ENGAGEMENT AGREEMENT
December__, 1998
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Chairman and Chief Executive Officer
Premium Cigars International, Ltd.
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▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
1. This letter will confirm the understanding between Premium Cigars
International, Ltd. and/or its affiliates and successors (the "Company" or
"PCIG") and RCG Capital Markets Group, Inc. and/or any affiliates and successors
("RCG"). The letter and the attachments hereto, as amended, shall be
collectively referred to as the "Agreement". RCG will provide consulting and
other services described by the attachment ("services") and will represent the
Company during the engagement as exclusive Financial Relations Consultants of
the kind described by that attachment, all on the terms and conditions set forth
in this letter agreement. That attachment is incorporated in this letter
agreement and forms a part hereof. Unless otherwise terminated as provided in
paragraph nine of this letter agreement, the contract period will be for an
Eighteen (18) month period commencing, immediately upon execution of this
agreement. During this engagement period, PCIG or RCG may terminate the contract
after Nine (9) months by providing written notice of Thirty (30) days.
2. The Company agrees to furnish or cause to be furnished to RCG all
information concerning the Company as RCG reasonably requests and deems
appropriate for purposes of this engagement. The Company and RCG represent and
warrant to each other that all information provided and representations made,
with respect to the Company, to third parties will be complete and correct in
all material respects and will not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein not misleading in light of the circumstances under which such statements
are made. In rendering RCG's services hereunder, PCIG understands that RCG will
be using and relying on publicly available information and the information
furnished to RCG by PCIG without independent verification thereof. RCG will
treat as confidential any non-public information provided to it hereunder and
will not disclose the same to third parties unless required by applicable law.
In the event disclosure has been or will be made by RCG, RCG will use it's best
efforts to cooperate as reasonably requested by the Company in minimizing any
potential loss or injury to the Company as a consequence of any such necessary
disclosure. In addition, RCG will use its best efforts to comply with all
applicable state and Federal securities laws in the performance of this
agreement.
3. RCG will be generally available to you in connection with its
rendering of services. Specifically, RCG (a) will outline, develop and implement
a financial relations program to assist the Company in creating and/or enhancing
a positive and more visible public image, (b) may contact existing shareholders,
broker/dealers, potential investors, registered representatives, institutions,
mutual fund managers, investment banking sources, securities analysts,
November 12, 1998
Page 2
independent portfolio managers, and other professional investment community
contacts including certain financial media sources for the purpose of enhancing
the Company's public image and perceived value, (c) will assist the Company in
the creation, production and distribution of certain financial markets and
investor/shareholder corporate image materials, including corporate profiles,
due diligence manual and investor packages, as well as all financial press
releases; (d) when appropriate, assist the Company in its endeavor to secure
research analyst through a targeted securities professionals campaign.
4. The Company will use its best efforts to afford RCG 48 hours to
review any disclosure, prior to its release, which the Company plans to make to
any of the sources described in paragraph (3) within the general terms of the
proposal. In addition, RCG will be responsible for assisting the Company in
writing and/or editing, producing, coordinating and disseminating all financial
industry press releases. RCG agrees that it will not release or distribute any
press release without the Company's prior consent.
5. In consideration of RCG's services hereunder, the Company agrees to
pay RCG, promptly when due, the compensation described by and in strict
accordance with the attachment ("Compensation") to this engagement letter.
Should RCG and the Company determine to extend the term of the engagement or
change the scope of the engagement, then a mutually acceptable amendment or
supplement to that attachment shall be promptly executed at the time by RCG and
Company. Absent any such amendment, all terms and conditions of this agreement
shall be binding to the parties.
6. RCG shall be entitled to such additional fees as may be mutually
agreed upon by separate agreement between the parties hereto, for additional
consulting services rendered during the engagement term.
7. The Company agrees to pay all of RCG's direct and indirect
out-of-pocket expenses reasonably incurred, in connection with this engagement.
An expense retainer shall be utilized for this purpose. Amounts and limitations
shall be set forth in the attachment ("Compensation").
8. The Company acknowledges that RCG will be acting on the Company's
behalf, therefore, RCG requires indemnification, and assumes the Company
requires and agrees to the same. A copy of the indemnification provisions
("Indemnification Provisions") is attached to this engagement letter and is
incorporated herein and made a part hereof.
