________________, 199_
Premium Cigars International, Ltd.
15651 North 83rd Way, Suite 3
Scottsdale, Arizona 85260
Re: Subscription to Acquire Warrant
Gentlemen:
I hereby subscribe to acquire a warrant (the "Warrant") for the
purchase of the no par value common shares of Premium Cigars International,
Ltd., an Arizona corporation formed pursuant to the Arizona Corporations Act
(the "Corporation"), in consideration for the provision to the Corporation by me
of debt financing in a maximum principal amount of ___________dollars ($_______
.00) (the "Financing Amount"). Upon the acceptance of this Subscription
Agreement by the Corporation and my provision of cash to the Corporation in the
Financing Amount, the Corporation shall issue to me (i) the Warrant and (ii) a
promissory note of the form attached hereto as Exhibit "A" having a maximum
principal amount equal to the Financing Amount (the "Note").
The Warrant is being sold by the Corporation, as issuer, in a
transaction not involving any public offering. In consideration of the proposed
sale of the Warrant to me and delivery to me of the Note, and for the purpose of
inducing the Corporation to make such sale and delivery to me, I hereby make the
following investment assurances to the Corporation:
1. Restrictions on Transferability of Warrant and Rights. I hereby
agree that the Warrant being acquired by me, and any certificate or document
evidencing such Warrant and/or any rights I may acquire in such Warrant
(hereinafter referred to as the "Rights"), shall be stamped or otherwise
imprinted with a conspicuous legend in substantially the following form:
"The warrant evidenced by this document and any shares of the
Corporation's common stock able to be purchased therewith have not been
registered under the Securities Act of 1933, as amended, or under any
applicable state securities law, and such warrant has been issued
pursuant to an exemption from registration under such laws. The warrant
has been issued and delivered to the holder by the Corporation, as
issuer, in a transaction not involving any public offering pursuant to
A.R.S. Section 44-1844(1). The Corporation issued the warrant to the
holder in reliance upon the representation by the holder that the
warrant was acquired for investment purposes and was not acquired for
the purpose of sale to others. Neither this warrant nor any rights in
the same shall be resold, pledged, hypothecated, or otherwise
transferred, conveyed, or offered for sale except upon the issuance of
a favorable opinion of counsel for the Corporation and/or
submission to the Corporation of such other evidence as may be
satisfactory to counsel for the Corporation to the effect that the
transfer, conveyance, or offer for sale of such warrant will not be in
violation of the Securities Act of 1933 or any rule or regulation
promulgated thereunder, or any applicable state securities law, rule or
regulation and in accordance with the terms and conditions of holder's
Subscription Letter with respect to these shares, dated _______________
, 199_. Any transfer contrary hereto shall be void."
Neither the Warrant nor any of my Rights, as the case may be, shall be
transferable except upon the conditions specified in this Paragraph 1. I realize
that, by becoming a holder of a Warrant issued by the Corporation pursuant to
the terms of the foregoing restrictive legend, I agree prior to any transfer of
the Warrant and/or my Rights, to give written notice to Corporation, in the form
required by the Warrant, expressing my desire to effect such transfer and
describing the proposed transfer.
2. Determination of Legal Counsel. I understand that upon receipt of my
written notice, as provided for in the preceding Paragraph 1, Corporation shall
present copies of the same to its counsel, and the following provisions shall
apply:
(a) If, in the opinion of Corporation's counsel, the proposed
transfer of the Warrant and/or Rights may be effected without
registration thereof under the federal Securities Act of 1933
(hereinafter referred to as the "Act"), as then in force, and
applicable state securities law, the Corporation shall promptly
thereafter notify the holder of such Warrant and/or Rights, whereupon
such holder shall be entitled to transfer such Warrant and/or Rights,
all in accordance with the terms of the Warrant and assignment form
specified by the Warrant to be delivered by such holder to Corporation
(the "Assignment Form"), and upon such further terms and conditions as
shall be required by counsel for Corporation in order to assure
compliance with the Act and applicable state securities law. Upon
receipt by the Corporation of the Warrant and/or Rights and the
Assignment Form, the Corporation will deliver in exchange therefor, a
new certificate or document evidencing the Warrant and/or Rights
transferred. Any such certificate or document shall not bear a legend
of the character set forth above in Paragraph 1, if Corporation's
counsel agrees that such legend is no longer required under the Act and
applicable state securities law.
(b) If, in the opinion of Corporation's counsel, the proposed
transfer of the Warrant and/or Rights may not be effected without
registration of such Warrant and/or Rights under the Act and/or
applicable state securities law, a copy of such opinion shall be
promptly delivered to the holder who had proposed such transfer, and
such proposed transfer shall not be made unless such registration is
then in effect.
