MK W.B. McKEE SECURITIES, INC
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Member NASD and SIPC (602) 934-7365
FAX:(602) 266-5774
March 31, 1997
Steve Lambrecht, CEO
Premium Cigars International
11259 East Via Linda
Suite 100-102
Scottsdale, Arizona 85259
Dear Steve:
We submit this letter with respect to an initial public offering of stock in
Premium Cigars International (the "Company"), on a firm commitment basis by W.B.
McKee Securities, Inc. ("McKee") and other underwriters associated with us
(collectively, the "Underwriters").
Based upon our discussions and preliminary information submitted by the Company
to us, but subject to our due diligence, we hereby confirm in principle our
interest in underwriting, on a firm commitment bases, an initial public offering
of the Company's securities, in accordance with the following terms and
conditions.
1. Proposed Size of Offering. It is currently contemplated to offer Two Million
(2,000,000) units (each a "Unit" and collectively the "Units") at a price of
Five Dollars and One Cent ($5.01). The Units will consist of one share of common
stock and one redeemable common stock purchase warrant. Such warrants shall be
exercisable at Six Dollars and Fifty Cents ($6.50), have a term of five (5)
years, and be redeemable at the Company's option commencing ninety (90) days
after the Effective Date of the Offering upon thirty (30) days written notice to
the warrantholders at One ($.01) per warrant if the closing bid price of the
Common Stock averages in excess of One Hundred Fifty Percent (150%) of the
offering price for a period of twenty (20) consecutive trading days ending
within fifteen (15) days of the notice of redemption. The gross amount of the
offering will be approximately Ten Million Dollars ($10,000,000), based on
mutual agreement. The final public offering price of the units will be
determined immediately prior to the effective date of the registration statement
based on the market conditions then prevailing.
2. Registration Statement. The Units to be offered to the public will be
included in a registration statement to be filed by the Company with the
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933.
The Company shall supply conclusive
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3003 North Central Avenue, Suite 100, Phoenix, Arizona 85012
will bear the fees and expenses of their counsel. The Company and McKee will
split the costs of the tombstone advertisements and the placement of such
tombstone advertisements shall be mutually agreed upon. It is expected that the
costs of placing the tombstones will be approximately Five Thousand Dollars
($5,000) and cost over-runs on the placement of such tombstones will be mutually
approved in advance by McKee and the Company.
All other expenses relating to the registration statement, prospectuses,
confidential selling memorandum, underwriting documents and warrants, including
all printing expenses, all filing fees with the Security and Exchange
Commission, stock exchanges, and the NASD, and all filing fees and expenses for
qualification under blue sky laws (including fees and disbursements of the
company's counsel, who will have responsibility for such qualification) and
investor relations and related efforts will be borne by the Company.
If the proposed offering is canceled for any reason by the Company prior to the
signing of the Underwriting Agreement, the Company will reimburse the
Underwriters for all of their out-of-pocket costs and expenses, up to Fifty
Thousand Dollars ($50,000), plus counsel fees and less the Twenty Five Thousand
($25,000) paid to McKee upon acceptance of this Letter of Intent. McKee and the
Underwriters will not be entitled to reimbursement for the value of their time
they have expended in connection with the proposed Offering.
In the event that the Offering is canceled by the Underwriter for reasons in
addition to and including those covered in Paragraph 15 of this letter under the
heading "Conditions" or in the Underwriting Agreement after such Underwriting
Agreement is signed, the Company will not be liable for the breakup fee of the
out-of-pocket expenses of the Underwriter.
9. Counsel Approval. All Proceedings, agreements and other documents executed in
connection with the public offering shall be subject to approval of counsel for
both parties.
10. Underwriter Warrants. At the closing of the Offering, the Company will sell
the Underwriters such number of unit purchase warrants as is equal to ten
percent (10%) of the number of Units sold pursuant to the Offering excluding the
overallotment (the "Underwriter Warrants"). The Underwriter Warrants shall be
purchased at one cent ($.01) per warrant by the Underwriters. The Underwriter
Warrants will be exercisable for the purchase of one unit at one hundred twenty
percent (120%) of the Public Offering Price of the Underlying security. The
Underwriter Warrants may be exercised one (1) year after the close of the
Offering or at any time thereafter for a period of five (5) years from the
Effective Date of the Offering (the "Exercise Period"). The Underwriter Warrants
will contain provisions to guard against dilution other than dilution by
additional or secondary offerings.
11. Registration Rights. The Company will file all necessary undertakings
required by the SEC in connection with the registration of the Units issued on
the exercise of the Underwriters Warrants. Upon McKee's demand (subject to
normal exceptions and conditions to be negotiated), the
Company will file post-effective amendments to the registration statement so as
to permit the Underwriters to sell publicly the Underwriter Warrants and the
Units issued on the exercise of the Underwriter Warrants. The Company will bear
all costs of one (1) such post effective amendment or registration.
