<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 7, 1997
REGISTRATION NO. 333-18289
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
------
AMENDMENT NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------
HAWAIIAN NATURAL WATER COMPANY, INC.
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
Hawaii 5149 99-0314848
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
248 Mokauea Street
Honolulu, Hawaii 96819
(808) 832-4550
(Address and telephone number of principal executive offices)
------
Marcus Bender, Chief Executive Officer
Hawaiian Natural Water Company, Inc.
248 Mokauea Street
Honolulu, Hawaii 96819
(808) 832-4550
(Name, address, and telephone number of agent for service)
------
Copies to:
RICHARD P. MANSON, ESQ. RUBI FINKELSTEIN, ESQ.
Graham & James LLP Orrick, Herrington &
801 South Figueroa Street Sutcliffe LLP
Los Angeles, California 90017 666 Fifth Avenue
(213) 624-2500 New York, New York 10103
(212) 506-5000
Approximate date of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. [X]
If this Form is filed to register additional securities pursuant to Rule
462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Securities and Exchange
Commission, acting pursuant to said Section 8(a), may determine.
===============================================================================
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF FORM SB-2
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Form SB-2 Item Number and Caption Caption or Location in Prospectus
---------------------------------------------------- ----------------------------------------------------------
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1. Front of Registration Statement and Outside Front
Cover Page of Prospectus ............................... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus ............................................. Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges .............................. Prospectus Summary; The Company; Risk Factors
(Inapplicable as to Ratio of Earnings to Fixed Charges)
4. Use of Proceeds ........................................ Prospectus Summary; Use of Proceeds;
Management's Discussion and Analysis of
Financial Condition and Results of Operations
5. Determination of Offering Price ........................ Outside Front Cover Page of Prospectus;
Underwriting
6. Dilution ............................................... Dilution
7. Selling Security Holders ............................... Prospectus Summary; Selling Securityholders
8. Plan of Distribution ................................... Outside Front Cover Page of Prospectus;
Underwriting; Selling Securityholders
9. Legal Proceedings ...................................... Inapplicable
10. Directors, Executive Officers, Proprietors and
Control Persons ........................................ Management
11. Security Ownership of Certain Beneficial Owners
and Management ......................................... Principal Stockholders
12. Description of Securities .............................. Risk Factors; Dividend Policy; Description of
Capital Stock
13. Interests of Named Experts and Counsel ................. Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities ......... Inapplicable
15. Organization Within Last Five Years .................... The Company; Management's Discussion and Analysis of
Financial Condition and Results of Operations; Certain
Transactions
16. Description of Business ................................ Prospectus Summary; The Company; Capitalization;
Selected Financial Data; Management's Discussion and
Analysis of Financial Condition and Results of
Operations; Business; Management; Principal
Stockholders; Certain Transactions; Financial Statements
17. Management's Discussion and Analysis or
Plan of Operation ...................................... Use of Proceeds; Management's Discussion and Analysis of
Financial Condition and Results of Operations
18. Description of Property ................................ Business
19. Certain Relationships and Related Transactions ......... Certain Transactions
</TABLE>
<PAGE>
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Form SB-2 Item Number and Caption Caption or Location in Prospectus
---------------------------------------------------- ----------------------------------------------------------
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20. Market for Common Equity and Related
Stockholder Matters ................................... Outside Front Cover Page of Prospectus; Risk Factors;
Dividend Policy; Description of Capital Stock;
Securities Eligible for Future Sale
21. Executive Compensation ................................. Management
22. Financial Statements ................................... Financial Statements
23. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure ............................... Inapplicable
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED MARCH 7, 1997
PROSPECTUS
HAWAIIAN NATURAL WATER COMPANY, INC.
2,000,000 UNITS
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE REDEEMABLE WARRANT
This Prospectus relates to an offering (the "Offering") of 2,000,000 Units
(the "Units"), each Unit consisting of one share of common stock, no par
value ("Common Stock"), and one redeemable common stock purchase warrant
("Redeemable Warrant") of Hawaiian Natural Water Company, Inc., a Hawaii
corporation (the "Company"). The shares of Common Stock and Redeemable
Warrants comprising the Units will be separately tradeable upon issuance.
Each Redeemable Warrant entitles the registered holder thereof to purchase
one share of Common Stock at an initial exercise price of $ per share [150%
of the initial public offering price per Unit], subject to adjustment, at any
time following the date of issuance until , 2002 [60 months from the date of
this Prospectus]. The Company shall have the right to redeem all, but not
less than all, of the Redeemable Warrants commencing , 1998 [12 months from
the date of this Prospectus] at a price of $.05 per Redeemable Warrant on 30
days' prior written notice, provided that the Company shall have obtained the
consent of Joseph Stevens & Company, Inc. (the "Underwriter"), and the
average closing bid price of the Common Stock equals or exceeds 150% of the
then exercise price per share, subject to adjustment, for any 20 trading days
within a period of 30 consecutive trading days ending on the fifth trading
day prior to the date of the notice of redemption. See "Description of
Capital Stock."
Prior to the Offering, there has been no public market for the Units, the
Common Stock or the Redeemable Warrants, and there can be no assurance that
such a market will develop after the Offering or, if developed, that it will
be sustained. It is currently anticipated that the initial public offering
price will be $4.00 per Unit. The offering price of the Units and the
exercise price and other terms of the Redeemable Warrants were determined by
negotiation between the Company and the Underwriter and are not necessarily
related to the Company's assets or book value, results of operations or any
other established criteria of value. See "Risk Factors," "Description of
Capital Stock" and "Underwriting." The Company has applied to include the
Units, the Common Stock and the Redeemable Warrants on the Nasdaq SmallCap
Market ("Nasdaq") under the symbols "HNWCU," "HNWC" and "HNWCW",
respectively. The Company and the Underwriter may jointly determine, based
upon market conditions, to delist the Units upon the expiration of the 30 day
period commencing on the date of this Prospectus.
------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE, INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS,"
COMMENCING ON PAGE 8, AND "DILUTION."
------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
============================================================================
Price to Underwriting Proceeds to
Public Discounts(1) Company(2)
- -----------------------------------------------------------------------------
Per Unit ... $ $ $
- -----------------------------------------------------------------------------
Total(3) ... $ $ $
============================================================================
<PAGE>
1. Does not include additional compensation payable to the Underwriter in the
form of a 3% non-accountable expense allowance, warrants to purchase
200,000 Units (the "Underwriter's Warrants") and a financial consulting
fee of $2,000 per month for 24 months, all of which is payable at closing.
The Company has also agreed to indemnify the Underwriter against certain
liabilites, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
2. Before deducting expenses of the Offering payable by the Company,
estimated at $600,000, including the Underwriter's non-accountable expense
allowance.
3. The Company has granted the Underwriter an option (the "Over-Allotment
Option"), exercisable for a period of 45 days from the date of this
Prospectus, to purchase up to 300,000 additional Units on the same terms
and conditions set forth above, solely to cover over-allotments, if any.
If the Over-Allotment Option is exercised in full, the total Price to
Public, Underwriting Discounts and Proceeds to Company will be $ , $ ,
and $ , respectively. See "Underwriting."
The Units are being offered by the Underwriter, subject to prior sale,
when, as and if delivered to and accepted by the Underwriter, and subject to
approval of certain legal matters by their counsel and subject to certain
other conditions. The Underwriter reserves the right to withdraw, cancel or
modify the Offering and to reject any order in whole or in part. It is
expected that delivery of the Units offered hereby will be made against
payment therefor, at the offices of Joseph Stevens & Company, Inc., New York,
New York, on or about , 1997.
------
JOSEPH STEVENS & COMPANY, INC.
The date of this Prospectus is , 1997.
<PAGE>
(INSIDE FRONT COVER)
(Artwork consisting of three different size bottles of the Company's natural
water and a pink orchid superimposed upon a background consisting of water in
motion and three white orchids. Each bottle of water bears the label that
appears on the Company's bottled water which is sold to consumers. Each label
consists of a pink orchid superimposed on a blue, green and white rectangular
background with the following text "BOTTLED AT THE SOURCE" appearing above the
rectangle and "MAUNA LOA VOLCANO HAWAIIAN SPRINGS (TM) NATURAL ARTESIAN WATER
sodium-free-noncarbonated" appearing below the rectangle.)
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE UNITS, COMMON STOCK
AND/OR REDEEMABLE WARRANTS, INCLUDING PURCHASES OF THE UNITS, COMMON STOCK
AND/OR REDEEMABLE WARRANTS TO STABILIZE THEIR RESPECTIVE MARKET PRICES,
PURCHASES OF THE UNITS, COMMON STOCK AND/OR REDEEMABLE WARRANTS TO COVER SOME OR
ALL OF A SHORT POSITION MAINTAINED BY THE UNDERWRITER IN THE UNITS, COMMON STOCK
AND/OR REDEEMABLE WARRANTS, RESPECTIVELY, AND THE IMPOSITION OF PENALTY BIDS.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
(continued from cover page)
This Prospectus also relates to 750,000 Redeemable Warrants (the "Selling
Securityholders Warrants") and 750,000 shares of Common Stock (the "Selling
Securityholders Shares") issuable upon exercise of the Selling
Securityholders Warrants. The Selling Securityholders Warrants will be issued
at the consummation of the Offering to certain security holders (the "Selling
Securityholders") upon the automatic conversion of certain warrants (the
"Bridge Warrants") issued to the Selling Securityholders in a private
financing consummated in October 1996 (the "Bridge Financing"). Neither the
Selling Securityholders Warrants nor the Selling Securityholders Shares may
be sold for a period of 12 months following the date of this Prospectus and
thereafter such securities may not be sold for an additional six months
without the prior written consent of the Underwriter. The Selling
Securityholders Warrants and the Selling Securityholders Shares are not being
underwritten in the Offering. The Company will not receive any proceeds from
the sale of the Selling Securityholders Warrants or the Selling
Securityholders Shares by the holders thereof, although the Company will
receive proceeds from the exercise, if any, of the Selling Securityholders
Warrants. See "Management"s Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources," The
Company--Recent Bridge Financing" and "Selling Securityholders."
The Company intends to furnish to registered holders of the Units,
Redeemable Warrants and Common Stock annual reports containing financial
statements examined by an independent accounting firm.
TO CALIFORNIA RESIDENTS ONLY
The Units may only be offered and sold to (i) persons with a net worth,
individually or jointly with his or her spouse, of at least $250,000
(exclusive of home, home furnishings and automobiles) and an annual income of
at least $65,000 or (ii) persons with a net worth, individually or jointly
with his or her spouse, of at least $500,000 (exclusive of home, home
furnishings and automobiles).
The Units offered hereby have been registered by a limited qualification
and cannot be offered for resale or resold in the State of California unless
registered for sale. Furthermore, the exemption afforded by Section 25104(h)
of the California Securities Law shall be withheld by the Commissioner of
Corporations and the Company is not permitted to apply for the exemption
afforded by 25101(b) until at least 90 days after the closing of the
Offering.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
In August 1996, the Company effected a 1,111.428-for-one Common Stock split.
In addition, in October 1996, the holders of the Company's then outstanding
Convertible Preferred Stock converted all outstanding shares of such
Convertible Preferred Stock into an aggregate of 389,000 shares of Common
Stock. Except as otherwise noted, all information in this Prospectus (i)
gives retroactive effect to the aforementioned stock split and conversion of
Convertible Preferred Stock, (ii) assumes no exercise of the Over-Allotment
Option, (iii) assumes no exercise of the Redeemable Warrants or the Selling
Securityholders Warrants, and (iv) assumes no exercise of the Underwriter's
Warrants. Investors should carefully consider the information set forth under
the heading "Risk Factors."
THE COMPANY
Hawaiian Natural Water Company, Inc. (the "Company") bottles, markets and
distributes "natural" water under the name "Hawaiian Springs(TR)." The
Company draws its water from a well located at the base of the Mauna Loa
volcano in Kea'au on the Big Island of Hawaii. The water is "bottled at the
source" in polyethylene therephthalate ("PET") plastic bottles, which are
manufactured at the Company's bottling facility. This on-site bottle
manufacturing operation enables the Company to reduce its packaging costs
while at the same time improving its quality control, inventory management
and delivery scheduling. The Company markets its water on the basis of
superior quality and taste and on the worldwide reputation of Hawaii.
