UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED COMMISSION FILE NUMBER
--------------------- ----------------------
June 30, 1998 0-29414
PREMIUM CIGARS INTERNATIONAL, LTD.
(Exact name of small business issuer as specified in its charter)
Arizona 86-0846405
(state or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
15849 North 77th Street
Scottsdale, Arizona 85260
(Address of principal office) (Zip code)
Registrant's telephone number, including area code: (602) 922-8887
Securities registered pursuant to Section 12(b) of the Act:
No par value common stock
Securities registered pursuant to Section 12(g) of the Act:
No par value common stock
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter periods that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
As of June 30, 1998, there were 3,469,092 shares of Premium Cigars
International, Ltd. common stock, no par value outstanding.
<PAGE>
INDEX
-----
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
<S> <C>
Item 1 - Financial Statements...............................................................3
Condensed Consolidated Balance Sheet (Unaudited) as of June 30, 1998........................3
Condensed Consolidated Statement of Operations (Unaudited) for the three months and
six months ended June 30, 1998 and 1997.....................................................4
Condensed Consolidated Statement of Cash Flows (Unaudited) for the six months
ended June 30, 1998 and 1997................................................................5
Notes to Condensed Consolidated Financial Statements........................................6
Special Note Regarding Forward-Looking Statements...........................................8
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................................................9
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings.................................................................13
Item 2 - Changes in Securities and Use of Proceeds.........................................13
Item 3 - Defaults Upon Senior Securities...................................................14
Item 4 - Submission of Matters to a Vote of Security Holders...............................14
Item 5 - Other Information.................................................................15
Item 6 - Exhibits and Reports on Form 8-K..................................................15
SIGNATURES..........................................................................................16
</TABLE>
2
<PAGE>
PREMIUM CIGARS INTERNATIONAL, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30,
1998
-----------
(Unaudited)
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 311,666
Available for sale securities 1,446,148
Accounts receivable - trade, net 1,054,089
Inventory, net (Note 3) 1,639,188
Other current assets (Note 5) 179,211
-----------
Total Current Assets 4,630,302
-----------
Property and Equipment, net 606,446
-----------
Other Assets:
Humidors, net 892,599
Other assets 54,770
-----------
947,369
-----------
$ 6,184,117
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses (Note 4) 1,576,411
-----------
Total current liabilities 1,576,411
-----------
Commitments and Contingencies --
-----------
Stockholders' Equity:
Common stock - no par value, 10,000,000 shares
authorized, 3,469,092 shares issued and outstanding 8,807,049
Foreign currency translation adjustment 3,770
Accumulated deficit (4,203,113)
-----------
Total Stockholders' Equity 4,607,706
-----------
$ 6,184,117
===========
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements
3
<PAGE>
PREMIUM CIGARS INTERNATIONAL, LTD. & SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net Sales (Note 6) $ 2,018,651 $ 628,180 $ 3,263,604 $ 961,106
Cost of Sales (Note 6) 1,475,885 508,018 2,544,770 758,144
----------- ----------- ----------- -----------
Gross Profit 542,766 120,162 718,834 202,962
Selling, General and Administrative 1,274,923 309,199 2,510,163 513,165
Severance Packages (Note 4) 395,173
Stock Based Compensation 110,000 317,625
----------- ----------- ----------- -----------
Loss from Operations (732,157) (299,037) (2,186,502) (627,828)
Other Income (Expense) 28,181 (23,328) 94,913 (35,068)
----------- ----------- ----------- -----------
Net Loss $ (703,976) $ (322,365) $(2,091,589) $ (662,896)
=========== =========== =========== ===========
Basic Loss per Share $ (0.20) $ (0.22) $ (0.60) $ (0.45)
=========== =========== =========== ===========
Weighted Average Number of Shares Outstanding 3,469,092 1,480,500 3,469,092 1,480,500
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements
4
<PAGE>
PREMIUM CIGARS INTERNATIONAL, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1998 1997
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,091,589) $ (662,896)
Adjustments to reconcile net loss to net cash provided by
(used for) operating activities:
Depreciation and amortization 324,116 16,098
Accrual of severance packages 139,133
Stock issued for services and compensation 317,625
Net change in other assets and liabilities (474,956) 75,468
----------- -----------
Net cash provided by (used for) operating activities (2,103,296) (253,705)
----------- -----------
Cash flows from investing activities:
Purchase of humidors (425,437) (190,610)
Purchase of equipment (448,710) (104,376)
Other uses (net) (324,319)
Proceeds from sale of available for sale securities 2,024,323
----------- -----------
Net cash provided by (used for) investing activities 1,150,176 (619,305)
----------- -----------
Cash flows from financing activities:
Net proceeds from notes payable 810,350
Purchase of treasury stock (5,000)
Proceeds from issuance of common stock 42,415
----------- -----------
Net cash provided by financing activities -- 847,765
----------- -----------
Effect of exchange rate changes on cash and cash equivalents 421 --
----------- -----------
Net increase (decrease) in cash and cash equivalents (952,699) (25,245)
Cash and cash equivalents, beginning of period 1,264,365 51,669
----------- -----------
Cash and cash equivalents, end of period $ 311,666 $ 26,424
=========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements
5
<PAGE>
PREMIUM CIGARS INTERNATIONAL, LTD. & SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Presentation of Interim Information
In the opinion of the management of Premium Cigars International, LTD. and
Subsidiary (the "Company"), the accompanying condensed consolidated financial
statements include all normal adjustments considered necessary to present fairly
the financial position as of June 30, 1998, and the results of operations for
the three months and six months ended June 30, 1998 and 1997, and cash flows for
the six months ended June 30, 1998 and 1997. Interim results are not necessarily
indicative of results for a full year.
The condensed consolidated financial statements and notes are presented as
permitted by the instructions to Form 10-QSB, and therefore do not contain
certain information included in the Company's audited consolidated financial
statements and notes for the nine month period ended December 31, 1997.
2. Financial Statements
The condensed consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary. All significant intercompany accounts
and transactions have been eliminated.
3. Inventories
As of June 30, 1998, inventory consists of the following:
Cigars and cigar accessories $1,699,332
Reserve for inventory spoilage (60,144)
----------
$1,639,188
==========
4. Severance Packages
Subsequent to January 1, 1998, the Company terminated employment agreements with
certain former officers and employees of the Company. Under the terms of the
various employment agreements, severance pay ranges from six to nine months of
salary, payable over the same six or nine month period. Additionally, three of
the former officers received lump-sum payments of $40,000 each as settlement for
potential claims against the Company. As part of the settlement, each of the
individuals agreed to extend their non-compete clauses for an additional six
months for a total of a full year and one-half following termination of
employment and released the Company from all claims or causes of action relating
to their respective employment agreement and their employment with the Company.
6
<PAGE>
The severance packages are broken out as follows:
Severance pay $251,500
Payroll taxes 18,553
Other benefits 5,120
Lump sum payments 120,000
--------
$395,173
========
5. Related Party Transactions
In March of 1998, the Company terminated its distributorship agreement with Rose
Hearts, Inc., which was wholly-owned by a director of the Company, after it
determined that in practice, the agreement was not as favorable to the Company
as those generally available with unaffiliated third parties.
The Company has notes receivable from two directors/shareholders of the Company
in the aggregate amount of $86,225. The notes, which bear interest at 6%, are
due on March 31, 1999. Accrued interest as of June 30, 1998 is $10,347. The
total of the notes receivable plus accrued interest is included in other current
assets in the Company's condensed consolidated balance sheet.
6. Returns
As discussed in the Company's 1997 Form 10-KSB, a cigar trade-out program was
implemented during the first half of 1998. The purpose of the program was to
replace slower selling cigars with a more appropriate mix for each store. As of
June 30, 1998, most of the stores participating in the program had been shipped
new product; however, not all of the old product had been returned by the stores
for credit. The Company has accrued the estimated returns for trade-out sales
made prior to June 30, 1998. The net effect of this accrual was to reduce gross
profit for the quarter ended June 30, 1998 by approximately $87,500.
7
<PAGE>
Special Note Regarding Forward-looking Statements
Some of the statements contained in this report discuss future
expectations, contain projections of results of operations 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 actual
results to differ from forward-looking statements and projections include, for
example:
o our ability to maintain an adequate capital position and a sufficient
cash flow as we add retail stores required by commitments with our
customers and distributors;
o our ability to raise additional capital, if current financing is
depleted, to enable us to maintain sufficient working capital for
operating activities;
o any decision by major retail chains to discontinue selling all tobacco
products or to place our humidors in a disadvantageous location within
their stores;
o changes in government regulations, tax rates and similar matters,
including any restriction on the self-service nature of merchandising
displays and marketing promotions;
o the risk of any significant uninsured loss from potential passenger
claims as a result of a September 1997 automobile accident in which one
of our employees was the driver;
o the possible negative impact of any final settlement of litigation
among 40 States and major U.S. cigarette manufacturers;
o our ability to buy quality premium cigars at favorable prices and the
effect on cigar prices and availability, of weather and other
conditions in the countries that import cigars to the U.S. and Canada;
o our ability to negotiate and maintain favorable distribution
arrangements with customers;
o the effect of changing economic conditions;
o a decline in the popularity of cigar smoking and/or possible adverse
public opinion against cigars and cigar smoking; and
o other risks which were described in our Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1997 or which may 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.
8
<PAGE>
Item 2. - Management's Discussion and Analysis of Financial Condition and
- --------------------------------------------------------------------------------
Results of Operations
- ---------------------
You must read the following discussion on the financial condition and results of
operations of Premium Cigars International, LTD. ("PCI") in conjunction with
PCI's condensed consolidated financial statements, including the notes elsewhere
in this Form 10-QSB filing. Historical results are not necessarily an indicator
of trends in operating results for any future period.
PCI is an international marketer of premium cigars from its humidors and
promotional programs located in high traffic retail outlets. PCI operates in one
business segment and has a December 31 fiscal year.
RESULTS OF OPERATIONS
- ---------------------
The following table sets forth, for the three months and six months ended June
30, 1998 and 1997, certain items from PCI's Condensed Consolidated Statements of
Income expressed as a percentage of net sales.
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1998 1997 1998 1997
---- ---- ---- ----
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 73.1% 80.9% 78.0% 78.9%
----- ----- ----- -----
Gross Profit 26.9% 19.1% 22.0% 21.1%
Selling, General & Administrative 63.2% 66.7% 89.0% 86.4%
----- ----- ----- -----
Loss from Operations (36.3%) (47.6%) (67.0%) (65.3%)
Other Income (Expense) 1.4% (3.7%) 2.9% (3.6%)
----- ----- ----- -----
Net Loss (34.9%) (51.3%) (64.1%) (69.0%)
===== ===== ===== =====
Comparison of the Second Quarter of 1998 with the Second Quarter of 1997
------------------------------------------------------------------------
Net sales for the quarter ended June 30, 1998 increased by $1,391,000, a 221%
increase over the same period last year. The number of stores with humidors as
of June 30, 1998 increased by approximately 6,500 stores from June 30, 1997, or
248%. The increase in net sales is a direct result of the increased store count,
as well as improved re-order rates from bringing the U.S. customer service
function in-house beginning in April of 1998.
