and an Indemnified Person's counsel) which (A) are related to arise
out of (i) actions taken or omitted to be taken (including any untrue statements
made or any statements omitted to be made) by the Company or (ii) actions taken
or omitted to be taken by an Indemnified Person with the Company's consent or in
conformity with the Company's instructions or the Company's actions or omissions
or (B) are otherwise related to or arise out of Consultant's engagement, and
will reimburse Consultant and any other Indemnified Person for all costs and
expenses, including fees of Consultant or an Indemnified Person's counsel as
they are incurred, in connection with investigating, preparing for, or defending
any action, formal or informal claim, investigation, inquiry or other
proceeding, whether or not in connection with pending or threatened litigation,
caused by or arising out of or in connection with Consultant's acting pursuant
to the engagement, whether or not Consultant or any Indemnified Person is named
as a party thereto and whether or not any liability results therefrom. The
Company will not, however, be responsible for any claims liabilities, losses,
damages, or expenses pursuant to clause (B) of the preceding sentence which are
finally judicially determined to have resulted primarily from Consultant's bad
faith or gross negligence. The Company further agrees that the Company will not,
without the prior written consent of Consultant, settle or compromise or consent
or the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder.
In order to provide for just and equitable contribution, if a claim for
indemnification is made pursuant to these provisions but is found in a final
judgment by a court of competent jurisdiction (not subject to further appeal)
that such indemnification is not available for any reason (except, with respect
to indemnification sought solely pursuant to clause (B) of the first paragraph
hereof, for the reasons specified in the second sentence thereof), even though
the express provisions hereof provide for indemnification in such case, then the
Company, on one hand, and Consultant on the other hand, shall contribute to such
claim, liability, loss, damage or expense for which such indemnification or
reimbursement is held unavailable in such proportion as is appropriate to
reflect the relative benefits to the Company, on one hand, and Consultant on the
other hand, in connection with the
<PAGE>
Premium Cigars 7
12/14/96
transactions contemplated by the engagement, subject to the limitation that in
any event Consultants aggregate contribution to all losses, claims, damages,
liabilities and expenses to which contribution is available hereunder shall not
exceed the amount of fees actually received by Consultant pursuant to the
management.
The foregoing right to indemnity and contribution shall be in addition
to any rights that Consultant and/or any other Indemnified Person may have at
common law or otherwise and shall remain in full force and effect following the
completion or any termination of your engagements.
The Company further understands that if Cosultant is asked to act for
the Company as dealer manager in a exchange or tender offer or as an underwriter
in connection with the issuance of securities by the Company or to furnish the
Company a financial opinion letter or in any other formal capacity, such further
action may be subject to a separate agreement containing provisions and terms to
be mutually agreed upon.
Expiration. This offer shall remain valid during a consideration
period, but will automatically expire if not signed by Premium cigars
International by 5:00 P.D.T. on December 30, 1996.
W. B. McKee Securities, Inc., is delighted to accept this engagement
and looks forward to working with you on this assignment. Please confirm that
the foregoing correctly sets forth our agreement by signing the enclosed
duplicate of this letter in the space provided and returning it, where upon this
letter shall constitute a binding agreement as of the date first above written.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective
the day and year written below.
W.B. MCKEE SECURITIES, INC. PREMIUM CIGARS INTERNATIONAL
By: /s/ William B. McKee By: /s/ Steve Lambrecht
------------------------------- -------------------------------
William B. McKee Steve Lambrecht
Its: WILLIAM B. McKEE Its: STEVEN A. LAMBRECHT
------------------------------- -------------------------------
Chairman Vice President
Date: 12/14/96 Date: 12/14/96
------------------------------- -------------------------------
13. $210,000 dollars are excluded from the financing fees stated by Greg Barton
$110,000 and $100,000 total from either Floyd Hodges or Martin Nelson under
compensation to Consultant of 10% as stated in #3 compensation.
PCI /s/ S.L. /s/ WBM
12/14/96
MK W.B. McKEE SECURITIES, INC
- --------------------------------------------------------------------------------
Member NASD and SIPC (602) 934-7365
FAX:(602) 266-5774
March 31, 1997
Steve Lambrecht, CEO
Premium Cigars International
11259 East Via Linda
Suite 100-102
Scottsdale, Arizona 85259
Dear Steve:
We submit this letter with respect to an initial public offering of stock in
Premium Cigars International (the "Company"), on a firm commitment basis by W.B.
McKee Securities, Inc. ("McKee") and other underwriters associated with us
(collectively, the "Underwriters").
Based upon our discussions and preliminary information submitted by the Company
to us, but subject to our due diligence, we hereby confirm in principle our
interest in underwriting, on a firm commitment bases, an initial public offering
of the Company's securities, in accordance with the following terms and
conditions.
1. Proposed Size of Offering. It is currently contemplated to offer Two Million
(2,000,000) units (each a "Unit" and collectively the "Units") at a price of
Five Dollars and One Cent ($5.01). The Units will consist of one share of common
stock and one redeemable common stock purchase warrant. Such warrants shall be
exercisable at Six Dollars and Fifty Cents ($6.50), have a term of five (5)
years, and be redeemable at the Company's option commencing ninety (90) days
after the Effective Date of the Offering upon thirty (30) days written notice to
the warrantholders at One ($.01) per warrant if the closing bid price of the
Common Stock averages in excess of One Hundred Fifty Percent (150%) of the
offering price for a period of twenty (20) consecutive trading days ending
within fifteen (15) days of the notice of redemption. The gross amount of the
offering will be approximately Ten Million Dollars ($10,000,000), based on
mutual agreement. The final public offering price of the units will be
determined immediately prior to the effective date of the registration statement
based on the market conditions then prevailing.
2. Registration Statement. The Units to be offered to the public will be
included in a registration statement to be filed by the Company with the
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933.
The Company shall supply conclusive
- --------------------------------------------------------------------------------
3003 North Central Avenue, Suite 100, Phoenix, Arizona 85012
<PAGE>
will bear the fees and expenses of their counsel. The Company and McKee will
split the costs of the tombstone advertisements and the placement of such
tombstone advertisements shall be mutually agreed upon. It is expected that the
costs of placing the tombstones will be approximately Five Thousand Dollars
($5,000) and cost over-runs on the placement of such tombstones will be mutually
approved in advance by McKee and the Company.
All other expenses relating to the registration statement, prospectuses,
confidential selling memorandum, underwriting documents and warrants, including
all printing expenses, all filing fees with the Security and Exchange
Commission, stock exchanges, and the NASD, and all filing fees and expenses for
qualification under blue sky laws (including fees and disbursements of the
company's counsel, who will have responsibility for such qualification) and
investor relations and related efforts will be borne by the Company.
If the proposed offering is canceled for any reason by the Company prior to the
signing of the Underwriting Agreement, the Company will reimburse the
Underwriters for all of their out-of-pocket costs and expenses, up to Fifty
Thousand Dollars ($50,000), plus counsel fees and less the Twenty Five Thousand
($25,000) paid to McKee upon acceptance of this Letter of Intent. McKee and the
Underwriters will not be entitled to reimbursement for the value of their time
they have expended in connection with the proposed Offering.
In the event that the Offering is canceled by the Underwriter for reasons in
addition to and including those covered in Paragraph 15 of this letter under the
heading "Conditions" or in the Underwriting Agreement after such Underwriting
Agreement is signed, the Company will not be liable for the breakup fee of the
out-of-pocket expenses of the Underwriter.
9. Counsel Approval. All Proceedings, agreements and other documents executed in
connection with the public offering shall be subject to approval of counsel for
both parties.
10. Underwriter Warrants. At the closing of the Offering, the Company will sell
the Underwriters such number of unit purchase warrants as is equal to ten
percent (10%) of the number of Units sold pursuant to the Offering excluding the
overallotment (the "Underwriter Warrants"). The Underwriter Warrants shall be
purchased at one cent ($.01) per warrant by the Underwriters. The Underwriter
Warrants will be exercisable for the purchase of one unit at one hundred twenty
percent (120%) of the Public Offering Price of the Underlying security. The
Underwriter Warrants may be exercised one (1) year after the close of the
Offering or at any time thereafter for a period of five (5) years from the
Effective Date of the Offering (the "Exercise Period"). The Underwriter Warrants
will contain provisions to guard against dilution other than dilution by
additional or secondary offerings.
11. Registration Rights. The Company will file all necessary undertakings
required by the SEC in connection with the registration of the Units issued on
the exercise of the Underwriters Warrants. Upon McKee's demand (subject to
normal exceptions and conditions to be negotiated), the
<PAGE>
Company will file post-effective amendments to the registration statement so as
to permit the Underwriters to sell publicly the Underwriter Warrants and the
Units issued on the exercise of the Underwriter Warrants. The Company will bear
all costs of one (1) such post effective amendment or registration.
12. Use of Proceeds. The Company will prepare and identify for the Underwriter
its intention for the uses of proceeds. This use of proceeds must be reasonably
acceptable to the Underwriter.
13. Underwriting Agreement. The obligations of the Underwriters and those of the
Company will be subject to the usual representations, warranties, covenants,
conditions, indemnities, and provisions, respecting contribution contained in
the form of an underwriting agreement McKee will prepare and as generally used
in connection with the public offering of securities for this type of
transaction.
14. Future Underwritten Transactions. Following the consummation of this
offering, and for a two-year period thereafter, the Underwriter will have the
right of first refusal to participate as Underwriter, Co-Underwriter or
Placement Agent for any public or private offering of the Company's securities.
Should another underwriter propose in a writing a transaction, McKee will have
three (3) weeks to match the offer.
15. Conditions. The proposed terms and statements of intention set forth in this
Letter of Intent are based on the understanding that:
(i) the Company's financial condition and history shall be (at a minimum)
substantially as represented in the Company's audited financial
statements for the period ending December 31, 1996 and unaudited
statements as of the most recent quarter. The Company conforms to the
Underwriter its most recent projections constituting its best estimate
of revenue, profit, loss and cash flow and agreed to update those
estimates on a monthly basis.
(ii) no adverse development shall occur which materially and adversely affect
the business, properties, or prospects of the Company.
(iii) the registration statement will disclose no material unfavorable facts
relating to the Company or its management, and the registration
statement and prospects will comply with all applicable laws and
regulations;
(iv) the Company does not acquire or agree to acquire any business which, in
our judgement, precludes effecting the offering within the time period
and in a manner contemplated hereby;
<PAGE>
(v) there will not be any unanticipated substantial delays caused by the
Company in filing and obtaining effectiveness of the registration
statement;
(vi) the Offering and the price at which the Units are sold pursuant to the
Offering will be subject to our satisfactory review of the Company's
business affairs;
(vii) the market conditions prevailing at the time of the Offering will be
satisfactory to McKee; and
(viii) the Company will have executed an employment agreement with a Chief
Executive Officer that is acceptable to the Underwriter.
16. Board of Directors Nomination. Upon the closing of this offering, McKee will
have the right to nominate one (1) member of the Board of Directors to serve the
standard term that is compatible with the Company's corporate by-laws. The right
shall be for a term of five (5) years from the closing of the offering.
17. Key Man Insurance. The Company has, and will maintain for a period of at
least five (5) years, Key Man Insurance on Steve Lambrect and a CEO (to be named
at a date following the date hereof) in the amount of One Million Dollars
($1,000,000). McKee reserves the right to write the above policy providing it
can do so on competitive terms.
In connection with their review of the business and affairs of the company, the
Underwriters, counsel to the Underwriters, and any accounting experts deemed
necessary by the Underwriters, will have the right to examine the audits and
working papers of the Company, to meet with the Company's independent
accountants, and to have reasonable access to the Company's corporate files and
records. The Company will use its best efforts to cause its auditors to be
responsive to any inquiries made by the Underwriters in connection with the
auditors to be responsive to any inquiries made by the Underwriters in
connection with the audit procedures and accounting principles used in
connection with the Company's financial statements of the proposed Offering.
The Company represents that it has not incurred any liability, direct or
indirect, for finder's or similar fees on behalf of or payable by the Company
relating to this Underwriting. The Company agrees to indemnify the Underwriters
from and against any damage and loss arising out of any inaccuracy in the
foregoing representation.
This letter of intent is not intended to constitute a binding agreement to
consummate the proposed Offering or to enter into an underwriting agreement.
Except for the provisions in paragraph number "8" under the heading "Expenses",
no liability or obligation is created by this Letter of Intent either to the
Company or any third party. Additionally, this Agreement does not modify or
preempt any of the rights, obligations or commitments between the two parties as
defined in the previous executed Investment Banking Agreement. Except for such
provisions, all legal obligations between the parties shall be only those set
forth in the underwriting agreement and
<PAGE>
shall arise only when the underwriting agreement is executed and delivered.
We look forward to working with you in completing the proposed Offering. If the
Foregoing sets forth your understanding, please so indicate by signing and
returning to us the enclosed copy of this letter.
Sincerely,
W.B. MCKEE SECURITIES, INC.
/s/ William B. McKee
- ----------------------------------------
William B. McKee, Chairman
Approved and Accepted
PREMIUM CIGARS INTERNATIONAL, LTD.
By: /s/ Steve Lamprecht Date: 3-31-97
- ---------------------------------------- -------------------------------
Steve Lambrecht, Chief Executive Officer
________________, 199_
Premium Cigars International, Ltd.
15651 North 83rd Way, Suite 3
Scottsdale, Arizona 85260
Re: Subscription to Acquire Warrant
Gentlemen:
I hereby subscribe to acquire a warrant (the "Warrant") for the
purchase of the no par value common shares of Premium Cigars International,
Ltd., an Arizona corporation formed pursuant to the Arizona Corporations Act
(the "Corporation"), in consideration for the provision to the Corporation by me
of debt financing in a maximum principal amount of ___________dollars ($_______
.00) (the "Financing Amount"). Upon the acceptance of this Subscription
Agreement by the Corporation and my provision of cash to the Corporation in the
Financing Amount, the Corporation shall issue to me (i) the Warrant and (ii) a
promissory note of the form attached hereto as Exhibit "A" having a maximum
principal amount equal to the Financing Amount (the "Note").
The Warrant is being sold by the Corporation, as issuer, in a
transaction not involving any public offering. In consideration of the proposed
sale of the Warrant to me and delivery to me of the Note, and for the purpose of
inducing the Corporation to make such sale and delivery to me, I hereby make the
following investment assurances to the Corporation:
1. Restrictions on Transferability of Warrant and Rights. I hereby
agree that the Warrant being acquired by me, and any certificate or document
evidencing such Warrant and/or any rights I may acquire in such Warrant
(hereinafter referred to as the "Rights"), shall be stamped or otherwise
imprinted with a conspicuous legend in substantially the following form:
"The warrant evidenced by this document and any shares of the
Corporation's common stock able to be purchased therewith have not been
registered under the Securities Act of 1933, as amended, or under any
applicable state securities law, and such warrant has been issued
pursuant to an exemption from registration under such laws. The warrant
has been issued and delivered to the holder by the Corporation, as
issuer, in a transaction not involving any public offering pursuant to
A.R.S. Section 44-1844(1). The Corporation issued the warrant to the
holder in reliance upon the representation by the holder that the
warrant was acquired for investment purposes and was not acquired for
the purpose of sale to others. Neither this warrant nor any rights in
the same shall be resold, pledged, hypothecated, or otherwise
transferred, conveyed, or offered for sale except upon the issuance of
a favorable opinion of counsel for the Corporation and/or
<PAGE>
submission to the Corporation of such other evidence as may be
satisfactory to counsel for the Corporation to the effect that the
transfer, conveyance, or offer for sale of such warrant will not be in
violation of the Securities Act of 1933 or any rule or regulation
promulgated thereunder, or any applicable state securities law, rule or
regulation and in accordance with the terms and conditions of holder's
Subscription Letter with respect to these shares, dated _______________
, 199_. Any transfer contrary hereto shall be void."
Neither the Warrant nor any of my Rights, as the case may be, shall be
transferable except upon the conditions specified in this Paragraph 1. I realize
that, by becoming a holder of a Warrant issued by the Corporation pursuant to
the terms of the foregoing restrictive legend, I agree prior to any transfer of
the Warrant and/or my Rights, to give written notice to Corporation, in the form
required by the Warrant, expressing my desire to effect such transfer and
describing the proposed transfer.
2. Determination of Legal Counsel. I understand that upon receipt of my
written notice, as provided for in the preceding Paragraph 1, Corporation shall
present copies of the same to its counsel, and the following provisions shall
apply:
(a) If, in the opinion of Corporation's counsel, the proposed
transfer of the Warrant and/or Rights may be effected without
registration thereof under the federal Securities Act of 1933
(hereinafter referred to as the "Act"), as then in force, and
applicable state securities law, the Corporation shall promptly
thereafter notify the holder of such Warrant and/or Rights, whereupon
such holder shall be entitled to transfer such Warrant and/or Rights,
all in accordance with the terms of the Warrant and assignment form
specified by the Warrant to be delivered by such holder to Corporation
(the "Assignment Form"), and upon such further terms and conditions as
shall be required by counsel for Corporation in order to assure
compliance with the Act and applicable state securities law. Upon
receipt by the Corporation of the Warrant and/or Rights and the
Assignment Form, the Corporation will deliver in exchange therefor, a
new certificate or document evidencing the Warrant and/or Rights
transferred. Any such certificate or document shall not bear a legend
of the character set forth above in Paragraph 1, if Corporation's
counsel agrees that such legend is no longer required under the Act and
applicable state securities law.
(b) If, in the opinion of Corporation's counsel, the proposed
transfer of the Warrant and/or Rights may not be effected without
registration of such Warrant and/or Rights under the Act and/or
applicable state securities law, a copy of such opinion shall be
promptly delivered to the holder who had proposed such transfer, and
such proposed transfer shall not be made unless such registration is
then in effect.
3. Purchaser's Acknowledgments. I realize that the Warrant and Rights
are not and may not be registered under the Act, or applicable state securities
law, and that Corporation does not currently file periodic reports with the
Securities and Exchange Commission pursuant to the requirements of the
Securities Exchange Act of 1934. I also understand that the Corporation has not
agreed with me to register the Warrant and/or Rights for distribution in
accordance with the
<PAGE>
provisions of the Act, or applicable state securities law, and that the
Corporation has not agreed with me to comply with any exemption under the Act or
applicable state securities law for the sale of such securities. For example, I
realize that the corporation has not agreed to supply such information as would
be required to enable routine sales of such securities to be made under the
provisions of certain rules respecting "restricted securities" promulgated by
the Securities and Exchange Commission. Thus, it is my understanding that, by
virtue of the provisions of the "restricted securities" rules, the Warrant which
I desire to purchase from Corporation must be held by me indefinitely, unless
and until subsequently registered under the Act and/or applicable state
securities law, or unless an exemption from such registration is available, in
which case I may still be limited as to the amount of the securities that I may
sell.
4. Representations by Purchaser. I hereby covenant, warrant, and
represent to Corporation as follows:
(a) I have received an Investment Disclosure Statement in the
form attached hereto as Exhibit "B" (the "Disclosure Statement") and by
this reference made a part hereof, and that I have carefully and
thoroughly read and understand such Disclosure Statement;
(b) The Warrant which is the subject of my purchase hereunder,
and any Rights therein, will be acquired by me for investment for my
own account and not with a view to the offer for sale, or the sale, in
connection with the distribution or transfer thereof, and I am not
participating, directly or indirectly, in an underwriting of any such
distribution or transfer;
(c) My income and net worth are such that I am not now, and do
not contemplate being, required to dispose of any portion of any
investment in the Warrant and/or Rights to satisfy any existing or
expected undertaking or indebtedness. I am also able to bear the
economic risks of an investment in the Warrant and Note, including,
without limiting the generality of the foregoing, the risk of losing
all or any part of my investment in the Warrant and Note and my
probable inability to sell or transfer the Warrant, the Note and/or the
Rights for an indefinite period of time;
(d) My income and net worth are such that I am able to provide
debt financing to the Corporation in an amount equal to the Financing
Amount and am able to accept the risk of losing all such sums provided
thereunder because of non-payment of any or all amounts due under the
Note;
(e) I will not sell the Warrant or any Rights thereunder,
except in strict compliance with the provisions of the Warrant and this
Subscription Letter;
(f) In addition to the Disclosure Statement, I have been
granted access to all information, financial and otherwise, in respect
to Corporation which I have requested, and with my professional
advisors have examined such information and am satisfied with respect
to the same;
<PAGE>
(g) Either (i) I am relying on my own financial advisor, tax
advisor and/or professional investment representative in making this
investment decision and I am able to bear the economic risk of this
investment, or (ii) my education, business and investing experience and
financial sophistication enable me to evaluate the economic merits of
my investment in the Note and Warrant;
(h) I have adequate means of providing for my current
financial needs and personal contingencies, and I have no need for
liquidity in my investment in the Note and the Warrant. I am
financially responsible, able to meet my obligations hereunder, and
acknowledge that this investment is long term and is by its nature
speculative;
(i) My personal financial circumstances, investment portfolio
and tax bracket are such that I believe the purchase contemplated
herein to be a suitable investment;
(j) No oral or written representations or statements have been
made in connection with the Note and the Warrant that were made in any
way inconsistent with the Investment Disclosure Statement;
(k) I have access to advice from qualified sources, including
an attorney and accountant, and have had the opportunity to consult
with them concerning this investment, especially in connection with the
tax aspects of the offering; and
(l) I understand that this Subscription Letter may be accepted
or rejected in whole or in part by the Corporation in its sole and
absolute discretion.
5. Agreement to Perform Necessary Acts. I hereby agree to perform any
further acts reasonably required under the terms of this Subscription Letter and
all applicable state and federal laws and to execute and deliver any documents
and provide any information about myself, including, but not limited to
financial information, that may be reasonably necessary (i) to carry out the
provisions of this Subscription Letter and (ii) for compliance with applicable
state and federal laws.
6. Notices. Any notices or other communications required or permitted
herein shall be sufficiently given if sent by registered or certified mail,
postage prepaid, return receipt requested, if to Corporation at the address to
which this letter is addressed, and if to me at the address set forth below my
signature to this Subscription Letter, or to such other addresses as either
Corporation or I shall designate to the other by notice in writing.
7. Successors and Assigns. This Subscription Letter shall be binding
upon and shall inure to the benefit of the parties hereto and to the successors
and assigns of Corporation and to the legal representatives, successors, and
permitted assignees of the undersigned.
8. Applicable Law. This Subscription Letter has been made and entered
into in the State of Arizona and shall be construed in accordance with the laws
of the State of Arizona, excluding its choice of law provisions, and the laws of
the United States of American. The parties agree that the State and Federal
Courts of Arizona, including both Maricopa County,
<PAGE>
Arizona Superior Court and the United States District Court, District of
Arizona, located in Phoenix Arizona, shall be the proper and exclusive forums
for any action relating to a dispute between the parties arising out of, or
related to, this Subscription Letter. Each party consents to the in personam
jurisdiction of said courts.
----------------------------------------
(Signature)
----------------------------------------
(Name -- Individual or Trust)
----------------------------------------
(Address)
----------------------------------------
(City, State, Zip)
----------------------------------------
(Telephone)
DATED: ________________, 1997 ACCEPTED:
PREMIUM CIGARS INTERNATIONAL,
LTD., an Arizona corporation
By:
-------------------------------------
Its:
------------------------------------
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") NOR IS SUCH REGISTRATION CONTEMPLATED. SUCH SECURITIES MAY
NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED AT ANY TIME
WHATSOEVER UNLESS REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS
OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE, EXCEPT UPON DELIVERY TO THE
COMPANY OF AN OPINION OF COUNSEL (SUCH OPINION TO BE SATISFACTORY TO THE COMPANY
AND ITS COUNSEL) THAT REGISTRATION IS NOT REQUIRED FOR SUCH TRANSFER.
WARRANT TO PURCHASE COMMON STOCK OF
PREMIUM CIGARS INTERNATIONAL, LTD.
This is to certify that, for value received,
______________________________, or registered assigns (in each case, the
"Warrantholder") is entitled to purchase, subject to the provisions of this
Warrant (the "Warrant") from Premium Cigars International, Ltd., an Arizona
corporation (the "Company"), at any time during the period from the date on
which the Company completes its initial public offering of Common Stock (the
"Commencement Date") until 5:00 p.m., Arizona time, on a date which is five
years after the Commencement Date (the "Expiration Date") and at which time this
Warrant shall expire and become void, the number of shares of the Company's
Common Stock, no par value per share, set forth in Section 3 hereof (the
"Warrant Shares"). The number of shares of Common Stock to be received upon
exercise of this Warrant shall be subject to adjustment from time to time as set
forth below. This Warrant is also subject to the following terms and conditions:
1. Purchase Price. The Warrant is being issued as consideration for the
provision of bridge financing to the Company by Warrantholder in the total
principal amount of ______________________ dollars ($__________) (the "Financing
Amount"), as evidenced by a promissory note in the form of Exhibit "A" attached
hereto and executed by the Company on even date herewith (the "Note").
2. Exercise Price. This Warrant shall be exercisable at a price per
Warrant Share equal to fifty percent (50%) of the initial public offering price
per share in the initial public offering of the Company's Common Stock (the
"Exercise Price"). The initial public offering of the Company's Common Stock is
hereinafter referred to as the "Initial Public Offering." The aggregate
consideration to be paid upon the exercise of this Warrant shall equal the
amount resulting from multiplying (y) the Exercise Price, and (z) the Exercise
Number (as defined in Section 3), is hereinafter referred to as the "Warrant
Exercise Consideration", and shall be paid in the manner described in Section 6
hereof.
3. Exercise Number. The total number of Warrant Shares which may be
purchased upon exercise of the Warrant issued hereunder shall be equal to the
quotient of (x) the Financing
1
<PAGE>
Amount, divided by (y) the Exercise Price (the "Exercise Number"). The Exercise
Number shall be subject to adjustment pursuant to Section 5 below to take into
account any and all Dilutive Events (as defined in Section 5) occurring between
the Initial Public Offering and the date on which the Warrant is exercised by
the Warrantholder (the "Exercise Date").
4. Expiration and Exercise Dates. The Warrant shall be exercisable at
any time on or after the first trading day of the Company's Common Stock and
before 5:00 p.m. on the Expiration Date (the "Exercise Period"), at which time
this Warrant shall automatically expire and become void. This Warrant shall also
automatically expire and become void on the date twelve (12) months after the
date hereof if the Company has not completed an initial public offering of its
common stock prior to such date.
5. Adjustments.
5.1 Subdivision or Combination of Shares. If, after the
Commencement Date, the Company is recapitalized through the subdivision
or combination of its outstanding shares of Common Stock into a larger
or smaller number of shares, the Exercise Number shall be increased or
reduced, as of the record date for such recapitalization, in the same
proportion as the increase or decrease in the outstanding shares of
Common Stock, and the Exercise Price shall be adjusted so that the
aggregate amount payable for the purchase of all of the Warrant Shares
issuable hereunder immediately after the record date for such
recapitalization shall equal the aggregate amount so payable
immediately before such record date.
5.2 Dividends in Common Stock or Securities Convertible into
Common Stock. If, after the Commencement Date, the Company declares a
dividend or distribution on Common Stock payable in Common Stock or
securities convertible into Common Stock, the Exercise Number shall be
increased, as of the record date for determining which holders of
Common Stock shall be entitled to receive such dividend, in proportion
to the increase in the number of outstanding shares (and shares of
Common Stock issuable upon conversion of all such securities
convertible into Common Stock) of Common Stock as a result of such
dividend or distribution, and the Exercise Price shall be adjusted so
that the aggregate amount payable for the purchase of all the Warrant
Shares issuable hereunder immediately after the record date for such
dividend or distribution shall equal the aggregate amount so payable
immediately before such record date.
5.3 Distributions of Other Securities or Property. If, after
the Commencement Date, the Company distributes to holders of its Common
Stock, other than as part of its dissolution or liquidation or the
winding up of its affairs, any of its securities (other than Common
Stock or securities convertible into Common Stock), property or any
evidence of indebtedness, then in each case, the Exercise Number shall
be determined by multiplying the number of Warrant Shares theretofore
purchasable by a fraction, of which the numerator shall be the Fair
Market Value price per share of Common Stock (as
2
<PAGE>
determined pursuant to Section 5.4) on the record date mentioned below
in this Section 5.3. and of which the denominator shall be the Fair
Market Value price per share of Common Stock on such record date, less
the then fair value (as determined by the Board of Directors of the
Company in good faith) of the portion of the shares of the Company's
capital stock, property or evidence of indebtedness distributable with
respect to each share of Common Stock. Such adjustment shall be made
whenever any such distribution is made, and shall become effective
retroactively as of the record date for the determination of
stockholders entitled to receive such distribution.
5.4 Fair Market Value. Fair market value of the Common Stock
("Fair Market Value") shall be determined as follows:
5.4.1 If the Common Stock is listed on a national
securities exchange or admitted to unlisted trading privileges
on such an exchange, or is listed on the Nasdaq National
Market or Small Cap Market, the current Fair Market Value
shall be the last reported sales price of the Common Stock on
such exchange or Nasdaq on the last business day prior to the
date of exercise of this Warrant or if no such sale is made on
such day, the closing bid price for such day on such exchange
or Nasdaq; or
5.4.2 If the Common Stock is not so listed or
admitted to unlisted trading privileges or quoted on Nasdaq,
the current Fair Market Value shall be the last bid price
reported on the last business day prior to the date of the
exercise of this Warrant (i) by Nasdaq, or (ii) if reports are
unavailable under paragraph 5.4.1 above, by the National
Quotation Bureau Incorporated; or
5.4.3 If the Common Stock is not so listed or
admitted to unlisted trading privileges and bid prices are not
so reported, the current Fair Market Value shall be determined
in good faith as promptly as is reasonably practicable by the
mutual agreement of the Board of Directors of the Company and
the Warrantholder. If such parties are unable to reach
agreement within 20 days after the need for such determination
arises, the Board of Directors shall appoint an investment
banking firm acceptable to the Warrantholder (the "Appointed
Firm") to make such determination. The parties shall use their
best efforts to cause the Appointed Firm to resolve all
disagreements as soon as practicable, but in any event within
45 days after the submission of the disputes to such Appointed
firm. The resolution of such disagreements and the
determination of Fair Market Value by the Appointed Firm shall
be final and binding on the Company and the Warrantholder. The
Appointed Firm will determined the allocations of its fees and
expenses in connection with its determination of Fair Market
Value based upon the percentage which the portion of the
contested amount not awarded to each party bears to the amount
actually contested by such party.
3
<PAGE>
5.5 Rights Offering. If, after the Commencement Date, the
Company offers rights or warrants to persons which entitle them to
subscribe to or purchase Common Stock or securities convertible into
Common Stock then:
5.5.1 If the price per share (together with the value
of the consideration, if any, paid for such rights or
warrants) is lower on the record date referred to below than
the then Fair Market Value price per share of Common Stock,
the Exercise Number shall be determined by multiplying the
number of Warrant Shares immediately theretofore purchasable
upon exercise of the Warrant by a fraction, of which the
numerator shall be the number of shares of Common Stock
outstanding on such record date plus the number of additional
shares of Common Stock offered for subscription or purchase,
and of which the denominator shall be the number of shares of
Common Stock outstanding on such record date plus the number
of shares which the aggregate offering price of the total
number of shares of Common Stock so offered would purchase at
the then Fair Market Value price per share of Common Stock.
Such adjustment shall be made whenever such rights or warrants
are issued, and shall become effective retroactively as of the
record date for the determination of stockholders entitled to
receive such rights or warrants.
5.5.2 If, however, the price per share (together with
the value of the consideration, if any, paid for such rights
or warrants) is not lower on such record date than the then
Fair Market Value price per share of Common Stock, the Company
shall give written notice of any such proposed offering to the
Warrantholder at least 15 days prior to the proposed record
date in order to permit the Warrantholder to exercise this
Warrant on or before such record date. There shall be no
adjustment in the Exercise Number, or in the Exercise Price,
by virtue of any such distribution pursuant to this Section
5.5.2.
5.6 Merger, Sale of Assets. If, after the Commencement Date,
there shall be (i) a reorganization (other than a combination?
reclassification, exchange or subdivision of shares otherwise provided
for herein), (ii) a merger or consolidation of the Company with or into
another corporation in which the Company is not the surviving entity,
or a reverse triangular merger in which the Company is the surviving
entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger
into other property, whether in the form of securities, cash or
otherwise, or (iii) a sale or transfer of the Company's properties and
assets as, or substantially as, an entirety to any other person, then,
as a part of the reorganization, merger, consolidation, sale or
transfer, lawful provision shall be made so that the Warrantholder
shall thereafter be entitled to receive upon exercise of this Warrant,
during the period specified herein and upon payment of the Exercise
Price then in effect, the number of shares of stock or other securities
or property of the successor corporation resulting from such
reorganization, merger, consolidation, sale or transfer that a holder
of the shares deliverable upon exercise of this Warrant would have been
entitled to
4
<PAGE>
receive in such reorganization, consolidation, merger, sale or transfer
if this Warrant had been exercised immediately before such
reorganization, merger, consolidation sale or transfer, all subject to
further adjustment as provided in this Section 5. The foregoing
provisions of this Section 5.6 shall similarly apply to successive
reorganizations, consolidations, mergers, sales and transfers and to
the stock or securities of any other corporation that are at the time
receivable upon the exercise of this Warrant.
5.7 Reclassification. If, after the Commencement Date, the
Company shall change any of the securities as to which purchase rights
under this Warrant exist, by reclassification or otherwise, into the
same or a different number of securities of any other class or classes,
this Warrant shall thereafter represent the right to acquire such
number and kind of securities as would have been issuable as the result
of such change with respect to the securities that were subject to the
purchase rights under this Warrant immediately prior to such
reclassification or other change and the Exercise Price therefor shall
be appropriately adjusted, all subject to further adjustment as
provided in this Section 5.
5.8 Liquidation, etc. If, after the Commencement Date, the
Company shall dissolve, liquidate or wind up its affairs, or otherwise
declare a dividend, or make a distribution to the holders of its Common
Stock generally, whether in cash, property or assets of any kind,
including any dividend payable in stock or securities of any other
issuer owned by the Company (excluding regularly payable cash dividends
declared from time to time by the Company's Board of Directors or any
dividend or distribution referred to in Sections 5.2 or 5.3), the
Exercise Price shall be reduced, without any further action by the
parties hereto, by the Per Share Value (as hereinafter defined) of the
dividend. For purposes of this Section 5.8, the "Per Share Value" of a
cash dividend or other distribution shall be the dollar amount of the
distribution on each share of Common Stock and the "Per Share Value" of
any dividend or distribution other than cash shall be equal to the fair
market value of such non-cash distribution on each shares of Common
Stock as determined in good faith by the Board of Directors of the
Company.
5.9 Adjustment of Exercise Price. When the Exercise Number is
adjusted, the Exercise Price with respect to the Warrant Shares shall
be adjusted by multiplying such Exercise Price immediately prior to
such adjustment by a fraction, of which the numerator shall be the
number of Warrant Shares purchasable upon the exercise of this Warrant
immediately prior to such adjustment, and of which the denominator
shall be the number of Warrant Shares so purchasable immediately
thereafter.
6. Method of Exercise. The Warrant may be exercised by the
Warrantholder, in whole or in part, by the surrender of this Warrant and the
Warrant Exercise Form attached hereto as Exhibit "B", properly endorsed, at the
principal office of the Company, and by the payment to the Company by certified
or cashier's check of the then applicable Warrant Exercise Consideration.
Alternatively, the exercise of the Warrant may be effected by "cashless
exercise" through a registered broker/dealer or escrow agent on terms acceptable
to the Company pursuant
5
<PAGE>
to which the Warrant Exercise Consideration is paid from the proceeds of the
sale of the underlying Warrant Shares by such broker/dealer or escrow agent on
behalf of the Warrantholder to the Company. In the event of any exercise of the
Warrant, certificates for the Warrant Shares so purchased shall be delivered to
Warrantholder within a reasonable time after the Warrant shall have been so
exercised, and unless the Warrant has expired, a new Warrant will be issued
representing the right to purchase the number of Warrant Shares with respect to
which this Warrant shall not then have been exercised shall also be issued to
Warrantholder within such time.
7. Representations and Warranties of Warrantholder. Having been
afforded access to information concerning the business, operations and financial
condition of the Company, the Warrantholder represents and warrants as follows:
7.1 He understands the nature of the investment being made by
him and the financial risks thereof.
7.2 He understands that the Warrant Shares subject to this
Warrant have not been registered under the Securities Act of 1933 (the
"1933 Act") or the securities act of any state (the "Acts"), and that
the purchase of the Warrant is being made in reliance upon an exemption
under the provisions of the Acts which may depend in part upon his
investment intent.
7.3 He is acquiring both the Warrant and any Warrant Shares
received upon the exercise of such Warrant for investment purposes only
and not with a view to distribution.
7.4 He understands that the Warrant being acquired by him may
be sold, assigned or otherwise transferred only if it is registered
under the Acts or if the sale, assignment or transfer is exempt from
the registration requirements of the Acts. He further understands that
if the Warrant is not registered under the Acts or an exemption is not
available in connection with the proposed transfer, the Warrant cannot
be sold, assigned or otherwise transferred.
7.5 He understands that the Warrant Shares have not been
registered under the Acts, and that if the Warrant Shares are not
registered under the Acts by the Company, such Warrant Shares cannot be
offered, sold, or transferred unless subsequently registered under the
Acts or the offering, sale or transfer is exempt from the registration
requirements of the Acts. In this regard, the Warrantholder understands
that, in the event the Warrant Shares are not registered or and
exemption from registration is not available, the Warrantholder may be
compelled to hold the Warrant Shares indefinitely.
7.6 He acknowledges that any Warrant Shares issued upon
exercise of the Warrant may bear a restrictive legend respecting the
application of the registration requirements of the Acts.
6
<PAGE>
7.7 He understands that even if the Warrant Shares are
registered, the offering, sale or transfer of any Warrant Shares issued
upon exercise of the Warrant may be restricted following such
registration for a period of time under applicable rules regulations of
the NASD, The Nasdaq Stock Market, or federal or state securities laws.
7.8 He understands that in the event that the Company is not
successful in completing its Initial Public Offering within 12 months
from the close of escrow for the purchase of this Warrant, this Warrant
will automatically be null and void and Warrantholder shall not be
entitled to any rights to purchase any securities of the Company but
shall instead have only such rights as are set forth in the Promissory
Note attached hereto as Exhibit "A."
7.9 He is an "accredited investor" as that term is defined
under Regulation D promulgated under the 1933 Act.
8. Transfer of Warrant.
8.1 Warrant Register. The Company will maintain a register
(the "Warrant Register") containing the names and addresses of the
holders of all warrant certificates issued by the Company (each a
"Warrantholder" and collectively "Warrantholders"). Any Warrantholder
may change his or her address as shown on the Warrant Register by
written notice to the Company requesting such change. Any notice or
written communication required or permitted to be given to the
Warrantholder may be delivered or given by mail to such Warrantholder
at the address shown on the Warrant Register. Until this Warrant is
transferred on the Warrant Register of the Company, the Company may
treat the Warrantholder as shown on the Warrant Register as the
absolute owner of the Warrant for all purposes, notwithstanding any
notice to the contrary.
8.2 Warrant Agent. The Company may, by written notice to the
Warrantholder, appoint an agent for the purpose of maintaining the
Warrant Register referred to in Section 8.1 above, issuing the Shares
issuable upon the exercise of the Warrant, exchanging this Warrant,
replacing this Warrant, or any or all of the foregoing. Thereafter, any
such registration, issuance, exchange or replacement, as the case may
be, shall be made at the office of such agent.
8.3 Transferability and Non-Negotiability of Warrant. This
Warrant may not be transferred or assigned in whole or in part without
compliance with all applicable federal and state securities laws by the
transferor and the transferee (including the delivery of investment
representation letters and legal opinions reasonably satisfactory to
the Company, if such are requested by the Company). Subject to the
provisions of this Warrant with respect to compliance with Acts, title
to this Warrant may be transferred by endorsement (by the Warrantholder
executing the Assignment Form attached hereto as Exhibit "C") and
delivery in the same manner as a negotiable instrument transferable by
endorsement and delivery.
7
<PAGE>
8.4 Exchange of Warrant Upon a Transfer. On surrender of this
Warrant for exchange, delivery of a properly endorsed Assignment Form
and subject to the provisions of this Warrant with respect to
compliance with the Acts and with the limitations on assignments and
transfers contained in this Section 8, the Company at its expense shall
issue to or on the order of the Warrantholder a new Warrant of like
tenor, in the name of the Warrantholder or as the Warrantholder (on
payment by the Warrantholder of any applicable transfer taxes) may
direct, for the number of Warrant Shares issuable upon exercise hereof.
Any transferee of this Warrant shall be required to execute a warrant
substantially in the form of this Warrant and shall be required to
agree to be bound by the terms and conditions set for in such Warrant.
9. Registration Rights. Unless it receives written instructions to the
contrary from the Warrantholder or unless this Warrant has expired pursuant to
the terms hereof, the Company shall include the Warrant Shares issuable upon
conversion of this Warrant in Company's Registration Statement for its Initial
Public Offering. The Company shall include in such filing, for registration
under the 1933 Act, the aggregate number of Warrant Shares which (i) are
issuable at the time of such Initial Public Offering upon conversion of this
Warrant and (ii) have not otherwise been requested by Warrantholder to be
withheld from inclusion in the Company's Registration Statement.
10. Indemnification. In the event of any registration with respect to
the Warrant Shares, the Company will indemnify and hold harmless any
Warrantholder who holds such registered Warrant Shares and each person, if any,
who controls such holder, against any losses, claims, damages or liabilities to
which the holder or such controlling person may be subject under the 1933 Act
insofar as such losses, claims, damages or liabilities arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in any such Registration Statement or arise out of or are based upon
the omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, but the Company shall
not be liable for any loss, claim, damage or liability based on or arising out
of written information furnished by a Warrantholder for use in the Registration
Statement.
11. Reporting by the Company. The Company agrees that following the
completion of its Initial Public Offering and during the term of the Warrant it
will keep current in filing all forms and other materials required to be filed
with the Securities and Exchange Commission pursuant to the Securities Exchange
Act of 1934.
12. Reserved Shares. The Company will at all times keep available and
reserve out of its authorized shares of Common Stock such number of shares as
shall from time to time be issuable upon exercise of the Warrant.
13. Voting Rights. This Warrant shall not entitle the holder hereof to
any voting rights or other rights as a stockholder of the Company.
8
<PAGE>
14. Title to Stock. All Warrant Shares delivered upon exercise of the
Warrant shall be validly issued, fully paid and nonassessable, and the
Warrantholder shall receive good and marketable title, free and clear of all
liens, encumbrances and claims whatsoever.
15. Due Authorization. The execution and delivery of this Warrant,
consummation of the transactions herein contemplated, and compliance with the
terms of this Warrant are lawful and do not and will not conflict with or result
in a breach of any of the terms or provisions of, or constitute a default under,
the Articles of Incorporation or Bylaws of the Company, nor will they conflict
with or result in a breach of any of the terms or provisions of or constitute a
default under, any indenture, mortgage, trust agreement or other instrument,
agreement or judgment, order or decree of any court or governmental authority to
which the Company is a party or by which the Company or any of its assets is
bound.
16. Binding Agreement. This Warrant shall bind the parties, their
heirs, personal representatives, successors and assigns.
17. Notices. Any notice required under this Warrant shall be hand
delivered or sent by registered or certified mail, postage prepaid and return
receipt requested, to (a) the address of the Warrantholder on the Warrant
Register, or (b) to the Company at its principal business address (or to such
other address as a party may specify in writing). Notices shall be deemed
delivered three days after deposit in the United States mails or upon delivery
if hand-delivered.
18. Governing Law. This Warrant has been made and entered into in the
State of Arizona and shall be construed in accordance with the laws of the State
of Arizona, excluding its choice of law provisions. The parties agree that the
courts of the State of Arizona, including Maricopa County, Arizona Superior
Court, shall be the proper and exclusive forum for any action relating to a
dispute between the parties arising out of, or related to, this Warrant. Each
party consents to the in personam jurisdiction of said Court.
19. Gender. When the context in which the words are used in this
Warrant indicate that such is the intent, the singular and plural number shall
be deemed to include the other, and the masculine, feminine and neuter genders
shall be deemed to include the other. The term "person" shall include an
individual, corporation, partnership, trust, estate or any other entity.
20. Prior Agreements Superseded. This Warrant constitutes the sole
agreement of the parties with respect to this Warrant and supersedes any prior
understandings or written or oral agreements between the parties respecting the
subject matter hereof.
9
<PAGE>
IN WITNESS WHEREOF, the Company has caused its duly authorized officers
to execute this Warrant on the day of , 1997.
"COMPANY"
Premium Cigars International, Ltd.,
an Arizona corporation.
By:
-------------------------------------
Its: President
By:
-------------------------------------
Its: Secretary
"WARRANTHOLDER"
----------------------------------------
(signature)
----------------------------------------
(Print or Type Name)
----------------------------------------
(Date)
10
<PAGE>
EXHIBIT "A"
FORM OF PROMISSORY NOTE
PREMIUM CIGARS INTERNATIONAL, LTD.
Phoenix, Arizona
$ .00 , 1997
----------------- ------------------
FOR VALUE RECEIVED, Premium Cigars International, Ltd., an Arizona
corporation ("Maker"), promises to pay to the order of ____________________ , a
___________________ ("Holder"), at
________________________________________________ , or at such other place as the
Holder may from time to time designate in writing, the principal sum of
_____________________________ ($________.00), together with interest thereon at
the rate of eight percent (8%) per annum from the date hereof until paid.
All principal and accrued interest shall be due and payable in full
upon the earlier of (i) the closing of the Maker's initial public offering of
its Common Stock, or (ii) the date six (6) months after the date hereof (the
"Offering Date"). Notwithstanding anything herein to the contrary, this Note
shall bear interest at the rate of sixteen percent (16%) per annum from and
after the earlier of (i) the Offering Date, or (ii) Maker's default in
performance of any of Maker's obligations hereunder. Furthermore, if for any
reason any principal and interest due and owing under this Note is not paid in
full on or before the date twelve (12) calendar months following the close of
escrow for this Note and the Warrant related hereto, the remaining balance due
hereunder shall be converted to a note to be amortized over the following twelve
( 12) month period at an annual interest rate of sixteen percent (16%) with all
accrued interest to be paid thereunder on a quarterly basis on the first day of
the calendar months of which are four, seven, ten and thirteen months from the
commencement of such twelve-month period.
All payments under this Note shall be first applied to interest and the
remainder to principal. Maker may prepay this Note in full or in part without
premium or penalty at any time. Interest shall be computed hereunder based on a
three hundred sixty-five (365) day year and the actual number of days elapsed.
Maker hereby covenants that, until this Note is paid in full and unless
Holder agrees otherwise in writing, Maker shall:
1. Maintain insurance against such hazards and liabilities as are
normally insured for in an "all risk" policy;
2. Pay when due all taxes, assessments, and other liabilities,
except those contested in good faith;
1
<PAGE>
3. Not create or permit any pledge, security interest, lien or
other encumbrance on any assets now owned or acquired
hereafter, except pledges, security interests, liens or other
encumbrances in favor of (i) collateralized working capital
loans, (ii) loans or other financing obtained by Maker whereby
the only assets encumbered by such pledges, security
interests, liens or other encumbrances were purchased with the
proceeds of such loans or other financing or (iii) mortgages
or leases on real property purchased or leased by Maker;
4. Not lend or advance money, credit or property except for (i)
reasonable advances against commissions payable to employees
or independent contractors or (ii) trade or business advances
or credits made in the ordinary course of Maker's business:
and
5. Not guarantee, assume, endorse or otherwise become responsible
for the personal debts of any employee, director, or
individual shareholder of Maker.
Any of the following events shall constitute an "Event of Default"
hereunder: (a) failure of Maker to pay any amount (whether of principal,
interest or otherwise) when due hereunder, which failure continues for period of
twenty (20) days after the due date thereof; (b) failure of Maker to perform any
other material covenant hereunder which failure continues for a period of thirty
(30) days after Maker's receipt of written notice from Holder to Maker of such
failure; or (c) the entry of an order for relief under the Federal Bankruptcy
Code as to Maker or entry of any order appointing a receiver or trustee for
Maker or approving a petition in reorganization or other similar relief under
bankruptcy or similar laws in the U. S. or any other competent jurisdiction,
which order, if voluntary, is not dismissed or stayed within ninety (90) days
after entry thereof; or making a general assignment for the benefit of Maker's
creditors; or admitting in writing inability to pay Maker's debts as they come
due.
If Maker fails to pay any sum due under this Note as and when due, then
Maker shall pay to Holder, in addition to the sums stated above, the reasonable
costs of collection, regardless of whether litigation is commenced, including a
reasonable sum as attorneys' fees and including the cost of converting any
collateral to cash. No failure on the part of Holder to exercise any of Holder's
rights hereunder or under any other agreement to which Holder is a party shall
be deemed a waiver of any such rights or of any default hereunder.
This Note may not be changed, amended or modified except by agreement
in writing signed by Maker and Holder.
This Note has been made and entered into in the State of Arizona and
shall be construed in accordance with the laws of the State of Arizona,
excluding its choice of law provisions, and the laws of the United States of
American. The parties agree that the State and Federal Courts of Arizona,
including both Maricopa County, Arizona Superior Court and the United States
District Court, District of Arizona, located in Phoenix Arizona, shall be the
proper and exclusive
2
<PAGE>
forums for any action relating to a dispute between the parties arising out of,
or related to, this Note. Each party consents to the in personam jurisdiction of
said courts.
In the event any one or more of the provisions of this Note shall for
any reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Note, but this Note shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein and has been severed
herefrom.
Whenever used in this Note, the words "Maker" and "Holder" shall be
deemed to include the respective successors of Maker and of Holder, and "Holder"
shall also include any subsequent holder of this Note. This Note shall be
binding in accordance with its terms upon Maker and its respective successors
and assigns. If this Note is signed by more than one party, Maker's obligations
hereunder are joint and several.
IN WITNESS WHEREOF, Maker has caused this Note to be duly executed as
of the day and year first above written.
"Maker"
Premium Cigars International, Ltd.
By:
-------------------------------------
Its:
------------------------------------
3
<PAGE>
EXHIBIT "B"
WARRANT EXERCISE FORM
To: Premium Cigars International, Ltd.
(1) The undersigned hereby elects to purchase shares of the no par
value common stock (the "Stock") of Premium Cigars International, Ltd., pursuant
to the provisions of the attached Warrant, and tenders herewith payment in full
of the purchase price for such shares.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of the Stock are being acquired solely for the
account of the undersigned and not as a nominee for any other party, and for
investment, and that the undersigned will not offer, sell or otherwise dispose
of any such shares of the Stock except under circumstances that will not result
in a violation of the Securities Act of 1933, as amended. or any applicable
securities laws.
(3) Please issue a certificate or certificates representing said shares
of the Stock in the name of the undersigned or in such other name as is
specified below:
----------------------------------------
(Name)
----------------------------------------
(Name)
(4) Please issue a new Warrant for the unexercised portion of the
Warrant specified by the attached Warrant in the name of the undersigned or in
such other name as specified below:
----------------------------------------
(Name)
- ----------------------- ----------------------------------------
(Date) (Signature)
<PAGE>
EXHIBIT "C"
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under the attached Warrant, with respect to the number
of shares of the Common Stock set forth below:
Name of Assignee Address No. of Shares
and does hereby irrevocably constitute and appoint Attorney ____________________
to make such transfer on the books of Premium Cigars International, Ltd.,
maintained for the purpose, with full power of substitution in the premises.
The undersigned also represents that, by assignment hereof, the
Assignee acknowledges that this Warrant and the shares of stock to be issued
upon exercise of this Warrant represented thereby are being acquired for
investment and that the Assignee will not offer, sell or otherwise dispose of
this Warrant or any shares of stock to be issued upon exercise of such Warrant
except under circumstances which will not result in a violation of the
Securities Act of 1933, as amended, or any state securities laws. Further, the
Assignee acknowledged that upon exercise of this Warrant, the Assignee shall, if
requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the shares of stock so purchased are being acquired for investment
and not with a view toward distribution ar resale .
Dated:
----------------------------
----------------------------------------
Signature of Holder
SHAREHOLDERS AND VOTING AGREEMENT made as of the
1st day of January, 1997, by and among those
persons identified on the signature page attached
hereto (the foregoing individuals shall sometimes
be referred to individually as a "Shareholder" and
collectively as "Shareholders") and Premium Cigars
International, Ltd., an Arizona corporation
("Corporation").
