PREMIUM CIGARS INTERNATIONAL, LTD.
2,000,000 Shares of Common Stock
UNDERWRITING AGREEMENT
(the "Agreement")
____________, 1997
W. B. McKee Securities, Inc.
3003 North Central Avenue
Suite 100
Phoenix, Arizona 85012
Ladies and Gentlemen:
Premium Cigars International, Ltd., an Arizona corporation ("Company"),
proposes to sell an aggregate of 2,000,000 shares of common stock, no par value
per share ("Firm Stock"), to W. B. McKee Securities, Inc. ("Representative") on
the terms and conditions set forth herein. The Company also proposes to sell, at
the Representative's option, an aggregate of up to 300,000 additional shares of
Comon Stock (the "Option Stock") as discussed more thoroughly in Section 2
below. The Company further agrees to issue, upon the Closing Date as hereafter
defined in Section 2, the Representative's warrants more fully discussed in
Section 4(o) below ("Representative's Warrants").
The Firm Stock and the Option Stock are herein collectively called the
"Stock."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. Representations and Warranties of the Company. The Company
represents, warrants and agrees as follows:
(a) A registration statement on Form SB-2 (File No.
333-__________ with respect to the Firm Stock and Option Stock has been prepared
by the Company in conformity with the requirements of the Securities Act of
1933, as amended ("Act"), and the rules and regulations ("Rules and
Regulations") of the Securities and Exchange Commission ("Commission")
thereunder and has been filed with the Commission under the Act. Copies of such
registration statement, including any pre-effective and post-effective
amendments thereto, the preliminary prospectus (meeting the requirements of Rule
430A of the Rules and Regulations) contained therein and the exhibits, financial
statements and schedules, as finally amended and revised, have heretofore been
delivered by the Company to the Representative. Such registration statement is
herein referred to as the "Registration Statement," upon filing of the
prospectus referred to below with the Commission, shall be deemed to include all
information omitted therefrom in reliance upon Rule 430A and contained in the
prospectus referred to below, has been declared effective by the Commission
under the Act. The form of prospectus first filed by the Company with the
Commission pursuant to its Rule 424(b) and Rule 430A is herein referred to as
the "Prospectus." Such preliminary prospectus included in the Registration
Statement prior to the time it becomes effective is herein referred to as a
"Preliminary Prospectus."
(b) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Arizona, with full corporate power and corporate authority to own or lease its
properties and conduct its business as described in the Registration Statement;
the Company is duly qualified to transact business in all jurisdictions in which
the conduct of its business requires such qualification, except where the
failure to qualify would not have a material adverse effect upon the business or
property of the Company.
(c) The Company has authorized and outstanding capital stock
as set forth under the heading "Capitalization" in the Prospectus; the
outstanding shares of Common Stock of the Company have been duly authorized and
validly issued, are fully paid and nonassessable and have been issued in
compliance with all federal and state securities laws; all of the Units to be
issued and sold by the Company pursuant to this Agreement have been duly
authorized and, when issued and paid for as contemplated herein, the components
thereof will be validly issued, fully paid and nonassessable; and no preemptive
rights of stockholders exist with respect to any of the Units or the issue and
sale thereof; no stockholder of the Company has any right pursuant to any
agreement which has not been waived or honored to require the Company to
register the sale of any securities owned by such stockholder under the Act in
the public offering contemplated herein except as disclosed in the Registration
Statement; all necessary and proper corporate proceedings have been taken to
validly authorize such Units and no further approval or authority of the
stockholders or the Board of Directors of the Company is required for the
issuance and sale of the Units to be sold by the Company as contemplated herein.
(d) The Common Stock of the Company conforms in all material
respects to the description thereof in the Registration Statement. Except as
specifically disclosed in the Registration Statement and the financial
statements of the Company and the related notes thereto, the Company does not
have outstanding any options to purchase, or any preemptive rights or other
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rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell shares of its
capital stock or any such options, rights, convertible securities or
obligations. The descriptions of the Company's stock option and other
stock-based plans, and of the options or other rights granted and exercised
thereunder, set forth in the Prospectus, are accurate summaries and fairly
present the information required to be shown with respect to such plans and
rights in all material respects. The Company and its affiliates are not
currently offering any securities other than the Firm Stock and Option Stock,
nor have they offered or sold any of the Company's securities, except as
described in the Registration Statement.
(e) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus relating to the proposed
offering of the Firm Stock nor instituted or threatened instituting proceedings
for that purpose. The Registration Statement contains, and the Prospectus and
any amendments or supplements thereto will contain, all statements which are
required to be stated therein by and in all respects conform or will conform, as
the case may be, to the requirements of, the Act and the Rules and Regulations.
Neither the Registration Statement nor any amendment thereto, and neither the
Prospectus nor any supplement thereto, contains or will contain as the case may
be, any untrue statement of a material fact or omits or will omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no representations or
warranties as to information contained in or omitted from the Registration
Statement or the Prospectus, or any such amendment or supplement, in reliance
upon, and in conformity with, written information furnished to the Company by or
on behalf of any underwriter through the Representative, specifically for use in
the preparation thereof.
(f) The financial statements of the Company, together with
related notes and schedules as set forth in the Registration Statement, present
fairly in all material respects the financial position and the results of
operations of the Company, at the indicated dates and for the indicated periods.
Such financial statements, schedules and related notes have been prepared in
accordance with generally accepted accounting principles, consistently applied
throughout the periods involved, and all adjustments necessary for a fair
presentation of results for such periods have been made. The summary and
selected financial and statistical data and schedules included in the
Registration Statement present fairly the information shown therein and have
been compiled on a basis consistent with the financial statements presented
therein. No other financial statements or schedules are required to be included
in the Registration Statement.
(g) There is no action, suit or proceeding pending or, to the
best knowledge of the Company, after due inquiry, threatened against the Company
before any court or regulatory, governmental or administrative agency or body,
which might result in a material adverse change in the business or financial
condition of the Company, except as set forth in the Registration Statement. The
Company is not subject to the provisions of any injunction, judgment, decree or
order of any court, regulatory body, administrative agency or other governmental
body or arbitral
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forum, which might result in a material adverse change in the business, assets
or condition of the Company.
(h) The Company has good and marketable title to all of the
properties and assets reflected in either the financial statements or as
described in the Registration Statement and such properties and assets are not
subject to liens, mortgages, security interests, pledges or encumbrances of any
kind, except for such encumbrances that, individually or in the aggregate, would
not have a material adverse effect on the business or financial condition of the
Company. The Company occupies its leased properties under valid and binding
leases conforming in all material respects to the description thereof set forth
in the Registration Statement.
(i) The Company has filed all federal, state, local and
foreign income tax returns which have been required to be filed and has paid all
taxes indicated by said returns and has paid all tax assessments received by it.
There is no income, sales, use, transfer or other tax deficiency or assessment
which has been or might reasonably be expected to be asserted or threatened
against the Company which might result in a material adverse change in the
business or financial condition of the Company. The Company has paid all sales,
use, transfer and other taxes applicable to it and its business and operations.