Gross profit margin improved to 27% for the quarter ended June 30, 1998, up from
19% in the quarter ended June 30, 1997. The improvement is mainly attributable
to more favorable purchasing arrangements with key suppliers versus those
available to PCI one year ago, as well as the contribution from higher margin,
higher priced cigars that were introduced during the second quarter of 1998.
9
<PAGE>
Selling, general and administrative expenses for the quarter ended June 30, 1998
increased $966,000, or 312% from the same period one year ago. SG&A as a
percentage of sales was 63% for the quarter ended June 30, 1998 compared to 49%
for the same period one year ago. The increase is attributable to the
development of the infrastructure that has been put into place to generate
future revenue and manage operations; the year ago SG&A represents a start-up
organization prior to PCI's initial public offering.
Stock based compensation - During the quarter ended June 30, 1997 certain
employees purchased Common Stock at a per share price that was determined to
have a market value in excess of the amount paid by the employees. Additional
compensation was recorded for the amount of the excess market value, or
$110,000.
Other income for the quarter ended June 30, 1998 consists primarily of interest
income from short-term investments which were purchased with a portion of the
net proceeds from our initial public offering . Other expense for the quarter
ended June 30, 1997 consists primarily of interest expense on notes payable.
Comparison of the First Six Months of 1998 with the First Six Months of 1997
----------------------------------------------------------------------------
Net sales for the six months ended June 30, 1998 increased $2.3 million, an
increase of 240% over the six months ended June 30, 1997. As discussed above,
the increase is due to the increase in the number of stores participating in the
humidor program, as well as improving second quarter 1998 re-order rates.
Gross profit margin for the six months ended June 30, 1998 improved slightly to
22%, up from 21% for the same period one year ago. The improvement from more
favorable purchasing arrangements with key suppliers versus those available to
PCI one year ago, as well as the contribution from higher margin, higher priced
cigars that were introduced during the second quarter of 1998 is offset somewhat
by lower margins during the first quarter of 1998. The lower margins during the
first quarter of 1998 were due mainly to a higher percentage of lower margin
cigars that were sold in Canada, as well as increased labor costs incurred in
consolidating warehouse space and inspecting inventory for possible damage.
Selling, general and administrative expense for the first half of 1998 increased
$2.0 million, or 389% over the first half of 1997. SG&A as a percentage of sales
was 77% for the six months ended June 30, 1998 compared to 53% for the same
period one year ago. The increase is attributable to the development of the
infrastructure that has been put into place to generate future revenue and
manage operations; the year ago SG&A represents a start-up organization prior to
PCI's initial public offering.
Severance Packages - As discussed in the 1997 Form 10-KSB, we took a one-time
charge in the first quarter of 1998 to reflect the cost of severance packages
for previous Management. The amount charged against earnings was $395,173.
Stock based compensation - During the six months ended June 30, 1997 certain
employees purchased Common Stock at a per share price that was determined to
have a market value in excess of the amount paid by the employees. Additional
compensation was recorded for the amount of the excess market value, or
$317,265.
10
<PAGE>
Other income for the six months ended June 30, 1998 consists primarily of
interest income from short-term investments which were purchased with a portion
of the net proceeds from our initial public offering. Other expense for the six
months ended June 30, 1997 consists primarily of interest expense on notes
payable.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
We require capital to market our PCI Cigar program, obtain additional inventory
and humidors to supply our increasing distribution network, and develop the
personnel, facilities, assets, and organization infrastructure necessary to
support our expanding business. Prior to our initial public offering, we raised
capital through the issuance of stock and notes payable, as well as obtaining a
line of credit from a bank. On September 29, 1997 we completed an initial public
offering that resulted in net proceeds to PCI of $8,131,664. See Item 2(c), "Use
of Proceeds" for application of the proceeds.
The Company used $2.1 million for operating activities in the first half of
1998, which was largely attributable to the net loss incurred during the period.
Non-cash expenses of $324 thousand were offset by a similar increase in net
other assets (mainly accounts receivable and inventory). Cash used for
operations included $256 thousand in severance benefits paid to former
management of the Company.
As of June 30, 1998 the combined balance of cash and available for sale
securities totaled $1,758,000, a decrease of $2,977,000 or 63% from December 31,
1997. The decline is due to the net loss incurred for the six months ended June
30, 1998 and the Company's continued additional investments in humidors and
property and equipment.
Accounts receivable at June 30, 1998 increased $417,000, or 65% from December
31, 1997. The increase is largely attributable to the increased level of sales
during the first half of 1998.
Net inventories at June 30, 1998 increased $317,000, or 24% from December 31,
1997. The increase is attributable to: 1) an increase in inventory purchases in
Canada in anticipation of seasonal scheduled supplier plant closings, as well as
the applicable tobacco taxes on the inventory; 2) inventory returned by
customers as part of the cigar trade-out program that was implemented during the
first half of 1998; and 3) a gradual shift in inventory mix to higher priced,
and therefore, higher cost cigars.
As part of the Company's humidor program, a humidor is sent with each initial
order of cigars as new stores are added. While PCI retains ownership of the
humidor, the store is not charged for the humidor unless it is lost or damaged
by the store. Therefore, as new stores continue to be added, PCI requires
capital to purchase the humidors it sends out as part of the initial order.
Capital expenditures (excluding humidors) totaled $449,000 for the six months
ended June 30, 1998. This included the cost of new office furniture and
leasehold improvements for our new facility, continued investment in computer
equipment and software applications, and warehouse machinery and equipment.
Accounts payable and accrued expenses at June 30, 1998 increased $424,000, or
37% from December 31, 1997. The increase is largely due to the increased
inventory purchases during June, the accrual of budgeted incentive plan pay-outs
and the accrual of severance packages for former management that will be paid
out during 1998.
11
<PAGE>
We have no current plans that represent a material change from the use of
proceeds described in the Prospectus dated August 21, 1997; however, we cannot
assure you that we can generate sufficient revenues to satisfy the cash flow
necessary to meet our anticipated future expansion or our working capital needs.
Although the Company has proactively implemented programs to aggressively manage
our receivable and inventory balances to accelerate cash flow, we believe it may
be necessary to raise additional capital during the third or fourth quarter in
order to continue to expand our business and fund current operations. If
additional funding is required, we may raise capital through the issuance of
long-term or short-term debt or the issuance of securities in public or private
transactions; however, we cannot assure you that we will be able to raise the
additional necessary capital.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
-----------------
None
Item 2 - Changes in Securities and Use of Proceeds
-----------------------------------------
(a) None.
(b) None.
(c) Use of Proceeds.
The Company provides the following information in accordance with Item
701(f) of Regulation S-B:
1. The Company's Registration Statement on Form SB-2 (File No.
333-29985) was declared effective on August 21, 1997;
2. The offering commenced on August 21, 1997.
3. The offering did not terminate before any securities were sold.
4(i) to 4(vi). In response to subparagraphs 4(i) to 4(vi), the
Registrant incorporates by reference its response to
subparagraphs 4(i) to 4(vi) of Item 5 of its Annual
Report on Form 10-KSB for the fiscal year ended
December 31, 1998.
4(vii). From the effective date of PCI's Registration Statement,
August 21, 1997 to June 30, 1998, the net offering proceeds
were applied as follows: $1,200,000 to repayment of debt,
$904,190 to purchase humidors, $1,889,206 to purchase
inventory, $1,631,154 for sales and marketing and $2,506,114
in temporary investments and other net working capital.
4(viii). In addition, net offering proceeds were applied to
the following items, which represent a material
change from the use of proceeds described in the
Prospectus dated August 21, 1997:
In response to this subparagraph 4(viii), the
Registrant incorporates by reference its response to
subparagraph 4(viii) of Item 5 of its Annual Report
on Form 10-KSB for the fiscal year ended December 31,
1998.
13
<PAGE>
Item 3 - Defaults upon Senior Securities
-------------------------------
None
Item 4 - Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On May 8, 1998, the Company held its Annual Meeting of Stockholders
(the "Annual Meeting"). The following matters were voted on at the Annual
Meeting:
1. The directors of the Company were elected by the following votes:
Against/
Name Votes For Withheld
---- --------- --------
William L. Anthony 3,255,915 34,158
John E. Greenwell 3,254,915 35,158
Colin A. Jones 3,241,665 48,408
Greg P. Lambrecht 3,240,815 49,258
Steven A. Lambrecht 3,242,815 47,258
Robert H. Manschot 3,256,415 33,658
Atul Vashistha 3,252,915 37,158
2. The appointment of SEMPLE & COOPER, LLP as the Company's independent
auditors was ratified by the following votes:
Votes For Votes Against Abstain
--------- ------------- -------
3,263,282 17,200 9,591
3. Stock option grants made by the Board of Directors to certain
officers, directors and consultants were ratified by the following votes:
Votes For Votes Against Abstain Broker Non-Votes
--------- ------------- ------- ----------------
1,717,290 122,117 41,841 1,408,825
4. The Management and Key Employee Incentive Plan was approved by the
following votes:
Votes For Votes Against Abstain Broker Non-Votes
--------- ------------- ------- ----------------
1,768,006 101,492 11,750 1,408,825
5. The Employee Stock Option Plan was approved by the following votes:
Votes For Votes Against Abstain Broker Non-Votes
--------- ------------- ------- ----------------
1,780,773 88,925 11,550 1,408,825
14
<PAGE>
The foregoing matters were described in detail in the Registrant's
definitive proxy statement dated and mailed to shareholders on April 8, 1998,
for the Annual Meeting of Stockholders held on May 8, 1998.
Item 5 - Other Information
-----------------
None
Item 6 - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Exhibit Name Method of Filing
- ------- ------------ ----------------
Number
- ------
<S> <C> <C>
3.1 Articles of Incorporation *
3.2 Amended and Restated Bylaws, Adopted May Exhibit filed herewith
8, 1998
4.1 Specimen Common Stock Certificate **
4.2 Description of Rights of Security Holders ***
10.1 Distributorship and Manufacturing Agreement Exhibit filed
between CAN-AM International Investments herewith****
Corp. and Imperial Tobacco Limited, dated
May 4, 1998
27.1 Financial Data Schedule Exhibit filed herewith
99.1 "Underwriting" section of Registration *****
Statement on Form SB-2
</TABLE>
* Incorporated by reference to Exhibit 3.1 of Registration Statement on Form
SB-2 (file no. 333-29985) declared effective on August 21, 1997.
** Incorporated by reference to Exhibit 4.2 of Registration Statement on Form
SB-2 (file no. 333-29985) declared effective on August 21, 1997.
*** Incorporated by reference to Exhibit 4.1 of Registration Statement on Form
SB-2 (file no. 333-29985) declared effective on August 21, 1997.