3. Purchaser's Acknowledgments. I realize that the Warrant and Rights
are not and may not be registered under the Act, or applicable state securities
law, and that Corporation does not currently file periodic reports with the
Securities and Exchange Commission pursuant to the requirements of the
Securities Exchange Act of 1934. I also understand that the Corporation has not
agreed with me to register the Warrant and/or Rights for distribution in
accordance with the
provisions of the Act, or applicable state securities law, and that the
Corporation has not agreed with me to comply with any exemption under the Act or
applicable state securities law for the sale of such securities. For example, I
realize that the corporation has not agreed to supply such information as would
be required to enable routine sales of such securities to be made under the
provisions of certain rules respecting "restricted securities" promulgated by
the Securities and Exchange Commission. Thus, it is my understanding that, by
virtue of the provisions of the "restricted securities" rules, the Warrant which
I desire to purchase from Corporation must be held by me indefinitely, unless
and until subsequently registered under the Act and/or applicable state
securities law, or unless an exemption from such registration is available, in
which case I may still be limited as to the amount of the securities that I may
sell.
4. Representations by Purchaser. I hereby covenant, warrant, and
represent to Corporation as follows:
(a) I have received an Investment Disclosure Statement in the
form attached hereto as Exhibit "B" (the "Disclosure Statement") and by
this reference made a part hereof, and that I have carefully and
thoroughly read and understand such Disclosure Statement;
(b) The Warrant which is the subject of my purchase hereunder,
and any Rights therein, will be acquired by me for investment for my
own account and not with a view to the offer for sale, or the sale, in
connection with the distribution or transfer thereof, and I am not
participating, directly or indirectly, in an underwriting of any such
distribution or transfer;
(c) My income and net worth are such that I am not now, and do
not contemplate being, required to dispose of any portion of any
investment in the Warrant and/or Rights to satisfy any existing or
expected undertaking or indebtedness. I am also able to bear the
economic risks of an investment in the Warrant and Note, including,
without limiting the generality of the foregoing, the risk of losing
all or any part of my investment in the Warrant and Note and my
probable inability to sell or transfer the Warrant, the Note and/or the
Rights for an indefinite period of time;
(d) My income and net worth are such that I am able to provide
debt financing to the Corporation in an amount equal to the Financing
Amount and am able to accept the risk of losing all such sums provided
thereunder because of non-payment of any or all amounts due under the
Note;
(e) I will not sell the Warrant or any Rights thereunder,
except in strict compliance with the provisions of the Warrant and this
Subscription Letter;
(f) In addition to the Disclosure Statement, I have been
granted access to all information, financial and otherwise, in respect
to Corporation which I have requested, and with my professional
advisors have examined such information and am satisfied with respect
to the same;
(g) Either (i) I am relying on my own financial advisor, tax
advisor and/or professional investment representative in making this
investment decision and I am able to bear the economic risk of this
investment, or (ii) my education, business and investing experience and
financial sophistication enable me to evaluate the economic merits of
my investment in the Note and Warrant;
(h) I have adequate means of providing for my current
financial needs and personal contingencies, and I have no need for
liquidity in my investment in the Note and the Warrant. I am
financially responsible, able to meet my obligations hereunder, and
acknowledge that this investment is long term and is by its nature
speculative;
(i) My personal financial circumstances, investment portfolio
and tax bracket are such that I believe the purchase contemplated
herein to be a suitable investment;
(j) No oral or written representations or statements have been
made in connection with the Note and the Warrant that were made in any
way inconsistent with the Investment Disclosure Statement;
(k) I have access to advice from qualified sources, including
an attorney and accountant, and have had the opportunity to consult
with them concerning this investment, especially in connection with the
tax aspects of the offering; and
(l) I understand that this Subscription Letter may be accepted
or rejected in whole or in part by the Corporation in its sole and
absolute discretion.
5. Agreement to Perform Necessary Acts. I hereby agree to perform any
further acts reasonably required under the terms of this Subscription Letter and
all applicable state and federal laws and to execute and deliver any documents
and provide any information about myself, including, but not limited to
financial information, that may be reasonably necessary (i) to carry out the
provisions of this Subscription Letter and (ii) for compliance with applicable
state and federal laws.
6. Notices. Any notices or other communications required or permitted
herein shall be sufficiently given if sent by registered or certified mail,
postage prepaid, return receipt requested, if to Corporation at the address to
which this letter is addressed, and if to me at the address set forth below my
signature to this Subscription Letter, or to such other addresses as either
Corporation or I shall designate to the other by notice in writing.
7. Successors and Assigns. This Subscription Letter shall be binding
upon and shall inure to the benefit of the parties hereto and to the successors
and assigns of Corporation and to the legal representatives, successors, and
permitted assignees of the undersigned.
8. Applicable Law. This Subscription Letter has been made and entered
into in the State of Arizona and shall be construed in accordance with the laws
of the State of Arizona, excluding its choice of law provisions, and the laws of
the United States of American. The parties agree that the State and Federal
Courts of Arizona, including both Maricopa County,
Arizona Superior Court and the United States District Court, District of
Arizona, located in Phoenix Arizona, shall be the proper and exclusive forums
for any action relating to a dispute between the parties arising out of, or
related to, this Subscription Letter. Each party consents to the in personam
jurisdiction of said courts.