(j) Since the respective dates as of which information is
given in the Registration Statement, as it may be amended or supplemented, (i)
there has not been any material adverse change in or affecting the condition,
financial or otherwise, of the Company or the earnings, business affairs,
management, or business prospects of the Company, whether or not occurring in
the ordinary course of business, (ii) there has not been any transaction entered
into by the Company, other than transactions in the ordinary course of business
or transactions specifically described in the Registration Statement as it may
be amended or supplemented, (iii) the Company has not sustained any material
loss or interference with its businesses or properties from fire, flood,
windstorm, accident or other calamity, (iv) the Company has not paid or declared
any dividends or other distribution with respect to its capital stock and the
Company is not in default in the payment of principal of or interest on any
outstanding debt obligations, and (v) there has not been any change in the
capital stock (other than the sale of the Units or the exercise of outstanding
stock options or warrants as described in the Registration Statement) or
material increase in indebtedness of the Company. The Company does not have any
material contingent obligation which is not disclosed in the Registration
Statement (or contained in the financial statements or related notes thereto),
as such may be amended or supplemented.
(k) The Company is not in violation or default under any
provision of its articles of incorporation or bylaws or any of its agreements,
leases, license, contracts, franchises, mortgages, permits, deeds of trust,
indentures or other instruments or obligations to which the Company is a party
or by which it or any of its properties is bound or may be materially affected
(collectively, "Contracts"), where such violation or default would have a
material adverse effect on the business or financial condition of the Company.
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(l) The execution and performance of this Agreement and the
consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of, or violation of, any of the terms or
provisions of, or constitute, either by itself or upon notice or the passage of
time or both, a default under, any Contract to which the Company is a party or
by which the Company or any of its property may be bound or affected, except
where such breach, violation or default would not have a material adverse effect
on the business or financial condition of the Company, or violate any of the
provisions of the articles of incorporation or bylaws of the Company or violate
any order, judgment, statute, rule or regulation applicable to the Company of
any court or of any regulatory, administrative or governmental body or agency or
arbitral forum having jurisdiction over the Company or any of its property.
(m) The Company has the legal right, corporate power and
corporate authority to enter into this Agreement and perform the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by the Company and is legally binding upon and enforceable against the
Company in accordance with its terms (except as the enforceability may be
subject to or limited by bankruptcy, insolvency, reorganization, arrangement,
moratorium or other similar laws affecting the rights of creditors generally and
subject to the effect of general principles of equity).
(n) Each approval, registration, qualification, license,
permit, consent, order, authorization, designation, declaration or filing by or
with any regulatory, administrative or other governmental body or agency
necessary in connection with the execution and delivery by the Company of this
Agreement and the consummation of the transactions herein contemplated (except
such additional actions as may be required by the National Association of
Securities Dealers, Inc. ("NASD") or may be necessary to qualify the Stock for
public offering under state securities or Blue Sky laws has been obtained or
made and each is in full force and effect.
(o) The Company is not an owner or assignee of any patents or
patent rights; the Company is not aware of any pending or threatened action,
suit, proceeding or claim by others, either domestically or internationally,
that the Company is violating any patents, patent rights, copyrights, trademarks
or trademark rights, service marks, trade names, licenses or royalty
arrangements, or rights thereto of others, or governmental, regulatory or
administrative authorizations, orders, permits, certificates and consents.
(p) There are no Contracts or other documents required to be
described in the Registration Statement or to be filed as exhibits to the
Registration Statement by the Act or by the Rules and Regulations which have not
been described or filed as required.
(q) The Company is conducting business in compliance with all
applicable laws, rules and regulations of the jurisdictions in which it is
conducting business, except where the failure to so comply would not have a
material adverse effect on the business or financial condition of the Company.
The Company possesses adequate certificates or permits issued by the appropriate
federal, state and local regulatory authorities necessary to conduct its
business and to
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retain possession of its properties. The Company has not received any notice of
any proceeding relating to the revocation or modification of any of these
certificates or permits.
(r) All transactions among the Company and the officers,
directors, and affiliates of the Company have been accurately disclosed in the
Prospectus, to the extent required to be disclosed in the Prospectus in
accordance with the Act and the Rules and Regulations. As used in this
Agreement, the term "affiliate" shall mean a person or entity controlling,
controlled by or under common control with any specified person or entity, or
the ability to direct, directly or indirectly, the management or policies of the
controlled person or entity, whether through the ownership of voting securities,
by contract, positions of employment, family relationships, service as an
officer, director or partner of the person or entity, or otherwise.
(s) The Company has not, directly or indirectly, (i) made any
unlawful contribution to any candidate for public office, or failed to disclose
fully any contribution in violation of law, or (ii) made any payment to any
federal, state, local or foreign governmental officer or official, or other
person charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any other such
jurisdiction.
(t) The Company maintains insurance of the types and in the
amounts which it deems adequate for its business and which is customary for
companies in its industry, including, but not limited to, general liability
insurance and insurance covering all real and person property owned or leased by
the Company against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against, all of which insurance is in full force and
effect.
(u) Semple & Cooper LLP, who have certified the financial
statements filed with the Commission as part of the Registration Statement, are
independent public accountants as required by the Act and the Rules and
Regulations.
(v) The Company has taken all appropriate steps reasonably
necessary to assure that no offering, sale or other disposition of any Common
Stock of the Company will be made for a period of eighteen months after the date
of the Prospectus. The Company will also take steps to assure that no director,
executive officer or 5% or greater stockholder will sell or otherwise dispose of
any shares of Common Stock held by them for a period of eighteen (18) months
after the date of the Prospectus.
(w) As of the effective date hereof, the Company is classified
as a "C" corporation with the Internal Revenue Service.
(x) The Company's board of directors consists of those persons
listed in the Prospectus. Except as disclosed in the Prospectus, none of such
persons is employed by the Company nor is any of them affiliated with the
Company, except for service on its board of directors.
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(y) Except as provided for herein, no broker's or finder's
fees or commissions are due and payable by the Company, and none will be paid by
it.
(z) The Company is eligible to use Form SB-2 for the
registration of the Stock.
(aa) Neither the Company, nor to its knowledge, any person
other than any underwriter, has made any representation, promise or warranty,
whether verbal or in writing, to anyone, whether an existing stockholder or not,
that any of the Stock will be reserved for or directed to them during the
proposed public offering.
2. Purchase, Sale and Delivery of the Firm Stock. On the basis of the
representations, warranties and covenants herein contained, and subject to the
conditions herein set forth, the Company agrees to sell to the Representative
and the Representative agrees to purchase, at the gross price per share of
Common Stock indicated in the Prospectus ("Initial Price") less the
Representative's discount of ten percent (10%) of the Initial Price of the Firm
Stock.