**** Portions of the exhibit omitted and filed separately with the Commission
pursuant to the Confidential Treatment provisions of Regulation ss. 240.24b-2.
***** Incorporated by reference to pages 56-57 of Registration Statement on Form
SB-2 (file no. 333-29985) declared effective on August 21, 1997.
15
<PAGE>
(b) Reports on Form 8-K
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PREMIUM CIGARS INTERNATIONAL, LTD.
(Registrant)
/s/ John E. Greenwell Date: August 14, 1998
- --------------------------------------------
John E. Greenwell
President & Chief Executive Officer
/s/ Stanley R. Hall Date: August 14, 1998
- --------------------------------------------
Stanley R. Hall
Controller and principal accounting officer
16
AMENDED AND RESTATED BYLAWS
OF
PREMIUM CIGARS INTERNATIONAL, LTD.
----------------
I. CORPORATE ARTICLES
------------------
1.01 References Thereto. Any reference made herein to the Corporation's
Articles will be deemed to refer to its Articles of Incorporation and all
amendments thereto which are on file with the Arizona Corporation Commission at
any given time, together with any and all certificates theretofore filed by the
Corporation with the Arizona Corporation Commission pursuant to Arizona Revised
Statutes ("A.R.S.") ss. 10-203 or any amended or successor statute thereto.
1.02 Seniority Thereof. The Articles will in all respects be considered
senior and superior to these Bylaws, with any inconsistency to be resolved in
favor of the Articles, and with these Bylaws to be deemed automatically amended
from time to time to eliminate any such inconsistency which may then exist.
II. SHAREHOLDERS' MEETINGS
----------------------
2.01 Annual Meetings. Annual meetings of the shareholders shall be held
on the first Friday of May of each year unless that day is a Saturday, Sunday or
legal holiday, in which event the annual meeting will be held on the next
succeeding business day and at a time of day and place as determined by the
Board of Directors (or, in the absence of action by the Board, as set forth in
the notice given, or waiver signed, with respect to such meeting pursuant to
Section 2.03 below) or at the principal place of business of the Corporation,
unless a different place is specified in the notice. If any such annual meeting
is for any reason not held on the date determined as aforesaid, a special
meeting may thereafter be called and held in lieu thereof, and the same
proceedings (including the election of directors) may be conducted thereto as at
an annual meeting.
2.02 Special Meetings. Special meetings of the shareholders may be held
whenever and wherever called for by the President or the Board of Directors, or
by the written demand of the holders of not fewer than ten percent (10%) of all
issued and outstanding shares of stock, regardless of class. The business which
may be conducted at any such special meeting will be confined to the purposes
stated in the notice thereof, and to such additional matters as the chairman of
such meeting may rule to be germane to such purpose.
<PAGE>
2.03 Notices. At least ten (10) but no more than sixty (60) days
(inclusive of the date of meeting) before the date of any meeting of the
shareholders, the Secretary will cause a written notice setting forth the day,
time and place and, in the case of a special meeting the purpose or purposes of
the meeting, to be deposited in the mail, with postage prepaid, addressed to
each shareholder of record at his last address as it then, or on the applicable
record date, appears on the stock transfer books of the Corporation. Any
shareholder may expressly waive call or notice of any annual or special meeting
(and any adjournment thereof) at any time before, during or after it is held.
The waiver shall be in writing, signed by the Shareholder entitled to the call
or notice and delivered to the corporation for inclusion in the minutes or
filing with the corporate records. Attendance by a shareholder at any such
meeting in person or by proxy will automatically evidence his waiver thereof
without a writing unless he or his proxy at the beginning of the meeting objects
to holding the meeting or transacting business at the meeting. A Shareholder's
attendance shall also be deemed a waiver of objection to a consideration of a
particular matter at the meeting that is not within the purposes described in
the meeting notice, unless the Shareholder objects to considering the matter
when it is presented. No call or notice of a meeting of the shareholders will be
necessary if each of them waives the same in writing or by attendance as
aforesaid.
2.04 Registered Shareholders. To determine the shareholders entitled to
notice of any shareholders' meeting, to demand a special meeting, to vote or to
take any other action by consent or otherwise, the Board of Directors may fix in
advance a date, not exceeding seventy (70) days preceding the date of such
meeting or action, as a record date for the determination of shareholders of
record entitled to notice of, and to vote at, such meeting or to take such
action. The shares of stock, and the shareholders, "entitled to vote" (as that
or any similar term is hereafter used) at any meeting of the shareholders will
be determined as of the applicable record date if one has been fixed as
aforesaid; otherwise, as of four o'clock in the afternoon on the day before
notice of the meeting is sent, first demand is made, or action is taken; or, if
notice is waived, at the commencement of the meeting.
2.05 Proxies. Any shareholder entitled to vote thereat may vote by
proxy at any meeting of the shareholders (and at any adjournment thereof) which
is specified in such proxy, provided that his proxy is executed in writing by
him (or by his duly authorized attorney-in-fact) within eleven (11) months prior
to the date of the meeting so specified, unless otherwise provided in the proxy.
The burden of proving the validity of any undated proxy at any such meeting of
the shareholders will rest with the person seeking to exercise the same. A
telegram or cablegram appearing to have been transmitted by a shareholder (or by
his duly authorized attorney-in-fact) may be accepted as a sufficiently written
and executed proxy.
2.06 Corporate Shareholders. Any other corporation entitled to vote
shares of the Corporation's stock at any meeting of the Corporation's
shareholders may be represented at the meeting by such persons designated by the
bylaws of such corporation or by resolution of its board of directors, and such
officer or other person so designated may vote such corporation's stock in this
Corporation in person or by proxy appointed by him.
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2.07 Quorum. At any meeting of the shareholders, the presence in person
or by proxy of the holders of a majority of all issued and outstanding shares of
the Corporation which would then be entitled to vote on any single subject
matter which may be brought before the meeting will constitute a quorum of the
shareholders for all purposes, and the affirmative majority of all votes cast
on any item shall constitute the act of the shareholders. In the absence of a
quorum, any meeting may be adjourned from time to time, until a quorum is
present, by the affirmative vote thereof by the holders of a majority of shares
then present, without notice other than by announcement thereat of the time and
place of the adjourned meeting, except as otherwise provided by law. At any such
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at a meeting as originally noticed. The
shareholders present at a duly organized meeting may continue to transact
business until adjournment, and action on any matter is approved if the votes
cast favoring the action exceed the votes cast opposing the action as specified
in A.R.S. ss. 10-725(C), notwithstanding the withdrawal of enough shareholders
to leave less than a quorum.
2.08 Participation in Shareholders' Meeting. The Board of Directors may
permit any or all shareholders to participate in an annual or special
shareholders' meeting by or conduct the meeting through use of any means of
communication by which all shareholders participating may simultaneously hear
each other during the meeting. If the Board of Directors in its sole discretion
elects to permit participation by such means of communication, the notice of the
meeting shall specify how a shareholder may participate in the meeting by such
means of communication. The participation may be limited by the Board of
Directors in its sole discretion to specified locations or means of
communications. A shareholder participating in a meeting by this means is deemed
to be present in person at the meeting.
2.09 Election Inspectors. The Board of Directors, in advance of any
shareholders' meeting, may appoint an election inspector or inspectors to act at
such meeting (and any adjournment thereof). If an election inspector or
inspectors are not so appointed, the chairman of the meeting may, or upon the
request of any person entitled to vote at the meeting will, make such
appointment. If any person appointed as an inspector fails to appear or to act,
a substitute may be appointed by the chairman of the meeting. If appointed, the
election inspector or inspectors (acting through a majority of them if there is
more than one) will determine the number of shares outstanding, the
authenticity, validity and effect of proxies and the number of shares
represented at the meeting in person and by proxy; they will receive and count
votes, ballots and consents and announce the results thereof; they will hear and
determine all challenges and questions pertaining to proxies and voting; and, in
general, they will perform such acts as may be proper to conduct elections and
voting with complete fairness to all shareholders. No such election inspector
need be a shareholder of the Corporation.
2.10 Organization and Conduct of Meetings. Each shareholders' meeting
will be called to order and thereafter chaired by the Chairman or the President,
or if the Chairman or President are unavailable, then by such other officer of
the Corporation or such shareholder as may be appointed by the Board of
Directors. The Corporation's Secretary or Assistant Secretary will act as
secretary of each shareholders' meeting; in his absence, the chairman of the
meeting may
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appoint any person (whether a shareholder or not) to act as secretary thereat.
After calling a meeting to order, the chairman thereof may require the
registration of all shareholders intending to vote in person, and the filing of
all proxies, with the election inspector or inspectors, if one or more have been
appointed (or, if not, with the secretary of the meeting). After the announced
time for such filing of proxies has ended, no further proxies or changes,
substitutions or revocations of proxies will be accepted. If directors are to be
elected, a tabulation of the proxies so filed will, if any person entitled to
vote in such election so requests, be announced at a meeting (or adjournment
thereof) prior to the closing of the election polls. Absent a showing of bad
faith on his part, the chairman of a meeting will, among other things, have
absolute authority to fix the period of time allowed for the registration of
shareholders and the filing of proxies, to determine the order of the business
to be conducted at such meeting and to establish reasonable rules for expediting
the business of the meeting (including any informal, or question and answer
portions thereof).
2.11 Voting. Except for the election of directors (which will be
governed by the cumulative voting laws of Arizona) and except as may otherwise
be required by the Corporation's Articles or by statutes, each issued and
outstanding share of the Corporation's capital stock (specifically excluding
shares held in the treasury of the Corporation) represented at any meeting of
the shareholders in person or by a proxy given as provided in Section 2.05
above, will be entitled to one (1) vote. The voting on any question as to which
a ballot vote is demanded, prior to the time the voting begins, by any person
entitled to vote on such question; otherwise, a voice vote will suffice. No
ballot or change of vote will be accepted after the polls have been declared
closed following the ending of the announced time for voting.
2.12 Shareholder Approval or Ratification. The Board of Directors may
submit any contract or act for approval or ratification at any duly constituted
meeting of the shareholders, the notice of which either includes mention of the
proposed submittal or is waived as provided in Section 2.03 above. If any
contract or act so submitted is approved or ratified by a majority of the votes
cast thereon at such meeting, the same will be valid and as binding upon the
Corporation and all of its shareholders as it would be if approved and ratified
by each and every shareholder of the Corporation, except as specifically
provided to the contrary by statute.
2.13 Action Without a Meeting. Any action required to be taken at a
meeting of the shareholders of the Corporation, or any action that may be taken
at a meeting of the shareholders, may be taken without a meeting and without
notice if a consent in writing setting forth the action so taken, shall be
signed by all of the shareholders entitled to vote with respect to the subject
matter thereof. This consent shall have the same effect as a unanimous vote of
the shareholders. Unless otherwise specified in the consent or consents, the
action is effective on the date that the last consenting shareholder signs,
except where notice to non-voting shareholders requires a different effective
date as specified in A.R.S. 10-704(D) or any amended or successor statute
thereto.