RECITALS:
WHEREAS, The Shareholders are the sole owners of shares of all of the
common stock of the Corporation that is issued and outstanding as of the date of
this Agreement (the "Shares").
WHEREAS, The parties desire to promote their individual interests and the
interests of the Corporation by imposing certain restrictions and obligations on
the Shareholders, the Corporation, and the Shares.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
AGREEMENT:
SECTION 1
SHAREHOLDER ACTIONS
1.1 Endorsement of Stock. Upon the execution of this Agreement, the
certificates representing the Shares shall be surrendered to the Secretary of
the Corporation and endorsed as follows:
The Shares evidenced by this Certificate are subject to a Shareholders
and Voting Agreement to which the Corporation and each of its Shareholders
are parties, and none of the shares represented by this Certificate, or any
interest in the shares, shall be transferred, pledged, encumbered or
otherwise disposed of except as provided in the Shareholders and Voting
Agreement. A copy of the Shareholders and Voting Agreement is on file in
the office of the Corporation and will be made available for inspection to
any properly interested person without charge within five (5) days after
the Corporation's receipt of a written request to inspect the agreement.
All common stock of the Corporation (and certificates evidencing the same)
issued after the date of this Agreement and not registered pursuant to the
Securities Act of 1933, as amended, and applicable state securities laws shall
bear the same endorsement and shall be subject to all the terms and conditions
of this Agreement and shall for all purposes be deemed "Shares" under this
Agreement.
-1-
<PAGE>
However, any common stock of the Corporation (and certificates evidencing the
same) issued after the date of this Agreement and registered pursuant to the
Securities Act of 1933, as amended, and applicable state securities laws shall
not, for any purposes, be deemed "Shares" under this Agreement.
1.2 Binding of Representatives, Successors and Assigns. This Agreement
shall be binding upon the parties, and their respective heirs, personal
representatives, successors and assigns and each Shareholder, in furtherance of
this Agreement, shall require in his will, trust and/or other testamentary
documents, if such documents exist, that his personal representative, trustee,
successor and/or other representatives ("Representative") perform the
Shareholder's obligations under this Agreement and execute all documents
necessary to effect the purposes of this Agreement. The failure to so provide
shall not affect the rights of any other Shareholder or the obligations of any
Representative as provided in this Agreement.
1.3 Additional Parties. Prior to issuing any shares of the Corporation to
additional or new Shareholders, the Corporation shall require that each such
additional or new Shareholder agree and become a party to this Agreement.
Additional or new Shareholders may become parties to and deemed a Shareholder
under this Agreement by executing and delivering to the Corporation a signature
page in the form of Exhibit "A" (the "Additional Party Form").
SECTION 2
PERMITTED TRANSFERS
2.1 Family Transfers. A Shareholder may, without obtaining the consent of
any other Shareholder or of the Corporation and upon notice to the other
Shareholders and to the Corporation, transfer any and all Shares owned by him to
any revocable or irrevocable trust of which he is the sole trustee, where as
trustee, he retains all voting rights with respect to the Shares, and he, his
spouse or his issue, or any of them are the sole beneficiaries. However, all
Shares so transferred shall remain subject to all the terms and conditions of
this Agreement, each transferee shall be deemed a Shareholder under this
Agreement, and each transferee shall, prior to and as a condition of the
transfer, agree in writing to be bound by the terms and conditions of this
Agreement.
2.2 Corporate Repurchases. Subject to the restrictions of Section 3.3
below, the Corporation may, at any time, offer to repurchase shares from a
Shareholder. Any such offer by the Corporation to repurchase Shares shall not be
"a bona fide offer from a third party" within the meaning of Section 4.1 of this
Agreement.
SECTION 3
STOCK TRANSFER RESTRICTIONS
3.1 Restrictions on Transfer or Encumbrance. Except as otherwise set forth
in this Agreement, no Shareholder shall, without the prior written consent of
the Corporation's Board of Directors (the "Board of Directors"), pledge,
encumber or in any manner use as collateral, transfer,
-2-
<PAGE>
sell or otherwise dispose of (individually and collectively, "Transfer") all or
any part of the Shares, or any interest in the Shares, whether legal or
beneficial, now owned or acquired after the date of this Agreement.
3.2 Void Transfers. Any Transfer made in violation of this Agreement or
that fails in any material respect to comply with any term or provisions of this
Agreement shall be void and of no effect and shall be treated by the Corporation
as if no Transfer had been made.
3.3 Limitation on Corporate Acquisitions. Notwithstanding any other
provision of this Agreement, the Corporation may acquire Shares as provided in
this Agreement only to the extent that it has funds legally available therefor
under the applicable provisions of the Arizona Revised Statutes then in effect.
SECTION 4
VOLUNTARY TRANSFER OF SHARES
4.1 Transfer Notice. During the term of this Agreement, no Shareholder
shall voluntarily Transfer any Shares or any interest in the Shares, whether
legal or beneficial (the "Voluntary Transfer"), without first offering, pursuant
to Section 4.2 below, to transfer, encumber or dispose of such Shares to the
other Shareholders (the "Other Shareholders" or "Other Shareholder") of the
Corporation, and, if not acquired by the Other Shareholders, then to the
Corporation, as provided pursuant to Section 4.3 below. Any Shareholder who
wishes to make a Voluntary Transfer (the "Selling Shareholder") must promptly
provide notice of such desire to the Board of Directors (the "Offering Notice").
The Offering Notice shall identify the number of Shares and the interest in the
Shares that the Selling Shareholder proposes to Transfer (the "Offered Shares"),
and shall set forth the consideration for which the Offered Shares are proposed
to be Transferred (the "Offer Price"), the identity and the address of the
proposed purchaser (the "Proposed Purchaser"), the proposed closing date for the
Transfer of the Offered Shares, and all other material terms and conditions of
the proposed transaction. Upon provision of the Offering Notice to the Board of
Directors, the Selling Shareholder shall be deemed to have offered to sell to
the Other Shareholders and the Corporation at the terms and conditions of the
Offering Notice (the "Offering Terms") the Shares otherwise to be Transferred to
the Proposed Purchaser.
4.2 Shareholder Purchase. The Board of Directors shall have sixty (60) days
from the date of the Offering Notice in which to find Other Shareholders willing
to buy all or any of the Offered Shares in such proportion or amount as such
Other Shareholders or the Board of Directors shall agree upon.
4.3 Corporation Purchase. If the Other Shareholders are not willing to buy
all of the Offered Shares within the sixty (60)-day period specified by Section
4.2 above, the Board of Directors shall have sixty (60) days from the expiration
of such sixty (60)-day period in which to elect to have the Corporation buy all
or any of the Offered Shares the Other Shareholders did not elect to buy.
-3-
<PAGE>
4.4 Completion of Voluntary Transfer. If one or more of the Other
Shareholders and the Corporation do not agree to buy in the aggregate all of the
Offered Shares within the two (2) option periods specified by Sections 4.2 and
4.3 above, the proposed Voluntary Transfer may be completed at the Offer Price,
for all, but not less than all, the remaining Offered Shares not purchased by
the Other Shareholders and the Corporation, and upon all the terms and
conditions set forth in the Offering Notice. If a Voluntary Transfer is not
consummated within thirty (30) days after the expiration of such two (2) option
periods, the provisions of this Agreement will again apply to such remaining
Offered Shares as if no such Voluntary Transfer had been contemplated and no
notice had been given. A Voluntary Transfer is consummated, subject to
recordation on the Corporation's books, when (i) the Corporation has been given
notice that legal title to the Shares has been Transferred and (ii) the Proposed
Purchaser has delivered to the Corporation an executed Additional Party Form.
The Offered Shares shall for all purposes remain subject to this Agreement and
the Proposed Purchaser (including any person taking the Shares as collateral
pursuant to a pledge or other encumbrance) shall, upon completion of the
transaction, immediately be deemed a Shareholder under this Agreement and shall
be bound by all the terms and provisions hereof.
4.5 Purchase and Closing.
4.5.1 Purchase by Corporation and/or Other Shareholders. If the
Corporation and/or one or more of the Other Shareholders elect to purchase
any or all of the Offered Shares as specified by Sections 4.2 and 4.3
above, the Corporation and/or the Other Shareholders electing to purchase
such Offered Shares (the "Purchasers") shall make payment to the Selling
Shareholder, in the sole discretion of the Purchasers, either in cash in
full, payable at the time of the closing, or on the terms set forth in the
Offering Notice. The closing for the purchase of such Offered Shares shall
be held within ninety (90) days after the later of the elections made under
Sections 4.2 above 4.3 above. The closing shall be at the principal
executive offices of the Corporation during regular business hours or at
any other location and/or time mutually agreed to by the Purchasers and the
Selling Shareholder. The precise date and hour of the closing shall be
fixed by the Purchasers (within the time limits specified herein) with at
least ten (10) days' written notice to the Selling Shareholder. The Selling
Shareholder shall deliver to the Purchasers at the closing the stock
certificate or stock certificates representing all the Offered Shares being
purchased, duly endorsed for transfer or with duly executed stock power
attached.
4.5.2 Purchase by Proposed Purchaser. If any or all of the Offered
Shares are purchased by a Proposed Purchaser, the closing shall be at such
time and place agreed to by the Proposed Purchaser and the Selling
Shareholder and the price and terms of the purchase shall be as set forth
in the Offering Notice.
4.6 Valuing Non-Cash Consideration. If there is any non-cash consideration
with respect to a Transfer of the Offered Shares, the Offering Notice shall also
set forth the cash value of each item or non-cash consideration. If the Offering
Notice sets forth a cash value for non-cash
-4-
<PAGE>
consideration, the Board of Directors shall have thirty (30) days, beginning
with the day following receipt of the Offering Notice by the Board of Directors,
to make written, good faith objections to the cash value specified for all or
any part of the non-cash consideration. If the Board of Directors objects to the
cash value specified in the Offering Notice for all or any part of the non-cash
consideration, the Board of Directors shall notify the Selling Shareholder in
writing setting forth the cash value it would assign to the disputed non-cash
consideration and the reason(s) therefor. If after thirty (30) days, beginning
with the day following receipt of each such notice of objection by the Selling
Shareholder there remains any disagreement between Selling Shareholder and the
Board of Directors as to the cash value of any item of non-cash consideration,
the dispute over the cash value of such items shall be submitted for arbitration
pursuant to Section 10.16 below.
SECTION 5
INVOLUNTARY TRANSFERS OF SHARES
5.1 Termination of Shareholder as Employee. Any Shareholder who is an
officer, employee, or director (or some combination thereof) of Corporation (an
"Employee-Shareholder") and ceases to be, prior to earlier of the termination of
this Agreement or the date two (2) years from the date first written above, an
Employee-Shareholder as a result of (i) voluntary termination of employment by
Shareholder, (ii) termination of employment by the mutual consent of the
Shareholder and Corporation or (iii) termination of employment by Corporation
for Adequate Cause, shall, unless specified otherwise by the Board of Directors,
be deemed to have offered to sell, in the manner specified by Section 5.2 below,
all of the shares held by it. The Offer Date (as defined in Section 5.2 below)
shall be deemed the date on which such Shareholder ceases to be an
Employee-Shareholder. For the purposes of this Section 5.1, the term "Adequate
Cause" is limited to (x) a conviction of or a plea of guilty to a felony or a
misdemeanor that negatively affects or was directed against the Corporation, (y)
any act of dishonesty or other criminal conduct that negatively affects or was
directed against the Corporation or (z) a continued breach of the
Employee-Shareholder's duties and obligations arising under an employment
contract with Corporation or of any written policy, rule, or regulation of
Corporation, for a period of at least five (5) days following the
Employee-Shareholder's receipt of written notice from any officer of Corporation
or the Board of Directors specifying such breach.
5.2 The Involuntary Transfer.
5.2.1 Mandatory Option. Upon a Shareholder being deemed to have offered
its Shares for sale as of the date of the occurrence of a particular
condition as specified in this Section 5 (the "Offer Date"), the Other
Shareholders and the Corporation shall have the option to purchase such
Shares (the "Mandatory Offered Shares") from such Shareholder at the
Appraised Value (as defined in Section 6.1 below) of the Shares.
5.2.2 Shareholder Option. The Board of Directors shall have sixty (60)
days from the Offer Date in which to find Other Shareholders willing to buy
all or any of the Offered Shares at the Appraised Value of such Shares (as
defined in Section 6.1
-5-
<PAGE>
below) and in such proportion or amount as such Other Shareholders or the
Board of Directors shall agree upon.
5.2.3 Corporation Option. If the Other Shareholders shall not elect to
buy all of the Mandatory Offered Shares within the sixty (60)-day period
specified by Section 5.2.2 above, the Corporation shall have sixty (60)
days from the expiration of such sixty (60)-day period in which to elect to
buy all, but not less than all, of the Mandatory Offered Shares the Other
Shareholders did not elect to buy.
5.2.4 Completion of Involuntary Transfer. If the Other Shareholders and
the Corporation do not agree to buy in the aggregate all of the Mandatory
Offered Shares within the two (2) option periods specified by Sections
5.2.2 and 5.2.3 above, any remaining Mandatory Offered Shares shall be sold
by the Board of Directors to a third-party (the "Third Party Purchaser")
for a purchase price no lower than the Appraised Value of such Shares (as
defined in Section 6.1). The Mandatory Offered Shares shall for all
purposes remain subject to this Agreement and the Third Party Purchaser
(including any person taking the Shares as collateral pursuant to a pledge
or other encumbrance) shall, upon completion of the transaction,
immediately deliver to the Corporation an executed Additional Party Form
and be deemed a Shareholder under this Agreement and shall be bound by all
the terms and provisions hereof.
5.3 Purchase and Closing.
5.3.1 Purchase by Corporation and/or Other Shareholders. If the
Corporation and/or the Other Shareholders elect to purchase any or all of
the Mandatory Offered Shares as specified by Sections 5.2.2 and 5.2.3
above, the Corporation and/or the Other Shareholders electing to purchase
such Mandatory Offered Shares (the "Mandatory Purchasers") shall make
payment to the Selling Shareholder, in the sole discretion of the
Purchasers, either in cash in full, payable at the time of the closing, or
with a down payment of twenty percent (20%) of the total purchase price at
the time of Closing with the remaining portion of the purchase price being
paid in equal annual installments during the following four (4) year period
with interest at the rate of eight percent (8%) per annum on the unpaid
principal balance. This obligation shall be evidenced by a promissory note
in the form of Exhibit "B" attached hereto (the "Note") which will provide
for four (4) equal payments of the principal, plus interest, with each
payment payable on the four (4) succeeding anniversaries of the closing.
All or any part of the principal balance of the Note may be prepaid at any
time without penalty or premium.
5.3.2 Purchase by Third Party Purchaser. If any or all of the Mandatory
Offered Shares are purchased by a Third Party Purchaser, the terms of
payment by the Third Party Purchaser of the price specified by Section
5.2.4 shall be determined by the Board of Directors.
-6-
<PAGE>
5.3.3 Closing of Purchase. The closing for the purchase of the
Mandatory Offered Shares by the Mandatory Purchasers (the "Purchasers
Closing") shall be held within ninety (90) days after the later of any
elections made under Sections 5.2.2 and 5.2.3 above. The closing for a
Third Party Purchaser's purchase of the Mandatory Offered Shares shall be
at such time and place agreed to by such Third Party Purchaser and the
Selling Shareholder. The Purchasers Closing shall be at the principal
executive offices of the Corporation during regular business hours or at
any other location and/or time mutually agreed to by the Mandatory
Purchasers and the Selling Shareholder. The precise date and hour of the
Purchasers Closing shall be fixed by the Mandatory Purchasers (within the
time limits specified herein) with at least ten (10) days' written notice
to the Selling Shareholder. The Selling Shareholder shall deliver to the
Mandatory Purchasers at the Purchasers closing the stock certificate or
stock certificates representing all the Offered Shares being purchased,
duly endorsed for transfer or with duly executed stock power attached.
SECTION 6
VALUATION OF SHARES
6.1 Appraised Value. In each instance in which the purchase price for
Shares to be Transferred pursuant to this Agreement is to be the "Appraised
Value" of the Shares, the Appraised Value of the Shares shall be the Agreed
Value per Share as determined pursuant to Section 6.2 below using the most
recently executed Certificate of Agreed Value, provided, however, such
certificate has been completed within the eighteen (18) months immediately
preceding the date in which the shares are to be transferred. If a Certificate
of Agreed Value has not been agreed upon within such eighteen (18) month period,
then the Appraised Value of the Shares to be Transferred shall be determined by
an appraisal committee (the "Appraisal Committee"). The Appraisal Committee
shall be composed of two (2) independent, disinterested, and qualified
commercial appraisers, one (1) of whom shall be appointed by the Shareholder
transferring Shares and the other of whom shall be appointed by the Shareholders
acquiring Shares (by majority-in-interest of Shares), or, if no Shareholder is
acquiring Shares, by the Corporation, within thirty (30) days of the event
giving rise to the right to purchase. If the Shareholder transferring Shares
fails or refuses to name an appraiser within the time required, the Shareholders
acquiring Shares (by majority-in-interest of Shares), or, if no Shareholder is
acquiring Shares, the Corporation, may name two (2) appraisers. Likewise, if the
Shareholders acquiring Shares, or, if no Shareholder is Acquiring Shares, the
Corporation, fails or refuses to name an appraiser within the time required, the
Shareholder transferring Shares may name two (2) appraisers. The two (2)
appraisers so appointed shall constitute the Appraisal Committee and shall
determine the value of the Shares within thirty (30) days after their
appointment. If the Appraisal Committee cannot agree on a value, then they shall
appoint a third appraiser who shall determine the value of the Shares to be
purchased within thirty (30) days after appointment. Expenses of the appraisal
shall be paid by the Corporation.
6.2 Certificate of Agreed Value. All Parties to this Agreement shall
endeavor to agree upon a valuation of the Corporation on an annual basis. To
evidence such agreement, the Parties shall execute a Certificate of Agreed Value
in the form of Exhibit "C" attached hereto. The
-7-
<PAGE>
Certificate of Agreed Value shall show the valuation of the Corporation as a
whole as agreed to by all Parties to this Agreement, which amount shall be equal
to the Agreed Value. The Agreed Value divided by the number of outstanding
shares on the date of a valuation event shall be the Agreed Value Per Share
until a new certificate of Agreed Value is signed by all Parties hereto. Failure
of the Parties to agree on an Agreed Value shall not invalidate any portion of
this Agreement. The initial Certificate of Agreed value is attached hereto as
Exhibit "D".
6.3 Valuation If Publicly Traded. Notwithstanding the provisions of
Sections 6.1 and 6.2 above, if any of the Shares have been registered pursuant
to the Securities Act o 1933, as amended, and applicable state laws and are
publicly traded on a national securities exchange, the Appraised Value Per Share
and Agreed Value Per Share shall be equal to the closing price per share for
such Shares as specified on the Offer Date by the applicable securities
exchange.
SECTION 7
GENERAL RESTRICTIVE COVENANTS
7.1 Non-Use and Non-Disclosure of Information. Each Shareholder recognizes
and acknowledges that he, she, or it, has been and will be given access to
confidential and proprietary information of the Corporation by virtue of being a
Shareholder, director, officer and/or employee of the Corporation, and that such
information is a valuable, special and unique asset of the Corporation's
business and one that the Corporation has a legitimate and important interest in
protecting. Accordingly, no Shareholder will, during or after the term of his,
her, or its ownership of Shares, disclose any confidential information of the
Corporation to any person, firm, corporation, association, or other entity, or
otherwise use the same, for any reason or purpose whatsoever. For purposes of
this Agreement, "confidential information' shall include, but not be limited to
the Corporation's mailing lists, business plans, marketing strategies, financial
statements, forecasts, internal memoranda on any subject whatsoever, any
document marked with the word "confidential," the Corporation's operational
methods and processes in their entirety, and any and all facts, ideas,
proposals, plans, methods, processes, reports, computer programs, papers, or
documents, or other information of any kind or character, whether oral or
written, relating to the Corporation's business, except any of the foregoing
that is in the public domain. Further, confidential information shall include
all information to which access is restricted by the Corporation or is
designated as confidential in writing.
7.2 Covenant Not to Compete. No Shareholder, so long as it holds any
Shares, shall engage, as principal, partner, agent, employee, shareholder,
director, officer, or in any other manner or capacity, or have any financial
interest, in any business which is directly competing with the business of the
Corporation.
7.3 Enforceability. Each of the Shareholders and the Corporation represent
and warrant to and covenant with one another that:
-8-
<PAGE>
7.3.1 Reasonableness. The covenants set forth in this Section 7 are a
material inducement to each of the Shareholders and the Corporation
entering into this Agreement, are reasonably necessary for the protection
of the interests of the Corporation and the Shareholders, are reasonable as
to duration, scope, and territory, and are not unreasonably restrictive
upon any Shareholder's rights. These covenants are in addition to and
therefore do not limit any similar covenants contained in other agreements
between the Shareholders and the Corporation.
7.3.2 Injunctive Relief. The Corporation's and the other Shareholders'
remedies at law for breach of any of the covenants set forth in this
Section 7 will be inadequate. In addition to any other rights or remedies
which the Corporation and the other Shareholders may have, they shall be
entitled to injunctive relief.
7.3.3 Limited Enforcement. Notwithstanding the provisions of Section
7.3.1, if any court determines that any of the covenants in this Section 7
are unreasonable as to duration, scope, or territory, the covenant shall be
enforceable as provided herein with respect to such duration, scope, and
territory as the court determines to be reasonable.
SECTION 8
VOTING AGREEMENT
8.1 Special Members of Board of Directors. At any time during the term of
this Agreement in which the Board of Directors of the Corporation consists of an
even number of directors, the following rules shall apply: If the Board of
Directors "deadlocks" on any issue (meaning directors in favor of a motion are
equal in number to those against the motion), and if the president or chairman
of the board of the Corporation thereafter gives notice to the Shareholders of a
special meeting of the Shareholders for the purpose of electing one or more
additional directors to break the deadlock, the Shareholders shall meet and
attempt to select a single additional director, to be elected to the Board of
Directors solely to break the deadlock. If at least fifty-one percent (51%) of
the Shares vote in favor of the same proposed additional director, that person
shall become a member of the Board of Directors for the limited purpose of
breaking the deadlock. If at least fifty-one percent (51%) of the shares do not
vote in favor of the same additional director, each of the Shareholders shall
vote its shares to add three (3) directors to the Board of Directors solely for
the purpose of breaking the deadlock.
8.2 Duties of Special Directors. Each special director elected to the Board
of Directors of the Corporation pursuant to Section 9.1 shall act as an
arbitrator of the dispute between the deadlocking directors, and shall decide
the disputed matter in accordance with the rules of the American Arbitration
Association. If there is one additional director, his or her resolution of the
disputed matter shall be final, conclusive, and binding upon the Shareholders,
the Board of Directors and the Corporation, and shall be enforceable in any
court of competent jurisdiction. If there are three additional directors, the
resolution of the disputed matter shall be by majority vote of the
-9-
<PAGE>
additional directors, whose resolution shall be final, conclusive, and binding
upon the Shareholders, the Board of Directors and the Corporation, and shall be
enforceable in any court of competent jurisdiction. The expenses of arbitration
director shall be borne by the Corporation.
SECTION 9
ATTORNEY'S REPRESENTATIONS
The Shareholders all acknowledge that Corporation's legal counsel
("Corporate Counsel") prepared this Agreement on behalf of and in the course of
his or her representation of the Corporation, and that:
(i) the Shareholders have been advised by Corporate Counsel that a
conflict exists among their individual interests; and
(ii) the Shareholders have been advised by Corporate Counsel to seek the
advice of independent counsel; and
(iii) the Shareholders have had the opportunity to seek the advice of
independent counsel; and
(iv) the Shareholders have received no representations from Corporate
Counsel about the tax consequences of this Agreement; and
(v) the Shareholders have been advised by Corporate Counsel that this
Agreement may have tax consequences; and
(vi) the Shareholders have been advised by Corporate Counsel to seek the
advice of independent tax counsel; and
(vii) the Shareholders have had the opportunity to seek the advice of
independent tax counsel.
SECTION 10
MISCELLANEOUS
Except to the extent inconsistent with the express language of the other
provisions of this Agreement, the following provisions shall govern the
interpretation, application, construction, and enforcement of this Agreement.
10.1 Termination. This Agreement shall terminate upon the occurrence of any
of the following events:
10.1.1 Voluntary Termination. Voluntary agreement of the Corporation,
as expressed by a majority vote of the Corporation's Board of Directors,
and the vote of fifty-one percent (51%) or more of the total outstanding
Shares of the Corporation;
10.1.2 Bankruptcy of Corporation. Involuntary bankruptcy or
receivership proceedings or the dissolution of the Corporation. For
purposes of this Agreement, "bankruptcy" shall be defined as: (i) the
filing by or against the Corporation of any proceeding under any state or
federal bankruptcy or insolvency laws now or hereafter existing or any
similar statute now or hereafter in effect, and, if the proceeding is filed
against the Corporation, the proceeding is not dismissed within sixty (60)
days of filing; (ii) the appointment of a receiver, trustee, custodian or
conservator or all or any part of the assets
-10-
<PAGE>
of the Corporation; (iii) the execution by the Corporation of an assignment
for the benefit of creditors; or the convening by the Corporation of a
meeting of its creditors, or any class of creditors for the purpose of
effecting a moratorium upon or extension or compromise of its debts; (iv)
the admission in writing of the corporation that it is unable to pay its
debts as they mature; or (v) any other act or condition which constitutes
an act of bankruptcy or insolvency under state or federal law.
10.1.3 Registration of Shares. The registration of any shares of the
Corporation's issued and outstanding capital stock pursuant to the
Securities Act of 1933, as amended and applicable state securities law.
10.2 Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties, their heirs, personal representatives, successors and
assigns; provided, however, that except as otherwise expressly provided in this
Agreement, no Shareholder shall Transfer any interest in the Shares without the
express prior written consent of the other Shareholders or in any manner not
permitted by the provisions hereunder. Any attempted Transfer in violation of
this Agreement shall be void.
10.3 Amendment. This Agreement may only be amended by a written agreement
approved by the Board of Directors of the Corporation and all Shareholders. Any
agreement so approved shall be executed by the Corporation and the Shareholders
and filed in the Corporation's minute book.
10.4 Notices. Any notice required under this Agreement shall be
hand-delivered or sent by registered or certified mail, postage prepaid and
return receipt requested, to the principal place of business (or if an
individual, to the principal place of residence) of the party to which such
notice is being provided or such other address as a party may specify in
writing. Notices shall be deemed delivered three days after deposit in the
United States mails or upon delivery if hand-delivered. Actual receipt of notice
shall not be required to effect notice hereunder.
10.5 Additional Acts and Documents. Each party agrees to do all things and
take all actions, and to make, execute and deliver all other documents and
instruments, as are reasonably requested to carry out the provisions, intent and
purposes of this Agreement.
10.6 Authority. Each party represents and warrants to each other party that
this Agreement has been duly authorized by all necessary action and that this
Agreement constitutes and will constitute a binding obligation of each party.
10.7 Attorney's Fees. If suit is brought (or arbitration instituted) or an
attorney is retained by any party to this Agreement in any matter arising under
or to enforce the terms of this Agreement or to collect any money due under this
Agreement, or to collect money damages for breach of this Agreement, the
successful or prevailing party shall be entitled to recover, in addition to any
other
-11-
<PAGE>
remedy, reimbursement for reasonable attorney's fees, court costs, costs of
investigation, and other related expenses incurred in connection with the
action.
10.8 Counterparts. This Agreement may be executed in any number of
counterparts, and all counterparts shall constitute one and the same instrument
and shall be an original.
10.9 Time. Time is of the essence of each and every provision of this
Agreement. Any extension of time granted for the performance of any duty under
this Agreement shall not be considered an extension of time for the performance
of any other duty under this Agreement.
10.10 Waiver. Failure of any party to exercise any right or option arising
out of a breach of this Agreement shall not be deemed a waiver of any right or
option with respect to any subsequent or different breach, or the continuance of
any existing breach.
10.11 Integration Clause; Oral Modification. This Agreement represents the
entire agreement of the parties with respect to its subject matter. All
agreements previously entered into are revoked and superseded by this Agreement,
and no representations, warranties, inducements, or oral agreements have been
made by any of the parties except as expressly set forth in this Agreement, or
in other contemporaneous written agreements.
10.12 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Arizona, and (subject to any provision
in this Agreement providing for mandatory arbitration) suit to enforce any
provision of this Agreement or to obtain any remedy provided in this Agreement
shall be brought only in the Superior Court of the State of Arizona in Maricopa
County, Arizona, and for this purpose each party expressly and irrevocably
consents to the jurisdiction of that court.
10.13 Indemnity. Each party to this Agreement shall indemnify, defend and
hold each other party harmless from and against all claims, damages, costs and
expenses (including attorneys' fees) attributable, directly or indirectly, to
the breach by the indemnifying party of any obligation under this Agreement or
the inaccuracy of any representation or warranty made by the indemnifying party
in this Agreement or in any instrument delivered pursuant to this Agreement or
in connection with the transactions contemplated hereby.
10.14 Interest on Overdue Amounts. If any amount becomes due and owing
under this Agreement, the party to whom such amount is payable shall be entitled
to receive, in addition to such amount, interest on the amount at the rate of
twelve percent (12%) per annum (or such lower rate as shall be the highest
permissible rate under applicable law) from and after the date on which notice
of delinquency is given to the party or parties owing the amount so due.
10.15 Equitable Remedies. In addition to any other remedies available under
applicable law, the remedies of specific performance and/or injunctive relief
shall be available and proper if any party fails or refuses to perform its
duties under this Agreement.
-12-
<PAGE>
10.16 Arbitration. If any dispute or controversy arising out of this
Agreement cannot be settled by the parties, the controversy or dispute shall be
submitted to arbitration in Phoenix, Arizona. For this purpose each party
expressly consents to such arbitration in Phoenix, Arizona. If the parties
cannot mutually agree upon an arbitrator to settle their dispute or controversy,
then the Presiding Civil Judge of the Maricopa County, Arizona Superior Court
shall select an arbitrator, or at the election of the parties, an arbitrator
shall be selected pursuant to the then existing rules and regulations of the
American Arbitration Association governing commercial transactions. The decision
of the arbitrator shall be binding upon the parties to this Agreement for all
purposes, and judgement to enforce any such bidding decision may be entered in
the Maricopa County, Arizona Superior Court (and for this purpose each party
expressly and irrevocably consents to the jurisdiction of the court). At the
request of any party, arbitration proceedings shall be conducted in the utmost
secrecy. In such case, all documents, testimony, and records shall be received,
heard, and maintained by the arbitrators in secrecy, available for inspection
only by either party and by their attorneys and experts who shall agree, in
advance and in writing, to receive all such information in secrecy. In all other
respects, the arbitrator shall conduct all proceedings pursuant to the Uniform
Arbitration Act as adopted in the State of Arizona and the then existing rules
and regulations of the American Arbitration Association governing commercial
transactions to the extent such rules and regulations are not inconsistent with
such Act or this Agreement. Costs of arbitration shall be borne as determined by
the arbitrator.
10.17 Gender. When the context in which the words in this agreement
indicate that such is the intent, the singular and plural number shall be deemed
to include the other, and, the masculine, feminine and neuter genders shall be
deemed to include the other. The term "person" shall include an individual,
corporation, partnership, trust, estate or any other entity.
10.18 Section Headings. The section headings contained in this Agreement
are for convenience only and shall in no manner be construed as part of this
Agreement.
10.19 Savings Clause. Notwithstanding any other term or provision of this
Agreement, if any right or interest created by or in connection with this
Agreement would be invalid or unenforceable if not subject to the terms
contained in this sentence, such interest or right shall terminate twenty (20)
years after the date of death of the last to die of the following persons: all
attorneys employed at the time of creation of such right or interest by Bonn,
Luscher, Padden & Wilkins, Chartered, an Arizona corporation, and the children
of such attorneys living at the time of creation of such right of interest.
-13-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
written above.
CORPORATION:
Premium Cigars International, Ltd.
an Arizona corporation
By /s/ Steve Lambrecht
---------------------------------
Its Chief Executive Officer
---------------------------------
SHAREHOLDERS:
/s/ Greg Lambrecht
- ---------------------------------
Greg Lambrecht
- ---------------------------------
Colin Jones
/s/ Greg Barton
- ---------------------------------
Greg Barton
/s/Dan Goldman
- ---------------------------------
Dan Goldman
/s/ Pat Quadrelli
- ---------------------------------
Pat Quadrelli
-14-
<PAGE>
EXHIBIT "A"
FORM OF AGREEMENT FOR ADDITIONAL OR NEW SHAREHOLDERS
AGREEMENT TO
SHAREHOLDERS AND VOTING AGREEMENT
The undersigned has executed this instrument to evidence the undersigned's
agreement to be a party to and be bound by that certain Shareholder's Agreement
dated as of the ____ day of ______________ between Premium Cigars International,
Ltd. and those Shareholders who are presently parties thereto.
Date:______________ __________________________
[name]
-15-
<PAGE>
EXHIBIT "B"
FORM OF PROMISSORY NOTE
Phoenix, Arizona
___ day of _______, 199_
FOR VALUE RECEIVED, the undersigned promises to pay to the order of
[payee], at [payee address], in lawful money of the United States of America,
the principal sum of [amount in words] ($[amount in digits]) payable in [number
of payments {words (digits)}] annual installments of [amount in words] ($[amount
in digits]) each, commencing on the ____ day of _______, 199_; with interest on
the unpaid balance of this note at the rate of [interest rate {words (digits)}]
per annum to maturity, interest payable at the same time as principal. All past
due payments of principal or interest or both shall bear interest at [interest
rate {words (digits)}] the highest lawful annual rate allowed by contract under
Arizona law until paid.
Upon default in the payment of any installment of principal or interest or
both when due, the entire remaining principal balance, with interest thereon,
shall immediately become due and payable at the option of the holder hereof
without notice to or demand upon the undersigned. In the event of garnishment,
attachment, levy or execution is issued against any of the property or effects
of the undersigned and/or in the event of an assignment for the benefit of the
creditors, application for the appointment of a receiver or filing of a
voluntary or involuntary petition in bankruptcy by or against the undersigned,
the same shall, at the option of the holder hereof, constitute an event of
default and holder hereof at its option may declare this note immediately due
and payable.
The undersigned hereby waives diligence, grace, demand, presentment for
payment, exhibition of this note, protest, notice of protest, notice of dishonor
and notice of nonpayment, and agrees to any and all extensions or renewals from
time to time without notice and, to any partial payments hereon made before or
after maturity and that no such extensions, renewals, or payments shall release
it from obligations of payment of this note or any installment hereof, and
consent to offset any bank balance of any party hereto.
The undersigned promises to pay all costs and expenses of collection,
including a reasonable attorneys' fee as determined by the judge of the court
and all other costs, expenses and fees in the event suit is instituted to
collect the note or any portion thereof. It is expressly agreed that the
acceptance by the holder of this note of any performance which does not comply
strictly with the terms of this note shall not be deemed to be a waiver of any
right of the holder.
The undersigned may at any time prepay this note in whole or from time to
time in part without penalty or premium.
________________________________
Maker
-16-
<PAGE>
EXHIBIT "C"
FORM OF CERTIFICATE OF AGREED VALUE
As of the _____ day of ___________, 199_, the undersigned, constituting all
the Shareholders of [corporation name], an Arizona Corporation, do hereby agree
that the Agreed Value of the Corporation as a whole is [value}. Furthermore,
with [number of shares] shares of the Corporation's common stock issued and
outstanding, the Agreed Value per share is equal to [value per share].
------------------------------
[Corporation]
By:______________________
Its:_____________________
------------------------------
[party 1]
------------------------------
[party 1]
-17-
<PAGE>
EXHIBIT "D"
INITIAL CERTIFICATE OF AGREED VALUE
As of the 1st day of January, 1997, the undersigned, constituting all the
Shareholders of Premium Cigars International, Ltd., an Arizona Corporation, do
hereby agree that the Agreed Value of the Corporation as a whole is One Hundred
Twenty-Six Thousand Two Hundred Fifty Dollars ($126,250.00). Furthermore, with
Two Hundred Fifty-Two Thousand Five Hundred (252,500) shares of the
Corporation's common stock issued and outstanding, the Agreed Value per share is
equal to Fifty Cents ($0.50).
/s/ Steve Lambrecht
----------------------------------
Premium Cigars International, Ltd.
By: Steve Lambrecht
--------------------------
Its: Chief Executive Officer
--------------------------
/s/ Greg Lambrecht
---------------------------------
Greg Lambrecht
/s/ Colin Jones
---------------------------------
Colin Jones
/s/ Greg Barton
---------------------------------
Greg Barton
/s/ Dan Goldman
---------------------------------
Dan Goldman
/s/ Pat Quadrelli
---------------------------------
Pat Quadrelli
<PAGE>
AGREEMENT TO
SHAREHOLDERS AND VOTING AGREEMENT
The undersigned has executed this instrument to evidence the undersigned's
agreement to be a party to and be bound by that certain Shareholder's Agreement
dated as of the 1st day of January, 1997, between Premium Cigars International,
Ltd. and those Shareholders who are presently parties thereto.
/s/ Jim Stanley
Dated as of: January 11, 1997 -----------------------
Jim Stanley
<PAGE>
AGREEMENT TO
SHAREHOLDERS AND VOTING AGREEMENT
The undersigned has executed this instrument to evidence the undersigned's
agreement to be a party to and be bound by that certain Shareholder's Agreement
dated as of the 1st day of January, 1997, between Premium Cigars International,
Ltd. and those Shareholders who are presently parties thereto.
/s/ Scott Lambrecht
Dated as of: January 9, 1997 ------------------------
Scott Lambrecht
<PAGE>
AGREEMENT TO
SHAREHOLDERS AND VOTING AGREEMENT
The undersigned has executed this instrument to evidence the undersigned's
agreement to be a party to and be bound by that certain Shareholder's Agreement
dated as of the 1st day of January, 1997, between Premium Cigars International,
Ltd. and those Shareholders who are presently parties thereto.
/s/ Pete Charleston
Dated as of: January 9, 1997 --------------------------
Pete Charleston
<PAGE>
AGREEMENT TO
SHAREHOLDERS AND VOTING AGREEMENT
The undersigned has executed this instrument to evidence the undersigned's
agreement to be a party to and be bound by that certain Shareholder's Agreement
dated as of the 1st day of January, 1997, between Premium Cigars International,
Ltd. and those Shareholders who are presently parties thereto.
/s/ Mike Rocha
Dated as of: January 9, 1997 --------------------------
Mike Rocha
<PAGE>
AGREEMENT TO
SHAREHOLDERS AND VOTING AGREEMENT
The undersigned has executed this instrument to evidence the undersigned's
agreement to be a party to and be bound by that certain Shareholder's Agreement
dated as of the 1st day of January, 1997, between Premium Cigars International,
Ltd. and those Shareholders who are presently parties thereto.
/s/ Murphy Pierson
Dated as of: January 9, 1997 --------------------------
Murphy Pierson
<PAGE>
AGREEMENT TO
SHAREHOLDERS AND VOTING AGREEMENT
The undersigned has executed this instrument to evidence the undersigned's
agreement to be a party to and be bound by that certain Shareholder's Agreement
dated as of the 1st day of January, 1997, between Premium Cigars International,
Ltd. and those Shareholders who are presently parties thereto.
/s/ Lorraine Shelly
Dated as of: January 9, 1997 --------------------------
Lorraine Shelly
<PAGE>
AGREEMENT TO
SHAREHOLDERS AND VOTING AGREEMENT
The undersigned has executed this instrument to evidence the undersigned's
agreement to be a party to and be bound by that certain Shareholder's Agreement
dated as of the 1st day of January, 1997, between Premium Cigars International,
Ltd. and those Shareholders who are presently parties thereto.
Dated as of: January 9, 1997 --------------------------
Kathy Keil
<PAGE>
AGREEMENT TO
SHAREHOLDERS AND VOTING AGREEMENT
The undersigned has executed this instrument to evidence the undersigned's
agreement to be a party to and be bound by that certain Shareholder's Agreement
dated as of the 1st day of January, 1997, between Premium Cigars International,
Ltd. and those Shareholders who are presently parties thereto.
/s/ Steve Lambrect
Dated as of: January 9, 1997 --------------------------
Steve Lambrecht
<PAGE>
AGREEMENT TO
SHAREHOLDERS AND VOTING AGREEMENT
The undersigned has executed this instrument to evidence the undersigned's
agreement to be a party to and be bound by that certain Shareholder's Agreement
dated as of the 1st day of January, 1997, between Premium Cigars International,
Ltd. and those Shareholders who are presently parties thereto.
/s/Corey Lambrecht
Dated as of: January 10, 1997 -------------------------
Corey Lambrecht
BUSINESS LOAN AGREEMENT
- --------------------------------------------------------------------------------
Loan date: 9/5/96 Principal Amount: $110,000 Interest Rate: 36%
- --------------------------------------------------------------------------------
Borrower: GREG P. LAMBRECHT Lender: GREG BARTON
AND ROSE HEARTS INC. AND/OR ASSIGNS
6925 216TH SW #N 17403 NE 45TH ST
LYNNWOOD, WA 98036 REDMOND, WA 98036
PROMISE TO PAY. GREG LAMBRECHT and ROSE HEART'S INC. ("BORROWER") Promises to
pay to GREG BARTON ("Lender"), or order, in lawful money of United States of
America, the principal amount of one hundred and ten thousand dollars
($110,000), with interest on the unpaid balance from September 5, 1996 and all
unpaid balances are due on May 5, 1998.
PAYMENT. Borrower will pay this loan in monthly payments of interest only on the
5th day of each month with the first payment paid in advance and the second
payment due on November 5, 1996. The monthly payments of interest only will be
calculated on a rate of 3% of the outstanding balance. Borrower will pay the
lender at lender's address shown above or at such other place as lender may
designate in writing. Unless otherwise agreed or required by applicable law,
payments will be applied first to unpaid interest, then to principal, and any
remaining amount to any unpaid collection costs and late charges.
INTEREST RATE. The interest rate of this loan is thirty six percent per annum
(36%) or three percent per month (3%).
PREPAYMENT. there are no prepayment penalties on this loan.
LATE CHARGE. If a payment is 10 days or more late, borrower will be charged
5.00% of the regularly scheduled payment.
DEFAULT. borrower will be in default if any of the following happen: (A)
Borrower fails to make any payment when due. (B) Borrower breaks any promise
Borrower has made to lender, or Borrower fails to perform promptly at the time
and strictly in the manner provided in this note or any agreement related to
this Note, or in any other agreement made between Borrower and Lender. (C)
Borrower defaults under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any other
creditor or person that may materially affect any of the borrower's property or
Borrower's ability to repay this note or perform Borrower's obligations under
this Note or any of its related Documents. (D) Any representation or statement
made or furnished to Lender by Borrower or on Borrower's behalf is false or
misleading in any material respect. (E) Borrowers become insolvent, a receiver
is appointed or any part of borrower's property, Borrower makes an assignment
for the behalf of creditors, or any proceeding is commenced either by Borrower
or against Borrower under bankruptcy or insolvency laws. (F) Any creditor tries
to take any of borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts. (G) Any of
the events described in this default section occurs with respect to the
guarantor of this Note. (H) Lender in good faith deems itself insecure.
<PAGE>
If any default, other than a default in payment, is curable and if the Borrower
has not given notice of a breach of the same provision of this note within the
preceding twelve months, it may be cured (and no event of default has occurred)
if Borrower, after receiving written notice from Lender demanding cure of such
default: (a) cures the default within fifteen days (b) if the cure requires more
than fifteen days, immediately initiates steps which Lender deems in Lender's
sole discretion to be sufficient to cure the default thereafter continues and
completes all reasonable and necessary steps sufficient to produce compliance as
soon as reasonably practical.
LENDERS RIGHTS, upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then the Borrower will pay that amount. Upon default, including
failure to pay upon final maturity, Lender, a its option, may also, if permitted
under applicable law, increase the rate to 48% per annum. Lender may hire or pay
someone to help collect this note if borrower does not pay. Borrower also will
pay Lender that amount. This includes, subject to any limits under applicable
law, Lenders attorneys fees and legal expenses whether or not there is a
lawsuit, including attorney's fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction), Bank
administrative fees and costs, in addition to all other sums provided by law.
This note has been delivered to Lender and accepted by Lender in the state of
Washington. If there is a lawsuit, Borrower agrees upon Lender's request to
submit to the jurisdiction of the courts of Snohomish county, the state of
Washington. This Note shall be Governed by and construed in accordance with the
laws of the state of Washington.
COLLATERAL. This note is secured by a Security Agreement dated September 3, 1996
and filed with the state of Washington.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as a maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that the
Lender may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; fail to realize upon or perfect
Lender's security interest in the collateral; and take any other action deemed
necessary by Lender without the consent of or notice to anyone.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE.
BORROWER:
ROSE HEARTS INC.
BY: /s/ Greg P. Lambrecht, President
----------------------------------
GREG P. LAMBRECHT, PRESIDENT
CO-BORROWER AND GUARANTOR:
BY: /s/ Greg P. Lambrecht
----------------------------------
GREG P. LAMBRECHT
State of Washington
County of Snohomish
On this day personally appeared before me James B. Stanley
Greg P. Lambrecht
Given under my hand and official seal this
third day of September 1996
James B. Stanley [SEAL]
<PAGE>
LASER PRINTED FORM
PLEASE TYPE FORM - IF AN ERROR IS MADE, CORRECT ALL COPIES
This UCC-1 FINANCING STATEMENT is presented for filing pursuant to the
WASHINGTON UNIFORM COMMERCIAL CODE, chapter 62A. 9 RCW, to perfect a security
interest in the below named collateral.
Filing Fee: $12.00
- --------------------------------------------------------------------------------
1. DEBTOR(S) Xxxxxx: 2. FOR OFFICE USE ONLY--DO NOT
[ ] PERSONAL xxx________________ WRITE IN THIS BOX
[ ] FILING: 91-T448488
XXX_______________
XXX_______________
ROSE HEARTS, INC XXX_______________
6925 216TH SW #N
LYNNWOOD, WA 98036
TRADE NAME, DBA, AKA:
- --------------------------------------------------------------------------------
3. SECURED PARTNER(S) (Name and address) 4. ASSIGNEES
GREG BARTON AND/OR ASSIGNS
17403 NE 45TH ST
REDMOND, WA 98036
- --------------------------------------------------------------------------------
5. CHECK ONLY IF APPLICABLE:
[ ] [X] Products of Collateral are also covered
- --------------------------------------------------------------------------------
6. NUMBER OF ADDITIONAL SHEETS PRESENTED:
- --------------------------------------------------------------------------------
7. THE FINANCING STATEMENT
All Inventory, Accounts, Contract Rights and Equipment; whether any of the
foregoing is owned now or acquired later; all addsessions, additions,
replacements, and substitutions relating to any of the foregoing; all records of
any kind relating to any of the foregoing; all proceeds relating to any of the
foregoing (including insurance, general intangibles and accounts proceeds)
- --------------------------------------------------------------------------------
8. RETURN ACKNOWLEDGEMENT COPY 9. FILE WITH:
UNIFORM COMMERCIAL CODE
GREG BARTON AND/OR ASSIGNS DEPARTMENT OF LICENSING
17403 NE 45TH ST P.O. BOX 9686
REDMOND, WA 98036 OLYMPIA, WA 98507-9665
MAKE CHECKS PAYABLE TO THE
DEPARTMENT OF LICENSING
------------------------------------
10. FOR OFFICE USE ONLY: IMAGES TO
BE FILMED [ ]
- --------------------------------------------------------------------------------
11. If
a. [ ]
b. [ ]
c. [ ]
d. [ ]
- --------------------------------------------------------------------------------
12. DEBTOR NAME AND SIGNATURE(S) 13. SECURED PARTY NAME(S) AND SIGNATURE
ROSE HEARTS, INC. CITY BANK
- -------------------------------------- ----------------------------------------
TYPE NAME OF DEBTOR(S) AS IT APPEARS TYPE NAME(S) OF SECURED PARTY(IES) AS IT
IN BOX 1. APPEARS IN BOX 3 OR 6.
/s/ Greg P. Lambrecht
- -------------------------------------- ----------------------------------------
SIGNATURE(S) OF DEBTOR(S) SIGNATURES) OF SECURED PARTY(IES)
- -------------------------------------- ----------------------------------------
SIGNATURE(S) OF DEBTOR(S) SIGNATURES) OF SECURED PARTY(IES)
FORM APPROVED FOR USE IN THE STATE OF WASHINGTON
State of Washington
County of Snohomish
On this day personally appeared before me James B. Stanley
Greg P. Lambrecht
Given under my hand and official seal this
third day of September 1996
James B. Stanley [SEAL]
<PAGE>
BUSINESS LOAN AGREEMENT
- --------------------------------------------------------------------------------
Loan date: 9/5/96 Principal Amount: $110,000 Interest Rate: 36%
- --------------------------------------------------------------------------------
Borrower: CAN-AM INTERNATIONAL Lender: GREG BARTON
INVESTMENT CORP AND/OR ASSIGNS
APT 606-888 PACIFIC BLVD 17403 NE 45TH ST
VANCOUVER, BC V6Z 1S4 REDMOND, WA 98036
PROMISE TO PAY, CAN-AM INTERNATIONAL INVESTMENT CORP ("BORROWER") Promises to
pay to GREG BARTON ("Lender"), or order, in lawful money of United States of
America, the principal amount of one hundred and ten thousand dollars
($110,000), with interest on the unpaid balance from September 5, 1996 and all
unpaid balances due on May 5, 1998.
PAYMENT. Borrower will pay this loan in monthly payments of interest only on the
5th day of each month with the first payment paid in advance and the second
payment due on November 5, 1996. The monthly payments of interest only will be
calculated on a rate of 3% of the outstanding balances. Borrower will pay the
lender at lender's address shown above or at such other place as lender may
designate in writing. Unless otherwise agreed or required by applicable law,
payments will be applied first to unpaid interest, then to principal, and any
remaining amount to any unpaid collection costs and late charges.
INTEREST RATE. The interest rate of this loan is thirty six percent per
annum(36%) or three percent per month(3%).
PREPAYMENT. There are no prepayment penalties on this loan.
LATE CHARGE. If a payment is 10 days or more late, borrower will be charged
5.00% of the regularly scheduled payment.
DEFAULT. Borrower will be in default if any of the following happen: (A)Borrower
fails to make any payment when due. (B) Borrower breaks any promise Borrower has
made to lender, or Borrower fails to perform promptly at the time and strictly
in the manner provided in this note or any agreement related to this Note, or in
any other agreement made between Borrower and Lender. (C) Borrower defaults
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person that
may materially affect any of the borrower's property or Borrowers ability to
repay this note or perform Borrower's obligations under this Note or any of its
related Documents. (D) Any representation or statement made or furnished or
Lender by Borrower or on Borrower's behalf is false or misleading in any
material respect. (E) Borrowers become Insolvent, a receiver is appointed for
any part of borrower's property, Borrower makes an assignment for the behalf of
creditors, or any proceeding is commenced either by Borrower or against Borrower
under bankruptcy or insolvency laws. (F) Any creditor tries to take any of
borrowers property on or in which Lender has a lien or security interest. This
includes a garnishment of any of Borrowers accounts. (G) Any of the events
described in this default section occurs with respect to the guarantor of this
Note. (H) Lender in good faith deems itself insecure.
<PAGE>
If any default, other than a default in payment , is curable and the borrower
has not given notice of a breach of the same provision of this note within the
preceding twelve months, it may be cured (and no event of default has occurred)
if borrower, after receiving written notice from Lender demanding cure of such
default: (a) cures the default within fifteen days (b) if the cure requires more
than fifteen days, immediately initiates steps which Lender deems in Lender's
sole discretion to be sufficient to produce compliance as soon as reasonably
practical.