The Company has met all Food and Drug Administration ("FDA") requirements
for the labeling of its water as "bottled at the source" and "natural."
"Bottled at the source" signifies that the water is pumped directly from the
source to the bottling facility, thereby eliminating handling and
transportation procedures which might lead to contamination. "Natural"
signifies that the chemical composition and mineral content of the bottled
water are the same as those at the source. This contrasts with "purified"
water from which certain chemicals and minerals are removed by means of
filtration.
The Company began commercial operations in February 1995, selling
initially in the Hawaiian market exclusively. The Company has since expanded
its distribution on a limited basis into the West Coast and Southeastern
portion of the United States, Guam and the Middle East.
Approximately 2.88 billion gallons of bottled water were sold in the
United States in 1995, of which approximately 29.3% were sold in California.
Non-sparkling water accounted for approximately 2.43 billion gallons, or
approximately 84.4%, of total U.S. bottled water sales. The fastest growing
segment of the non-sparkling bottled water market in the United States is the
retail, premium (bottles of two liters or less are considered premium), PET
market, the market in which the Company currently competes. This segment,
which grew from a total of 335.8 million gallons in 1994 to 426.8 million
gallons in 1995 (a 27.1% increase), has grown at double digit rates since
1992, and is projected to continue growing at an average annual growth rate
of approximately 9.4% through the year 2000.
Most of the Company's product is sold through retail channels such as
convenience stores and supermarkets, although the Company also sells through
food service outlets such as restaurants, bars, airlines, hotels, country
clubs and military installations. The Company distributes its product
primarily through distributors, but also utilizes brokers and in California
sells directly to specialty retail chains.
The Company's objective is to become a leading provider of premium quality
bottled water on a national and international basis. The Company plans to
achieve this objective by expanding its presence in its current markets,
entering new geographic markets and establishing distributor relationships as
well as strategic distribution alliances with other national or international
beverage companies in order to take advantage of their established
distribution networks.
4
<PAGE>
THE OFFERING
Securities offered by the
Company...................... 2,000,000 Units, each Unit consisting of one
share of Common Stock and one Redeemable
Warrant. The shares of Common Stock and
Redeemable Warrants comprising the Units
will be detachable and separately tradeable
upon issuance. Each Redeemable Warrant
entitles the registered holder thereof to
purchase one share of Common Stock at an
initial exercise price of $ per share [150%
of the initial public offering price per
Unit], subject to adjustment, at any time
following the date of issuance until , 2002
[60 months from the date of this
Prospectus]. The Company shall have the
right to redeem all, but not less than all,
of the Redeemable Warrants commencing , 1998
[12 months from the date of this Prospectus]
at a price of $.05 per Redeemable Warrant on
30 days' prior written notice, provided that
(i) the average closing bid price of the
Common Stock equals or exceeds 150% of the
then exercise price per share, subject to
adjustment, for any 20 trading days within a
period of 30 consecutive trading days ending
on the fifth trading day prior to the date
of the notice of redemption, and (ii) the
Company shall have obtained the consent of
the Underwriter. See "Description of Capital
Stock."
Securities offered by Selling
Securityholders.............. 750,000 Redeemable Warrants, which will be
issued to the Selling Securityholders upon
the automatic conversion of the Bridge
Warrants, and 750,000 shares of Common Stock
issuable upon exercise of such Redeemable
Warrants (the "Concurrent Offering"). The
Concurrent Offering is being registered at
the Company's expense but is not being
underwritten in the Offering. The Selling
Securityholders Warrants and the Selling
Securityholders Shares may be offered for
resale at any time on or after the date
hereof by the Selling Securityholders;
provided, however, that the Selling
Securityholders have agreed not to sell such
securities for a period of 12 months
following the date hereof and thereafter for
an additional six months without the prior
written consent of the Underwriter. The
Company will not receive any proceeds from
the sale of the Selling Securityholders
Warrants or the Selling Securityholders
Shares by the holders thereof, although the
Company will receive proceeds from the
exercise, if any, of the Selling
Securityholders Warrants. See "Selling
Securityholders."
5
<PAGE>
Common Stock outstanding before
the Offering................. 1,599,212 shares(1)
Common Stock to be
outstanding after the
Offering .................... 3,599,212 shares(1)
Redeemable Warrants to be
outstanding after the
Offering .................... 2,750,000(2)
Proposed trading symbols on
NASDAQ SmallCap Market....... Units: "HNWCU"
Common Stock: "HNWC"
Redeemable Warrants: "HNWCW"
Use of Proceeds................ The net proceeds of the Offering will be
used (i) to repay indebtedness of
approximately $1,563,000, including accrued
interest, incurred in connection with the
Bridge Financing, (ii) to repay other
indebtedness of approximately $730,000,
including accrued interest, owed to
stockholders and other investors, (iii) to
pay deferred compensation and consulting
fees of approximately $108,000, (iv) for
improvements to plant and equipment of up to
$1,500,000, (v) for sales and marketing
programs of up to $2,000,000, and (vi) the
balance ($699,000) for working capital and
general corporate purposes.
Risk Factors................... Investment in the Units offered hereby is
highly speculative and involves significant
risks. These risks include (i) limited
history of operations; (ii) working capital
deficiencies, history of losses, accumulated
deficit, ability to continue as a going
concern; (iii) additional capital
requirements, uncertainty of additional
funding; (iv) lease of key operating assets;
(v) dependence on key personnel; (vi)
dependence on key customer; (vii)
governmental regulation, quality control;
(viii) competition; (ix) broad discretion of
management in use of proceeds; (x) repayment
of indebtedness, benefit to insiders,
potential conflicts of interest; (xi)
possible control by insiders; (xii)
securities eligible for future sale; (xiii)
absence of public market, arbitrary
determination of offering price, possible
volatility of stock price; (xiv) dilution;
(xv) Underwriter's lack of experience,
Underwriter's potential influence on the
market; (xvi) continued quotation on the
Nasdaq SmallCap Market; potential penny
stock classification; (xvii) current
prospectus and state Blue Sky registration
required to exercise Redeemable Warrants;
(xviii) redemption of Redeemable Warrants;
(xix) reduced probability of change of
control; and (xx) forward-looking
information and associated risk. See "Risk
Factors."
- ------
(1) Excludes (i) a warrant to purchase an aggregate of 24,351 shares of Common
Stock at an exercise price of $.000009 per share, (ii) outstanding
options to purchase 225,000 shares of Common Stock at an exercise price
of $4.00 per share and (iii) 775,000 shares of Common Stock issuable
pursuant to options which may be granted under the Company's stock option
plan.
(2) Includes 750,000 Selling Securityholders Warrants.
6
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SUMMARY FINANCIAL INFORMATION
The following table sets forth summary financial data of the Company as of
December 31, 1996 and for the two years then ended (collectively, the
"Year-End Data"). The Year-End Data has been derived from the audited
financial statements of the Company appearing elsewhere herein, which have
been audited by Arthur Andersen LLP. The summary financial data set forth
below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Financial
Statements and notes thereto and other financial and statistical data
appearing elsewhere in this Prospectus.
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Years Ended December 31,
------------------------------
1995 1996
------------ --------------
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Statement of Operations Data:
Net sales .................................. $ 588,920 $ 866,060
Cost of sales .............................. 620,593 754,159
Gross margin ............................... (31,673) 111,901
Selling and marketing ...................... 220,651 264,617
General and administrative ................. 437,289 787,592
------------ --------------
Total operating expenses ................. 657,940 1,052,209
Interest expense, net ...................... 51,261 247,443
------------ --------------
Net loss ................................... $ (740,874) $(1,187,751)
============ ==============
Net loss per share ......................... $ (0.62) $ (0.74)
============ ==============
Weighted average number of common and common
equivalent shares outstanding ............. 1,202,540 1,599,212
</TABLE>
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<CAPTION>
December 31, 1996
-------------------------------------
As
Actual Adjusted(1)
------------ -------------
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Balance Sheet Data:
Working capital (deficit) ..... $ (2,215,474) $ 1,983,526
Total assets .................. 1,192,393 5,104,393
Total liabilities ............. 2,610,315 354,815
Stockholders' equity (deficit) (1,417,922) 4,749,048
</TABLE>
- ------
(1) Adjusted to give effect to the Offering and the initial application of the
net proceeds therefrom. Also reflects the amortization of the remaining
original issue discount ($145,833) and loan costs ($287,197) relating to
the Bridge Financing. See "Use of Proceeds."
7
<PAGE>
RISK FACTORS
The purchase of Units offered hereby involves substantial risks and
immediate substantial dilution. Prospective investors should carefully
consider the risk factors set forth below in addition to the other
information contained in this Prospectus before purchasing the securities
offered hereby.
Limited History of Operations. The Company has been engaged in commercial
operations only since February 1995. The Company generated $588,920 in net
sales in the fiscal year ended December 31, 1995, and $866,060 in net sales
in the fiscal year ended December 31, 1996. Approximately 75% of these
aggregate sales occurred in the Hawaiian market. The Company's objective is
to become a leading provider of premium quality bottled water on a national
and international basis. To date, however, the Company has only begun to
penetrate major target markets, such as the Mainland U.S.A., which is far
larger than the Company's local market and will likely have a significant
impact on the ultimate success of the Company's business. While the Company
believes that it has a distinctive product with a basis for acceptance
worldwide, to date, the demand for this product on a national and
international level has been largely untested. See "Business--Distribution."
Working Capital Deficiencies; History of Losses; Accumulated Deficit;
Ability to Continue as a Going Concern. The Company had working capital
deficiencies of $721,336 and $2,215,474 at December 31, 1995 and 1996,
respectively, and a net loss of $740,874 and $1,187,751 for the respective
fiscal years then ended. As of December 31, 1996, the Company had an
accumulated deficit of $2,047,715. The Company's results of operations for
the first quarter of fiscal 1997 will include aggregate interest expense of
approximately $471,000 relating to the Bridge Financing, including an
aggregate of approximately $433,000 in amortization of original issue
discount and offering expenses. See "The Company" and "Capitalization."
Subsequent to December 31, 1996 the Company has continued to generate losses.
The Company is likely to continue to generate losses until such time as it
achieves higher sales levels. Whether the Company will achieve these higher
sales levels depends upon the acceptance of its product in larger markets
outside Hawaii, which are still substantially untested. There can be no
assurance that the Company will achieve profitability in the future or, if
so, as to the timing or amount thereof. The report of independent public
accountants on the Company's financial statements for each of the fiscal
years ended December 31, 1995 and 1996 contains an explanatory fourth
paragraph to the effect that the Company's accumulated deficit, negative cash
flows from operations, significant liabilities and need for additional
capital raise substantial doubt about the Company's ability to continue as a
going concern. See "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements and notes thereto included herein.
Additional Capital Requirements; Uncertainty of Additional Funding.
Based on its current operating plan, the Company anticipates that its
existing capital resources together with the proceeds of this Offering will
be adequate to satisfy its capital requirements for a period of at least 12
months from the date of this Prospectus. Thereafter, the Company may require
additional capital in order to expand its business. Historically, the Company
has been substantially dependent upon debt and equity financing and
guarantees from its affiliates. There can be no assurance that the Company's
affiliates will continue to extend or guarantee such financing. A portion of
the proceeds of the Offering will be used to repay all outstanding
indebtedness to the Company's affiliates. See "Use of Proceeds," "The
Company--Recent Bridge Financing" and "Certain Transaction." Additional
financing, if any, may be either equity, debt or a combination of debt and
equity. An equity financing could result in dilution in the Company's net
tangible book value per share of Common Stock. There can be no assurance that
the Company will be able to secure additional debt or equity financing or
that such financing will be available on favorable terms. The Company has
agreed not to sell or offer for sale any of its securities for a period of 18
months following the date of this Prospectus without the consent of the
Underwriter. If the Company is unable to obtain additional financing, if
needed, the Company's ability to meet its obligations and to maintain or
expand its operations as desired will be materially and adversely affected.