2.14 Informalities and Irregularities. All informalities or
irregularities in any call or notice of a meeting, or in the areas of
credentials, proxies, quorums, voting and similar matters,
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will be deemed waived if no objection is made regarding call, notice, proxy or
quorum, at the beginning of the meeting, and regarding voting for specific
matters, when the matter is presented.
2.15 List of Shareholders. The officer who has charge of the stock
ledger of the Corporation or its equivalent shall prepare and make available, at
least ten (10) days before every meeting of shareholders, a complete list of the
shareholders entitled to vote, arranged in alphabetical order, and showing the
address and number of shares issued in the name of each shareholder. Such list
shall be open to the examination of any shareholder, for any purpose germane to
the meeting at the corporation's principal office, the office of the
corporation's transfer agent if specified in the meeting notice or at another
place identified in the meeting notice in the city where the meeting will be
held. The list shall also be produced and kept at the place of the meeting
during the whole time thereof, and may be inspected by any shareholder present.
2.16 Shareholder Approval of Certain Transactions. Shareholder approval
or ratification shall be required for a plan or arrangement under subparagraph
(A) below or, prior to the issuance of designated securities under subparagraphs
(B), (C) or (D) below:
(A) when a stock option or purchase plan is to be established
or other arrangement made pursuant to which stock may be acquired by
officers or directors, except for warrants or rights issued generally
to security holders of the Corporation or broadly based plans or
arrangements including other employees (e.g. ESOPs). In a case where
the shares are issued to a person not previously employed by the
Corporation, as an inducement essential to the individual's entering
into an employment contract with the Corporation, shareholder approval
will generally not be required. The establishment of a plan or
arrangement under which the amount of securities which may be issued
does not exceed the lesser of 1% of the number of shares of Common
Stock, 1% of the voting power outstanding, or 25,000 shares will not
generally require shareholder approval. Shareholder approval under this
subparagraph may be by ratification at the next annual or special
meeting of the shareholders;
(B) when the issuance will result in a change of control of
the Corporation;
(C) in connection with the acquisition of the stock or assets
of another company if:
(i) any director, officer or substantial shareholder
of the Corporation has a 5% or greater interest (or such
persons collectively have a 10% or greater interest), directly
or indirectly, in the company or assets to be acquired or in
the consideration to be paid in the transaction or series of
related transactions and the present or potential issuance of
Common Stock, or securities convertible into or exercisable
for Common Stock, could result in an increase in outstanding
Common Shares or voting power of 5% or more; or
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(ii) where the present or potential issuance of
Common Stock, or securities convertible into or exercisable
for Common Stock, other than a public offering for cash, if
the Common Stock has or will have upon issuance voting power
equal to or in excess of 20% of the voting power outstanding
before the issuance of stock or securities convertible into or
exercisable for Common Stock, or the number of shares of
Common Stock to be issued is or will be equal to or in excess
of 20% of the number of shares or Common Stock outstanding
before the issuance of the stock or securities; or
(D) in connection with a transaction other than a public
offering involving:
(i) the sale or issuance by the Corporation of Common
Stock (or securities convertible into or exercisable for
Common Stock) at a price less than the greater of book or
market value which together with sales by officers, directors
or substantial shareholders of the Corporation equals 20% or
more of the Common Stock or 20% or more of the voting power
outstanding before the issuance; or
(ii) the sale or issuance by the Corporation of
Common Stock (or securities convertible into or exercisable
for Common Stock) equal to 20% or more of the Common Stock or
20% or more of the voting power outstanding before the
issuance for less than the greater of book or market value of
the stock.
(E) Exceptions may be made upon application to the National
Association of Securities Dealers, Inc. when:
(i) the delay in securing shareholder approval would
seriously jeopardize the financial viability of the
enterprise;
(ii) reliance by the Corporation on this exception is
expressly approved by the Audit Committee of the Board or a
majority of the Independent Directors; and
(iii) the Corporation mails to all shareholders not
later than ten days before issuance of the securities a letter
alerting them of the Corporation's omission to seek
shareholder approval that would otherwise be required and
indicating that the Audit Committee of the Board or a majority
of the Independent Directors has expressly approved the
exception.
(F) Only shares actually issued and outstanding (excluding
treasury shares or shares held by a subsidiary) are to be used in
making any calculation provided for in this Section 2.16; specifically,
unissued shares reserved for issuance upon conversion of securities or
upon exercise of options or warrants will not be regarded as
outstanding.
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(G) Voting power outstanding as used in this Section 2.16
refers to the aggregate number of votes which may be cast by holders of
those securities outstanding which entitle the holders thereof to vote
generally on all matters submitted to the Corporation's security
holders for a vote.
(H) An interest consisting of less than either 5% of the
number of shares of Common Stock or 5% of the voting power outstanding
of the Corporation or other entity shall not be considered a
"substantial interest" or cause the holder of such an interest to be
regarded as a "substantial security holder."
(I) Where shareholder approval is required, the minimum vote
which will constitute shareholder approval shall be a majority of the
total votes cast on the proposal in person or by proxy.
2.17 Voting Rights. The Corporation shall not issue any class of
security, or take other corporate action, with the effect of nullifying,
restricting, or disparately reducing the per share voting rights of holders of
an outstanding class or classes of Common Stock of the Corporation which is
registered pursuant to Section 12 of the Securities Exchange Act of 1934.
(A) For the purposes of this Section 2.17, the following shall
be presumed to have the effect of nullifying, restricting, or
disparately reducing the per share voting rights of an outstanding
class or classes of Common Stock:
(i) corporate action to impose any restriction on the
voting power of shares of Common Stock held by a beneficial or
record holder based on:
(a) the number of shares held by such
beneficial or record holder; or
(b) the length of time such shares have been
held by such beneficial or record holder; or
(ii) any issuance of securities through an exchange
offer by the Corporation for shares of an outstanding class of
Common Stock or any issuance of securities pursuant to a stock
dividend, or any other type of distribution of stock, in which
the securities issued have voting rights greater than or less
than the per share voting rights of any outstanding class of
Common Stock.
(B) For the purposes of this Section 2.17, the following,
standing alone, shall be presumed not to have the effect of nullifying,
restricting, or disparately reducing the per share voting rights of an
outstanding class or classes of Common Stock:
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(i) the issuance of any class of securities, through
a registered public offering, with voting rights not greater
than the per share voting rights of any outstanding class of
the Corporation's Common Stock;
(ii) the issuance of any class of securities to
effect a bona fide merger or acquisition, with voting rights
not greater than the per share voting rights of any
outstanding class of the Corporation's Common Stock; or
(iii) corporate action taken pursuant to Arizona law
requiring the Corporation to condition the voting rights of a
beneficial or record holder of a specified threshold
percentage of the Corporation's voting stock on the approval
of the Corporation's independent shareholders.
(C) The following terms shall have the following meanings for
purposes of this Section 2.17 only:
(i) "Common Stock" shall include any security of the
Corporation designated as Common Stock and any security,
however designated, which by statute or by its terms is a
common stock (e.g., a security which entitles the holders
thereof to vote generally on matters submitted to the
Corporation's security holders for a vote;
(ii) "Security" shall include any security defined as
such pursuant to Section 3(a)(10) of the Securities Exchange
Act of 1934, as amended, but shall exclude any class of
security having a preference or priority over the
Corporation's Common Stock as to dividends, interest payments,
redemption or payments in liquidation, if the voting rights of
such securities only become effective as a result of specified
events, not relating to an acquisition of the Common Stock of
the Corporation, which reasonably can be expected to
jeopardize the Corporation's financial ability to meet its
payment obligations to the holders of that class of
securities.
III. BOARD OF DIRECTORS
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3.01 Number and Qualification. The business and affairs of the
Corporation shall be managed by a Board of Directors comprised of no less than
one, but no more than nine members. The directors need not be shareholders of
the Corporation or residents of the State of Arizona. The Board may appoint from
its members a Chairman of the Board to preside over all meetings of shareholders
and of the Board.
3.02 Election. The members of the initial Board of Directors shall hold
office until the first annual meeting of the shareholders and until their
successors shall have been elected and qualified. At the first annual meeting of
shareholders, and at each annual meeting thereafter or special meeting in lieu
of an annual meeting called for such purpose, the shareholders shall elect
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the directors to hold office until the next succeeding annual meeting. The
directors shall hold office for the term for which they are elected and until
their successors shall be elected and qualified.
3.03 Vacancies. Except as provided in Section 3.04 below, any vacancy
in the Board caused by death, resignation, removal, increase in the number of
directors, or any other cause, may be filled for the unexpired term by a
majority vote of the remaining directors though less than a quorum or by a sole
remaining director, or, in the event that there are no directors then in office,
then by the shareholders at the next annual meeting or at any special meeting
called for that purpose.
3.04 Resignation and Removal of Directors. Any director may resign at
any time by giving written notice of his or resignation to the Corporation. Any
such resignation shall take effect at the time specified therein, or, if no time
is specified, immediately upon receipt by the President or the Secretary, and,
unless specified in the resignation, the acceptance of such resignation shall
not be necessary to make it effective. Unless prohibited or restricted by an
agreement to the contrary, any director may be removed at any time, either with
or without cause, as provided by the Arizona Revised Statutes then in effect, or
by the affirmative vote of the holders of a majority of the stock of the
Corporation issued and outstanding and entitled to vote, given at a special
meeting of such shareholders called for that purpose, provided that if less than
the entire Board is to be removed, one of the directors may not be removed if
the votes cast against his removal would be sufficient to elect him if then
cumulatively voted at an election of the entire Board of Directors, and the
vacancy in the Board caused by any such removal may be filled by the
shareholders at such meeting.
3.05 Regular Meetings. A regular annual meeting of the directors is to
be held immediately after the adjournment of each annual shareholders' meeting
at the place at which such shareholders' meeting was held for the purpose of
organization, election of officers and consideration of any other business that
may properly come before the meeting. Regular meetings, other than as specified
herein, may be held at regular intervals at such places and at such times as the
Board of Directors may provide.
3.06 Participation in Directors' Meetings. The Board of Directors may
permit any or all directors to participate in a regular or special meeting by or
conduct the meeting through the use of any means of communication by which all
directors participating may simultaneously hear each other during the meeting. A
director participating in a meeting by this means is deemed to be present in
person at the meeting.
3.07 Special Meetings. Special meetings of the Board of Directors may
be held whenever and wherever called for by the President or the number of
directors which would be required to constitute a quorum.
3.08 Notices. No notice need be given of regular annual meetings of the
Board of Directors. Written notice of the day, place and time (but not
necessarily the purpose or all the
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purposes) of any regular meeting, other than annual meetings, or any special
meeting shall be given to each director in person or by mail or telefacsimile
addressed to him at his latest address appearing on the Corporation's records.