9. Either party hereto may terminate this engagement as follows:
(a) WITHOUT CAUSE. The Company may terminate this Agreement
during the eighteen-month period "without cause", upon providing RCG 30 days
written notice. In the event of such termination by the Company, "without
cause", RCG shall be entitled to receive cash compensation to the extent it is
unpaid for (i) the remaining term of this Agreement or (ii) four and one-half (4
1/2) months, whichever period is shorter, pro-rated from the notice date of
termination, along with reimbursement of any non paid, out-of-pocket expenses up
to the effective date of termination. Such payment is due and payable on the
effective date of termination.
November 12, 1998
Page 3
(b) WITH CAUSE. In addition, the Company may terminate this
Agreement at any time upon written notice to RCG and the Company may immediately
exercise its rights to repurchase the Shares as provided in the Financial
Relations Compensation Attachment:
(i) If RCG fails to cure any material breach of any
provision of this Agreement within thirty (30) days from written
notice from the Company (unless such breach cannot be reasonably
cured within the thirty (30) days and RCG is actively pursuing to
cure said breach).
(ii) For RCG's negligence, willful misconduct, fraud,
misappropriation, embezzlement, or other dishonesty;
(iii) Upon RCG's failure to materially comply with
applicable law or regulation relating to the Services it will
perform; or
(iv) Upon the filing by or against RCG of a petition to have
RCG adjudged as bankrupt or a petition for reorganization or
arrange met under any law relating to bankruptcy, and where any
such involuntary petition is not dismissed within 90 days.
(c) RENEWAL. This Agreement shall renew if not specifically
terminated. The Company agrees to notify RCG Thirty (30) days prior to the end
of the Eighteen (18) month period of its intent to not renew. Should the Company
fail to notify RCG, the contract will revert to a month to month agreement until
specifically renewed in writing for the next consecutive contract period or
terminated with the Thirty (30) day notice. Such renewal or month to month
engagement shall be on the same terms and conditions contained herein, unless
modified and agreed in writing by both parties.
(d) RCG may terminate this Agreement at any time upon written
notice to the Company.
(i) If the Company fails to cure any material breach of any
provision of this Agreement with thirty (30) days from written
notice from the Company (unless such breach cannot be reasonably
cured within the thirty (30) days and the Company is actively
pursuing to cure said breach);
(ii) For the Company's negligence, willful misconduct, fraud
or misrepresentation;
November 12, 1998
Page 4
Such termination under 9(d)(i or ii) shall be deemed to be a
termination by the Company "without cause" as provided in
paragraph 9 (a) above.
(iii) Upon the Company's failure to materially comply with
any applicable law or regulation relating to the Services being
provided; or
(iv) Upon the filing by or against the Company of a petition
to have the Company adjudged as bankrupt or a petition for
reorganization or arrangement under any law relating to
bankruptcy, and where any such involuntary petition is not
dismissed within 90 days.
Upon termination under Subsections 9 (b) above, the Company shall have no
liability to RCG for Compensation accruing after such termination, and RCG shall
have no further entitlement thereto. Upon such termination, RCG shall be
entitled to receive and retain only accrued Compensation to the date of such
termination, to the extent it is unpaid, together with expenses not yet
reimbursed and the Company may immediately exercise its right to repurchase the
Shares in accordance with the terms set forth in the Financial Relations
Compensation Attachments
10. RCG hereby fully discloses that certain associates, affiliates,
officers and employees of RCG are:
A) Licensed as Registered Securities Principals issued by the
National Association of Securities Dealers ("NASD"); and/or
B) Licensed as Registered Representatives issued by the NASD.
All NASD registrations are carried BTS (Brokers Transaction Services),
which is a non-RCG affiliated NASD-registered broker/dealer.
RCG FURTHER DISCLOSES AND THE COMPANY SPECIFICALLY ACKNOWLEDGES THAT
RCG IS NOT A BROKER/DEALER REGISTERED WITH THE NASD OR ANY OTHER REGULATORY
AGENCY, NOR IS IT, OR ANY OF ITS OFFICERS, AFFILIATES AND EMPLOYEES AN OWNER IN
ANY BROKER/DEALER. FURTHERMORE, IN THE PERFORMANCE OF SERVICES UNDER THE TERMS
AND CONDITIONS OF THIS AGREEMENT, SUCH SERVICES SHALL NOT BE CONSIDERED TO BE
ACTING IN ANY BROKER/DEALER OR UNDERWRITING CAPACITY AND THEREFORE RCG IS NOT
RECEIVING ANY COMPENSATION FROM THE COMPANY AS SUCH.