See "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Lease of Key Operating Assets. The Company leases its water source and
bottling facility pursuant to a long-term lease agreement with a principal
stockholder. This lease agreement requires the Company to make rental
payments to the lessor of the facility, which could be substantial, depending
upon the Company's level of gross sales. In addition, the lease arrangement
results in the Company exercising less control over its operations
8
<PAGE>
than if the Company had ownership of these assets. The lessor is entitled to
make use of the premises (other than the existing structures) for the brewing
of beer or the manufacture of other beverages (other than natural water) and
is also entitled to draw up to 50% of the water flow from the leased well for
such purposes. The Company believes that if the lessor were to draw 50% of
the water flow from the well for other such purposes, the remaining 50% would
be adequate for the current and projected future needs of the Company's
business. The lessor currently conducts no other activity on the leased
premises, and the Company believes that the lessor has no current plans to
conduct any such activity in the foreseeable future. See
"Business--Facilities."
Dependence on Key Personnel. The Company has been substantially dependent
upon the services of Marcus Bender, its Chief Executive Officer, for the
development and management of its business to date. Loss of the services of
Mr. Bender would have a material adverse effect on the Company. The Company
has entered into an employment agreement with Mr. Bender pursuant to which he
will be employed as the Company's President for a five year term. Pursuant to
this employment agreement, Mr. Bender has agreed to devote his full working
time and best efforts to the performance of his duties on behalf of the
Company. Mr. Bender has also agreed not to compete with the Company in the
sale of natural water for a period of two years following termination of the
employment agreement. The Company has obtained $1.0 million in key man life
insurance on the life of Mr. Bender. Nevertheless, the loss of Mr. Bender
would have a material adverse effect on the Company. See
"Management--Executive Compensation--Employment Agreement."
Dependence on Key Customer. In 1995, the Company's Hawaiian distributor,
which was then Eagle Distributors ("Eagle"), the Anheuser-Busch distributor
in Hawaii, accounted for approximately 81% of the Company's aggregate net
sales. Eagle was subsequently acquired by Anheuser-Busch, which terminated
distribution of all non Anheuser-Busch brands. As a result, the Company
entered into a distributorship agreement with Paradise Beverages
("Paradise"). Since the inception of the agreement with Paradise, Paradise
has accounted for a majority of the Company's net sales. The Company's
distribution agreement with Paradise is based upon an oral understanding,
which is terminable at will by either party. Termination of this distribution
agreement for any reason could have a material adverse effect on the Company.
Governmental Regulation; Quality Control. The bottled water industry is
highly regulated both in the United States and abroad. Various state and
Federal regulations, designed to ensure the quality of the water and the
truthfulness of its marketing claims, require the Company to monitor each
aspect of its production process, including its water source, its bottling
operations and its packaging and labeling practices. Government regulations
in foreign jurisdictions are generally similar to, and in certain respects
more stringent than, U.S. regulations. Failure to meet applicable regulations
in U.S. or foreign markets could lead to costly recalls, loss of
certification to market product or, even in the absence of governmental
action, loss of revenue as a result of adverse market reaction to negative
publicity. The Company's sales to Japan were halted in October 1995, after a
few months of operations, when the Japanese Ministry of Health and Welfare
ordered a total recall of all bottled water then stocked by certain
competitors. Although the Company's product was not specifically covered by
this order, due to ensuing adverse market conditions, the Company's then
Japanese distributor refused to accept additional shipments from the Company.
Although the Company retains its certification to sell bottled water in Japan
and has since entered into arrangements with a Japanese importer and broker
to represent the Company's product, shipments of the Company's product to
Japan have not yet recommenced and there can be no assurance that shipments
will recommence in the future. See "Business--Distribution" and
"--Governmental Regulation; Quality Control."
Competition. The bottled water industry is highly competitive. There are
numerous competitors in most major markets, and differentiation among them
can be difficult since the product is often perceived as generic by
consumers. Barriers to entry may be low at certain local levels but increase
significantly at the national and international levels because of the large
marketing and distribution costs associated with obtaining and maintaining a
presence at such levels. In California, for example, the largest U.S. market,
substantial "slotting fees" are typically required to be paid in order to
obtain shelf space for new and untested products in major supermarket chains,
which account for a significant percentage of bottled water sales. The
Company desires to become a leading provider of premium quality bottled water
on a national and international basis. On both bases, the Company competes
primarily with large, established foreign and domestic companies, all of
which have significantly greater financial and other resources than the
Company. The Company's principal foreign competitors include Great Brands of
Europe, a French company which distributes under the "Evian," "Volvic" and
"Dannon Natural Spring Water" names, and Perrier, S.A., a French company,
which distributes through its U.S. subsid-
9
<PAGE>
iary, The Perrier Group, under the "Arrowhead" and "Poland Spring" names,
among others. The Company's principal domestic competitors include Crystal
Geyser Water Co., a California company which distributes under the "Crystal
Geyser" name, Nora Beverage Co., a Connecticut company which distributes
Canadian sourced water under the "Naya" name, and Mountain Valley Water Co.,
an Arkansas company which distributes under the "Mountain Valley" name. See
"Business--Competition."
No Dividends. The Company has never paid any dividends on its Common Stock
and does not currently intend to pay dividends on its Common Stock in the
foreseeable future. The Company currently intends to retain all its earnings,
if any, to finance the development and expansion of its business. It is also
likely that the Company will be required to agree to restrictions on the
payment of dividends in connection with future financings. See "Dividend
Policy."
Broad Discretion of Management in Use of Proceeds. Approximately 40.9% of
the estimated net proceeds of the Offering (approximately 49% if the
Over-Allotment Option is exercised in full) is to be used for (i) selling and
marketing and (ii) working capital and general corporate purposes in the
discretion of the Company's management, upon whose judgment the public
investors must depend. See "Use of Proceeds."
Repayment of Indebtedness; Benefit to Insiders; Potential Conflicts of
Interest. Approximately $1,673,000 or 25.4% of the estimated net proceeds of
the Offering, have been allocated for repayment of unaffiliated indebtedness,
including repayment of the Bridge Notes in the outstanding principal amount
of $1,500,000, plus accrued interest. In addition, approximately $620,000 or
9.4% of the net proceeds of the Offering, have been allocated for repayment
of indebtedness owed to or guaranteed by officers, directors or principal
stockholders of the Company. Accordingly, these insiders will benefit
directly to the extent that the net proceeds of the Offering are used to
repay such indebtedness. Conflicts between the personal interest of these
insiders and the Company may be created as a result of such intended
repayment. The Company has also entered into other arrangements with
affiliated parties with respect to various significant aspects of the
Company's operations, such as the lease of its water source and bottling
facility, the purchase of its bottles pursuant to a Blow Molding Agreement
and the engagement of com.com. Inc. as its principal marketing consultant. In
addition, the Company has agreed in principle to purchase the bottling
equipment subject to the Blow Molding Agreement, for payments over five years
aggregating $1,200,000, and if such purchase is consummated, the Company will
use up to $375,000 of the net proceeds of this Offering as an initial payment
toward such purchase. The Company believes that all of these arrangements are
favorable to the Company and were entered into on terms reflecting arms'
length negotiation; however, since no independent appraisals evaluating these
affiliated business transactions were obtained, there can be no assurance
that such transactions were based on terms no less favorable than could have
been obtained from unaffiliated third parties. Potential conflicts of
interest could arise between the Company and the affiliated parties in
connection with the future enforcement, amendment or termination of these
arrangements. See "Use of Proceeds," "Business--Bottling Operations,"
"--Marketing" and "--Facilities", "Management," "Certain Transactions" and
"Principal Stockholders."
Possible Control by Insiders. Upon completion of the Offering, the
executive officers and directors will beneficially own approximately 36.65%
of the outstanding Common Stock and may be able to elect all the Company's
directors and thereby direct the policies of the Company. See "Principal
Stockholders" and "Management."
Securities Eligible for Future Sale. Sales of substantial amounts of
Common Stock after the Offering could adversely affect the market price of
the Company's Common Stock. The number of shares of Common Stock available
for sale in the public market is limited by restrictions under the Securities
Act of 1933, as amended (the "Securities Act"), and by lock-up agreements
pursuant to which the holders of all of the issued and outstanding shares
prior to the Offering have agreed not to sell or otherwise dispose of any of
their shares for a period of 18 months after the date of this Prospectus (the
"Lock-up Period") without the prior written consent of the Underwriter. The
Underwriter may, in its sole discretion and at any time without notice,
release all or any portion of the shares subject to such lock-up agreements.
Although the Underwriter does not currently intend to release all of such
shares from the lock-up agreements prior to their expiration, it may from
time to time release all or a portion thereof, depending on a
securityholder's individual circumstances, as market conditions permit. Of
the 3,599,212 shares of Common Stock that will be outstanding after the
Offering, the 2,000,000 shares underlying the Units sold in this Offering
will be freely tradeable without restriction or further registration under
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<PAGE>
the Securities Act, except that shares owned by "affiliates" of the Company,
as that term is defined in Rule 144 ("Rule 144") under the Securities Act
("Affiliates"), may generally only be sold in compliance with applicable
provisions of Rule 144. The remaining 1,599,212 shares of Common Stock will
be "restricted securities," as that term is defined in Rule 144, and in
certain circumstances may be sold without registration pursuant to such rule.
Beginning 90 days following the date of this Prospectus, all of such
restricted shares will become eligible for sale in compliance with Rule 144;
however, all of these shares are subject to lock-up agreements and will be
subject to restrictions on sale until the expiration of the Lock-up Period,
unless released therefrom by the Underwriter. In addition, subject to the
consent of the Underwriter, the Company intends to register a total of up to
1,000,000 shares of Common Stock issued or issuable upon the exercise of
stock options granted or available for grant pursuant to the Company's stock
option plan. There are currently 225,000 shares subject to outstanding
options, none of which are currently exercisable. All of the shares subject
to such exercisable options are subject to lock-up agreements. See
"Management--Stock Option Plan," "Description of Capital Stock," "Securities
Eligible for Future Sale" and "Underwriting."
The Redeemable Warrants and the shares of Common Stock underlying such
Redeemable Warrants, upon exercise thereof, will be freely tradeable without
restriction under the Securities Act, except for any Redeemable Warrants or
shares of Common Stock purchased by Affiliates, which will be subject to the
resale limitations of Rule 144. In addition, 750,000 Selling Securityholders
Warrants and the Selling Securityholders Shares underlying same are being
registered in the Concurrent Offering. Holders of such Selling
Securityholders Warrants and Selling Securityholders Shares have agreed not
to, directly or indirectly, sell, hypothecate or otherwise transfer such
securities during the first 12 months of the Lock-up Period and thereafter
until the end of the Lock-up Period without the prior written consent of the
Underwriter.
Absence of Public Market; Arbitrary Determination of Offering Price;
Possible Volatility of Stock Price. Prior to this Offering, there has been no
public market for the Units, the Common Stock or the Redeemable Warrants, and
there can be no assurance that any active public market for any such
securities will develop or be sustained after the Offering. The initial
public offering price of the Units has been determined by negotiations among
the Company and the Underwriter and may not necessarily bear any relationship
to the assets, book value, earnings or net worth of the Company or any other
recognized criteria and should not be considered to be an indication of the
actual value of the Company. Accordingly, the initial public offering price
may bear no relationship to the trading prices of the securities offered
hereby after the consummation of this Offering, and there can be no assurance
that these prices will not decline below the initial public offering price.
See "Underwriting." The trading prices of the Units, the Common Stock and the
Redeemable Warrants could be subject to wide fluctuations in response to
actual or anticipated quarterly operating results of the Company,
announcements of the Company or its competitors and general market
conditions, as well as other events or factors. In addition, the stock
markets have experienced extreme price and volume trading volatility in
recent years. This volatility has had a substantial effect on the market
price of many small capitalization companies, and has often been unrelated to
the operating performance of those companies. This volatility may adversely
affect the market price of the Units, Common Stock and Redeemable Warrants.
Dilution; Disproportionate Risk to Purchasers of Units. Purchasers of the
Units at the initial public offering price will experience immediate and
substantial dilution in the net tangible book value per share of Common Stock
of $2.68 or 67% ($2.51 or 63%, if the Over-Allotment Option is exercised in
full). The existing stockholders of the Company have acquired their
respective equity interests at costs substantially below the offering price
in this Offering. Accordingly, to the extent that the Company incurs losses,
the purchasers of the Units will bear a disproportionate risk with respect to
such losses. See "Dilution."