Notice to any director of any such special meeting will be deemed given
sufficiently in advance when, if given by mail, the same is deposited in the
United States mail, with postage thereon prepaid, at least two (2) days before
the meeting date. Notice is sufficiently given if delivered personally or by
telefacsimile to the director, or by telephone, not later than the day before
the day on which such meeting is to be held. Any director may expressly waive
call or notice of any meeting (and any adjournment thereof) at any time before,
during or after it is held. Such waiver shall be in writing, signed by the
director entitled to the call or notice and filed with the minutes or corporate
records. Attendance of a director at any meeting shall evidence his waiver
without a writing of call and notice of such meeting (and any adjournment
thereof) unless the director, at the beginning of the meeting or promptly upon
his arrival, objects to holding the meeting or transacting business at the
meeting and does not thereafter vote for or assent to action taken at the
meeting. No call or notice of a meeting of directors will be necessary if each
of them waives the same in writing or by attendance as aforesaid. Any meeting,
once properly called and noticed (or as to which call and notice have been
waived as aforesaid) and at which a quorum is present, may be adjourned to
another time and place by a majority of those in attendance, and notice of any
adjourned meeting need not be given, other than by announcement at the meeting
at which such action to adjourn be taken.
3.09 Quorum and Manner of Acting. A quorum for the transaction of
business at any meeting or adjourned meeting of the directors will consist of a
majority of the number of directors in office immediately before the meeting
begins. Any act of a majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors unless the act of a
greater number is required by statute, the Articles or these Bylaws. In all
cases of a tie vote, the Chairman shall have a second or deciding vote to break
the tie. If a quorum shall not be present at any meeting of the Board of
Directors, any meeting may be adjourned from time to time until a quorum is
present by the affirmative vote of the directors then present, without notice
other than by announcement thereat of the time and place of the adjourned
meeting at which a quorum is present, any business may be transacted which might
have been transacted at the original meeting which was adjourned.
3.10 Executive Committee. The Board of Directors may, by resolution
adopted by a majority of the whole Board, name two or more of its members as an
Executive Committee. Except as otherwise prohibited by statute, such Executive
Committee will have and may exercise the powers of the Board of Directors in the
management of the business and affairs of the Corporation while the Board is not
in session, subject to such limitations as may be included in the Board's
resolution and the prohibited actions in A.R.S. ss.10-825(E) or any amended or
successor statute thereto. A majority of those named to the Executive Committee
will constitute a quorum. In the event that vacancy occurs in the Executive
Committee, the vacancy shall be filled by the Board of Directors.
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3.11 Other Committees. Other standing or temporary committees may from
time to time be appointed from its own membership by the Board of Directors and
be vested with such powers as the Board may lawfully delegate. All committees
are to keep regular minutes of the transactions of their meetings and make such
minutes available to the Board of Directors.
3.12 Presumption of Assent. A director of the Corporation who is
present at a meeting of the Board of Directors, or of any committee, at which
action is taken on any corporate matter will be presumed to have assented to the
action taken unless his dissent is entered in the minutes of the meeting or
unless he files his written dissent to such action with the Secretary of the
Corporation by five o'clock in the afternoon (5:00 p.m.) of the next day after
the adjournment of the meeting, holidays and weekends excepted. A right to
dissent will not be available to a director who voted in favor of the action.
3.13 Action Without A Meeting. Any action that may be taken at a
meeting of the Board of Directors may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all the directors
or committee members, whichever is applicable. Such consent shall have the same
effect as a unanimous vote. Unless otherwise specified in the consent or
consents, the action is effective on the date that the last consenting director
signs.
3.14 Compensation. Each director, in consideration of his serving as
such, shall be entitled to receive from the Corporation such amount or other
form of compensation per annum or such fees for attendance at directors'
meetings, or both, as the Board of Directors shall from time to time determine,
together with reimbursement for the reasonable expenses incurred by him in
connection with the performance of his duties. Nothing contained herein shall
preclude the director from serving the Corporation, its affiliates or
subsidiaries in any other capacity and receiving proper compensation therefor.
Members of any committee established may be allowed such similar compensation
and reimbursement as determined by the Board of Directors.
3.15 Independent Director Approval of Certain Transactions.
(A) Definition of Independent Director. An "Independent Director"
is member of the Corporations's Board of Directors who:
(i) is not an officer or employee of the Corporation, its
subsidiaries or their affiliates or associates and
has not been an officer or employee of the
Corporation, its subsidiaries or their affiliates or
associates within the last two years; and
(ii) is not a "Promoter" of the Corporation, which is
defined as:
a. a person who alone, or in conjunction with
one or more other persons, directly or
indirectly took the initiative in founding
or organizing the Corporation or controls
the Corporation;
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b. a person who, directly or indirectly,
receives as consideration for services
and/or property rendered, five percent (5%)
or more of any class of the Corporations
equity securities or five percent (5%) or
more of the proceeds from the sale of any
class of the Corporation's equity
securities;
c. a person who: (i) is an officer or director;
or (ii) anyone who legally or beneficially
owns, directly or indirectly, five percent
(5%) or more of any class of the
Corporation's equity securities;
d. a person who is an affiliate or an associate
of a person specified in subsections a, b,
or c.
e. "Promoter" does not include: (i) a person
who receives securities or proceeds solely
as underwriting compensation if that person
otherwise falls outside of the definition of
a promoter in a, b, or c; (ii) an
unaffiliated institutional investor.
(iii) Does not have a material business or professional
relationship with the Corporation or any of its
affiliates or associates. For purposes of determining
whether or not a business or professional
relationship is material, the gross revenue derived
by the Independent Director from the Corporation, its
affiliates and associates shall be deemed material
per se if it exceeds five percent (5%) of the
Independent Director's: (i) annual gross revenue,
derived from all sources, during either of the last
two years; or (ii) net worth, on a fair market value
basis.
(B) Requirement to Maintain At Least Two Independent Directors.
The Corporation shall, at all times, maintain at least two
Independent Directors on the Board of Directors.
(C) Policy Regarding Resolution of Conflicts of Interest. The
Corporation shall follow the following policy regarding all
related-party transactions and to loans or the forgiveness of
loans, whether or not to a related-party:
(i) the Corporation will not enter any material,
transaction or loan with a related or affiliated
party unless the transaction or loan is on terms that
are no less favorable to the Corporation than the
Corporation could obtain from an unrelated or
unaffiliated third party; and
(ii) a majority of the Independent Directors who have no
interest in the transactions must review and approve
transactions involving related parties or conflicts
of interest after having been given access, at the
Corporation's
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expense, to the Corporation's counsel or to their own
independent legal counsel; and
(iii) when there are only two Independent Directors, both
directors must approve the transaction.
IV. OFFICERS
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4.01 Officers. The officers of the Corporation shall consist of a
President, one or more Vice Presidents, a Treasurer, a Secretary and such
additional officers, agents and employees as shall be appointed in accordance
with the provisions of Section 4.02 hereof. Any two (2) or more offices may be
held by the same person. Officers need not be directors of the Corporation. The
Board may require any such officer, agent or employee to give security for the
faithful performance of his duties.
4.02 Additional Officers. The Board may appoint such subordinate
officers, agents or employees as it may deem necessary or advisable, each of
whom shall hold office for such period, 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 executive officer or to any committee
the power to appoint any such additional officers, agents or employees.
4.03 Election; Term of Office. The officers of the Corporation shall be
elected at the annual meeting of the Board of Directors, each of whom shall
serve with such power and duties and for such tenure as provided by these Bylaws
or as the Board may from time to time determine and shall hold office until his
successor has been duly elected and qualified, or until his death, resignation
or removal.
4.04 Removal. Unless prohibited or restricted by an agreement to the
contrary, any officer of the Corporation may be removed, either with or without
cause, at any time, by a majority of the whole Board at a special meeting
thereof called for that purpose, or by any committee or executive officer upon
whom such power of removal may be conferred by the Board.
4.05 Resignations. Any director or officer may resign his office at any
time, by giving written notice of his resignation to the President or Secretary
of the Corporation. Such resignation shall take effect at the time specified
therein, or if no time be specified therein, at the time of the receipt thereof,
and the acceptance thereof shall not be necessary to make it effective.
4.06 Vacancies. A vacancy in any office, because of death, resignation,
removal, or any other cause, shall be filled by the Board of Directors and the
officer so elected shall hold office until his successor is elected and
qualified.
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<PAGE>
4.07 Salaries. The salaries of the officers and employees of the
Corporation, if any, shall be fixed from time to time by the Board of Directors,
or (except as to his own) be left to the discretion of the President, and none
of the officers of the Corporation shall be prevented from receiving a salary by
reason of the fact that he is also a member of the Board of Directors.
4.08 The President. The President shall be the chief executive officer
of the Corporation and shall supervise and manage the business and affairs of
the Corporation, subject to the control of the Board of Directors. He shall see
that all orders and resolutions of the Board are carried into effect. He may
sign, with the Secretary or an Assistant Secretary, certificates of stock of the
Corporation; and he may sign, execute and deliver in the name of the Corporation
all instruments of conveyance, evidences of indebtedness, contracts or other
instruments authorized by the Board, except in cases where the signing,
execution or delivery thereof shall be expressly delegated by the Board or by
these Bylaws to some other officer or agent of the Corporation or where any
thereof shall be required by law to be otherwise signed, executed and delivered.
In general he shall perform all duties as may from time to time be assigned to
him by these Bylaws or by the Board of Directors.
4.09 Vice President. Each Vice President shall have such powers and
perform such other duties as the Board of Directors or the President may, from
time to time, prescribe.
4.10 The Treasurer. The Treasurer shall have charge and custody of, and
be responsible for, all the funds and securities of the Corporation and shall
keep full and accurate accounts of receipts and disbursements in books belonging
to the Corporation in such banks or other depositories as may be designated by
the Board of Directors; he shall disburse the funds of the Corporation under the
direction of the President or the Board of Directors, taking proper vouchers for
such disbursements, and shall render to the President and to the directors at
the regular meetings of the Board or whenever they may require it, a statement
of all his trans actions as Treasurer and a statement of the financial condition
of the Corporation; and, in general, he shall perform all the duties incident to
the office of Treasurer and such other duties as the Board of Directors or the
President may from time to time prescribe.
4.11 The Secretary. The Secretary shall attend all meetings of the
shareholders and of the Board of Directors, and shall keep, or cause to be kept
in a book provided for the purpose, a true and complete record of the
proceedings of these meetings. He shall be custodian of the stock book and also
of other books, records and the seal of the Corporation, if any, and shall affix
the seal of the Corporation to all certificates of stock and all documents, the
execution of which on behalf of the Corporation under its seal is duly
authorized. He may sign, with the President or a Vice President, certificates of
stock of the Corporation. He shall cause to be given all notices of meetings of
the shareholders and directors and shall perform such other duties as the Board
of Directors or the President may from time to time prescribe.
4.12 Acting Secretary for Meetings of the Board of Directors. If the
Secretary of the Corporation is not a member of, or otherwise in attendance at a
meeting of the Board of Directors, any member of the Board who is also an
officer may execute such minutes as Acting
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<PAGE>
Secretary, or the Board may designate any other person to act as Secretary and
sign the minutes of such meeting.