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(Signature)
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(Name -- Individual or Trust)
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(Address)
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(City, State, Zip)
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(Telephone)
DATED: ________________, 1997 ACCEPTED:
PREMIUM CIGARS INTERNATIONAL,
LTD., an Arizona corporation
By:
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Its:
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") NOR IS SUCH REGISTRATION CONTEMPLATED. SUCH SECURITIES MAY
NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED AT ANY TIME
WHATSOEVER UNLESS REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS
OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE, EXCEPT UPON DELIVERY TO THE
COMPANY OF AN OPINION OF COUNSEL (SUCH OPINION TO BE SATISFACTORY TO THE COMPANY
AND ITS COUNSEL) THAT REGISTRATION IS NOT REQUIRED FOR SUCH TRANSFER.
WARRANT TO PURCHASE COMMON STOCK OF
PREMIUM CIGARS INTERNATIONAL, LTD.
This is to certify that, for value received,
______________________________, or registered assigns (in each case, the
"Warrantholder") is entitled to purchase, subject to the provisions of this
Warrant (the "Warrant") from Premium Cigars International, Ltd., an Arizona
corporation (the "Company"), at any time during the period from the date on
which the Company completes its initial public offering of Common Stock (the
"Commencement Date") until 5:00 p.m., Arizona time, on a date which is five
years after the Commencement Date (the "Expiration Date") and at which time this
Warrant shall expire and become void, the number of shares of the Company's
Common Stock, no par value per share, set forth in Section 3 hereof (the
"Warrant Shares"). The number of shares of Common Stock to be received upon
exercise of this Warrant shall be subject to adjustment from time to time as set
forth below. This Warrant is also subject to the following terms and conditions:
1. Purchase Price. The Warrant is being issued as consideration for the
provision of bridge financing to the Company by Warrantholder in the total
principal amount of ______________________ dollars ($__________) (the "Financing
Amount"), as evidenced by a promissory note in the form of Exhibit "A" attached
hereto and executed by the Company on even date herewith (the "Note").
2. Exercise Price. This Warrant shall be exercisable at a price per
Warrant Share equal to fifty percent (50%) of the initial public offering price
per share in the initial public offering of the Company's Common Stock (the
"Exercise Price"). The initial public offering of the Company's Common Stock is
hereinafter referred to as the "Initial Public Offering." The aggregate
consideration to be paid upon the exercise of this Warrant shall equal the
amount resulting from multiplying (y) the Exercise Price, and (z) the Exercise
Number (as defined in Section 3), is hereinafter referred to as the "Warrant
Exercise Consideration", and shall be paid in the manner described in Section 6
hereof.
3. Exercise Number. The total number of Warrant Shares which may be
purchased upon exercise of the Warrant issued hereunder shall be equal to the
quotient of (x) the Financing
1
Amount, divided by (y) the Exercise Price (the "Exercise Number"). The Exercise
Number shall be subject to adjustment pursuant to Section 5 below to take into
account any and all Dilutive Events (as defined in Section 5) occurring between
the Initial Public Offering and the date on which the Warrant is exercised by
the Warrantholder (the "Exercise Date").
4. Expiration and Exercise Dates. The Warrant shall be exercisable at
any time on or after the first trading day of the Company's Common Stock and
before 5:00 p.m. on the Expiration Date (the "Exercise Period"), at which time
this Warrant shall automatically expire and become void. This Warrant shall also
automatically expire and become void on the date twelve (12) months after the
date hereof if the Company has not completed an initial public offering of its
common stock prior to such date.
5. Adjustments.
5.1 Subdivision or Combination of Shares. If, after the
Commencement Date, the Company is recapitalized through the subdivision
or combination of its outstanding shares of Common Stock into a larger
or smaller number of shares, the Exercise Number shall be increased or
reduced, as of the record date for such recapitalization, in the same
proportion as the increase or decrease in the outstanding shares of
Common Stock, and the Exercise Price shall be adjusted so that the
aggregate amount payable for the purchase of all of the Warrant Shares
issuable hereunder immediately after the record date for such
recapitalization shall equal the aggregate amount so payable
immediately before such record date.
5.2 Dividends in Common Stock or Securities Convertible into
Common Stock. If, after the Commencement Date, the Company declares a
dividend or distribution on Common Stock payable in Common Stock or
securities convertible into Common Stock, the Exercise Number shall be
increased, as of the record date for determining which holders of
Common Stock shall be entitled to receive such dividend, in proportion
to the increase in the number of outstanding shares (and shares of
Common Stock issuable upon conversion of all such securities
convertible into Common Stock) of Common Stock as a result of such
dividend or distribution, and the Exercise Price shall be adjusted so
that the aggregate amount payable for the purchase of all the Warrant
Shares issuable hereunder immediately after the record date for such
dividend or distribution shall equal the aggregate amount so payable
immediately before such record date.