LENDERS RIGHTS, upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then the Borrower will pay that amount. Upon default, including
failure to pay upon final maturity, Lender, at its option, may also, if
permitted under applicable law, increase the rate to 48% per annum. Lender may
hire or pay someone to help collect this note if borrower does not pay. Borrower
also will pay Lender that amount. This includes, subject to any limits under
applicable law, Lenders attorneys fees and legal expenses whether or not there
is a lawsuit, including attorney's fees and legal expenses for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay or
injunction), Bank administrative fees and costs, in addition to all other sums
provided by law. This Note has been delivered to Lender and accepted by Lender
in the state of Washington. If there is a lawsuit, Borrower agrees upon Lender's
request to submit to the jurisdiction of the courts of Snohomish county, the
state of Washington. This Note shall be Governed by and construed in accordance
with the laws of the state of Washington.
COLLATERAL. This note is secured by a Security Agreement dated September 3, 1996
and filed with the state of Washington
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this note without losing them. Borrower and any other person who
signs, guarantees of endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as a maker, guarantor, accommodation maker,
or endorser, shall be released from liability. All such parties agree that the
Lender may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; fail to realize upon or perfect
Lender's security interest in the collateral; and take any other action deemed
necessary by Lender without the consent of or notice to anyone.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THIS NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THIS NOTE.
BORROWER:
J & M WHOLESALE LTD.
BY: /s/ Colin Andrew Jones, President
-----------------------------------
COLIN ANDREW JONES, PRESIDENT
CO-BORROWER AND GUARANTOR
BY: /s/ Colin Andrew Jones, President
-----------------------------------
COLIN ANDREW JONES, PRESIDENT
State of Washington
County of Snohomish
On this day personally appeared
before me James B Stanley
x____________________________
Given under my hand and Official Seal
this 4th day of September 1996
/s/ James B Stanley [SEAL]
- -------------------------------
<PAGE>
Greg Barton LOAN AGREEMENT
17403 NW 45th St U.S. DOLLARS
Redmond, Washington, D.C.
98052
Date: 13Aug1996
(hereafter called the "Lender") Loan Amount: 0
________________________________________________________________________________
Member's Name: CAN-AM INTERNATIONAL INVESTMENT CORP Bus. Phone:
Member's Name: Bus. Phone:
Address: APT 505 - 655 Pacific Blvd Res. Phone: 604 435-1705
VANCOUVER BC VEZ 134
(hereafter called the borrower)
Member's Name: Bus. Phone:
Member's Name: Bus. Phone:
Address: Res. Phone: 604 435-1705
Member's Name: Bus. Phone:
Member's Name: Bus. Phone:
Address: Res. Phone:
- --------------------------------------------------------------------------------
IN CONSIDERATION of Greg Barton, ____________________, establishing a Personal
Loan the borrower and agreeing to lend to the Borrower up to the amount shown as
the authorized limit, the Borrower acknowledges and agrees to be bound by the
terms conditions set forth herein.
- --------------------------------------------------------------------------------
* Date of Agreement: | |
(please complete)
<TABLE>
<S> <C> <C> <C>
Authorized Limit: $ 110,000.00 US $ Prime A Lending Rate (as of Today's date): 6.000 %
Annual Percentage Rate: 36.0% % per annum. Loan Interest Rate: Prime A Lending Rate Plus 30.000 %
Loan Interest Rate: (as at today's date): 36.000 %
</TABLE>
Monthly Payments: Interest Only
|x| A deposit equal to or greater than the interest charged on the preceding
month's statement is due during the following calendar month
| | At least % of the Closing Monthly Balance to be deposited during
the following calendar month.
- --------------------------------------------------------------------------------
TERMS AND CONDITIONS
1. ######################################################################### x
######################################################################### x
2. The daily outstanding balance of the Loan shall bear interest at the
Interest Rate shown above, compounded monthly and calculated daily. if in
default, the interest rate will be 48%
3. The Member shall make monthly payments as shown above, and authorizes Greg
Barton to debit the Account or any other Member accounts for the amount of
the payment plus accrued interest when the sum becomes payable or overdue.
4. The outstanding Balance of the Loan together with all accrued interest,
shall be payable ON DEMAND.
- --------------------------------------------------------------------------------
EXECUTION
IN WITNESS WHEREOF the member (or if the member is in a corporation, the
authorized signatory on behalf of the Member) has executed this Agreement as of
the Date set out above.
****THIS LOAN IS NEGOTIATED IN U.S. Dollars****
- -------------------------------- ------------------------------
INTERNATIONAL INVESTMENTS CORP Witness As To All Signatures
- --------------------------------
Authorized Signatory
State of Washington
County of Snohomish
On this day personally appeared
before me James B Stanley
x
- --------------------------------
Given under my hand and Official Seal
this 4th day of September 1996
x
- --------------------------------
James B Stanley
<PAGE>
5. If the Loan is insured by a mortgage of land, Westminster shall be
obligated to make advances and re-advances of the Loan until Westminster
shall have demanded payment of the outstanding balance. If the loan is not
secured by a mortgage of land, Westminster shall not be obliged to advance
or re-advance the Loan or any portion thereof.
6. If there are sufficient funds in the Account to pay any cheque or other
item ("the item") drawn on the Account, Westminster shall treat the item as
a request for an advance or re-advance of the loan. Westminster will not be
required to pay any item if the Loan exceeds the authorized Limit or if
payment would result in the Loan exceeding the Authorized Limit. If
Westminster pays an item while the Authorized Limit is exceeded or which
causes the Authorized Limit to be exceeded, the amount so paid in excess of
the Authorized Limit shall be a loan to the Member, bear interest at the
Unauthorized Overdraft Rate as established by Westminster from time to
time, and be subject to these terms and conditions.
7. If the Interest Rate is described in relation to "Prime A Lending Rate":
(a) the "Prime A Lending Rate" will be reviewed and may change daily
with changes to B.C. Central Credit Union's Prime Lending Rate.
(b) a certificate of an executive officer of Westminster as to the
Prime Lending Rate in effect at any time shall be conclusive evidence
thereof.)
(c) Westminster shall not be obligated to give the member notice of
any changes in the Prime Lending Rate.
8. Westminster may at any time without notice to the Member, suspend or cancel
access to the Loan, without affecting the Member's obligations hereunder.
9. Westminster may at any time upon notice to the Member, change the
Authorized Limit or the Interest Rate.
10. The Member shall pay all legal or other fees and costs in connection with
the preparation, registration, or enforcement of this agreement or any
security given in support thereof.
11. Notice to the Member may be sent by ordinary mail addressed to the Member
at the Member's then current address in Westminster's records, and shall be
deemed to have been received on the third business day following the date
of mailing.
12. If more than one person or corporation signs this Agreement, all promises
and agreements of the member shall be joint and several.
13. This Agreement may not be assigned by the member and shall enure to the
benefit of Westminster and it's successors and assigns, and shall be
binding upon the members and the heirs, executors, and administrators of
the Member, as the case may be.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
STATEMENT OF COST OF BORROWING FURNISHED PURSUANT TO THE CONSUMER PROTECTION ACT
AND REGULATIONS IN RESPECT OF VARIABLE CREDIT
1. INTEREST RATE CHARGED PER ANNUM ON THE CLOSING DAILY BALANCE CALCULATED AND COMPOUNDED MONTHLY, NOT IN ADVANCE
2. IF AN AMOUNT IS OUTSTANDING FOR LESS THAN A MONTH, INTEREST IS CHARGED AT THE STATED FOR THE NUMBER OF DAYS
THAT THE AMOUNT IS OUTSTANDING.
3. THE COST EXPRESSED IN DOLLARS AND CENTS IN AN ILLUSTRATIVE SCHEDULE OF AMOUNTS OF OUTSTANDING BALANCES AND
CORRESPONDING CHARGES FOR THE COST OF BORROWING IS AS FOLLOWS:
10% 11% 12% 13% 14% 15% 16% 17%
Cost of Cost of Cost of Cost of Cost of Cost of Cost of Cost of
Borrowing Borrowing Borrowing Borrowing Borrowing Borrowing Borrowing Borrowing
Loan Number For For For For For For For For
Balance Of Days The Period The Period The Period The Period The Period The Period The Period The Period
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 50.00 10 $ .14 $ .15 $ .16 $ .18 $ .19 $ .21 $ .22 $ .23
50.00 20 .27 .30 .32 .36 .38 .41 .44 .47
50.00 30 .41 .45 .49 .53 .58 .?? .66 .70
100.00 40 .27 .30 .33 .34 .38 .41 .44 .47
100.00 50 .55 .60 .66 .71 .77 .82 .88 .93
100.00 60 .82 .90 .99 1.07 1.15 1.23 1.32 1.40
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Greg Barton LOAN INDEMNITY AGREEMENT
17403 NW 45th St PERSONAL GUARANTEES
Redmond, Washington, D.C.
98052 Date: 13Aug1996
Loan Amount: 0
(hereafter called the "Lender") Loan Number: 0
- --------------------------------------------------------------------------------
Borrower: CAN-AM INTERNATIONAL INVESTMENT CORP Birthdate:
Indemnitor's Birthdate:
Address: APT 606 - 888 Pacific Blvd
VANCOUVER BC VEZ 154
Indemnitor: J&M Wholesale Ltd. and Birthdate:
Indemnitor's Colin Andrew Jones Birthdate:
Address: Unit 110 B 4663 Byrne Rd
BURNABY BC
(hereafter called the Indemnitors) Birthdate:
Birthdate:
Address:
- --------------------------------------------------------------------------------
In this Indemnity Agreement "you" and "your" mean the indemnitor and
"we" and "us" mean Greg Barton
- --------------------------------------------------------------------------------
TYPE OF LOAN
This Indemnity relates to the following loan (the "Loan") to be made by us to
the Borrower
Personal Loan In the amount of: $110,000.00 US Dollars Rate: 36.00 per annum(%
[ ] Limitation * Notwithstanding any term or condition herein. the amount for
which the indemnitor shall be liable is limited to $_________________ together
with interest thereon at the Loan Rate from the date of demand until payment or
judgement.
- --------------------------------------------------------------------------------
INDEMNITY
1. Indemnity - You will indemnify us and hold us harmless against all losses,
costs, expenses and damages relating to or arising out of, our making the
Loan, including principal monies advanced and re-advanced, interest,
costs, charges and expense due to us in connection with the Loan (and
whether or not recoverable by us from the Borrower).
2. Further Terms and Conditions - You agree to be bound by the Further Terms
and Conditions appearing on the reverse, which form a part of this
indemnity.
3. Acknowledgement and Waiver - You hereby acknowledge receiving a copy of
this Indemnity, a copy of the document(s) evidencing the Loan and a copy
of any security agreement securing the Loan and you hereby waive the right
to receive a copy of any financing statement, financing change statement,
or verification statement in respect of any security agreement securing
the Loan or any amendment thereto.
- --------------------------------------------------------------------------------
EXECUTION
IN WITNESS WHEREOF the Indemnitor (or if the Indemnitor is a corporation, the
authorized signatory on behalf of the Indemnitor) has executed this Agreement as
of the Date set out above.
------------------------- ----------------------------
Witness as To All Signatures
/s/ Colin Andrew Jones
- ---------------------- -------------------------
J & M Wholesale LTD Colin Andrew Jones
and
(Personal Capacity)
- ----------------------
Authorized Signatory
State of Washington
County of Snohomish
On this day personally appeared
before me James B Stanley
x
------------------------
Given under my hand and Official Seal [seal]
this 4th day of September 1996
/s/ James B Stanley
------------------------
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of December 31, 1996, by and among CAN-AM INTERNATIONAL INVESTMENT
CORP., a British Columbia corporation ("Buyer"), GREG P. LAMBRECHT
("Lambrecht"), and ROSE HEARTS, INC., a Washington corporation ("Seller").
RECITALS
WHEREAS, the Seller desires to sell to Buyer, and Buyer desires to
purchase from the Seller certain assets of the Seller; and
WHEREAS, Lambrecht is the sole shareholder of Seller;
NOW, THEREFORE, in consideration of the covenants, agreements,
warranties and representations contained in this Agreement, and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties to this Agreement hereby agree as follows:
1. Transfer of Cigar Business Assets. Subject to the terms and
conditions set forth in this Agreement, at the closing of this transaction (the
"Closing"), Buyer shall acquire from Seller, and Seller shall sell, transfer,
assign and convey to Buyer, all of that portion of Seller's cigar business and
operations, including, without limitation, all properties, inventory and assets
of every kind, nature and description, tangible or intangible relating to the
distribution of cigars, humidors and related items, along with all related
contract rights, security deposits, rights to related accounts receivable as of
December 31, 1996, related funds in bank accounts of the Seller, and all cigar
and humidor related trademarks and trade names owned by the Seller; including,
without limitation, those specific assets identified in Exhibit "A" attached
hereto and made a part hereof (the foregoing are collectively referred to as the
"Assets") free and clear of any liens or encumbrances. Seller has examined the
condition of the Assets and accepts them "as is," but free and clear of any
liens or encumbrances. Contemporaneously with such transfer, assignment and
conveyance, Seller shall deliver to Buyer possession of the Assets. All Assets
which are personal property shall be transferred, assigned and conveyed by a
Bill of Sale substantially in the form attached hereto as Exhibit "B". Seller
shall deliver and execute all documents and instruments which Buyer shall
reasonably request in order to comply with any statute, rule, regulation or law
applicable to the transfer of the Assets or which are necessary to complete or
perfect the transfer of title to the Assets.
2. Assumption of Liabilities. Buyer shall assume all liabilities of
Seller relating to the cigar business, including the following:
<PAGE>
a. Barton Loan. Buyer specifically assumes liability for that
"Business Loan Agreement" dated September 5, 1996 for $110,000 among
Greg P. Lambrecht, Colin A. Jones, ROSE HEARTS, INC., CAN-AM
INTERNATIONAL INVESTMENT CORP. and J&M WHOLESALE LTD.
Seller shall remain liable for all non-cigar related liabilities.
3. Assignment of Contract Rights and Licenses.
a. Contracts Assigned. The contracts identified on Exhibit "C"
shall be assigned by Seller to Buyer by an Assignment of Contract
Rights substantially in the form attached as Exhibit "D".
b. Contracts Not Assumed. The contracts identified on Exhibit
"E" shall not be assumed by Buyer and according to the dispositions
indicated in Exhibit "E" shall be either cancelled by Seller as of the
Closing or continued in Seller's name at Seller's discretion. Seller
specifically shall not assign its lease to Buyer and Buyer shall assume
no liability under such lease.
c. Cigar-Related Licenses and Permits. Seller shall assign to
Buyer all of its cigar-related licenses, permits or arrangements or
approvals with any governmental authority, including, but not limited
to, any license to do business, collect taxes, and all licenses
relating to the sale of tobacco products. If, because of governmental
regulation, such licenses are non-assignable, Seller shall take all
steps necessary to obtain such new licenses or permits required for
Buyer to continue the cigar-related operations which were conducted by
Buyer prior to the date of this Agreement.
4. Contact with Seller's Customers. As soon as possible following
execution of this Agreement, Seller shall contact each of its cigar-related
customers to inform them that their accounts have been transferred to Buyer.
Such contact shall be made in writing in the form set forth on Exhibit "F"
hereto (the "Customer Message"). The Customer Message shall inform Seller's
customers that their existing contracts will be honored by Buyer and will
provide Seller's customers with the name of a contact person designated by Buyer
who will be able to answer questions and will provide all necessary additional
information to Seller's customers to enable them to become customers of Buyer
with no interruption in service.
5. Consideration. As consideration for the agreements and the transfer
of Assets as set forth herein, Buyer shall have issued to Lambrecht, Seller's
sole shareholder, on or before December 30, 1996:
a. Ninety-Five (95) shares of the issued and outstanding Class
"A," non- voting, no-par value common stock of Buyer representing
approximately forty-seven percent (47%) of such Class "A" shares;
b. One (1) share of the issued and outstanding Class "B,"
voting, no-par common stock of Buyer representing fifty percent (50%)
of such Class "B" shares; and
-2-
<PAGE>
c. The parties acknowledge that Lambrecht will subsequently,
but also on December 31, 1996, transfer the shares referred to in
Sections 5.a. and 5.b. to Premium Cigars International, Inc., an
Arizona corporation ("PCI"), in exchange for shares of PCI in a
transaction in which PCI will acquire all of the issued and outstanding
shares of Buyer.
6. Inventory. That portion of the Assets which consist of inventory
shall be identified as of the date hereof and each specific item of inventory
shall be valued based upon Seller's cost for such inventory as evidenced by
written invoices and purchase orders. The invoices and purchase orders
evidencing the inventory shall be delivered to Buyer at or before Closing.
7. Books and Records. Seller shall make available to Buyer, during
regular business hours all of the books and records of Seller and Buyer shall be
permitted to make copies and extracts therefrom.
8. Covenant Not to Compete.
a. Interest to be Protected. The parties acknowledge that
during the time in which Seller owned the Assets, Seller and Lambrecht
had the opportunity to meet, work with and develop close working
relationships with the clients of the business in which the Assets were
used on a first-hand basis and gained valuable insight as to the
clients' operations, personnel and need for services. In addition,
Seller and Lambrecht were exposed to, had access to, and were required
to work with, a considerable amount of confidential and proprietary
information, including but not limited to: information concerning
methods of operation, financial information, strategic planning,
operational budget and strategies, computer systems, marketing plans
and strategies and customer lists related to the Assets. The parties
expressly recognize that should Seller compete with the Buyer in any
manner whatsoever, it could seriously impair the goodwill and otherwise
diminish the value of the Assets. The parties acknowledge that the
covenant not to compete contained in this section has an extended
duration; however, they agree that this covenant is reasonable and it
is necessary for the protection of Buyer's investment in the Assets.
For these and other reasons, the parties are in full and complete
agreement that the following restrictive covenants are fair and
reasonable and are freely, voluntarily and knowingly entered into.
Further, each party was given the opportunity to consult with
independent legal counsel before entering into this Agreement.
b. Restrictions on Competition. Seller and Lambrecht agree
that they shall not, during the term of this Agreement and for a period
of two (2) years from the date of Closing, directly or indirectly,
either as principal, partner, shareholder, joint venturer, officer,
director, consultant, member, employee or otherwise, own any interest
in, manage, control, participate in, consult with, render services for,
or in any manner engage in any business competing, directly or
indirectly, with the business of Buyer in any state of the United
States or foreign country in which the Company is conducting
-3-
<PAGE>
business. At any time and from time to time, each party agrees, at its
expense, to take action and to execute and deliver documents as may be
reasonably necessary to effectuate the purposes of this Covenant.
Notwithstanding the foregoing, Seller or Lambrecht may, without
violating this Section 8, act as an officer, director, agent or
shareholder of Buyer or any parent corporation or affiliate of Buyer.
Seller or Lambrecht may, without violating this Section 8, own up to
two percent (2.0%) or less of the total outstanding ownership of any
entity, regardless of competitive relationship.
c. Judicial Amendment. If the scope of any provision of this
Section of this Agreement is found by any Court to be too broad to
permit enforcement to its full extent, then such provision shall be
enforced to the maximum extent permitted by law. The parties agree that
the scope of any provision of this Section of this Agreement may be
modified by a judge in any proceeding to enforce this Agreement, so
that such provision can be enforced to the maximum extent permitted by
law. If any provision of this Agreement is found to be invalid or
unenforceable for any reason, it shall not affect the validity of the
remaining provisions of this Agreement.
d. Injunction; Remedies for Breach. Since a breach of the
provisions of this section of this Agreement could not adequately be
compensated by money damages, the Buyer shall be entitled, in addition
to any other right or remedy available to it at law or equity, to an
injunction restraining the breach or threatened breach and to specific
performance of any provision of this section of this Agreement, and, in
either case, no bond or other security shall be required in connection
therewith, and the parties hereby consent to the issuance of such an
injunction and to the ordering of specific performance.
9. Closing Costs and Prorations.
a. Personal property taxes and other special assessments,
shall be prorated as of the Closing, based upon the latest available
information. Seller shall pay all prior year taxes, interest and
penalties, if any.
b. All insurance on the Assets shall be cancelled by Seller
effective as of the Closing.
10. Closing Date. The purchase and sale of the Assets shall be
consummated and become effective as of December 31, 1996 (the "Closing Date").
11. Deliveries at Closing.
a. Buyer's Deliveries. On the Closing Date, Buyer shall
deliver to Seller the following items:
-4-
<PAGE>
i. A resolution of Buyer approving the transactions
set forth in this Agreement.
ii. Certificate Number 4 for Ninety-Five (95) shares
of the issued and outstanding Class "A," non-voting, no-par
value common stock of Buyer representing approximately
forty-seven percent (47%) of such Class "A" shares; and
iii. Certificate Number 2 for One (1) share of the
issued and outstanding Class "B," voting, no-par common stock
of Buyer representing fifty percent (50%) of such Class "B"
shares.
b. Seller's Deliveries. On the Closing Date, Seller shall deliver to
Buyer the following items:
i. The signed Bill of Sale;
ii. The signed Assignment of Contract Rights;
iii. Proof satisfactory to Buyer that the Customer
Message was sent;
iv. The Assets identified on Exhibit "A" attached
hereto.
v. All other documents to be signed by the parties as
provided herein.
12. Conditions to Closing. The following items shall be conditions to
the closing of this transaction and must be satisfied as of the Closing Date:
a. The parties shall be in full compliance with and shall have
performed or be prepared to perform, as applicable, all covenants and
pre-closing agreements contained in this Agreement and all of the
representations, warranties and covenants contained in this Agreement
shall be true and correct in all material respects.
b. Each item required to be delivered by each party pursuant
to Section 11 hereof is signed and delivered to Escrow Agent.
c. There shall be no judgment, decree, injunction, ruling or
order of any court agency or other instrumentality outstanding against
Seller which prohibits or materially restricts or delays the
consummation of the closing.
d. Seller shall send the Customer Message to its customers and
provide proof thereof to Buyer.
-5-
<PAGE>
13. Professional Fees. Unless specifically provided otherwise in this
Agreement, each party shall bear its own costs related to the preparation of
this Agreement and the consummation of the transactions contemplated hereby,
including but not limited to attorneys' and accountants' fees.
14. Representations, Warranties and Covenants.
a. Subject to information that Seller could not have known
with reasonable diligence, Seller hereby represents, warrants and
covenants to Buyer the following:
i. This Agreement and all documents required hereby
to be executed by Seller are and shall be valid, legally
binding obligations of and enforceable against Seller in
accordance with their terms;
ii. The execution, delivery and performance of this
Agreement by Seller and the compliance with the terms hereof
by Seller do not and will not violate any statute, order, rule
or regulation applicable to Seller of any court, regulatory
authority or governmental body and, do not conflict with or
result in the breach of any of the terms of, or constitute a
default under, any note, indenture, mortgage, deed of trust,
loan agreement, lease or other agreement or instrument to
which it is a party or by which it may be bound which
conflict, breach or default would have a material adverse
effect on Seller's ability to consummate the transactions
contemplated hereby;
iii. There is no suit, action, claim, investigation,
or legal or administrative proceeding pending or threatened
against Seller or its Assets which might have a materially
adverse effect on Seller's ability to consummate the
transactions contemplated hereby;
iv. Any representations or warranties made or to be
made by Seller are true and correct;
v. The Assets are lawfully owned by Seller and that
Seller has the right to sell the Assets free and clear from
any and all encumbrances and liens. Seller shall provide
written documentation to Buyer satisfactory to Buyer from each
of Seller's vendors to the effect that each vendor has been
paid in full and has no claim to any of the Assets.
vi. There is no financing statement now on file
covering any of the Assets or in which Sellers are named as or
sign as debtors;
vii. With respect to each account receivable
transferred hereunder; (1) each account represents a bona
fide, existing, valid and legally enforceable indebtedness of
the customer named therein, payable in the amount, time and
-6-
<PAGE>
manner stated in the invoice therefor; (2) each account,
delivery receipt and invoice represents a bona fide sale in
the ordinary course of Seller's business and represents the
kind, quality and quantity of the goods or services described
therein; that said goods or services described therein have
been completely delivered or performed and, at the time of
delivery has been accepted by the Seller's customer; (3) each
account is free from any claim for credit, deduction,
discount, allowance, dispute, defense, set-off or
counterclaim;
viii. The customer list attached hereto as Exhibit
"G" is complete and accurate;
ix. There are no pending actions, proceedings,
investigations or claims of any nature pending or threatened
which question the validity of this Agreement or the
transactions contemplated herein, or which might result,
either individually or in the aggregate, in any change in the
Assets, condition, affairs or prospects of Seller's business;
x. Seller has no service or maintenance contracts or
any other agreements with any other party which in any way
affect the Assets and Seller is not in default of any contract
listed on Exhibits "C" or "E" and the contracts on Exhibits
"C" and "E" constitute all of the contractual obligations of
Seller;
xi. Seller is not currently in default of any lease
to which Seller is a party. Seller shall obtain certification
from Seller's landlord which is acceptable to Buyer that
Seller is not currently in default under any lease. Seller
also represents that there has been no event which has
occurred which may result in a landlord's lien being imposed
on some or all of the Assets; and
xii. Seller has not complied with the Bulk Sales
provisions of the Arizona Uniform Commercial Code, A.R.S.
ss.47-6101 et. seq.
b. Buyer hereby represents and warrants to Seller as follows:
i. Buyer has the legal power, right and authority to
enter into this Agreement and the documents referenced herein
and, as of the Closing Date, to consummate the transactions
contemplated hereby;
ii. All requisite action has been taken by Buyer in
connection with the entering into this Agreement, the
documents referenced herein, and the consummation of the
transactions contemplated hereby;
iii. The individuals executing this Agreement and the
documents referenced herein on behalf of Buyer have the legal
power, right and actual authority to bind Buyer to the terms
and conditions hereof and thereof;
-7-
<PAGE>
iv. This Agreement and all documents required hereby
to be executed by Buyer are and shall be valid, legally
binding obligations of and enforceable against Buyer in
accordance with their terms;
v. The execution, delivery and performance of this
Agreement by Buyer and the compliance with the terms hereof by
Buyer do not and will not violate any statute, order, rule or
regulation applicable to Buyer of any court, regulatory
authority or governmental body and, do not conflict with or
result in the breach of any of the terms of, or constitute a
default under, any note, indenture, mortgage, deed of trust,
loan agreement, lease or other agreement or instrument to
which it is a party or by which it may be bound which
conflict, breach or default would have a material adverse
effect on Buyer's ability to consummate the transactions
contemplated hereby;
vi. There is no suit, action, claim, investigation,
or legal or administrative proceeding pending or threatened
against Buyer which might have a materially adverse effect on
Buyer's ability to consummate the transactions contemplated
hereby; and
vii. Any representations or warranties made or to be
made by Buyer are true and correct.
15. Survival of Representations and Warranties; Indemnification.
a. Survival. The parties hereto agree that the
representations, warranties and covenants contained in this Agreement
or in any document, certificate, instrument, schedule or exhibit
delivered in connection herewith shall survive the Closing and continue
to be binding regardless of any investigation made at any time by the
parties.
b. Seller's Indemnification. Seller shall indemnify and
protect, defend and hold Buyer and its officers, directors, employees,
agents or representatives harmless from and against any and all loss,
cost, damage, injury or expenses including, without limitation,
attorney fees which Buyer or any of its past or present officers,
directors, employees, agents or representatives may sustain by reason
of or arising out of (i) any obligation or contract of Seller or claim
against Seller which Buyer has not specifically assumed hereunder, (ii)
any liability or obligation relating to any service rendered by Seller
prior to the Closing Date, (iii) the breach or inaccuracy of or failure
to comply with, or the existence of any facts resulting in the
inaccuracy of, any of the warranties, representations or covenants of
Seller contained in this Agreement, (iv) any liability which arose
prior to Closing; (v) any liability arising from Seller's failure to
comply with the Bulk Sales provisions of the Arizona Uniform Commercial
Code, A.R.S. ss.47-6101 et. seq. or (vi) any and all claims or rights
to any of the assets by any third party. If any claim is asserted
against Buyer or Buyer is made a party defendant in any action
involving a matter covered by this indemnification, then Buyer shall
give prompt notice
-8-
<PAGE>
of such claim or action to Seller, and Seller shall have the right to
assume control of the defense thereof at the Seller's sole cost
provided Buyer approves of Seller's counsel, except that, in such case,
Buyer shall have the right to join in the defense thereof at its own
cost. Whether or not Seller assumes control of the defense of any such
action, Seller will be bound by any final judgment against Buyer in any
such action and Seller shall be liable for any such judgment. If Seller
does not join in the defense thereof, Seller will be bound by any
settlement which Buyer may make of such action.
c. Buyer's Indemnification. Buyer shall indemnify and protect,
defend and hold Seller and its officers, directors, employees, agents
or representatives harmless from and against any and all loss, cost,
damage, injury or expenses including, without limitation, attorney fees
which Seller or any of its past or present officers, directors,
employees, agents or representatives may sustain by reason of or
arising out of (i) any liability or obligation relating to Buyer's
conduct of its business after the Closing Date or (ii) the breach or
inaccuracy of or failure to comply with, or the existence of any facts
resulting in the inaccuracy of, any of the warranties, representations
or covenants of Buyer contained in this Agreement. If any claim is
asserted against Seller or Seller is made a party defendant in any
action involving a matter covered by this indemnification, then Seller
shall give prompt notice of such claim or action to Buyer, and Buyer
shall have the right to assume control of the defense thereof at the
Buyer's sole cost provided Seller approves of Buyer's counsel, except
that, in such case, Seller shall have the right to join in the defense
thereof at its own cost. Whether or not Buyer assumes control of the
defense of any such action, Buyer will be bound by any final judgment
against Seller in any such action and Buyer shall be liable for any
such judgment. If Buyer does not join in the defense thereof, Buyer
will be bound by any settlement which Seller may make of such action.
16. Events of Default. This Agreement shall be deemed to have been
defaulted (an "Event of Default") in the event that any of the following have
occurred, and the occurrence thereof has not been cured within the later of ten
days after written notice of that Event of Default or the applicable cure period
set forth in the referenced agreement: (a) either Buyer or Seller has failed to
perform any of its covenants or agreements set forth in this Agreement; or (b)
any of the representations or warranties contained in this Agreement shall have
been materially untrue as of either the date of execution or the Closing Date,
as applicable. Upon the occurrence of an Event of Default by Seller, Buyer may
exercise any of the remedies or rights specifically granted to Buyer in this
Agreement and/or all rights and remedies otherwise available at law or equity.
Upon the occurrence of an Event of Default by Buyer, Lambrecht shall be entitled
to retain the certificates of stock referred to in Section 5 as liquidated
damages, both parties acknowledging that actual damages would be difficult or
impossible to determine and both parties agreeing that this amount represents a
fair estimate of such damages. Seller shall have no further liability hereunder.
17. Notices. Any notice required or permitted to be delivered hereunder
shall be deemed to be delivered when delivered, if delivered, or two business
days after depositing the
-9-
<PAGE>
same in the United States mail, postage prepaid, return receipt requested, and
addressed to the appropriate party at the following addresses:
If to the Buyer: CAN-AM Investments Corp.
15651 North 83rd Way
Building C, Suite 3
Scottsdale, Arizona 85260
Copy to Counsel: Kurt M. Brueckner, Esq.
Titus, Brueckner & Berry, P.C.
Scottsdale Centre, Suite B-252
7373 North Scottsdale Road
Scottsdale, Arizona 85253
If to Seller: Rose Hearts, Inc.
6925 216th Street Southwest #N
Lynnwood, Washington, 98036
If to Lambrecht: Greg P. Lambrecht
6925 216th Street Southwest #N
Lynnwood, Washington, 98036
Any party may change its address for notice by written notice given to each
other party.
18. Attorneys' Fees. In any action or proceedings brought to enforce
any provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees in addition to any other available remedy.
19. Risk of Loss. Seller shall bear the risk of any loss to the Assets
through the Close of Escrow.
20. Entirety and Amendments. This instrument and the instruments
referred to herein embody the entire agreement between the parties, supersede
all other agreements and understandings, if any, relating to the subject matter
hereof or to which Buyer or Seller are parties, and may be amended only by an
instrument in writing executed by all parties, and supplemented only by
documents delivered or to be delivered in accordance with the express terms
hereof.
21. Multiple Counterparts. This Agreement may be executed in a number
of identical counterparts, each of which constitutes collectively, one
agreement; but in making proof of this Agreement, it shall not be necessary to
produce or account for more than one counterpart.
22. Parties Bound; Severability. This Agreement shall be binding upon,
and inure to the benefit of, each of the parties hereto to the extent applicable
to them and their respective successors and assigns and other legal
representatives. If any provision hereof is invalid or
-10-
<PAGE>
unenforceable in any jurisdiction, the other provisions hereof shall remain in
full force and effect in such jurisdiction and the remaining provisions will be
enforced to the maximum extent permitted by law and construed in a fashion to
effectuate best the provisions hereof, and the invalidity or unenforceability of
any provision hereof in any jurisdiction shall not affect the validity or
enforceability of any such provision in any other jurisdiction to the extent
that the remaining enforceable and valid provisions of this Agreement may be
construed in a fashion and act independently of the invalid or unenforceable
provisions to effectuate the intent of the parties as evidenced by this
Agreement.
23. Descriptive Headings; Gender. The headings, captions and
arrangements used in this Agreement are for convenience only and shall not be
deemed to limit, amplify or modify the terms of this Agreement, nor affect the
meaning thereof. Whenever the context shall so require, all words herein in the
male gender shall be deemed to include the female or neuter gender, and all
singular words shall include the plural, and all plural words shall include the
singular.
24. Assignment. Buyer shall be entitled to assign its rights and
obligations hereunder to any third party in its sole and absolute discretion.
25. Additional Documents. Buyer and Seller agree to execute such
additional documents and to do such things as may be reasonably required by the
other parties to implement the purposes of this Agreement.
26. Governing Law. This Agreement is being executed and delivered and
is intended to be performed in the State of Arizona and the laws of such State
shall govern the validity, construction, enforcement and interpretation of this
Agreement.
27. Mediation; Arbitration. If a dispute arises out of or relates to
this Agreement, or the breach thereof, and if the dispute cannot be settled
through negotiation, the parties agree first to try in good faith to settle the
dispute by mediation administered by the American Arbitration Association under
its Commercial Mediation Rules. If the dispute cannot be settled through
negotiation or mediation, the Parties agree to submit the dispute to arbitration
administered by the American Arbitration Association under its Commercial
Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may
be entered in any court having jurisdiction thereof.
28. Brokerage. If any other person shall assert a claim to a finder's
fee, brokerage commission or other compensation on account of alleged employment
as a finder or broker or performance of services as a finder or broker in
connection with this transaction, the party under whom the finder or broker is
claiming shall indemnify and hold the other party harmless for, from and against
any such claim and all costs, expenses and liabilities incurred in connection
with such claim or any action or proceeding brought on such claim, including,
but not limited to, counsel and witness fees and court costs in defending
against such claim. This indemnity shall survive the Closing or the cancellation
of this Agreement.
The parties hereto have executed this Agreement as of the date first
above written.
-11-
<PAGE>
"BUYER" "SELLER"
CAN-AM INTERNATIONAL INVESTMENT CORP. ROSE HEARTS, INC.
a British Columbia corporation a Washington corporation
By: /s/ Colin A. Jones By: /s/ Greg P. Lambrecht
-------------------------------- -------------------------------------
Colin A. Jones, President Greg P. Lambrecht, President
"LAMBRECHT"
/s/ Greg P. Lambrecht
- -----------------------------------
Greg P. Lambrecht
-12-
<PAGE>
EXHIBITS
--------
A. Assets
B. Bill of Sale
C. List of Contracts Assigned
D. Assignment of Contract Rights
E. List of Contracts Not Assigned
F. Customer Message
G. Customer List
<PAGE>
EXHIBIT "A"
ASSETS
<PAGE>
EXHIBIT "B"
BILL OF SALE
ROSE HEARTS, INC., a Washington corporation ("Seller"), in
consideration of the sum of Ten Dollars ($10.00), and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, do
hereby sell, convey and transfer to CAN-AM INTERNATIONAL INVESTMENT CORP., a
British Columbia corporation ("Buyer"), its successors and assigns, all of
Seller's properties, inventories, trademarks, tradenames, funds in bank
accounts, furniture, furnishings, fixtures, goodwill, list of current customers,
supplies, services, covenants not to compete, equipment, and all other assets of
every kind, nature and description, tangible or intangible, used by Seller in
connection with its business of distributing cigars, humidors and related items
including, but not limited to, those specific assets identified in Exhibit A
attached hereto and made a part hereof (the foregoing are collectively referred
to as the "Assets") to have and to hold the same unto Purchaser, its successors
and assigns, forever.
Seller hereby covenants with and warrants to Purchaser its successors and
assigns, that the Seller is the lawful owner of the Assets and has the right to
sell such Assets, and that the Assets are free and clear from all encumbrances
or liens. Seller agrees to indemnify and hold Purchaser, its successors and
assigns, harmless from and against any and all claims to and rights in the
Assets of any third party, including any and all costs and attorneys' fees in
connection therewith.
DATED this ___ day of _________ __, 199___.
"SELLER"
ROSE HEARTS, INC.
a Washington corporation
By:
----------------------------------
Greg P. Lambrecht, President
<PAGE>
EXHIBIT "C"
LIST OF CONTRACTS ASSIGNED
<PAGE>
EXHIBIT "D"
ASSIGNMENT OF CONTRACT RIGHTS
This Assignment of Contract Rights (the "Agreement") is entered into as
of the ______ day of _________, 199___, by and between ROSE HEARTS, INC., a
Washington corporation ("Assignor"), and CAN-AM INTERNATIONAL INVESTMENT CORP.,
a British Columbia corporation ("Assignee").
RECITALS
WHEREAS, concurrent with the execution hereof, Assignor is selling
substantially all of its assets to Assignee pursuant to that certain Asset
Purchase Agreement of even date herewith;
WHEREAS, Assignor's assets include rights pursuant to contracts with
third parties; and
WHEREAS, Assignor desires to assign its contract rights to Assignee.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Assignor hereby assigns, transfers, conveys, sells and sets over
unto Assignee all of Assignor's right, title and interest in, to and under those
certain contracts identified on Exhibit "1" hereto (the "Contracts").
2. Assignor hereby represents and warrants that the Contracts are
valid, enforceable obligations of the parties thereto and that no default exists
pursuant to any contract. Assignor shall indemnify, defend, and hold Assignee
harmless for, from and against all liabilities, obligations, covenants and
agreements of Assignor under the Contracts.
3. No consent of any third party to the foregoing assignment on the
terms and conditions specified above is required, and if such consent is
required, Assignor represents and warrants that it has obtained such consent.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Assignment as of the
date first set forth above.
ASSIGNEE:
----------------------------------------
a(n)
-----------------------------------
By:
------------------------------------
Its:
-------------------------------
ASSIGNOR:
----------------------------------------
a(n)
-----------------------------------
By:
------------------------------------
Its:
-------------------------------
<PAGE>
EXHIBIT "E"
CONTRACTS WHICH WILL NOT BE ASSIGNED TO BUYER
AND WHICH WILL BE CANCELLED BY SELLER PRIOR TO CLOSING
<PAGE>
EXHIBIT "F"
CUSTOMER MESSAGE TEXT
<PAGE>
EXHIBIT "G"
CUSTOMER LIST
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of December 31, 1996, by and among CAN-AM INTERNATIONAL INVESTMENT
CORP., a British Columbia corporation ("Buyer"), COLIN A. JONES ("Jones"), and
J&M WHOLESALE, LTD., a British Columbia corporation ("Seller").
RECITALS
WHEREAS, the Seller desires to sell to Buyer, and Buyer desires to
purchase from the Seller certain assets of the Seller; and
WHEREAS, Jones is the sole shareholder of Seller;
NOW, THEREFORE, in consideration of the covenants, agreements,
warranties and representations contained in this Agreement, and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties to this Agreement hereby agree as follows:
1. Transfer of Cigar Business Assets. Subject to the terms and
conditions set forth in this Agreement, at the closing of this transaction (the
"Closing"), Buyer shall acquire from Seller, and Seller shall sell, transfer,
assign and convey to Buyer, all of that portion of Seller's cigar business and
operations, including, without limitation, all properties, inventory and assets
of every kind, nature and description, tangible or intangible relating to the
distribution of cigars, humidors and related items, along with all related
contract rights, security deposits, rights to related accounts receivable as of
December 31, 1996, related funds in bank accounts of the Seller, and all cigar
and humidor related trademarks and trade names owned by the Seller; including,
without limitation, those specific assets identified in Exhibit "A" attached
hereto and made a part hereof (the foregoing are collectively referred to as the
"Assets") free and clear of any liens or encumbrances. Seller has examined the
condition of the Assets and accepts them "as is," but free and clear of any
liens or encumbrances. Contemporaneously with such transfer, assignment and
conveyance, Seller shall deliver to Buyer possession of the Assets. All Assets
which are personal property shall be transferred, assigned and conveyed by a
Bill of Sale substantially in the form attached hereto as Exhibit "B". Seller
shall deliver and execute all documents and instruments which Buyer shall
reasonably request in order to comply with any statute, rule, regulation or law
applicable to the transfer of the Assets or which are necessary to complete or
perfect the transfer of title to the Assets.
2. Assumption of Liabilities. Buyer shall all liabilities of Seller
relating to the cigar business, including the following:
<PAGE>
a. Barton Loan. Buyer specifically assumes liability for that
"Business Loan Agreement" dated September 5, 1996 for $110,000 among
Greg P. Lambrecht, Colin A. Jones, ROSE HEARTS, INC., CAN-AM
INTERNATIONAL INVESTMENT CORP. and J&M WHOLESALE LTD.
Seller will remain liable for all non-Cigar related liabilities.
3. Assignment of Contract Rights and Licenses.
a. Contracts Assigned. The contracts identified on Exhibit "C"
shall be assigned by Seller to Buyer by an Assignment of Contract
Rights substantially in the form attached as Exhibit "D".
b. Contracts Not Assumed. The contracts identified on Exhibit
"E" shall not be assumed by Buyer and according to the dispositions
indicated in Exhibit "E" shall be either cancelled by Seller as of the
Closing or continued in Seller's name at Seller's discretion. Seller
specifically shall not assign its lease to Buyer and Buyer shall assume
no liability under such lease.
c. Cigar-Related Licenses and Permits. Seller shall assign to
Buyer all of its cigar-related licenses, permits or arrangements or
approvals with any governmental authority, including, but not limited
to, any license to do business, collect taxes, and all licenses
relating to the sale of tobacco products. If, because of governmental
regulation, such licenses are non-assignable, Seller shall take all
steps necessary to obtain such new licenses or permits required for
Buyer to continue the cigar-related operations which were conducted by
Buyer prior to the date of this Agreement.
4. Contact with Seller's Customers. As soon as possible following
execution of this Agreement, Seller shall contact each of its cigar-related
customers to inform them that their accounts have been transferred to Buyer.
Such contact shall be made in writing in the form set forth on Exhibit "F"
hereto (the "Customer Message"). The Customer Message shall inform Seller's
customers that their existing contracts will be honored by Buyer and will
provide Seller's customers with the name of a contact person designated by Buyer
who will be able to answer questions and will provide all necessary additional
information to Seller's customers to enable them to become customers of Buyer
with no interruption in service.
5. Consideration. As consideration for the agreements and the transfer
of Assets as set forth herein, Buyer shall issue to Jones, Seller's sole
shareholder:
a. Ninety-Five (95) shares of the issued and outstanding Class
"A," non- voting, no-par value common stock of Buyer representing
approximately forty-seven percent (47%) of such Class "A" shares;
b. One (1) share of the issued and outstanding Class "B,"
voting, no-par common stock of Buyer representing fifty percent (50%)
of such Class "B" shares; and
-2-
<PAGE>
c. The parties acknowledge that Jones will subsequently, but
also on December 31, 1996, transfer the shares referred to in Sections
5.a. and 5.b. to Premium Cigars International, Inc., an Arizona
corporation ("PCI"), in exchange for shares of PCI in a transaction in
which PCI will acquire all of the issued and outstanding shares of
Buyer.
6. Inventory. That portion of the Assets which consist of inventory
shall be identified as of the date hereof and each specific item of inventory
shall be valued based upon Seller's cost for such inventory as evidenced by
written invoices and purchase orders. The invoices and purchase orders
evidencing the inventory shall be delivered to Buyer at or before Closing.
7. Books and Records. Seller shall make available to Buyer, during
regular business hours all of the books and records of Seller and Buyer shall be
permitted to make copies and extracts therefrom.
8. Covenant Not to Compete.
a. Interest to be Protected. The parties acknowledge that
during the time in which Seller owned the Assets, Seller and Jones had
the opportunity to meet, work with and develop close working
relationships with the clients of the business in which the Assets were
used on a first-hand basis and gained valuable insight as to the
clients' operations, personnel and need for services. In addition,
Seller and Jones were exposed to, had access to, and were required to
work with, a considerable amount of confidential and proprietary
information, including but not limited to: information concerning
methods of operation, financial information, strategic planning,
operational budget and strategies, computer systems, marketing plans
and strategies and customer lists related to this Assets. The parties
expressly recognize that should Seller compete with the Buyer in any
manner whatsoever, it could seriously impair the goodwill and otherwise
diminish the value of the Assets. The parties acknowledge that the
covenant not to compete contained in this section has an extended
duration; however, they agree that this covenant is reasonable and it
is necessary for the protection of Buyer's investment in the Assets.
For these and other reasons, the parties are in full and complete
agreement that the following restrictive covenants are fair and
reasonable and are freely, voluntarily and knowingly entered into.
Further, each party was given the opportunity to consult with
independent legal counsel before entering into this Agreement.
b. Restrictions on Competition. Seller and Jones agree that
they shall not, during the term of this Agreement and for a period of
two (2) years from the date of Closing, directly or indirectly, either
as principal, partner, shareholder, joint venturer, officer, director,
consultant, member, employee or otherwise, own any interest in, manage,
control, participate in, consult with, render services for, or in any
manner engage in any business competing, directly or indirectly, with
the business of Buyer in
-3-
<PAGE>
any state of the United States or foreign country in which the Company
is conducting business. At any time and from time to time, each party
agrees, at its expense, to take action and to execute and deliver
documents as may be reasonably necessary to effectuate the purposes of
this Covenant. Notwithstanding the foregoing, Seller or Jones may,
without violating this Section 8, act as an officer, director, agent or
shareholder of Buyer or any parent corporation or affiliate of Buyer.
Seller or Jones may, without violating this Section 8, own up to two
percent (2.0%) or less of the total outstanding ownership of any
entity, regardless of competitive relationship.
c. Management Agreement. Notwithstanding the foregoing, Buyer
shall, effective January 1, 1997, enter a Management Agreement with
Seller whereby Seller shall provide certain services to Buyer and be
reimbursed for certain expenses or percentages of Buyer's sales until
such Management Agreement is terminated in accordance with its terms.
Seller's activities pursuant to such Management Agreement shall not be
deemed a violation of this Section 8.
d. Judicial Amendment. If the scope of any provision of this
Section of this Agreement is found by any Court to be too broad to
permit enforcement to its full extent, then such provision shall be
enforced to the maximum extent permitted by law. The parties agree that
the scope of any provision of this Section of this Agreement may be
modified by a judge in any proceeding to enforce this Agreement, so
that such provision can be enforced to the maximum extent permitted by
law. If any provision of this Agreement is found to be invalid or
unenforceable for any reason, it shall not affect the validity of the
remaining provisions of this Agreement.
e. Injunction; Remedies for Breach. Since a breach of the
provisions of this section of this Agreement could not adequately be
compensated by money damages, the Buyer shall be entitled, in addition
to any other right or remedy available to it at law or equity, to an
injunction restraining the breach or threatened breach and to specific
performance of any provision of this section of this Agreement, and, in
either case, no bond or other security shall be required in connection
therewith, and the parties hereby consent to the issuance of such an
injunction and to the ordering of specific performance.
9. Closing Costs and Prorations.
a. Personal property taxes and other special assessments,
shall be prorated as of the Closing, based upon the latest available
information. Seller shall pay all prior year taxes, interest and
penalties, if any.
b. All insurance on the Assets shall be cancelled by Seller
effective as of the Closing.
10. Closing Date. The purchase and sale of the Assets shall be
consummated and become effective as of December 31, 1996 (the "Closing Date").
-4-
<PAGE>
11. Deliveries at Closing.
a. Buyer's Deliveries. On the Closing Date, Buyer shall
deliver to Seller the following items:
i. A resolution of Buyer approving the transactions
set forth in this Agreement.
ii. Certificate Number 4 for Ninety-Five (95) shares
of the issued and outstanding Class "A," non-voting, no-par
value common stock of Buyer representing approximately
forty-seven percent (47%) of such Class "A" shares; and
iii. Certificate Number 2 for One (1) share of the
issued and outstanding Class "B," voting, no-par common stock
of Buyer representing fifty percent (50%) of such Class "B"
shares.
b. Seller's Deliveries. On the Closing Date, Seller shall
deliver to Buyer the following items:
i. The signed Bill of Sale;
ii. The signed Assignment of Contract Rights;
iii. Proof satisfactory to Buyer that the Customer
Message was sent;
iv. The Assets identified on Exhibit "A" attached
hereto.
v. All other documents to be signed by the parties as
provided herein.
12. Conditions to Closing. The following items shall be conditions to
the closing of this transaction and must be satisfied as of the Closing Date:
a. The parties shall be in full compliance with and shall have
performed or be prepared to perform, as applicable, all covenants and
pre-closing agreements contained in this Agreement and all of the
representations, warranties and covenants contained in this Agreement
shall be true and correct in all material respects.
b. Each item required to be delivered by each party pursuant
to Section 11 hereof is signed and delivered to Escrow Agent.
c. There shall be no judgment, decree, injunction, ruling or
order of any court agency or other instrumentality outstanding against
Seller which prohibits or materially restricts or delays the
consummation of the closing.
-5-
<PAGE>
d. Seller shall send the Customer Message to its customers and
provide proof thereof to Buyer.
13. Professional Fees. Unless specifically provided otherwise in this
Agreement, each party shall bear its own costs related to the preparation of
this Agreement and the consummation of the transactions contemplated hereby,
including but not limited to attorneys' and accountants' fees.
14. Representations, Warranties and Covenants.
a. Subject to information that Seller could not have known
with reasonable diligence, Seller hereby represents, warrants and
covenants to Buyer the following:
i. This Agreement and all documents required hereby
to be executed by Seller are and shall be valid, legally
binding obligations of and enforceable against Seller in
accordance with their terms;
ii. The execution, delivery and performance of this
Agreement by Seller and the compliance with the terms hereof
by Seller do not and will not violate any statute, order, rule
or regulation applicable to Seller of any court, regulatory
authority or governmental body and, do not conflict with or
result in the breach of any of the terms of, or constitute a
default under, any note, indenture, mortgage, deed of trust,
loan agreement, lease or other agreement or instrument to
which it is a party or by which it may be bound which
conflict, breach or default would have a material adverse
effect on Seller's ability to consummate the transactions
contemplated hereby;
iii. There is no suit, action, claim, investigation,
or legal or administrative proceeding pending or threatened
against Seller or its Assets which might have a materially
adverse effect on Seller's ability to consummate the
transactions contemplated hereby;
iv. Any representations or warranties made or to be
made by Seller are true and correct;
v. The Assets are lawfully owned by Seller and that
Seller has the right to sell the Assets free and clear from
any and all encumbrances and liens. Seller shall provide
written documentation to Buyer satisfactory to Buyer from each
of Seller's vendors to the effect that each vendor has been
paid in full and has no claim to any of the Assets.
vi. There is no financing statement now on file
covering any of the Assets or in which Sellers are named as or
sign as debtors;
-6-
<PAGE>
vii. With respect to each account receivable
transferred hereunder; (1) each account represents a bona
fide, existing, valid and legally enforceable indebtedness of
the customer named therein, payable in the amount, time and
manner stated in the invoice therefor; (2) each account,
delivery receipt and invoice represents a bona fide sale in
the ordinary course of Seller's business and represents the
kind, quality and quantity of the goods or services described
therein; that said goods or services described therein have
been completely delivered or performed and, at the time of
delivery has been accepted by the Seller's customer; (3) each
account is free from any claim for credit, deduction,
discount, allowance, dispute, defense, set-off or
counterclaim;
viii. The customer list attached hereto as Exhibit
"G" is complete and accurate;
ix. There are no pending actions, proceedings,
investigations or claims of any nature pending or threatened
which question the validity of this Agreement or the
transactions contemplated herein, or which might result,
either individually or in the aggregate, in any change in the
Assets, condition, affairs or prospects of Seller's business;
x. Seller has no service or maintenance contracts or
any other agreements with any other party which in any way
affect the Assets and Seller is not in default of any contract
listed on Exhibits "C" or "E" and the contracts on Exhibits
"C" and "E" constitute all of the contractual obligations of
Seller;
xi. Seller is not currently in default of any lease
to which Seller is a party. Seller shall obtain certification
from Seller's landlord which is acceptable to Buyer that
Seller is not currently in default under any lease. Seller
also represents that there has been no event which has
occurred which may result in a landlord's lien being imposed
on some or all of the Assets; and
xii. Seller has not complied with the Bulk Sales
provisions of the Arizona Uniform Commercial Code, A.R.S.
ss.47-6101 et. seq.
b. Buyer hereby represents and warrants to Seller as follows:
i. Buyer has the legal power, right and authority to
enter into this Agreement and the documents referenced herein
and, as of the Closing Date, to consummate the transactions
contemplated hereby;
ii. All requisite action has been taken by Buyer in
connection with the entering into this Agreement, the
documents referenced herein, and the consummation of the
transactions contemplated hereby;
-7-
<PAGE>
iii. The individuals executing this Agreement and the
documents referenced herein on behalf of Buyer have the legal
power, right and actual authority to bind Buyer to the terms
and conditions hereof and thereof;
iv. This Agreement and all documents required hereby
to be executed by Buyer are and shall be valid, legally
binding obligations of and enforceable against Buyer in
accordance with their terms;
v. The execution, delivery and performance of this
Agreement by Buyer and the compliance with the terms hereof by
Buyer do not and will not violate any statute, order, rule or
regulation applicable to Buyer of any court, regulatory
authority or governmental body and, do not conflict with or
result in the breach of any of the terms of, or constitute a
default under, any note, indenture, mortgage, deed of trust,
loan agreement, lease or other agreement or instrument to
which it is a party or by which it may be bound which
conflict, breach or default would have a material adverse
effect on Buyer's ability to consummate the transactions
contemplated hereby;
vi. There is no suit, action, claim, investigation,
or legal or administrative proceeding pending or threatened
against Buyer which might have a materially adverse effect on
Buyer's ability to consummate the transactions contemplated
hereby; and
vii. Any representations or warranties made or to be
made by Buyer are true and correct.