Underwriter's Lack of Experience; Underwriter's Potential Influence on the
Market. Although the Underwriter commenced operations in May 1994, it does
not have extensive experience as an underwriter of public offerings of
securities. In addition, the Underwriter is a relatively small firm, and no
assurance can be given that the Underwriter will be able to participate as a
market maker for the Units, the Common Stock or the Redeemable Warrants or
that any other broker-dealer will make a market in the Units, the Common
Stock or the Redeemable Warrants. It is anticipated that a significant
portion of the Units offered hereby will be sold to customers of the
Underwriter. Although the Underwriter has advised the Company that it intends
to make a market in the Units, the Common Stock and the Redeemable Warrants,
it will have no legal obligation to do so. The
11
<PAGE>
prices and the liquidity of the Units, the Common Stock and the Redeemable
Warrants may be significantly affected by the degree, if any, of the
Underwriter's participation in the market. No assurance can be given that any
market activities of the Underwriter, if commenced, will be continued. See
"Underwriting."
Continued Quotation on the Nasdaq SmallCap Market; Potential Penny Stock
Classification. The Company has applied to have the Units, the Common Stock
and the Redeemable Warrants approved for quotation on the Nasdaq SmallCap
Market and believes it will meet the initial listing requirements upon
consummation of this Offering. However, there can be no assurance that a
trading market for these securities will develop, or if developed, that it
will be maintained. In addition, no assurance can be given that the Company
will be able to satisfy the criteria for continued quotation on the Nasdaq
SmallCap Market following this Offering. Failure to meet the maintenance
criteria in the future may result in the Units, the Common Stock and the
Redeemable Warrants not being eligible for quotation.
If the Company were removed from the Nasdaq SmallCap Market, trading, if
any, in the Units, the Common Stock or the Redeemable Warrants would
thereafter have to be conducted in the over-the-counter market in the
so-called "pink sheets" or, if then available, Nasdaq's OTC Bulletin Board.
As a result, holders of the Units, the Common Stock and the Redeemable
Warrants would find it more difficult to dispose of, or to obtain accurate
quotations as to the market value of, such securities.
In addition, if the Units, the Common Stock or the Redeemable Warrants are
delisted from trading on Nasdaq and the trading price of the Common Stock is
less than $5.00 per share, trading in the Common Stock would also be subject
to the requirements of Rule 15g-9 promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Under such rule, broker-dealers
who recommend such low-priced securities to persons other than established
customers and accredited investors must satisfy special sales practice
requirements, including a requirement that they make an individualized
written suitability determination for the purchaser and receive the
purchaser's written consent prior to the transaction. The Securities
Enforcement Remedies and Penny Stock Reform Act of 1990 also requires
additional disclosure in connection with any trades involving a stock defined
as a penny stock (generally, according to recent regulations adopted by the
Securities and Exchange Commission (the "Commission"), any equity security
not traded on an exchange or quoted on Nasdaq that has a market price of less
than $5.00 per share, subject to certain exceptions), including the delivery,
prior to any penny stock transaction, of a disclosure schedule explaining the
penny stock market and the risks associated therewith. Such requirements
could severely limit the market liquidity of Units, Common Stock and
Redeemable Warrants and the ability of purchasers in the Offering to sell
their securities in the secondary market. There can be no assurance that the
Units, Common Stock and Redeemable Warrants will not be delisted or treated
as a penny stock.
Current Prospectus and State Blue Sky Registration Required to Exercise
Redeemable Warrants. The Redeemable Warrants issued in the Offering are not
exercisable unless, at the time of exercise, the Company has distributed a
current prospectus covering the shares of Common Stock issuable upon exercise
of such Redeemable Warrants and such shares have been registered, qualified
or deemed to be exempt under the securities laws of the state of residence of
the holder who wishes to exercise such Redeemable Warrants. In addition, in
the event any Redeemable Warrants are exercised at any time after nine months
from the date of this Prospectus, the Company will be required to file a
post-effective amendment and deliver a current prospectus before the
Redeemable Warrants may be exercised. Although the Company will use its best
efforts to have all such shares so registered or qualified on or before the
exercise date and to maintain a current prospectus relating thereto until the
expiration of such Redeemable Warrants, there is no assurance that it will be
able to do so. Holders of Redeemable Warrants who exercise such Redeemable
Warrants at a time the Company does not have a current prospectus may receive
unregistered and, therefore, restricted shares of Common Stock. Although the
Units will not knowingly be sold to purchasers in jurisdictions in which the
Units are not registered or otherwise qualified for sale, purchasers may buy
Redeemable Warrants in the after market or may move to jurisdictions in which
the shares underlying the Redeemable Warrants are not registered or qualified
during the period that the Redeemable Warrants are exercisable. In this
event, the Company would be unable to issue shares to those persons desiring
to exercise their Redeemable Warrants unless and until the shares and
Redeemable Warrants could be qualified for sale in the jurisdiction in which
such purchasers reside, or an exemption from such qualification exists in
such jurisdiction, and holders of Redeemable Warrants would have no choice
but to attempt to sell the Redeemable Warrants in a jurisdiction where such
sale is permissible or allow them to expire unexercised.
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<PAGE>
Redemption of Redeemable Warrants. Commencing ________________, 1998 [12
months from the date of this Prospectus], the Company shall have the right to
redeem all, but not less than all, of the Redeemable Warrants, at a price of
$.05 per Redeemable Warrant on 30 days' prior written notice, provided that
the Company shall have obtained the consent of the Underwriter, and the
average closing bid price of the Common Stock equals or exceeds 150% of the
then exercise price per share, subject to adjustment, for any 20 trading days
within a period of 30 consecutive trading days ending on the fifth trading
day prior to the date of the notice of redemption. In the event the Company
exercises the right to redeem the Redeemable Warrants, such Redeemable
Warrants will be exercisable until the close of business on the date fixed
for redemption in such notice. If any Redeemable Warrant called for
redemption is not exercised by such time, it will cease to be exercisable and
the holder will be entitled only to the redemption price.
Reduced Probability of Change of Control. The Company's Articles of
Incorporation contain provisions enabling the Board of Directors to issue
Preferred Stock in one or more series, with such rights, preferences,
privileges and restrictions as the Board of Directors may determine without
any further vote or action by the stockholders. See "Description of Capital
Stock--Preferred Stock." In addition, ss.415-172 of the Hawaii Revised
Statutes requires stockholder approval prior to the consummation of a
"control share acquisition" resulting in beneficial ownership by an acquiring
person of in excess of 10% of the voting power of a public corporation
incorporated in Hawaii with at least 100 stockholders and its principal place
of business or substantial assets located in Hawaii. These provisions could
reduce the probability of any change of control or acquisition of the
Company. While such provisions are intended to enable the Board of Directors
to maximize stockholder value, they may have the effect of discouraging
takeovers which could be in the best interest of certain stockholders. There
is no assurance that such provisions will not have an adverse effect on the
market value of the Company's stock in the future.
Forward-Looking Information and Associated Risk. This Prospectus contains
various forward-looking statements, including statements regarding, among
other things, (i) the Company's growth strategy, (ii) anticipated trends in
the Company's business, and (iii) the Company's ability to enter into
contracts with distributors and strategic partners. These statements are
based upon management's current beliefs as well as assumptions made by
management based upon information currently available to it. These statements
are subject to various risks and uncertainties, including those described
above, as well as potential changes in economic or regulatory conditions
generally which are largely beyond the Company's control. Should one or more
of these risks materialize or changes occur, or should management's
assumptions prove incorrect, the Company's actual results may vary materially
from those anticipated or projected.
13
<PAGE>
THE COMPANY
The Company was incorporated in Hawaii in September 1994. The principal
executive offices of the Company are located at 248 Mokauea Street, Honolulu,
Hawaii 96819; the Company's telephone number is (808) 832-4550. See
"Business--Facilities." The Company has no subsidiaries and has no ownership
interest in any other company or business.
Recent Bridge Financing. On October 10, 1996, the Company consummated a
bridge financing (the "Bridge Financing") pursuant to which it issued an
aggregate of: (i) $1,500,000 in principal amount of promissory notes (the
"Bridge Notes"), which bear interest at the rate of 10% per annum and are due
and payable upon the earlier of: (a) the closing of the sale of securities or
other financing of the Company from which the Company receives gross proceeds
of at least $2,000,000, or (b) October 10, 1997, and (ii) 750,000 warrants
(the "Bridge Warrants"), each Bridge Warrant entitling the holder to purchase
one share of Common Stock at an initial exercise price of $1.50 per share
(subject to adjustment upon the occurrence of certain events) during the
three-year period commencing October 10, 1997. The net proceeds of
approximately $1,131,000 from the Bridge Financing (net of commissions and
expenses of such offering payable by the Company) were used to: (i) repay
bank and other indebtedness to an affiliate in the aggregate amount of
approximately $362,000; (ii) create a reserve in the amount of $250,000 for
the payment of fees and expenses of this Offering; and (iii) for working
capital and general corporate purposes. Upon the consummation of this
Offering, each Bridge Warrant will automatically, without any action by the
holder thereof, be converted into a Redeemable Warrant (a "Selling
Securityholders Warrant") having terms identical to those of the Redeemable
Warrants contained in the Units offered hereby. The Selling Securityholders
Warrants and the Selling Securityholders Shares issuable upon exercise
thereof are being registered under the Securities Act pursuant to the
Registration Statement of which this Prospectus is a part (the "Concurrent
Offering"). The Company intends to use a portion of the net proceeds of this
Offering to repay the entire principal amount of, and accrued interest on,
the Bridge Notes. See "Use of Proceeds."
Recapitalization. In August 1996, the Company effected a recapitalization
(the "Recapitalization") without a formal reorganization. As part of the
Recapitalization, the Board of Directors approved a 1,111.428-for- one Common
Stock split and negotiated a conversion of all then outstanding shares of the
Company's Convertible Preferred Stock into an aggregate of 389,000 shares of
Common Stock, effective as of the closing of the Bridge Financing. Upon such
conversion, the Board of Directors declared a dividend on the Convertible
Preferred Stock in an amount equal to all accrued but unpaid dividends
thereon from the date of issuance to the date of conversion. Such dividend,
in the aggregate amount of $38,678, was paid in the form of a promissory
note, bearing interest at an annual rate of 8%, due and payable in full upon
the satisfaction of certain financial conditions by the Company. Such
conditions will be met upon consummation of this Offering, and accordingly
the Company will be obligated to pay such promissory notes in full out of the
proceeds of this Offering. See "Use of Proceeds."
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Units offered by the
Company hereby, after deduction of estimated underwriting discounts, the
Underwriter's non-accountable expense allowance and other estimated expenses
of the Offering payable by the Company, are expected to aggregate $6,600,000
($7,644,000 if the Over-Allotment Option is exercised in full), assuming an
initial public offering price of $4.00 per Unit.
The Company intends to use the net proceeds as follows: (i) approximately
$1,563,000 to repay the Bridge Notes (plus all accrued interest) in full;
(ii) approximately $620,000 to repay all of the Company's outstanding
indebtedness (plus accrued interest) to stockholders or their affiliates,
including an aggregate of approximately $40,000 of indebtedness (including
accrued interest) declared as a dividend in connection with the conversion of
the Company's previously outstanding Convertible Preferred Stock; (iii)
approximately $110,000 to repay all of the Company's outstanding indebtedness
(plus accrued interest) to an unaffiliated investor; (iv) approximately
$108,000 to pay deferred compensation and consulting fees; (v) up to
$1,500,000 for improvements to plant and equipment; (vi) up to $2,000,000 to
further develop and enhance the Company's sales and marketing programs; and
(vii) the balance ($699,000) for working capital and general corporate
purposes. Anticipated improvements to the Company's plant and equipment
involve primarily (i) the purchase of bottle manufacturing equipment,
including the expected purchase of the equipment currently subject to the
Blow Molding Agreement, so as to increase the Company's supply of bottles and
lower its cost of materials, (ii) the purchase of automated packing and
labelling equipment so as to improve the efficiency of the Company bottling
line, and (iii) the construction of new, or reconfiguration of old, warehouse
space so as to create on-site storage for finished goods inventory.