5.3 Distributions of Other Securities or Property. If, after
the Commencement Date, the Company distributes to holders of its Common
Stock, other than as part of its dissolution or liquidation or the
winding up of its affairs, any of its securities (other than Common
Stock or securities convertible into Common Stock), property or any
evidence of indebtedness, then in each case, the Exercise Number shall
be determined by multiplying the number of Warrant Shares theretofore
purchasable by a fraction, of which the numerator shall be the Fair
Market Value price per share of Common Stock (as
2
determined pursuant to Section 5.4) on the record date mentioned below
in this Section 5.3. and of which the denominator shall be the Fair
Market Value price per share of Common Stock on such record date, less
the then fair value (as determined by the Board of Directors of the
Company in good faith) of the portion of the shares of the Company's
capital stock, property or evidence of indebtedness distributable with
respect to each share of Common Stock. Such adjustment shall be made
whenever any such distribution is made, and shall become effective
retroactively as of the record date for the determination of
stockholders entitled to receive such distribution.
5.4 Fair Market Value. Fair market value of the Common Stock
("Fair Market Value") shall be determined as follows:
5.4.1 If the Common Stock is listed on a national
securities exchange or admitted to unlisted trading privileges
on such an exchange, or is listed on the Nasdaq National
Market or Small Cap Market, the current Fair Market Value
shall be the last reported sales price of the Common Stock on
such exchange or Nasdaq on the last business day prior to the
date of exercise of this Warrant or if no such sale is made on
such day, the closing bid price for such day on such exchange
or Nasdaq; or
5.4.2 If the Common Stock is not so listed or
admitted to unlisted trading privileges or quoted on Nasdaq,
the current Fair Market Value shall be the last bid price
reported on the last business day prior to the date of the
exercise of this Warrant (i) by Nasdaq, or (ii) if reports are
unavailable under paragraph 5.4.1 above, by the National
Quotation Bureau Incorporated; or
5.4.3 If the Common Stock is not so listed or
admitted to unlisted trading privileges and bid prices are not
so reported, the current Fair Market Value shall be determined
in good faith as promptly as is reasonably practicable by the
mutual agreement of the Board of Directors of the Company and
the Warrantholder. If such parties are unable to reach
agreement within 20 days after the need for such determination
arises, the Board of Directors shall appoint an investment
banking firm acceptable to the Warrantholder (the "Appointed
Firm") to make such determination. The parties shall use their
best efforts to cause the Appointed Firm to resolve all
disagreements as soon as practicable, but in any event within
45 days after the submission of the disputes to such Appointed
firm. The resolution of such disagreements and the
determination of Fair Market Value by the Appointed Firm shall
be final and binding on the Company and the Warrantholder. The
Appointed Firm will determined the allocations of its fees and
expenses in connection with its determination of Fair Market
Value based upon the percentage which the portion of the
contested amount not awarded to each party bears to the amount
actually contested by such party.
3
5.5 Rights Offering. If, after the Commencement Date, the
Company offers rights or warrants to persons which entitle them to
subscribe to or purchase Common Stock or securities convertible into
Common Stock then:
5.5.1 If the price per share (together with the value
of the consideration, if any, paid for such rights or
warrants) is lower on the record date referred to below than
the then Fair Market Value price per share of Common Stock,
the Exercise Number shall be determined by multiplying the
number of Warrant Shares immediately theretofore purchasable
upon exercise of the Warrant by a fraction, of which the
numerator shall be the number of shares of Common Stock
outstanding on such record date plus the number of additional
shares of Common Stock offered for subscription or purchase,
and of which the denominator shall be the number of shares of
Common Stock outstanding on such record date plus the number
of shares which the aggregate offering price of the total
number of shares of Common Stock so offered would purchase at
the then Fair Market Value price per share of Common Stock.
Such adjustment shall be made whenever such rights or warrants
are issued, and shall become effective retroactively as of the
record date for the determination of stockholders entitled to
receive such rights or warrants.
5.5.2 If, however, the price per share (together with
the value of the consideration, if any, paid for such rights
or warrants) is not lower on such record date than the then
Fair Market Value price per share of Common Stock, the Company
shall give written notice of any such proposed offering to the
Warrantholder at least 15 days prior to the proposed record
date in order to permit the Warrantholder to exercise this
Warrant on or before such record date. There shall be no
adjustment in the Exercise Number, or in the Exercise Price,
by virtue of any such distribution pursuant to this Section
5.5.2.
5.6 Merger, Sale of Assets. If, after the Commencement Date,
there shall be (i) a reorganization (other than a combination?
reclassification, exchange or subdivision of shares otherwise provided
for herein), (ii) a merger or consolidation of the Company with or into
another corporation in which the Company is not the surviving entity,
or a reverse triangular merger in which the Company is the surviving
entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger
into other property, whether in the form of securities, cash or
otherwise, or (iii) a sale or transfer of the Company's properties and
assets as, or substantially as, an entirety to any other person, then,
as a part of the reorganization, merger, consolidation, sale or
transfer, lawful provision shall be made so that the Warrantholder
shall thereafter be entitled to receive upon exercise of this Warrant,
during the period specified herein and upon payment of the Exercise
Price then in effect, the number of shares of stock or other securities
or property of the successor corporation resulting from such
reorganization, merger, consolidation, sale or transfer that a holder
of the shares deliverable upon exercise of this Warrant would have been
entitled to
4
receive in such reorganization, consolidation, merger, sale or transfer
if this Warrant had been exercised immediately before such
reorganization, merger, consolidation sale or transfer, all subject to
further adjustment as provided in this Section 5. The foregoing
provisions of this Section 5.6 shall similarly apply to successive
reorganizations, consolidations, mergers, sales and transfers and to
the stock or securities of any other corporation that are at the time
receivable upon the exercise of this Warrant.