V. RECORDS
-------
5.01 Records to be Kept. The Corporation shall keep as permanent
records, minutes of all meetings of its shareholders and Board of Directors, a
record of all actions taken by the shareholders or Board of Directors without a
meeting and a record of all actions taken by a committee of the Board of
Directors in place of the Board of Directors on behalf of the corporation. The
Corporation shall also keep appropriate accounting records.
5.02 Shareholder List. The Corporation or its agent shall maintain a
record of its shareholders in a form that permits preparation of a list of the
names and addresses of all shareholders and in alphabetical order by class of
shares showing the number and class of shares held by each.
5.03 Form of Records. The Corporation shall maintain its records in
written form or in another form capable of conversion into written form within a
reasonable time.
5.04 Records Available for Inspection. The Corporation shall keep a
copy of all of the following records, at its known place of business or at the
office of its agents, for the purpose of inspection within five days of an
appropriate demand by a qualifying shareholder, according to A.R.S. ss.ss.
10-141 and 10-1602 et. seq.
(A) The articles or restated articles of incorporation and all
amendments to them currently in effect;
(B) The bylaws or restated bylaws and all amendments to them
currently in effect;
(C) Resolutions adopted by the Board of Directors creating one
or more classes or series of shares and fixing their relative rights,
preferences and limitations, if shares issued pursuant to those
resolutions are outstanding;
(D) The minutes of all shareholders' meetings and records of
all action taken by shareholders without a meeting for the past three
years;
(E) All written communications to shareholders generally
within the past three years, including the financial statements
furnished for the past three years;
(F) A list of the names and business addresses of the current
directors and offices;
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<PAGE>
(G) The most recent annual report delivered to the Arizona
Corporation Commission; and
(H) Any agreements among shareholders pursuant to A.R.S. ss.
10-732.
VI. INDEMNIFICATION; SHAREHOLDER LIABILITY
--------------------------------------
6.01 Indemnification. The Corporation shall indemnify every director
(including outside directors as defined in A.R.S. ss. 10-850(6) or any amended
or successor statute thereto) and every officer, employee or agent to the full
extent consistent with public policy and to the full extent permitted by and in
fulfillment of the conditions found in A.R.S. ss.ss. 10-850 to 10-858 or the
indemnification provisions of any amended or successor statute thereto. Such
indemnification shall be mandatory and shall extend to both liability and
expenses (including advances for expenses) as those terms are defined in A.R.S.
ss. 10-850(3)-(4) or any amended or successor statute thereto.
6.02 Shareholder Liability. The private property of the shareholders of
the Corporation shall be exempt from liability for corporate debts pursuant to
A.R.S. ss. 10-622 or any amended or successor statute thereto.
VII. STOCK CERTIFICATES
------------------
7.01 Certificates. Certificates of stock shall be in such form as
required by statute and as approved by the Board of Directors and shall be
issued and signed by the President or a Vice President and by the Secretary or
an Assistant Secretary, and impressed with the seal of the Corporation, if any.
The signatures of such officers upon such certificates 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.
7.02 Shares Without Certificates. The Board of Directors of the
Corporation may authorize the issuance of some or all of the shares of any or
all of its classes or series without certificates. Notwithstanding such
authorization by the Board of Directors, every holder of uncertified shares is
entitled to receive a certificate that complies with statutory requirements upon
request to the Corporation. The authorization does not affect shares already
represented by certificates until such certificates are surrendered to the
Corporation. Within a reasonable time after the issuance or transfer of shares
without certificates, the Corporation shall send the shareholder a written
statement of the information required on certificates by statute.
7.03 Ownership. The Corporation will be entitled to treat the
registered owner of any share as the absolute owner thereof and, accordingly,
will not be bound to recognize any
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<PAGE>
beneficial, equitable or other claim to, or interest in, such share on the part
of any other person, whether or not it has notice thereof, except as may
expressly be provided by statute.
7.04 Transfers. Transfers of stock shall be made only on the books of
the Corporation by the record holder thereof, or by his duly authorized attorney
or legal representative, and upon surrender and cancellation of certificates
properly endorsed, and with such other information, legal notices and/or legal
opinions as the Corporation, its counsel or the its transfer agent may require.
7.05 Lost Certificates. In the event of the loss, theft or destruction
of any certificate of stock of this Corporation or of any predecessor
corporation, the Corporation may issue a certificate in lieu of that alleged to
be lost, stolen or destroyed, and cause the same to be delivered to the owner of
the stock represented thereby, provided that the owner shall have submitted such
evidence showing the circumstances of the alleged loss, theft or destruction,
and his ownership of the certificate, as the Corporation considers satisfactory,
together with any other facts which the Corporation considers pertinent, and, if
required by the Board of Directors, a surety bond in form and amount
satisfactory to the Corporation, unless the stock represented by the certificate
lost, stolen or destroyed has at the time of issuance of the new certificate a
market value of $500 or less (as determined by the Corporation on the basis of
such information as it may select), in which case the requirement of a surety
bond shall be waived.
VIII. DIVIDENDS
---------
8.01 Dividends. Subject to such restrictions or requirements as may be
imposed by law or the Corporation's Articles or as may otherwise be binding upon
the Corporation, the Board of Directors may from time to time declare dividends
on stock of the Corporation outstanding on the dates of record fixed by the
Board, to be paid in cash, in property or in shares of the Corporation's stock
on or as of such payment or distribution dates as the Board may prescribe.
IX. AMENDMENT
---------
9.01 Amendment. These Bylaws may be altered, amended, repealed or
temporarily or permanently suspended, in whole or in part, or new bylaws
adopted, at any duly constituted meeting of the shareholders or the Board of
Directors, the notice of which meeting either includes the proposed action in
respect thereof or is waived as provided above in section 2.03 or 3.08
(whichever is applicable). If, however, any such action arises as a matter of
necessity at any such meeting and is otherwise proper, no notice thereof will be
required. The Board of Directors may exercise all emergency powers permitted
under A.R.S. 10-303. These Bylaws may contain any provisions for the regulation
and management of the affairs of the Corporation not prohibited by law or the
Articles.
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<PAGE>
X. GENDER
------
10.01 Gender. All pronouns and any variations thereof shall be deemed
to refer to the masculine, feminine, neuter, singular or plural as the identity
of the person or persons may require.
XI. TERMINATION OF CORPORATION
--------------------------
11.02 Termination of Corporation. The Corporation shall cease to exist
only upon the first to happen of the following events: a) the death of the last
surviving shareholder or b) voluntary or involuntary dissolution pursuant to the
laws governing the same for Arizona private corporations organized for profit.
ADOPTED by the Board of Directors of the Corporation at Scottsdale,
Arizona as of this 8th day of May, 1998.
DISTRIBUTORSHIP AND MANUFACTURING AGREEMENT
-------------------------------------------
BETWEEN CAN-AM INTERNATIONAL
INVESTMENT CORP., a wholly owned
subsidiary of PREMIUM CIGARS
INTERNATIONAL, LTD.
("CANAM")
AND: IMPERIAL TOBACCO LIMITED,
("Imperial")
RECITALS:
WHEREAS, Imperial is engaged as a wholesaler of premium cigars and related
products, to which it holds, directly or indirectly certain trademarks and
desires to sell certain cigar products to CANAM for distribution;
WHEREAS, also Imperial will cause to be manufactured for resale by it the said
cigar products;
WHEREAS CANAM is desirous of having manufactured for it certain other cigar
products for it in the future;
WHEREAS, CANAM is engaged as a wholesale distributor of premium cigars, humidors
and other products to certain retail accounts worldwide and desires to secure a
quality supply of cigar products for distribution in the Canadian market and
potentially, the United States market.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, CANAM and Imperial agree as follows:
1. Appointment. Imperial hereby appoints CANAM as a sales and service
distributor in the territory (the "Territory") described in Schedule
"A" attached hereto for the cigar products listed in Schedule "B"
attached hereto (the "Imperial Products") upon the terms and conditions
herein set forth.
2. Manufacturing. Imperial agrees to manufacture for CANAM the cigar
products also listed separately at Schedule "B" hereto, (the "CANAM
Products"). CANAM Products and Imperial Products shall be referred to
collectively in this Agreement as the "Cigar Products". Although
Schedule B does not at present list any cigars as CANAM Products, it is
contemplated that CANAM will in the future propose its own brands for
manufacture by Imperial.
3. The parties may by mutual consent add, modify or delete trademarks and
Cigar Products from Schedule "B", and such additions and modifications
will become subject to this Agreement.
*Confidential portions omitted and filed
separately with the Commission.
1
<PAGE>
4. Term. The term of this agreement shall commence as of the date written
above and shall continue from time to time until terminated as herein
provided. Without restricting the generality of the foregoing, this
Agreement may be cancelled by either party at any time upon 60 days'
prior written notice.
5. Exclusivity of appointment.
(1) Subject to the provisions herein and for the duration of this
Agreement:
(a) Imperial appoints CANAM as the exclusive official distributor of
Imperial Products for the Territory and CANAM accepts such appointment;
(b) Imperial shall approve the supply of Imperial Products by supplying
them to CANAM for resale or use or both within the Territory;
(c) Imperial grants to CANAM the right to supply Imperial Products to
dealers and to other entities requiring the same for sale within the
territory;
(2) CANAM agrees that, except with the prior written consent of
Imperial, it will not:
(a) supply any of the Imperial Products outside the Territory;
(b) ship any of the CANAM Products outside the Territory without the
prior written approval of Imperial;
(b) knowingly supply Imperial Products to any entity within the
Territory for resale or use outside the Territory;
(c) outside the Territory solicit customers for the Cigar Products nor
establish or maintain branches or warehouses for delivery purposes.
6. Status of CANAM. The status of CANAM shall be that of an independent
contractor and CANAM shall have no authority to assume or create any
obligation whatsoever, expressed or implied, in the name of Imperial,
nor to bind Imperial in any manner whatsoever. CANAM shall have no
authority hereunder to enter into any contract of sale or employment on
behalf of Imperial, nor to endorse Imperial's cheques, no to make
allowances or adjustments on Imperial's accounts for the return of
merchandise, except pursuant to written authorization of Imperial.
CANAM undertakes and agrees that it will not furnish to any customer or
prospective customer, any warranties, undertakings or guarantees of any
nature whatsoever which may tend to involve the responsibility or
liability of Imperial. If any action is brought against Imperial or its
affiliates, subsidiaries, officers, directors, shareholders,
representative or agents as a result of the actions of CANAM, or if any
action is brought against CANAM or its affiliates, subsidiaries,
officers, directors, or agents, as a result of the actions of Imperial
or as a result of a defect in the Cigar Products, and if either
Imperial or CANAM is required to
*Confidential portions omitted and filed
separately with the Commission.