Anticipated sales and marketing expenditures involve primarily (i) radio and
television advertising, and (ii) event marketing, in the Company's primary
target markets. The following the table summarizes the Company's estimated
use of the net proceeds:
<TABLE>
<CAPTION>
Approximate Approximate
Application of Proceeds Amount Percentage
---------------------- ------------- -------------
<S> <C> <C>
Repayment of Bridge Note, plus accrued interest ........................... $1,563,000 23.7%
Repayment of indebtedness to stockholders and their affiliates, plus
accrued interest ......................................................... 620,000 9.4
Repayment of unaffiliated investor loan, plus accrued interest ............ 110,000 1.7
Payment of deferred compensation and consulting fees ...................... 108,000 1.6
Improvements to plant and equipment ....................................... 1,500,000 22.7
Selling and marketing ..................................................... 2,000,000 30.3
Working capital and general corporate purposes ............................ 699,000 10.6
------------- -------------
Total .................................................................... $6,600,000 100%
============= =============
</TABLE>
In the event the Underwriter exercises the Over-Allotment Option in full,
the Company will receive an additional $1,044,000 of net proceeds, after
deduction of underwriting discounts and the Underwriter's non-accountable
expense allowance, and will utilize such additional proceeds for additional
selling and marketing expenses and for general corporate purposes.
The Bridge Notes bear interest at the rate of 10% per annum and mature on
the earlier of: (i) the closing of a sale of securities or other financing of
the Company from which the Company receives gross proceeds of at least
$2,000,000 or (ii) October 10, 1997, one year from the date of issuance. The
proceeds of the Bridge Notes were used (i) to repay bank and other
indebtedness to an affiliate in the aggregate amount of approximately
$362,000; (ii) to pay fees and expenses of this Offering; and (iii) for
working capital and other general corporate purposes. See "The
Company--Recent Bridge Financing."
Of the indebtedness owed to stockholders or their affiliates, (i) $50,000
owed to an affiliate bears interest at the rate of 12% per annum and is due
upon consummation of this Offering; (ii) an aggregate of $482,715, owing to
three stockholders, bears interest at the rate of 12% per annum and is due in
April 1997 or, if earlier, upon consummation of this Offering; and (iii) an
aggregate of $38,678, owing to holders of the Company's previously
outstanding Convertible Preferred Stock, bears interest at the rate of 8% per
annum and is due upon the
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<PAGE>
satisfaction by the Company of certain financial conditions which will be
satisfied upon consummation of this Offering. An additional $100,000 borrowed
from an unaffiliated investor bears interest at the rate of 12% per annum and
is due in May 1997 or, if earlier, upon the consummation of this Offering.
The Company anticipates that the proceeds from the Offering, together with
projected cash flow from operations, will be sufficient to fund its
operations for at least 12 months from the date of this Prospectus.
Thereafter, the Company may need to raise additional funds. There can be no
assurance that additional financing will be available or if available will be
on favorable terms. If the Company is unable to obtain such additional
financing, the Company's ability to maintain its current level of operations
will be materially and adversely affected. See "Risk Factors--Additional
Capital Requirements; Uncertainty of Additional Funding."
Pending application of the proceeds of the Offering, the Company intends
to invest the net proceeds in certificates of deposit, money market accounts,
United States government obligations or other short-term interest bearing
obligations of investment grade.
DIVIDEND POLICY
The Company has never paid any dividends on its Common Stock and does not
currently intend to pay dividends on its Common Stock in the foreseeable
future. The Company currently intends to retain all its earnings to finance
the development and expansion of its business. It is also likely that the
Company will be required to agree to restrictions on the payment of dividends
in connection with future financings, if any. See "Risk Factors -- No
Dividends."
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996, and as adjusted to reflect the sale of the Units offered
hereby and the intended application of the net proceeds therefrom (assuming
an initial public offering price of $4.00 per Unit and after deducting the
estimated underwriting discounts and Offering expenses payable by the
Company). This table should be read in conjunction with the Company's
financial statements attached hereto. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
<TABLE>
<CAPTION>
Actual As Adjusted
-------------- --------------
<S> <C> <C>
Loans from related parties .................................... $ 532,715(1) $ --
Capital lease obligations ...................................... 125,740 125,740
Private investor loan .......................................... 100,000 --
Bridge Notes ................................................... 1,354,167(2) --
Stockholders' equity
Preferred Stock, $1.00 par value, 5,000,000 shares authorized,
no shares outstanding ..................................... -- --
Common Stock, no par value, 20,000,000 shares authorized,
1,599,212 shares
outstanding, actual, 3,599,212 shares,
as adjusted(3) ............................................ 629,793 7,229,793
Accumulated deficit .......................................... (2,047,715) (2,480,745)(4)
-------------- --------------
Total stockholders' equity (deficit) ...................... (1,417,922) 4,749,048
-------------- --------------
Total capitalization .................................... $ 694,700 $ 4,874,788
============== ==============
</TABLE>
- ------
(1) Includes a February 1997 shareholder loan of $75,000.
(2) Includes $145,833 of unamortized original issue discount relating to the
value of the Bridge Warrants.
(3) Excludes (i) a warrant to purchase an aggregate of 24,351 shares of Common
Stock at an exercise price of $.000009 per share, (ii) outstanding
options to purchase 225,000 shares of Common Stock at an exercise price
of $4.00 per share and (iii) 775,000 shares of Common Stock issuable
pursuant to options which may be granted under the Company's stock option
plan.
(4) Includes non-recurring interest expense of $433,030 for the unamortized
portion of the original issue discount ($145,833) and loan costs
($287,197) relating to the Bridge Financing.
17
<PAGE>
DILUTION
"Net tangible book value per share" represents the amount of total
tangible assets of the Company reduced by the amount of total liabilities and
divided by the number of shares of Common Stock outstanding. "Dilution"
represents the difference between the price per share to be paid by new
investors for the shares of Common Stock included in the Units offered
hereby, and the pro forma net tangible book value per share as of December
31, 1996, after giving effect to the Offering. At December 31, 1996, the net
tangible book value of the Common Stock was $(1,417,922) in the aggregate, or
$(0.89) per share of Common Stock. After giving effect to the sale of the
shares of Common Stock included in the Units offered hereby (at an assumed
initial public offering price of $4.00 per share, resulting in estimated net
proceeds of $6,600,000, after deducting estimated underwriting discounts and
Offering expenses payable by the Company and assuming no value is attributed
to the Redeemable Warrants included in the Units), the pro forma net tangible
book value of the Common Stock, as of December 31, 1996, would have been
$4,749,048 in the aggregate, or $1.32 per share. This represents an immediate
increase in net tangible book value of $2.21 per share of Common Stock to
existing stockholders and an immediate dilution per share of $2.68, or 67%,
to new investors in the Offering.
The following table illustrates the dilution per share as described above:
<TABLE>
<CAPTION>
Assumed initial public offering price per share of Common
Stock .................................................... $4.00
<S> <C>
Net tangible book value per share
before Offering ..................... $(0.89)
Increase attributable to new investors 2.21
------
Pro forma net tangible book value per share after the
Offering ................................................ 1.32
-----
Dilution per share to new investors ....................... $2.68
=====
</TABLE>
Based on the foregoing assumptions, the following table set forth, as of
completion of the Offering, the number of shares purchased from the Company,
the total cash consideration paid to the Company and the average price per
share paid by the existing stockholders and by new investors purchasing
shares of Common Stock included in the Units in the Offering (at an assumed
initial public offering price of $4.00 per share and assuming no value is
attributed to the Redeemable Warrants):
<TABLE>
<CAPTION>
Total Average Price
Shares Purchased Consideration Per Share
------------------------ ------------------------- ---------------
Number Percent Amount Percent
----------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders 1,599,212 44.43% $ 442,293 5.24% $0.28
New Investors ........ 2,000,000 55.57% $8,000,000 94.76% $4.00
----------- --------- ------------ ---------
Total ................ 3,599,212 100% $8,442,293 100%
=========== ========= ============ =========
</TABLE>
<PAGE>
The foregoing assumes no exercise of the Over-Allotment Option. If the
Over-Allotment Option is exercised in full, the pro forma net tangible book
value at December 31, 1996, after giving effect to the Offering (assuming no
value is attributed to the Redeemable Warrants included in the Units), would
be approximately $5,793,048 or $1.49 per share, and the dilution per share to
new investors would be approximately $2.51 or 63%.
The foregoing also assumes no exercise of any outstanding stock options or
warrants. As of December 31, 1996, there was an outstanding warrant to
purchase an aggregate of 24,351 shares of Common Stock at an exercise price
of $.000009 per share and options to purchase 150,000 shares of Common Stock
at $4.00 per share (subject to adjustment). None of these options are
currently exercisable. Subsequent to December 31, 1996, the Company granted
additional options to purchase an aggregate of 75,000 shares of Common Stock
at an average exercise price of $4.00 per share, none of which are currently
exercisable. The Company has a total of 1,000,000 shares of Common Stock
reserved for issuance upon the exercise of outstanding stock options and
stock options which may be granted from time to time pursuant to its stock
option plan. See "Management--Executive Compensation--Stock Option Plan." To
the extent that any options or warrants are exercised at a price per share
less than the initial public offering price, there will be further dilution
to new investors.
18
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company as
of December 31, 1995 and 1996 and for the years then ended (collectively, the
"Year-End Data"). The Year-End Data has been derived from the audited
financial statements of the Company appearing elsewhere herein, which have
been audited by Arthur Andersen LLP. The selected financial data set forth
below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Financial
Statements and notes thereto and other financial and statistical data
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Years Ended
December 31,
------------------------------
1995 1996
-------------- --------------
<S> <C> <C>
Statement of Operations Data:
Net sales ............................................ $ 588,920 $ 866,060
Cost of sales ........................................ 620,593 754,159
Gross margin ......................................... (31,673) 111,901
Selling and marketing ................................ 220,651 264,617
General and administrative ........................... 437,289 787,592
---------- --------------
Total operating expenses ........................... 657,940 1,052,209
Interest expense, net ................................ 51,261 247,443
---------- --------------
Net loss ............................................. $ (740,874) $(1,187,751)
========== ==============
Net loss per share ................................... $ (0.62) $ (0.74)
========== ==============
Weighted average number of common and common
equivalent shares outstanding ....................... 1,202,540 1,599,212
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1995 1996
------------- --------------
<S> <C> <C>
Balance Sheet Data:
Working capital deficit $ (721,336) $ (2,215,474)
Total assets ........... 703,272 1,192,393
Total liabilities ...... 1,104,836 2,610,315
Stockholders' deficit .. (401,564) (1,417,922)
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company was formed in September 1994. For the balance of its first
fiscal year (ended December 31, 1994), the Company was primarily engaged in
activities related to the start-up of its operations, including raising its
initial capital, retrofitting and equipping its bottling facility and
establishing relationships with suppliers and distributors. The Company did
not begin commercial operations until February 1995, when it began selling
product on a limited basis.
The Company's objective is to become a leading provider of premium quality
bottled water on a national and international basis. To date, however, the
Company has sold its product on only a limited basis, primarily in the local
Hawaiian market, which accounted for approximately 75% of the Company's net
sales through December 31, 1996. Accordingly, the Company's results of
operations through December 31, 1996 are not indicative of those that could
be achieved if the Company were able to expand its sales and distribution on
a national or international basis. There can be no assurance that sales on
this basis will ever be achieved. See "Risk Factors--Limited History of
Operations" and "Business--Distribution."
Through December 31, 1996, the Company had an accumulated deficit of
$2,047,715, and a net loss of $1,187,751 and negative cash flow from
operations of $959,051 for the year then ended. Subsequent to December 31,
1996, the Company has continued to generate losses. The Company expects to
continue to generate losses until such time as it achieves higher sales
levels. There can be no assurance that such higher sales levels will be
achieved or, if achieved, as to the timing thereof. Additionally, the
Company's results of operations for the first quarter of fiscal 1997 will
include aggregate interest expense of approximately $471,000 relating to the
Bridge Financing, including an aggregate of approximately $433,000 in
amortization of original issue discount and offering expenses. See "The
Company" and "Capitalization."