Payment for the Firm Stock to be sold hereunder is to be made by bank
wire or certified or bank cashier's check(s) drawn to the order of the Company
for the Firm Stock, against delivery of certificates therefor to the
Representative. Such payment and delivery are to be made at the offices of
Streich Lang, P.A., Renaissance One, Two N. Central Avenue, Phoenix, Arizona
85004, at 10:00 a.m., M.S.T., on ____________, 19__ (the third business day
after the date of this Agreement), such time and date being herein referred to
as the "Closing Date." (As used herein, "business day" means a day on which the
Nasdaq is open for trading and on which banks in Arizona are open for business
and not permitted by law or executive order to be closed.) The certificates for
the Firm Stock shall be in definitive form with engraved borders and will be
delivered two full business days prior to the Closing Date to W. B. McKee
Securities, Inc., Attention: _______________, 3003 North Central Avenue, Suite
100, Phoenix, Arizona 85012, in such denominations and in such registrations as
the Representative requests in writing not later than the second full business
day prior to the Closing Date, and will be made available for inspection by the
Representative at least two business days prior to the Closing Date at the
offices of Streich Lang, P.A., Renaissance One, Two N. Central Avenue, Phoenix,
Arizona 85004.
In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
grants an option to the Representative to purchase the Option Stock at the
Initial Price, less the Representative's discount. The maximum number of shares
of Option Stock to be sold by the Company is equal to fifteen percent (15%) of
the number of shares of Firm Stock. The option granted hereby may be exercised
in whole or in part, but only once, and at any time upon written notice given
within 30 days after the Closing Date, by the Representative, to the Company, as
the case may be, setting forth the number of shares of Option Stock as to which
the Representative is exercising the option, the names and denominations in
which the Option Stock is to be registered and the time and date at which such
certificates are to be delivered. The certificates for the Option Stock are to
be delivered to a location designated by the Representative no later than one
full business day after
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the exercise of such option (such time and date being herein referred to as the
"Option Closing Date"). The option with respect to the Option Stock granted
hereunder may be exercised solely to cover over-allotments in the sale of the
Firm Stock by the Representative or to permit purchases by the Representative to
the extent permitted by law. The Representative may cancel such option at any
time, in whole or in part, prior to its expiration, by giving written notice of
such cancellation to the Company. To the extent, if any, that the option is
exercised, payment for the Option Stock shall be made on the Option Closing Date
by bank wire or certified or bank cashier's check(s) drawn to the order of the
Company, for the Option Stock against delivery of certificates therefor at the
offices of the Representatives noted above.
3. Offering by the Representative. It is understood that the
Representative is to make a public offering of the Firm Stock as soon as the
Representative deems it advisable to do so. The shares of Firm Stock are to be
initially offered to the public at the Initial Price set forth in the
Prospectus. The Representative may from time to time thereafter change the
public offering prices and other selling terms. To the extent, if at all, that
any Option Stock is purchased pursuant to Section 2 hereof, the Representative
will offer them to the public on the foregoing terms.
The Representative shall have the right to associate with other dealers
as it may determine and shall have the right to grant to such persons such
concessions out of the underwriting discount to be received by the
Representative as it may determine, under and pursuant to a Master Selected
Dealers' Agreement in the form filed as an exhibit to the Registration
Statement.
4. Covenants of the Company. The Company covenants and agrees with the
Representative that:
(a) The Company will (i) prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a prospectus
containing information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Rules and Regulations and
(ii) not file any amendment to the Registration Statement or supplement to the
Prospectus of which the Representative shall not previously have been advised
and furnished with a copy or to which the Representative shall have reasonably
objected in writing or which is not in compliance with the Rules and
Regulations.
(b) The Company will advise the Representative promptly and
will confirm such advice in writing (i) when the Registration Statement has
become effective, (ii) of any request of the Commission for amendment of the
Registration Statement or for supplement to the Prospectus or for any additional
information, or (iii) of the issuance by the Commission or any state securities
commission of any stop order suspending the effectiveness of the Registration
Statement or the use of the Prospectus or of the institution of any proceedings
for that purpose, and the Company will use its best efforts to prevent the
issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.
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(c) The Company will cooperate with the Representative in
endeavoring to qualify the Stock for sale under the securities laws of such
jurisdictions as the Representative may have reasonably requested in writing and
will make such applications, file such documents, furnish such information and
take such other actions as may be reasonably required by federal or state
securities laws or regulations (including but not limited to appointing
additional independent directors or advisors to the board of directors) whether
before, during or after the offering. The Company will, from time to time,
prepare and file such statements, reports, and other documents, as are or may be
required to continue such qualifications in effect for so long a period as the
Representative may reasonably request for distribution of the Sock; provided,
however, that the Company shall not be required to register or qualify as a
foreign corporation or to take any action that would subject it to service of
process in suits, other than relating to the sale of the Stock, in any
jurisdiction where it is not now so subject.
(d) The Company will qualify the Stock for trading on the
National Association of Securities Dealers Automated Quotation System ("Nasdaq")
Small Cap Market and use best efforts to maintain such listing (or a listing on
another national securities exchange) thereafter for a period of no less than
five (5) years.
(e) The Company will make such applications, file such
documents, and furnish such information as necessary to list the Company's
securities in the securities listing manuals of Standard & Poor's Corporation or
Moody's Industrial Services contemporaneous with the filing of the Prospectus
with the Commission, and shall maintain listing in such manuals thereafter for a
period of no less than five years. The Company will take such other similar
steps as are reasonably necessary to obtain exemptions for secondary trading of
the Company's securities in various U.S. jurisdictions specified by the
Representative.
(f) The Company will deliver to, or upon the order of, the
Representative, from time to time, as many copies of any Preliminary Prospectus
as the Representative may request. The Company will deliver to, or upon the
order of, the Representative during the period when delivery of a Prospectus is
required under the Act, as many copies of the Prospectus in final form, or as
thereafter amended or supplemented, as the Representative may request. The
Company will deliver to the Representative at or before the Closing Date, five
signed copies of the Registration Statement and all amendments thereto,
including all exhibits filed therewith, and will deliver to the Representative
such number of copies of the Registration Statement, without exhibits, but
including any information incorporated by reference, and of all amendments
thereto, as the Representative may request.
(g) If during the period in which a Prospectus is required by
law to be delivered by an underwriter or dealer any event shall occur as a
result of which, in the judgment of the Company or in the opinion of counsel for
the Representative, it becomes necessary to amend or supplement the Prospectus
in order to make the statements therein not misleading, or, if it is necessary
at any time to amend or supplement the Prospectus to comply with any law, the
Company promptly will prepare and file with the Commission an appropriate
amendment to the
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Registration Statement or supplement to the Prospectus so that the Registration
Statement, including the Prospectus as so amended or supplemented, will not be
misleading, or so that the Registration Statement, including the Prospectus,
will comply with law.
(h) The Company will make generally available to its
stockholders, as soon as it is practicable to do so, but in any event not later
than 15 months after the effective date of the Registration Statement, an
earnings statement in reasonable detail, covering a period of at least 12
consecutive months beginning after the effective date of the Registration
Statement, which earnings statement shall satisfy the requirements of Section 11
(a) of the Act and Rule 158 of the Rules and Regulations and will advise the
Representative in writing when such statement has been so made available and
will furnish the Representative with a true and correct copy thereof.