2
<PAGE>
incur costs for legal fees or court costs as a result thereof and if
Imperial or CANAM loses said action or if it is determined by a court
of competent jurisdiction that the actions of Imperial or CANAM were a
cause of the other suffering damage, then in that event, the party
causing the loss shall reimburse and indemnify the other for all
damages suffered by the other, including the amount of any judgment,
reasonable attorney fees and court costs.
7. Expenses. All expenses in connection with CANAM's performance of its
distribution obligations in virtue of this Agreement and its activities
as sales and service representative for Imperial, including but not
limited to travel, automobile, salaries and supplies shall be borne by
CANAM and CANAM shall be solely responsible for the payment thereof.
8. Acceptance of orders. Orders received by Imperial for the purchase of
any of the Cigar Products shall not bind Imperial until accepted by it.
Imperial reserves the right to accept or reject in its sole discretion
any order for the purchase of any Cigar Products, which order when
included with all other orders for such fiscal year would exceed by
more than twenty percent (20%) the annual projected purchase orders, as
determined by CANAM, for such fiscal year.
9. Delivery. Delivery will be make to CANAM FOB CANAM International
Warehouse Unit 106-3738 North Fraser Way, British Columbia (after
passing through any applicable customs office, or at such other
reasonable destination which CANAM may designate from time to time),
provided CANAM is registered as a collector of provincial tobacco taxes
for British Columbia and provinces in which such other destination is
located.
10. Risk of Loss; Insurance. Title to and risk of loss during transit,
delivery and storage of the Cigar Products shall be borne by Imperial.
CANAM, at its expense, shall secure and maintain comprehensive general
liability insurance equal to or in excess of the purchase price for the
Cigar Products shipped to CANAM by Imperial during the period of
shipment. CANAM shall provide Imperial with a certificate from its
insurer attesting to the existing of such insurance. Risk of loss of
the Cigar Products shall pass to CANAM upon delivery of the Cigar
Products to the above-mentioned warehouse.
11. Obligations of CANAM. During the currency of this agreement CANAM
shall:
(a) use its best efforts to advertise and promote the sale of the Cigar
Products and to make regular and sufficient contact with the present
and future customers of CANAM in the Territory;
(b) anticipate requirements for periods designated by Imperial and
order promptly when requested for the purpose of facilitating shipments
at minimum transportation costs;
(c) maintain adequate sales, warehouse and service facilities and
sufficient stock of all the Cigar Products to ensure prompt service to
customers;
*Confidential portions omitted and filed
separately with the Commission.
3
<PAGE>
(d) provide and maintain signs identifying its place of business as a
sales and service outlet of the Cigar Products in good condition and in
conspicuous and appropriate locations inside and outside CANAM's place
of business;
(e) promptly comply with the terms of sale for any of the Cigar
Products, as set forth herein and as set out in Imperial" sales and
credit policies from time to time and promptly pay the sale price set
by Imperial in effect at the time of shipment; and
(f) purchase from Imperial a minimum of * cigars during any
twelve-month period during the currency of this agreement commencing on
the date of this agreement;
(g) in particular CANAM agrees at all times and at its own expense
(waiving all rights to compensation or remuneration therefor from
Imperial or associate companies):
(i) to comply with Imperial's policies as made known from time
to time to CANAM regarding business organization; sales and services
policies, procedures and systems; marketing programmes; and such other
requirements as Imperial may reasonably establish. A copy of the
policies and programmes presently in effect are attached hereto as
Schedule D, and any future policies and programmes will be communicated
to CANAM from time to time by Imperial.
(h) obtain and maintain in effect all permits, licenses, certificates
and other permissions required to carry out its obligations in virtue
of this Agreement, including without limiting the generality of the
foregoing, obtaining and maintaining in effect its status as a tobacco
tax collector in each province in which it is required to do so by law,
and otherwise complying with all laws and regulations with respect to
tobacco and tobacco taxes.
(i) comply with the Excise Act and the Excise Act Regulations,
particularly (ED209-2), (Art. 10) and indemnify Imperial against any
loss or damage which Imperial may suffer as a result of CANAM's failure
to do so.
(j) promptly advise Imperial of the amount of and any changes in the
listed retail price for Cigar Products in order that Imperial may
promptly and properly advise any provincial government via the
provincial tobacco tax memo of the effect of same on provincial tobacco
taxes.
12. Obligations of Imperial. During the currency of this agreement,
Imperial shall:
(a) cause the Cigar Products to be manufactured;
(b) sell to CANAM the Cigar Products upon the terms and conditions
herein set forth for resale by CANAM to end users of the Cigar
Products;
(c) permit CANAM to hold itself out as an authorized sales and service
outlet for the Imperial Products.
*Confidential portions omitted and filed
separately with the Commission.
4
<PAGE>
13. Terms and conditions of sale. The terms and conditions of any sale by
Imperial to CANAM of any of the Cigar Products, including the price
therefore ("Purchase Price") shall be as set out herein at Schedule
"C", and as contained in the relevant sales invoice of Imperial and in
Imperial's Customer Service Policy ("CSP"). In the event of any
conflict between the terms and conditions contained in the relevant
sales invoice of Imperial, the terms and conditions of this Agreement,
the terms and conditions of Imperial's standard from sales agreement or
the CSP, the terms and conditions contained in the relevant sales
invoice shall prevail over the terms and conditions in the other
documents and the terms and conditions in this Agreement shall prevail
over the terms and conditions contained in any other documents.
Notwithstanding any terms and conditions contained in any purchase
order of CANAM received by Imperial, there shall be no other terms and
conditions governing the sale of any of the Cigar Products by Imperial
to CANAM except as herein provided. The sale price and any applicable
charges shall be paid by CANAM promptly when due without any deduction
or set off whatsoever. The price for the Cigar Products set out at
Schedule "C" herein shall include the excise duty and the excise tax as
set out in Schedule "C", and may be changed by Imperial from time to
time upon 30 days' notice. CANAM shall be responsible for the payment
and/or the collection of all other taxes, duties, charges, levies and
assessments that may be imposed upon the Cigar Products by any
governmental authority.
14. Discontinuance of Cigar Products by Imperial. Imperial reserves the
right from time to time, in its absolute discretion, without thereby
incurring any liability to CANAM with respect to any purchase order
placed by CANAM, or otherwise, upon 60 days' notice, to discontinue or
to limit its production of any Imperial Products, to terminate or limit
deliveries of any Cigar Products, the production of which is so
discontinued or limited, and to alter the design or the construction of
any Imperial Products.
15. Disclosures. CANAM shall provide Imperial with a copy of PCI's annual
financial statements including the auditor's report or accountant's
comments thereon within four months next following the end of each
fiscal period of PCI. CANAM shall, upon request by Imperial, furnish
Imperial with such reasonable information concerning CANAM's business
and operations as Imperial deems necessary from time to time.
16. Access to CANAM's premises. Upon 48 hours' notice during the currency
of this Agreement, Imperial or its representatives shall be permitted
free access to CANAM's premises to inspect the operations of CANAM and
to satisfy itself that CANAM is conducting its business in a proper
manner.
17. Foreign Accounts. Notwithstanding any other provision in this
Agreement, Imperial reserves the right to sell any Imperial Products to
foreign purchasers and exporters for resale outside the Territory
regardless of whether or not they are located in the Territory.
Imperial shall not be liable to CANAM in any way whatsoever in respect
of sales made pursuant to this paragraph.
*Confidential portions omitted and filed
separately with the Commission.
5
<PAGE>
18. Liability of Imperial after delivery. The responsibility of Imperial
for loss or damage to any of the Cigar Products ordered by CANAM shall
cease upon delivery of same upon CANAM taking possession of the same at
its installations and any such Cigar Products shall then be at the risk
of CANAM. CANAM further agrees that it will be responsible for and
prepay all transportation charges for items returned to Imperial for
credit.
19. Trademarks.
(1) CANAM shall have the right, during the continuance of this
Agreement and subject to due compliance with the provisions hereof, to
use Imperial's trademarks listed in Schedule "B" hereto (the
"Trademarks") in promoting the sales of Imperial Products in the
Territory and for the purpose of describing itself as a distributor of
the Cigar Products and, except as permitted in writing by Imperial, for
no other purpose whatsoever. Imperial represents and warrants it owns
the Trademark free and clear of any claims, liens or encumbrances of
any third party and shall indemnify and hold harmless CANAM and PCI
from any losses, damages, causes of action, costs and expenses
(including without limitation attorneys fees) incurred by CANAM or PCI
as a result of any claims alleging a right or interest in the
Trademark.
(2) CANAM agrees, with respect to the Trademarks, to:
(a) comply with all instructions issued by Imperial relating to the
form and manner in which the Trademarks shall be used and to
discontinue immediately, upon notice from Imperial, any practice
relating to the use of the Trademarks, which in Imperial's opinion
would or might adversely affect the rights or interests of Imperial in
the Trademarks;
(b) submit, for the prior written approval of Imperial, all programmes,
policies and campaigns relating to promotion of the Trademarks, and to
cause any other person who may be authorized to use the Trademarks in
virtue of article 19.2(c) to also submit programmes, policies and
campaigns for prior approval;
(c) refrain from using or permitting anyone else to use the Trademarks
or the corporate name of Imperial or any of its affiliated companies,
without the prior written consent of Imperial;
(d) refrain from contesting the title of Imperial to its Trademarks or
effecting any registrations thereof pursuant to the Trade-marks Act,
R.S.C. 1985, c.T-13;
(e) refrain from effecting or permitting the removal, renewal or
alteration of any Trademarks, patent numbers, notices, name plates or
serial numbers affixed to the Cigar Products.
20. Termination without notice. Imperial may, in its sole discretion,
terminate this Agreement, without notice or delay, upon the happening
of any of the following event:
(a) CANAM's failure to fulfill any of the quotas set out above;
*Confidential portions omitted and filed
separately with the Commission.
6
<PAGE>
(b) CANAM's breach of any of the terms or conditions of this Agreement;
(c) CANAM becoming insolvent or being unable to pay its debts as they
generally become due;
(d) CANAM making an assignment in bankruptcy or otherwise availing
itself of any protection afforded by bankruptcy or insolvency
legislation; or
(e) a receiver or trustee of CANAM being appointed, provided such
appointment is not vacated within thirty days from the date of such
appointment.
21. Termination on notice. Either Imperial or CANAM may terminate this
Agreement, with or without cause, upon sixty days' written notice to
the other of them. Imperial shall have the right to refuse to fill any
orders from CANAM received during the said period of thirty days.
22. Obligations following termination.
(1) Upon termination of this Agreement for any reason whatsoever, CANAM
shall:
(a) reconvey and release to Imperial all rights and privileges granted
by this Agreement;
(b) return to Imperial all information or technical material given to
CANAM by Imperial;
(c) cease using Imperial's trade names and the trademarks with respect
to the Imperial Products and thereafter refrain from holding itself out
as an authorized sales and service outlet of Imperial;
(d) if requested by Imperial, sell to Imperial, at the original net
price paid by CANAM plus actual freight charges for delivery to
Imperial, all of the Imperial Products sold by Imperial to CANAM and on
hand in CANAM's place of business or in the possession or the control
of CANAM at the time of termination of this Agreement and deliver same
to Imperial forthwith upon request, provided however, that Imperial may
reject any of the Imperial Products so delivered, which are not in
first class condition; and
(e) immediately pay all amounts owing by it to Imperial.