11. The Company understands and acknowledges that RCG provides other
and similar consulting services to companies which may or may not conduct
business and activities similar to those of the Company. RCG is not required to
devote its full time and attention to the performance of its duties detailed in
this Agreement, and may devote only so much of its time and attention as it
deems reasonable or necessary.
12. The validity and interpretation of this Agreement shall be governed
by the laws of the State of Arizona applicable to agreements made and to be
fully performed therein.
November 12, 1998
Page 5
13. In the event of any controversy or dispute arising out of, or
relating to this Agreement or breach thereof, RCG and PCIG agree to settle such
controversy by arbitration pursuant to Arizona Revised Statutes, 12-1501 et seq.
and in accordance with the rules, of the American Arbitration Association
governing commercial transactions then existing, to the extent that such Rules
are not inconsistent with said Statutes and this Agreement. Judgment upon the
award rendered under arbitration may be entered in any court having
jurisdiction. The cost of the arbitration procedure shall be borne by the losing
party, or, if the decision is not clearly in favor of one party or the other,
the costs shall be borne as determined by the arbitrator. The parties agree that
the arbitration procedure provided herein shall be the sole and exclusive remedy
to resolve any controversy or dispute arising hereunder, and that the proper
venue for such arbitration proceeding shall be Maricopa County, Arizona.
14. For the convenience of the parties, any number of counterparts of
this letter agreement may be executed by the parties hereto. Each such
counterpart shall be deemed to be an original instrument, but all such
counterparts taken together shall constitute one and the same letter agreement.
If the foregoing correctly sets forth our agreement, please sign the
enclosed copy of the letter in the space provided and return it to us, whereupon
all parties will be bound to the terms of this engagement.
Very truly yours, Confirmed and agreed to:
RCG Capital Markets Group, Inc. This ____ day of ________, 1998.
By: Premium Cigars International, Ltd.
-----------------------------
Title: By:
-------------------------- ------------------------------
Title:
----------------------------
November 12, 1998
Page 6
INDEMNIFICATION PROVISIONS
The Company agrees to defend, indemnify and hold harmless RCG, its
officers, directors, and employees (hereafter jointly referred to as RCG)
against any and all losses, claims, demands, suits, actions, judgments, awards,
damages, liabilities, costs, reasonable attorneys' fees (and all actions in
respect thereof and any reasonable real or other expenses in giving testimony or
furnishing documents in response to a subpoena or otherwise) including the costs
of investigating, preparing or defending any such action or claim, whether or
not in connection with litigation in which RCG is a party, directly or
indirectly caused by, relating to, or asserted by a third party, based upon or
arising out of (a) the Company's breach of or the incorrectness of any
representation, warranty, or covenant of Company contained in this Agreement;
and/or (b) failure of Company to perform any term condition, or obligation
required by this Agreement to be performed by Company; or (c) any Services
rendered by the Company as defined in or contemplated by the Agreement to which
these Provisions are attached, as it may be amended from time to time; or (d)
any act or omission by the Company in connection with its performance of its
obligations under the Agreement. Notwithstanding the foregoing, the Company
shall not have any liability to RCG for, or in connection with, the engagement
of RCG or with any of the foregoing, for any such liability for losses, claims,
demand, suits, actions, judgments, awards, damages, liabilities, costs or
expenses that is found in a final judgment by a court of competent jurisdiction
or mutually acceptable arbitrator to have resulted from RCG's gross negligence,
willful misconduct, RCG's material breach or the incorrectness of any
representation, warranty or covenant of RCG contained in this Agreement.