(i) The Company will apply the net proceeds of the sale of the
Stock sold by it in accordance with the statements under the caption "USE OF
PROCEEDS" in the Prospectus. Prior to the application of such net proceeds, the
Company will invest or reinvest such proceeds only in Eligible Investments. For
the purposes of this Agreement, "Eligible Investments" shall mean the following
investments so long as they have maturities of one year or less: (i) obligations
issued or guaranteed by the United States or by any person controlled or
supervised by or acting as an instrumentality of the United States pursuant to
authority granted by Congress; (ii) obligations issued or guaranteed by any
state or political subdivision thereof rated either Aa or higher, or MIG 1 or
higher, by Moody's Investors Service, Inc. or AA or higher, or an equivalent, by
Standard & Poor's Corporation, both of New York, New York, or their successors;
(iii) commercial or finance paper which is rated either Prime-1 or higher or an
equivalent by Moody's Investors Services, Inc. or A-1 or higher or an equivalent
by Standard & Poor's Corporation, both of New York, New York, or their
successors; and (iv) certificates of deposit or time deposits of banks or trust
companies, organized under the laws of the United States, having a minimum
equity of $250,000,000.
(j) The Company has required each of its directors, executive
officers and 5% or greater shareholders to enter into agreements not to sell any
shares of the Company's Common Stock for eighteen months after the date of the
Prospectus. The Company has furnished the Representative with an executed copy
of each such agreement substantially in the form attached as Schedule I.
(k) The Company shall make original documents and other
information relating to the Company's affairs available upon request to the
Representative and to its counsel at the Company's office for inspection and
copies of any such documents will be furnished upon request to the
Representative and to its counsel. Included within the documents made available
have been at least the articles of incorporation and all amendments thereto, the
bylaws and all amendments thereto, minutes of all of the meetings of the
incorporators, directors and stockholders, all financial statements and copies
of all Contracts to which the Company is a party or in which the Company has an
interest.
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(l) The Company has appointed American Securities Transfer &
Trust, Inc., 1825 Lawrence Street, Suite 444, Denver, CO 80202-1817, as the
Company's transfer agent and registrar, respectively. Unless the Representative
otherwise consents in writing, the Company will continue to retain a transfer
agent reasonably satisfactory to the Representative for a period of one year
following the Closing. The Company will make arrangements to have available at
the office of the transfer agent sufficient quantities of certificates
representing as may be needed for the quick and efficient transfer of the Units
as contemplated hereunder and for the one year period following the Closing.
(m) Except with the Representative's approval, the Company
agrees that the Company will not do any of the following for 180 days after the
Closing Date or the Option Closing Date, whichever occurs later:
(i) Undertake or authorize any change in its capital
structure or authorize, issue or permit any public or private
offering of additional securities;
(ii) Authorize, create, issue or sell any funded
obligations, notes or other evidences of indebtedness, except
in the ordinary course of business; or
(iii) Consolidate or merge with or into any other
corporation or effect a material corporate reorganization of
the Company.
(n) The Company shall deliver to the Representative __________
warrants ("Representative's Warrants") to purchase, for a price of $.01 per
Representative's Warrant, up to __________ shares of the Company's Common Stock,
which entitles the Representative to purchase one share of common stock at an
exercise price per Representative's Warrant equal to ________% of the aggregate
of the Initial Purchase Price. The Representative's Warrants shall be in the
form attached hereto as Appendix "A." The terms of the Common Stock issuable
upon exercise of the Representative's Warrants shall be identical to those as
offered to the public. The Representative's Warrants shall be exercisable at any
time commencing one year from the effective date of the Registration Statement
and continuing for four years thereafter.
(i) The Company shall reserve and at all times have
available a sufficient number of shares of its Common Stock to
be issued upon the exercise of the Representative's Warrants.
(ii) The Company and the Representative agree that
the Representative may designate that the Representative's
Warrants be issued in varying amounts directly to its
officers, partners, other underwriters and selling group
members. However, such designation will only be made by the
Representative if it determines and substantiates to the
Company that such issuance will not violate the applicable
rules of the NASD. The Representative and the Company agree
that any transfers
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of the Representative's Warrants will only be made if they do
not violate the registration provisions of the Act.
(iii) Upon written request of the Representative or
the then holder(s) of at least fifty percent (50%) of (i) the
total unexercised Representative's Warrants (based on the
shares of Common Stock purchasable directly or indirectly
thereunder) and (b) the shares of Common Stock included in the
Representative's Warrants issued upon the exercise of the
Representative's Warrants, made at any time within the period
commencing one (1) year from the Effective Date and ending
four (4) years thereafter, the Company will file on no more
than one (1) occasion a Registration Statement under the Act,
registering or qualifying, as the case may be, the
Representative's Warrants and/or all of the securities
underlying them provided that the Company has available
current financial statements. The Company agrees to use its
best efforts to cause the above filings to be declared
effective by the Commission. All expenses of such
registrations or qualifications, including, but not limited
to, legal, accounting, printing and mailing fees will be borne
by the Company.
(iv) In addition to the above, the Company
understands and agrees that if, at any time during the term of
the Representative's Warrants, it files a post-effective
amendment or new registration statement with the Commission
pursuant to the Act, or files a Notification on Form 1-A under
the Act for a public offering of securities, either for the
account of the Company or for the account of any other person,
the Company, at its own expense, will offer to said holder(s)
the opportunity to register or qualify the Representative's
Warrants and/or all of the securities underlying them for
offering to the public. This right shall be prior to any
registration rights granted by the Company to holders of the
Company's currently outstanding securities.
(o) For a period of five years from the Effective Date, the
Company shall provide the Representative with routine internal forecasts if any
such reports are prepared by the Company for general dissemination.
(p) During the period of the proposed public offering and for
12 months from the effective date of the Registration Statement, the Company
will not, without the Representative's prior written consent, sell, contract to
sell, issue for other purposes or otherwise dispose of any securities of the
Company other than (a) shares of Common Stock issuable on the exercise of any
options, warrants, or other rights which are disclosed in the Prospectus and (b)
shares of Common Stock issuable upon the exercise of options granted to
employees, officers or directors after the date of this Agreement if such
options are reasonable and are granted in good faith and at prices which are not
less than 85% of the fair market value of the Common Stock on the date of grant
of such options.
-12-
(q) For a period commencing on the date hereof and ending 12
months after the date of the Prospectus, neither the Company nor any of its
officers or directors will hold discussions with any member of the news media or
issue news releases or other publicity about the Company regarding the financial
condition of any significant event of the Company without the approval of the
Company's legal counsel named in the Prospectus under the heading "Legal," or
such other counsel as may be approved by the Representative. During such period,
the Company will deliver to the Representative copies of such news releases or
other publicity about the Company promptly after distribution thereof.
(r) The Company will appoint, as a member of its Board of
Directors for a period of not less than five (5) years from the date of the
Prospectus, an individual designated by the Representative, such term to
commence upon the Closing Date. Such designee shall be entitled to receive
reimbursement for all reasonable costs incurred in attending such meetings,
including, but not limited to, food, lodging and transportation.
(s) The Company will employ an investor relations firm
reasonably acceptable to the Representative upon completion of the offering.
(t) The Company will retain an analyst reasonably satisfactory
to the Representative after the completion of the offering, to prepare and
distribute a research report at the end of the quiet period and six months
thereafter.