15. Survival of Representations and Warranties; Indemnification.
a. Survival. The parties hereto agree that the
representations, warranties and covenants contained in this Agreement
or in any document, certificate, instrument, schedule or exhibit
delivered in connection herewith shall survive the Closing and continue
to be binding regardless of any investigation made at any time by the
parties.
b. Seller's Indemnification. Seller shall indemnify and
protect, defend and hold Buyer and its officers, directors, employees,
agents or representatives harmless from and against any and all loss,
cost, damage, injury or expenses including, without limitation,
attorney fees which Buyer or any of its past or present officers,
directors, employees, agents or representatives may sustain by reason
of or arising out of (i) any obligation or contract of Seller or claim
against Seller which Buyer has not specifically assumed hereunder, (ii)
any liability or obligation relating to any service rendered by Seller
prior to the Closing Date, (iii) the breach or inaccuracy of or failure
to comply with, or the existence of any facts resulting in the
inaccuracy of, any of the warranties, representations or covenants of
Seller contained in this Agreement, (iv) any performance required under
Seller's lease prior to the Closing or for any liability which arose
prior
-8-
<PAGE>
to Closing; (v) any liability arising from Seller's failure to comply
with the Bulk Sales provisions of the Arizona Uniform Commercial Code,
A.R.S. ss.47-6101 et. seq. or (vi) any and all claims or rights to any
of the assets by any third party. If any claim is asserted against
Buyer or Buyer is made a party defendant in any action involving a
matter covered by this indemnification, then Buyer shall give prompt
notice of such claim or action to Seller, and Seller shall have the
right to assume control of the defense thereof at the Seller's sole
cost provided Buyer approves of Seller's counsel, except that, in such
case, Buyer shall have the right to join in the defense thereof at its
own cost. Whether or not Seller assumes control of the defense of any
such action, Seller will be bound by any final judgment against Buyer
in any such action and Seller shall be liable for any such judgment. If
Seller does not join in the defense thereof, Seller will be bound by
any settlement which Buyer may make of such action.
c. Buyer's Indemnification. Buyer shall indemnify and protect,
defend and hold Seller and its officers, directors, employees, agents
or representatives harmless from and against any and all loss, cost,
damage, injury or expenses including, without limitation, attorney fees
which Seller or any of its past or present officers, directors,
employees, agents or representatives may sustain by reason of or
arising out of (i) any liability or obligation relating to Buyer's
conduct of its business after the Closing Date or (ii) the breach or
inaccuracy of or failure to comply with, or the existence of any facts
resulting in the inaccuracy of, any of the warranties, representations
or covenants of Buyer contained in this Agreement. If any claim is
asserted against Seller or Seller is made a party defendant in any
action involving a matter covered by this indemnification, then Seller
shall give prompt notice of such claim or action to Buyer, and Buyer
shall have the right to assume control of the defense thereof at the
Buyer's sole cost provided Seller approves of Buyer's counsel, except
that, in such case, Seller shall have the right to join in the defense
thereof at its own cost. Whether or not Buyer assumes control of the
defense of any such action, Buyer will be bound by any final judgment
against Seller in any such action and Buyer shall be liable for any
such judgment. If Buyer does not join in the defense thereof, Buyer
will be bound by any settlement which Seller may make of such action.
16. Events of Default. This Agreement shall be deemed to have been
defaulted (an "Event of Default") in the event that any of the following have
occurred, and the occurrence thereof has not been cured within the later of ten
days after written notice of that Event of Default or the applicable cure period
set forth in the referenced agreement: (a) either Buyer or Seller has failed to
perform any of its covenants or agreements set forth in this Agreement; or (b)
any of the representations or warranties contained in this Agreement shall have
been materially untrue as of either the date of execution or the Closing Date,
as applicable. Upon the occurrence of an Event of Default by Seller, Buyer may
exercise any of the remedies or rights specifically granted to Buyer in this
Agreement and/or all rights and remedies otherwise available at law or equity.
Upon the occurrence of an Event of Default by Buyer, Jones shall be entitled to
retain the certificates of stock referred to in Section 5 as liquidated damages,
both parties acknowledging that actual damages would be difficult or impossible
to determine and
-9-
<PAGE>
both parties agreeing that this amount represents a fair estimate of such
damages. Seller shall have no further liability hereunder.
17. Notices. Any notice required or permitted to be delivered hereunder
shall be deemed to be delivered when delivered, if delivered, or two business
days after depositing the same in the United States mail, postage prepaid,
return receipt requested, and addressed to the appropriate party at the
following addresses:
If to the Buyer: CAN-AM Investments Corp.
15651 North 83rd Way
Building C, Suite 3
Scottsdale, Arizona 85260
Copy to Counsel: Kurt M. Brueckner, Esq.
Titus, Brueckner & Berry, P.C.
Scottsdale Centre, Suite B-252
7373 North Scottsdale Road
Scottsdale, Arizona 85253
If to Seller: J&M Wholesale, Ltd.
102, 4463 Byrne Road
Burnaby, British Columbia, Canada
V5J 3H6
If to Jones: Colin A. Jones
102, 4463 Byrne Road
Burnaby, British Columbia, Canada
V5J 3H6
Any party may change its address for notice by written notice given to each
other party.
18. Attorneys' Fees. In any action or proceedings brought to enforce
any provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees in addition to any other available remedy.
19. Risk of Loss. Seller shall bear the risk of any loss to the Assets
through the Close of Escrow.
20. Entirety and Amendments. This instrument and the instruments
referred to herein embody the entire agreement between the parties, supersede
all other agreements and understandings, if any, relating to the subject matter
hereof or to which Buyer or Seller are parties, and may be amended only by an
instrument in writing executed by all parties, and
-10-
<PAGE>
supplemented only by documents delivered or to be delivered in accordance with
the express terms hereof.
21. Multiple Counterparts. This Agreement may be executed in a number
of identical counterparts, each of which constitutes collectively, one
agreement; but in making proof of this Agreement, it shall not be necessary to
produce or account for more than one counterpart.
22. Parties Bound; Severability. This Agreement shall be binding upon,
and inure to the benefit of, each of the parties hereto to the extent applicable
to them and their respective successors and assigns and other legal
representatives. If any provision hereof is invalid or unenforceable in any
jurisdiction, the other provisions hereof shall remain in full force and effect
in such jurisdiction and the remaining provisions will be enforced to the
maximum extent permitted by law and construed in a fashion to effectuate best
the provisions hereof, and the invalidity or unenforceability of any provision
hereof in any jurisdiction shall not affect the validity or enforceability of
any such provision in any other jurisdiction to the extent that the remaining
enforceable and valid provisions of this Agreement may be construed in a fashion
and act independently of the invalid or unenforceable provisions to effectuate
the intent of the parties as evidenced by this Agreement.
23. Descriptive Headings; Gender. The headings, captions and
arrangements used in this Agreement are for convenience only and shall not be
deemed to limit, amplify or modify the terms of this Agreement, nor affect the
meaning thereof. Whenever the context shall so require, all words herein in the
male gender shall be deemed to include the female or neuter gender, and all
singular words shall include the plural, and all plural words shall include the
singular.
24. Assignment. Buyer shall be entitled to assign its rights and
obligations hereunder to any third party in its sole and absolute discretion.
25. Additional Documents. Buyer and Seller agree to execute such
additional documents and to do such things as may be reasonably required by the
other parties to implement the purposes of this Agreement.
26. Governing Law. This Agreement is being executed and delivered and
is intended to be performed in the State of Arizona and the laws of such State
shall govern the validity, construction, enforcement and interpretation of this
Agreement.
27. Mediation; Arbitration. If a dispute arises out of or relates to
this Agreement, or the breach thereof, and if the dispute cannot be settled
through negotiation, the parties agree first to try in good faith to settle the
dispute by mediation administered by the American Arbitration Association under
its Commercial Mediation Rules. If the dispute cannot be settled through
negotiation or mediation, the Parties agree to submit the dispute to arbitration
administered by the American Arbitration Association under its Commercial
Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may
be entered in any court having jurisdiction thereof.
-11-
<PAGE>
28. Brokerage. If any other person shall assert a claim to a finder's
fee, brokerage commission or other compensation on account of alleged employment
as a finder or broker or performance of services as a finder or broker in
connection with this transaction, the party under whom the finder or broker is
claiming shall indemnify and hold the other party harmless for, from and against
any such claim and all costs, expenses and liabilities incurred in connection
with such claim or any action or proceeding brought on such claim, including,
but not limited to, counsel and witness fees and court costs in defending
against such claim. This indemnity shall survive the Closing or the cancellation
of this Agreement.
The parties hereto have executed this Agreement as of the date first
above written.
"BUYER" "SELLER"
CAN-AM INTERNATIONAL INVESTMENT CORP. J&M WHOLESALE, LTD.
a British Columbia corporation a British Columbia corporation
By: /s/ Colin A. Jones By: /s/ Colin A. Jones
-------------------------------- --------------------------------
Colin A. Jones, President Colin A. Jones, President
"JONES"
/s/ Colin A. Jones
- -----------------------------------
Colin A. Jones
-12-
<PAGE>
EXHIBITS
--------
A. Assets
B. Bill of Sale
C. List of Contracts Assigned
D. Assignment of Contract Rights
E. List of Contracts Not Assigned
F. Customer Message
G. Customer List
<PAGE>
EXHIBIT "A"
ASSETS
<PAGE>
EXHIBIT "B"
BILL OF SALE
J&M WHOLESALE, LTD., a British Columbia corporation ("Seller"), in
consideration of the sum of Ten Dollars ($10.00), and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, do
hereby sell, convey and transfer to CAN-AM INTERNATIONAL INVESTMENT CORP., a
British Columbia corporation ("Buyer"), its successors and assigns, all of
Seller's properties, inventories, trademarks, tradenames, funds in bank
accounts, furniture, furnishings, fixtures, goodwill, list of current customers,
supplies, services, covenants not to compete, equipment, and all other assets of
every kind, nature and description, tangible or intangible, used by Seller in
connection with its business of distributing cigars, humidors and related items
including, but not limited to, those specific assets identified in Exhibit "A"
attached hereto and made a part hereof (the foregoing are collectively referred
to as the "Assets") to have and to hold the same unto Purchaser, its successors
and assigns, forever.
Seller hereby covenants with and warrants to Purchaser its successors and
assigns, that the Seller is the lawful owner of the Assets and has the right to
sell such Assets, and that the Assets are free and clear from all encumbrances
or liens. Seller agrees to indemnify and hold Purchaser, its successors and
assigns, harmless from and against any and all claims to and rights in the
Assets of any third party, including any and all costs and attorneys' fees in
connection therewith.
DATED this 13th day of June, 1997.
"SELLER"
J&M WHOLESALE, LTD.
a British Columbia corporation
By: /s/ Colin A. Jones
------------------------------
Colin A. Jones, President
<PAGE>
EXHIBIT "C"
LIST OF CONTRACTS ASSIGNED
<PAGE>
EXHIBIT "D"
ASSIGNMENT OF CONTRACT RIGHTS
This Assignment of Contract Rights (the "Agreement") is entered into as
of the 13th day of June, 1997, by and between J&M WHOLESALE, LTD., a British
Columbia corporation ("Assignor"), and CAN-AM INTERNATIONAL INVESTMENT CORP., a
British Columbia corporation ("Assignee").
RECITALS
WHEREAS, concurrent with the execution hereof, Assignor is selling
substantially all of its assets to Assignee pursuant to that certain Asset
Purchase Agreement of even date herewith;
WHEREAS, Assignor's assets include rights pursuant to contracts with
third parties; and
WHEREAS, Assignor desires to assign its contract rights to Assignee.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Assignor hereby assigns, transfers, conveys, sells and sets over
unto Assignee all of Assignor's right, title and interest in, to and under those
certain contracts identified on Exhibit "1" hereto (the "Contracts").
2. Assignor hereby represents and warrants that the Contracts are
valid, enforceable obligations of the parties thereto and that no default exists
pursuant to any contract. Assignor shall indemnify, defend, and hold Assignee
harmless for, from and against all liabilities, obligations, covenants and
agreements of Assignor under the Contracts.
3. No consent of any third party to the foregoing assignment on the
terms and conditions specified above is required, and if such consent is
required, Assignor represents and warrants that it has obtained such consent.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Assignment as of the
date first set forth above.
ASSIGNEE: OAN-AM Intl, Inv. Corp.
/s/ Colin A. Jones
------------------------------------
a(n)
--------------------------------
By: /s/ Colin A. Jones
--------------------------------
Its: President
----------------------------
ASSIGNOR:
J & M Wholesale LTD
------------------------------------
a(n)
--------------------------------
By: /s/ Colin A. Jones
--------------------------------
Its: President
----------------------------
<PAGE>
EXHIBIT "E"
CONTRACTS WHICH WILL NOT BE ASSIGNED TO BUYER
AND WHICH WILL BE CANCELLED BY SELLER PRIOR TO CLOSING
<PAGE>
EXHIBIT "F"
CUSTOMER MESSAGE TEXT
<PAGE>
EXHIBIT "G"
CUSTOMER LIST
$43,112.50 DATE: December 31, 1996
PHOENIX, ARIZONA
PROMISSORY NOTE
---------------
FOR VALUE RECEIVED, the undersigned Colin A. Jones ("Maker") promises
and agrees to pay to the order of Premium Cigars International, Ltd., an Arizona
corporation ("Payee"), at the mailing address of Payee, or at such other place
as the holder hereof may from time to time designate, the principal sum of FORTY
THREE THOUSAND ONE HUNDRED TWELVE AND 50/100 DOLLARS ($43,112.50), together with
interest (defined herein) in lawful money of the United States, on the unpaid
amount of said sum at the Interest Rate (as defined herein) or the Default Rate
(as defined herein), whichever is applicable.
1. Payments and Interest Rate
a. Commencing on the date hereof, the unpaid balance of this
Promissory Note ("Note"), shall accrue interest ("Interest") at the rate
("Interest Rate") of six percent (6.0%) per annum. All unpaid interest and
principal shall be due and payable on or before March 31, 1999.
b. During any event of default as defined herein, the Interest
Rate shall be twelve percent (12.0%) per annum ("Default Rate"). Interest shall
accrue at the Default Rate on the unpaid principal balance immediately upon any
Event of Default without notice to Maker. The existence or occurrence of either
one or both of the following events shall constitute an event of default ("Event
of Default") shall be defined as the failure by Maker to make any payment of
principal or interest or late charges due under this Note in accordance with the
terms of this Note. Upon the occurrence of an Event of Default, the Payee shall
have the right to declare the remaining balance of this Note immediately due and
payable and the Payee shall have and may exercise any and all rights and
remedies available at law or in equity and also any and all rights and remedies
provided in any security for this Note.
2. Prepayment. The Maker may prepay any portion of the remaining
balance of this Note at any time without penalty. Any partial prepayment shall
not postpone the due date of any subsequent payments or change the amount of
such payments unless the Payee agrees otherwise in writing.
3. Attorneys' Fees. Maker, endorsers, guarantors, sureties,
accommodation parties hereof, and all other persons liable or to become liable
on this Note, jointly and severally agree to pay all fees and costs incurred in
connection with the collection of the amounts due and owing under this Note,
including attorneys' fees and all costs.
4. Governing Law and Severability. This Note is made pursuant to, and
shall be construed and governed by, the laws of the State of Arizona and Maker
irrevocably and unconditionally submits to the non-exclusive jurisdiction of the
courts of Maricopa County, State of Arizona and all courts competent to hear
appeals therefrom. If any provision of this Note is construed or interpreted by
a court of competent jurisdiction to be void, invalid or
<PAGE>
unenforceable, such decision shall affect only those provisions so construed or
interpreted and shall not affect the remaining provisions of the Note.
5. Time of Essence. Time is of the essence of this Note.
6. Notices. All notices under this Note shall be in writing and shall
be deemed delivered upon personal delivery to the authorized representatives of
either party or three days after being sent by certified mail (registered mail
if to an address outside of the United States), return receipt requested,
postage prepaid, addressed to the respective parties at the addresses set forth
below.
7. Waiver. Maker for himself and for his successors, transferees and
assigns, hereby waives presentment and demand for payment, protest, notice of
protest and nonpayment, dishonor and notice of dishonor, bringing of suit, lack
of diligence or delays in collection or enforcement of this Note and notice of
the intention to accelerate, the release of any party liable, the release of any
security for the debt, the taking of any additional security and any other
indulgence or forbearance. Maker agrees that this Note and any or all payments
coming due hereunder may be extended or renewed from time to time without in any
way affecting or diminishing Maker's liability under this Note.
IN WITNESS WHEREOF, Maker has executed this Note as of the date set
forth above.
"PAYEE" "MAKER"
PREMIUM CIGARS INTERNATIONAL, LTD.
an Arizona corporation
/s/ Colin A. Jones
---------------------------------
Colin A. Jones
Address: Address:
4440 East Cortez
- -------------------------- ----------------------------------
Scottsdale Arizona
- -------------------------- ----------------------------------
- -------------------------- ----------------------------------
-2-
$43,112.50 DATE: December 31, 1996
PHOENIX, ARIZONA
PROMISSORY NOTE
---------------
FOR VALUE RECEIVED, the undersigned Greg P. Lambrecht ("Maker")
promises and agrees to pay to the order of Premium Cigars International, Ltd.,
an Arizona corporation ("Payee"), at the mailing address of Payee, or at such
other place as the holder hereof may from time to time designate, the principal
sum of FORTY THREE THOUSAND ONE HUNDRED TWELVE AND 50/100 DOLLARS ($43,112.50),
together with interest (defined herein) in lawful money of the United States, on
the unpaid amount of said sum at the Interest Rate (as defined herein) or the
Default Rate (as defined herein), whichever is applicable.
1. Payments and Interest Rate
a. Commencing on the date hereof, the unpaid balance of this
Promissory Note ("Note"), shall accrue interest ("Interest") at the rate
("Interest Rate") of six percent (6.0%) per annum. All unpaid interest and
principal shall be due and payable on or before March 31, 1999.
b. During any event of default as defined herein, the Interest
Rate shall be twelve percent (12.0%) per annum ("Default Rate"). Interest shall
accrue at the Default Rate on the unpaid principal balance immediately upon any
Event of Default without notice to Maker. The existence or occurrence of either
one or both of the following events shall constitute an event of default ("Event
of Default") shall be defined as the failure by Maker to make any payment of
principal or interest or late charges due under this Note in accordance with the
terms of this Note. Upon the occurrence of an Event of Default, the Payee shall
have the right to declare the remaining balance of this Note immediately due and
payable and the Payee shall have and may exercise any and all rights and
remedies available at law or in equity and also any and all rights and remedies
provided in any security for this Note.
2. Prepayment. The Maker may prepay any portion of the remaining
balance of this Note at any time without penalty. Any partial prepayment shall
not postpone the due date of any subsequent payments or change the amount of
such payments unless the Payee agrees otherwise in writing.
3. Attorneys' Fees. Maker, endorsers, guarantors, sureties,
accommodation parties hereof, and all other persons liable or to become liable
on this Note, jointly and severally agree to pay all fees and costs incurred in
connection with the collection of the amounts due and owing under this Note,
including attorneys' fees and all costs.
4. Governing Law and Severability. This Note is made pursuant to, and
shall be construed and governed by, the laws of the State of Arizona and Maker
irrevocably and unconditionally submits to the non-exclusive jurisdiction of the
courts of Maricopa County, State of Arizona and all courts competent to hear
appeals therefrom. If any provision of this Note is construed or interpreted by
a court of competent jurisdiction to be void, invalid or
<PAGE>
unenforceable, such decision shall affect only those provisions so construed or
interpreted and shall not affect the remaining provisions of the Note.
5. Time of Essence. Time is of the essence of this Note.
6. Notices. All notices under this Note shall be in writing and shall
be deemed delivered upon personal delivery to the authorized representatives of
either party or three days after being sent by certified mail (registered mail
if to an address outside of the United States), return receipt requested,
postage prepaid, addressed to the respective parties at the addresses set forth
below.
7. Waiver. Maker for himself and for his successors, transferees and
assigns, hereby waives presentment and demand for payment, protest, notice of
protest and nonpayment, dishonor and notice of dishonor, bringing of suit, lack
of diligence or delays in collection or enforcement of this Note and notice of
the intention to accelerate, the release of any party liable, the release of any
security for the debt, the taking of any additional security and any other
indulgence or forbearance. Maker agrees that this Note and any or all payments
coming due hereunder may be extended or renewed from time to time without in any
way affecting or diminishing Maker's liability under this Note.
IN WITNESS WHEREOF, Maker has executed this Note as of the date set
forth above.
"PAYEE" "MAKER"
PREMIUM CIGARS INTERNATIONAL, LTD.
an Arizona corporation
/s/ Greg P. Lambrecht
---------------------------------
Greg P. Lambrecht
Address: Address:
15651 N. 83rd Way Suite 3
- -------------------------- ---------------------------------
Scottsdale, Arizona 85260
- -------------------------- ---------------------------------
- -------------------------- ---------------------------------
-2-
MANAGEMENT AGREEMENT
--------------------
This Management Agreement ("Agreement") entered into effective January
1, 1997, by and between CAN-AM INTERNATIONAL INVESTMENT CORP., a British
Columbia corporation ("CAN- AM") and J&M WHOLESALE, LTD., a British Columbia
corporation ("J&M").
WHEREAS, CAN-AM desires to engage J&M to manage certain of CAN-AM's
operations; and
WHEREAS, J&M desires to provide certain management services to CAN-AM;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Duties. CAN-AM agrees to retain J&M to manage certain of CAN-AM's
operations. J&M shall at all times exercise its best efforts in the performance
of its duties.
2. Operational Expenses; Reimbursement. J&M, may, during the term of
this Agreement, finance certain of the operational expenses of CAN-AM. CAN-AM
recognizes that a substantial portion of J&M's own operational expenses during
the term of this Agreement may be related to CAN-AM operational expenses as a
substantial portion of J&M's activities during such term may be related to
managing CAN-AM's operations. CAN-AM shall reimburse J&M all of J&M's expenses
which are directly incurred in the provision of services to or on behalf of
CAN-AM, provided that J&M provides CAN-AM with such verification as CAN-AM shall
require of the percent of J&M's operations which are related to CAN-AM. In no
event shall J&M be paid any additional sum, fee or commission other than as set
forth herein. The parties agree that any reimbursement due under this Agreement,
may, at CAN- AM's sole discretion, be paid in cash or as a non-cash offset
against any related-party receivable payable to J&M by CAN-AM.
3. Term of Agreement. The term of this Agreement shall commence as of
January 1, 1997 and shall continue in effect unless otherwise terminated, as
provided herein.
4. Termination. This Agreement may be terminated at any time by CAN-AM
upon thirty (30) days written or oral notice to J&M. This Agreement may be
terminated by J&M by delivering to CAN-AM written notice of termination, at
least 60 days prior to the date of termination. Upon termination, J&M shall
surrender control of all CAN-AM property and operations.
5. Nature of Relationship. Notwithstanding anything which may be
contained herein to the contrary, the parties hereto acknowledge that J&M's
relationship arising under this Agreement is that of an independent contractor
and not that of officer, employee, agent or partner of CAN-AM. J&M shall take no
action beyond the scope of the authority specifically conferred upon him by this
Agreement. J&M shall not participate in any employee benefit plans, insurance
arrangements or any other programs available to employee of CAN-AM which are
presently in effect or may, from time to time, be established in the future, and
CAN-AM shall not be obligated or authorized to make any withholding, FICA or
other deductions on J&M's behalf.
6. Customer Records. J&M acknowledges that the list of CAN-AM's
customers or clients as it may exist from time to time is a valuable, special
and unique asset of CAN-AM's business. J&M
- 1 -
<PAGE>
shall not, during or after such period of time as this Agreement is in effect,
divulge, furnish or make accessible to anyone (other than in the regular course
of CAN-AM's business) any names, addresses or telephone numbers of those
individuals who maintain accounts at CAN-AM. In addition, the contents of
customers' files, or any other such information, shall be kept confidential
during and after the term of this Agreement. All original records and all copies
thereof of those customers who maintain accounts at CAN-AM, including names,
addresses, telephone numbers or any other such information, as well as all other
secrets and confidential information of CAN-AM shall remain the property of
CAN-AM during and after the term of this Agreement. The terms of this Section
shall survive any termination of this Agreement.
In the event of a breach or threatened breach by J&M of the provisions
of this Section or Section 7 hereof, CAN-AM shall be entitled to an injunction
restraining J&M from disclosing, in whole or in part, the list of CAN-AM's
customers or other confidential information, or from rendering any services to
any person, firm, company, association, or other entity to whom such list or
other confidential information, in whole or in part, has been disclosed or is
threatened to be disclosed. Additionally, CAN- AM shall be entitled to an
injunction restraining J&M from taking any act or making any disclosure which
would affect CAN-AM's status as an owner or licensee of any intellectual
property rights. Nothing herein shall be construed as prohibiting CAN-AM from
pursuing any other remedies available to CAN- AM for such breach or threatened
breach, including the recovery of damages from J&M.
7. Confidential Information. J&M has in the past and may in the future
develop, obtain or learn about confidential information which is the property of
CAN-AM or which CAN-AM is under obligation not to disclose. J&M agrees to use
its best efforts and the utmost diligence to guard and protect said confidential
information, and J&M agrees that J&M will not, during or after the period of its
performing services for CAN-AM, use for J&M or others, or divulge to others any
of said confidential information which J&M may develop, obtain or learn about
during or as a result of performing services for CAN-AM, unless authorized to do
so by CAN-AM in writing. J&M further agrees that if this Agreement is terminated
for any reason, J&M will not take, but will leave with CAN-AM or return to
CAN-AM, records and papers and all matters of whatever nature which bear
CAN-AM's confidential information.
For the purposes of this Agreement, the terms "confidential
information" shall include executable software, source code and all documents
relating thereto, memoranda, notes, records, sales information, manuals,
processes, technology, proprietary information, patents, designs, methods,
techniques, trade secrets, systems, patterns, models, devices, compilations,
lists of customers or any information of whatever nature which gives to CAN-AM
an opportunity to obtain an advantage over its competitors who do not know or
use it, but it is understood that said terms do not include knowledge, skills or
information which is common to the trade or profession of J&M.
8. Assignability. The skills and obligations of J&M hereunder are
unique and may not be substituted without the prior express written consent of
CAN-AM.
9. Notices. All notices provided for by this Agreement shall be made in
writing either (i) by actual delivery of the notice into the hands of the
parties thereunto entitled or (ii) the mailing of the notice in the United
States' mail to the address, as stated below (or at such other address as may
have been designated by written notice) of the party entitled hereto, by
certified or registered mail, return receipt requested. The notice shall be
deemed to be received on the date it is placed for delivery with the
- 2 -
<PAGE>
United States Postal Service. All communications hereunder shall be in writing
and sent to the addresses on the signature page.
10. Miscellaneous.
a. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Arizona.
b. Amendment and Waiver. No amendment, waiver or modification
of this Agreement shall be valid unless in writing and duly executed by the
party to be charged therewith. Waiver by either party hereto of any breach or
default by the other party of any of the terms and provisions of this Agreement
shall not operate as a waiver of any other breach or default, whether similar or
to different from the breach or default waived.
c. Severability. All agreements, provisions, representations,
warranties and covenants contained herein are severable, and in the event that
any one or more of them shall be held to be invalid, illegal or unenforceable in
any respect by any court of competent jurisdiction, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected hereby, and this Agreement shall be interpreted as if such invalid,
illegal or unenforceable agreements, provisions or covenants were not contained
herein.
d. Gender. Whenever the context required, the masculine shall
include the feminine and neuter.
e. Entire Agreement. This Agreement constitutes and embodies
the full and complete understanding and agreement of the parties hereto
provided, and supersedes all prior understandings or agreements, whether oral or
in writing.
f. Arbitration. In the event of any dispute between the
parties as to the interpretation of any of the terms and provisions of this
agreement, the matter shall be submitted to arbitration in the following manner:
Either party shall serve written notice upon the other party that they
desire to submit the dispute to arbitration and within fifteen (15) days of the
date of any such written notice, each party shall appoint an arbitrator. Within
ten (10) days thereafter the two arbitrators so selected shall appoint a third.
In the event either party shall fail to appoint an arbitrator within such
fifteen-day period or if the two arbitrators so appointed shall fail to select a
third within such ten-day period, then a judge of the Superior Court of Maricopa
County or such other court as may have jurisdiction thereover shall appoint such
arbitrator. The three arbitrators shall determine the controversy in accordance
with the Rules of the American Arbitration Association and a decision of the
majority of the arbitrators shall bind and be conclusive upon the parties. The
parties shall pay the expense of arbitration in the manner determined by the
arbitrators and judgment upon the award rendered by the arbitrators may, if
permissible, be entered in any court having jurisdiction thereover.
g. Successors and Assigns. This Agreement shall inure to the
benefit of and shall be binding on and enforceable by the parties and their
respective successors and permitted assigns, as the case may be.
- 3 -
<PAGE>
h. Execution and Counterparts. This Agreement may be executed
in counterparts, each of which shall constitute an original and all of which
taken together shall constitute one and the same instrument.
i. Attorneys' Fees. In the event of the bringing of any action
or suit by a party hereto against another party hereunder by reason of any
breach of any of the covenants, agreements or provisions on the part of the
other party arising out of this Agreement, then in that event the prevailing
party shall be entitled to have and recover from the other party all costs and
expenses of the action or suit, including attorneys' fees and costs.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first written above.
"CAN-AM" "J&M"
CAN-AM INTERNATIONAL J&M WHOLESALE, LTD.
INVESTMENT CORP. a British Columbia corporation
a British Columbia corporation
By /s/ Colin A. Jones By /s/ Colin A. Jones
----------------------------------- --------------------------------
Colin A. Jones, President Colin A. Jones, President
15651 North 83rd Way 102, 4463 Byrne Road
Building C, Suite 3 Burnaby, British Columbia, Canada
Scottsdale, Arizona 85260 V5J 3H6
- 4 -
ENDORSEMENT AGREEMENT
This Endorsement Agreement ("Agreement") is made as of May 1st, 1997 by
and between ARIE LUYENDYK ("Luyendyk") and PREMIUM CIGARS INTERNATIONAL, LTD.
(the "Company").
WHEREAS, the Company desires to secure certain services by Luyendyk
related to the endorsement of the Company and its products; and
WHEREAS, Luyendyk desires to provide such services to the Company in
exchange for the issuance of common stock of the Company and other
consideration;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties to this Agreement
hereby agree as follows:
1. Term of Agreement. The term of this agreement ("Term") shall begin
on the date of execution as set forth above and shall terminate one (1) year
from the date of this Agreement.
2. Display of Company Logo on Racing Helmet. Luyendyk will attach a
self- adhesive logo no smaller than 2" x 4" and no larger than 3" x 6" provided
by the Company to any and all racing helmets that he wears in any Indy Racing
League race or any other race he participates in during the Term. Such logo
shall be prominently placed so as to enhance visibility and media exposure.
3. Endorsement Appearances. Luyendyk agrees to make himself available
for endorsement appearances ("Appearances") on behalf of the Company during the
term of this Agreement upon twenty (20) days' prior notice by telephone or in
writing. Such Appearances shall include, but not be limited to trade shows and
investor/broker-dealer presentations related to the public offering of the
Company's shares and each Appearance shall be for a minimum of three (3) hours
per day of the Appearance event. Luyendyk agrees to sign autographs at such
Appearances and to provide, at the Company's expense, sufficient quantities of
photographs of himself to autograph which do not contain an endorsement of any
other company or product. If the Appearance requires that Luyendyk travel, the
Company will provide Luyendyk with first class airfare to and from the
Appearance, first class hotel accommodations, necessary expenses and
transportation for the duration of the Appearance.
4. Restrictions on Competition and Competitive Endorsements. Luyendyk
shall represent and endorse the Company and its related product lines and no
other company, entity or person which competes with the Company in the business
of cigar distribution. Luyendyk may, however, appear in the entertainment, news
or information portion of any radio, television or other entertainment program
or event regardless of sponsorship. Luyendyk covenants that he shall not during
the term of this Agreement and for a period of one (1) year from the expiration
of the Term of this Agreement or from the date of his or the Company's
termination of the Agreement, directly or indirectly, either as an endorser,
principal, partner, shareholder, joint venturer, officer, director, consultant,
member, employee or otherwise, own any interest in,
1
<PAGE>
manage, control, participate in, consult with, render services for, or in any
manner engage in or endorse any business or product competing, directly or
indirectly, with the business or products of the Company in any state of the
United States or foreign country in which the Company is conducting business on
the date of such expiration of Term or termination. At any time and from time to
time, each party agrees, at its expense, to take action and to execute and
deliver documents as may be reasonably necessary to effectuate the purposes of
this Covenant.
5. Issuance of Stock; Vesting Schedule. Subject to the acceptance of a
subscription agreement acceptable to the Board of Directors of the Company
relating to Luyendyk's status as an "accredited investor" as that term is
defined in Regulation D promulgated under the Securities Act of 1933, as amended
(the "Securities Act") and subject to the availability of a valid exemption from
registration under such Act, the Company shall issue to Luyendyk Five Thousand
(5,000) shares of restricted common stock ("Shares") of the Company under the
following terms:
a. Restricted Securities; Registration; Lock-Up. The Shares
have not been registered under the Act or any state securities laws in
reliance on exemptions therefrom and when acquired must be held by
Luyendyk indefinitely and may not be resold unless the Shares have been
registered under the Act and any applicable state securities laws in
connection with a subsequent distribution or unless such a resale is
exempt from such registration requirements. The Shares shall bear a
legend in a form acceptable to the Company which reflects the
restricted nature of such shares. If the Company offers or grants any
rights to any holder of shares of its outstanding Common Stock,
including, but not limited to shares held by certain persons which may
be referred to as "founders," to register such shares under the Act,
the Company shall also offer or grant to Luyendyk the identical
registration rights offered to any such person. The Company is
otherwise under no obligation to register the Shares or to comply with
any applicable securities law exemption with respect to any of the
Shares and is not obligated to effect any transfer of Shares of its
securities owned by Luyendyk on its books if such transfer would in the
Company's good faith opinion cause a violation of any applicable law.
Luyendyk additionally agrees that, in accord with the "lock-up period"
applicable to the holders of all of the Company's outstanding shares,
he will not resell the shares for a period of eighteen (18) months from
the commencement date of the Company's initial public offering, without
the prior approval of the underwriter of such initial public offering.
b. Forfeiture of Stock upon Default. Upon any Event of Default
as defined in Section 5 of this Agreement, Luyendyk shall forfeit and
surrender to the Company that portion of the Shares which have not
vested pursuant to the schedule set forth in Section 4.c. Upon such
forfeiture, Luyendyk agrees to deliver his certificate for the entire
amount of the Shares to facilitate the recertification of those Shares
which are not forfeited.
c. Issuance; Vesting. The Company shall issue a certificate
for the Shares in Luyendyk's name and deliver such certificate to
Luyendyk within fifteen (15) days of the
2
<PAGE>
execution of this Agreement and the acceptance of a subscription
agreement by the Board of Directors. The Shares shall "vest" and not be
subject to the forfeiture provisions of subsection 4.c. above, upon the
following schedule:
Months Total
After Cumulative
Agreement Shares
Executed Vested
-------- ------
2 1,000
3 2,000
4 3,000
5 4,000
6 5,000
6. Default and Termination. A party to this Agreement which is not in
Default as hereinafter defined (the "non-defaulting Party") shall have the right
to terminate this Agreement upon written notice to the other party (the
"Defaulting Party") upon the occurrence ("Default") of one or more of the
following conditions ("Event of Default") of this Agreement: (a) if a party
fails to perform any material covenant, agreement or other obligation under this
Agreement; or (b) any warranty or representation made by such party is found to
be materially false; or (c) in the case of Luyendyk, if in the Company's
reasonable determination, Luyendyk has engaged in or made or is accused of or
portrayed by the media as engaging in or making any activity or statement,
whether criminal or otherwise, which negatively reflects upon Luyendyk's public
reputation or which negatively affects the reputation of the Company and its
products.
7. Warranties of Luyendyk. Luyendyk represents that
a. he is not under any disability, restriction or prohibition,
whether contractual or otherwise, with respect to his ability to
execute this Agreement and perform its terms and conditions.
b. he owns the rights to his racing helmet and that he has the
right and power to place the Company's logo on such helmet and perform
the obligations of paragraph 2 hereof.
8. Warranties of the Company. The Company warrants that:
a. neither the execution, delivery and performance of this
Agreement nor the consummation of the transactions contemplated hereby
or thereby will be in violation of any provision of any charter, bylaw,
contract, mortgage, indenture, order, injunction, statute, rule or
regulation applicable to the Company.
3
<PAGE>
b. the issuance of the Purchased Shares and the performance by
the Company of all of its other obligations under this Agreement have
been duly authorized by all necessary corporate action of the Company.
9. Notices. Any notice to any party under this Agreement shall be in
writing, shall be effective on the earlier of (i) the date when received by such
party if delivered personally or by facsimile, or (ii) the date which is three
days after mailing (postage prepaid) by certified or registered mail, return
receipt requested, to the following address of such party, or to such other
address as shall have previously been specified in writing by such party to all
parties hereto:
a. If to Luyendyk:
----------------------------
----------------------------
----------------------------
(facsimile): _______________
with a copy to:
----------------------------
----------------------------
----------------------------
(facsimile): _______________
b. If to the Company:
Premium Cigars International, Ltd.
15651 N. 83rd Way
Suite 3, Building C
Scottsdale, Arizona 85260
Facsimile: (602) 992-6026
Attention: Steve Lambrecht
with a copy to:
Kurt M. Brueckner, Esq.
Titus, Brueckner & Berry, P.C.
7373 North Scottsdale Road
Scottsdale Centre, Suite B-252
Scottsdale, Arizona 85253
Facsimile: (602) 483-3215
10. Additional Acts and Documents. Each party hereto agrees to do all
such things and take all such actions, and to make, execute and deliver such
other documents and
4
<PAGE>
instruments, as shall be reasonably requested to carry out the provisions,
intent and purpose of this Agreement.
11. Attorney Fees. In the event suit is brought (or arbitration
instituted) or an attorney is retained by any party to this Agreement to enforce
the terms of this Agreement or to collect any money due hereunder, or to collect
money damages for breach hereof, the prevailing party shall be entitled to
recover, in addition to any other remedy, reimbursement for reasonable attorney
fees, court costs, costs of investigation and other related expenses incurred in
connection therewith.
12. Successors and Assigns. None of the rights or obligations under
this Agreement shall be assignable without the prior consent of all of the
parties. Any assignment without such consent shall be void. Subject to this
restriction, this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors in interest and assigns.
13. Counterparts. This Agreement may be executed in any number of
counterparts, all such counterparts shall be deemed to constitute one and the
same instrument and each of said counterparts shall be deemed an original
hereof.
14. Time. Time is of the essence of this Agreement and each and every
provision hereof. Any extension of time granted for the performance of any duty
under this Agreement shall not be considered an extension of time for the
performance of any other duty under this Agreement.
15. Waiver. Failure of any party to exercise any right or option
arising out of a breach of this Agreement shall not be deemed a waiver of any
right or option with respect to any subsequent or different breach, or the
continuance of any existing breach after demand for strict performance.
16. Integration Clause; Oral Modification. This Agreement represents
the entire agreement of the parties with respect to the subject matter hereof,
and all agreements entered into prior hereto are revoked and superseded by this
Agreement, and no representations warranties, inducements or oral agreements
have been made by any of the parties except as expressly set forth herein or in
other contemporaneous Written agreements. This Agreement may not be changed,
modified or rescinded except in writing, signed by all parties hereto, and any
attempt at oral modification of this Agreement shall be void and of no effect.
17. Captions. Captions and paragraph headings used herein are for
convenience only and are not a party of this Agreement and shall not be deemed
to limit or alter any provisions hereof and shall not be deemed relevant in
construing this Agreement.
18. Governing Law. This Agreement shall be deemed to be made under, and
shall be construed in accordance with and shall be governed by, the laws of the
State of Arizona, and (subject to any provision in this Agreement providing for
mandatory arbitration) suit to enforce
5
<PAGE>
any provision of this Agreement or to obtain any remedy with respect hereto may
be brought in Superior Court, Maricopa County, Arizona, and for this purpose
each party hereby expressly and irrevocably consents to the jurisdiction of said
court.
19. Arbitration. In the event any dispute or controversy arising out of
this Agreement cannot be settled by the parties, such controversy or dispute
shall be submitted to arbitration in Phoenix, Arizona, and for this purpose each
party hereby expressly consents to such arbitration in such place. In the event
the parties cannot mutually agree upon an arbitrator to settle their dispute or
controversy within fifteen (15) days after written demand from either party to
do so, a single arbitrator shall be selected pursuant to the then-existing rules
and regulations of the American Arbitration Association governing commercial
transactions. The decision of the arbitrator (including without limitation the
award of attorney fees and costs to the prevailing party) shall be binding upon
the parties hereto for all purposes, and judgment to enforce any such binding
decision may be entered in Superior Court, Maricopa County, Arizona (and for
this purpose each party hereby expressly and irrevocably consents to the
jurisdiction of said court). At the request of either party, arbitration
proceedings shall be conducted in the upmost secrecy. In such case, all
documents, testimony and records shall be received, heard and maintained by the
arbitrator in secrecy, available for inspection only by either party and by
their attorneys and experts who shall agree, in advance and in writing, to
receive all such information in secrecy. In all other respects, the arbitrator
shall conduct all proceedings pursuant to the Uniform Arbitration Act as adopted
in the State of Arizona and the then existing rules and regulations of the
American Arbitration Association governing commercial transactions to the extent
such rules and regulations are not inconsistent with such Act or this Agreement.
Executed effective as of the date first written above.
"Luyendyk"
/s/ Arie Luyendyk
- ----------------------------------
Arie Luyendyk
"COMPANY"
PREMIUM CIGARS INTERNATIONAL, LTD.
By:
----------------------------------
Its:
----------------------------
STANDARD SUBLEASE
1. Parties. This Sublease, dated, for reference purposes only, May 5, 1997,
is made by and between Michael R. Ellison, Inc., a Washington corporation dba
Global Cassettees (herein called "Sublessor") and Premium Cigars International,
Inc., an Arizona corporation (herein called "Sublessee")
2. Premises. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term, at the rental, and upon as the conditions
set forth herein, that certain real property situated in the County of Maricopa,
State of Arizona, commonly known as 15651 N. 83rd Way, Suite 3, Scottsdale, AZ
85260 and described as 8,493 +/- square feet of office/warehouse space,
excluding any responsibility for temporary storage in suite 8, as per paragraph
53 of the Master Lease. Said real property, including the land and all
improvements thereon, is hereinafter called the "Premises".
3. Term.
3.1 Term. The term of this Sublease shall be for twenty-five (25)
months commencing on May 5, 1997, and ending on May 31, 1999 unless sooner
terminated pursuant to any provision hereof.
3.2 Delay in Commencement. Notwithstanding said commencement date, if
for any reason Sublessor cannot deliver possession of the Premises to Sublessee
on said date, Sublessor shall not be subject to any liability therefore, nor
shall failure affect the validity of the Lease or the obligations of Sublessee
hereunder or extend the term hereof, but in each case Sublessee shall not be
obligated to pay rent until possession of the Premises is tendered to Sublessee,
provided, however, that is Sublessor shall not have delivered possession of the
premises within sixty (60) days from said commencement dates, Sublessee may, at
Sublessee's option, by notice in writing to Sublessor within ten (10) days
thereafter, cancel this Sublease, in which event the parties shall be discharged
from all obligations thereunder. If Sublessee occupies the Premises prior to
said commencement date, such occupancy shall be subject to all provisions
hereof, such occupancy shall not advance the termination date and Sublessee
shall pay rent for such period at the initial monthly rates set forth below.
4. Rent. Sublessee shall pay to Sublessor as rent for the Premises equal
monthly payments of $ see Paragraph 12.1, in advance, on the 1st day of each
month of the term hereof. Sublessee shall pay Sublessor upon the execution
hereof $5,878.03 as rent for May, 1997. Rent for any period during the term
hereof which is for less than one (1) month shall be a prorata portion of the
monthly installment. Rent shall be payable in lawful money of the United States
to Sublessor at the address stated herein or to such other persons or at such
other places as Sublessor may designate in writing.
5. Security Deposit. Sublessee shall deposit with Sublessor upon execution
hereof $7,134.12 as security for Sublessee's faithful performance of Sublessee's
obligations hereunder. If Sublessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this
Sublessee, Sublessor may use, apply or retain all or any portion of said deposit
for the payment of any rent or other charge in default or for the payment of any
other sum to which Sublessor may become obligated by reason of Sublessee's
default, or to compensate Sublessor for any loss or damage which Sublessor may
suffer thereby. If Sublessor so uses or applies all or any portion of said
deposit, Sublessee shall within ten (10) days after written demand therefore
deposit cash with Sublessor in an amount sufficient to restore said deposit to
the full amount hereinabove stated and Sublessee's failure to do so shall be a
material breach of this Sublease. Sublessor shall not be required to keep said
deposit separate from its general accounts. If Sublessee performs all of
Sublessee's obligations hereunder, said deposit, or so much thereof as has not
theretofore been applied by Sublessor, shall be returned, without payment of
interest or other increment for its use to Sublessee (or at Sublessor's option,
to the last assignee, if any, of Sublessee's interest hereunder) at the
expiration of the term hereof, and after Sublessee has vacated the Premises. Not
trust relationship is created herein between Sublessor and Sublessee with
respect to said Security Deposit.
6. Use.
INITIAL
????
????
5-5-97
6.1 Use. The Premises shall be used and occupied only for wholesale
distribution /assembly/ packaging of cigars, humedors and related products and
no other purposes.
6.2 Compliance with Law.
(a) Sublessor warrants to Sublessee that the Premises, in the
existing state, but without regard to the use for which Sublessee will use the
Premises, does not violate any applicable building code regulation or ordinance
at the time that this Sublease is executed. In the event that it is determined
that this warranty has been violated, then it shall be the obligation of the
Sublessor, after written notice from Sublessee, to promptly, at Sublessor's sole
cost and expense, rectify any such violation. In the event that Sublessee does
not give to Sublessor written notice of the violation of this warranty within
one (1) year from the commencement of the term of this Sublease, it shall be
conclusively deemed that such violation did not exist and the correction of the
same shall be the obligation of the Sublessee.
(b) Except as provided in Paragraph 6.2(a), Sublessee shall, at
Sublessee's expense, comply promptly with all applicable statues, ordinances,
rules, regulations, orders, restrictions of record and requirements in effect
during the term or any part of the term hereof regulating the use by Sublessee
of the Premises. Sublessee shall not use or permit the use of the Premises in
any manner that will tend to create waste or a nuisance or, if there shall be
more than one tenant of the building containing the Premises, which shall tend
to disturb such other tenants.
6.3 Condition of Premises. Except as provided in Paragraph 6.2(a)
Sublessee hereby accepts the Premises in their condition existing as of the date
of the execution hereof, subject to all applicable zoning, municipal, county and
state laws, ordinance and regulations governing and regulating the use of the
Premises, and accepts this Sublessee subject thereto and to all matters
disclosed thereby and by an exhibits attached hereto. Sublessee acknowledges
that neither Sublessor nor Sublessor's agents have made any representation or
warranty as to the suitability of the Premises for the conduct of Sublessee's
business. Sublessee not liable for pre-existing buckled floors.
INITIAL
????
7. Master Lease
7.1 Sublessor is the lessee of the Premises by virtue of a Lease,
hereinafter referred to as the "Master Lease", a copy of which is attached
hereto marked Exhibit 1, dated April 18, 1996, wherein Airpark Investors 99,
LLC, an Arizona limited liability company is the lessor, hereinafter referred to
as the "Master Lessor".
7.2 This Sublease is and shall be at all times subject and subordinate
to the Master Lease.
7.3 The terms, conditions and respective obligations of Sublessor and
Sublessees to each other under this Sublease shall be the terms and conditions
of the Master Lease except for those provisions of the Master Lease which are
directly contradicted by this Sublessee in which event the terms of this
Sublease document shall control over the Master Lease. Therefore, for the
purposes of this Sublease, wherever in the Master Lease the word "Lessor" is
used it shall be deemed to mean the Sublessor herein and wherever in the master
Lease the word "Lessee" is used it shall be deemed to mean the Sublessee herein.
7.4 During the term of this Sublease and for all periods subsequent
for obligations which have arisen prior to the termination of this Sublease,
Sublessee does hereby expressly assume and agree to perform and comply with, for
the benefit of Sublessor and Master Lessor, each and every obligation of
Sublessor under the Master Lease except for the following paragraphs which are
excluded therefrom: N/A
<PAGE>
7.5 The obligations that Sublessee has assumed under Paragraph 7.4
hereof are hereinafter referred to as the "Sublessee's Assumed Obligations". The
obligations that Sublessee has not assumed under Paragraph 7.4 hereof are
hereinafter referred to as the "Sublessor's Remaining Obligations".
7.6 Sublessee shall hold Sublessor free and harmless of and from all
liability, judgments, costs, damages, claims or demands, including reasonable
attorneys fees, arising out of Sublessee's failure to comply with or perform
Sublessee's Assumed Obligations.
7.7 Sublessor agrees to maintain the Master Lease during the entire
term of this Sublease, subject, however, to any earlier termination of the
Master lease without the fault of the Sublessor, and to comply with or perform
Sublessor's Remaining Obligations and to hold Sublessee free and harmless of and
from all liability, judgments, costs, damages, claims or demands arising out of
Sublessor's failure to comply with or perform Sublessor's Remaining Obligations.
7.8 Sublessor represents to Sublessee that the Master Lease is in full
force and effect and that no default exists on the part of any party to the
Master Lease.
8. Assignment of Sublease and Default.
8.1 Sublessor hereby assigns and transfers to Master Lessor the
Sublessor's interest in this Sublease and all rentals and income arising
therefrom, subject however to terms of Paragraph 8.2 hereof.
8.2 Master Lessor, by executing this document, agree that until a
default shall occur in the performance of Sublessor's Obligations under the
Master Lease, that Sublessor may receive, collect and enjoy the rents accruing
under this Sublease. However, if Sublessor shall default in the performance of
its obligation to Master Lessor then Master Lessor may, at its option, receive
and collect, directly from Sublessee, all rents owing and to be owed under this
Sublease. Master Lessor shall not, by reason of this assignment of the Sublessor
nor by reason of the collection of the rents from the Sublessee, be deemed
liable to Sublessee for any failure of the Sublessor to perform and comply with
Sublessor's Remaining Obligations.