5.7 Reclassification. If, after the Commencement Date, the
Company shall change any of the securities as to which purchase rights
under this Warrant exist, by reclassification or otherwise, into the
same or a different number of securities of any other class or classes,
this Warrant shall thereafter represent the right to acquire such
number and kind of securities as would have been issuable as the result
of such change with respect to the securities that were subject to the
purchase rights under this Warrant immediately prior to such
reclassification or other change and the Exercise Price therefor shall
be appropriately adjusted, all subject to further adjustment as
provided in this Section 5.
5.8 Liquidation, etc. If, after the Commencement Date, the
Company shall dissolve, liquidate or wind up its affairs, or otherwise
declare a dividend, or make a distribution to the holders of its Common
Stock generally, whether in cash, property or assets of any kind,
including any dividend payable in stock or securities of any other
issuer owned by the Company (excluding regularly payable cash dividends
declared from time to time by the Company's Board of Directors or any
dividend or distribution referred to in Sections 5.2 or 5.3), the
Exercise Price shall be reduced, without any further action by the
parties hereto, by the Per Share Value (as hereinafter defined) of the
dividend. For purposes of this Section 5.8, the "Per Share Value" of a
cash dividend or other distribution shall be the dollar amount of the
distribution on each share of Common Stock and the "Per Share Value" of
any dividend or distribution other than cash shall be equal to the fair
market value of such non-cash distribution on each shares of Common
Stock as determined in good faith by the Board of Directors of the
Company.
5.9 Adjustment of Exercise Price. When the Exercise Number is
adjusted, the Exercise Price with respect to the Warrant Shares shall
be adjusted by multiplying such Exercise Price immediately prior to
such adjustment by a fraction, of which the numerator shall be the
number of Warrant Shares purchasable upon the exercise of this Warrant
immediately prior to such adjustment, and of which the denominator
shall be the number of Warrant Shares so purchasable immediately
thereafter.
6. Method of Exercise. The Warrant may be exercised by the
Warrantholder, in whole or in part, by the surrender of this Warrant and the
Warrant Exercise Form attached hereto as Exhibit "B", properly endorsed, at the
principal office of the Company, and by the payment to the Company by certified
or cashier's check of the then applicable Warrant Exercise Consideration.
Alternatively, the exercise of the Warrant may be effected by "cashless
exercise" through a registered broker/dealer or escrow agent on terms acceptable
to the Company pursuant
5
to which the Warrant Exercise Consideration is paid from the proceeds of the
sale of the underlying Warrant Shares by such broker/dealer or escrow agent on
behalf of the Warrantholder to the Company. In the event of any exercise of the
Warrant, certificates for the Warrant Shares so purchased shall be delivered to
Warrantholder within a reasonable time after the Warrant shall have been so
exercised, and unless the Warrant has expired, a new Warrant will be issued
representing the right to purchase the number of Warrant Shares with respect to
which this Warrant shall not then have been exercised shall also be issued to
Warrantholder within such time.
7. Representations and Warranties of Warrantholder. Having been
afforded access to information concerning the business, operations and financial
condition of the Company, the Warrantholder represents and warrants as follows:
7.1 He understands the nature of the investment being made by
him and the financial risks thereof.
7.2 He understands that the Warrant Shares subject to this
Warrant have not been registered under the Securities Act of 1933 (the
"1933 Act") or the securities act of any state (the "Acts"), and that
the purchase of the Warrant is being made in reliance upon an exemption
under the provisions of the Acts which may depend in part upon his
investment intent.
7.3 He is acquiring both the Warrant and any Warrant Shares
received upon the exercise of such Warrant for investment purposes only
and not with a view to distribution.
7.4 He understands that the Warrant being acquired by him may
be sold, assigned or otherwise transferred only if it is registered
under the Acts or if the sale, assignment or transfer is exempt from
the registration requirements of the Acts. He further understands that
if the Warrant is not registered under the Acts or an exemption is not
available in connection with the proposed transfer, the Warrant cannot
be sold, assigned or otherwise transferred.
7.5 He understands that the Warrant Shares have not been
registered under the Acts, and that if the Warrant Shares are not
registered under the Acts by the Company, such Warrant Shares cannot be
offered, sold, or transferred unless subsequently registered under the
Acts or the offering, sale or transfer is exempt from the registration
requirements of the Acts. In this regard, the Warrantholder understands
that, in the event the Warrant Shares are not registered or and
exemption from registration is not available, the Warrantholder may be
compelled to hold the Warrant Shares indefinitely.