5. Costs and Expenses. The Company will pay or cause to be paid all
costs, expenses and fees in connection with the offering or incident to the
performance of the obligations of the Company under this Agreement, including,
without limiting the generality of the foregoing, the following: (a) all
expenses (including any transfer taxes) incurred in connection with the delivery
to the Representative of the Stock sold hereunder; (b) all fees and expenses
(including, without limitation, fees and expenses of the Company's accountants
and counsel, but excluding fees and expenses of counsel for the Representative)
in connection with the preparation, printing, filing, delivery and shipping of
the Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), Preliminary Prospectuses and the Prospectus as
amended or supplemented, and any Blue Sky Memoranda; (c) all filing fees and
fees and disbursements incurred in connection with the qualification of the
Stock under the applicable state securities laws; (d) filing and listing fees of
the Commission, NASD, Nasdaq, and any other similar entity in connection with
the offering; (e) the cost of printing certificates representing the Stock; (f)
the costs and charges of any transfer agent or registrar; (g) the costs of
preparing, printing and distributing bound volumes for the Representative and
their counsel; and (h) the costs of placing "tombstone advertisements" in any
publications which may be selected by the Representative, and all other costs
and expenses incident to the performance of its obligations under this Agreement
which are not otherwise provided for in this Section. The Company shall use a
printer acceptable to the Representative. Any transfer taxes imposed on the sale
of the Stock to the Representative will be paid by the Company. Additionally,
the Company shall pay to the Representative a non-accountable expense allowance
of 3% of the gross amount to be raised hereunder, payable at the
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Closing(s), of which $25,000 has already been paid by the Company in connection
with this offering. Any amounts advanced, on a non-accountable basis, to the
Representative on or before the date hereof, which shall be credited to the
allowance noted above. This expense allowance is in addition to the
Representative's discount. The Representative shall be responsible for the fees
of its counsel, except as noted otherwise in this Section 5. The Company shall
not be required to pay for any of the Representative's other expenses, except
that if this Agreement shall not be consummated because the conditions in
Section 7 hereof are not satisfied, or because this Agreement is terminated by
the Representative pursuant to Section 6 hereof, or by reason of any failure,
refusal or inability on the part of the Company to perform any undertaking or
satisfy any condition of this Agreement or to comply with any of the terms
hereof on its part to be performed, unless such failure to satisfy said
condition or to comply with said terms be due solely to the default of the
Representative, then the Company shall reimburse the Representative solely on an
accountable basis for out-of-pocket expenses, including fees and disbursements
of counsel, incurred in connection with investigating, marketing and proposing
to market the Units or in contemplation of performing its obligations hereunder.
6. Conditions of Obligations of the Representative. The obligations of
the Representative to purchase the Firm Stock on the Closing Date and the Option
Stock, if any, on the Option Closing Date are subject to the accuracy, as of the
Closing Date or the Option Closing Date, as the case may be, of the
representations and warranties of the Company contained herein, and to the
performance by the Company of its covenants and obligations hereunder and to the
following additional conditions:
(a) The Registration Statement shall have become effective not
later than ______________, 1997, or such later date and time as may be consented
to in writing by the Representative. No stop order suspending the effectiveness
of the Registration Statement, as amended from time to time, shall have been
issued and no proceedings for that purpose shall have been taken or, to the best
knowledge of the Company, after due inquiry, shall be contemplated by the
Commission or any state securities commission.
(b) The Representative shall have received on the Closing Date
or the Option Closing Date, as the case may be, the opinion of Titus, Brueckner
& Berry, P.C., counsel for the Company, dated the Closing Date or the Option
Closing Date, as the case may be, addressed to the Representative substantially
in the form and to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, with full corporate
power and corporate authority to own or lease its properties
and conduct its business as described in the Registration
Statement; the Company is duly qualified to transact business
in all jurisdictions in which the conduct of its business
requires such qualification, except where the failure to
qualify would not have a material adverse affect upon the
business or financial condition of the Company.
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(ii) To the best of such counsel's knowledge, the
Company has authorized and outstanding capital stock as set
forth under the caption "Capitalization" in the Prospectus;
the outstanding shares of Common Stock of the Company have
been duly authorized and validly issued, are fully paid and
nonassessable.
(iii) All of the Stock to be issued and sold by the
Company pursuant to this Agreement have been duly authorized
by all necessary corporate action and, when issued and paid
for as contemplated herein, will be validly issued, fully paid
and nonassessable. Further, to the best of such counsel's
knowledge, no preemptive rights of stockholders exist with
respect to any of the Units or the issue and sale thereof; no
stockholder of the Company has any right pursuant to any
agreement which has not been waived or honored to require the
Company to register the sale of any securities owned by such
stockholder under the Act in the public offering contemplated
herein; and no further approval or authority of the
stockholders or the Board of Directors of the Company is
required for the issuance and sale of the Stock to be sold by
the Company as contemplated herein.
(iv) The certificates evidencing the Stock to be
delivered hereunder are in due and proper form under Delaware
law and the Stock conforms in all material respects to the
description thereof contained in the Prospectus.
(v) Except as specifically disclosed in the
Registration Statement and the financial statements of the
Company, and the related notes thereto, to the best of such
counsel's knowledge, the Company does not have outstanding any
options to purchase, or any preemptive rights or other rights
to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or
sell its capital stock or any such options, rights,
convertible securities or obligations. The descriptions of the
Company's stock option and other stock-based plans, and any
other options or warrants heretofore granted by the Company,
set forth in the Prospectus are accurate summaries and fairly
present the information required to be shown with respect to
such plans and rights in all material respects.
(vi) The Registration Statement has become effective
under the Act and to the best of such counsel's knowledge no
stop order proceedings with respect thereto have been
instituted or are pending or threatened under the Act and
nothing has come to such counsel's attention to lead them to
believe that such proceedings are contemplated; any required
filing of the Prospectus and any supplement thereto pursuant
to Rule 424(b) of the Rules and Regulations has been made in
the manner and within the time period required by such Rule
424(b).
(vii) The Registration Statement, all Preliminary
Prospectuses, the Prospectus and each amendment or supplement
thereto comply as to form in all
-15-
material respects with the requirements of the Act and the
Rules and Regulations (except that such counsel need express
no opinion as to the financial statements, schedules and other
financial and statistical information included therein).
(viii) Such counsel does not know of any Contracts or
other documents required to be filed as exhibits to the
Registration Statement or described in the Registration
Statement or the Prospectus which are required to be filed or
described, which are not so filed or described as required,
and such Contracts and documents as are summarized in the
Registration Statement or the Prospectus are fairly summarized
in all material respects.
(ix) There is no action or suit pending before any
court of the United States of a character required to be
disclosed in the Prospectus pursuant to the Act and the Rules
and Regulations; there is no action, suit or proceeding
threatened against the Company before any U.S. court or
regulatory, governmental or administrative agency or arbitral
forum of a character required to be disclosed in the
Prospectus pursuant to the Act and the Rules and Regulations;
to the best of such counsel's knowledge, the Company is not a
party or subject to the provisions of any injunction,
judgment, decree or order of any court, regulatory body,
administrative agency or other governmental body or agency or
arbitral forum. Nothing has come to the attention of such
counsel that would suggest that the Company is not conducting
business in compliance with all applicable laws, statutes,
rules and regulations of the State of Arizona and of the
United States of America, except where the failure to so
comply would not have a material adverse effect on the
business or financial condition of the Company.