RCG agrees to defend, indemnify and hold harmless the Company, its
officers, directors, and employees (hereafter jointly referred to as the
Company) against any and all losses, claims, demands, suits, actions, judgments,
awards, damages, liabilities, costs, reasonable attorneys' fees (and all actions
in respect thereof and any reasonable real or other expenses in giving testimony
or furnishing documents in response to a subpoena or otherwise) including the
costs of investigating, preparing or defending any such action or claim, whether
or not in connection with litigation in which the Company is a party, directly
or indirectly caused by, relating to, or asserted by a third party, based upon
or arising out of (a) RCG's breach of or the incorrectness of any
representation, warranty, or covenant RCG contained in this Agreement; and/or or
(b) failure of RCG to perform any term condition, or obligation required by this
Agreement to be performed by RCG; or (c) any Services rendered by RCG as defined
in or contemplated by the Agreement to which these Provisions are attached, as
it may be amended from time to time; or (d) any act or omission by RCG in
connection with its performance of its obligations under the Agreement.
Notwithstanding the foregoing, RCG shall not have any liability to the Company
for, or in connection with, the engagement of RCG or with any of the foregoing,
for any such liability for losses, claims, demands, suits, actions, judgments,
awards, damages, liabilities, costs or expenses that is found by a court of
competent jurisdiction or mutually acceptable arbitrator to have resulted from
the Company's gross negligence, willful misconduct, the Company's material
breach or the incorrectness of any representation, warranty or covenant of the
Company contained in this Agreement.
November 12, 1998
Page 7
As a condition to the foregoing indemnity, in the event of the
assertion of any claim or demand, or the institution of any suit or action with
respect to which either party is required by this paragraph to Indemnify the
other party (the indemnifying party hereinafter referred to as the "Indemnitor",
and the party entitled to indemnification hereinafter referred to as the
"Indemnitee") the Indemnitee will give notice thereof to the Indemnitor and will
afford the Indemnitor the opportunity to defend , settle, or compromise the
same. Unless the Indemnitor agrees to duly, promptly and diligently discharge or
defend against such claim, demand, suit or action in such manner as will, in the
Indemnitee's reasonable judgment, protect the Indemnitee from any liability,
loss, cost or damage as a result thereof, the Indemnitee may, at the
Indemnitee's option, for the Indemnitor's account and risk, assume the defense
of the same, may implead, interplead or claim over against the Indemnitor and
may thereafter hold the Indemnitor responsible for all sums paid and all costs,
expenses and reasonable attorney's fees incurred by the Indemnitee in so doing.
The Indemnitee may, at the Indemnitee's option, participate in any legal
proceedings being conducted by the Indemnitor hereunder with counsel of the
Indemnitee's choosing, but such participation shall be at the Indemnitee's sole
expense, so long as the Indemnitor is diligently conducting the same in the
Indemnitee's reasonable judgment, and the Indemnitee's counsel shall to the
fullest extent consistent with its professional responsibilities cooperate with
the Indemnitor and any counsel designated by the Indemnitor.
In the event that a court of competent jurisdiction, or an arbitrator
mutually acceptable to the parties, determines that the Indemnification provided
for hereunder is unavailable hereunder, but that both Company and RCG are liable
to a third party asserting a claim against Company and RCG, then as between
Company and RCG, they each agree to contribute such amounts as may be necessary
to satisfy such liability, in amounts proportionate to their respective
comparative negligence/responsibility as determined by a court of competent
jurisdiction or a mutually acceptable arbitrator. If either Company or RCG pays
such third party more than its proportionate share as determined above, then it
shall be entitled to seek contribution from the other party to the extent of
such excess.
No person or affiliated entity found liable for a fraudulent
misrepresentation shall be entitled to contribution from any person or
affiliated entity that is not also found liable for such fraudulent
misrepresentation.
These Indemnification Provisions shall be in addition to any liability,
which either party may otherwise have to the other party or their respective
controlling persons within the meaning of the federal securities laws. The
foregoing Indemnification Provisions are in addition to any rights or remedies
available under applicable law and are not to the exclusion of any such rights
or remedies.
November 12, 1998
Page 8
FINANCIAL RELATIONS
COMPENSATION ATTACHMENT
In accordance with the contract terms for Premium Cigars International,
Ltd. ("PCIG"), the following is the compensation required by RCG Capital Markets
Group, Inc. and/or its affiliates ("RCG") to perform the Financial Relations
services outlined herein. The contract period for Financial Relations services
will be for an eighteen (18) month period from the date of execution of the
Agreement. During this engagement period, PCIG or RCG may terminate the contract
after nine (9) months by providing written notice of thirty (30) days.