7.6 He acknowledges that any Warrant Shares issued upon
exercise of the Warrant may bear a restrictive legend respecting the
application of the registration requirements of the Acts.
6
7.7 He understands that even if the Warrant Shares are
registered, the offering, sale or transfer of any Warrant Shares issued
upon exercise of the Warrant may be restricted following such
registration for a period of time under applicable rules regulations of
the NASD, The Nasdaq Stock Market, or federal or state securities laws.
7.8 He understands that in the event that the Company is not
successful in completing its Initial Public Offering within 12 months
from the close of escrow for the purchase of this Warrant, this Warrant
will automatically be null and void and Warrantholder shall not be
entitled to any rights to purchase any securities of the Company but
shall instead have only such rights as are set forth in the Promissory
Note attached hereto as Exhibit "A."
7.9 He is an "accredited investor" as that term is defined
under Regulation D promulgated under the 1933 Act.
8. Transfer of Warrant.
8.1 Warrant Register. The Company will maintain a register
(the "Warrant Register") containing the names and addresses of the
holders of all warrant certificates issued by the Company (each a
"Warrantholder" and collectively "Warrantholders"). Any Warrantholder
may change his or her address as shown on the Warrant Register by
written notice to the Company requesting such change. Any notice or
written communication required or permitted to be given to the
Warrantholder may be delivered or given by mail to such Warrantholder
at the address shown on the Warrant Register. Until this Warrant is
transferred on the Warrant Register of the Company, the Company may
treat the Warrantholder as shown on the Warrant Register as the
absolute owner of the Warrant for all purposes, notwithstanding any
notice to the contrary.
8.2 Warrant Agent. The Company may, by written notice to the
Warrantholder, appoint an agent for the purpose of maintaining the
Warrant Register referred to in Section 8.1 above, issuing the Shares
issuable upon the exercise of the Warrant, exchanging this Warrant,
replacing this Warrant, or any or all of the foregoing. Thereafter, any
such registration, issuance, exchange or replacement, as the case may
be, shall be made at the office of such agent.
8.3 Transferability and Non-Negotiability of Warrant. This
Warrant may not be transferred or assigned in whole or in part without
compliance with all applicable federal and state securities laws by the
transferor and the transferee (including the delivery of investment
representation letters and legal opinions reasonably satisfactory to
the Company, if such are requested by the Company). Subject to the
provisions of this Warrant with respect to compliance with Acts, title
to this Warrant may be transferred by endorsement (by the Warrantholder
executing the Assignment Form attached hereto as Exhibit "C") and
delivery in the same manner as a negotiable instrument transferable by
endorsement and delivery.
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8.4 Exchange of Warrant Upon a Transfer. On surrender of this
Warrant for exchange, delivery of a properly endorsed Assignment Form
and subject to the provisions of this Warrant with respect to
compliance with the Acts and with the limitations on assignments and
transfers contained in this Section 8, the Company at its expense shall
issue to or on the order of the Warrantholder a new Warrant of like
tenor, in the name of the Warrantholder or as the Warrantholder (on
payment by the Warrantholder of any applicable transfer taxes) may
direct, for the number of Warrant Shares issuable upon exercise hereof.
Any transferee of this Warrant shall be required to execute a warrant
substantially in the form of this Warrant and shall be required to
agree to be bound by the terms and conditions set for in such Warrant.
9. Registration Rights. Unless it receives written instructions to the
contrary from the Warrantholder or unless this Warrant has expired pursuant to
the terms hereof, the Company shall include the Warrant Shares issuable upon
conversion of this Warrant in Company's Registration Statement for its Initial
Public Offering. The Company shall include in such filing, for registration
under the 1933 Act, the aggregate number of Warrant Shares which (i) are
issuable at the time of such Initial Public Offering upon conversion of this
Warrant and (ii) have not otherwise been requested by Warrantholder to be
withheld from inclusion in the Company's Registration Statement.
10. Indemnification. In the event of any registration with respect to
the Warrant Shares, the Company will indemnify and hold harmless any
Warrantholder who holds such registered Warrant Shares and each person, if any,
who controls such holder, against any losses, claims, damages or liabilities to
which the holder or such controlling person may be subject under the 1933 Act
insofar as such losses, claims, damages or liabilities arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in any such Registration Statement or arise out of or are based upon
the omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, but the Company shall
not be liable for any loss, claim, damage or liability based on or arising out
of written information furnished by a Warrantholder for use in the Registration
Statement.
11. Reporting by the Company. The Company agrees that following the
completion of its Initial Public Offering and during the term of the Warrant it
will keep current in filing all forms and other materials required to be filed
with the Securities and Exchange Commission pursuant to the Securities Exchange
Act of 1934.
12. Reserved Shares. The Company will at all times keep available and
reserve out of its authorized shares of Common Stock such number of shares as
shall from time to time be issuable upon exercise of the Warrant.
13. Voting Rights. This Warrant shall not entitle the holder hereof to
any voting rights or other rights as a stockholder of the Company.