(2) This paragraph shall survive the termination of this Agreement.
23. No damages on termination. Imperial shall not, by reason of the
termination or cancellation of this Agreement, be liable to CANAM for
compensation, reimbursement or damages on account of the loss of
prospective profits on anticipated sales or/on account of expenditures,
investments, leases or commitments in connection with the
*Confidential portions omitted and filed
separately with the Commission.
7
<PAGE>
business or goodwill of CANAM or otherwise. The limitations on damages
stated above will apply equally to CANAM.
24. Opportunity to Cure Default. CANAM shall have thirty (30) days from the
date of notice of default to cure any condition creating a default. If
the default pursuant to this section shall be a monetary default, then
all sums due and payable as of the expiration of the cure period shall
bear interest at the rate of eight percent (8.0%) per annum until paid.
However, if more than two monetary defaults have occurred in any one
year period, CANAM shall have no right to cure its default.
25. No Cuban Tobacco or Illegal Substances. Imperial specifically
represents and warrants to CANAM that no Cuban tobacco or any other
component or product has been included in the Cigar Products. Imperial
also represents and warrants that all Canadian laws relating to the
manufacturing of the Cigar Products have been complied with an that no
illegal substances are present in, transported or delivered with the
Cigar Products.
26. Confidential Information. The parties recognize that as a result of
their business relationship, the parties have in the past and may in
the future develop, obtain or learn about Confidential Information
which is the property of the other party, or which the other party is
under an obligation to treat as confidential.
(a) Agreement to Protect Confidential Information. The parties agree to
use their best efforts and the utmost diligence to guard, protect and
keep confidential said Confidential Information, and agree that they
will not, during or after the period of this Agreement, use for
themselves or others, or divulge to others any of the said Confidential
Information which either of them may develop, obtain or learn about
during or as a result of this Agreement, unless authorized to do so by
the other party in writing.
(b) Definition of Confidential Information. For the purpose of this
Agreement, the term "Confidential Information" shall include but not be
limited to the following: customer lists; financial statements or
information in any form; marketing strategies; business contracts,
business plans; computer software, including all rights under licenses
or other contracts relating thereto; all intellectual property
including all patents, trademarks, trademark registration and
applications, service marks, copyrights, trade secrets, proprietary
marketing information or know-how; books and records including lists of
customers; credit reports; sales records; price lists; manuals;
processes; technology; or any information or whatever nature which
gives to a party an opportunity to obtain an advantage over their
competitors who do not know or use it.
(c) Injunctive Relief for Breach. In the event of a breach or
threatened breach by a party and/or representatives of the provisions
of this section, the other party shall be entitled to an injunction
restraining the offending party 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 (illegible omission) to it for such breach or
threatened breach, including the recovery of damages.
*Confidential portions omitted and filed
separately with the Commission.
8
<PAGE>
27. Intervention. Premium Cigars International Ltd. hereby intervenes in
the present Agreement to recognize and agree that it has taken
cognizance thereof, and that it agrees to be bound solidarily (jointly
and severally) with CANAM for the performance by CANAM of each and
every one of the obligations of CANAM hereunder. Premium Cigars
International Ltd. hereby waives the benefit of discussion and advises
and agrees to make the execution by CANAM and CANAM's obligations
hereunder its personal affair.
28. Force majeure. In the event of an inability or failure by Imperial to
manufacture, supply or ship any of the Cigar Products herein by reason
of any fire, explosion, war, riot, strike, walk-out, labour
controversy, flood, shortage of water, power, mechanical, electrical or
electronic breakdown or failure, labour, transportation facilities or
necessary materials or supplies, default or failure of carriers,
breakdown in or the loss of production or anticipated production from
plant or equipment, act of God or public enemy, any law, act, order,
legislation or regulation of any court, board, government or other
authority of competent jurisdiction, or any other direct cause (whether
or not of the same character as the foregoing) beyond the reasonable
control of Imperial, then Imperial shall not be liable to CANAM during
the period and to the extent of such inability or failure. Deliveries
omitted in whole or in part while such inability or failure. Deliveries
omitted in whole or in part while such inability remains in effect
shall be cancelled.
29. Governing law. This Agreement shall be made and construed in accordance
with the laws of the Province of Quebec and the laws of Canada
applicable therein.
30. Time of the essence. Time shall be of the essence of this agreement and
of each and every part hereof.
31. Notice. Any notices, consents, approvals, statements, authorizations,
documents, or other communications (collectively "notices") required or
permitted to be given hereunder shall be in writing, and shall be
delivered personally or mailed by registered mail, postage prepaid, to
the parties at their respective addresses set forth hereunder, namely:
To CANAM at:
CANAN International Investments Corp.
Unit 106-3738 North Fraser Way
British Columbia, CANADA
Facsimile: (604) 431-7673
Attention: Mark Jensen
*Confidential portions omitted and filed
separately with the Commission.
9
<PAGE>
With a copy to:
Premium Cigars International, Ltd.
15651 N. 83rd Way
Suite 3, Building C
Scottsdale, Arizona 85260
Attention: Jim Stanley
With a copy to:
Kurt M. Brueckner
Titus, Brueckner & Berry, P.C.
7373 North Scottsdale Road
Scottsdale Centre, Suite B-252
Scottsdale, Arizona 85253
Facsimile: (602) 483-3215
To Imperial at:
Imperial Tobacco, a division of IMASCO LIMITED
3810, St-Antoine Street
Montreal, Quebec, H4C 1B5
Facsimile: (514) 932-6930
Attention:________________________
With a copy to:
Imperial Tobacco Limited
3810, St-Antoine Street
Montreal, Quebec, H4C 1B5
Attention: General Counsel
or at any such other address or addresses as may be given by any of them to the
other in writing from time to time. Such notices, if mailed, shall be deemed to
have been given on the second business day (except Saturdays and Sundays)
following such mailing, or, if delivered personally, shall be deemed to have
been given on the day of delivery. If a business day, or if not a business day,
the business day next following the day of delivery; provided that if such
notice shall have been mailed and if regular mail service shall be interrupted
by strike or other irregularity before the deemed receipt of such notice as
aforesaid, then such notice shall not be effective unless delivered.
32. Non-waiver. No waiver by any party of any breach by any other party of
any of its covenants, obligations and agreements hereunder shall be a
waiver of any subsequent breach of any other covenant, obligation or
agreement, nor shall any forbearance to seek a remedy for any breach of
any other covenant, obligation or agreement, nor shall any forbearance
to seek a remedy for any breach be a waiver of any rights and remedies
with respect to such or any subsequent breach.
*Confidential portions omitted and filed
separately with the Commission.
10
<PAGE>
33. Number and gender. All terms and words used in this Agreement,
regardless of the number and gender in which they are used, shall be
deemed and construed to include any other number, singular or plural,
and any other gender, masculine or feminine or neuter as the context or
sense of this Agreement or any paragraph or clause herein may require,
the same as if such words had been fully and properly written in the
appropriate number and gender.
34. Unenforceability of provisions. It is agreed that should any clause,
condition or term, or any part thereof, contained in this Agreement be
unenforceable or prohibited by law or by any present or future
provincial or federal legislation, then such clause, condition, term or
part thereof, shall be amended, and is hereby amended, so as to be in
compliance with the said legislation or law but, if such clause,
condition or term, or part thereof cannot be amended so as to be in
compliance with any such legislation or law then such clause,
condition, term or part thereof is severable from this Agreement, and
all the rest of the clauses, terms and conditions or part thereof
contained in this Agreement shall remain unimpaired.
35. No partnership created. Nothing in this Agreement shall be deemed in
any way or for any purpose to constitute the parties hereto partners in
the conduct of any business or otherwise.
36. Enurement. This Agreement shall be binding upon and enure to the
benefit of the parties hereto and their respective executors,
administrators, successors and assigns.
37. Language clause. The parties have agreed that this Lease be drafted in
the English language. Les parties ont convenu que le present bail soit
redige en anglais.
IN WITNESS WHEREOF this Agreement has been executed by the parties hereto as of
the date first written above.
"CANAM"
CanAm International Investment Corp.
By:___________________________________
Its:__________________________________
PREMIUM CIGARS
INTERNATIONAL, LTD. "Imperial"
Imperial Tobacco, division of Imasco Limited
By:_______________________ By:___________________________________
Its:______________________ Its:__________________________________
*Confidential portions omitted and filed
separately with the Commission.
11
<PAGE>
SCHEDULE "A"
TERRITORY
The territory covered by this Agreement is Canada.
During the term of this Agreement, CANAM may approach Imperial with a view to
expanding the Territory to include the United States of America. Imperial shall
consider this request and advise CANAM of its decision within a reasonable
period.
*Confidential portions omitted and filed
separately with the Commission.
12
<PAGE>
SCHEDULE "C"
PRICE SCHEDULE FOR CIGAR PRODUCTS
Sale price for Cigar Products
(per 1,000 cigars)
NSR *
Discount *
Excise Duty: *
Excise Tax *
Invoice price before GST *
Invoice price including GST *
Payment terms are * (including GST) or * (excluding GST) - * - .* The discount
(* per 1,000 cigars) will be allowed on the invoice price before including GST
if payment is received at Imperial's head office within * of reception of
shipment by CANAM.
All increases in excise duties or excise taxes will be passed on to CANAM and
will increase the invoice price.
*Confidential portions omitted and filed
separately with the Commission.
13
<PAGE>
SCHEDULE "D"
POLICIES TO BE COMPILED WITH BY CANAM
*Confidential portions omitted and filed
separately with the Commission.
14
<PAGE>
EXHIBIT "E"
CUSTOMER SERVICE POLICY
*
TERMS AND CONDITIONS OF SALE
*
*Confidential portions omitted and filed
separately with the Commission.
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 311,666
<SECURITIES> 1,446,148
<RECEIVABLES> 1,054,089
<ALLOWANCES> 93,154
<INVENTORY> 1,639,188
<CURRENT-ASSETS> 4,630,302
<PP&E> 606,446
<DEPRECIATION> 77,037
<TOTAL-ASSETS> 6,184,117
<CURRENT-LIABILITIES> 1,576,411
<BONDS> 0
0
0
<COMMON> 8,807,049
<OTHER-SE> 3,770
<TOTAL-LIABILITY-AND-EQUITY> 6,184,117
<SALES> 3,263,604
<TOTAL-REVENUES> 0
<CGS> 2,544,770
<TOTAL-COSTS> 5,450,106
<OTHER-EXPENSES> (94,913)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,091,589)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,091,589)
<EPS-PRIMARY> (.60)
<EPS-DILUTED> 0
</TABLE>