During the term of the Agreement, RCG shall receive $5,500 per month in
compensation. In addition, RCG requires reimbursement for all direct and certain
pre-approved indirect miscellaneous expenses and out of pocket costs, such as,
but not limited to photocopying, messenger service, long-distance telephone
calls, printing charges or similar expenses. It is the policy of RCG that an
expense debit account of $5,000 be utilized for these direct allocable costs.
RCG will provide PCIG with a detailed breakdown of all reimbursable expenses
debited against the remaining monthly balance by the twentieth (20th) day of the
following month of service. When the remaining unused portion of the expense
debit account falls below $1,500, PCIG will be required to reinstate the account
balance to $5,000.
RCG will obtain prior approval from PCIG if any single miscellaneous
expense item is in excess of $600. RCG acknowledges and understands that PCIG
will have specific amounts budgeted for these expenditures and will use its best
efforts to ensure those budget amounts are not exceeded.
As additional compensation for Financial Relation Services,
PCIG will sell to RCG 100,000 shares of PCIG common stock (the "Shares") at a
price of $.01 per Share, for a total price of $1,000. On or before January 1,
1999, RCG will pay the purchase price for the Shares to PCIG, which will then
promptly issue the Shares in the name of RCG, however such Shares shall be held
by PCIG. On or after one year from their issuance or earlier as provided for in
the Agreement, and on or before January 28, 2000, PCIG may repurchase Shares
from RCG, at the same price paid by RCG to PCIG for the Shares, upon the
following conditions:
1. PCIG may repurchase 25,000 Shares if PCIG's stock price fails to
hold and maintain a closing bid equal to or greater than $1.00
per share for ten (10) consecutive trading days (the "Trading
Period") prior to January 23, 1999; or the applicable date if
extended
2. PCIG may repurchase 25,000 additional Shares if: (i) PCIG's stock
fails to satisfy the requirements set forth in paragraph 1 above,
or (ii) after the Trading Period and for a period of six months
thereafter, PCIG's stock fails to maintain sufficient levels such
that the stock does not become subject to a delisting letter from
NASDAQ.
November 12, 1998
Page 9
3. PCIG may repurchase up to 30,000 additional Shares unless, prior
to the repurchase date, PCIG has received reasonably acceptable
proof for each new institutional investor who has purchased a
total of $100,000 or more worth of PCIG's stock. PCIG's right to
repurchase Shares shall expire as to 10,000 Shares at the time
that proof of such purchase is provided as to each institutional
investor, up to a total of three (3). For example, if only
$200,000 worth of PCIG stock is purchased by new investors, then
only 10,000 Shares may be repurchased by PCIG.
4. PCIG may repurchase an additional 5,000 Shares unless PCIG
receives a written publication confirming corporate research
coverage of PCIG by a buy or sell side analyst, or endorsement by
an appropriate investment newsletter from a pre-approved list of
such publications.
5. PCIG may repurchase an additional 15,000 shares unless the
average weekly trading volume of PCIG stock for the six months
ended December 31, 1999 exceeds the average weekly trading volume
of PCIG stock for the six months ended June 30, 1999 by at least
20%.
In order to repurchase Shares, PCIG shall give RCG at least five (5)
days written notice of its intent to repurchase any Shares. Upon receipt of the
repurchase price in full, RCG shall execute such documents as PCIG shall
reasonably request to transfer Shares back to PCIG.
RCG acknowledges that the Shares discussed herein shall be restricted
securities subject to the provisions of S.E.C. Rule 144, 17 C.F.R. ss.230.144
and that all such Shares shall bear an appropriate restrictive legend to that
effect. Certificates representing Shares shall be held by PCIG unless and until
RCG formally requests that the restrictive legend be removed from such
certificates. PCIG shall provide acceptable evidence to RCG that such Shares
have been issued and are held in safe keeping for the benefit of RCG and without
additional conditions other than what is provided for in this Agreement. At the
time that RCG requests the removal of a restrictive legend from certificates
representing any Shares, RCG shall pay to PCIG: (a) $.99 per Share as to the
first 50,000 Shares covered under items 1 and 2 above; and (b) $1.49 per Share
as to the second 50,000 Shares covered under items 3, 4 and 5 above. Upon
payment of the required amount, PCIG shall promptly forward the certificate to
its transfer agent, together with appropriate instructions for the removal of
restrictive legends and delivery to RCG of certificates without restrictive
legends for the requested number of Shares.