8.3 Sublessor hereby irrevocably authorizes and directs Sublessee,
upon receipt of any written notice from the Master Lessor stating that a default
exists in the performance of Sublessor's obligation under the Master Lease, to
pay the Master Lessor the rents due and to become due under the Sublease.
Sublessor agrees that Sublessee shall have the right to rely upon any such
statement and request from Master Lessor, and that Sublessee shall pay such
rents to Master Lessor without any obligation or right to inquire as to whether
such default exists and notwithstanding any notice from or claim from Sublessor
to the contrary and Sublessor shall have no right or claim against Sublessee for
any such rents so paid by Sublessee.
8.4 No changes or modifications shall be made to this Sublease without
the consent of Master Lessor.
9. Consent of Master Lessor.
9.1 In the event that the Master Lease requires that Sublessor obtain
the consent of Master Lessor to any subletting by Sublessor then, this Sublease
shall not be effective unless, within ten (10) days of the date hereof, Master
Lessor signs this Sublease thereby giving its consent to this Subletting.
9.2 In the event that the obligations of the Sublessor under the
Master Lessor have been guaranteed by third parties then this Sublease, nor the
Master Lessor's consent, shall not be effective unless, within ten (10) days of
the date hereof, said guarantors sign this Sublease thereby giving guarantors
consent to this Sublease and the terms thereof.
9.3 In the event that Master Lessor does give such consent then:
(a) Such consent will not release Sublessor of its obligations or
alter the primary liability of Sublessor to pay the rent and perform and comply
with all of the obligations of Sublessor to be performed under the Master Lease.
(b) The acceptance of rent by Master Lessor from Sublessee or any
one else liable under the Master Lease shall not be deemed a waiver by Master
Lessor of any provisions from liability.
(c) The consent to this Sublease shall not constitute to any
subsequent Subletting or assignment.
(d) In the event of any default of Sublessor under the Master
Lease, Master Lessor may proceed directly against Sublessor, any guarantors or
any one else liable under the Master Lease or this Sublease without first
exhausting Master Lessor's remedies against any other person or entity liable
thereon to Master Lessor.
(e) Master Lessor may consent to subsequent sublettings and
assignments of the Master Lease or this Sublease or any amendments to
modifications thereto without notifying Sublessor nor any one else liable under
the Master Lease and without obtaining their consent and such action shall not
relieve such persons from liability.
(f) In the event that Sublessor shall default in its obligations
under the Master Lease, then Master Lessor, at its sole option and without being
obligated to do so, may require Sublessee to attorn to Master Lessor in which
event Master Lessor shall undertake the obligations of Sublessor under this
Sublease from the time of the exercise of said option to termination of this
Sublease but Master Lessor shall not be liable for any prepaid rents nor any
security deposit paid by Sublessee, nor shall Master Lessor be liable for any
other defaults of the Sublessor under the Sublease.
9.4 The signatures of the Master Lessor and any Guarantors of
Sublessor at the end of this document shall constitute their consent to the
terms of this Sublease.
9.5 Master Lessor acknowledges that to the best of Master Lessor's
knowledge, no default presently exists under the Master Lease of obligations to
be performed by Sublessor and that the Master Lease is in full force and effect.
9.6 In the event that Sublessor defaults under its obligations to be
performed under the Master Lease by Sublessor, Master Lessor agrees to deliver
to Sublessee a copy of any such notice of default. Sublessee shall have the
right to cure any default of Sublessor described in any notice of default within
ten (10) days after service of such notice of default on Sublessee. If such
default is cured by Sublessee then Sublessee shall have the right of
reimbursement and offset from and against Sublessor.
10. Broker's Fee.
10.1 Upon execution hereof by said parties, Sublessor shall pay to
Classic Real Estate Corporation and Grubb & Ellis, a licensed real estate broker
(herein called "Broker"), a fee as set forth in a separate agreement between
Sublessor and Broker, or in the event there is not a separate agreement between
Sublessor and Broker, the sum of $ N/A for brokerage services rendered by Broker
to Sublessor in this transaction.
10.2 Sublessor agrees that if Sublessee exercises any option or right
of first refusal granted by Sublessor herein, or any option or right
substantially similar thereto, either to extend the term of this Sublease, to
renew this Sublease, to purchase the Premises, or to lease or purchase adjacent
property which Sublessor may own or in which Sublessor has an interest, or if
Broker is the procuring cause of any lease, Sublease, or sale pertaining to the
Premises or any adjacent property which Sublessor may own or in which Sublessor
has an interest, then as to any said transactions Sublessor shall pay to Broker
a fee, in cash, in accordance with the schedule of Broker in effect at the time
of the execution of this Sublease. Notwithstanding the foregoing, Sublessor's
obligation under this Paragraph 10.2 is limited to a transaction in which
Sublessor is acting as sublessor, Lessor or seller.
10.3 Master Lessor agrees by its consent to this Sublease, that if
Sublessee shall exercise any option or right of first refusal granted to
Sublessee by Master Lessor in connection with this Sublease, or any option or
right substantially similar thereto, either to extend the Master Lease, to renew
the Master Lease, to purchase the Premises or any part thereof, or to lease or
purchase adjacent property which Master Lessor may own or in which Master Lessor
has an interest, or if Broker is the procuring cause of any other lease or sale
entered into between Sublessee and Master Lessor pertaining to the Premises, any
part thereof, or any adjacent property which Master Lessor owns or in which it
has an interest, then as to any of said transactions Master Lessor shall pay to
Broker a fee, in cash, in accordance with the schedule of Broker in effect at
the time of its consent to this Sublease.
10.4 Any fee due from Sublessor or Master Lessor hereunder shall be
due and payable upon the exercise of any option to extend or renew, as to any
extension or renewal, upon the execution of any new lease, as to a new lease
transaction or the exercise of a right of first refusal to lease, or at the
close of escrow, as to the exercise of any option to purchase or other sale
transaction.
10.5 Any transferee of Sublessor's interest in the Sublessee, or at
Master Lessor's interest in the Master Lease, by accepting an assignment
thereof, shall be deemed to have assumed the respective obligations of Sublessor
or Master Lessor under this Paragraph 10. Broker shall be deemed to be a
third-party beneficiary of this Paragraph 10.
11. Attorney's fees. If any party or the Broker named herein an action to
enforce the terms hereof as to declare rights hereunder, the prevailing party in
any such action, on trial and appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the Court The
provision of this paragraph shall insure to the benefit of the Broker named
herein who seeks to enforce a right hereunder.
<PAGE>
INITIAL
?????
5-5-97
12. Additional Provision. (If there are no additional provisions draw a
line from this point to the next printed word after the space left here. If
there are provisions place the same here.)
12.1 Rental Schedule . The rental schedule shall be as follows:
6/1/97 - 5/31/98 $6,964.26 per month *
6/1/98 - 5/31/99 $7,134.12 per month *
INITIAL
?????
5-5-97
* plus monthly tax, currently 3.15%
If this Sublease has been filled in it has been prepared for submission to your
attorney for his approval. No representation or recommendation is made by the
real estate broker or its agents or employees as the legal sufficiency, legal
effect, or tax consequences Sublease or the transaction relation thereto.
Executed at __________________________ Michael R. Ellison, Inc. a Washington
corporation dba Global Cassette
on ___________________________________ By /s/ Michael R. Ellison
address ______________________________ By ___________________________________
"Sublessor" (Corporate Seal)
Executed at __________________________ Premium Cigar International, Inc. an
Arizona corporation
on ___________________________________ By Michael R. Ellison, Chief Executive
Officer
address ______________________________ By 5-5-97
"Sublessee" (Corporate Seal)
Executed at __________________________ Airpark Investors 99, LLC, an Arizona
limited liability company
on ___________________________________ By ?????????????????
address ______________________________ By 5-8-97
"Master Lessor" (Corporate Seal)
Executed at __________________________ _____________________________________
on ___________________________________ By ________________________________
address ______________________________ By __________________________________
"Guarantors"
<PAGE>
EXHIBIT 1
STANDARD INDUSTRIAL COMMERCIAL MULTI-TENANT LEASE-GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Basic Provisions. ("Basic Provisions")
1.1 Parties: This Lease ("Lease"), dated for reference purposes only,
April 18, 1996, is made by and between Airpark Investor 99, L.L.C., An Arizona
Limited Liability Company. ("Lessor") and Michael R. Ellison Inc., a Washington
Corporation, dba Global Cassettes ("Lessee"), ("collectively, the "Parties," or
individually a "Party").
1.2 (a) Premises: That contain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 15651 N. 83rd Way, Suite 3, (Building
C), located in the city of Scottsdale, County of Maricopa, State of Arizona,
with zip code 85260, as outlined on Exhibit A attached hereto ("Premises"). The
"Building" is that certain building containing the Premises and generally
described as (describe briefly the nature of the Building): The building is
19,919 square feet of a 65,504 square foot project of which the premises are
approximately 8,493 +/- square feet. In addition to Lessee's rights to use and
occupy the Premises as hereinafter specified, Lessee shall have non-exclusive
rights to the Common Areas (as defined in Paragraph 2.7 below). As hereinafter
specified, but shall not have any rights to the roof, exterior walls or utility
raceways of the Building or to any other buildings in the Industrial Center. The
Premises, the Building, the Common Areas, the land upon which they are located,
along with all other buildings and improvements thereon, are herein collectively
referred to as the "Industrial Center". (Also see Paragraph 2)
1.2 (b) Parking: Fifteen (15) unreserved vehicle parking spaces
("Unreserved Parking Spaces"); and N/A reserved vehicle parking spaces
("Reserved Parking Spaces") (Also see Paragraph 2.6)
1.3 Term: Three (3) years and Zero (0) months ("Original Term")
commencing June 1, 1996 ("Commencement Date") and ending May 31, 1999.
("Expiration Date"). (Also see Paragraph 3.)
1.4 Early Possession: N/A ("Early Possession Date"). (Also see
Paragraphs 3.2 and 3.3)
1.5 Base Rent: $ See Addendum #49 per month ("Base Rent"). Payable on
the 1st day of each month commencing June 1, 1996. (Also see Paragraph 4.) [x]
If this box is checked, this Lease provides for the Base Rent to be adjusted per
Addendum # 49 attached hereto.
1.6 (a) Base Rent Paid Upon Execution: $7,076.37 as Base Rent for the
period N/A.
1.6 (b) Lessee Share of Common Area Operating Expenses: Thirteen
percent (13.0%) ("Lessee's Share") as determined by [x] prorata square footage
of the Premises as compared to the total square footage of the Building or a [ ]
other criteria as described in Addendum.
1.7 Security Deposit: $7,134.12 ("Security Deposit"). (Also see
Paragraph 5.)
1.8 Permitted Use: Office, storage and distribution of cassette and
cassette products. ("Permitted Use") (Also see Paragraph 6.)
1.9 Insuring Party. Lessor is the "Insuring Party." (Also see Paragraph
8.)
1.10 (a) Real Estate Brokers. The following real estate broker(s)
(collectively, the "Brokers") and brokerage relationships exists in the
transaction and are consented to by the Parties (check applicable boxes): [x]
Classic Real Estate Corporation represents Lessor exclusively ("Lessor's
Broker"); [x] CB Commercial represents Lessee exclusively ("Lessee's Broker");
or [ ] represents both Lessor and Lessee ("Dual Agency") (Also see Paragraph
15.)
1.10 (b) Payment to Brokers. Upon the execution of this Lease by both
Parties. Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) (or in the event there is no
separate written agreement between Lessor and said Broker(s), the sum of $____)
For a brokerage services rendered by said Broker(s) in connection with this
transaction.
1.11 Guarantor. The obligations of the Lessee under this Lease are to
be guaranteed by Michael R. and Susan Ellison. As specifically outlined per the
attached Guarantor of Lease. ("Guarantor"). (Also see Paragraph 37.)
1.12 Addends and Exhibits. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 49 through 55 and Exhibits A through C, all of which
constitute a part of this Lease.
2. Premises, Parking and Common Areas.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental and/or Common Area, Operating
Expenses, is an approximation which Lessor and Lessee agree is reasonable and
the rental and Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is
not subject to revision whether or not the actual square footage is more or
less.
2.2 Condition. Lessor shall deliver the Premises to the Lessee clean
and free of debris on the Commencement Date and warrants to Lessee that the
existing plumbling, electrical systems, fire sprinkler system, lighting, air
conditioning, and heating systems and loading doors, if any, in the Premises,
other than those constructed by Lessee, shall be in good operating condition on
the Commencement Date. If a non-compliance with said warranty exists as of the
Commencement Date, Lessor shall, except as otherwise provided in the Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If Lessee does not give Lessor written notice of a
noncompliance with this warranty within thirty (30) days after the Commencement
Date, correction of that non-compliance shall be the obligation of the Lessee at
Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranty shall not apply to any
Alternations or Utility installations (defined in Paragraph 7.3(a)) made or to
be made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specifically the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be reasonable
or appropriate to rectify the non-compliance. Lessor makes no warranty that the
Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable
Laws (as defined in Paragraph 2.4).
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems,
Industrial/Commercial Multi-Tenant Lease - Gross Initial MRE
Page 1 of 16 ???
<PAGE>
security, environmental aspects, seismic and earthquake requirements, and
compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations and any
covenants or restrictions of record (collectively, "Applicable Laws") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither the Lessor, nor
any of Lessor's agents, has made any oral or written representations or
warranties with respect to said matters other than as set forth in this Lease
2.5 Lessee as prior Owner/Occupant. The warranties made by the Lessor
in this Paragraph 2 shall be of no force or effect if immediately prior to the
date set forth in Paragraph 1.1 Lessee was the owner or occupant of the
Premises. In such event, Lessee shall, at Lessee's sole cost and expense,
correct any non-compliance of the Premises with said warranties.
2.6 Vehicle Parking. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "Permitted Size
Vehicles." Vehicles other than permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9).
(a) Lessee shall not permit or allow any vehicles that belong to
or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this lease, provide
the parking facilities required by Applicable Law.
2.7 Common Areas-Definition. The term "Common Area" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, roadways,
sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 Common Areas-Lessee's Rights. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, then non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove the property and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.9 Common Areas-Rules and Regulations. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable Rules and Regulations with respect thereto in
accordance with Paragraph 40. Lessee agrees to abide by and conform to all such
Rules and Regulations and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 Common Areas-Changes. Lessor shall have the right, in Lessor's
sole discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress direction of traffic, landscaped areas, walkways and utility raceways.
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alternations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and Industrial Center as Lessor may,
in the exercise of sound business judgment, deem to be appropriate.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after the
Early Possession Date but prior to the Commencement Date, the obligation to pay
Base Rent shall be abated for the period of such early occupancy. All other
terms of this Lease, however, (including but not limited to the obligation to
pay Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 Delay in Possession. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date. If one is
specified in Paragraph 1.4, or if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered within sixty (60) days after the Commencement Date, Lessee may, at its
option, by notice in writing to Lessor within ten (10) days after the end of
said sixty (60) day period, cancel this Lease, in which event the parties shall
be discharged from all obligations hereunder; provided further, however, that if
such written notice of Lessee is not received by Lessor within said ten (10) day
period, Lessee's right to cancel this Lease hereunder shall terminate and be of
no further force or effect. Except as may be otherwise provided, and regardless
of when the
Industrial/Commercial Multi-Tenant Lease - Gross Initial MRE
Page 2 of 16 ???
<PAGE>
Original Term actually commences, if possession is not tendered to Lessee when
required by this Lease and Lessee does not terminate this Lease, as aforesaid,
the period free of the obligation to pay Base Rent, if any, that Lessee would
otherwise have enjoyed shall run from the date of delivery of possession and
continue for a period equal to the period during which the Lessee would have
otherwise enjoyed under the terms hereof, but minus any days of delay caused by
the acts, changes or omissions of Lessee.
4. Rent.
4.1 Base Rent. Lessee shall pay Base Rent and other rent or charges, as
the same may be adjusted from time to time, to Lessor in lawful money of the
United States, without offset or deduction, on or before the day on which it is
due under the terms of this Lease. Base Rent and all other rent and charges for
any period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2 Common Area Operating Expenses. Lessee shall pay to Lessor during
the term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions:
(a) "Common Area Operating Expenses" are defined, for purposes of
this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Industrial Center, including, but not limited to, the
following:
(i) The operation, repair and maintenance, in neat,
clean, good order and condition, of the following:
(aa) The Common Areas, including parking areas,
loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers, irrigation systems,
Common Area lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories
(cc) Fire detection and sprinkler systems
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) Trash disposal, property management and security
services and the costs of any environmental
inspections.
(iv) Reserves set aside for maintenance and repair of
Common Areas.
(v) Any increase above the Base Real Property Taxes (as
defined in Paragraph 10.2(b)) for the Building and
the Common Areas.
(vi) Any "Insurance Cost Increase" (as defined in
Paragraph 8.1)
(vii) The cost of insurance carried by Lessor with respect
to the Common Areas.
(viii) Any deductible portion of an insured loss concerning
the Building or the Common Areas.
(ix) Any other services to be provided by Lessor that are
stated elsewhere in this Lease to be a Common Area
Operating Expense.
(b) any Common Area Operating Expenses and Real Property Taxes
that are specifically attributable to the Building or to any other building in
the Industrial Center or to the operation, repair and maintenance thereof, shall
be allocated entirely to the Building or to such other building. However, any
Common Area Operating expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services
set forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation
upon Lessor to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within ten (10) days after a reasonably detailed statement of
actual expenses is presented to Lessee by Lessor. At Lessor's option, however,
an amount may be estimated by Lessor from time to time of Lessee's Share of
annual Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each 12-month period of the Lease
term, on the calendar year a reasonably detailed statement showing Lessee's
Share of the actual Common Area Operating Expenses incurred during the preceding
year. If Lessee's payments under this Paragraph 4.2(d) during said preceding
year exceed Lessee's Share as indicated on said statement, Lessee shall be
credited the amount of such over-payment against Lessee's Share of Common Area
Operating Expenses next becoming due. If Lessee's payments under this Paragraph
4.2(a) during said preceding year were less than Lessee's Share as indicated on
said statement, Lessee shall pay to Lessor the amount of the deficiency within
ten (10) days after delivery by Lessor to Lessee of said statement.
5. Security Deposit. Lessee shall deposit with Lessor upon Lessee's
execution hereof the Security Deposit set forth in Paragraph 1.7 as security for
Lessee's faithful performance of Lessee's obligations under this Lease. If
Lessee fails to pay Base Rent or other rent or charges due hereunder, or
otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor may
use, apply or retain all or any portion of said Security Deposit for the payment
of any amount due Lessor or to reimburse or compensate Lessor for any liability,
cost, expense, loss or damage (including attorney's fees) which Lessor may
suffer or incur by reason hereof. If Lessor uses or applies all or any portion
of said Security Deposit, Lessee shall within ten (10) days after written
request therefore deposit monies with Lessor sufficient to restore said Security
Deposit to the full amount required by this Lease. Any time the Base Rent
increases during the term of this Lease, Lessee shall, upon written request from
Lessor, deposit additional monies with Lessor as an addition to the Security
Deposit so that the toal amount of the Security Deposit shall at all times bear
the same proportion to the then current Base Rent as the initial Security
Deposit bears to the Initial Base Rent set forth in Paragraph 1.5. Lessor shall
not be required to keep all or any part of the Security Deposit separate from
its general accounts. Lessor shall, at the expiration or earlier termination, of
the term hereof and after Lessee has vacated the Premises, return to Lessee (or,
at Lessor's option, to the last assignee, if any, of Lessee's interest herein),
that portion of the Security Deposit not used or applied by Lessor. Unless
otherwise expressly agreed in writing by Lessor, no part of the Security Deposit
shall be considered to be held in trust, to bear interest or other increment for
its use, or to be prepayment for any monies to be paid by Lessee under this
Lease.
6. Use.
6.1 Permitted Use.
(a) Lessee shall use and occupy the Premises only for the
Permitted Use set forth in Paragraph 1.8, or any other legal use which is
reasonably comparable thereto, and for no other purpose. Lessee shall not use or
permit the use of the Premises in a manner that is unlawful, creates waste or a
nuisance, or that disturbs owners and/or occupants of, or causes damage to the
Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay
its consent to any written request by Lessee, Lessee's assignee's or subtenants,
and by prospective assignees and subtenants of Lessee, its assignees and
subtenants, for a modification of said Permitted Use, so long as the same will
not impair the structural integrity of the improvements on the Premises or in
the Building or mechanical or electrical systems therein, does not conflict with
uses by other leesee, is not significantly more burdensome to the Premises or
the Building and the improvements thereon, and is otherwise permissible
Industrial/Commercial Multi-Tenant Lease - Gross Initial MRE
Page 3 of 16 ???
<PAGE>
pursuant to this Paragraph 6. If Lessor elects to withhold such consent, Lessor
shall within five (5) business days after such request give a written
notification of same, which notice shall include an explanation of Lessor's
reasonable objections to the change in use.
6.2 Hazardous Substances
(a) Reportable Uses Require Consent. The term "Hazardous
Substance" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety or
welfare, the environment, or the Premises; (ii) regulated or monitored by any
governmental authority; or (iii) a basis for potential liability of Lessor to
any governmental agency or third party under any applicable statute or common
law theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products or by-products
thereof. Lessee shall not engage in any activity in or about the Premises which
constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances
without the express prior written consent of Lessor and compliance in a timely
manner (at Lessee's sole cost and expense) with all Applicable Requirements (as
defined in Paragraph 6.3). "Reportable Use" shall mean (i) the installation or
use of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit form, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority, and
(iii) the presence in, on or about the Premises of a Hazardous Substance with
respect to which any Applicable Laws require that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may, without Lessor's prior written consent, but upon
notice to Lessor and in compliance with all course of the Permitted Use, so long
as such use is not a Reportable Use and does not expose the Premises or
neighboring properties to any meaningful risk of contamination or damage or
expose Lessor to any liability therefor. In addition, Lessor may (but without
any obligation to do so) condition its consent to any Reportable Use of any
Hazardous Substance by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefor, including but not limited to
the installation (and, at Lessor's option, removal on or before Lease expiration
or earlier termination) of reasonably necessary protective modifications to this
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises or the Building, other than as previously consented
to by Lessor, Lessee shall immediately give Lessor written notice thereof,
together with a copy of any statement, report, notice, registration application,
permit, business plan, license, claim, action, or proceeding given to, or
received from, any governmental authority or private party concerning the
presence, spill, release, discharge of, or exposure to, such Hazardous Substance
including but not limited to all such documents as may be involved in any
Reportable Use, involving the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including, without limitation, through the plumbing or sanitary sewer
system).
(c) Indemnification. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorney's and
consultants' fees' arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c)shall include, but not be limited to, the
effects of any contamination or injury to person, property or the environment
created or suffered by Lessee, and the cost of investigation (including
consultants' and attorneys' fees and testing), removal, remediation, restoration
and/or abatement thereof, or of any contamination therein involved, and shall
survive the expiration or earlier termination of this Lease. No termination,
cancellation or release agreement entered into by Lessor and Lessee shall
release Lessee from its obligations under this lease with respect to Hazardous
Substances, unless specifically so agreed by Lessor in writing at the time of
such agreement.
6.3 Lessee's Compliance with Requirements. Lessee shall at Lessee's
sole cost and expense, fully, diligently and in a timely manner, comply with all
"Applicable Requirements," which term is used in this lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including
but not limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, compliant or report pertaining to or involving
failure by Lessee or the Premises to comply to any Applicable Requirements.
6.4 Inspection; Compliance with Law. Lessor, Lessor's agents,
employees, contractors and designated representatives, and the holder of any
mortgages, deeds of trust or ground leases on the Premises ("Lenders") shall
have the right to enter the Premises at any time in the case of an emergency,
and otherwise at reasonable times, for the purpose of inspecting the condition
of the Premises and for verifying compliance by Lessee with this Lease and all
Applicable Requirements (as defined in Paragraph 6.3), and Lessor shall be
entitled to employ experts and/or consultants in connection therewith to advise
Lessor with respect to Lessee's activities, including but not limited to
Lessee's installation, operation, use, monitoring, maintenance, or removal of
any Hazardous Substance on or from the Premises. The costs and expenses of any
such inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance, Repairs, Utility Installations, Trade Fixtures and
Alterations.
7.1 Lessee's Obligations
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceilings, floors, windows, doors, plate glass, and skylights, but
excluding any items which are the responsibility of Lessor pursuant to Paragraph
7.2 below. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good
Industrial/Commercial Multi-Tenant Lease - Gross Initial MRE
Page 4 of 16 ???
<PAGE>
maintenance practices. Lessee's obligations shall include restorations,
replacements or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition and state of
repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation system
for the Premises. However, Lessor reserves the right, upon notice to Lessee, to
procure and maintain the contract for the heating, air conditioning and
ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1 Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf, and put
the Premises in good order, condition and repair, in accordance with Paragraph
13.2 below.
7.2 Lessor's Obligations. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions, and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke detection systems and equipment, fire hydrants, parking lots,
walkways, parkways, driveways, landscaping, fences, signs and utility systems
serving the Common Area and all parts thereof, as well as providing the services
for which there is a Common Area Operating Expense pursuant to Paragraph 4.2.
Lessor shall not be obligated to paint the exterior or interior surfaces of
exterior walls nor shall Lessor be obligated to maintain, repair or replace
windows, doors or plate glass of the Premises. Lessee expressly waives the
benefit of any statute now or hereafter in effect which would otherwise afford
Lessee the right to make repairs at Lessor's expense or to terminate this Lease
because of Lessor's failure to keep the Building, Industrial Center or Common
Areas in good order, condition and repair.
7.3 Utility Installations, Trade Fixtures, Alterations.
(a) Definitions; Consent Required. The term "Utility
Installations" is used in this Lease to refer to all air lines, power panels,
electrical distribution, security, fire protection systems, communications
systems, lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "Trade Fixtures"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "Alterations" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "Lessee-Owned Alterations and/or Utility Installations" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be
made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent. Lessee may, however, make
non-structural Utility Installations to the interior of the Premises (excluding
the roof) without Lessor's consent but upon notice to Lessor, so long as they
are not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the fire sprinkler or fire detection systems and the cumulative
cost thereof during the term of this Lease as extended does not exceed
$2,500,00.
(b) Consent. Any Alterations or Utility Installations that
Lessee shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may, (but without obligation
to do so) condition its consent to any requested Alteration or Utility
Installation that costs $2,500.00 or more upon Lessee's providing Lessor with a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.
(c) Lien Protection. Lessee shall pay when due all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on, or about the Premises, and Lessor shall have
the right to pose notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense, defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises. If Lessor shall require,
Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an
amount equal to one and one-half times the amount of such contested lien claim
or demand, indemnifying Lessor against liability for the same, as required by
law for the holding of the Premises free from the effect of such lien or claim.
In addition, Lessor may require Lessee to pay Lessor's attorneys' fees and costs
in participating in such action if Lessor shall decide it is to its best
interest to do so.
7.4 Ownership, Removal, Surrender and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal
and to cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Installations made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Lessor may, at any time and at its option, elect in writing to
Lessee to be the owner of all or any specified part of the Lessee-Owned
Alterations and Utility Installations. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) Removal. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee-Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease, notwithstanding
that their installation may have been consented to by Lessor. Lessor may require
the removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises
by the end of the last day of the Lease term or any earlier termination date,
clean and free of debris and in good operating order, condition and state of
repair, ordinary wear and tear excepted. Ordinary wear and tear shall not
include any damage or deterioration that would have prevented by good
maintenance practice or by Lessee performing all of its obligations under this
Lease. Except as otherwise agreed or specified herein, the Premises, as
surrendered, shall include the Alterations and Utility Installations. The
obligation of Lessee shall include the repair of any damage occasioned by the
installation, maintenance or removal of Lessee's Trade Fixtures, furnishings,
equipment, and Lessee-Owned Alterations and Utility Installations, as well as
the removal of any storage tank installed by or for Lessee, and the removal,
replacement, or remediation of any soil, material or ground water contaminated
by Lessee, all as may then be required by Applicable Requirements and/or good
practice. Lessee's Trade Fixtures shall remain the property of Lessee and shall
be removed by Lessee subject to its obligation to repair and restore the
Premises per this Lease.
Industrial/Commercial Multi-Tenant Lease - Gross Initial MRE
Page 5 of 16 ???
<PAGE>
8. Insurance; Indemnity.
8.1 Payment of Premium Increases.
(a) As used herein, the term "Insurance Cost Increase" is
defined as any increase in the actual cost of the insurance applicable to the
Building and required to be carried by Lessor pursuant to Paragraphs 8.2(b),
8.3(a), and 8.3(b), ("Required Insurance"), over and above the Base Premium, as
hereinafter defined, calculated on an annual basis. "Insurance Cost Increase"
shall include, but not be limited to, requirements of the holder of a mortgage
or deed of trust covering the Premises, increased valuation of the Premises,
and/or a general premium rate increase. The term "Insurance Cost Increase" shall
not, however, include any premium increases resulting from the nature of the
occupancy of any other lessee of the Building. If the parties insert a dollar
amount in Paragraph 1.9, such amount shall be considered the "Base Premium." If
a dollar amount has not been inserted in Paragraph 1.9 and if the Building has
been previously occupied during the twelve (12) month period immediately
preceding the Commencement Date, the "Base Premium" shall be the annual premium
applicable to such twelve (12) month period. If the Building was not fully
occupied during such twelve (12) month period, the "Base Premium" shall be the
lowest annual premium reasonably obtainable for the Required Insurance as of the
Commencement Date, assuming the most nominal use possible of the Building. In no
event, however, shall Lessee be responsible for any portion of the premium cost
attributable to liability insurance coverage in excess of $1,000,000 procured
under Paragraph 8.2(b).
(b) Lessee shall pay any Insurance Cost Increase to Lessor
pursuant to Paragraph 4.2. Premiums for policy periods commencing prior to, or
extending beyond, the term of this Lease shall be prorated to coincide with the
corresponding Commencement Date or Expiration Date.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional insureds) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "Insured contract"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) Carried by Lessor. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above. In addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be named
as an additional insured therein.
8.3 Property Insurance-Building, Improvements and Rental Value.
(a) Building and Improvements. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and to any Lender(s), insuring against loss or
damage to the Premises. Such insurance shall be for full replacement cost, as
the same shall exist from time to time, or the amount required by and Lender(s),
but in no event more than the commercially reasonable and available insurable
value thereof, if, by reason of the unique nature or an age of the improvements
involved, such latter amount is less than full replacement cost. Lessee-Owned
Alterations and Utility Installations, Trade Fixtures and Lessee's personal
property shall be insured by Lessee pursuant to Paragraph 8.4. If the coverage
is available and commercially appropriate, Lessor's policy or policies shall
insure against all risk of direct physical loss or damage (except the perils of
flood and/or earthquake unless required by a Lender or included in the Base
Premium), including coverage for any additional costs resulting from debris
removal and reasonable amounts of coverage for the enforcement of any ordinance
or law regulating the reconstruction or replacement of any undamaged sections of
the Building required to be demolished or removed by reason of the enforcement
of any building, zoning, safety or land use laws as the result of a covered
loss, but not including plate glass insurance. Said policy or policies shall
also contain an agreed valuation provision in lieu of any co-insurance clause,
waiver or subrogation, and inflation guard protection causing an increase in the
annual property insurance coverage amount by a factor of not less than the
adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers
for the city nearest to where the Premises are located.
(b) Rental Value. Lessor shall also obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and any Lender(s), insuring the loss of the full rental
and other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all common Area Operating
Expenses and any schedule rental increases). Said insurance may provide that in
the event the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of any such loss.
Said insurance shall contain an agreed valuation provision in lieu of any
co-insurance clause, and the amount of coverage shall be adjusted annually to
reflect the projected rental income, Real Property Taxes, insurance premium
costs and other expenses, if any, otherwise payable, for the next 12-month
period. Common Area Operating Expenses shall include any deductible amount in
the event of such loss.
(c) Adjacent Premises. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by lessee's
acts, omissions, use or occupancy of the Premises.
(d) Lessee's Improvements. Since Lessor is the Insuring Party,
Lessor shall not be required to insure Lessee-Owned Alternations and Utility
Installations unless the item in question has become the property of lessor
under the terms of this Lease.
8.4 Lessee's Property Insurance. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property. Trade Fixtures and Lessee-Owned
Alterations and Utility Installations in, on, or about the Premises similar to
coverage to that carried by Lessor as the Insuring Party under Paragraph 8.3(a).
Such insurance shall be full replacement cost coverage with a deductible not to
exceed $1,000 per occurrence. The proceeds from any such insurance shall be used
by Lessee for the replacement of personal property and the restoration of Trade
Fixtures and Lessee-Owned Alterations and Utility Installations. Upon request
from Lessor, Lessee shall provide Lessor with written evidence that such
insurance is in force.
8.5 Insurance Policies. Insurance require hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender, as set
forth in the most current issue of "Best's Insurance Guide." Lessee shall not do
or permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement
Industrial/Commercial Multi-Tenant Lease - Gross Initial MRE
Page 6 of 16 ???
<PAGE>
Date, certified copies of, or certificates evidencing the existence and amounts
of, the insurance required under Paragraph 8.2(a) and 8.4. No such policy shall
be cancelable or subject to modification except after thirty (30) days' prior
written notice to Lessor. Lessee shall at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with evidence of renewals or
"Insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand.
8.6 Waiver of Subrogation. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages (whether in contract or in tort) against
the other, for loss or damage to their property arising out of or incident to
the perils required to be insured against Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, and consultants' fees, expenses and/or liabilities arising out of,
involving, or in connection with, the occupancy of the Premises by and out of
any Default or Breach by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation of Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment. In
case any action or proceeding be brought against Lessor by reason of any of the
foregoing matters, Lessee upon notice from Lessor shall defend the same at
Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall
cooperate with Lessee in such defense. Lessor need not have first paid any such
claim in order to be so indemnified.
8.8 Exception of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other potions of the Building of which the Premises are an
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom.
9. Damage or Destruction
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction
to the Premises, other than Lessee-Owned Alterations and Utility Installations,
the repair cost of which damage or destruction is less than fifty percent (50%)
of the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall mean damage or
destruction to the Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is fifty percent
(50%) or more of the then Replacement Cost of the Premises (excluding
Lessee-Owned Alterations and Utility Installations and Trade Fixtures)
immediately prior to such damage or destruction. In addition, damage or
destruction to the Building, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures of any lessees of the Building, the cost of
which damage or destruction is fifty percent (50%) or more of the then
Replacement Cost (excluding Lessee-Owned Alterations and Utility Installations
and Trade Fixture of any lessees of the Building) of the Building shall, at the
option of Lessor, be deemed to be Premises Total Destruction.
(c) "Insured Loss" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixture, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible amounts
or coverage limits involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 Premises Partial Damage-Insured Loss. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-owned Alternations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If Lessor does not receive such funds or assurance within such
ten (10) days period, and if Lessor does not so elect to restore and repair,
then this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Unless otherwise agreed, Lessee shall in no event have
any right to reimbursement from Lessor for any funds contributed by Lessee to
repair any such damage of destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 Partial Damage-Uninsured Loss. If Premises Partial Damage that is
not an Insured loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), Lessor may at Lessor's
option, either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate the Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written
Industrial/Commercial Multi-Tenant Lease - Gross Initial MRE
Page 7 of 16 ???
<PAGE>
notice to Lessor of Lessee's commitment to pay for the repair of such damage
totally at Lessee's expense and without reimbursement from Lessor. Lessee shall
provide Lessor with the required funds or satisfactory assurance thereof within
thirty (30) days following such commitment from Lessee. In such event this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
repairs as soon as reasonably possible after the required funds are available.
If Lessee does not give such notice and provide the funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in paragraph 9.7.
9.5 Damage Near End of Term. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at the time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to exercise
such option and provide such funds or assurance during such period, then this
Lease shall terminate as of the date set forth in the first sentence of this
Paragraph 9.5.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of (i) Premises Partial Damages or (ii)
Hazardous Substance Condition for which Lessee is not legally responsible, the
Base Rent, Common Area Operating Expenses and other charges, if any, payable by
Lessee hereunder for the period during which such damage or condition, its
repair, remediation or restoration continues, shall be abated in proportion to
the degree to which Lessee's use of the Premises is impaired, but not in excess
of proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses and other charges, if
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damages
suffered by reason of any such damage, destruction, repair, remediation or
restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, given written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. "Commence" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subvert
to Lessor's rights under Paragraph 6.29(c) and paragraph 13). Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent, or $100,000 whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice to Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000 whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 Termination-Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 Waiver of Statutes. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2(a), applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any increases in such amounts over the
Base Real Property Taxes shall be included in the calculation of Common Area
Operating Expense in accordance with the provisions of Paragraph 4.2.
10.2 Real Property Tax Definitions.
(a) As used herein, the term "Real Property Taxes" shall include
any form of real estate tax or assessment, general, special, ordinary or
extraordinary, and any license fee, commercial rental tax, improvement bond or
bonds, levy or tax (other than inheritance, personal income or estate taxes)
imposed upon the Industrial Center by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage, or other improvement
district thereof, levied against any legal or equitable interest of Lessor in
the Industrial Center or any portion thereof. Lessor's right to rent or other
income therefrom, and/or Lessor's business of leasing the Premises. The term
"Real Property Taxes" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring, or
changes in Applicable Law taking effect, during the term of this Lease,
including but not limited to a
Industrial/Commercial Multi-Tenant Lease - Gross Initial MRE
Page 8 of 16 ???
<PAGE>
change in the ownership of the Industrial Center or in the improvements thereon,
the execution of this Lessee, or any modification, amendment of transfer
thereof, and whether or not contemplated by the Parties.
(b) As used herein, the term "Base Real Property Taxes" shall be
the amount of Real Property Taxes, which are assessed against the Premises,
Building or Common Areas in the calendar year during which the Lease is
executed. In calculating Real Property Taxes for any calendar year, the Real
Property Taxes for any real estate tax year shall be included in the calculation
of Real Property Taxes for such calendar year based upon the number of days
which such calendar year and tax year have in common.
10.3 Additional Improvements. Common Area Operating Expenses shall not
include Real property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessee or by the Lessor for the exclusive enjoyment of such
other lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay
to Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2 the entirely of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premise by Lessee or at Lessee's request.
10.4 Joint Assessment. If the building is not separately assessed,
Real Property Taxes allocated to the Building shall be an equitable proportion
of the Real Property Taxes for all of the land and improvements included within
the tax parcel assessed, such proportion to be determined by Lessor from the
respective valuations assigned in the assessor's work sheets or such other
information as may be reasonably available. Lessor's reasonable determination
thereof, in good faith , shall be conclusive.
10.5 Lessee's Property Taxes. Lessee shall pay prior to delinquency
all taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee Alterations and Utility Installations, Trade Fixtures, furnishings,
equipment and all other personal property to be assessed and billed separately
from the real property of the Lessor. If any of Lessee's said property shall be
assessed with Lessor's real property, Lessee shall pay Lessor the taxes
attributable to Lessee's property within ten (10) days after receipt of a
written statement setting forth the taxes applicable to Lessee's property.
11. Utilities. Lessee shall pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises, Lessee shall pay to Lessor a reasonable
proportion to be determined by Lessor of all such charges jointly metered or
billed with other premises in the Building. In the manner and within the time
periods set forth in Paragraph 4.2(d).
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively "assign") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction,
or series of transactions (by way of merger, safe, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of full
execution and delivery of this Lease or at the time of the of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said Net Worth of Lessee was or is greater, shall be considered an assignment of
this Lease by Lessee to which Lessor may reasonably withhold its consent. "Net
Worth of Lessee" for purposes of this Lease shall be the net worth of Lessee
(excluding any Guarantors) established under generally accepted accounting
principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this
Lease without Lessor's specific prior written consnet shall, at Lessor's option,
be a De-fault curable after notice per Paragraph 13.1 or a non-curable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a non-curable Breach, Lessor
shall have the right to either (i) terminate this Lease, or (ii) upon thirty
(30) days' written notice ("Lessor's Notice"), increase the monthly Base Rent
for the Premises to the greater of the then fair market rental value of the
Premises, as Reasonably determined by Lessor, or one hundred ten percent (110%)
of the Base Rent then in effect. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and rental
adjustment to the then fair market value as reasonably determined by Lessor
(without the Lease being considered an encumbrance or any deduction for
deprectiation or obsolescence, and considering the Premises at its highest and
best use and in good condition) or one hundred ten percent (110%) of the price
previously in effect, (ii) any index-oriented rental or price adjustment
formulas contained in this Lease shall be adjusted to require that the base
index be determined with reference to the index applicable to the time of such
adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease terms shall be increased in the same ratio as the new
rental bears to the Base Rent in effect immediately prior to the adjustment
specified in the Lessors Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting
(a) Regardless of Lessor's consent, any assignment or subleeting
shall not (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) after the primarily
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
Industrial/Commercial Multi-Tenant Lease - Gross Initial MRE
Page 9 of 16 ???
<PAGE>
(b) Lessor any accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and assignments
or the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable under this Lease or the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's obligation
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
anyone else responsible for the performance of the Lessee's obligations under
this Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's determination as
to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any, together with a
non-refundable deposit of $1,000 or ten percent (10%) of the monthly Base Rent
applicable to the portion of the Premises which is the subject of the proposed
assignment or sublease, whichever is greater, as reasonable consideration for
Lessor's considering and processing the request for consent. Lessee agrees to
provide Lessor with such other or additional information and/or documentation as
may reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph
12.2(c) shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased by an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any
assignment or subletting, make require that the amount and adjustment schedule
of the rent payable under this Lease be adjusted to what is then the market
value and/or adjustment schedule for property similar to the Premises as then
constituted, as determined by Lessor.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease, provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of the foregoing
provision or any other assignment of such sublease to Lessor, nor by reason of
the collection of the rents from a sublease, be deemed liable to the sublessee
for any failure of Lessee to perform and comply with any of Lessee's obligations
to sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obliations to such sublessee under such
sublease. Lessee hereby irrevocably authorizes and directs any such sublessee,
upon receipt of a written notice from Lessor stating that a Breach exists in the
performance of Lessee's obligations under this Lease, to pay Lessor the rents
and other charges due and to become due under the sublease. Sublessee shall rely
upon any such statement and request from Lessor and shall pay such rents and
other charges to Lessor without any obligation or right to inquire as to whether
such Breach exists and notwithstanding any notice from or claim from Lessee to
the contrary. Lessee shall have no right or claim against such sublessee, or,
until the Breach has been cured, against Lessor, for any such rents and other
charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from time
of the exercise of said option to the expiration of such sublease; provided,
however, Lessor shall not be liabile for any prepaid rents or security deposit
paid by such sublessee to such sublessor or for any other prior defaults or
breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublease under a sublease approved by Lessor shall further
assign or sublet all or any part of the Premises without Lessor's prior written
consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and services and costs in the
preparation and service of a notice of Default, and that Lessor may include the
cost of such services and costs in said notice as rent due and payable to cure
said default. A "Default" by Lessee is defined as a failure by Lessee to
observe, comply with or perform any of the terms, covenants, conditions or rules
applicable to Lessee under this Lease. A "Breach" by Lessee is defined as the
occurrence of any one or more of the following Defaults, and, where a grace
period for cure after notice is specified herein, the failure by Lessee to cure
such Default prior to the expiration of the applicable grace period, and shall
entitle Lessor to pursue the remedies set forth in Paragraphs 13.2 and/or 13.3.
(a) The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises,
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life
Industrial/Commercial Multi-Tenant Lease - Gross Initial MRE
Page 10 of 16 ???
<PAGE>
property, where such failure continues for a period of three (3) days following
written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1 (b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of
this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's
obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the
execution of any document requested under Paragraph 42 (easements), or (viii)
any other documentation or information which Lessor may reasonably require of
Lessee under the terms of this lease, where any such failure continues for a
period of ten (10) days following written notice by or on behalf of Lessor to
Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that
are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1 (a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making
by Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1 (e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of
Lessee or of any Guarantor, given to Lessor by Lessee or any Guarantor, was
materially false.
(g) If the performance of Lessee's obligations under this Lease
is guaranteed: (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the
subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the
guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such event,
to provide Lessor with written alternative assurances of security, which, when
coupled with the then existing resources of Lessee, equals or exceeds the
combined financial resources of Lessee and the Guarantors that existed at the
time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including, but not limited to the obtaining of reasonably required
bonds, insurance policies, or governmental licenses, permits or approvals. The
costs and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of the Lease by Lessee
(as defined in Paragraph 13.1), with or without further notice or demand, and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorney's fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the Immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District
in which the Premises are located at the time of award plus one percent (1%).
Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of
this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor,
may reserve the right to recover all or any part thereof in a separate suit for
such rent and/or damages. If a notice and grace period required under
Subparagraph 13.1(b), (c) or (d) was not previously given, a notice to pay rent
or quit, or to perform or quit, as the case may be, given to Lessee under any
statute authorizing the forfeiture of leases for unlawful detainer shall also
constitute the applicable notice for grace period purposes required by
Subparagraph 13.1 (b), (c) or (d). In such case, the applicable grace period
under the unlawful detainer statue shall run concurrently after the one such
statutory notice, and the failure of Lessee to cure the Default within the
greater of the two (2) such grace periods shall constitute both an unlawful
detainer and a Breach of this Lease entitling Lessor to the remedies provided
for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right in possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's Breach
and recover the rent as it becomes due, provided Lessee has the right to sublet
or assign, subject only to reasonable limitations. Lessor and Lessee agree that
the limitations on assignment and subletting in this Lease are reasonable. Acts
of maintenance or preservation, efforts to relet the Premises, or the
appointment of a receiver to protect the Lessor's interest under this Lease,
shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 Inducement Recapture in Event of Breach. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
Inducement
Industrial/Commercial Multi-Tenant Lease - Gross Initial MRE
Page 11 of 16 ???
<PAGE>
or consideration for Lessee's entering into this Lease, all of which concessions
are hereinafter referred to as "Inducement Provisions" shall be deemed
conditioned upon Lessee's full and faithful performance of all of the terms,
covenants and conditions of this Lease to be performed, or observed by Lessee
during the term hereof as the same may be extended. Upon the occurrence of a
Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering the
Premises. Accordingly, if any installment of rent or other sum due from Lessee
shall not be received by Lessor or Lessors designee within ten (10) days after
such amount shall be due, then, without any requirement for notice to Lessee,
Lessee shall pay to Lessor a late charge equal to six percent (6%) of such
overdue amount. The parties hereby agree that such late charge represents a fair
and reasonable estimate of the costs Lessor will incur by reason of late payment
by Lessee. Acceptance of such late charge by Lessor shall in no event constitute
a waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this
Lease unless Lessor falls within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt by
Lessor, and by any Lender(s) whose name and address shall have been furnished to
Lessee in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs. If more than ten percent (10%) of
the floor area of the Premises, or more than twenty-five percent (25%) of the
portion of the Common Areas designated for Lessee's parking, is taken by
condemnation, Lessee may, at Lessee's option, to be exercised in writing within
ten (10) days after Lessor shall have given Lessee written notice of such taking
(or in the absence of such notice, within ten (10) days after the condemning
authority shall have taken possession) terminate this Lease as of the date the
condemning authority takes such possession. If Lessee does not terminate this
Lease in accordance with the foregoing, this Lease shall remain in full force
and effect as to the portion of the Premises remaining, except that the Base
Rent shall be reduced in the same proportion as the rentable floor area of the
Premises taken bears to the total rentable floor area of the Premises. No
reduction of Base Rent shall occur if the condemnation does not apply to any
portion of the Premises. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution of value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation, separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above Lessee's Share of
the legal and other expenses incurred by Lessor in the condemnation matter,
repair any damage to the Premises caused by such condemnation authority. Lessee
shall be responsible for the payment of any amount in excess of such net
severance damages required to complete such repair.
15. Brokers' Fees.
15.1 Procuring Cause. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
15.2 Additional Terms. Unless Lessor and Broker(s) have otherwise
agreed in writing, Lessor agrees that: (a) if Lessee exercises any Option (as
defined in Paragraph 39.1) granted under this Lease or any Option subsequently
granted, or (b) if Lessee acquires any rights to the Premises or other premises
in which Lessor has an interest, or (c) if Lessee remains in possession of the
Premises with the consent of Lessor after the expiration of the term of this
Lease after having failed to exercise an Option, or (d) if said Brokers are the
procuring cause of any other lease or sale entered into between the Parties
pertaining to the Premises and/or any adjacent property in which Lessor has an
interest, or (e) if Base Rent is increased, whether by agreement or operation of
an escalation clause herein, then as to any of said transactions, Lessor shall
pay said Broker(s) a fee in accordance with the schedule of said Broker(s) in
effect at the time of the execution of this Lease.
15.3 Assumption of Obligations. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation of
law, shall be deemed to have assumed Lessor's obligation under this Paragraph
15. Each Broker shall be an intended third party beneficiary of the provisions
of Paragraph 1.10 and of this Paragraph 15 to the extent of its interest in any
commission arising from this Lease and may enforce that right directly against
Lessor and its successors.
15.4 Representations and Warranties. Lessee and Lessor each represent
and warrant to the other that it has had no dealings with any person, firm,
broker or finder other than as named in Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. Tenancy and Financial Statements.
16.1 Tenancy Statement. Each Party (as "Responding Party") shall within
ten (10) days after written notice from the other Party (the "Requesting Party")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "Tenancy Statement" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 Financial Statement. If Lessor desires to finance, refinance, or
sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors shall deliver to any potential lender or purchaser designated by
Lessor such financial statements of Lessee and such Guarantors as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past three (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
Industrial/Commercial Multi-Tenant Lease - Gross Initial MRE
Page 12 of 16 ???
<PAGE>
17. Lessor's Liability. The term "Lessor" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises. In the
event of a transfer of Lessor's title or interest in the Premises or in this
Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit)
any unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within ten (10) days
following the date on which it was due, shall bear interest from the date due at
the prime rate charged by the largest state chartered bank in the state in which
the Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.
22. No Prior or other Agreements; Broker Disclaimer. The Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default to breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
23. Notices.
23.1 Notice Requirements. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by
messenger or courier service) or may be sent by regular, certified or registered
mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile
transmission during normal business hours, and shall be deemed sufficiently
given if served in a manner specified in this Paragraph 23. The addresses noted
adjacent to a Party's signature on this Lease shall be that Party's address for
delivery or mailing of notice purposes. Either Party may by written notice to
the other specify a different address for notice purposes, except that upon
Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for the purpose of mailing or delivering notices to Lessee. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 Date of Notice. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any such act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent
or similar act by Lessee, or be construed as the basis at an estoppel to enforce
the provision or provisions of this Lease requiring such consent. Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent, the
acceptance of rent by Lessor shall not be a waiver of any Default or Breach by
Lessee of any provision hereof. Any payment given Lessor by Lessee may be
accepted by Lessor on account of moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed
or performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Davies"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lender's holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
Industrial/Commercial Multi-Tenant Lease - Gross Initial MRE
Page 13 of 16 ???
<PAGE>
30.2 Attornment. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device, and that in the event of such foreclosure, such new owner shall not: (i)
be liable for any act or omission of any prior lessor or with respect to events
occurring prior to acquisition of ownership, (ii) be subject to any offsets or
defenses which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorneys' Fees. If any Party or Broker brings an action or proceeding
to enforce the terms hereof or declare rights hereunder, the Prevailing Party
(as hereunder defined) in any such proceeding, action, or appeal thereon, shall
be entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "Prevailing Party" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case maybe, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach. Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in the Lease, Lessor shall not be obligated to exercise any standard of
reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the exterior of the
Premises or the Building, except that Lessee may, with Lessor's prior written
consent, install (but not on the roof) such signs as are reasonably required to
advertise Lessee's own business so long as such signs are in a location
designated by Lessor and comply with Applicable Requirements and the signage
criteria established for the Industrial Center by Lessor. The installation of
any sign on the Premises by or for Lessee shall be subject to the provisions of
Paragraph 7 (Maintenance, Repairs, Utility Installations, Trade Fixtures and
Alterations). Unless otherwise expressly agreed herein, Lessor reserves all
rights to the use of the roof of the Building, and the right to install
advertising signs on the Building, including the roof, which do not unreasonably
interfere with the conduct of Lessee's business; Lessor shall be entitled to all
revenues from such advertising signs.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2 (e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this Lease
are acknowledged by Lessee as being reasonable. The failure to specify herein
any particular condition to Lessor's consent shall not preclude the impositions
by Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 Form of Guaranty. If there are to be any Guarantors of this Lease
per Paragraph 1.11, the form of the guaranty to be executed by each such
Guarantor shall be in the form most recently published by the American
Industrial Real Estate Association, and each such Guarantor shall have the same
obligations as Lessee under this Lease, including but not limited to the
obligation to provide the Tenancy Statement and information required in
Paragraph 16.