(x) The execution and performance of this Agreement
and the consummation of the transactions herein contemplated
do not and will not conflict with or result in the breach of,
or violation of, any of the terms or provisions of, or
constitute, either by itself or upon notice or the passage of
time or both, a default under, any Contract to which the
Company is a party or by which the Company or any of its
property may be bound or affected, except where such breach,
violation or default would not have a material adverse effect
on the business or financial condition of the Company, or
violate any of the provisions of the articles of incorporation
or bylaws of the Company or violate any statute, judgment,
decree, order, rule or regulation known to such counsel or any
court or of any governmental, regulatory or administrative
body or agency or arbitral forum having jurisdiction over the
Company or any its property.
(xi) The Company is not in violation or default under
any provision of any of its certificate of incorporation or
bylaws and the Company is not in violation or of default under
any Contracts to which the Company is a party or by which it
or any of its properties is bound or may be affected, except
where such violation
-16-
or default would not have a material adverse effect on the
business or financial condition of the Company.
(xii) The Company has the corporate power and
authority to enter into this Agreement on behalf of itself and
perform the transactions contemplated hereby. This Agreement
has been duly authorized, executed and delivered by the
Company. This Agreement is the legal, valid and binding
obligation of the Company, enforceable in accordance with its
terms, subject to customary exceptions for bankruptcy,
insolvency, reorganization, arrangement, moratorium or similar
laws relating to or affecting the rights of creditors
generally and except that enforceability may be subject to the
effect of general principles of equity, except to the extent
that the enforceability of the indemnification provisions of
this Agreement may be limited by consideration of public
policy under federal and state securities laws.
(xiii) All approvals, consents, orders,
authorizations, designations, registrations, permits,
qualifications, licenses, declarations or filings by or with
any regulatory, administrative or governmental body necessary
in connection with the execution and delivery by the Company
of this Agreement and the consummation of the transactions
herein contemplated (other than as may be required by the NASD
as to which such counsel need express no opinion) have been
obtained or made and all are in full force and effect.
In rendering such opinion such counsel may rely as to matters governed
by the laws other than Federal laws of the United States of America on local
counsel in applicable jurisdictions, provided that such counsel shall state that
they believe that they and the Representative are justified in relying on such
other counsel. As to factual matters, such counsel may rely on certificates
(provided at Closing and available to the Representative and its counsel)
obtained from directors and officers of the Company, its stockholders, and from
public officials. Matters stated to counsel's knowledge need be based only on
the actual knowledge of the attorneys involved in the representation of the
Company. In addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the attention of such
counsel which leads them to believe that the Registration Statement, or any
amendment thereto, at the time the Registration Statement or amendment became
effective, contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading or the Prospectus or any amendment or supplement thereto, at the
time it was filed pursuant to Rule 424(b) or at the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading (except that such counsel need express no
view as to financial statements, schedules and other financial information and
statistical data and information included therein).
-17-
Such counsel shall permit Streich Lang, P.A. to rely upon such opinion in
rendering its opinion under Section 6(c).
(c) The Representative shall have received from Streich Lang,
P.A., counsel for the Representative, an opinion dated the Closing Date or the
Option Closing Date, as the case may be, substantially to the effect that: (i)
the Company is a validly organized and existing corporation under the laws of
the State of Arizona; (ii) the Company has authorized and outstanding capital
stock as set forth under the caption "Capitalization" in the Prospectus; the
authorized shares of the Company's Common Stock have been duly authorized; to
the best of such counsel's knowledge, the outstanding shares of the Company's
Common Stock have been duly authorized and validly issued and are fully paid and
nonassessable; all of the Units conform to the description thereof contained in
the Prospectus; the Stock to be sold by the Company pursuant to this Agreement
has been duly authorized and will be validly issued, fully paid and
nonassessable when issued and paid for as contemplated by this Agreement; and no
preemptive rights of stockholders exist with respect to any of the Stock or the
issue and sale thereof; (iii) the Registration Statement has become effective
under the Act and to the best of the knowledge of such counsel, no stop order
proceedings with respect thereto have been instituted or are pending or
threatened under the Act; (iv) the Registration Statement, all Preliminary
Prospectuses, the Prospectus and each amendment or supplement thereto comply as
to form in all material respects with the requirements of the Act and the
applicable Rules and Regulations thereunder (except that such counsel need
express no opinion as to the financial statements, schedules and other financial
or statistical information included therein); and (v) this Agreement has been
duly authorized, executed and delivered by the Company. In rendering such
opinion, Streich Lang, P.A. may rely on the opinion of counsel referred to in
paragraph (b) of this Section 6. In addition to the matters set forth above,
such opinion shall also include a statement to the effect that nothing has come
to the attention of such counsel which leads them to believe that the
Registration Statement, the Prospectus or any amendment thereto contains any
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
or the Prospectus or any amendment or supplement thereto, at the time it was
filed pursuant to Rule 424(b) or at the Closing Date or the Option Closing Date,
as the case may be, contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading (except that such counsel need express no view as to financial
statements, schedules and other financial information included therein). With
respect to such statement, Streich Lang, P.A. may state that their belief is
based upon the procedures set forth therein, but is without independent check
and verification.
(d) The Representative shall have received at or prior to the
effective date of the Registration Statement, and at the Closing Date, from
Streich Lang, a memorandum or summary, in form and substance satisfactory to the
Representative, with respect to the qualification for offering and sale by the
Representative of the Stock under the state securities or Blue Sky laws of such
jurisdictions as the Representative may have designated to the Company.
-18-
(e) The Representative shall have received on the date hereof
and on the Closing Date and the Option Closing Date, as the case may be, a
signed letter from Semple & Cooper, LLP, auditors for the Company, dated the
date hereof, the Closing Date and the Option Closing Date, as the case may be,
which shall confirm, on the basis of a review in accordance with the procedures
set forth in the letter signed by such firm and dated and delivered to the
Representative on the date noted above the following matters:
(i) They are independent public accountants with
respect to the Company within the meaning of the Act.
(ii) The financial statements and schedules included
in the Registration Statement and Prospectus covered by their
reports therein set forth comply as to form in all material
respects with the applicable accounting requirements of the
Act.