The following accounting policies are applicable to the Company's results:
Revenue Recognition. The Company recognizes revenue on the accrual method
of accounting when title to product transfers to the buyer (upon shipment).
In 1996, the Company began granting early payment discounts to certain large
Hawaiian customers in order to encourage prompt payment. Such customers
currently account for a majority of the Company's sales. Discounts are
recorded when the customer makes payment within the discount period. The
Company's policy is to provide a reserve for estimated uncollectible accounts
receivable, if any.
Reserve for Returns. The Company grants customers the right to return
goods which are defective or otherwise unsuitable for sale. The Company
replaces returned goods or issues a refund to the customer. The Company's
policy is to provide a reserve for estimated returns and related disposal
costs.
Recent Financial Accounting Standards Board Pronouncements. In 1995, the
Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
This statement requires that long-lived assets to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable. This
statement is effective for fiscal years beginning after December 15, 1995.
The Company adopted the new standard in 1996. Adoption of the new standard
did not have a material impact on the Company's financial statements.
In 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation." This statement established
financial accounting and reporting standards for stock-based compensation
plans, including all arrangements by which employees receive shares of stock
or other equity instruments of the employer or the employer incurs
liabilities to employees in amounts based on the price of the employer's
stock. This statement also applies to transactions in which an entity issues
its equity instruments to acquire goods or services from non-employees. Those
transactions must be accounted for based on the fair value of the
consideration received or the fair value of the equity instruments issued,
whichever is more reliably determinable. This statement is effective for
fiscal years beginning after December 15, 1995. The Company adopted the new
standard's disclosure requirements and accounting requirements for
transactions in which the Company issues its equity securities to acquire
goods and services from non-employees. The Company accounts for the issuance
of equity securities to employees under APB Opinion No. 25.
20
<PAGE>
RESULTS OF OPERATIONS
Net Sales. Net sales increased to approximately $866,000 for the year
ended December 31, 1996 (the "1996 Period") from approximately $589,000 for
the year ended December 31, 1995. Since the Company began commercial
operations in February 1995, the Company's results for 1995 are based upon
less than eleven full months of operations versus twelve months in 1996. The
increase in net revenues in 1996 was due primarily to unit sales growth from
approximately 77,500 cases in 1995 to approximately 114,800 cases in 1996.
Sales of approximately $83,000 in 1995 were reversed in the fourth quarter of
1995 due to product returns in Japan. Net revenues for 1996 include the
resale (at cost) of 6,900 cases of such returned product. See "Business--
Distribution." Sales in the Hawaiian market accounted for approximately 71%
of all sales in 1996 compared to approximately 82% in 1995. Beginning in the
second quarter of 1995, the Company began export sales to Asia and the
Pacific islands. Such sales accounted for approximately 16% of sales in 1996.
The average sales price per case decreased approximately 1% in 1996 primarily
due to a change in the Company's shipping terms with its major Hawaiian
distributors and the granting of early payment discounts to credit customers.
Under the new shipping arrangement, the distributor assumed responsibility
for the cost of shipping the finished product from the Company's production
facility.
Expenses. The Company's cost of sales increased to approximately $754,000
in 1996 from approximately $621,000 in 1995, primarily due to unit sales
growth. The Company reduced its unit cost in 1996 by switching from a
California bottle supplier to a lower cost Hawaii supplier. Due to higher
volume bottle purchases in 1996, the Company was able to receive certain
quantity discounts and thereby further reduce unit costs. In December 1995,
the Company entered into a Blow Molding Agreement with a California bottle
supplier, pursuant to which such supplier has agreed to manufacture bottles
for the Company on site, using equipment owned by the supplier but installed
at the Company's bottling facility. This equipment, which has a maximum
capacity of approximately 18,000,000 bottles annually, became fully
operational in July 1996. As a result of reductions in its cost of bottles
arising out of the foregoing, the Company's gross margin improved to
approximately 13% in 1996 from approximately (5)% in 1995. The Company has
recently agreed in principle to purchase the equipment subject to the Blow
Molding Agreement on terms which would further reduce the Company's bottling
cost. There can be no assurance however, that this purchase will be
consummated.
Selling and marketing expenses increased to approximately $265,000 in 1996
from approximately $221,000 in 1995 primarily as a result of an increase in
internal promotional activities, including product giveaways, and the hiring
of certain advertising consultants. General and administrative expenses
increased to approximately $788,000 in 1996 from approximately $437,000 in
the 1995 Period. The majority of this increase resulted from increased
compensation to the Company's President, the accrual of fees owed to a
consultant and the cost of the Company's annual audit. See
"Management--Executive Compensation--Consulting Agreement."
Interest Expense, Net. Interest expense, net increased to approximately
$247,000 in 1996 from approximately $51,000 in 1995 due primarily to the
incurrence of approximately $408,000 in loans from related parties, a
$100,000 loan from a private investor in 1996 and the completion of a $1.5
million Bridge Financing in October 1996, resulting in the amortization of
approximately $124,000 of related original issue discount and offering
expenses and accrued interest of approximately $33,000 in 1996. See "The
Company--Recent Bridge Financing."
Net Loss. Due to the foregoing, the Company incurred a net loss of
$1,187,751 in 1996 compared to a net loss of $740,874 in 1995.
Stock Options. In 1996, the Company reserved an aggregate of 1,000,000
shares of Common Stock for issuance upon the exercise of stock options to be
granted from time to time to directors, officers, employees and consultants
of the Company. The Company accounts for options granted to employees under
APB Opinion No. 25, pursuant to which no compensation expense has been
recognized.
In October 1996 and January 1997, the Company granted to its President and
Chief Financial Officer, options to purchase 150,000 and 75,000 shares,
respectively, of the Company's Common Stock at an initial exercise price of
$4.00 per share (subject to adjustment). If compensation expense had been
recognized in connection with these option grants in accordance with FASB
Statement No. 123, the Company's net loss and net loss per Common and Common
Equivalent share would have been materially impacted in 1996. During 1996,
21
<PAGE>
the Company's President earned approximately 11,200 of the 150,000 options
originally granted (subject to vesting requirements). As of December 31,
1996, none of the options granted to him were exercised, forfeited or
expired. The Company has determined that the fair value of the options
granted is approximately $550,000. The fair value of each option grant is
determined on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions; risk-free interest rate of
6.37 percent; expected dividend yield of zero; expected life of five years;
and expected volatility of 66 percent.
LIQUIDITY AND CAPITAL RESOURCES
Until the completion of the Bridge Financing, the Company was
substantially dependent upon equity investments and loans as well as personal
guarantees from its affiliates in order to meet its capital requirements. The
Company was originally capitalized in September 1994, through the issuance of
an aggregate of $51,000 in Common Stock and $133,334 in Convertible Preferred
Stock (the "Preferred Stock"). In 1995, the Company issued an aggregate of
$157,959 in additional Common Stock and $100,000 in additional Preferred
Stock. The Company also borrowed $100,000 from an affiliated company in May
1995. This loan bears interest at an annual rate of 12% and was originally
due in June 1995. In October 1996, the Company repaid $50,000 in principal,
plus all accrued interest (approximately $12,000) out of the proceeds of the
Bridge Financing and agreed to repay the outstanding balance of this loan,
plus all accrued interest, out of the proceeds of this Offering. The Company
has incurred additional borrowings from its stockholders as follows: In March
and April 1996, the Company borrowed an aggregate of $289,720 from two of its
stockholders. In July and August 1996, the Company borrowed an additional
$68,269 from these same stockholders and $49,726 from a third stockholder. In
February 1997, the Company borrowed an aggregate of $75,000 from three of its
stockholders. All of these loans bear interest at an annual rate of 12% and
are due in April 1997 or, if earlier, upon consummation of this Offering.
Three stockholders also made additional unsecured, non-interest bearing
advances in the aggregate amount of $100,272 in July, August and September
1996. See "Certain Transactions." All of these unsecured advances were repaid
prior to December 31, 1996. In addition, in May 1996, the Company obtained a
$100,000 subordinated, unsecured loan from an unrelated private investor.
This loan bears interest at an annual rate of 12% and is due in May 1997 or,
if earlier, upon consummation of this Offering. In connection with such loan,
the Company issued to the private investor a warrant to purchase 24,351
shares of Common Stock at an exercise price of $.000009 per share. Upon
completion of this Offering, all outstanding borrowings of the Company from
its stockholders or their affiliates and other private investors will have
been repaid in full. There can be no assurance that the Company's
stockholders or their affiliates or other private investors will make any
additional equity investments in or loans to the Company or agree to
personally guarantee any additional debt of the Company. See "Risk
Factors--Additional Capital Requirements; Uncertainty of Additional Funding."
In March 1995, the Company established a $300,000 credit line with First
Hawaiian Bank ("FHB"), Lihue branch. Borrowings under this line of credit
bore interest at a floating annual rate equal to the rate announced by FHB
from time to time as its prime rate, plus 2%. This line of credit was secured
by a security interest in all of the Company's equipment, accounts
receivable, inventory and general intangibles and is also personally
guaranteed by certain directors and an affiliate of the Company. Outstanding
borrowings under this line increased to $300,000 in May 1995 and remained at
the maximum level until the line was repaid in full out of the proceeds of
the Bridge Financing. This line of credit expired on March 31, 1996 and was
not renewed. The Company currently has no bank credit facility but
anticipates establishing such a facility upon completion of this Offering.
The Company made capital expenditures of approximately $162,000 in 1995
compared to approximately $66,000 in 1996. Capital expenditures in 1995
consisted primarily of leasehold improvements to the Company's production
facility to prepare the facility for use. Capital expenditures in 1996
involved primarily the purchase of production equipment to improve the
Company's bottling operations. The Company has financed certain additional
equipment purchases through a capital lease agreement entered into in March
1995 with First Hawaiian Leasing, Inc., Honolulu, Hawaii. This agreement has
a term of five years and provides for up to $200,000 in equipment purchases.
The depreciated cost of equipment purchased under this agreement was
approximately $139,400 at December 31, 1996. The lease liability was
approximately $87,500, net of current portion, at December 31, 1996. The
Company's obligations under this lease agreement are personally guaranteed by
certain directors and an affiliate of the Company.
The Company's sources of capital have been sufficient to sustain the
Company's operations on a limited basis but have not been sufficient to
enable the Company to expand in accordance with its business plan. The
22
<PAGE>
Company will require substantial additional capital in order to meet its
existing contractual obligations, including its obligation pursuant to a Blow
Molding Agreement and its facility lease. The Blow Molding Agreement requires
the Company to make at least $750,000 in bottle purchases annually during the
three year term of the agreement. In order to obtain the best price
available, the Company placed its initial order for 10,000,000 bottles
(approximately 417,000 cases of 0.33 or 0.5 liter bottles or 833,000 cases of
1.0 or 1.5 liter bottles), calling for aggregate payments of $1,825,000
during the first year of the contract. The Company expects to fund these
bottle purchases out of revenue from operations, since bottles are only
ordered when needed. In the event that the Company fails to order the minimum
number of bottles called for by its initial purchase order, the Company will
lose the volume discount which would otherwise be applicable but will not be
subject to any other penalty. Effective October 1996, the Company's Facility
Lease requires the Company to pay rent on a monthly basis at a rate equal to
the greater of (i) a certain base rent (the "Base Rent"), or (ii) 2% of the
Company's net revenues, as defined. The Base Rent is $5,000 per month during
the first five years of the Lease, and will adjust every five years
thereafter based upon changes in the Consumer Price Index in Hawaii (as
defined). See "Business-- Bottling Operations" and "--Facilities."
The Company consummated the Bridge Financing on October 10, 1996. See "The
Company--Recent Bridge Financing." The Company has been substantially
dependent upon the proceeds of the Bridge Financing to meet its capital
requirements since that time. The Company will repay the Bridge Notes, plus
all accrued interest thereon, in full out of the proceeds of this Offering.
The Company will recognize an extraordinary loss of approximately $294,000
upon the repayment of the Bridge Notes, consisting of approximately $99,000
of unamortized original issue discount and approximately $195,000 of
unamortized issuance costs.