8
14. Title to Stock. All Warrant Shares delivered upon exercise of the
Warrant shall be validly issued, fully paid and nonassessable, and the
Warrantholder shall receive good and marketable title, free and clear of all
liens, encumbrances and claims whatsoever.
15. Due Authorization. The execution and delivery of this Warrant,
consummation of the transactions herein contemplated, and compliance with the
terms of this Warrant are lawful and do not and will not conflict with or result
in a breach of any of the terms or provisions of, or constitute a default under,
the Articles of Incorporation or Bylaws of the Company, nor will they conflict
with or result in a breach of any of the terms or provisions of or constitute a
default under, any indenture, mortgage, trust agreement or other instrument,
agreement or judgment, order or decree of any court or governmental authority to
which the Company is a party or by which the Company or any of its assets is
bound.
16. Binding Agreement. This Warrant shall bind the parties, their
heirs, personal representatives, successors and assigns.
17. Notices. Any notice required under this Warrant shall be hand
delivered or sent by registered or certified mail, postage prepaid and return
receipt requested, to (a) the address of the Warrantholder on the Warrant
Register, or (b) to the Company at its principal business address (or to such
other address as a party may specify in writing). Notices shall be deemed
delivered three days after deposit in the United States mails or upon delivery
if hand-delivered.
18. Governing Law. This Warrant has been made and entered into in the
State of Arizona and shall be construed in accordance with the laws of the State
of Arizona, excluding its choice of law provisions. The parties agree that the
courts of the State of Arizona, including Maricopa County, Arizona Superior
Court, shall be the proper and exclusive forum for any action relating to a
dispute between the parties arising out of, or related to, this Warrant. Each
party consents to the in personam jurisdiction of said Court.
19. Gender. When the context in which the words are used in this
Warrant indicate that such is the intent, the singular and plural number shall
be deemed to include the other, and the masculine, feminine and neuter genders
shall be deemed to include the other. The term "person" shall include an
individual, corporation, partnership, trust, estate or any other entity.
20. Prior Agreements Superseded. This Warrant constitutes the sole
agreement of the parties with respect to this Warrant and supersedes any prior
understandings or written or oral agreements between the parties respecting the
subject matter hereof.
9
IN WITNESS WHEREOF, the Company has caused its duly authorized officers
to execute this Warrant on the day of , 1997.
"COMPANY"
Premium Cigars International, Ltd.,
an Arizona corporation.
By:
-------------------------------------
Its: President
By:
-------------------------------------
Its: Secretary
"WARRANTHOLDER"
----------------------------------------
(signature)
----------------------------------------
(Print or Type Name)
----------------------------------------
(Date)
10
EXHIBIT "A"
FORM OF PROMISSORY NOTE
PREMIUM CIGARS INTERNATIONAL, LTD.
Phoenix, Arizona
$ .00 , 1997
----------------- ------------------
FOR VALUE RECEIVED, Premium Cigars International, Ltd., an Arizona
corporation ("Maker"), promises to pay to the order of ____________________ , a
___________________ ("Holder"), at
________________________________________________ , or at such other place as the
Holder may from time to time designate in writing, the principal sum of
_____________________________ ($________.00), together with interest thereon at
the rate of eight percent (8%) per annum from the date hereof until paid.
All principal and accrued interest shall be due and payable in full
upon the earlier of (i) the closing of the Maker's initial public offering of
its Common Stock, or (ii) the date six (6) months after the date hereof (the
"Offering Date"). Notwithstanding anything herein to the contrary, this Note
shall bear interest at the rate of sixteen percent (16%) per annum from and
after the earlier of (i) the Offering Date, or (ii) Maker's default in
performance of any of Maker's obligations hereunder. Furthermore, if for any
reason any principal and interest due and owing under this Note is not paid in
full on or before the date twelve (12) calendar months following the close of
escrow for this Note and the Warrant related hereto, the remaining balance due
hereunder shall be converted to a note to be amortized over the following twelve
( 12) month period at an annual interest rate of sixteen percent (16%) with all
accrued interest to be paid thereunder on a quarterly basis on the first day of
the calendar months of which are four, seven, ten and thirteen months from the
commencement of such twelve-month period.
All payments under this Note shall be first applied to interest and the
remainder to principal. Maker may prepay this Note in full or in part without
premium or penalty at any time. Interest shall be computed hereunder based on a
three hundred sixty-five (365) day year and the actual number of days elapsed.
Maker hereby covenants that, until this Note is paid in full and unless
Holder agrees otherwise in writing, Maker shall:
1. Maintain insurance against such hazards and liabilities as are
normally insured for in an "all risk" policy;
2. Pay when due all taxes, assessments, and other liabilities,
except those contested in good faith;
1
3. Not create or permit any pledge, security interest, lien or
other encumbrance on any assets now owned or acquired
hereafter, except pledges, security interests, liens or other
encumbrances in favor of (i) collateralized working capital
loans, (ii) loans or other financing obtained by Maker whereby
the only assets encumbered by such pledges, security
interests, liens or other encumbrances were purchased with the
proceeds of such loans or other financing or (iii) mortgages
or leases on real property purchased or leased by Maker;
4. Not lend or advance money, credit or property except for (i)
reasonable advances against commissions payable to employees
or independent contractors or (ii) trade or business advances
or credits made in the ordinary course of Maker's business:
and
5. Not guarantee, assume, endorse or otherwise become responsible
for the personal debts of any employee, director, or
individual shareholder of Maker.