(iii) On the basis of procedures (but not an
examination in accordance with generally accepted auditing
standards) consisting of a reading of the minutes of meetings
and consents of the shareholders and board of directors of the
Company and the committees of such board subsequent to
December 31, 1996, as set forth in the minute books of the
Company, inquiries of officers and other employees of the
Company who have responsibilities for financial and accounting
matters with respect to transactions and events subsequent to
December 31, 1996, and such other specified procedures and
inquires to a date not more than five days prior to the date
of such letter, nothing has come to their attention which in
their judgment would indicate that (A) with respect to the
period subsequent to December 31, 1996, there were, as of the
date of the most recent available monthly consolidated
financial statements of the Company and, as of a specified
date not more than five days prior to the date of such letter,
any changes in the capital stock or long-term indebtedness of
the Company or payment or declaration of any dividend or other
distribution, or decrease in net current assets, total assets
or net stockholder's equity, in each case as compared with the
amounts shown in the most recent audited consolidated
financial statements included in the Registration Statement
and the Prospectus, except for changes or decreases which the
Registration Statement and the Prospectus disclose have
occurred or may occur or which are set forth in such letter or
(B) during the period from December 31, 1996, to the date of
the most recent available monthly unaudited consolidated
financial statements of the Company and to a specified date
not more than five days prior to the date of such letter,
there was any decrease, as compared with the corresponding
period in the prior fiscal year, in total revenues or total or
per share net income, except for decreases which the
Registration Statement and the Prospectus disclose have
occurred or may occur or which are set forth in such letter.
-19-
(iv) Stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and
earnings and other financial information pertaining to the
Company set forth in the Registration Statement and the
Prospectus, which have been specified by the Representative,
to the extent that such amounts, numbers and percentages and
information may be derived from the general accounting and
financial records of the Company and its subsidiaries or from
schedules furnished by the Company, and excluding any
questions requiring an interpretation by legal counsel, with
the results obtained from the application of specified
reasonings, inquiries and other appropriate procedures
specified by the Representative (which procedures do not
constitute an examination in accordance with generally
accepted auditing standards) set forth in such letter
heretofore delivered, and found them to be in agreement.
(v) Such other matters as may be reasonably requested
by the Representative. All such letters shall be in form and
substance satisfactory to the Representative and its counsel.
(f) The Representative shall have received on the Closing Date
or the Option Closing Date, as the case may be, a certificate or certificates of
the Chief Executive Officer and the Chief Financial Officer of the Company to
the effect that, as of the Closing Date or the Option Closing Date, as the case
may be, each of them jointly and represents as follows:
(i) The Registration Statement has become effective
under the Act and no stop order suspending the effectiveness
of the Registration Statement has been issued, and no
proceedings for such purpose have been taken or are, to the
best of their knowledge, after due inquiry, contemplated or
threatened by the Commission or any state securities
commissions.
(ii) They do not know of any investigation,
litigation, or proceeding instituted or threatened against the
Company of a character required to be disclosed in the
Registration Statement which is not so disclosed; they do not
know of any Contract or other document required to be filed as
an exhibit to the Registration Statement which is not so
filed; and the representations and warranties of the Company
contained in the Agreement are true and correct in all
material respects as of the Closing Date or the Option Closing
Date, as the case may be, as if such representations and
warranties were made as of such date.
(iii) They have carefully examined the Registration
Statement and the Prospectus and, in their opinion, as of the
effective date of the Registration Statement, the statements
contained in the Registration Statement were and are correct,
in all material respects, and such Registration Statement and
Prospectus do not omit to state a material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which
-20-
they were made, not misleading and, in their opinion, since
the effective date of the Registration Statement, no event has
occurred which should be set forth in a supplement to or an
amendment of the Prospectus which has not been so set forth in
such supplement or amendment.
(g) The Company shall have furnished to the Representative
such further certificates and documents confirming the representations,
warranties and covenants contained herein and related matters as the
Representative may reasonably have requested. Each such certificate shall be
deemed a representation and warranty of the Company as to the statements made
therein.
The opinions and certificates described in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
respects satisfactory to the Representative to Streich Lang, P.A., counsel for
the Representative.
If any of the conditions herein above provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Representative hereunder may be terminated by
the Representative by notifying the Company of such termination in writing or by
telegram at or prior to the Closing Date or the Option Closing Date, as the case
may be. In such event, the Company and the Representative shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 8
hereof).
7. Conditions of the Obligations of the Company. The obligations of the
Company to sell and deliver the Units required to be delivered as and when
specified in this Agreement are subject to the conditions that at the Closing
Date or the Option Closing Date, as the case may be, no stop order suspending
the effectiveness of the Registration Statement shall have been issued and in
effect or proceedings therefor initiated or threatened.
8. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Representative and its respective affiliates, directors, officers, partners,
employees, agents, counsel, and representatives, (collectively, "Underwriter
Parties") against any losses, claims, damages or liabilities to which such
Underwriter Parties or any one or more of them may become subject under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of or are based upon (i) any
failure by the Company or any of its affiliates, directors, officers, employees,
agents, counsel, and representatives (collectively, the "Company Parties") to
perform any obligation hereunder or any other agreement among any of the Company
Parties and any of the Underwriter Parties, (ii) any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement,
any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto, or (iii) the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances under which
-21-
they were made, and will reimburse each Underwriter Party for any legal or other
expenses incurred by such Underwriter Party in connection with investigating or
defending any such loss, claim, damage, liability, action or proceeding;
provided, however, that (X) the Company will not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement, or alleged untrue statement, or omission or
alleged omission made in the Registration Statement, any Preliminary Prospectus,
the Prospectus, or such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by or through the
Representative specifically for use in the preparation thereof (which the
parties hereto agree is limited solely to that information contained in the last
paragraph on the cover page and the paragraph relating to stabilization on page
2 of the Prospectus or Preliminary Prospectus and in the section thereof
entitled "Underwriting"), and (Y) such indemnity with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter Parties from whom
the person asserting any such loss, claim, damage or liability purchased the
Stock which is the subject thereof if such person did not receive a copy of the
Prospectus (or the Prospectus as amended or supplemented at or prior to the
confirmation of the sale or such Stock to such person in any case where such
delivery is required by the Act and the untrue statement or omission of a
material fact contained in such Preliminary Prospectus was corrected in the
Prospectus (or the Prospectus as amended or supplemented.) This indemnity
agreement will be in addition to any liability which the Company may otherwise
have.
(b) The Representative will indemnify and hold harmless the
Company Parties against any losses, claims, damages or liabilities to which the
Company Parties or any one or more of them may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any failure
by the Underwriter Parties to perform any obligations hereunder or any other
agreement among any of the Underwriter Parties and any of the Company Parties,
(ii) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or (iii) the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances under which they were made; and will reimburse any legal or other
expense reasonably incurred by the Company Parties in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding; provided, however, that the Representative will be liable in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representative
specifically for use in the preparation thereof (which the parties hereto agree
is limited solely to that information contained in the last paragraph on the
cover page and the paragraph relating to stabilization on page 2 of the
Prospectus or Preliminary Prospectus and in the section thereof entitled
"Underwriting"). This indemnity agreement will be in addition to any liability
which the Representative may otherwise have.
-22-
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity maybe sought pursuant to this Section 8, such person ("indemnified
party") shall promptly notify the person against whom such indemnity may be
sought (the "indemnifying party") in writing. No indemnification provided for in
Section 8(a) or (b) shall be available to any party who shall fail to give
notice as provided in this Section 8(c) if the party to whom notice was not
given was unaware of the proceeding to which such notice would have related and
was prejudiced by the failure to give such notice, but the failure to give such
notice shall not relieve the indemnifying party or parties from any liability
which it or they may have to the indemnified party for contribution or otherwise
than on account of the provisions of Section 8(a) or (b). In case any such
proceeding shall be brought against any indemnified party and it shall notify
the indemnifying party or the commencement thereof, the indemnifying party shall
be entitled to participate therein and, to the extent that it shall wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party and shall
pay as incurred the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel at its own expense. Notwithstanding the foregoing, the
indemnifying party shall pay as incurred the fees and expenses of the counsel
retained by the indemnified party in the event (i) the indemnifying party and
the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. It is understood
that the indemnifying party shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees
and expenses of more than one separate firm for all such indemnified parties.