The Company intends to use the net proceeds as follows: (i) approximately
$1,563,000 to repay the Bridge Notes (plus all accrued interest) in full;
(ii) approximately $620,000 to repay all of the Company's outstanding
indebtedness to stockholders or their affiliates (plus accrued interest),
including an aggregate of approximately $40,000 of indebtedness (including
accrued interest) declared as a dividend in connection with the conversion of
the Company's previously outstanding Convertible Preferred Stock; (iii)
approximately $110,000 to repay all of the Company's outstanding indebtedness
(plus accrued interest) to an unaffiliated investor; (iv) approximately
$108,000 to pay deferred compensation and consulting fees; (v) up to
$1,500,000 for improvements to plant and equipment; (vi) up to $2,000,000 to
further develop and enhance the Company's sales and marketing programs and
(vii) the balance ($699,000) for working capital and general corporate
purposes. Anticipated improvements to the Company's plant and equipment
involve primarily (i) the purchase of bottle manufacturing equipment,
including the expected purchase of the equipment currently subject to the
Blow Molding Agreement, so as to increase the Company's supply of bottles and
lower its cost of materials, (ii) the purchase of automated packing and
labelling equipment so as to improve the efficiency of the Company bottling
line, and (iii) the construction of new or reconfiguration of old warehouse
space so as to create on-site storage for finished goods inventory.
Anticipated sales and marketing expenditures involve primarily (i) radio and
television advertising, and (ii) event marketing, in the Company's primary
target markets.
The Company anticipates that the proceeds from the Offering, together with
projected cash flow from operation, will be sufficient to fund its operations
for at least 12 months from the date of this Prospectus. Thereafter, the
Company may need to raise additional funds. There can be no assurance that
additional financing will be available or if available will be on favorable
terms. If the Company is unable to obtain such additional financing, the
Company's ability to maintain its current level of operations will be
materially and adversely affected. See "Risk Factors -- Future Capital Needs;
Uncertainty of Additional Funding."
Net operating loss carryforwards available to offset future taxable income
were approximately $1,960,000 as of December 31, 1996. Use of these net
operating losses in future years will be limited pursuant to Section 382 of
the Internal Revenue Code because of the ownership change (as defined)
resulting from this Offering.
SEASONALITY
The Company believes that its business is subject to seasonal variations.
For obvious reasons, demand for bottled water in any given market tends to be
higher during the summer months than during the winter. However, the Company
expects these seasonal effects to be moderated by concurrent sales into a
variety of different markets worldwide, all of which may not have the same
summer season. Moreover, several of the Company's target markets, such as
California and the Middle East, have hot or mild temperatures throughout the
year.
23
<PAGE>
BUSINESS
GENERAL
The Company bottles, markets and distributes "natural" water under the
name "Hawaiian Springs(TR)." The Company draws its water from a well located
at the base of the Mauna Loa volcano in Kea'au on the Big Island of Hawaii
("Source Kea'au"). The water is "bottled at the source" in PET plastic
bottles, which are manufactured at the Company's bottling facility. This
on-site bottle manufacturing operation enables the Company to reduce its
packaging costs while at the same time improving its quality control,
inventory management and delivery scheduling. The Company markets its water
on the basis of superior quality and taste and on the worldwide reputation of
Hawaii.
The Company has met all FDA requirements for the labeling of its water as
"bottled at the source" and "natural." "Bottled at the source" signifies that
the water is pumped directly from the source to the bottling facility,
thereby eliminating handling and transportation procedures which might lead
to contamination. "Natural" signifies that the chemical composition and
mineral content of the bottled water are the same as those at the source.
This contrasts with "purified" water from which certain chemicals and
minerals are removed by means of filtration.
The Company began commercial operations in February 1995, selling
initially in the Hawaiian market exclusively. The Company has since expanded
its distribution on a limited basis into the West Coast and Southeastern
portion of the United States, Guam and the Middle East.
Most of the Company's product is sold through retail channels such as
convenience stores and supermarkets, although the Company also sells through
food service outlets such as restaurants, bars, airlines, hotels, country
clubs and military installations. The Company distributes its product
primarily through distributors, but also utilizes brokers and in California
sells directly to specialty retail chains.
The Company's objective is to become a leading provider of premium quality
bottled water on a national and international basis. The Company plans to
achieve this objective by expanding its presence in its current markets,
entering new geographic markets and establishing distributor relationships as
well as strategic distribution alliances with other national or international
beverage companies in order to take advantage of their established
distribution networks.
THE BOTTLED WATER MARKET
Since the mid-1970's the bottled water market has experienced substantial
growth in the United States and most of the industrialized world. Concerns
about municipal water quality combined with increased health awareness and
the availability of light weight convenient packaging, such as plastic
bottles, have made bottled water consumption prevalent among the more
affluent, educated population in the United States and other industrialized
nations. Currently, bottled water is one of the fastest growing segments of
the beverage industry worldwide. Set forth below is summary data concerning
the demand for bottled water in those territories which the Company considers
its primary target markets.
Hawaii. Based upon internal marketing data provided by the Company's local
distributor, the Company estimates the total bottled water market in Hawaii
at approximately 3.2 million gallons (1,000,000 cases) per year. The Company
believes that, as with the rest of the United States, bottled water sales in
Hawaii are growing at a faster rate than the beverage market generally as
bottled water gains in popularity relative to other beverages.
U.S. Mainland. The primary market for bottled water in the Continental
U.S. is the West Coast, particularly California. California is by far the
largest single state market, accounting for approximately 29.3% of total
domestic bottled water consumption in 1995. The bottled water market in the
United States as a whole has grown from about 300 million gallons in 1976 to
approximately 2.88 billion gallons in 1995, with per capita consumption
increasing by 10.4% in 1994 and by 11.0% in 1995 (the first double digit
increases ever). The largest segment of the U.S. bottled water market is the
non-sparkling water segment, which accounted for approximately 2.43 billion
gallons or approximately 84.4% of the total 2.88 billion gallons sold in
1995, up from approximately
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2.21 billion gallons in 1994. The total U.S. non-sparkling bottled water
market is projected to grow at an average annual growth rate of approximately
7.1% through the year 2000 to a total of approximately 3.43 billion gallons.
The fastest growing segment of the non-sparkling bottled water market in the
United States is the retail, premium (bottles of two liters or less are
considered premium) PET market, the market in which the Company currently
competes. This segment, which grew from a total of 335.8 million gallons in
1994 to 426.8 million gallons in 1995 (a 27.1% increase), has grown at double
digit rates annually since 1992. This segment is projected to continue
growing at an average annual growth rate of approximately 9.4% through the
year 2000.
Asia. The Asian market consists primarily of Japan, Korea, Indonesia,
Taiwan, the Philippines, Guam, Hong Kong, Singapore, Malaysia and the Peoples
Republic of China. Of these, the largest single market is Japan, with total
1995 consumption of approximately 143 million gallons. The more recent growth
rate in the consumption of bottled water in Japan has been substantial, more
than tripling between 1990 and 1994. The recent trend in the Japanese market
has been toward increased demand for imported water. The volume of imported
water increased fifteenfold between 1988 and 1994, and by 1994 constituted
over 26% of the total Japanese bottled water market. In 1993, less than 1% of
imported bottled water sold in Japan was imported from the United States; but
in 1994 this percentage grew to over 9%.
A similar pattern is expected to develop in other Asian countries. Korea,
for example, which in 1995 eliminated prohibitions on the sale of imported
bottled water, is seen as a potential high growth market. China, with a
population of over 1.3 billion, does not yet constitute a major bottled water
market, but with increasing affluence and consumer sophistication, the
Company expects China to become a significant market.
THE WATER SOURCE
The Company draws its water from a well at the base of Mauna Loa volcano
in Kea'au on the Big Island of Hawaii. The southeastern slopes of Mauna Loa,
above Kea'au, are among the wettest places on earth, experiencing up to 225
inches of rainfall annually. Rainfall sifts through the porous lava rock of
the mountainside forming large underground reservoirs and rivers that flow
back into the ocean. A 1993 U.S. Geological Survey estimates that groundwater
reservoirs beneath Mauna Loa are recharged by about 2.3 billion gallons of
rainfall per day.
The Company's water source is drilled to a depth of approximately 250
feet. The source is continuously recharged from rainwater at this level.
Water is pumped from the well at the rate of approximately 250 gallons per
minute. This water flow is more than adequate to satisfy the maximum
projected demand for the Company's product, although the flow rate could be
expanded, if desired, through the use of stronger pumping equipment.
The Company believes that the water from Source Kea'au is one of the
purest natural waters available, because of its low mineral content, which
also gives the water its distinctively light or "young" taste. The entire Big
Island of Hawaii is virtually free of industrial activity. The air above the
source is so clear that the summit of nearby Mauna Kea is generally regarded
as among the best locations in the world for space observation. Thirteen
observatories, including the Keck Observatory, the world's largest, are
stationed there. Rainwater forms in this pristine air, filters through
hundreds of feet of porous lava rock and then collects in underground pools
and rivers that flow into the ocean. This constant movement maintains the
purity of the source. The Company is not aware of any pollutant currently in
use in the vicinity of Source Kea'au which would likely have an adverse
impact on the quality of its water.
BOTTLING OPERATIONS
The Company operates its own bottling and packaging facility in a 8,000
square foot renovated concrete building located adjacent to the Company's
well at Source Kea'au. This facility is leased from an affiliate pursuant to
a long-term lease agreement. See "Facilities." The bottling facility is
located within a 14.5 acre tract which is zoned for agricultural use, but has
been approved for various beverage and bottling operations pursuant to a
Special Use Permit granted by the County of Hawaii. The Special Use Permit is
of perpetual duration, so long as the conditions to its effectiveness have
been met. The Company is currently in compliance with all of the conditions
of the Special Use Permit and expects that it will remain in compliance in
the indefinite future as long as the Company conducts its operations in the
manner described in or contemplated by this Prospectus.
Water from Source Kea'au is pumped directly into the Company's bottling
facility where it is passed through a series of particulate filters and
ultraviolet light, elevated through an ozone tower for sterilization and then
released into the filling line. Bottles are fed onto an automated conveyor
system, labeled with an adhesive
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label and then rinsed with ozonated water before entering the filling room.
The filling room is a separately enclosed and pressurized space designed to
prevent contamination during the filling process. Inside the filling room, a
high-speed rotary filler dispenses water into the bottles, caps them and
passes them onto an automated conveyor outside the room. An ink-jet dating
code is applied to the bottles as they pass to the pack-off table. Bottles
are packed by hand into cardboard cases, which are taped and placed onto
pallets for shipment. One liter and 1.5 liter bottles are packed 12 to a
case, while 0.33 and 0.5 liter bottles are packed in cases of 24. Current
space constraints limit the Company's ability to store finished goods
inventory, but the Company is planning construction of a new warehouse
facility which will enable it to keep large quantities of stock on hand for
immediate delivery. See "Facilities."
The Company bottles its water in 0.33, 0.5, 1.0 and 1.5 liter PET plastic
bottles. All sizes come with standard tamper-proof caps or, in sufficient
volume, may be ordered with an optional sports cap. The Company's bottling
operations initially utilized bottles purchased from manufacturers in
California and Honolulu. In December 1995, the Company entered into a Blow
Molding Agreement with a California bottle supplier, pursuant to which such
supplier has agreed to manufacture bottles for the Company on site, using
equipment owned by the supplier but installed at the Company's bottling
facility. This equipment, which has a maximum capacity of approximately
18,000,000 bottles annually, became fully operational in July 1996. The
Company is obligated to purchase all of its bottle requirements from this
source, with minimum purchases of $750,000 annually. The Company's price for
bottles pursuant to this agreement depends upon the number of bottles
purchased and may vary from year to year depending upon the manufacturer's
cost of PET resin. In order to obtain the best price available the Company
has recently placed its initial order for 10,000,000 bottles, calling for
aggregate payments of $1,825,000 during the first year of the contract. The
Company expects to fund these bottle purchases out of revenue from
operations, since bottles are only ordered when needed. In the event that the
Company fails to order the minimum number of bottles called for by its
initial purchase order, the Company will lose the volume discount which would
otherwise be applicable but will not be subject to any other penalty.