37.2 Additional Obligations of Guarantor. It shall constitute a Default
of the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
Industrial/Commercial Multi-Tenant Lease - Gross Initial MRE
Page 14 of 16 ???
<PAGE>
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises
and the performance of all of the covenants, conditions and provisions on
Lessee's part to be observed and performed under this Lease, Lessee shall have
quiet possession of the Premises for the entire term hereof subject to all of
the provisions of this Lease.
39. Options.
39.1 Definition. As used in this Lease, the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 Options Personal to Original Lessee. Each Option granted to Lessee
in this Lease is personal to the original Lessee named in Paragraph 1.1, hereof,
and cannot be voluntarily or involuntarily assigned or exercised by any person
or entity other than said original Lessee while the original Lessee is in full
and actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later option cannot be exercised unless
the prior Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the noticed Default is cured, or (ii) during the
period of time any monetary obligation due Lessor from Lessee is unpaid (without
regard to whether notice thereof is given Lessee), or (iii) during the time
Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during the twelve (12) month period immediately preceding the exercise of the
Option, whether or not the Defaults are cured.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a)
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
the Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for
a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee). or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. Rules and Regulations. Lessee agrees that it will abide by, and keep
and observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. Security Measures. Lessee hereby acknowledges that the rental payable
to Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
44. Authority. If either Party hereto is a corporation, trust, or general
or limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. Offer. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. Amendments. This Lease may be modified only In writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to the Lease as may be reasonably required
by an institutional insurance company or pension plan Lender in connection with
the obtaining of normal financing or refinancing of the property of which the
Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if
more than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
Industrial/Commercial Multi-Tenant Lease - Gross Initial MRE
Page 15 of 16 ???
<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR
ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED
TO EVALUATE THE CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF
ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL
REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR
CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH
IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE
SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM
THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
<TABLE>
<S> <C>
Executed at: ________________________________ Executed at: ________________________________
on: 4/22/96 on:
By LESSOR: By LESSEE:
Airpark Investors 99, L.L.C., An Arizona Michael R. Ellison, Inc., A Washington Corporation
Limited Liability Company dba Global Cassettes
By: /s/ Neil Ginsberg By: /s/ Marcus R. Ellison
Name Printed: Neil Ginsberg Name Printed: Marcus R. Ellison
Title: Member of Horizon Acquisitions, L.L.C. Title: ______________________________________
Manager of Airpark Investors 99, L.L.C.
By:__________________________________________ By: ________________________________________
Name Printed:________________________________ Name Printed: ______________________________
Title: ______________________________________ Title: _____________________________________
By: _________________________________________ By: ________________________________________
Address: 2999 N. 44th Street. #450 Address: 14804 N. Cave Creek Road
Phoenix, AZ 85018 Phoenix, AZ 85032
Telephone: (602) 955-4000 Telephone: (___) ___________________________
Facsimile: (602) 852-3866 Facsimile: (___) ___________________________
BROKER: BROKER:
Executed at: _______________________________ Executed at: _______________________________
on: ________________________________________ on: ________________________________________
By: ________________________________________ By: ________________________________________
Name Printed: ______________________________ Name Printed: ______________________________
Title: _____________________________________ Title: _____________________________________
Address: ___________________________________ Address: ___________________________________
Telephone: (___)____________________________ Telephone: (___)____________________________
Facsimile: (___)____________________________ Facsimile: (___)____________________________
</TABLE>
- -----------------------------
??? 4/25/96
- -------------- ------------
Initial Date
90-076-L
- -----------------------------
Industrial/Commercial Multi-Tenant Lease - Gross Initial MRE
Page 16 of 16 ???
<PAGE>
ADDENDUM
This Addendum is attached hereto an made a part hereof that certain Lease
dated April 17, 1996 and entered into by and between Airpark Investors 99,
L.L.C., an Arizona Limited Liability Company ("Lessor") and Michael R. Ellison,
Inc. A Washington Corporation dba Global Cassettes ("Lessee"). Should the body
of the Lease and this Addendum conflict, this Addendum shall prevail.
49. Base Rent. Base shall be payable according to the following schedule:
6/1/96 - 5/31/97 $6,794.40/month
6/1/97 - 5/31/98 $6,964.26/month
6/1/98 - 5/31/99 $7,134.12/month
50. Option to Renew. Provided that Lessee is not in default with any term or
condition of this Lease, Lessee shall have the option to renew this Lease for
and additional three (3) year term by providing Lessor with ninety (90) day
written notice prior to the expiration of the primary term of the Lease. The
renewal term shall be under the same terms and conditions except that the base
rent shall be at the prevailing market rate.
51. Window Blinds. Should Lessee desire to hang mini blinds in the windows, the
cost of the mini blinds would be the Lessee's responsibility. The building
standard for the mini blinds are the following:
Source: Hunter Douglas
Pattern: Sunflex
Color: 820 - Burnt Amber
Type: 008 Gauge Metal Slats
52. Tenant Improvements. Lessor, at Lessor's cost shall complete the
improvements as outlined in Exhibit "A" and attached as a part of this Lease.
Improvemetns to include approximately ten (10%) percent of the space to be built
as building standard office space, including standard ADA bathrooms and the
remaining warehouse to be air conditioned and standard lighting fixtures added.
53. Temporary Storage. Upon execution of this Lease, Lessee shall have exclusive
use of Suite 8 at 15679 N. 83rd Way for dead storage. Rent shall be $1,095.00
per month plus tax. It is understood that this suite does not provide electrical
nor bathroom facilities and is to be used as storage. Upon execution hereof,
Lessee shall pay $342.13 as rent for April 1996.
54. Delay in Occupancy. Lessor shall guarantee to Lessee occupancy forty-five
(45) days from complete execution of Lease and Lessee's acceptance of space
plan. Should Lessor be late in delivering the Premises by the forty-fifth (45th)
day, rent shall be abated two (2) days for each day late.
55. Signage. Lessee shall not be obligated to install signage on the building.
But if the Lessee shall install signage on the building, Lessee shall adhere to
the specifications as outlined in Exhibit C and attached hereto. Lessee shall be
required to install vinyl lettering on the glass adjacent to their front door.
AGREED:
LESSOR LESSEE
Airpark Investors 99, L.L.C. An Michael R. Ellison, Inc., A Washington
Arizona Limited Liability Company Corporation dba Global Cassettes
By: ***[PLEASE SUPPLY SIG]*** By: /s/ Michael R. Ellison
Its: ***[PLEASE SUPPLY]*** Its: Vice President
Date: April 22, 1996 Date: 4-22-1996
<PAGE>
GUARANTY OF LEASE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
WHEREAS, Airpark Investors 99, L.L.C., An Arizona Limited Liability
Compnay, referred to as "Lessor", and Michael R. Ellison, Inc. A Washington
Corporation dba Global Cassettes, hereinafter referred to as "Lessee", are about
to execute a document entitled "Lease" dated April 17, 1996 concerning the
premises commonly known as 15651 N. 83rd Way, Suite 3 (Building C) wherein
Lessor will lease the premises to Lessee, and
WHEREAS, Michael R. and Susan Ellison hereinafter referred to as
"Guarantors" have a financial interest in Lessee, and
WHEREAS, Lessor would not execute the Lease if Guarantors did not execute
and deliver to Lessor this Guarantee of Lease.
NOW THEREFORE, for and in consideration of the execution of the foregoing
Lease by Lessor and as a material inducement to Lessor to execute said Lease,
Guarantors hereby jointly, severally, unconditionally, and irrevocably guarantee
the prompt payment by Lessee of all rentals and all other sums payable by Lessee
under said Lease and the faithful and prompt performance by Lessee of each and
every one of the terms, conditions, and covenants of said Lease to be kept and
performed by Lessee.
It is specifically agreed and understood that the terms of the foregoing
Lease may be altered, affected, modified or changed by agreement between Lessor
and Lessee, or by a course of conduct, and said Lease may be assigned by Lessor
or any assignee of Lessor without consent or notice to Guarantors and that this
Guaranty shall thereupon and thereafter guarantee the performance of said Lease
as so changed, modified, altered or assigned.
This Guaranty shall not be released, modified or affected by failure or
delay on the part of Lessor to enforce any of the rights or remedies of the
Lessor under said Lease, whether pursuant to the terms thereof or at low or in
equity.
No notice of default need be given to Guarantors, if being specifically
agreed and understood that the guarantee of the undersigned is a continuing
guarantee under which lessor may proceed forthwith and immediately against
Lessee or against Guarantors following any breach or default by Lessee or for
the enforcement of any rights which Lessor may have as against Lessee pursuant
to or under the terms of the within Lease or at law or in equity.
Lessor shall have the right to proceed against Guarantors hereunder
following any breach or default by Lessee without first proceeding against
Lessee and without previous notice to or demand upon either Lessee or
Guarantors.
Guarantors hereby waive (a) notice of acceptance of this Guaranty, (b)
demand of payment, presentation and protest, (c) all right to assert or plead
any statute of limitations as to or relating to this Guaranty and the Lease, (d)
any right to require the Lessor to proceed against the Lessee or any other
Guarantor or any other person or entity liable to Lessor, (e) any right to
require Lessor to apply to any default any security deposit or other security it
may hold under the Lease, (f) any right to require Lessor to proceed under any
other remedy Lessor may have before proceeding against Guarantors, (g) any right
of subrogation.
Guarantors do hereby subrogate all existing or future indebtedness of
Lessee to Guarantors to the oblgations owed to Lessor under the Lease and this
Guaranty.
Any married woman who signs this Guaranty expressly agrees that recourse
may be had against her separate property for all of her obligations hereunder.
The obligations of the Lessee under the Lease to execute and deliver
estoppel statements and financial statements, as therein provided shall be
deemed to also require the Guarantors hereunder to do and provide the same
relative to Guarantors.
The term "Lessor" whenever herein above used refers to and means the Lessor
in the foregoing Lease specifically named and also any assignee of said Lessor,
whether by outright assignment or by assignment for security, and also any
successor to the interest of said Lessor or of any assignee in such Lease of any
part thereof, whether by assignment or otherwise. So long as the Lessor's
interest in or to the leased premises or the rents, issues and profits
thereform, or in ,to or under said Lease, are subject to any mortgage or deed of
trust or assignment for security, no acqustion by Guarantors of the Lessor's
interest in the leased premises or under said Lease shall affect the cdontinuing
obligation of Guarantors of the Lessor's interest in the leased premises or
under said Lease shall affect the continuing obligation of Guarantors under this
Guaranty which shall nevertheless continued in full force and effect for the
benefit of the mortgagee, beneficiary, trustee or assignee under such mortgage,
deed of trust, or assignment, of any purchase at sale by judicial foreclosure or
under private power of sale, and of the successors and assigns of any such
mortgagee, beneficiary, trustee, assignee or purchaser.
The term "Lessee" whenever herein above used refers to and means the Lessee
in the foregoing Lease specially named and also any assignee or sublessee of
said Lease and also any successor to the Interest of said Lessee, assigned or
sublessee of such Lessee or any part thereof, whether by assignment, sublease or
otherwise.
In the event any action be brought by said Lessor against Guarantors
hereunder to enforce the obligation of Guarantors hereunder, the unsuccessful
party in such action shall pay the prevailing party therein a reasonable
attorney's fee which shall be fixed by the court.
Furthermore, said Guaranty shall be limited to $60,000.00 and be reduced by
$20,000.oo at the end of each year of occupancy. For example, should Lessee
default after the twenty-fifth (25th) month, this Guaranty shall be limited to
$20,000.00.
If this Form has been filled in it has been prepared for submission to your
attorney for his approval. No representation or recommendation is made by the
real estate broker or its agents or employees as the legal sufficiency, legal
effect, or tax consequences of this Form or the transaction related thereto.
Executed at_______________________________ ____________________________
on 4/22/96 ____________________________
Address:_________________________________ ____________________________
________________________________________ "GUARANTORS"
*1977 - American Industrial Real Estate Association
All rights reserved. No part of these works may be reproduced in any form
without permission in writing.
<PAGE>
EXHIBIT A
DIAGRAM OF FLOOR PLAN
<PAGE>
EXHIBIT B
BUILDING A THRU D PLAN
<PAGE>
EXHIBIT C
Project: AIRPARK 99 page 1 of 2
12/18/95
SECTION 10401 - SIGNS AND GRAPHICS
1. Manufacturers: Subject to compliance with requirements, provide products of
one of the following:
A. ST Signage & Graphics Phoenix, AZ. (602)943-0403
2 Submittals:
A. Product Data: Submit 2 copies of manufacturer's specifications,
recommendations and standard details for signage systems and components of
the work.
B. Shop drawings: Include locations, sizes, materials, and finishes for
signage.
3. Standards: Signage shall meet the requirements of ANSI A117.1 and ADA part36,
Appendix A.
4. Installation:
A. General:
1. Locate sign units and accessories where indicated, using mounting
methods of the type described and in compliance with the
manufacture's instructions (stud mounting, ??? mounting).
2. Install level, plumb, and at height indicated, with sign surfaces
free from distortion or other defects in appearance. Repair or
replace damaged units as directed by Owner. Coordinate and field
measure proper location of sign units, where required, with Owner.
B. Wall Mounted Monument Sign:
- Laminated brass on plastic numbers metal finish on face only, paint
edges at match face
- size 2" thick = (9" & 15") high - see drawing dated 11/30/95
- Univers 57" style letters/numbers & custom for letter "A" only - see
drawing dated 11/30/95
- SUBMIT SAMPLE FULL SIZE LETTERS TO OWNER PRIOR TO INSTALLATION.
C. Directional Sign:
- 8" high white vinyl
- Helvetica medium style numbers
- 8" long x 1" wide directional arrow
D. Wall Mounted Building Identification:
- metal reverse pan channel number with laminated brass face (metal
face to be stain finish)
- letter returns to match building masonry color
- size 18" high with 3" return
- "Universe 57" style numbers
E. Wall Mounted Tenant Identification:
- metal reverse pan channel number with laminated brass face (metal
face to be stain finish).
- letter returns to match building masonry color
- (5 CR 12) inches high
- 1-1/2" returns for 5" high letters
- 2" returns for 5" high letters
- letter / numbers styles as selected by Tenant
- logo area shall not exceed 25% of tenant's business name (City of
Scottsdale requirement)
- overall sign width (incl. logo) shall not exceeded 75% of tenant's
front bay width (City of Scottsdale requirement)
- mix of letters / numbers sizes permitted (subject to the Owners
approval)
- letters / numbers styles as selected by Tenant
- signage furnished and installed by Tenant
- refer to Owner furnished typical exterior bldg. elevation dated
11/30/95 for location and details
- tenant sign shall be installed within 120 days of lease commencement
date
<PAGE>
project Airpark 99 page 2 of 2
12/18/95
F. Tenant Suite Identification (on storefront door)
- white vinyl letters/ numbers
- up to 3" high letters/ numbers
- suite identification required by City of Scottsdale
ALL SIGNS SHALL BE INSTALLED PER MANFACTURER'S WRITTEN INSTRUCTIONS.
5. Cleaning and Protection: At completion of the installation, clean soiled sign
surfaces in accordance with the manufacture's instructions. Protect units
from damage until acceptance by the Owner.
6. Schedule of Signage: (coordinate with attached site plan dated 11/30/95)
7. Tenant Sign Removal: Tenant shall remove business sign and restore premise to
previous condition prior to vacating. Security deposit may not be returned If
these conditions are not met satisfactorily.
LOCATION (Exterior): VERBIAGE
-------------------- --------
1. Monument Sign - Airpark 99
at Northwest Corner of 83rd Way
2. Building Identification 15525, 15575, 15651
& 15879 ( one set of
numbers for each bldg.)
3. Directional (double sided)- n. entrance 15525 & 15879 (arrows
to point south)
4. Directional (double sided) - w. entrance 15525 & 15551 (arrows
to point south)
5. Directional (double sided) - w. entrance 15525 & 15679 (arrows
to point south)
6. Tenant identification sign above store fronts (By Tenant)
7. Tenant suite identification sign on store
front door (as required by City)
END OF SECTION
The undersigned hereby acknowledges receipt of this document:
Tenant: Michael R. Ellison Inc. dba Global Cassettes Date 4-18-96
By: ***[PLEASE SUPPLY SIG]***
ITS: Vice President
<PAGE>
Typical Elevation (signage)
AIRPARK 99
<PAGE>
Site Plan
AIRPARK 99
March 12, 1997
RE: Establishment of Agency Relationship for the purpose of collecting your
accounts where sales were made to members of SuperValu, Inc.
Your company, PCI has been or is requesting to sell merchandise to members of
SuperValu, Inc. Under the drop shipment plan; the merchandise will be sold by a
PCI sales representative to the various members and delivered directly to the
member from your plants, warehouse or other depots without being handled by
SuperValu, Inc.
As part of this program, PCI has advised SuperValu as to the details of such
sales and SuperValu has collected the amount of the sales price for your
accounts. It is the purpose of this letter to formally state the nature of our
contract relationship for the purposes of our respective files.
The normal procedure to be followed in respect to drop shipment accounting has
been and will be as follows:
(a) All original invoices are to be mailed to SuperValu once a week, attn.
dsd Associate. To: PO Box 2237 Tacoma WA 98401.
(b) You will accumulate the invoices evidencing the sales to the several
members stores which will be mailed to SuperValu with a summary sheet
listing the store name, store number, the amount of such invoice,
invoice number and the grand total at the bottom of the summary sheet.
(c) It is definitely understood that this billing arrangement will not
change PCI selling prices to our member stores except when there is a
market price change.
(d) SuperValu will undertake to collect the amounts of the invoices
forwarded to it from the respective purchasing members and remitted ten
(10) days from receipt of invoice.
(e) Terms: Deduct 2% Net 10 days
(f) A 3% rebate will be paid for all sales when Super Value sales reach
$50,000 annually.
It is expressly understood that you will not, under this program be selling any
product directly to SuperValu, and that SuperValu does not guarantee any of the
accounts of its members. The sole obligation of SuperValu is to make its best
efforts to effect the collection of such accounts in conjunction with the sale
of merchandise by SuperValu to its respective members. In the event we, under
this program, at any time remit to you for any accounts billed to members which
prove to be uncollectable, you will, upon being advised, reimburse SuperValu for
the amount advanced by SuperValu. PCI will thereafter be free to proceed in a
manner to collect your account from the defaulting member.
So that our records will be complete, we respectfully request that you indicate
your acceptance hereof where designated on the copy of this letter which is
enclosed.
<PAGE>
This agreement supersedes all prior agreements, oral or written. All prior
agreements shall be null and void. SuperValu retains the right to withdraw from
any agreement made with Premium Cigars International at any time upon giving a
30 day written notification.
Sincerely,
Super Value, Inc.
BY: /s/ Steve T. Byrd
----------------------
ITS:
Accepted this 8 day of 5, 1997.
COMPANY NAME: Premium Cigars International
-------------------------------
By: Marilyn Pierson
--------------------
June 2, 1997
Steve Lambrecht
Premium Cigars International, Ltd.
15651 N. 83rd Way Suite 3A, Building C
Scottsdale, AZ 85034
David S. Hodges
5043 E. Desert Jewel Drive
Paradise Valley, AZ 85253
Dear David:
PCI is offering you the following business consulting agreement with Premium
Cigars International, Ltd. (PCI) with responsibility for assisting PCI with an
Initial Public Offering to be filed in late June 1997 and issued in late
July/early August (1997). You will also be requested to assist management with
additional projects related to strategic planning, budgeting, accounting &
reporting, business analysis, information systems and operations. The majority
of the project work will take place in our Scottsdale, Arizona headquarters and
may from time to time require business travel in the United States and Canada.
The details of our agreement as follows:
o An hourly rate of $60/hour paid biweekly effective 6/2/97. Work in excess
of 8 hours per day must be approved by the CEO and you will supply the
Company with a daily log of your work activities.
o Reimbursement for all out-of-pocket business expenses including COBRA or
equivalent health care coverage during the term of this agreement.
o After completion of the Initial Public Offering, you or the Company may
elect to terminate this agreement and PCI will begin biweekly payments of
$4,800 each to you up to a maximum of 6 months or until you have found
employment at which time payments will cease. This agreement will also be
valid if the Company chooses to terminate this agreement prior to the
completion of an IPO.
o You will serve as a Director of the Company after completion of the IPO
until such time that the Company decides to replace you as a director or
if such directorship becomes a conflict with your future employment. All
out of pocket expenses associated with this position will be reimbursed
by the Company.
Sincerely,
/s/ Steve Lambrecht, CEO
Steve Lambrecht, CEO
I accept the above offer,
/s/ David Hodges
David Hodges
Date: 6/16/97
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") is made and entered into
this ____ day of June 1997, by and between Premium Cigars International, Ltd.,
an Arizona corporation (the "Company") and Steven A. Lambrecht ("Employee").
W I T N E S S E T H:
--------------------
WHEREAS, the Company and the Employee mutually desire to agree upon the
terms and conditions of the Employee's employment with the Company;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties to this Agreement
hereby agree as follows:
1. Employment. The Company agrees to employ the Employee as Chief
Executive Officer and President and the Employee shall at all times exercise his
best judgment in the performance of his duties. Should the Company hire a new
Chief Executive Officer and President, Employee will agree to serve as Vice
President of Marketing. The Employee shall perform such further duties as may be
required by the Company under and subject to the instruction, direction and
control of his immediate supervisor of the Company. Except as otherwise provided
herein, as long as Employee remains employed with the Company, the Company shall
not alter the terms of this Agreement unless Employee and the Company agree to
such modifications in writing.
2. Devotion to Employment. Employee accepts employment with the Company
on the terms and conditions herein set forth and agrees to devote his full time
and effort to perform his duties on behalf of the Company in his position as set
forth in paragraph 1. The Employee shall not during the term of this Agreement
be actively engaged in any other business activity which will in any way impair
his ability to properly meet his obligations to the Company or engage in any
activity competitive with the Company or detrimental to its business. Employee
agrees to comply with the reasonable policies, standards and regulations of the
Company from time to time established.
3. Compensation. The Company agrees to pay the Employee compensation
for services as follows:
a. Salary. Commencing May 1, 1997, the initial annual salary
shall be Sixty Thousand Dollars ($60,000), payable bi-weekly during the
term of this Agreement. Such salary may be adjusted by the Board of
Directors of the Company at its sole discretion or by a compensation
committee selected by the Board of Directors. During the first
<PAGE>
twelve months of this Agreement, Employee shall be entitled to the same
percent raise, if any, as that granted to any vice president, president
or chief operating officer of the Company. Salaries shall be based on
performance reviews conducted with the involvement of the Employee.
Employee understands and acknowledges that Employee is exempt from the
overtime pay requirements of the Fair Labor Standards Act, 29 U.S.C.
ss. 201 et seq.
b. Medical Insurance Plan. Employee shall be covered under the
Company's then existing medical insurance plan which shall apply to all
employees. The Company retains the right to modify medical insurance
coverage as it deems appropriate. Except as otherwise provided for by
law or in paragraph 7 herein, the Company is under no obligation or
duty to provide medical coverage to the Employee after such Employee
has ceased to serve as an employee of the Company.
c. Vacation. The Employee shall be entitled to three (3) weeks
paid vacation per fiscal year, subject to the terms set forth in the
Company's employee manual. All vacation days must be taken in
accordance with the Company's policies, as those policies are
established from time to time.
d. Bonus Plan; Stock Option Plan. Employee shall be eligible
under a bonus plan ("Bonus Plan") and/or a stock option plan ("Stock
Option Plan") based upon the future performance of the Company in the
same manner as offered to other comparable executives of the Company.
e. Additional Benefits. Employee shall also be offered other
benefits, insurance, stock interest savings loans, bonuses or pension
plan which may be offered to other comparable executives of the
Company. If in the future the Company provides dental insurance, life
insurance or disability insurance to any employee of the Company, such
insurance coverage shall also be provided to the Employee.
f. Reimbursement of Business Expenses. The Company shall
reimburse the Employee for valid business expenses of the Employee
incurred in connection with the Employee performing his duties on
behalf of the Company, provided Employee submits to his supervisor
receipts or other evidence of such payment. Reimbursement payments
shall be made once a month as determined by the supervisor.
4. Insurance. The Company shall maintain during the Employee's term of
employment, at the Company's expense, Director and Officer Liability Insurance.
5. Employee at Will. Employee is employed "at will". Subject to the
notice requirements set forth in paragraph 6 below, either Employee or the
Company may terminate Employee's employment at any time, for any reason, with or
without cause. Employee understands that no manager, supervisor or
representative of the Company has any authority to
-2-
<PAGE>
enter into any agreement with Employee for employment for any specified period
of time or to make any promise or commitment contrary to the foregoing.
6. Termination. The Employee's continued employment may be terminated
by the Employee by delivery to the Company of a written notice of termination at
least two weeks prior to the termination date. Employee's continued employment
may be terminated by the Company upon notice of termination. Upon termination of
employment, the Employee agrees to promptly return to the Company all customer
records as that term is defined in paragraph 8 herein, all confidential
information, as that term is defined in paragraph 9 herein, and all other
documents and equipment pertaining to the business of the Company. Employee
further agrees that the Employee will not at any time use any information
acquired by him during the term of this Agreement in a manner contrary to the
interest of the Company, nor will the Employee do any act or acts which may
directly or indirectly induce any person to terminate his relationship with the
Company.
7. Severance Compensation. In the event Employee is terminated by the
Company, for any reason other than for "Cause" as defined below, Employee shall
be entitled to the following:
a. For a nine (9) month period after the date of Employee's
termination of employment with the Company, the Employee's then current
salary payable biweekly for such nine (9) month period;
b. To the extent Employee has a vested interest in any stock
of the Company as of the date of termination, such stock shall be the
sole property of Employee and shall be under the sole control of the
Employee; however, Employee shall have no ownership right to any stock
which has not vested; and
c. Employee and his family shall continue to be eligible for
group medical coverage, at Employee's personal expense, under the
Consolidated Omnibus Budget Reconciliation Act of 1986 ("COBRA"), as
amended, for such duration as provided by existing law at the time of
termination. The Company shall pay such insurance premiums for a nine
(9) month period after the date of Employee's termination of
employment.
Employee shall not be entitled to any severance compensation as
provided in this paragraph 7 in the event the Employee: (i) is grossly negligent
in performing his duties or continues to commit willful malfeasance or willful
misconduct after being provided with written notice of such actions; (ii)
continues to refuse to perform his duties hereunder after written notice of any
such refusal to perform such duties has been given to the Employee; (iii)
breaches the provisions of paragraph 8, 9 or 10 of this Agreement; or (iv) is
convicted of any felony directly relating to his ability to perform his duties
hereunder or otherwise directly harming the Company. Further, if during the term
of payment of severance compensation, the Employee breaches the provisions of
paragraph 8, 9 or 10 of this Agreement no further severance payments shall be
made to the Employee.
-3-
<PAGE>
8. Customer Records.
a. Employee's Obligations Regarding Customer Records. The
Employee acknowledges that the list of the Company's customers or
clients as it may exist from time to time is a valuable, special and
unique asset of the Company's business. The Employee shall not, during
or after his employment with the Company, divulge, furnish or make
accessible to anyone (other than in the regular course of the Company's
business) any names, addresses or telephone numbers of those
individuals who conduct business with the Company. In addition, the
contents of customers' files or portfolios, or any other such
information shall be kept confidential during and after the Employee's
employment with the Company. All original records and all copies
thereof of those customers who do business with the Company, including
names, or any other such information, as well as all other secrets and
confidential information of the Company shall remain the property of
the Company during and after the Employee's term of employment with the
Company.
b. Injunctive Relief for Breach. In the event of a breach or
threatened breach by the Employee of the provisions of this section,
the Company shall be entitled to an injunction restraining the Employee
from disclosing, in whole or in part, the list of the Company's
customers, any names, addresses or telephone numbers of those
individuals who conduct business with the Company, or from rendering
any services to any person, firm, partnership, joint venture,
association, or other entity to whom such information, in whole or in
part, has been disclosed or is threatened to be disclosed. Nothing
herein shall be construed as prohibiting the Company from pursuing any
other remedies available to the Company for such breach or threatened
breach, including the recovery of damages from the Employee.
9. Confidential Information.
a. Employee's Obligations Regarding Confidential Information.
Employee has in the past and may in the future develop, obtain or learn
about confidential information which is the property of the Company or
which the Company is under obligation not to disclose. Employee agrees
to use his best efforts and the utmost diligence to guard and protect
said information, to treat such information as confidential, and
Employee agrees that the Employee will not, during or after the period
of his performing services for the Company, use for Employee or others,
or divulge to others any of said confidential information which
Employee may develop, obtain or learn about during or as a result of
performing services for the Company, unless authorized to do so by the
Company in writing. Employee further agrees that if this Agreement is
terminated for any reason, Employee will not take, but will leave with
the Company or return to the Company, all documents, records and papers
and all matters of whatever nature which bears or may bear the
Company's confidential information or which is in any way related,
directly or indirectly to the Company.
-4-
<PAGE>
b. Definition of Confidential Information. For the purposes of
this Agreement, the term "confidential information" shall include but
not be limited to the following: customer lists; product designs;
pricing policies; marketing strategies; business contacts; business
plans; computer software, including all rights under licenses and other
contracts relating thereto; source code and all documents relating
thereto; all intellectual property including without limitation all
trademarks, trademark registrations and applications, service marks,
copyrights, patents, trade secrets, proprietary marketing information
and know-how; books and records including lists of customers; credit
reports; sales records; price lists; sales literature; advertising
material; manuals; processes; technology; designs; statistics data;
techniques; or any information of whatever nature which gives to the
Company an opportunity to obtain an advantage over its competitors who
do not know or use it, but it is understood that said terms do not
include knowledge, skills or information which is common to the trade
or profession of the Employee. "Confidential information" shall not
include: (i) information that has become publicly available other than
through a breach of this Agreement; or (ii) information required to be
disclosed by a court of competent jurisdiction, to the extent
specifically ordered by such court.
c. Contact with Customers and Third Parties. Upon Employee's
termination of employment with the Company, Employee agrees that for a
period of one (1) year from the date of termination of employment that
he shall not contact directly or indirectly any of the Company's
customers or companies with which it does business, or is affiliated
with in any way, or any third parties which have any direct or indirect
business dealings with Company.
d. Injunctive Relief for Breach. In the event of a breach or
threatened breach by the Employee of the provisions of this section,
the Company shall be entitled to an injunction restraining the Employee
from disclosing, in whole or in part, any confidential information, or
from rendering any services to any person, firm, partnership, joint
venture, association, or other entity to whom such confidential
information, in whole or in part, has been disclosed. Nothing herein
shall be construed as prohibiting the Company from pursuing any other
remedies available to the Company for such breach or threatened breach,
including the recovery of damages from the Employee.
10. Covenant Not To Compete.
a. Interests to be Protected. The parties acknowledge that
during the term of this employment, Employee will perform essential
services for the Company and for clients of the Company. Therefore,
Employee will be given an opportunity to meet, work with and develop
close working relationships with the Company's clients on a first-hand
basis and will gain valuable insight as to the clients' operations,
personnel and need for services. In addition, Employee will be exposed
to, have access to, and be required to work with, a considerable amount
of the Company's confidential and proprietary information, including
but not limited to: information concerning the Company's methods
-5-
<PAGE>
of operation, financial information, strategic planning, operational
budget and strategies, payroll data, computer systems, marketing plans
and strategies, merger and acquisition strategies, and customer lists.
The parties also expressly acknowledge that Employee holds a highly
specialized, professional position that is the key position in one of
the Company's most significant divisions and replacing Employee in this
position would require the Company to incur substantial expense. The
parties expressly recognize that should Employee compete with the
Company in any manner whatsoever, it could seriously impair the
goodwill and diminish the value of the Company's business. The parties
acknowledge that the covenant not to compete contained in this section
has an extended duration; however, they agree that this covenant is
reasonable and it is necessary for the protection of the Company, its
shareholders and employees. For these and other reasons, and the fact
that there are many other employment opportunities available to the
Employee if he should terminate, the parties are in full and complete
agreement that the following restrictive covenants are fair and
reasonable and are freely, voluntarily and knowingly entered into.
Further, each party was given the opportunity to consult with
independent legal counsel before entering into this Agreement.
b. Restrictions on Competition. Employee agrees that he shall
not during the term of this Agreement and for a period of one (1) year
from the date of his termination of employment from the Company,
directly or indirectly, either as principal, partner, shareholder,
joint venturer, officer, director, consultant, member, employee or
otherwise, own any interest in, manage, control, participate in,
consult with, render services for, or in any manner engage in any
business competing, directly or indirectly, with the business of the
Company (which is cigar distribution) in any state of the United States
or foreign country in which the Company is conducting business on the
date of Employee's termination. At any time and from time to time, each
party agrees, at his expense, to take action and to execute and deliver
documents as may be reasonably necessary to effectuate the purposes of
this Covenant.
c. Judicial Amendment. If the scope of any provision of this
Agreement is found by any Court to be too broad to permit enforcement
to its full extent, then such provision shall be enforced to the
maximum extent permitted by law. The parties agree that the scope of
any provision of this Agreement may be modified by a judge in any
proceeding to enforce this Agreement, so that such provision can be
enforced to the maximum extent permitted by law. If any provision of
this Agreement is found to be invalid or unenforceable for any reason,
it shall not affect the validity of the remaining provisions of this
Agreement.
d. Injunction; Remedies for Breach. Since a breach of the
provisions of this section of this Agreement could not adequately be
compensated by money damages, the Company shall be entitled, in
addition to any other right or remedy available to it at law or equity,
to an injunction restraining the breach or threatened breach and to
specific performance of any provision of this section of this
Agreement, and, in either case, no
-6-
<PAGE>
bond or other security shall be required in connection therewith, and
the parties hereby consent to the issuance of such an injunction and to
the ordering of specific performance.
11. Notices. All notices provided for by this Agreement shall be made
in writing either (i) by actual delivery of the notice into the hands of the
parties thereunto entitled or (ii) the mailing of the notice in the United
States mail to the address, as stated below (or at such other address as may
have been designated by written notice) of the party entitled thereto, by
certified mail, return receipt requested. The notice shall be deemed to be
received on the date of its actual receipt of the party entitled thereto. All
communications hereunder shall be in writing and, if sent to the Company, shall
be delivered to:
Premium Cigars
15651 N. 83rd Way
Suite 3, Building C
Scottsdale, Arizona 85260
Fax 992-6026
Attention: David Hodges
and, if sent to the Employee, shall be delivered to:
Steven A. Lambrecht
12072 N. 118th
--------------------------------
Scottsdale, AZ
--------------------------------
85259
--------------------------------
--------------------------------
12. Assignment. The rights and benefits of the Company under this
Agreement shall be transferable, and all covenants and agreements hereunder
shall inure to the benefit of and be enforceable by its successors and assigns.
The skills and obligations of the Employee hereunder are unique and may not be
assigned, transferred nor may the performance hereof by any other party or
parties be substituted, without prior express written consent of the Company.
13. Miscellaneous.
a. Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of Arizona.
b. Waiver. No waiver or modification of this Agreement shall
be valid unless in writing and duly executed by the party to be charged
therewith. Waiver by either party hereto of any breach or default by
the other party of any of the terms and provisions of this Agreement
shall not operate as a waiver of any other breach or default, whether
similar to or different from the breach or default waiver.
-7-
<PAGE>
c. Severability. All agreements, provisions, representations,
warranties and covenants contained herein are severable, and in the
event that any one or more of them shall be held to be invalid, illegal
or unenforceable in any respect by any court of competent jurisdiction,
the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected thereby, and this
Agreement shall be interpreted as if such invalid, illegal or
unenforceable agreements, provisions or covenants were not contained
herein.
d. Gender. Whenever the context requires, the masculine shall
include the feminine and neuter.
e. Entire Agreement. This Agreement constitutes and embodies
the full and complete understanding and agreement of the parties hereto
provided, and supersedes all prior understandings or agreements,
whether oral or in writing. Any and all agreements between the parties
hereto, whether oral or in writing, prior to the date hereof shall be
deemed null and void. No amendment to this Agreement will be valid or
enforceable unless it is in writing and signed by the President of the
Company.
f. Parties. This Agreement shall be binding upon and inure to
the benefit to the parties hereto, their officers, directors,
shareholders, successors, legal representatives, heirs and successors
and assigns, and no other person shall have or be construed to have any
legal or equitable right, remedy or claim under or in respect of, or by
virtue of, this Agreement or any provision herein contained.
g. Attorney's Fees. The prevailing party in any litigation
hereunder shall be entitled to the recovery of its reasonable
attorneys' fees and costs from the other party.
h. Counterparts. This Agreement may be executed in two (2) or
more counterparts, each of which shall be deemed an original and all of
which, together, shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above-written.
"COMPANY" "EMPLOYEE"
PREMIUM CIGARS INTERNATIONAL, LTD. STEVEN A. LAMBRECHT
By: /s/ Greg Lambrecht /s/ STEVEN A. LAMBRECHT
------------------------------ -----------------------------------
Its: Secretary
------------------------
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") is made and entered into
this 13th day of June 1997, by and between Premium Cigars International, Ltd.,
an Arizona corporation (the "Company") and Greg P. Lambrecht ("Employee").
W I T N E S S E T H:
--------------------
WHEREAS, the Company and the Employee mutually desire to agree upon the
terms and conditions of the Employee's employment with the Company;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties to this Agreement
hereby agree as follows:
1. Employment. The Company agrees to employ the Employee as Director
and Vice President of National Sales for the Company and the Employee shall at
all times exercise his best judgment in the performance of his duties. The
Employee shall perform such further duties as may be required by the Company
under and subject to the instruction, direction and control of his immediate
supervisor of the Company. Except as otherwise provided herein, as long as
Employee remains employed with the Company, the Company shall not alter the
terms of this Agreement unless Employee and the Company agree to such
modifications in writing.
2. Devotion to Employment. Employee accepts employment with the Company
on the terms and conditions herein set forth and agrees to devote his full time
and effort to perform his duties on behalf of the Company in his position as set
forth in paragraph 1. The Employee shall not during the term of this Agreement
be actively engaged in any other business activity which will in any way impair
his ability to properly meet his obligations to the Company or engage in any
activity competitive with the Company or detrimental to its business.
Notwithstanding the foregoing, the parties acknowledge and agree that Employee
may retain his ownership interest in Rosehearts Hearts, Inc., a Washington
corporation ("Rosehearts") provided Employee continues to meet his obligations
to the Company. Employee agrees to comply with the reasonable policies,
standards and regulations of the Company from time to time established.
3. Compensation. The Company agrees to pay the Employee compensation
for services as follows:
a. Salary. Commencing May 1, 1997, the initial annual salary
shall be Sixty Thousand Dollars ($60,000), payable bi-weekly during the
term of this Agreement. Such salary may be adjusted by the Board of
Directors of the Company at its sole discretion
-1-
<PAGE>
or by a compensation committee selected by the Board of Directors.
During the first twelve months of this Agreement, Employee shall be
entitled to the same percent raise, if any, as that granted to any vice
president, president or chief operating officer of the Company.
Salaries shall be based on performance reviews conducted with the
involvement of the Employee. Employee understands and acknowledges that
Employee is exempt from the overtime pay requirements of the Fair Labor
Standards Act, 29 U.S.C. ss. 201 et seq.
b. Management Fee. In addition to the annual salary of Sixty
Thousand Dollars ($60,000), Employee shall receive a management fee in
an aggregate amount of Eighty Thousand Dollars ($80,000) payable at
Five Thousand Dollars ($5,000) on the first day of each month for 16
consecutive months commencing on July 1, 1997 to compensate Employee
for his expertise in sales, marketing, operations, management and
existing contacts with major retail distributors (the "Management
Fee"). The Employee shall be responsible to pay any withholding taxes
incurred in connection with the payment of the Management Fee and shall
sign all documents requested by the Company in connection therewith. In
the event the Employee or any company or entity in which Employee has
an ownership interest in, including without limitation Rosehearts, has
any liabilities or accounts payable to the Company, the amount of such
liabilities or accounts payable shall be offset or credited against the
back end of the Management Fee due by the Company. For example, if the
offset or credit amount is Seven Thousand Dollars ($7,000), such amount
shall be offset against the last two Management Fees payments. In the
event the "liquid assets" of the Company, as determined by the
Company's accounting firm, exceed Five Million Dollars ($5,000,000),
the Company agrees to pay the full amount of the Management Fee, less
any applicable credits or offsets, within sixty (60) days of such
determination that the Company's "liquid assets" exceed Five Million
Dollars ($5,000,000).
c. Medical Insurance Plan. Employee shall be covered under the
Company's then existing medical insurance plan which shall apply to all
employees of the Company. The Company retains the right to modify
medical insurance coverage as it deems appropriate. Except as otherwise
provided for by law or in paragraph 7 herein, the Company is under no
obligation or duty to provide medical coverage to the Employee after
such Employee has ceased to serve as an employee of the Company.
d. Vacation. The Employee shall be entitled to three (3) weeks
paid vacation per fiscal year, subject to the terms set forth in the
Company's employee manual. All vacation days must be taken in
accordance with the Company's policies, as those policies are
established from time to time.
e. Bonus Plan; Stock Option Plan. Employee shall be eligible
under a bonus plan ("Bonus Plan") and/or a stock option plan ("Stock
Option Plan") based upon the future performance of the Company in the
same manner as offered to other comparable executives of the Company.
-2-
<PAGE>
f. Additional Benefits. Employee shall also be offered other
benefits, insurance, stock interest savings loans, bonuses or pension
plan which may be offered to other comparable executives of the
Company. If in the future the Company provides dental insurance, life
insurance or disability insurance to any employee of the Company, such
insurance coverage shall also be provided to Employee.
g. Reimbursement of Business Expenses. The Company shall
reimburse the Employee for valid business expenses of the Employee
incurred in connection with the Employee performing his duties on
behalf of the Company, provided Employee submits to his supervisor
receipts or other evidence of such payment. Reimbursement payments
shall be made once a month as determined by the supervisor.
4. Insurance. The Company shall maintain during the Employee's term of
employment, at the Company's expense, Director and Officer Liability Insurance.
5. Employee at Will. Employee is employed "at will". Subject to the
notice requirements set forth in paragraph 6 below, either Employee or the
Company may terminate Employee's employment at any time, for any reason, with or
without cause. Employee understands that no manager, supervisor or
representative of the Company has any authority to enter into any agreement with
Employee for employment for any specified period of time or to make any promise
or commitment contrary to the foregoing.
6. Termination. The Employee's continued employment may be terminated
by the Employee by delivery to the Company of a written notice of termination at
least two weeks prior to the termination date. Employee's continued employment
may be terminated by the Company upon notice of termination. Upon termination of
employment, the Employee agrees to promptly return to the Company all customer
records as that term is defined in paragraph 8 herein, all confidential
information, as that term is defined in paragraph 9 herein, and all other
documents and equipment pertaining to the business of the Company. Employee
further agrees that the Employee will not at any time use any information
acquired by him during the term of this Agreement in a manner contrary to the
interest of the Company, nor will the Employee do any act or acts which may
directly or indirectly induce any person to terminate his relationship with the
Company.
7. Severance Compensation. In the event Employee is terminated by the
Company, for any reason other than for "Cause" as defined below, Employee shall
be entitled to the following:
a. For a nine (9) month period after the date of Employee's
termination of employment with the Company, the Employee's then current
salary payable biweekly for such six (6) month period;
-3-
<PAGE>
b. To the extent Employee has a vested interest in any stock
of the Company as of the date of termination, such stock shall be the
sole property of Employee and shall be under the sole control of the
Employee; however, Employee shall have no ownership right to any stock
which has not vested; and
c. Employee and his family shall continue to be eligible for
group medical coverage, at Employee's personal expense, under the
Consolidated Omnibus Budget Reconciliation Act of 1986 ("COBRA"), as
amended, for such duration as provided by existing law at the time of
termination. The Company shall pay such insurance premiums for a nine
(9) month period after the date of Employee's termination of
employment.
Employee shall not be entitled to any severance compensation as
provided in this paragraph 7 in the event the Employee: (i) is grossly negligent
in performing his duties or continues to commit willful malfeasance or willful
misconduct after being provided with written notice of such actions; (ii)
continues to refuse to perform his duties hereunder after written notice of any
such refusal to perform such duties has been given to the Employee; (iii)
breaches the provisions of paragraph 8, 9 or 10 of this Agreement; or (iv) is
convicted of any felony directly relating to his ability to perform his duties
hereunder or otherwise directly harming the Company. Further, if during the term
of payment of severance compensation, the Employee breaches the provisions of
paragraph 8, 9 or 10 of this Agreement no further severance payments shall be
made to the Employee.
8. Customer Records.
a. Employee's Obligations Regarding Customer Records. The
Employee acknowledges that the list of the Company's customers or
clients as it may exist from time to time is a valuable, special and
unique asset of the Company's business. The Employee shall not, during
or after his employment with the Company, divulge, furnish or make
accessible to anyone (other than in the regular course of the Company's
business) any names, addresses or telephone numbers of those
individuals who conduct business with the Company. In addition, the
contents of customers' files or portfolios, or any other such
information shall be kept confidential during and after the Employee's
employment with the Company. All original records and all copies
thereof of those customers who do business with the Company, including
names, or any other such information, as well as all other secrets and
confidential information of the Company shall remain the property of
the Company during and after the Employee's term of employment with the
Company.
b. Injunctive Relief for Breach. In the event of a breach or
threatened breach by the Employee of the provisions of this section,
the Company shall be entitled to an injunction restraining the Employee
from disclosing, in whole or in part, the list of the Company's
customers, any names, addresses or telephone numbers of those
individuals who conduct business with the Company, or from rendering
any services to any person, firm, partnership, joint venture,
association, or other entity to whom such
-4-
<PAGE>
information, in whole or in part, has been disclosed or is threatened
to be disclosed. Nothing herein shall be construed as prohibiting the
Company from pursuing any other remedies available to the Company for
such breach or threatened breach, including the recovery of damages
from the Employee.
9. Confidential Information.
a. Employee's Obligations Regarding Confidential Information.
Employee has in the past and may in the future develop, obtain or learn
about confidential information which is the property of the Company or
which the Company is under obligation not to disclose. Employee agrees
to use his best efforts and the utmost diligence to guard and protect
said information, to treat such information as confidential, and
Employee agrees that the Employee will not, during or after the period
of his performing services for the Company, use for Employee or others,
or divulge to others any of said confidential information which
Employee may develop, obtain or learn about during or as a result of
performing services for the Company, unless authorized to do so by the
Company in writing. Employee further agrees that if this Agreement is
terminated for any reason, Employee will not take, but will leave with
the Company or return to the Company, all documents, records and papers
and all matters of whatever nature which bears or may bear the
Company's confidential information or which is in any way related,
directly or indirectly to the Company.
b. Definition of Confidential Information. For the purposes of
this Agreement, the term "confidential information" shall include but
not be limited to the following: customer lists; product designs;
pricing policies; marketing strategies; business contacts; business
plans; computer software, including all rights under licenses and other
contracts relating thereto; source code and all documents relating
thereto; all intellectual property including without limitation all
trademarks, trademark registrations and applications, service marks,
copyrights, patents, trade secrets, proprietary marketing information
and know-how; books and records including lists of customers; credit
reports; sales records; price lists; sales literature; advertising
material; manuals; processes; technology; designs; statistics data;
techniques; or any information of whatever nature which gives to the
Company an opportunity to obtain an advantage over its competitors who
do not know or use it, but it is understood that said terms do not
include knowledge, skills or information which is common to the trade
or profession of the Employee. "Confidential information" shall not
include: (i) information that has become publicly available other than
through a breach of this Agreement; or (ii) information required to be
disclosed by a court of competent jurisdiction, to the extent
specifically ordered by such court.
c. Contact with Customers and Third Parties. Upon Employee's
termination of employment with the Company, Employee agrees that for a
period of one (1) year from the date of termination of employment that
he shall not contact directly or indirectly any of the Company's
customers or companies with which it does business, or
-5-
<PAGE>
is affiliated with in any way, or any third parties which have any
direct or indirect business dealings with Company.
d. Injunctive Relief for Breach. In the event of a breach or
threatened breach by the Employee of the provisions of this section,
the Company shall be entitled to an injunction restraining the Employee
from disclosing, in whole or in part, any confidential information, or
from rendering any services to any person, firm, partnership, joint
venture, association, or other entity to whom such confidential
information, in whole or in part, has been disclosed. Nothing herein
shall be construed as prohibiting the Company from pursuing any other
remedies available to the Company for such breach or threatened breach,
including the recovery of damages from the Employee.
10. Covenant Not To Compete.
a. Interests to be Protected. The parties acknowledge that
during the term of this employment, Employee will perform essential
services for the Company and for clients of the Company. Therefore,
Employee will be given an opportunity to meet, work with and develop
close working relationships with the Company's clients on a first-hand
basis and will gain valuable insight as to the clients' operations,
personnel and need for services. In addition, Employee will be exposed
to, have access to, and be required to work with, a considerable amount
of the Company's confidential and proprietary information, including
but not limited to: information concerning the Company's methods of
operation, financial information, strategic planning, operational
budget and strategies, payroll data, computer systems, marketing plans
and strategies, merger and acquisition strategies, and customer lists.
The parties also expressly acknowledge that Employee holds a highly
specialized, professional position that is the key position in one of
the Company's most significant divisions and replacing Employee in this
position would require the Company to incur substantial expense. The
parties expressly recognize that should Employee compete with the
Company in any manner whatsoever, it could seriously impair the
goodwill and diminish the value of the Company's business. The parties
acknowledge that the covenant not to compete contained in this section
has an extended duration; however, they agree that this covenant is
reasonable and it is necessary for the protection of the Company, its
shareholders and employees. For these and other reasons, and the fact
that there are many other employment opportunities available to the
Employee if he should terminate, the parties are in full and complete
agreement that the following restrictive covenants are fair and
reasonable and are freely, voluntarily and knowingly entered into.
Further, each party was given the opportunity to consult with
independent legal counsel before entering into this Agreement.
b. Restrictions on Competition. Employee agrees that he shall
not during the term of this Agreement and for a period of one (1) year
from the date of his termination of employment from the Company,
directly or indirectly, either as principal, partner, shareholder,
joint venturer, officer, director, consultant, member, employee or
otherwise, own any interest in, manage, control, participate in,
consult with, render
-6-
<PAGE>
services for, or in any manner engage in any business competing,
directly or indirectly, with the business of the Company (which is
cigar distribution) in any state of the United States or foreign
country in which the Company is conducting business on the date of
Employee's termination. At any time and from time to time, each party
agrees, at his expense, to take action and to execute and deliver
documents as may be reasonably necessary to effectuate the purposes of
this Covenant.
c. Judicial Amendment. If the scope of any provision of this
Agreement is found by any Court to be too broad to permit enforcement
to its full extent, then such provision shall be enforced to the
maximum extent permitted by law. The parties agree that the scope of
any provision of this Agreement may be modified by a judge in any
proceeding to enforce this Agreement, so that such provision can be
enforced to the maximum extent permitted by law. If any provision of
this Agreement is found to be invalid or unenforceable for any reason,
it shall not affect the validity of the remaining provisions of this
Agreement.
d. Injunction; Remedies for Breach. Since a breach of the
provisions of this section of this Agreement could not adequately be
compensated by money damages, the Company shall be entitled, in
addition to any other right or remedy available to it at law or equity,
to an injunction restraining the breach or threatened breach and to
specific performance of any provision of this section of this
Agreement, and, in either case, no bond or other security shall be
required in connection therewith, and the parties hereby consent to the
issuance of such an injunction and to the ordering of specific
performance.