Such firm shall be designated in writing by the Representative in the case of
parties indemnified pursuant to Sections 8(a) and by the Company in the case of
parties indemnified pursuant to Section 8(b). The indemnifying party shall not
be liable for any settlement of any proceeding effected without its written
consent but if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party from
and against any loss or liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Representative on the other from the offering of the Stock. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under Section 8(c) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company on the one hand and the Representative on the
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other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Representative on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bear to
the total underwriting fees and commissions received by the Representative, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company on the one hand or the Representative on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Representative agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 8(d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
referred to above in this Section 8(d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim.
(e) In any proceeding relating to the Registration Statement,
any Preliminary Prospectus, the Prospectus or any supplement or amendment
thereto, each party against whom contribution may be sought under this Section 8
hereby consents to the jurisdiction of any court having jurisdiction over any
other contributing party, agrees that process issuing from such court may be
served upon him or it by any other contributing party and consents to the
service of such process and agrees that any other contributing party may join
him or it as an additional defendant in any such proceeding in which such other
contributing party is a party.
9. Notices. All communications hereunder shall be in writing and,
except as otherwise provided herein, will be mailed, delivered, telecopied, or
telegraphed and confirmed as follows: if to the Representative, to W. B. McKee
Securities, Inc., 3003 North Central Avenue, Suite 100, Phoenix, Arizona 85012;
Telephone (602) 954-7365; Fax (602) 266-5774, Attention: Gary J. Sherman, with a
copy to Streich Lang, P.A., Renaissance One, Two N. Central Avenue, Phoenix,
Arizona 85004; Telephone (602) 229-5200; Fax (602) 229-5690; Attention:
Christian J. Hoffmann, III, Esq.; if to the Company, to Premium Cigars
International, Ltd., 10855 N. Frank Lloyd Wright Blvd., Suite 100-102,
Scottsdale, Arizona 85259; telephone, (602) 922-8887; Fax (602) ___-____;
Attention: Steven J. Lambrecht, President; with a copy to Titus, Brueckner &
Berry, 7373 North Scottsdale Road, Suite B-252, Scottsdale, Arizona 85253-3527,
Attention: Charles R. Berry, Esq.; telephone (602) 483-9600; fax (602) 483-3215.
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10. Termination. This Agreement may be terminated by the Representative
by notice to the Company as follows:
(a) at any time prior to the earlier of (i) the time the Firm
Stock is released by the Representative for sale by notice to the
Representative, or (ii) 5:00 P.M., M.S.T., on the first business day following
the date of this Agreement;
(b) at any time prior to the Closing itself if any of the
following has occurred: (i) since the respective dates as of which information
is given in the Registration Statement and the Prospectus, any material adverse
change or any development involving a prospective material adverse change in or
affecting the business or financial condition of the Company, or the earnings,
business affairs, management or business prospects of the Company, whether or
not arising in the ordinary course of business, (ii) any outbreak of hostilities
or other national or international calamity or crisis or change in economic or
political conditions if the effect of such outbreak, calamity, crisis or change
on the financial markets or economic conditions would, in reasonable judgment of
the Representative, have a material adverse effect on the securities markets in
the United States, (iii) suspension of trading in securities on the Nasdaq or
the New York Stock Exchange, Inc. or the American Stock Exchange or limitation
on prices (other than limitations on hours or numbers of days of trading) for
securities on either such Exchange, (iv) the enactment, publication, decree or
other promulgation of any federal or state statute, regulation, rule or order of
any court or other governmental authority which in the reasonable opinion of the
Representative materially and adversely affects or will materially or adversely
affect the business or operations of the Company, (v) declaration of a banking
moratorium by either federal or Arizona authorities or (vi) the taking of any
action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in the reasonable opinion of the Representative
have a material adverse effect on the securities markets in the United States or
the business prospects of the Company; or
(c) as provided in Section 6 of this Agreement.
This Agreement also may be terminated by the Representative, by notice
to the Company, as to any obligation of the Representative to purchase the
Option Stock, upon the occurrence at any time at or prior to the Option Closing
Date of any of the events described in subparagraph (b) above or as provided in
Section 6 of this Agreement.
11. Successors. This Agreement has been and is made solely for the
benefit of the Representative and the Company and their respective successors,
executors, administrators, heirs and assigns, and the Underwriter Parties and
Company Parties referred to herein, and no other person will have any right or
obligation hereunder. The term "successors" shall not include any purchaser of
the Units merely because of such purchase.
12. Miscellaneous. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations and warranties in
this Agreement shall remain
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in full force and effect regardless of (a) any termination of this Agreement,
(b) any investigation made by or on behalf of any Underwriter Party, or by or on
behalf of any Company Party and (c) delivery of and payment for the Units under
this Agreement.
This Agreement and any notices delivered hereunder may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. This Agreement and
any and all notices may be delivered by telecopy and shall be effective upon
receipt, with the original of such document to be deposited promptly in the U.S.
Mail.
This Agreement and all disputes and controversies relating hereto or in
connection with the transactions contemplated hereby shall be governed by, and
construed in accordance with, the laws of the State of Arizona.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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If the foregoing agreement is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the
Representative in accordance with its terms as of the date first above written.
Sincerely yours,
PREMIUM CIGARS INTERNATIONAL,
LTD.
By
-------------------------------------
Steven J. Lambrecht
President
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of ___________, 1997.
W. B. MCKEE SECURITIES, INC.
By
-------------------------------
Gary J. Sherman
President
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SCHEDULE I
W. B. McKee Securities, Inc.
3003 North Central Avenue
Suite 100
Phoenix, Arizona 85012
Gentlemen:
The undersigned is the holder of shares of capital stock or has the
right to acquire shares of capital stock of Premium Cigars International
("Company"). I acknowledge and understand that you are acting as the
Representative in the proposed public offering of shares of Common Stock of the
Company as set forth in a Prospectus dated __________, 1997, which I have
reviewed. In connection with your agreeing to so act, the undersigned hereby
undertakes and agrees with you that during the period of eighteen (18) months
from the date of the Prospectus, the undersigned will not offer for sale, sell
or otherwise dispose of, directly or indirectly, any shares of Common Stock of
the Company, in any manner whatsoever whether pursuant to Rule 144 under the
Securities Act of 1933 or otherwise. The undersigned further understands that
the Company will take such steps as may be necessary to enforce the foregoing
provisions and restrict the sale or transfer of the shares as provided herein
including, but not limited to, notification to the Company's transfer agent
regarding any such restrictions; and the undersigned hereby agrees to and
authorizes any actions and acknowledges that the Company and you are relying
upon this Agreement in taking any such actions.
Very truly yours,
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Number of Shares
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