Any of the following events shall constitute an "Event of Default"
hereunder: (a) failure of Maker to pay any amount (whether of principal,
interest or otherwise) when due hereunder, which failure continues for period of
twenty (20) days after the due date thereof; (b) failure of Maker to perform any
other material covenant hereunder which failure continues for a period of thirty
(30) days after Maker's receipt of written notice from Holder to Maker of such
failure; or (c) the entry of an order for relief under the Federal Bankruptcy
Code as to Maker or entry of any order appointing a receiver or trustee for
Maker or approving a petition in reorganization or other similar relief under
bankruptcy or similar laws in the U. S. or any other competent jurisdiction,
which order, if voluntary, is not dismissed or stayed within ninety (90) days
after entry thereof; or making a general assignment for the benefit of Maker's
creditors; or admitting in writing inability to pay Maker's debts as they come
due.
If Maker fails to pay any sum due under this Note as and when due, then
Maker shall pay to Holder, in addition to the sums stated above, the reasonable
costs of collection, regardless of whether litigation is commenced, including a
reasonable sum as attorneys' fees and including the cost of converting any
collateral to cash. No failure on the part of Holder to exercise any of Holder's
rights hereunder or under any other agreement to which Holder is a party shall
be deemed a waiver of any such rights or of any default hereunder.
This Note may not be changed, amended or modified except by agreement
in writing signed by Maker and Holder.
This Note has been made and entered into in the State of Arizona and
shall be construed in accordance with the laws of the State of Arizona,
excluding its choice of law provisions, and the laws of the United States of
American. The parties agree that the State and Federal Courts of Arizona,
including both Maricopa County, Arizona Superior Court and the United States
District Court, District of Arizona, located in Phoenix Arizona, shall be the
proper and exclusive
2
forums for any action relating to a dispute between the parties arising out of,
or related to, this Note. Each party consents to the in personam jurisdiction of
said courts.
In the event any one or more of the provisions of this Note shall for
any reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Note, but this Note shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein and has been severed
herefrom.
Whenever used in this Note, the words "Maker" and "Holder" shall be
deemed to include the respective successors of Maker and of Holder, and "Holder"
shall also include any subsequent holder of this Note. This Note shall be
binding in accordance with its terms upon Maker and its respective successors
and assigns. If this Note is signed by more than one party, Maker's obligations
hereunder are joint and several.
IN WITNESS WHEREOF, Maker has caused this Note to be duly executed as
of the day and year first above written.
"Maker"
Premium Cigars International, Ltd.
By:
-------------------------------------
Its:
------------------------------------
3
EXHIBIT "B"
WARRANT EXERCISE FORM
To: Premium Cigars International, Ltd.
(1) The undersigned hereby elects to purchase shares of the no par
value common stock (the "Stock") of Premium Cigars International, Ltd., pursuant
to the provisions of the attached Warrant, and tenders herewith payment in full
of the purchase price for such shares.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of the Stock are being acquired solely for the
account of the undersigned and not as a nominee for any other party, and for
investment, and that the undersigned will not offer, sell or otherwise dispose
of any such shares of the Stock except under circumstances that will not result
in a violation of the Securities Act of 1933, as amended. or any applicable
securities laws.
(3) Please issue a certificate or certificates representing said shares
of the Stock in the name of the undersigned or in such other name as is
specified below:
----------------------------------------
(Name)
----------------------------------------
(Name)
(4) Please issue a new Warrant for the unexercised portion of the
Warrant specified by the attached Warrant in the name of the undersigned or in
such other name as specified below:
----------------------------------------
(Name)
- ----------------------- ----------------------------------------
(Date) (Signature)
EXHIBIT "C"
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under the attached Warrant, with respect to the number
of shares of the Common Stock set forth below:
Name of Assignee Address No. of Shares
and does hereby irrevocably constitute and appoint Attorney ____________________
to make such transfer on the books of Premium Cigars International, Ltd.,
maintained for the purpose, with full power of substitution in the premises.
The undersigned also represents that, by assignment hereof, the
Assignee acknowledges that this Warrant and the shares of stock to be issued
upon exercise of this Warrant represented thereby are being acquired for
investment and that the Assignee will not offer, sell or otherwise dispose of
this Warrant or any shares of stock to be issued upon exercise of such Warrant
except under circumstances which will not result in a violation of the
Securities Act of 1933, as amended, or any state securities laws. Further, the
Assignee acknowledged that upon exercise of this Warrant, the Assignee shall, if
requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the shares of stock so purchased are being acquired for investment
and not with a view toward distribution ar resale .
Dated:
----------------------------
----------------------------------------
Signature of Holder