11. Notices. All notices provided for by this Agreement shall be made
in writing either (i) by actual delivery of the notice into the hands of the
parties thereunto entitled or (ii) the mailing of the notice in the United
States mail to the address, as stated below (or at such other address as may
have been designated by written notice) of the party entitled thereto, by
certified mail, return receipt requested. The notice shall be deemed to be
received on the date of its actual receipt of the party entitled thereto. All
communications hereunder shall be in writing and, if sent to the Company, shall
be delivered to:
Premium Cigars
15651 N. 83rd Way
Suite 3, Building C
Scottsdale, Arizona 85260
Fax 992-6026
Attention: David Hodges
and, if sent to the Employee, shall be delivered to:
Greg Lambrecht
--------------------------------
--------------------------------
-7-
<PAGE>
--------------------------------
--------------------------------
12. Assignment. The rights and benefits of the Company under this
Agreement shall be transferable, and all covenants and agreements hereunder
shall inure to the benefit of and be enforceable by its successors and assigns.
The skills and obligations of the Employee hereunder are unique and may not be
assigned, transferred nor may the performance hereof by any other party or
parties be substituted, without prior express written consent of the Company.
13. Miscellaneous.
a. Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of Arizona.
b. Waiver. No waiver or modification of this Agreement shall
be valid unless in writing and duly executed by the party to be charged
therewith. Waiver by either party hereto of any breach or default by
the other party of any of the terms and provisions of this Agreement
shall not operate as a waiver of any other breach or default, whether
similar to or different from the breach or default waiver.
c. Severability. All agreements, provisions, representations,
warranties and covenants contained herein are severable, and in the
event that any one or more of them shall be held to be invalid, illegal
or unenforceable in any respect by any court of competent jurisdiction,
the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected thereby, and this
Agreement shall be interpreted as if such invalid, illegal or
unenforceable agreements, provisions or covenants were not contained
herein.
d. Gender. Whenever the context requires, the masculine shall
include the feminine and neuter.
e. Entire Agreement. This Agreement constitutes and embodies
the full and complete understanding and agreement of the parties hereto
provided, and supersedes all prior understandings or agreements,
whether oral or in writing. Any and all agreements between the parties
hereto, whether oral or in writing, prior to the date hereof shall be
deemed null and void. No amendment to this Agreement will be valid or
enforceable unless it is in writing and signed by the President of the
Company.
f. Parties. This Agreement shall be binding upon and inure to
the benefit to the parties hereto, their officers, directors,
shareholders, successors, legal representatives, heirs and successors
and assigns, and no other person shall have or be construed to have any
legal or equitable right, remedy or claim under or in respect of, or by
virtue of, this Agreement or any provision herein contained.
-8-
<PAGE>
g. Attorney's Fees. The prevailing party in any litigation
hereunder shall be entitled to the recovery of its reasonable
attorneys' fees and costs from the other party.
h. Counterparts. This Agreement may be executed in two (2) or
more counterparts, each of which shall be deemed an original and all of
which, together, shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above-written.
"COMPANY" "EMPLOYEE"
PREMIUM CIGARS INTERNATIONAL, LTD. GREG P. LAMBRECHT
By: /s/ Steven A. Lambrecht
/s/ GREG P. LAMBRECHT
------------------------------ -----------------------------------
Its: CEO
------------------------
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") is made and entered into
this 13th day of June 1997, by and between Premium Cigars International, Ltd.,
an Arizona corporation (the "Company") and Colin A. Jones ("Employee").
W I T N E S S E T H:
--------------------
WHEREAS, the Company and the Employee mutually desire to agree upon the
terms and conditions of the Employee's employment with the Company;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties to this Agreement
hereby agree as follows:
1. Employment. The Company agrees to employ the Employee as Director
and Vice President of International Sales for the Company and the Employee shall
at all times exercise his best judgment in the performance of his duties. The
Employee shall perform such further duties as may be required by the Company
under and subject to the instruction, direction and control of his immediate
supervisor of the Company. Except as otherwise provided herein, as long as
Employee remains employed with the Company, the Company shall not alter the
terms of this Agreement unless Employee and the Company agree to such
modifications in writing.
2. Devotion to Employment. Employee accepts employment with the Company
on the terms and conditions herein set forth and agrees to devote his full time
and effort to perform his duties on behalf of the Company in his position as set
forth in paragraph 1. The Employee shall not during the term of this Agreement
be actively engaged in any other business activity which will in any way impair
his ability to properly meet his obligations to the Company or engage in any
activity competitive with the Company or detrimental to its business.
Notwithstanding the foregoing, the parties acknowledge and agree that Employee
may retain his ownership interest in J&M Wholesale, Lt., a British Columbia
corporation ("J&M") provided Employee continues to meet his obligations to the
Company. Employee agrees to comply with the reasonable policies, standards and
regulations of the Company from time to time established.
3. Compensation. The Company agrees to pay the Employee compensation
for services as follows:
a. Salary. Commencing May 1, 1997, the initial annual salary
shall be Sixty Thousand Dollars ($60,000), payable bi-weekly during the
term of this Agreement. Such
<PAGE>
salary may be adjusted by the Board of Directors of the Company at its
sole discretion or by a compensation committee selected by the Board of
Directors. During the first twelve months of this Agreement, Employee
shall be entitled to the same percent raise, if any, as that granted to
any vice president, president or chief operating officer of the
Company. Salaries shall be based on performance reviews conducted with
the involvement of the Employee. Employee understands and acknowledges
that Employee is exempt from the overtime pay requirements of the Fair
Labor Standards Act, 29 U.S.C. ss. 201 et seq.
b. Management Fee. In addition to the annual salary of Sixty
Thousand Dollars ($60,000), Employee shall receive a management fee in
an aggregate amount of One Hundred Forty-Five Thousand Dollars
($145,000) payable at Seven Thousand Two Hundred Fifty Dollars ($7,250)
on the first day of each month for 20 consecutive months commencing on
July 1, 1997 to compensate Employee for his expertise in sales,
marketing, operations, management and existing contacts with major
retail distributors (the "Management Fee"). The Employee shall be
responsible to pay any withholding taxes incurred in connection with
the payment of the management fee and shall sign all documents
requested by the Company in connection therewith. In the event the
Employee or any company or entity in which Employee has an ownership
interest without limitation J&M, has any liabilities or accounts
payable to the Company, the amount of such liabilities or accounts
payable shall be offset or credited against the back end of the
Management Fee due by the Company. For example, if the offset or credit
amount is Seven Thousand Dollars ($7,000), such amount shall be offset
against the last two Management Fee payments. In the event the "liquid
assets" of the Company, as determined by the Company's accounting firm,
exceed Five Million Dollars ($5,000,000), the Company agrees to pay the
full amount of the Management Fee, less any applicable credits or
offsets, within sixty (60) days of such determination that the
Company's "liquid assets" exceed Five Million Dollars ($5,000,000).
c. Medical Insurance Plan. Employee shall be covered under the
Company's then existing medical insurance plan which shall apply to all
employees. The Company retains the right to modify medical insurance
coverage as it deems appropriate. Except as otherwise provided for by
law or in paragraph 7 herein, the Company is under no obligation or
duty to provide medical coverage to the Employee after such Employee
has ceased to serve as an employee of the Company.
d. Vacation. The Employee shall be entitled to three (3) weeks
paid vacation per fiscal year, subject to the terms set forth in the
Company's employee manual. All vacation days must be taken in
accordance with the Company's policies, as those policies are
established from time to time.
e. Bonus Plan; Stock Option Plan. Employee shall be eligible
under a bonus plan ("Bonus Plan") and/or a stock option plan ("Stock
Option Plan") based upon the
-2-
<PAGE>
future performance of the Company in the same manner as offered to
other comparable executives of the Company.
f. Additional Benefits. Employee shall also be offered other
benefits, insurance, stock interest savings loans, bonuses or pension
plan which may be offered to other comparable executives of the
Company. If in the future the Company provides dental insurance, life
insurance or disability insurance to any employee of the Company, such
insurance coverage shall also be provided to the Employee.
g. Reimbursement of Business Expenses. The Company shall
reimburse the Employee for valid business expenses of the Employee
incurred in connection with the Employee performing his duties on
behalf of the Company, provided Employee submits to his supervisor
receipts or other evidence of such payment. Reimbursement payments
shall be made once a month as determined by the supervisor.
4. Insurance. The Company shall maintain during the Employee's term of
employment, at the Company's expense, Director and Officer Liability Insurance.
5. Employee at Will. Employee is employed "at will". Subject to the
notice requirements set forth in paragraph 6 below, either Employee or the
Company may terminate Employee's employment at any time, for any reason, with or
without cause. Employee understands that no manager, supervisor or
representative of the Company has any authority to enter into any agreement with
Employee for employment for any specified period of time or to make any promise
or commitment contrary to the foregoing.
6. Termination. The Employee's continued employment may be terminated
by the Employee by delivery to the Company of a written notice of termination at
least two weeks prior to the termination date. Employee's continued employment
may be terminated by the Company upon notice of termination. Upon termination of
employment, the Employee agrees to promptly return to the Company all customer
records as that term is defined in paragraph 8 herein, all confidential
information, as that term is defined in paragraph 9 herein, and all other
documents and equipment pertaining to the business of the Company. Employee
further agrees that the Employee will not at any time use any information
acquired by him during the term of this Agreement in a manner contrary to the
interest of the Company, nor will the Employee do any act or acts which may
directly or indirectly induce any person to terminate his relationship with the
Company.
7. Severance Compensation. In the event Employee is terminated by the
Company, for any reason other than for "Cause" as defined below, Employee shall
be entitled to the following:
-3-
<PAGE>
a. For a nine (9) month period after the date of Employee's
termination of employment with the Company, the Employee's then current
salary payable biweekly for such nine (9) month period;
b. To the extent Employee has a vested interest in any stock
of the Company as of the date of termination, such stock shall be the
sole property of Employee and shall be under the sole control of the
Employee; however, Employee shall have no ownership right to any stock
which has not vested; and
c. Employee and his family shall continue to be eligible for
group medical coverage, at Employee's personal expense, under the
Consolidated Omnibus Budget Reconciliation Act of 1986 ("COBRA"), as
amended, for such duration as provided by existing law at the time of
termination. The Company shall pay such insurance premiums for a nine
(9) month period after the date of Employee's termination of
employment.
Employee shall not be entitled to any severance compensation as
provided in this paragraph 7 in the event the Employee: (i) is grossly negligent
in performing his duties or continues to commit willful malfeasance or willful
misconduct after being provided with written notice of such actions; (ii)
continues to refuse to perform his duties hereunder after written notice of any
such refusal to perform such duties has been given to the Employee; (iii)
breaches the provisions of paragraph 8, 9 or 10 of this Agreement; or (iv) is
convicted of any felony directly relating to his ability to perform his duties
hereunder or otherwise directly harming the Company. Further, if during the term
of payment of severance compensation, the Employee breaches the provisions of
paragraph 8, 9 or 10 of this Agreement no further severance payments shall be
made to the Employee.
8. Customer Records.
a. Employee's Obligations Regarding Customer Records. The
Employee acknowledges that the list of the Company's customers or
clients as it may exist from time to time is a valuable, special and
unique asset of the Company's business. The Employee shall not, during
or after his employment with the Company, divulge, furnish or make
accessible to anyone (other than in the regular course of the Company's
business) any names, addresses or telephone numbers of those
individuals who conduct business with the Company. In addition, the
contents of customers' files or portfolios, or any other such
information shall be kept confidential during and after the Employee's
employment with the Company. All original records and all copies
thereof of those customers who do business with the Company, including
names, or any other such information, as well as all other secrets and
confidential information of the Company shall remain the property of
the Company during and after the Employee's term of employment with the
Company.
b. Injunctive Relief for Breach. In the event of a breach or
threatened breach by the Employee of the provisions of this section,
the Company shall be entitled
-4-
<PAGE>
to an injunction restraining the Employee from disclosing, in whole or
in part, the list of the Company's customers, any names, addresses or
telephone numbers of those individuals who conduct business with the
Company, or from rendering any services to any person, firm,
partnership, joint venture, association, or other entity to whom such
information, in whole or in part, has been disclosed or is threatened
to be disclosed. Nothing herein shall be construed as prohibiting the
Company from pursuing any other remedies available to the Company for
such breach or threatened breach, including the recovery of damages
from the Employee.
9. Confidential Information.
a. Employee's Obligations Regarding Confidential Information.
Employee has in the past and may in the future develop, obtain or learn
about confidential information which is the property of the Company or
which the Company is under obligation not to disclose. Employee agrees
to use his best efforts and the utmost diligence to guard and protect
said information, to treat such information as confidential, and
Employee agrees that the Employee will not, during or after the period
of his performing services for the Company, use for Employee or others,
or divulge to others any of said confidential information which
Employee may develop, obtain or learn about during or as a result of
performing services for the Company, unless authorized to do so by the
Company in writing. Employee further agrees that if this Agreement is
terminated for any reason, Employee will not take, but will leave with
the Company or return to the Company, all documents, records and papers
and all matters of whatever nature which bears or may bear the
Company's confidential information or which is in any way related,
directly or indirectly to the Company.
b. Definition of Confidential Information. For the purposes of
this Agreement, the term "confidential information" shall include but
not be limited to the following: customer lists; product designs;
pricing policies; marketing strategies; business contacts; business
plans; computer software, including all rights under licenses and other
contracts relating thereto; source code and all documents relating
thereto; all intellectual property including without limitation all
trademarks, trademark registrations and applications, service marks,
copyrights, patents, trade secrets, proprietary marketing information
and know-how; books and records including lists of customers; credit
reports; sales records; price lists; sales literature; advertising
material; manuals; processes; technology; designs; statistics data;
techniques; or any information of whatever nature which gives to the
Company an opportunity to obtain an advantage over its competitors who
do not know or use it, but it is understood that said terms do not
include knowledge, skills or information which is common to the trade
or profession of the Employee. "Confidential information" shall not
include: (i) information that has become publicly available other than
through a breach of this Agreement; or (ii) information required to be
disclosed by a court of competent jurisdiction, to the extent
specifically ordered by such court.
-5-
<PAGE>
c. Contact with Customers and Third Parties. Upon Employee's
termination of employment with the Company, Employee agrees that for a
period of one (1) year from the date of termination of employment that
he shall not contact directly or indirectly any of the Company's
customers or companies with which it does business, or is affiliated
with in any way, or any third parties which have any direct or indirect
business dealings with Company.
d. Injunctive Relief for Breach. In the event of a breach or
threatened breach by the Employee of the provisions of this section,
the Company shall be entitled to an injunction restraining the Employee
from disclosing, in whole or in part, any confidential information, or
from rendering any services to any person, firm, partnership, joint
venture, association, or other entity to whom such confidential
information, in whole or in part, has been disclosed. Nothing herein
shall be construed as prohibiting the Company from pursuing any other
remedies available to the Company for such breach or threatened breach,
including the recovery of damages from the Employee.
10. Covenant Not To Compete.
a. Interests to be Protected. The parties acknowledge that
during the term of this employment, Employee will perform essential
services for the Company and for clients of the Company. Therefore,
Employee will be given an opportunity to meet, work with and develop
close working relationships with the Company's clients on a first-hand
basis and will gain valuable insight as to the clients' operations,
personnel and need for services. In addition, Employee will be exposed
to, have access to, and be required to work with, a considerable amount
of the Company's confidential and proprietary information, including
but not limited to: information concerning the Company's methods of
operation, financial information, strategic planning, operational
budget and strategies, payroll data, computer systems, marketing plans
and strategies, merger and acquisition strategies, and customer lists.
The parties also expressly acknowledge that Employee holds a highly
specialized, professional position that is the key position in one of
the Company's most significant divisions and replacing Employee in this
position would require the Company to incur substantial expense. The
parties expressly recognize that should Employee compete with the
Company in any manner whatsoever, it could seriously impair the
goodwill and diminish the value of the Company's business. The parties
acknowledge that the covenant not to compete contained in this section
has an extended duration; however, they agree that this covenant is
reasonable and it is necessary for the protection of the Company, its
shareholders and employees. For these and other reasons, and the fact
that there are many other employment opportunities available to the
Employee if he should terminate, the parties are in full and complete
agreement that the following restrictive covenants are fair and
reasonable and are freely, voluntarily and knowingly entered into.
Further, each party was given the opportunity to consult with
independent legal counsel before entering into this Agreement.
-6-
<PAGE>
b. Restrictions on Competition. Employee agrees that he shall
not during the term of this Agreement and for a period of one (1) year
from the date of his termination of employment from the Company,
directly or indirectly, either as principal, partner, shareholder,
joint venturer, officer, director, consultant, member, employee or
otherwise, own any interest in, manage, control, participate in,
consult with, render services for, or in any manner engage in any
business competing, directly or indirectly, with the business of the
Company (which is cigar distribution) in any state of the United States
or foreign country in which the Company is conducting business on the
date of Employee's termination. At any time and from time to time, each
party agrees, at his expense, to take action and to execute and deliver
documents as may be reasonably necessary to effectuate the purposes of
this Covenant.
c. Judicial Amendment. If the scope of any provision of this
Agreement is found by any Court to be too broad to permit enforcement
to its full extent, then such provision shall be enforced to the
maximum extent permitted by law. The parties agree that the scope of
any provision of this Agreement may be modified by a judge in any
proceeding to enforce this Agreement, so that such provision can be
enforced to the maximum extent permitted by law. If any provision of
this Agreement is found to be invalid or unenforceable for any reason,
it shall not affect the validity of the remaining provisions of this
Agreement.
d. Injunction; Remedies for Breach. Since a breach of the
provisions of this section of this Agreement could not adequately be
compensated by money damages, the Company shall be entitled, in
addition to any other right or remedy available to it at law or equity,
to an injunction restraining the breach or threatened breach and to
specific performance of any provision of this section of this
Agreement, and, in either case, no bond or other security shall be
required in connection therewith, and the parties hereby consent to the
issuance of such an injunction and to the ordering of specific
performance.
11. Notices. All notices provided for by this Agreement shall be made
in writing either (i) by actual delivery of the notice into the hands of the
parties thereunto entitled or (ii) the mailing of the notice in the United
States mail to the address, as stated below (or at such other address as may
have been designated by written notice) of the party entitled thereto, by
certified mail, return receipt requested. The notice shall be deemed to be
received on the date of its actual receipt of the party entitled thereto. All
communications hereunder shall be in writing and, if sent to the Company, shall
be delivered to:
Premium Cigars
15651 N. 83rd Way
Suite 3, Building C
Scottsdale, Arizona 85260
Fax 992-6026
Attention: David Hodges
-7-
<PAGE>
and, if sent to the Employee, shall be delivered to:
Colin Jones
#102-4663 Byene Rd.
--------------------------------
Burnaby, B.C. V5J-3H6
--------------------------------
Canada
--------------------------------
--------------------------------
12. Assignment. The rights and benefits of the Company under this
Agreement shall be transferable, and all covenants and agreements hereunder
shall inure to the benefit of and be enforceable by its successors and assigns.
The skills and obligations of the Employee hereunder are unique and may not be
assigned, transferred nor may the performance hereof by any other party or
parties be substituted, without prior express written consent of the Company.
13. Miscellaneous.
a. Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of Arizona.
b. Waiver. No waiver or modification of this Agreement shall
be valid unless in writing and duly executed by the party to be charged
therewith. Waiver by either party hereto of any breach or default by
the other party of any of the terms and provisions of this Agreement
shall not operate as a waiver of any other breach or default, whether
similar to or different from the breach or default waiver.
c. Severability. All agreements, provisions, representations,
warranties and covenants contained herein are severable, and in the
event that any one or more of them shall be held to be invalid, illegal
or unenforceable in any respect by any court of competent jurisdiction,
the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected thereby, and this
Agreement shall be interpreted as if such invalid, illegal or
unenforceable agreements, provisions or covenants were not contained
herein.
d. Gender. Whenever the context requires, the masculine shall
include the feminine and neuter.
e. Entire Agreement. This Agreement constitutes and embodies
the full and complete understanding and agreement of the parties hereto
provided, and supersedes all prior understandings or agreements,
whether oral or in writing. Any and all agreements between the parties
hereto, whether oral or in writing, prior to the date hereof shall be
deemed null and void. No amendment to this Agreement will be valid or
enforceable unless it is in writing and signed by the President of the
Company.
-8-
<PAGE>
f. Parties. This Agreement shall be binding upon and inure to
the benefit to the parties hereto, their officers, directors,
shareholders, successors, legal representatives, heirs and successors
and assigns, and no other person shall have or be construed to have any
legal or equitable right, remedy or claim under or in respect of, or by
virtue of, this Agreement or any provision herein contained.
g. Attorney's Fees. The prevailing party in any litigation
hereunder shall be entitled to the recovery of its reasonable
attorneys' fees and costs from the other party.
h. Counterparts. This Agreement may be executed in two (2) or
more counterparts, each of which shall be deemed an original and all of
which, together, shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above-written.
"COMPANY" "EMPLOYEE"
PREMIUM CIGARS INTERNATIONAL, LTD. COLIN A. JONES
By: /s/ Steven A. Lambrecht /s/ COLIN A. JONES
------------------------------ -----------------------------------
Its: CEO
------------------------
SETTLEMENT AGREEMENT AND FULL RELEASE OF EQUITY INTEREST
--------------------------------------------------------
THIS SETTLEMENT AGREEMENT AND FULL RELEASE OF EQUITY INTEREST (the
"Agreement") is made this 13th day of June, 1997, by and among GREG P.
LAMBRECHT, an individual, COLIN A. JONES, an individual, ROSE HEARTS, INC., a
Washington corporation, CAN-AM INTERNATIONAL INVESTMENT CORP., a British
Columbia corporation, J&M WHOLESALE LTD., a British Columbia corporation, and
any and all subsidiaries and affiliates thereof (collectively "Debtor"), GREG
BARTON, an individual ("BARTON"), LUCILLE B. BARNES, the widow of EDWARD D.
BARNES ("Barnes"), KELLI D. MARTIN ("Martin") and PREMIUM CIGARS INTERNATIONAL,
LTD., an Arizona corporation ("PCI").
R E C I T A L S
A. Barton loaned ONE HUNDRED AND TEN THOUSAND DOLLARS ($110,000) (the
"Debt") to Debtor in a factoring transaction set forth in that "Business Loan
Agreement" dated September 5, 1996 at an agreed-upon annual interest rate of
three percent (3.0%) each month ("Loan Transaction"). The Business Loan
Agreement contained counterparts which identified Rose Hearts, Inc., Greg P.
Lambrecht, CAN-AM, J&M Wholesale Ltd. and Colin A. Jones as debtors, but the
Parties hereto agree that all represent one loan agreement for $110,000 with
Debtor, as collectively defined above. A copy of the Business Loan Agreement is
set forth at Exhibit "A."
B. In August 1996, Barnes loaned Barton ONE HUNDRED THOUSAND DOLLARS
($100,000) and Martin loaned Barton TEN THOUSAND DOLLARS ($10,000) (the
"Personal Loans"). Although the Personal Loans were intended as personal loans
to Barton, the checks for both amounts were made payable to Rose Hearts, Inc.
C. Debtor has paid to Barton the monthly Factoring Fee each month since
the inception of the Factoring Transaction.
D. Debtor has or may enter certain transactions relating to the
distribution of cigars and humidors ("Transactions") with CAN-AM International
Investments Corp. ("CAN-AM"), the wholly-owned subsidiary of PCI in which the
Parties agree that neither Barnes nor Martin have any equity interest;
E. PCI has agreed to accept a "Subscription to Acquire Warrant" from
Barton to convert the Debt, as adjusted herein, to bridge financing in exchange
for a warrant to purchase no par value common shares of PCI in conjunction with
an initial public offering for PCI's common shares ("Bridge Financing"). A copy
of PCI's Bridge Financing Offering materials, including a blank "Subscription to
Acquire Warrant" is attached as Exhibit "B"; and
F. The Parties wish to confirm the debt-only nature of the Personal
Loans and that neither Barnes nor Martin have any expectation of equity in any
of the Transactions, including, but not limited to any interest in the Bridge
Financing or in any common shares of PCI.
<PAGE>
A G R E E M E N T
NOW, THEREFORE, in consideration of the terms, covenants and conditions
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties covenant and agree as
follows:
1. No Equity Interest. Barnes and Martin acknowledge that regardless of
the payee designation on their checks, the Personal Loans were and are loans to
Barton only and that neither Barnes nor Martin contracted directly or indirectly
with Debtor. Specifically, neither Barnes nor Martin have any rights to convert
their Personal Loans to Greg Barton into shares of PCI, to equity of Debtor or
option or right to participate in or convert to the equity of Debtor or equity
of PCI or any third party which enters any agreement or transaction with Debtor
or Barton of any kind or in which Debtor or Barton hold an equity interest,
including, but not limited to, shares of common stock of PCI.
2. Disclosure of Barton's Transactions; Opportunity to Seek Legal
Counsel. Barnes and Martin have read, understand and have been given the
opportunity to seek legal counsel regarding the terms of this Agreement, its
attached exhibits and other documents relating to this Agreement, including, but
not limited to, the Bridge Financing Offering materials and the Business Loan
Agreement. Barnes and Martin understand that Barton has been receiving
substantial interest payments (36% annually) on the Debt and that pursuant to
the terms of Barton's conversion of the Debt, Barton will obtain a warrant to
purchase shares of PCI common stock at a substantial discount from the price
such shares are offered to the public.
3. Disposition of Personal Loans; Conversion of Barton Loan. The
Personal Loans shall be disposed of as follows:
a. Payment to Martin. Within ten (10) business days of the
full execution of this Agreement by all parties, PCI will deliver to Martin a
check for TEN THOUSAND DOLLARS ($10,000) as the full and final repayment of all
principal owing to Martin under the Personal Loans. Martin agrees that all
interest due Martin pursuant to the Personal Loans, if any, is the sole
obligation of Barton and that Martin's sole recourse for any such interest shall
be against Barton and not against Debtor, CAN-AM or PCI. Barton represents,
warrants and covenants that all such interest owing to Martin shall be repaid
within ten (10) business days of the full execution of this Agreement.
b. Continuation of Barnes Loan. The Personal Loan between
Barnes and Barton shall continue or be disposed of on terms and conditions
acceptable to Barnes and Barton. Barnes specifically agrees that the Personal
Loan is solely an obligation of Barton and that Barnes' any principal, interest
or other rights due under such Personal Loan are solely the obligation of Barton
and that Barnes' sole recourse for any such principal, interest or other rights
shall be against Barton and not against Debtor, CAN-AM or PCI.
2
<PAGE>
c. Conversion of Barton Loan. The outstanding Debt amount
shall be adjusted to $100,000 and converted as $100,000 in Bridge Financing in
full satisfaction of all obligations of Debtor under the Business Loan
Agreement.
4. General Release. Except for the obligations created by and the
rights expressly reserved within this Agreement, Barnes and Martin hereby and
forever discharge Debtor, CAN- AM and PCI and each of their respective
predecessors, successors, assigns, agents, directors, officers, employees,
representatives, contractors, subcontractors, affiliates, lawyers, and all
persons acting by, through, under, or in concert with Debtor, CAN-AM, PCI, or
any of them, of and from any and all manner of action or actions, cause or
causes of action, in law or in equity, suits, debts or preferences, liens,
contracts, agreements, promises, liabilities, claims, demands, damages, losses,
costs or expenses, relating to any equity interest in Debtor, CAN- AM, PCI,
their successors or any party in which Debtor, CAN-AM or PCI hold securities
(hereinafter collectively "Equity Claims").
5. Further Actions. This Agreement may be pleaded by Debtor, CAN-AM or
PCI or the defendant of any Equity Claim as a full and complete defense to, and
may be used as the basis for an injunction against, any action, suit or other
proceeding which may be instituted to prosecute or attempt an Equity Claim by
Barton in breach of this Agreement.
6. Indemnification by Barton and Debtor. Barton and Debtor agree to
indemnify and hold harmless CAN-AM and PCI, and each of their respective
predecessors, successors, assigns, agents, directors, officers, employees,
representatives, affiliates, lawyers, and all persons acting by, through, under,
or in concert with CAN-AM or PCI, or any of them ("Indemnitees"), against any
and all of and from any and all manner of action or actions, cause or causes of
action, in law or in equity, suits, debts or preferences, liens, contracts,
agreements, promises, liabilities, claims, demands, damages, losses, costs or
expenses, of any nature whatsoever, known or unknown, fixed or contingent,
including, but not limited to, all claims based upon the Personal Loans or the
Equity Claims or to any amounts alleged to be owed by CAN-AM or PCI to Barnes or
Martin (hereinafter collectively "Claims"), whether joint or several, to which
they or any of them may become subject relating to the present Agreement,
pursuant to any statute or at common law, and whether such Claims are raised by
any person, without limitation, Barton, Barnes or Martin, or any or any assignee
or successor-in-interest of such persons. Upon receipt of demand or service of
process relating to any Claim entitled to indemnification hereunder, the
Indemnitee receiving such demand or service of process shall promptly tender
defense thereof to Barton and Debtor. Barton and Debtor agree that, in the event
any legal action is threatened or commenced against any Indemnitee on any matter
indemnified hereunder, Barton and Debtor shall promptly defend such action at
their own expense, and CAN-AM and PCI shall cooperate with Barton and Debtor in
the defense thereof. PCI and CAN-AM shall have the right to join Barton and
Debtor as party defendants in any legal action brought against them which
relates to indemnified Claims and Barton and Debtor hereby consents to the entry
of an order making PCI or CAN-AM party defendants. Barton and Debtor agree to
promptly notify PCI of any action commenced against Barton or Debtor or their
affiliates or subsidiaries pursuant to the present Agreement, to furnish PCI, at
its request, copies of all pleadings therein and apprise it
3
<PAGE>
of all the developments therein, all at Barton and Debtor's expense, and to
permit PCI to be an observer therein.
7. Costs. Except as provided in Section 6, the Parties will bear their
own costs, expenses and attorneys' fees, whether taxable or otherwise, incurred
in or arising out of the negotiation of this Agreement.
8. Construction of this Agreement. This Agreement has been freely
entered into by the Parties, all of whom have been represented by, or have been
given the opportunity to and encouraged to seek the representation of counsel.
The validity, effect and performance of this Agreement shall be governed by the
laws of the State of Arizona. This Agreement shall be construed liberally to
effect its purpose, and the Parties waive any rule requiring strict construction
against or in favor of either party. The Agreement shall be construed as if
drafted by the Parties jointly.
9. Integration Clause. This Agreement embodies the full and complete
understanding and agreement between the Parties with respect to the matters
addressed herein. This paragraph may be waived or modified only in a writing
signed by the party to be charged.
10. Severability. If any term of this Agreement should be found
invalid, void or unenforceable, that term shall be severed from this Agreement
and the remaining terms enforced as specified herein.
11. Prevailing Party. Except as otherwise provided in Sections 6 and 7
hereof, in any action arising out of this Agreement, the prevailing party shall
be entitled to an award of reasonable attorneys' fees and costs incurred in such
action, which award shall be made by the Court, and shall be in addition to any
other relief to which such party is entitled. The Parties expressly consent to
the jurisdiction and venue of Maricopa County, Arizona Superior Court for the
resolution of any future disputes.
12. Binding Effect. This Agreement shall be binding upon, and shall
inure to the benefit of, the Parties, their officers, directors,
representatives, agents, employees, attorneys, successors and assigns.
13. Capacity. Debtor and PCI each represent and warrant that all
corporate action necessary to authorize the execution of this Agreement has been
taken and that the person signing this Agreement has full power and authority to
do so.
14. Counterparts. This Agreement may be executed in counter-parts which
together shall constitute one and the same instrument.
4
<PAGE>
"DEBTOR"
Rose Hearts, Inc.
a Washington corporation
Dated: 6-13-97 By: /s/ Greg P. Lambrecht
---------------------- -------------------------------
Its: President
----------------------------
Dated: 6-13-97 /s/ Greg P. Lambrecht
--------------------- -----------------------------------
Greg P. Lambrecht
J&M Wholesale, Ltd.
a British Columbia corporation
Dated: By: /s/ Colin A. Jones
---------------------- -------------------------------
Its:
----------------------------
Dated: 6-13-97 /s/ Colin A. Jones
--------------------- -----------------------------------
Colin A. Jones
CAN-AM International Investment
Corp. a British Columbia
corporation
Dated: By: /s/ Colin A. Jones
---------------------- -------------------------------
Its:
----------------------------
"Barton"
Dated: 6-9-97 /s/ Greg Barton
--------------------- -----------------------------------
Greg Barton
5
<PAGE>
"Barnes"
Dated: 6-9-97 /s/ Lucille B. Barnes
--------------------- -----------------------------------
Lucille B. Barnes
"Martin"
Dated: 6-9-97 /s/ Kelli D. Martin
--------------------- -----------------------------------
Kelli D. Martin
"PCI"
Premium Cigars International, Ltd.
an Arizona corporation
Dated: 06-13-97 By: /s/ Steven A. Lambrecht
---------------------- -------------------------------
Printed Name: Steven A. Lambrecht
---------------------
Its: C.E.O
------------------------------
6
<PAGE>
EXHIBIT "A"
- --------------------------------------------------------------------------------
BUSINESS LOAN AGREEMENT
- --------------------------------------------------------------------------------
Loan Date: 9/5/96 Principal Amount: $110,000 Interest Rate: 36%
Borrower: GREG P. LAMBRECHT Lender: GREG BARTON
AND ROSE HEARTS, INC. AND/OR ASSIGNS
6925 216TH ST SW #N 17403 NE 45TH ST
LYNNWOOD, WA 98036 REDMOND, WA 98036
PROMISE TO PAY. GREG LAMBRECHT and ROSE HEART'S INC. ("Borrower") Promises to
pay to GREG BARTON ("Lender"), or order, in lawful money of United States of
America, the principal amount of one hundred and ten thousand dollars
($110,000), with interest on the unpaid balance from September 5, 1996 and all
unpaid balances are due on May 5, 1998.
PAYMENT. Borrower will pay this loan in monthly payments of interest only on the
5th day of each month, with the first payment paid in advance and the second
payment due on November 5, 1996. The monthly payments of interest only will be
calculated on a rate of 3% of the outstanding balance. Borrower will pay the
Lender at Lender's address shown above or at such other place as Lender may
designate in writing. Unless otherwise agreed or required by applicable law,
payments ill be applied first to unpaid interest, then to principal, and any
remaining amount to any unpaid collection costs and late charges.
INTEREST RATE. The interest rate of this loan is thirty-six percent per annum
(36%) or three percent per month (3%).
PREPAYMENT. There are no prepayment penalties on this loan.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.00% of the regularly scheduled payment.
DEFAULT. Borrower will be in default if any of the following happen: (A)
Borrower fails to make any payment when due. (B) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to perform promptly at the time
and strictly in the manner provided in this note or any agreement related to
this Note, or in any other agreement made between Borrower and Lender. (C )
Borrower defaults under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any other
creditor or person that may materially affect any of the Borrower's property or
Borrower's ability to repay this Note or perform Borrower's obligations under
this Note or any of its related Documents. (D) Any representation or statement
made or furnished to Lender by Borrower or on Borrower's behalf is false or
misleading in any material respect. (E) Borrowers become insolvent, a receiver
is appointed for any part of Borrower's property, Borrower makes an assignment
for the behalf of creditors, or any proceeding is commenced either by Borrower
or against Borrower under bankruptcy or insolvency laws. (F) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts. (G) Any of
the default section occurs with respect to the guarantor of this Note. (H)
Lender in god faith deems itself insecure.
<PAGE>
If any default, other than a default in payment, is curable and if the Borrower
has not given notice of a breach of the same provision of this Note within the
preceding twelve (12) months, it may be cured (and no event of default has
occurred) if Borrower, after receiving written notice from Lender demanding cure
of such default: (a) cures the default within fifteen (15) days, (b) if the cure
requires more than fifteen days, immediately initiates steps which Lender deems
in Lender's sole discretion to be sufficient to cure the default thereafter
continues and completes all reasonable and necessary steps sufficient to produce
compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then the Borrower will pay that amount. Upon default, including
failure to pay upon final maturity, Lender, at its option, may also, if
permitted under applicable law, increase the rate to 48% per annum. Lender may
hire or pay someone to help collect this note if Borrower does not pay. Borrower
also will pay Lender that amount. this includes, subject to any limits under
applicable law, Lender's attorneys fees and legal expenses, whether or not there
is a lawsuit, including attorney's fees and legal expenses for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay or
injunction), Bank administrative fees and costs, in addition to all other sums
provided by law. This has not been delivered to Lender and accepted by Lender in
the state of Washington. If there is a lawsuit, Borrower agrees upon Lender's
request to submit to the jurisdiction of the courts of Snohomish County, the
State of Washington. This Note shall be governed by and construed in accordance
with the laws of the State of Washington.
COLLATERAL. This note is secured by a Security Agreement dated September 3, 1996
and filed with the State of Washington.
GENERAL PROVISIONS. Lender may delay or forego enforcing any of its rights or
remedies under this Note without listing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as a maker, guarantor, accommodation maker,
or endorser, shall be released from liability. All such parties agree that the
Lender may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; fail to realize upon or perfect
Lender's security interest in the collateral; and take any other action deemed
necessary by Lender without the consent or notice to anyone.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE.
BORROWER:
ROSE HEARTS, INC.
BY: /s/ GREG P. LAMBRECHT, PRESIDENT
------------------------------------
GREG P. LAMBRECHT, PRESIDENT
CO-BORROWER AND GUARANTOR:
BY: /s/ GREG P. LAMBRECHT
------------------------------------
GREG P. LAMBRECHT
STATE OF WASHINGTON )
) ss.
County of Snohomish )
On this day personally appeared before me GREG P. LAMBRECHT. Given
under my hand and official seal this 3rd day of September, 1996.
JAMES B. STANLEY JAMES B. STANLEY
President COMMISSION EXPIRES
SEAL
NOTARY PUBLIC
2-07-00
STATE OF WASHINGTON
<PAGE>
LASER PRINTED FORM
(Please Type Form - If an Error is Made, Correct All Copies)
This UCC-1 FINANCING STATEMENT is presented for filing pursuant to the
WASHINGTON UNIFORM COMMERCIAL CODE, chapter 52A 9 RCW, is perfect; a security
interest in the below named collateral.
Filing Fee: $12.00
- --------------------------------------------------------------------------------
1. DEBTOR(S) - 1 Debtor 1
| | PERSONAL (Last, First, Middle Name and Address) SSN:
| | BUSINESS (Legal Business Name and Address) FEIN: 91-1440456
DEBTOR(S) - 2
SSN:
FEIN:
ROSE HEARTS, INC.
6925 216TH ST. SW, SUITE N
LYNNWOOD, WA 98036
TRADE NAME; DBA, AKA:
- --------------------------------------------------------------------------------
2. FOR OFFICE USE ONLY - DO NOT WRITE IN THIS BOX
- --------------------------------------------------------------------------------
3. SECURED PARTY(IES) (Name and Address)
GREG BARTON AND/OR ASSIGNS
17403 NE 45TH ST.
REDMOND, WA 98036
- --------------------------------------------------------------------------------
4. ASSIGNEE(S) OF SECURITY PARTY(IES), if applicable (Name and Address)
- --------------------------------------------------------------------------------
5. Check only if applicable: (FOR DEFINITIONS OR transmitting utility and
products of collateral, see Instruction Sheet).
| | Debtor is a Transmitting Utility |X| Products of Collateral are also covered
- --------------------------------------------------------------------------------
6. NUMBER OF ADDITIONAL SHEETS PRESENTED: 0
- --------------------------------------------------------------------------------
7. THIS FINANCING STATEMENT covers the following collateral: (Attach additional
8-1/2 x 11" sheet(s) if needed):
All Inventory, Accounts, Contract Rights, and Equipment, whether any of the
foregoing is owned now or acquired later; all accessions, additions,
replacements, and substitutions relating to any of the foregoing; all records
of any kind relating to any of the foregoing; all proceeds relating to any of
the foregoing (including insurance, general intangibles, and accounts
proceeds).
- --------------------------------------------------------------------------------
8. RETURN ACKNOWLEDGMENT COPY TO: (Name and Address)
GREG BARTON AND/OR ASSIGNS
17403 NE 45TH ST
REDMOND, WA 98036
- --------------------------------------------------------------------------------
9. FILE WITH:
UNIFORM COMMERCIAL CODE
DEPARTMENT OF LICENSING
P.O. BOX 9660
OLYMPIA, WA 98507-9660
MAKE CHECKS PAYABLE TO THE DEPARTMENT OF LICENSING.
- --------------------------------------------------------------------------------
10. FOR OFFICE USE ONLY: Images to be Filmed | |
- --------------------------------------------------------------------------------
11. If collateral is described below, this statement may be signed by the
Secured Party instead of the Debtor. Please check in appropriate box,
complete the adjacent lines and box 13 if collateral is:
a. | | already subject to a security interest in another jurisdiction when
it was brought into this state or when the debtor's location was
changed to this state (complete adjacent lines 1 and 2)
b. | | proceeds of the original collateral described above in which a
security interest was perfected (complete adjacent lines 1 and 2).
c. | | on a filing which has lapsed (complete adjacent lines 1 and 2)
d. | | acquired after a change of name, identity, or corporate structure of
the debtor(s) (complete adjacent line 1, 2, and 3).
1._______________________________________________________
ORIGINAL FILING NUMBER:
2._______________________________________________________
FILING OFFICE WHERE FILED
3._______________________________________________________
FORMER NAME OF DEBTOR(S)
- --------------------------------------------------------------------------------
12. DEBTOR NAME(S) AND SIGNATURE(S)
ROSE HEARTS, INC.
---------------------------------------------------
(Type name and address as it appears in Box 1).
Signature Illegible
---------------------------------------------------
Signature(s) of Debtors
---------------------------------------------------
Signature(s) of Debtors
- --------------------------------------------------------------------------------
13. SECURED PARTY NAME(S) AND SIGNATURE(S) ARE REQUIRED IF BOX 11 HAS BEEN
COMPLETED.
CITY BANK
------------------------------------------------------------------
(Type Name(s) of Secured Party(ies) as it appears in Box 3 or 4).
------------------------------------------------------------------
(Signature of Secured Party(ies).
------------------------------------------------------------------
(Signature of Secured Party(ies).
STATE OF WASHINGTON )
) ss.
County of Snohomish )
On this day personally appeared before me JAMES B. STANLEY and GREG P.
LAMBRECHT. Given under my hand and official seal this 3rd day of September,
1996.
JAMES B. STANLEY JAMES B. STANLEY
President COMMISSION EXPIRES
SEAL
NOTARY PUBLIC
2-07-00
STATE OF WASHINGTON
<PAGE>
- --------------------------------------------------------------------------------
BUSINESS LOAN AGREEMENT
- --------------------------------------------------------------------------------
Loan Date: 9/5/96 Principal Amount: $110,000 Interest Rate: 36%
Borrower: CAN-AM INTERNATIONAL Lender: GREG BARTON
INVESTMENT CORP. AND/OR ASSIGNS
APT 606-888 PACIFIC BLVD 17403 NE 45TH ST
VANCOUVER, BC V6Z 1S4 REDMOND, WA 98036
PROMISE TO PAY. CAN-AM INTERNATIONAL INVESTMENT CORP. ("Borrower") Promises to
pay to GREG BARTON ("Lender"), or order, in lawful money of United States of
America, the principal amount of one hundred and ten thousand dollars
($110,000), with interest on the unpaid balance from September 5, 1996 and all
unpaid balances are due on May 5, 1998.
PAYMENT. Borrower will pay this loan in monthly payments of interest only on the
5th day of each month, with the first payment paid in advance and the second
payment due on November 5, 1996. The monthly payments of interest only will be
calculated on a rate of 3% of the outstanding balance. Borrower will pay the
Lender at Lender's address shown above or at such other place as Lender may
designate in writing. Unless otherwise agreed or required by applicable law,
payments ill be applied first to unpaid interest, then to principal, and any
remaining amount to any unpaid collection costs and late charges.
INTEREST RATE. The interest rate of this loan is thirty-six percent per annum
(36%) or three percent per month (3%).
PREPAYMENT. There are no prepayment penalties on this loan.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.00% of the regularly scheduled payment.
DEFAULT. Borrower will be in default if any of the following happen: (A)
Borrower fails to make any payment when due. (B) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to perform promptly at the time
and strictly in the manner provided in this note or any agreement related to
this Note, or in any other agreement made between Borrower and Lender. (C )
Borrower defaults under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any other
creditor or person that may materially affect any of the Borrower's property or
Borrower's ability to repay this Note or perform Borrower's obligations under
this Note or any of its related Documents. (D) Any representation or statement
made or furnished to Lender by Borrower or on Borrower's behalf is false or
misleading in any material respect. (E) Borrowers become insolvent, a receiver
is appointed for any part of Borrower's property, Borrower makes an assignment
for the behalf of creditors, or any proceeding is commenced either by Borrower
or against Borrower under bankruptcy or insolvency laws. (F) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts. (G) Any of
the default section occurs with respect to the guarantor of this Note. (H)
Lender in god faith deems itself insecure.
<PAGE>
If any default, other than a default in payment, is curable and if the Borrower
has not given notice of a breach of the same provision of this Note within the
preceding twelve (12) months, it may be cured (and no event of default has
occurred) if Borrower, after receiving written notice from Lender demanding cure
of such default: (a) cures the default within fifteen (15) days, (b) if the cure
requires more than fifteen days, immediately initiates steps which Lender deems
in Lender's sole discretion to be sufficient to cure the default thereafter
continues and completes all reasonable and necessary steps sufficient to produce
compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then the Borrower will pay that amount. Upon default, including
failure to pay upon final maturity, Lender, at its option, may also, if
permitted under applicable law, increase the rate to 48% per annum. Lender may
hire or pay someone to help collect this note if Borrower does not pay. Borrower
also will pay Lender that amount. this includes, subject to any limits under
applicable law, Lender's attorneys fees and legal expenses, whether or not there
is a lawsuit, including attorney's fees and legal expenses for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay or
injunction), Bank administrative fees and costs, in addition to all other sums
provided by law. This has not been delivered to Lender and accepted by Lender in
the state of Washington. If there is a lawsuit, Borrower agrees upon Lender's
request to submit to the jurisdiction of the courts of Snohomish County, the
State of Washington. This Note shall be governed by and construed in accordance
with the laws of the State of Washington.
COLLATERAL. This note is secured by a Security Agreement dated September 3, 1996
and filed with the State of Washington.
GENERAL PROVISIONS. Lender may delay or forego enforcing any of its rights or
remedies under this Note without listing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as a maker, guarantor, accommodation maker,
or endorser, shall be released from liability. All such parties agree that the
Lender may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; fail to realize upon or perfect
Lender's security interest in the collateral; and take any other action deemed
necessary by Lender without the consent or notice to anyone.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE.
BORROWER:
J & M WHOLESALE, LTD.
BY: /s/ COLIN ANDREW JONES, PRESIDENT
-------------------------------------
COLIN ANDREW JONES, PRESIDENT
CO-BORROWER AND GUARANTOR
BY: /s/ COLIN ANDREW JONES
--------------------------
COLIN ANDREW JONES
STATE OF WASHINGTON )
) ss.
County of Snohomish )
On this day personally appeared before me JAMES B. STANLEY.
JAMES B. STANLEY
Given under my hand and official seal this 3rd day of September, 1996.
JAMES B. STANLEY JAMES B. STANLEY
COMMISSION EXPIRES
SEAL
NOTARY PUBLIC
2-07-00
STATE OF WASHINGTON
<PAGE>
Greg Barton LOAN AGREEMENT
17403 NE 45th St.
Redmond, Washington, D.C. U.S. Dollars
98052 ------------
Date: 19 August 1996
(hereafter called the "Lender") Loan Account: 0
- --------------------------------------------------------------------------------
Member's Name: CAN - AM INTERNATIONAL Bus. Phone
INVESTMENTS CORP.
Member's Name: Bus. Phone:
Address: Apt. 606 - 888 Pacific Blvd. Res. Phone: 604-435-1705
Vancouver, BC V6Z 1S4
(hereafter called the Borrower)
Member's Name Bus. Phone
Member's Name Bus. Phone
Address: Res. Phone: 604-435-1705
Member's Name Bus. Phone
Member's Name Bus. Phone
Address: Res. Phone:
- --------------------------------------------------------------------------------
IN CONSIDERATION OF Greg Barton establishing a Personal Loan and promising to
lend to the Borrower up to the amount shown as the authorized limit, the
Borrower is bound by the terms and conditions set forth herein.
- --------------------------------------------------------------------------------
* Date of Agreement: | |
<TABLE>
<S> <C> <C>
Authorized Limit: $ 110,000.00 U.S. $ Prime A Lending Rate(as of Today's Date) 6.000%
Annual Percentage Rate: 36.0% 3% per annum Loan Interest Rate: Prime A Lending Rate Plus 30,000%
Monthly Payments: Interest Only Loan Interest Rate (as of Today's Date): 36.000%
</TABLE>
|X| A deposit equal to or greater than the interest charged on the
preceding month's statement is due during the following calendar month.
| | At least % of the Closing Monthly Balance to be deposited during the
following calendar month.
- --------------------------------------------------------------------------------
TERMS AND CONDITIONS
1. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
2. The daily outstanding balance of the Loan shall bear interest at the
Interest Rate shown above, compounded monthly and calculated daily. If
in default, the Interest Rate will be 48%.
3. The Member shall make monthly payments as shown above, and authorize
GREG BARTON to debit the Account or any other Member accounts for the
amount of the payment plus accrued interest when the same becomes
payable or overdue.
4. The outstanding balance of the Loan, together with all accrued
interest, shall be payable ON DEMAND.
- --------------------------------------------------------------------------------
EXECUTION
IN WITNESS WHEREOF the member (or if the Member is a corporation, the authorized
signatory on behalf of the Member) has executed this Agreement as of the Date
set out above.
****THIS LOAN IS NEGOTIATED IN U.S. DOLLARS****
- --------------------------------------
CAN-AM INTERNATIONAL INVESTMENTS CORP.
Signature Illegible
- --------------------------------------
Authorized Signature
STATE OF WASHINGTON )
) ss.
County of Snohomish )
On this day personally appeared before me JAMES B. STANLEY.
JAMES B. STANLEY
Given under my hand and official seal this 4th day of September, 1996.
JAMES B. STANLEY JAMES B. STANLEY
COMMISSION EXPIRES
SEAL
NOTARY PUBLIC
2-07-00
STATE OF WASHINGTON
<PAGE>
5. If the Loan is secured by a mortgage of land, Westminister shall be
obligated to make advances and re-advances of the Loan until
Westminister shall have demanded payment of the outstanding balance. If
the Loan is not secured by a mortgage of land, Westminister shall not
be obligated to advance or re-advance the Loan or any portion thereof.
6. If there are sufficient funds in the Account to pay any cheque or other
item ("the Items") drawn on the Account, Westminister shall treat the
Item as a request for an advance or re-advance of the Loan.
Westminister will not be required to pay any Item if the Loan exceeds
the authorized limit or if payment would result in the Loan exceeding
the authorized limit. If Westminister pays an Item while the Authorized
Limit is exceeded or which causes the Authorized Limit to be exceeded,
the amount so paid in excess of the Authorized Limit shall be a loan to
the Member, bear interest at the Unauthorized Overdraft Rate as
established by Westminister from time to time, and be subject to these
terms and conditions.
7. If the Interest Rate is described in relation to "Prime A Lending
Rate";
a) the "Prime A Lending Rate" will be reviewed and may change daily
with changes to B.C. Central Credit Union's Prime Lending Rate.
b) a certificate of an executive officer of Westminister as in the
Prime Lending Rate in effect at any time, shall be conclusive
evidence thereof;
c) Westminister shall not be obligated to give the member notice of
any changes in the Prime Lending Rate.
8. Westminister may at any time, without notice to the member, suspend or
cancel access to the Loan, without affecting the Member's obligations
hereunder.
9. Westminister may at any time upon notice to the Member, change the
Authorized Limit or the Interest Rate.
10. The Member shall pay all legal or other fees and costs in connection
with the preparation, registration, or enforcement of this Agreement or
any security given in support thereof.
11. Notice to the Member may be sent by ordinary mail addressed to the
Member at the Member's then current address in Westminister's records,
and shall be deemed to have been received on the third business day
following the day of the mailing.
12. If more than one person or corporation signs this Agreement, all
promises and agreements of the member shall be joint and several.