12. Use of Proceeds. The Company will prepare and identify for the Underwriter
its intention for the uses of proceeds. This use of proceeds must be reasonably
acceptable to the Underwriter.
13. Underwriting Agreement. The obligations of the Underwriters and those of the
Company will be subject to the usual representations, warranties, covenants,
conditions, indemnities, and provisions, respecting contribution contained in
the form of an underwriting agreement McKee will prepare and as generally used
in connection with the public offering of securities for this type of
transaction.
14. Future Underwritten Transactions. Following the consummation of this
offering, and for a two-year period thereafter, the Underwriter will have the
right of first refusal to participate as Underwriter, Co-Underwriter or
Placement Agent for any public or private offering of the Company's securities.
Should another underwriter propose in a writing a transaction, McKee will have
three (3) weeks to match the offer.
15. Conditions. The proposed terms and statements of intention set forth in this
Letter of Intent are based on the understanding that:
(i) the Company's financial condition and history shall be (at a minimum)
substantially as represented in the Company's audited financial
statements for the period ending December 31, 1996 and unaudited
statements as of the most recent quarter. The Company conforms to the
Underwriter its most recent projections constituting its best estimate
of revenue, profit, loss and cash flow and agreed to update those
estimates on a monthly basis.
(ii) no adverse development shall occur which materially and adversely affect
the business, properties, or prospects of the Company.
(iii) the registration statement will disclose no material unfavorable facts
relating to the Company or its management, and the registration
statement and prospects will comply with all applicable laws and
regulations;
(iv) the Company does not acquire or agree to acquire any business which, in
our judgement, precludes effecting the offering within the time period
and in a manner contemplated hereby;
(v) there will not be any unanticipated substantial delays caused by the
Company in filing and obtaining effectiveness of the registration
statement;
(vi) the Offering and the price at which the Units are sold pursuant to the
Offering will be subject to our satisfactory review of the Company's
business affairs;
(vii) the market conditions prevailing at the time of the Offering will be
satisfactory to McKee; and
(viii) the Company will have executed an employment agreement with a Chief
Executive Officer that is acceptable to the Underwriter.
16. Board of Directors Nomination. Upon the closing of this offering, McKee will
have the right to nominate one (1) member of the Board of Directors to serve the
standard term that is compatible with the Company's corporate by-laws. The right
shall be for a term of five (5) years from the closing of the offering.
17. Key Man Insurance. The Company has, and will maintain for a period of at
least five (5) years, Key Man Insurance on Steve Lambrect and a CEO (to be named
at a date following the date hereof) in the amount of One Million Dollars
($1,000,000). McKee reserves the right to write the above policy providing it
can do so on competitive terms.
In connection with their review of the business and affairs of the company, the
Underwriters, counsel to the Underwriters, and any accounting experts deemed
necessary by the Underwriters, will have the right to examine the audits and
working papers of the Company, to meet with the Company's independent
accountants, and to have reasonable access to the Company's corporate files and
records. The Company will use its best efforts to cause its auditors to be
responsive to any inquiries made by the Underwriters in connection with the
auditors to be responsive to any inquiries made by the Underwriters in
connection with the audit procedures and accounting principles used in
connection with the Company's financial statements of the proposed Offering.
The Company represents that it has not incurred any liability, direct or
indirect, for finder's or similar fees on behalf of or payable by the Company
relating to this Underwriting. The Company agrees to indemnify the Underwriters
from and against any damage and loss arising out of any inaccuracy in the
foregoing representation.
This letter of intent is not intended to constitute a binding agreement to
consummate the proposed Offering or to enter into an underwriting agreement.
Except for the provisions in paragraph number "8" under the heading "Expenses",
no liability or obligation is created by this Letter of Intent either to the
Company or any third party. Additionally, this Agreement does not modify or
preempt any of the rights, obligations or commitments between the two parties as
defined in the previous executed Investment Banking Agreement. Except for such
provisions, all legal obligations between the parties shall be only those set
forth in the underwriting agreement and
shall arise only when the underwriting agreement is executed and delivered.
We look forward to working with you in completing the proposed Offering. If the
Foregoing sets forth your understanding, please so indicate by signing and
returning to us the enclosed copy of this letter.
Sincerely,
W.B. MCKEE SECURITIES, INC.
/s/ William B. McKee
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William B. McKee, Chairman
Approved and Accepted
PREMIUM CIGARS INTERNATIONAL, LTD.
By: /s/ Steve Lamprecht Date: 3-31-97
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Steve Lambrecht, Chief Executive Officer