13. This Agreement may not be assigned by the Member and shall inure to the
benefit of Westminister and it successors and assigns, and shall be
binding upon the member and the heirs, executors, and administrators of
the Member, as the case may be.
- --------------------------------------------------------------------------------
STATEMENT OF COST OF BORROWING FURNISHED PURSUANT
TO THE CONSUMER PROTECTION ACT AND REGULATIONS
IN RESPECT OF VARIABLE CREDIT
1. Interest rate charged per annum on the closing daily balance calculated
and compounded monthly.
2. If an amount is outstanding for less than a month, interest is charged
at the stated rate for the number of days that the amount is
outstanding.
3. The cost expressed in dollars and cents in an illustrative schedule of
amounts of outstanding balances and corresponding charges for the cost
borrowing is as follows:
<TABLE>
<CAPTION>
10% 11% 12% 13% 14% 15% 16% 17%
Cost of Cost of Cost of Cost of Cost of Cost of Cost of Cost of
Borrowing Borrowing Borrowing Borrowing Borrowing Borrowing Borrowing Borrowing
Loan # of for the for the for the for the for the for the for the for the
Balance Days Period Period Period Period Period Period Period Period
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 30.00 10 $ .14 $ .15 $ .16 $ .18 $ .19 $ .31 $ .22 $ .20
30.00 20 .37 .30 .33 .36 .38 .41 .44 .47
30.00 20 .41 .45 .49 .37 .34 .42 .66 .70
100.00 10 .27 .30 .33 .26 .34 .41 .44 .47
100.00 20 .55 .60 .66 .71 .77 .51 .58 .95
100.00 20 .82 .90 .99 1.07 1.15 1.25 1.32 1.43
</TABLE>
<PAGE>
LOAN INDEMNITY AGREEMENT
Personal Guarantees
Greg Barton
17403 NE 45th St. Date: 19 August 1996
Redmond, WA, D.C. 98052 Loan Account: 0
(hereafter called the "Lender") Loan Numbers: 0
Borrower: CAN - AM INTERNATIONAL Birthdate:
INVESTMENTS CORP.
Indemnitor: Birthdate:
Address: Apt. 606 - 888 Pacific Blvd.
Vancouver, BC V6Z 1S4
Indemnitor: J & M Wholesale Ltd. And Birthdate:
Indemnitor: Colin Andrew Jones Birthdate:
Address: Unit 110B - 4663 Byrne Rd.
Burnaby, BC
(hereafter called the Indemnitors).
Address: Birthdate:
- --------------------------------------------------------------------------------
In this Indemnity Agreement "you" and "your" mean the Indemnitor and "we" and
"us" mean Greg Barton.
- --------------------------------------------------------------------------------
TYPE OF LOAN
This Indemnity releases to the following loan (the "Loan") to be made by us for
the Borrower:
Personal Loan in the amount of: $ 110,000.00 U.S. Dollars Rate: 36.00 per annum
(%)
| | Limitation - Notwithstanding any terms or condition herein, the amount for
which the Indemnitor shall be liable is limited to $____________________- ,
together with interest thereon at the Loan Rate from the date of demand
until payment or judgement.
- --------------------------------------------------------------------------------
INDEMNITY
In return for us agreeing, at your request, to enter into the Loan with the
Borrower, you agree that:
1. Indemnity - You will indemnify us and hold us harmless against all
losses, costs, expenses, and damages relating to or arising out of, our
making the Loan, including principal monies advanced and re-advanced,
interest, costs, charges, and expenses due to us in connection with the
Loan (and whether or not recoverable by us from a Borrower).
2. Further Terms and Conditions - You agree to be bound by the Further
Terms and Conditions appearing on the reverse, which form a part of
this Indemnity.
3. Acknowledgment and Waiver - You hereby acknowledge receiving a copy of
this Indemnity, a copy of the document(s) evidencing the Loan, and a
copy of any security agreement securing the Loan; and you hereby waive
the right to receive a copy of any financing statement, financing
changes statement, or verification statement in respect of any security
agreement securing the Loan or any amendment thereto.
- --------------------------------------------------------------------------------
EXECUTION
IN WITNESS WHEREOF the Indemnitor (or if the Indemnitor is a corporation, the
authorized signatory on behalf of the Indemnitor) has executed this Agreement as
of the Date set out above.
----------------------------
- ----------------------------- ----------------------------
J&M Wholesale Ltc. and Colin Andrew Jones
(Personal Capacity)
- ------------------------------
Authorized Signatory
- ------------------------------
Witness to all Signatures
STATE OF WASHINGTON )
) ss.
County of Snohomish )
On this day personally appeared before me JAMES B. STANLEY.
JAMES B. STANLEY
Given under my hand and official seal this 4th day of September, 1996.
JAMES B. STANLEY JAMES B. STANLEY
COMMISSION EXPIRES
SEAL
NOTARY PUBLIC
2-07-00
STATE OF WASHINGTON
7
<PAGE>
EXHIBIT "B"
BRIDGE FINANCING OFFERING MATERIALS
________________, 199_
Premium Cigars International, Ltd.
15651 North 83rd Way, Suite 3
Scottsdale, Arizona 85260
Re: Subscription to Acquire Warrant
Gentlemen:
I hereby subscribe to acquire a warrant (the "Warrant") for the
purchase of the no par value common shares of Premium Cigars International,
Ltd., an Arizona corporation formed pursuant to the Arizona Corporations Act
(the "Corporation"), in consideration for the provision to the Corporation by me
of debt financing in a maximum principal amount of ___________dollars ($_______
.00) (the "Financing Amount"). Upon the acceptance of this Subscription
Agreement by the Corporation and my provision of cash to the Corporation in the
Financing Amount, the Corporation shall issue to me (i) the Warrant and (ii) a
promissory note of the form attached hereto as Exhibit "A" having a maximum
principal amount equal to the Financing Amount (the "Note").
The Warrant is being sold by the Corporation, as issuer, in a
transaction not involving any public offering. In consideration of the proposed
sale of the Warrant to me and delivery to me of the Note, and for the purpose of
inducing the Corporation to make such sale and delivery to me, I hereby make the
following investment assurances to the Corporation:
1. Restrictions on Transferability of Warrant and Rights. I hereby
agree that the Warrant being acquired by me, and any certificate or document
evidencing such Warrant and/or any rights I may acquire in such Warrant
(hereinafter referred to as the "Rights"), shall be stamped or otherwise
imprinted with a conspicuous legend in substantially the following form:
"The warrant evidenced by this document and any shares of the
Corporation's common stock able to be purchased therewith have not been
registered under the Securities Act of 1933, as amended, or under any
applicable state securities law, and such warrant has been issued
pursuant to an exemption from registration under such laws. The warrant
has been issued and delivered to the holder by the Corporation, as
issuer, in a transaction not involving any public offering pursuant to
A.R.S. Section 44-1844(1). The Corporation issued the warrant to the
holder in reliance upon the representation by the holder that the
warrant was acquired for investment purposes and was not acquired for
the purpose of sale to others. Neither this warrant nor any rights in
the same shall be resold, pledged, hypothecated, or otherwise
transferred, conveyed, or offered for sale except upon the issuance of
a favorable opinion of counsel for the Corporation and/or
<PAGE>
submission to the Corporation of such other evidence as may be
satisfactory to counsel for the Corporation to the effect that the
transfer, conveyance, or offer for sale of such warrant will not be in
violation of the Securities Act of 1933 or any rule or regulation
promulgated thereunder, or any applicable state securities law, rule or
regulation and in accordance with the terms and conditions of holder's
Subscription Letter with respect to these shares, dated _______________
, 199_. Any transfer contrary hereto shall be void."
Neither the Warrant nor any of my Rights, as the case may be, shall be
transferable except upon the conditions specified in this Paragraph 1. I realize
that, by becoming a holder of a Warrant issued by the Corporation pursuant to
the terms of the foregoing restrictive legend, I agree prior to any transfer of
the Warrant and/or my Rights, to give written notice to Corporation, in the form
required by the Warrant, expressing my desire to effect such transfer and
describing the proposed transfer.
2. Determination of Legal Counsel. I understand that upon receipt of my
written notice, as provided for in the preceding Paragraph 1, Corporation shall
present copies of the same to its counsel, and the following provisions shall
apply:
(a) If, in the opinion of Corporation's counsel, the proposed
transfer of the Warrant and/or Rights may be effected without
registration thereof under the federal Securities Act of 1933
(hereinafter referred to as the "Act"), as then in force, and
applicable state securities law, the Corporation shall promptly
thereafter notify the holder of such Warrant and/or Rights, whereupon
such holder shall be entitled to transfer such Warrant and/or Rights,
all in accordance with the terms of the Warrant and assignment form
specified by the Warrant to be delivered by such holder to Corporation
(the "Assignment Form"), and upon such further terms and conditions as
shall be required by counsel for Corporation in order to assure
compliance with the Act and applicable state securities law. Upon
receipt by the Corporation of the Warrant and/or Rights and the
Assignment Form, the Corporation will deliver in exchange therefor, a
new certificate or document evidencing the Warrant and/or Rights
transferred. Any such certificate or document shall not bear a legend
of the character set forth above in Paragraph 1, if Corporation's
counsel agrees that such legend is no longer required under the Act and
applicable state securities law.
(b) If, in the opinion of Corporation's counsel, the proposed
transfer of the Warrant and/or Rights may not be effected without
registration of such Warrant and/or Rights under the Act and/or
applicable state securities law, a copy of such opinion shall be
promptly delivered to the holder who had proposed such transfer, and
such proposed transfer shall not be made unless such registration is
then in effect.
3. Purchaser's Acknowledgments. I realize that the Warrant and Rights
are not and may not be registered under the Act, or applicable state securities
law, and that Corporation does not currently file periodic reports with the
Securities and Exchange Commission pursuant to the requirements of the
Securities Exchange Act of 1934. I also understand that the Corporation has not
agreed with me to register the Warrant and/or Rights for distribution in
accordance with the
<PAGE>
provisions of the Act, or applicable state securities law, and that the
Corporation has not agreed with me to comply with any exemption under the Act or
applicable state securities law for the sale of such securities. For example, I
realize that the corporation has not agreed to supply such information as would
be required to enable routine sales of such securities to be made under the
provisions of certain rules respecting "restricted securities" promulgated by
the Securities and Exchange Commission. Thus, it is my understanding that, by
virtue of the provisions of the "restricted securities" rules, the Warrant which
I desire to purchase from Corporation must be held by me indefinitely, unless
and until subsequently registered under the Act and/or applicable state
securities law, or unless an exemption from such registration is available, in
which case I may still be limited as to the amount of the securities that I may
sell.
4. Representations by Purchaser. I hereby covenant, warrant, and
represent to Corporation as follows:
(a) I have received an Investment Disclosure Statement in the
form attached hereto as Exhibit "B" (the "Disclosure Statement") and by
this reference made a part hereof, and that I have carefully and
thoroughly read and understand such Disclosure Statement;
(b) The Warrant which is the subject of my purchase hereunder,
and any Rights therein, will be acquired by me for investment for my
own account and not with a view to the offer for sale, or the sale, in
connection with the distribution or transfer thereof, and I am not
participating, directly or indirectly, in an underwriting of any such
distribution or transfer;
(c) My income and net worth are such that I am not now, and do
not contemplate being, required to dispose of any portion of any
investment in the Warrant and/or Rights to satisfy any existing or
expected undertaking or indebtedness. I am also able to bear the
economic risks of an investment in the Warrant and Note, including,
without limiting the generality of the foregoing, the risk of losing
all or any part of my investment in the Warrant and Note and my
probable inability to sell or transfer the Warrant, the Note and/or the
Rights for an indefinite period of time;
(d) My income and net worth are such that I am able to provide
debt financing to the Corporation in an amount equal to the Financing
Amount and am able to accept the risk of losing all such sums provided
thereunder because of non-payment of any or all amounts due under the
Note;
(e) I will not sell the Warrant or any Rights thereunder,
except in strict compliance with the provisions of the Warrant and this
Subscription Letter;
(f) In addition to the Disclosure Statement, I have been
granted access to all information, financial and otherwise, in respect
to Corporation which I have requested, and with my professional
advisors have examined such information and am satisfied with respect
to the same;
<PAGE>
(g) Either (i) I am relying on my own financial advisor, tax
advisor and/or professional investment representative in making this
investment decision and I am able to bear the economic risk of this
investment, or (ii) my education, business and investing experience and
financial sophistication enable me to evaluate the economic merits of
my investment in the Note and Warrant;
(h) I have adequate means of providing for my current
financial needs and personal contingencies, and I have no need for
liquidity in my investment in the Note and the Warrant. I am
financially responsible, able to meet my obligations hereunder, and
acknowledge that this investment is long term and is by its nature
speculative;
(i) My personal financial circumstances, investment portfolio
and tax bracket are such that I believe the purchase contemplated
herein to be a suitable investment;
(j) No oral or written representations or statements have been
made in connection with the Note and the Warrant that were made in any
way inconsistent with the Investment Disclosure Statement;
(k) I have access to advice from qualified sources, including
an attorney and accountant, and have had the opportunity to consult
with them concerning this investment, especially in connection with the
tax aspects of the offering; and
(l) I understand that this Subscription Letter may be accepted
or rejected in whole or in part by the Corporation in its sole and
absolute discretion.
5. Agreement to Perform Necessary Acts. I hereby agree to perform any
further acts reasonably required under the terms of this Subscription Letter and
all applicable state and federal laws and to execute and deliver any documents
and provide any information about myself, including, but not limited to
financial information, that may be reasonably necessary (i) to carry out the
provisions of this Subscription Letter and (ii) for compliance with applicable
state and federal laws.
6. Notices. Any notices or other communications required or permitted
herein shall be sufficiently given if sent by registered or certified mail,
postage prepaid, return receipt requested, if to Corporation at the address to
which this letter is addressed, and if to me at the address set forth below my
signature to this Subscription Letter, or to such other addresses as either
Corporation or I shall designate to the other by notice in writing.
7. Successors and Assigns. This Subscription Letter shall be binding
upon and shall inure to the benefit of the parties hereto and to the successors
and assigns of Corporation and to the legal representatives, successors, and
permitted assignees of the undersigned.
8. Applicable Law. This Subscription Letter has been made and entered
into in the State of Arizona and shall be construed in accordance with the laws
of the State of Arizona, excluding its choice of law provisions, and the laws of
the United States of American. The parties agree that the State and Federal
Courts of Arizona, including both Maricopa County,
<PAGE>
Arizona Superior Court and the United States District Court, District of
Arizona, located in Phoenix Arizona, shall be the proper and exclusive forums
for any action relating to a dispute between the parties arising out of, or
related to, this Subscription Letter. Each party consents to the in personam
jurisdiction of said courts.
----------------------------------------
(Signature)
----------------------------------------
(Name -- Individual or Trust)
----------------------------------------
(Address)
----------------------------------------
(City, State, Zip)
----------------------------------------
(Telephone)
DATED: ________________, 1997 ACCEPTED:
PREMIUM CIGARS INTERNATIONAL,
LTD., an Arizona corporation
By:
-------------------------------------
Its:
------------------------------------
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") NOR IS SUCH REGISTRATION CONTEMPLATED. SUCH SECURITIES MAY
NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED AT ANY TIME
WHATSOEVER UNLESS REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS
OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE, EXCEPT UPON DELIVERY TO THE
COMPANY OF AN OPINION OF COUNSEL (SUCH OPINION TO BE SATISFACTORY TO THE COMPANY
AND ITS COUNSEL) THAT REGISTRATION IS NOT REQUIRED FOR SUCH TRANSFER.
WARRANT TO PURCHASE COMMON STOCK OF
PREMIUM CIGARS INTERNATIONAL, LTD.
This is to certify that, for value received,
______________________________, or registered assigns (in each case, the
"Warrantholder") is entitled to purchase, subject to the provisions of this
Warrant (the "Warrant") from Premium Cigars International, Ltd., an Arizona
corporation (the "Company"), at any time during the period from the date on
which the Company completes its initial public offering of Common Stock (the
"Commencement Date") until 5:00 p.m., Arizona time, on a date which is five
years after the Commencement Date (the "Expiration Date") and at which time this
Warrant shall expire and become void, the number of shares of the Company's
Common Stock, no par value per share, set forth in Section 3 hereof (the
"Warrant Shares"). The number of shares of Common Stock to be received upon
exercise of this Warrant shall be subject to adjustment from time to time as set
forth below. This Warrant is also subject to the following terms and conditions:
1. Purchase Price. The Warrant is being issued as consideration for the
provision of bridge financing to the Company by Warrantholder in the total
principal amount of ______________________ dollars ($__________) (the "Financing
Amount"), as evidenced by a promissory note in the form of Exhibit "A" attached
hereto and executed by the Company on even date herewith (the "Note").
2. Exercise Price. This Warrant shall be exercisable at a price per
Warrant Share equal to fifty percent (50%) of the initial public offering price
per share in the initial public offering of the Company's Common Stock (the
"Exercise Price"). The initial public offering of the Company's Common Stock is
hereinafter referred to as the "Initial Public Offering." The aggregate
consideration to be paid upon the exercise of this Warrant shall equal the
amount resulting from multiplying (y) the Exercise Price, and (z) the Exercise
Number (as defined in Section 3), is hereinafter referred to as the "Warrant
Exercise Consideration", and shall be paid in the manner described in Section 6
hereof.
3. Exercise Number. The total number of Warrant Shares which may be
purchased upon exercise of the Warrant issued hereunder shall be equal to the
quotient of (x) the Financing
1
<PAGE>
Amount, divided by (y) the Exercise Price (the "Exercise Number"). The Exercise
Number shall be subject to adjustment pursuant to Section 5 below to take into
account any and all Dilutive Events (as defined in Section 5) occurring between
the Initial Public Offering and the date on which the Warrant is exercised by
the Warrantholder (the "Exercise Date").
4. Expiration and Exercise Dates. The Warrant shall be exercisable at
any time on or after the first trading day of the Company's Common Stock and
before 5:00 p.m. on the Expiration Date (the "Exercise Period"), at which time
this Warrant shall automatically expire and become void. This Warrant shall also
automatically expire and become void on the date twelve (12) months after the
date hereof if the Company has not completed an initial public offering of its
common stock prior to such date.
5. Adjustments.
5.1 Subdivision or Combination of Shares. If, after the
Commencement Date, the Company is recapitalized through the subdivision
or combination of its outstanding shares of Common Stock into a larger
or smaller number of shares, the Exercise Number shall be increased or
reduced, as of the record date for such recapitalization, in the same
proportion as the increase or decrease in the outstanding shares of
Common Stock, and the Exercise Price shall be adjusted so that the
aggregate amount payable for the purchase of all of the Warrant Shares
issuable hereunder immediately after the record date for such
recapitalization shall equal the aggregate amount so payable
immediately before such record date.
5.2 Dividends in Common Stock or Securities Convertible into
Common Stock. If, after the Commencement Date, the Company declares a
dividend or distribution on Common Stock payable in Common Stock or
securities convertible into Common Stock, the Exercise Number shall be
increased, as of the record date for determining which holders of
Common Stock shall be entitled to receive such dividend, in proportion
to the increase in the number of outstanding shares (and shares of
Common Stock issuable upon conversion of all such securities
convertible into Common Stock) of Common Stock as a result of such
dividend or distribution, and the Exercise Price shall be adjusted so
that the aggregate amount payable for the purchase of all the Warrant
Shares issuable hereunder immediately after the record date for such
dividend or distribution shall equal the aggregate amount so payable
immediately before such record date.
5.3 Distributions of Other Securities or Property. If, after
the Commencement Date, the Company distributes to holders of its Common
Stock, other than as part of its dissolution or liquidation or the
winding up of its affairs, any of its securities (other than Common
Stock or securities convertible into Common Stock), property or any
evidence of indebtedness, then in each case, the Exercise Number shall
be determined by multiplying the number of Warrant Shares theretofore
purchasable by a fraction, of which the numerator shall be the Fair
Market Value price per share of Common Stock (as
2
<PAGE>
determined pursuant to Section 5.4) on the record date mentioned below
in this Section 5.3. and of which the denominator shall be the Fair
Market Value price per share of Common Stock on such record date, less
the then fair value (as determined by the Board of Directors of the
Company in good faith) of the portion of the shares of the Company's
capital stock, property or evidence of indebtedness distributable with
respect to each share of Common Stock. Such adjustment shall be made
whenever any such distribution is made, and shall become effective
retroactively as of the record date for the determination of
stockholders entitled to receive such distribution.
5.4 Fair Market Value. Fair market value of the Common Stock
("Fair Market Value") shall be determined as follows:
5.4.1 If the Common Stock is listed on a national
securities exchange or admitted to unlisted trading privileges
on such an exchange, or is listed on the Nasdaq National
Market or Small Cap Market, the current Fair Market Value
shall be the last reported sales price of the Common Stock on
such exchange or Nasdaq on the last business day prior to the
date of exercise of this Warrant or if no such sale is made on
such day, the closing bid price for such day on such exchange
or Nasdaq; or
5.4.2 If the Common Stock is not so listed or
admitted to unlisted trading privileges or quoted on Nasdaq,
the current Fair Market Value shall be the last bid price
reported on the last business day prior to the date of the
exercise of this Warrant (i) by Nasdaq, or (ii) if reports are
unavailable under paragraph 5.4.1 above, by the National
Quotation Bureau Incorporated; or
5.4.3 If the Common Stock is not so listed or
admitted to unlisted trading privileges and bid prices are not
so reported, the current Fair Market Value shall be determined
in good faith as promptly as is reasonably practicable by the
mutual agreement of the Board of Directors of the Company and
the Warrantholder. If such parties are unable to reach
agreement within 20 days after the need for such determination
arises, the Board of Directors shall appoint an investment
banking firm acceptable to the Warrantholder (the "Appointed
Firm") to make such determination. The parties shall use their
best efforts to cause the Appointed Firm to resolve all
disagreements as soon as practicable, but in any event within
45 days after the submission of the disputes to such Appointed
firm. The resolution of such disagreements and the
determination of Fair Market Value by the Appointed Firm shall
be final and binding on the Company and the Warrantholder. The
Appointed Firm will determined the allocations of its fees and
expenses in connection with its determination of Fair Market
Value based upon the percentage which the portion of the
contested amount not awarded to each party bears to the amount
actually contested by such party.
3
<PAGE>
5.5 Rights Offering. If, after the Commencement Date, the
Company offers rights or warrants to persons which entitle them to
subscribe to or purchase Common Stock or securities convertible into
Common Stock then:
5.5.1 If the price per share (together with the value
of the consideration, if any, paid for such rights or
warrants) is lower on the record date referred to below than
the then Fair Market Value price per share of Common Stock,
the Exercise Number shall be determined by multiplying the
number of Warrant Shares immediately theretofore purchasable
upon exercise of the Warrant by a fraction, of which the
numerator shall be the number of shares of Common Stock
outstanding on such record date plus the number of additional
shares of Common Stock offered for subscription or purchase,
and of which the denominator shall be the number of shares of
Common Stock outstanding on such record date plus the number
of shares which the aggregate offering price of the total
number of shares of Common Stock so offered would purchase at
the then Fair Market Value price per share of Common Stock.
Such adjustment shall be made whenever such rights or warrants
are issued, and shall become effective retroactively as of the
record date for the determination of stockholders entitled to
receive such rights or warrants.
5.5.2 If, however, the price per share (together with
the value of the consideration, if any, paid for such rights
or warrants) is not lower on such record date than the then
Fair Market Value price per share of Common Stock, the Company
shall give written notice of any such proposed offering to the
Warrantholder at least 15 days prior to the proposed record
date in order to permit the Warrantholder to exercise this
Warrant on or before such record date. There shall be no
adjustment in the Exercise Number, or in the Exercise Price,
by virtue of any such distribution pursuant to this Section
5.5.2.
5.6 Merger, Sale of Assets. If, after the Commencement Date,
there shall be (i) a reorganization (other than a combination?
reclassification, exchange or subdivision of shares otherwise provided
for herein), (ii) a merger or consolidation of the Company with or into
another corporation in which the Company is not the surviving entity,
or a reverse triangular merger in which the Company is the surviving
entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger
into other property, whether in the form of securities, cash or
otherwise, or (iii) a sale or transfer of the Company's properties and
assets as, or substantially as, an entirety to any other person, then,
as a part of the reorganization, merger, consolidation, sale or
transfer, lawful provision shall be made so that the Warrantholder
shall thereafter be entitled to receive upon exercise of this Warrant,
during the period specified herein and upon payment of the Exercise
Price then in effect, the number of shares of stock or other securities
or property of the successor corporation resulting from such
reorganization, merger, consolidation, sale or transfer that a holder
of the shares deliverable upon exercise of this Warrant would have been
entitled to
4
<PAGE>
receive in such reorganization, consolidation, merger, sale or transfer
if this Warrant had been exercised immediately before such
reorganization, merger, consolidation sale or transfer, all subject to
further adjustment as provided in this Section 5. The foregoing
provisions of this Section 5.6 shall similarly apply to successive
reorganizations, consolidations, mergers, sales and transfers and to
the stock or securities of any other corporation that are at the time
receivable upon the exercise of this Warrant.
5.7 Reclassification. If, after the Commencement Date, the
Company shall change any of the securities as to which purchase rights
under this Warrant exist, by reclassification or otherwise, into the
same or a different number of securities of any other class or classes,
this Warrant shall thereafter represent the right to acquire such
number and kind of securities as would have been issuable as the result
of such change with respect to the securities that were subject to the
purchase rights under this Warrant immediately prior to such
reclassification or other change and the Exercise Price therefor shall
be appropriately adjusted, all subject to further adjustment as
provided in this Section 5.
5.8 Liquidation, etc. If, after the Commencement Date, the
Company shall dissolve, liquidate or wind up its affairs, or otherwise
declare a dividend, or make a distribution to the holders of its Common
Stock generally, whether in cash, property or assets of any kind,
including any dividend payable in stock or securities of any other
issuer owned by the Company (excluding regularly payable cash dividends
declared from time to time by the Company's Board of Directors or any
dividend or distribution referred to in Sections 5.2 or 5.3), the
Exercise Price shall be reduced, without any further action by the
parties hereto, by the Per Share Value (as hereinafter defined) of the
dividend. For purposes of this Section 5.8, the "Per Share Value" of a
cash dividend or other distribution shall be the dollar amount of the
distribution on each share of Common Stock and the "Per Share Value" of
any dividend or distribution other than cash shall be equal to the fair
market value of such non-cash distribution on each shares of Common
Stock as determined in good faith by the Board of Directors of the
Company.
5.9 Adjustment of Exercise Price. When the Exercise Number is
adjusted, the Exercise Price with respect to the Warrant Shares shall
be adjusted by multiplying such Exercise Price immediately prior to
such adjustment by a fraction, of which the numerator shall be the
number of Warrant Shares purchasable upon the exercise of this Warrant
immediately prior to such adjustment, and of which the denominator
shall be the number of Warrant Shares so purchasable immediately
thereafter.
6. Method of Exercise. The Warrant may be exercised by the
Warrantholder, in whole or in part, by the surrender of this Warrant and the
Warrant Exercise Form attached hereto as Exhibit "B", properly endorsed, at the
principal office of the Company, and by the payment to the Company by certified
or cashier's check of the then applicable Warrant Exercise Consideration.
Alternatively, the exercise of the Warrant may be effected by "cashless
exercise" through a registered broker/dealer or escrow agent on terms acceptable
to the Company pursuant
5
<PAGE>
to which the Warrant Exercise Consideration is paid from the proceeds of the
sale of the underlying Warrant Shares by such broker/dealer or escrow agent on
behalf of the Warrantholder to the Company. In the event of any exercise of the
Warrant, certificates for the Warrant Shares so purchased shall be delivered to
Warrantholder within a reasonable time after the Warrant shall have been so
exercised, and unless the Warrant has expired, a new Warrant will be issued
representing the right to purchase the number of Warrant Shares with respect to
which this Warrant shall not then have been exercised shall also be issued to
Warrantholder within such time.
7. Representations and Warranties of Warrantholder. Having been
afforded access to information concerning the business, operations and financial
condition of the Company, the Warrantholder represents and warrants as follows:
7.1 He understands the nature of the investment being made by
him and the financial risks thereof.
7.2 He understands that the Warrant Shares subject to this
Warrant have not been registered under the Securities Act of 1933 (the
"1933 Act") or the securities act of any state (the "Acts"), and that
the purchase of the Warrant is being made in reliance upon an exemption
under the provisions of the Acts which may depend in part upon his
investment intent.
7.3 He is acquiring both the Warrant and any Warrant Shares
received upon the exercise of such Warrant for investment purposes only
and not with a view to distribution.
7.4 He understands that the Warrant being acquired by him may
be sold, assigned or otherwise transferred only if it is registered
under the Acts or if the sale, assignment or transfer is exempt from
the registration requirements of the Acts. He further understands that
if the Warrant is not registered under the Acts or an exemption is not
available in connection with the proposed transfer, the Warrant cannot
be sold, assigned or otherwise transferred.
7.5 He understands that the Warrant Shares have not been
registered under the Acts, and that if the Warrant Shares are not
registered under the Acts by the Company, such Warrant Shares cannot be
offered, sold, or transferred unless subsequently registered under the
Acts or the offering, sale or transfer is exempt from the registration
requirements of the Acts. In this regard, the Warrantholder understands
that, in the event the Warrant Shares are not registered or and
exemption from registration is not available, the Warrantholder may be
compelled to hold the Warrant Shares indefinitely.
7.6 He acknowledges that any Warrant Shares issued upon
exercise of the Warrant may bear a restrictive legend respecting the
application of the registration requirements of the Acts.
6
<PAGE>
7.7 He understands that even if the Warrant Shares are
registered, the offering, sale or transfer of any Warrant Shares issued
upon exercise of the Warrant may be restricted following such
registration for a period of time under applicable rules regulations of
the NASD, The Nasdaq Stock Market, or federal or state securities laws.
7.8 He understands that in the event that the Company is not
successful in completing its Initial Public Offering within 12 months
from the close of escrow for the purchase of this Warrant, this Warrant
will automatically be null and void and Warrantholder shall not be
entitled to any rights to purchase any securities of the Company but
shall instead have only such rights as are set forth in the Promissory
Note attached hereto as Exhibit "A."
7.9 He is an "accredited investor" as that term is defined
under Regulation D promulgated under the 1933 Act.
8. Transfer of Warrant.
8.1 Warrant Register. The Company will maintain a register
(the "Warrant Register") containing the names and addresses of the
holders of all warrant certificates issued by the Company (each a
"Warrantholder" and collectively "Warrantholders"). Any Warrantholder
may change his or her address as shown on the Warrant Register by
written notice to the Company requesting such change. Any notice or
written communication required or permitted to be given to the
Warrantholder may be delivered or given by mail to such Warrantholder
at the address shown on the Warrant Register. Until this Warrant is
transferred on the Warrant Register of the Company, the Company may
treat the Warrantholder as shown on the Warrant Register as the
absolute owner of the Warrant for all purposes, notwithstanding any
notice to the contrary.
8.2 Warrant Agent. The Company may, by written notice to the
Warrantholder, appoint an agent for the purpose of maintaining the
Warrant Register referred to in Section 8.1 above, issuing the Shares
issuable upon the exercise of the Warrant, exchanging this Warrant,
replacing this Warrant, or any or all of the foregoing. Thereafter, any
such registration, issuance, exchange or replacement, as the case may
be, shall be made at the office of such agent.
8.3 Transferability and Non-Negotiability of Warrant. This
Warrant may not be transferred or assigned in whole or in part without
compliance with all applicable federal and state securities laws by the
transferor and the transferee (including the delivery of investment
representation letters and legal opinions reasonably satisfactory to
the Company, if such are requested by the Company). Subject to the
provisions of this Warrant with respect to compliance with Acts, title
to this Warrant may be transferred by endorsement (by the Warrantholder
executing the Assignment Form attached hereto as Exhibit "C") and
delivery in the same manner as a negotiable instrument transferable by
endorsement and delivery.
7
<PAGE>
8.4 Exchange of Warrant Upon a Transfer. On surrender of this
Warrant for exchange, delivery of a properly endorsed Assignment Form
and subject to the provisions of this Warrant with respect to
compliance with the Acts and with the limitations on assignments and
transfers contained in this Section 8, the Company at its expense shall
issue to or on the order of the Warrantholder a new Warrant of like
tenor, in the name of the Warrantholder or as the Warrantholder (on
payment by the Warrantholder of any applicable transfer taxes) may
direct, for the number of Warrant Shares issuable upon exercise hereof.
Any transferee of this Warrant shall be required to execute a warrant
substantially in the form of this Warrant and shall be required to
agree to be bound by the terms and conditions set for in such Warrant.
9. Registration Rights. Unless it receives written instructions to the
contrary from the Warrantholder or unless this Warrant has expired pursuant to
the terms hereof, the Company shall include the Warrant Shares issuable upon
conversion of this Warrant in Company's Registration Statement for its Initial
Public Offering. The Company shall include in such filing, for registration
under the 1933 Act, the aggregate number of Warrant Shares which (i) are
issuable at the time of such Initial Public Offering upon conversion of this
Warrant and (ii) have not otherwise been requested by Warrantholder to be
withheld from inclusion in the Company's Registration Statement.
10. Indemnification. In the event of any registration with respect to
the Warrant Shares, the Company will indemnify and hold harmless any
Warrantholder who holds such registered Warrant Shares and each person, if any,
who controls such holder, against any losses, claims, damages or liabilities to
which the holder or such controlling person may be subject under the 1933 Act
insofar as such losses, claims, damages or liabilities arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in any such Registration Statement or arise out of or are based upon
the omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, but the Company shall
not be liable for any loss, claim, damage or liability based on or arising out
of written information furnished by a Warrantholder for use in the Registration
Statement.
11. Reporting by the Company. The Company agrees that following the
completion of its Initial Public Offering and during the term of the Warrant it
will keep current in filing all forms and other materials required to be filed
with the Securities and Exchange Commission pursuant to the Securities Exchange
Act of 1934.
12. Reserved Shares. The Company will at all times keep available and
reserve out of its authorized shares of Common Stock such number of shares as
shall from time to time be issuable upon exercise of the Warrant.
13. Voting Rights. This Warrant shall not entitle the holder hereof to
any voting rights or other rights as a stockholder of the Company.
8
<PAGE>
14. Title to Stock. All Warrant Shares delivered upon exercise of the
Warrant shall be validly issued, fully paid and nonassessable, and the
Warrantholder shall receive good and marketable title, free and clear of all
liens, encumbrances and claims whatsoever.
15. Due Authorization. The execution and delivery of this Warrant,
consummation of the transactions herein contemplated, and compliance with the
terms of this Warrant are lawful and do not and will not conflict with or result
in a breach of any of the terms or provisions of, or constitute a default under,
the Articles of Incorporation or Bylaws of the Company, nor will they conflict
with or result in a breach of any of the terms or provisions of or constitute a
default under, any indenture, mortgage, trust agreement or other instrument,
agreement or judgment, order or decree of any court or governmental authority to
which the Company is a party or by which the Company or any of its assets is
bound.
16. Binding Agreement. This Warrant shall bind the parties, their
heirs, personal representatives, successors and assigns.
17. Notices. Any notice required under this Warrant shall be hand
delivered or sent by registered or certified mail, postage prepaid and return
receipt requested, to (a) the address of the Warrantholder on the Warrant
Register, or (b) to the Company at its principal business address (or to such
other address as a party may specify in writing). Notices shall be deemed
delivered three days after deposit in the United States mails or upon delivery
if hand-delivered.
18. Governing Law. This Warrant has been made and entered into in the
State of Arizona and shall be construed in accordance with the laws of the State
of Arizona, excluding its choice of law provisions. The parties agree that the
courts of the State of Arizona, including Maricopa County, Arizona Superior
Court, shall be the proper and exclusive forum for any action relating to a
dispute between the parties arising out of, or related to, this Warrant. Each
party consents to the in personam jurisdiction of said Court.
19. Gender. When the context in which the words are used in this
Warrant indicate that such is the intent, the singular and plural number shall
be deemed to include the other, and the masculine, feminine and neuter genders
shall be deemed to include the other. The term "person" shall include an
individual, corporation, partnership, trust, estate or any other entity.
20. Prior Agreements Superseded. This Warrant constitutes the sole
agreement of the parties with respect to this Warrant and supersedes any prior
understandings or written or oral agreements between the parties respecting the
subject matter hereof.
9
<PAGE>
IN WITNESS WHEREOF, the Company has caused its duly authorized officers
to execute this Warrant on the day of , 1997.
"COMPANY"
Premium Cigars International, Ltd.,
an Arizona corporation.
By:
-------------------------------------
Its: President
By:
-------------------------------------
Its: Secretary
"WARRANTHOLDER"
----------------------------------------
(signature)
----------------------------------------
(Print or Type Name)
----------------------------------------
(Date)
10
<PAGE>
EXHIBIT "A"
FORM OF PROMISSORY NOTE
PREMIUM CIGARS INTERNATIONAL, LTD.
Phoenix, Arizona
$ .00 , 1997
----------------- ------------------
FOR VALUE RECEIVED, Premium Cigars International, Ltd., an Arizona
corporation ("Maker"), promises to pay to the order of ____________________ , a
___________________ ("Holder"), at
________________________________________________ , or at such other place as the
Holder may from time to time designate in writing, the principal sum of
_____________________________ ($________.00), together with interest thereon at
the rate of eight percent (8%) per annum from the date hereof until paid.
All principal and accrued interest shall be due and payable in full
upon the earlier of (i) the closing of the Maker's initial public offering of
its Common Stock, or (ii) the date six (6) months after the date hereof (the
"Offering Date"). Notwithstanding anything herein to the contrary, this Note
shall bear interest at the rate of sixteen percent (16%) per annum from and
after the earlier of (i) the Offering Date, or (ii) Maker's default in
performance of any of Maker's obligations hereunder. Furthermore, if for any
reason any principal and interest due and owing under this Note is not paid in
full on or before the date twelve (12) calendar months following the close of
escrow for this Note and the Warrant related hereto, the remaining balance due
hereunder shall be converted to a note to be amortized over the following twelve
( 12) month period at an annual interest rate of sixteen percent (16%) with all
accrued interest to be paid thereunder on a quarterly basis on the first day of
the calendar months of which are four, seven, ten and thirteen months from the
commencement of such twelve-month period.
All payments under this Note shall be first applied to interest and the
remainder to principal. Maker may prepay this Note in full or in part without
premium or penalty at any time. Interest shall be computed hereunder based on a
three hundred sixty-five (365) day year and the actual number of days elapsed.
Maker hereby covenants that, until this Note is paid in full and unless
Holder agrees otherwise in writing, Maker shall:
1. Maintain insurance against such hazards and liabilities as are
normally insured for in an "all risk" policy;
2. Pay when due all taxes, assessments, and other liabilities,
except those contested in good faith;
1
<PAGE>
3. Not create or permit any pledge, security interest, lien or
other encumbrance on any assets now owned or acquired
hereafter, except pledges, security interests, liens or other
encumbrances in favor of (i) collateralized working capital
loans, (ii) loans or other financing obtained by Maker whereby
the only assets encumbered by such pledges, security
interests, liens or other encumbrances were purchased with the
proceeds of such loans or other financing or (iii) mortgages
or leases on real property purchased or leased by Maker;
4. Not lend or advance money, credit or property except for (i)
reasonable advances against commissions payable to employees
or independent contractors or (ii) trade or business advances
or credits made in the ordinary course of Maker's business:
and
5. Not guarantee, assume, endorse or otherwise become responsible
for the personal debts of any employee, director, or
individual shareholder of Maker.
Any of the following events shall constitute an "Event of Default"
hereunder: (a) failure of Maker to pay any amount (whether of principal,
interest or otherwise) when due hereunder, which failure continues for period of
twenty (20) days after the due date thereof; (b) failure of Maker to perform any
other material covenant hereunder which failure continues for a period of thirty
(30) days after Maker's receipt of written notice from Holder to Maker of such
failure; or (c) the entry of an order for relief under the Federal Bankruptcy
Code as to Maker or entry of any order appointing a receiver or trustee for
Maker or approving a petition in reorganization or other similar relief under
bankruptcy or similar laws in the U. S. or any other competent jurisdiction,
which order, if voluntary, is not dismissed or stayed within ninety (90) days
after entry thereof; or making a general assignment for the benefit of Maker's
creditors; or admitting in writing inability to pay Maker's debts as they come
due.
If Maker fails to pay any sum due under this Note as and when due, then
Maker shall pay to Holder, in addition to the sums stated above, the reasonable
costs of collection, regardless of whether litigation is commenced, including a
reasonable sum as attorneys' fees and including the cost of converting any
collateral to cash. No failure on the part of Holder to exercise any of Holder's
rights hereunder or under any other agreement to which Holder is a party shall
be deemed a waiver of any such rights or of any default hereunder.
This Note may not be changed, amended or modified except by agreement
in writing signed by Maker and Holder.
This Note has been made and entered into in the State of Arizona and
shall be construed in accordance with the laws of the State of Arizona,
excluding its choice of law provisions, and the laws of the United States of
American. The parties agree that the State and Federal Courts of Arizona,
including both Maricopa County, Arizona Superior Court and the United States
District Court, District of Arizona, located in Phoenix Arizona, shall be the
proper and exclusive
2
<PAGE>
forums for any action relating to a dispute between the parties arising out of,
or related to, this Note. Each party consents to the in personam jurisdiction of
said courts.
In the event any one or more of the provisions of this Note shall for
any reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Note, but this Note shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein and has been severed
herefrom.
Whenever used in this Note, the words "Maker" and "Holder" shall be
deemed to include the respective successors of Maker and of Holder, and "Holder"
shall also include any subsequent holder of this Note. This Note shall be
binding in accordance with its terms upon Maker and its respective successors
and assigns. If this Note is signed by more than one party, Maker's obligations
hereunder are joint and several.
IN WITNESS WHEREOF, Maker has caused this Note to be duly executed as
of the day and year first above written.
"Maker"
Premium Cigars International, Ltd.
By:
-------------------------------------
Its:
------------------------------------
3
<PAGE>
EXHIBIT "B"
WARRANT EXERCISE FORM
To: Premium Cigars International, Ltd.
(1) The undersigned hereby elects to purchase shares of the no par
value common stock (the "Stock") of Premium Cigars International, Ltd., pursuant
to the provisions of the attached Warrant, and tenders herewith payment in full
of the purchase price for such shares.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of the Stock are being acquired solely for the
account of the undersigned and not as a nominee for any other party, and for
investment, and that the undersigned will not offer, sell or otherwise dispose
of any such shares of the Stock except under circumstances that will not result
in a violation of the Securities Act of 1933, as amended. or any applicable
securities laws.
(3) Please issue a certificate or certificates representing said shares
of the Stock in the name of the undersigned or in such other name as is
specified below:
----------------------------------------
(Name)
----------------------------------------
(Name)
(4) Please issue a new Warrant for the unexercised portion of the
Warrant specified by the attached Warrant in the name of the undersigned or in
such other name as specified below:
----------------------------------------
(Name)
- ----------------------- ----------------------------------------
(Date) (Signature)
<PAGE>
EXHIBIT "C"
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under the attached Warrant, with respect to the number
of shares of the Common Stock set forth below:
Name of Assignee Address No. of Shares
and does hereby irrevocably constitute and appoint Attorney ____________________
to make such transfer on the books of Premium Cigars International, Ltd.,
maintained for the purpose, with full power of substitution in the premises.
The undersigned also represents that, by assignment hereof, the
Assignee acknowledges that this Warrant and the shares of stock to be issued
upon exercise of this Warrant represented thereby are being acquired for
investment and that the Assignee will not offer, sell or otherwise dispose of
this Warrant or any shares of stock to be issued upon exercise of such Warrant
except under circumstances which will not result in a violation of the
Securities Act of 1933, as amended, or any state securities laws. Further, the
Assignee acknowledged that upon exercise of this Warrant, the Assignee shall, if
requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the shares of stock so purchased are being acquired for investment
and not with a view toward distribution ar resale .
Dated:
----------------------------
----------------------------------------
Signature of Holder
AGREEMENT
THIS AGREEMENT (this "Agreement") is made and entered into as of June
20, 1997 by and between Steven A. Lambrecht, Greg P. Lambrecht and Colin A.
Jones (collectively "Seller"), William L. Anthony ("Anthony") and Premium Cigars
International, Inc. ("PCI").
WHEREAS, Anthony desires to purchase from Seller, and Seller desires to
sell to Anthony, SIXTY SIX THOUSAND (66,000) post-split (reflecting a 3:1 stock
split on May 31, 1997) shares of Common Stock, no par value (the "Shares"), of
PCI to be paid for in cash. The Shares sold by Seller shall be provided as
follows:
Steven A. Lambrecht 60,000 shares
Greg P. Lambrecht 3,000 shares
Colin A. Jones 3,000 shares
AND WHEREAS, PCI desires to secure Anthony's commitment to serve as a
director, contingent upon shareholder approval, for up to a five-year period
following the completion of the initial public offering ("IPO") and Anthony
desires to receive certain stock options in exchange for such commitment;
NOW THEREFORE, in consideration of the covenants, agreements,
warranties and representations contained in this Agreement, the parties agree as
follows:
1. Agreement to Purchase. Subject to the terms and conditions set forth
below, Anthony agrees to purchase from Seller, and Seller agrees to sell to
Anthony the Shares for a cash payment of $22,000 and his agreement to become
Chairman of the Board of Directors of PCI upon completion of its initial public
offering. The purchase and sale of the Shares shall be consummated at a closing
(the "Closing") to occur on such date as the Seller and Anthony shall agree, but
which date shall be no later than June 21, 1997. At the Closing, Anthony shall
pay the purchase price to the Seller in immediately available funds. Upon
receipt, Seller shall surrender the Shares to Anthony with a duly executed stock
power to effect the transfer to Anthony.
2. Stock Option Grant. Subject to the approval of PCI's Board of
Directors, as set forth below, PCI grants Anthony a non-qualified option to
purchase 20,000 post-split shares of PCI Common Stock at the price printed in
the Prospectus relating to the IPO. Such option may be exercised from the
effective date of the IPO and for a one (1) year period thereafter. Anthony
acknowledges that, upon exercise, the shares purchased will be restricted shares
within the meaning of Rule 144 pursuant to the Securities Act of 1933, as
amended and that such shares may not be resold unless they are registered or
unless an exemption from registration is available.
3. Director and Officer Insurance. PCI agrees to obtain, within thirty
(30) days after the completion of the IPO, director and officer insurance for
all of its officers and directors
<PAGE>
at such coverage scope and levels which are in accord with industry standards
for distributing companies comparable to PCI.
4. Commitment to Serve as a Director. Subject to ongoing shareholder
and/or Board of Director approval, according to the provisions of PCI's Bylaws
and until his successor is elected and qualified, Anthony agrees to serve as a
director and Chairman of the Board of Directors beginning immediately and for a
period of up to five (5) years following the date of this Agreement.
5. Representations, Warranties and Covenants of the Seller. The Seller
represents, warrants and covenants with Anthony as follows:
5.1. The Seller has full power and authority to enter into
this Agreement and sell the Shares.
5.2. All statements made in this Agreement are true, correct
and complete as of the date of this Agreement.
6. Representations, Warranties and Covenants of Anthony. Anthony
represents and warrants to the Seller as follows:
6.1 I have such knowledge and experience that I am capable of
evaluating the relative risks and merits of the purchase of the Shares.
6.2 The address set forth below is my true and correct
address.
6.3 The Shares which I am purchasing are being acquired solely
for my own account, for investment and are not being purchased with a
view to or for their resale or distribution. In order to induce the
Seller to sell the Shares to me, the Seller will have no obligation to
recognize the ownership, beneficial or otherwise, of the Shares by
anyone but me.
6.4 All documents, records and books relating to PCI and the
Shares requested by me, including all pertinent records of PCI,
financial and otherwise, have made available or delivered to me.
6.5 I have had an opportunity to ask questions of and receive
answers from the Seller and PCI's officers and representatives
concerning PCI's affairs generally and the terms and conditions of my
proposed purchase of the Shares.
6.6 My decision regarding the purchase of the Shares is based
primarily on what I understand of the concept of PCI's business (which
understanding may be mistaken or flawed), and not on its assets,
liabilities or results to date.
-2-
<PAGE>
6.7 I am buying the Shares based solely upon my own
investigation and evaluation of PCI.
6.8 The Shares have not been registered under the Securities
Act, nor have they been registered pursuant to the provisions of the
securities or other laws of applicable jurisdictions.
7. Exclusive Warranties. There are no agreements, warranties or
representations, express or implied, except those that are expressly set forth
herein. All agreements, representations and warranties contained in this
Agreement speak as of the date of this Agreement and shall survive the
consummation of the transactions contemplated hereby.
8. Miscellaneous.
8.1 Governing Law. This Agreement shall be governed by and
construed in accordance with the substantive law of the State of Arizona.
8.2 Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and may be amended only by a writing executed by all parties.
8.3. Severability. If any provision hereof is invalid or
unenforceable in any jurisdiction, the other provisions hereof shall remain in
full force and effect in such jurisdiction and the remaining provisions will be
enforced to the maximum extent permitted by law and construed in a fashion to
effectuate best the provisions hereof, and the invalidity or unenforceability of
any provision hereof in any jurisdiction shall not effect the validity or
enforceability of any such provision in any other jurisdiction to the extent
that the remaining enforceable and valid provisions of this Agreement may be
construed in a fashion and act independently of the invalid or unenforceable
provisions to effectuate the intent of the parties as evidenced by this
Agreement.
8.4. Additional Documents. Anthony and Seller hereby agree to
execute such additional documents and to do such things as may be reasonably
required by the other party to implement the purposes of this Agreement.
The parties have executed this Agreement as of the date first set forth
above.
"SELLER" "Anthony"
- ------------------------------------ ------------------------------------
Steven A. Lambrecht William L. Anthony
-3-
<PAGE>
Address: Address:
15651 North 83rd Way 8731 North 65th Street
Suite 3 Paradise Valley, Arizona 85253
Scottsdale, Arizona 85260
- ------------------------------------
Greg P. Lambrecht
Address:
15651 North 83rd Way
Suite 3
Scottsdale, Arizona 85260
- ------------------------------------
Colin A. Jones
Address:
15651 North 83rd Way
Suite 3
Scottsdale, Arizona 85260
PREMIUM CIGARS INTERNATIONAL, INC.
By
----------------------------------
Steven A. Lambrecht, President
-4-
EXHIBIT 11.1
Premium Cigars International, Ltd.
Computation of Earnings Per Share
Years Ended
-----------
March 31,
---------
1996
----
Net Loss (153,517)
=========
Loss per Share (.10)
=========
Weighted average shares outstanding 1,480,500
=========
(1) Earnings per share are based upon the weighted average number of shares
outstanding for each of the respective years.
SEMPLE & COOPER, LLP
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
2700 NORTH CENTRAL AVENUE, ELEVENTH FLOOR, PHOENIX, ARIZONA 85004
o TEL 602-241-1500
o FAX 602-234-1867 BDO SEIDMAN ALLIANCE
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549
Re: Premium Cigars International, Ltd.
We have read the statement contained in Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure, contained in the Form SB-2
Registration Statement of Premium Cigars International, Ltd., dated June, 1996,
and are in agreement with the statements contained therein regarding Semple &
Cooper, LLP.
Yours very truly,
/s/ Semple & Cooper, L.L.P.
Semple & Cooper, LLP
Phoenix, Arizona
June 23, 1997
SUBSIDIARY LIST
State of Name under which
Name Jurisdiction Does Business
- ---- ------------ -------------
CAN-AM International British Columbia, CAN-AM International
Investment Corp. CANADA Investment Corp.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 53,018
<SECURITIES> 0
<RECEIVABLES> 72,797
<ALLOWANCES> 0
<INVENTORY> 126,337
<CURRENT-ASSETS> 766,759
<PP&E> 23,302
<DEPRECIATION> 247
<TOTAL-ASSETS> 522,461
<CURRENT-LIABILITIES> 349,928
<BONDS> 0
353,005
0
<COMMON> 0
<OTHER-SE> (136,955)
<TOTAL-LIABILITY-AND-EQUITY> 522,461
<SALES> 845,571
<TOTAL-REVENUES> 845,571
<CGS> 643,790
<TOTAL-COSTS> 977,566
<OTHER-EXPENSES> 21,522
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,292
<INCOME-PRETAX> (153,517)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (153,517)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> 0
</TABLE>