Assuming the Company purchases at least 15,000,000 bottles per year over the
three-year term of this agreement (in excess of $2,650,000 per year), the
Company will be entitled to purchase the equipment for $1.00 at the end of
the term. The Company believes that this arrangement has significantly
improved its bottling operations by lowering its cost of bottles while at the
same time improving its quality control, inventory management and delivery
scheduling. The Company has recently agreed in principle to purchase the
equipment subject to the Blow Molding Agreement on terms which would further
reduce the Company's bottling cost. There can be no assurance however, that
this purchase will be consummated.
DISTRIBUTION
The Company currently distributes its product in Hawaii and, on a limited
basis, in the West Coast and Southeastern portion of the United States, Guam
and the Middle East. Most of the Company's product is sold through retail
channels such as convenience stores and supermarkets, although the Company
also sells through food service outlets such as restaurants, bars, airlines,
hotels, country clubs and military installations. The Company's product is
currently distributed on Japan Airlines (flights departing Hawaii), Aloha
Island Air (inter-island flights) and Continental Airlines/Air Micronesia
(flights departing Hawaii and all flights departing the West Coast for the
Pacific). The product is also sold at the Mauna Lani Golf Course and other
prestigious golf courses on the Big Island of Hawaii, as well as military
commissaries and exchanges in Hawaii. The Company has appointed a military
distributor and broker in California and has obtained approval for the
distribution of its product in all military commissaries in California,
Arizona, Utah and Nevada.
The Company distributes its product primarily through distributors, but
also utilizes brokers and in California sells directly to specialty retail
chains. The Company is also considering strategic distribution alliances with
other national and international beverage companies in order to take
advantage of their established distribution networks.
In Hawaii, the Company has appointed Paradise Beverages ("Paradise"), one
of Hawaii's largest beer wholesalers, as its exclusive retail distributor
throughout the State. The Company has also appointed several other
distributors to cover food service markets in Hawaii not normally covered by
Paradise. In addition, the Company recently entered into an exclusive broker
agreement with a beverage broker in Hawaii to support the sales of efforts of
the Company's Hawaiian distributors. See "Risk Factors--Dependence on Key
Customer."
The Company began shipping its product into California in July 1995,
concentrating initially on the Los Angeles area. The Company has since
expanded its West Coast presence into other parts of Southern California,
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the San Francisco Bay Area and Sacramento as well as into Portland and
Seattle. The Company has also made limited sales in Las Vegas, and in August
1996, entered into an exclusive distributorship agreement with respect to the
southern half of Nevada (including Las Vegas) with Nevada Beverage Co., the
Anheuser-Busch distributor in this territory. The Company has not utilized
distributorship arrangements to any significant extent in California, relying
instead on direct sales to specialty supermarket chains such as Bristol Farms
in Southern California and Raley's in the Bay Area. The Company has not had
the financial resources to support distribution of its product through the
major supermarket chains in California because of the slotting fees
("Slotting Fees") and promotional costs normally required to be paid in order
to obtain shelf space for new and untested products in these chains. The
Company believes that once its product has gained market recognition through
the specialty retail channels it is currently utilizing, it will be better
able to access these major supermarket chains. The Company currently ships
approximately two mixed container-loads (1,400 cases) per month into the West
Coast market (including Nevada), but believes that substantially larger sales
volumes could be achieved through entry into the major supermarket network.
Approximately 29.3% of the bottled water sold in the United States in 1995
was sold in California.
In May 1996, the Company entered into an exclusive distributorship
agreement with respect to the Southeastern portion of the United States
(including Texas) with Aloha Products, Ltd. ("Aloha"), a distributor based in
Birmingham, Alabama which specializes in Hawaiian products. To date, the
Company has shipped six container-loads of product pursuant to this
agreement. Aloha has received two purchase orders from Bruno's, a major
Southeastern supermarket chain, totalling approximately 1,600 cases of the
Company's product for sale in all 204 Bruno's stores. In the event that Aloha
fails to purchase at least 252,000 cases of the Company's product in 1998,
the Company will be entitled to terminate this agreement. The Company
believes that this agreement will help to establish market recognition for
the Company's product on a national basis.
Internationally, the Company has distributed its product in Japan, Korea
and Guam on a limited basis and began shipping product to the Middle East in
July 1996. The Company initially targeted Japan as its primary overseas
market because of Japan's large affluent population, growing receptivity to
imported bottled water and fascination with Hawaiian culture and products. As
a result, the Company applied for a "Pre-Certification" from the Japanese
Ministry of Health and Welfare (the "Japanese Ministry") prior to the start
of its commercial operations in order to facilitate entry into this market.
The Company was granted this Pre-Certification in March 1995, the first
American company ever to receive such approval. The Company commenced sales
to Japan in June 1995. In October 1995, however, certain impurities were
found in bottled water then being sold by numerous competitors in Japan. In
response to a public outcry, the Japanese Ministry ordered a total recall of
all bottled water then stocked by these competitors. Minor impurities
(ultimately determined to be a fine dust created by the Company's labeller)
were also found in a sampling of the Company's water. The Company immediately
reconfigured its bottling line to eliminate this problem. A representative of
the Japanese Ministry subsequently visited the Company's bottling facility
and made no change in the certification of the Company's product. However,
due to the adverse market conditions, the Company's Japanese distributor
refused to accept additional shipments from the Company, and sales into Japan
were temporarily halted. The Company accepted the return of the product and
resold it at cost to various U.S. military bases in Japan. The Company has
recently entered into a representation agreement with Nihon Valley
Corporation, a Japanese corporation, as registered importer and a Japanese
broker as manufacturer's representative of the Company's product in Japan.
The Company has also recently entered into a consulting arrangement with the
Emerald Empire Group, an international food and beverage marketing
consultancy, in order to enhance the marketing of the Company's product in
Japan and other Asian markets. The Company expects to resume sales to Japan
in the near future and ultimately hopes to develop a major presence in this
market. The Company is also negotiating with several major Korean importers
concerning an exclusive agency agreement and expects to begin shipping
product to Korea in 1997. The Company also hopes to begin distributing
product in other major Asian markets, such as Taiwan and elsewhere in the
Pacific Rim, by the end of 1997.
In January 1996, the Company entered into an exclusive distributorship
agreement with a distributor in Kuwait covering six countries in the Middle
East. The Company shipped one container-load into this territory in July 1996
and a second container-load in November 1996. To date, all of the product
shipped into the Middle East has been sold in Kuwait. However, the Company's
distributor expects to begin selling to Saudi Arabia by the second half of
1997, and thereafter expects to enter other countries within the territory in
stages over the next two years.
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All product shipped from Hawaii to the West Coast, Asia and the Middle
East is transported by sea cargo. Product destined for inland portions of the
United States is generally transported by rail from a West Coast port.
Although transportation charges constitute a significant portion of the
retail cost of bottled water, the Company is able to benefit from favorable
freight rates available into the Company's principle target markets. Hawaii
imports far more goods (especially from the West Coast, Japan and Korea) than
it exports; therefore, freight charges on merchandise shipped from Hawaii
("backhaul") are substantially lower than on merchandise shipped into the
Islands. Even merchandise shipped from Hawaii to inland destinations may
benefit from favorable rates ("through fares") offered by rail carriers which
contract with shippers to supply incremental cargo at a discount. As a result
of favorable freight rates enjoyed by the Company, the Company believes that
its transportation costs from Hawaii into other principle markets are often
no higher than those incurred by competitors for shipping their product
within their regional markets.
MARKETING
To date, the Company's marketing program has concentrated on selling
efforts by its distributors and brokers as well as attendance at trade shows
and outdoor events. Trade shows in Asia and Europe have been particularly
successful in establishing contacts with distributors who have expressed
interest in carrying the Company's product. The Company has also promoted its
product through sales to airlines, hotels, country clubs and other such
customers which enhances the visibility of the product.
The Company has completed a product video, which is used primarily in
presentations to distributors, but which is also shown on in-room video in
Sheraton Hotels in Hawaii. A 30 second commercial has also been cut from this
video, which has aired on local television. The Company is currently being
advised on branding strategy and advertising support by com.com Inc., an
advertising consultancy co-founded by Alexander Brody, one of the Company's
directors. The Company's agreement with com.com Inc. has an initial term of
one year, commencing August 1, 1996, and provides for a fee of $5,000 per
month, plus the award of certain options, in the Company's discretion, in the
event of performance above expectations by com.com. Inc. To date, no such
options have been granted. See "Certain Transactions."
To date, the Company's limited funding has not permitted it incur the
substantial marketing and promotional costs necessary to obtain widespread
distribution in the largest U.S. markets. In California, for example,
Slotting Fees are typically required to be paid in order to obtain shelf
space for new and untested products in major supermarket chains. For this
reason, the Company has chosen to introduce its product in California through
smaller, specialty retail chains, which do not charge these fees. The Company
expects to be better able to access the major supermarket chains once its
product has gained market recognition through the specialty retail channel
the Company is currently utilizing. Even after access to these chains has
been obtained, however, the Company expects to spend large amounts on
in-store promotions and coupon programs in order to maintain shelf space and
to enhance the marketing of its product.
GOVERNMENTAL REGULATION; QUALITY CONTROL
The bottled water industry is highly regulated both in the United States
and abroad. Various state and Federal regulations, designed to ensure the
quality of the product and the truthfulness of its marketing claims, require
the Company to monitor each aspect of its production process, including its
water source, its bottling operations and its packaging and labeling
practices. The Environmental Protection Agency requires a yearly analysis of
the Company's water source by a certified laboratory with respect to a
comprehensive list of contaminants (including herbicides, pesticides,
volatile chemicals and trace metals). In addition, the Hawaii Department of
Health requires weekly microbiological testing of the Company's well water
and finished product, as well as monthly inspection of its production line.
The Food and Drug Administration (the "FDA") also regulates the Company's
packaging and labeling practices. See "Risk Factors--Governmental Regulation;
Quality Control."
Except as described above with respect to Japan (see "Distribution"), to
date, the Company has not experienced any problems with regulatory
requirements concerning the quality of its product. The Company's bottling
facility has an on-site laboratory, where samples of its finished product are
visually and chemically tested daily. In addition, the Company's production
line is subject to constant visual inspection. The Company believes
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that it meets or exceeds all applicable regulatory standards concerning the
quality of its water. The Company has met all FDA requirements for the
labeling of its water as "bottled at the source" and "natural." "Bottled at
the source" signifies that the water is pumped directly from the source to
the bottling facility, thereby eliminating handling and transportation
procedures which might lead to contamination. "Natural" signifies that the
chemical composition and mineral content of the bottled water are the same as
those at the source. This contrasts with "purified" water from which certain
chemicals and minerals are removed by means of filtration.
In addition to U.S. regulations, the Company must meet the requirements of
foreign regulatory agencies in order to import and sell its product into
other countries. These requirements are generally similar to, and in certain
respects more stringent than, U.S. regulations. The Company believes that it
is in compliance with applicable regulations in all foreign territories where
it currently markets its product.
Failure to meet applicable regulations in U.S. or foreign markets could
lead to costly recalls, loss of certification to market product or, even in
the absence of governmental action, to loss of revenue as a result of adverse
market reaction to negative publicity. See "Distribution."
COMPETITION
The bottled water industry is highly competitive, with numerous
competitors vying to differentiate themselves with respect to a product often
perceived as generic by consumers. Barriers to entry may be low at certain
local levels, but increase significantly at the national and international
levels because of the large marketing and transportation costs associated
with obtaining and maintaining a presence at such levels. See "Risk Factors--
Competition."
The principal bases of competition in the industry are price, brand
recognition, water source and packaging. The Company seeks to develop brand
recognition based upon its unique water source. The Company's pricing
strategy is to price its product at or slightly below the price for other
premium international brands.
The Company desires to establish its product on a national and
international level. On both bases, the Company competes primarily with
large, established foreign and domestic companies, all of which have
significantly greater financial and other resources than the Company. The
Company's principal foreign competitors include Great Brands of Europe, a
French company which distributes under the "Evian," "Volvic" and "Dannon
Natural Spring Water" names, and Perrier, S.A., a French company, which
distributes through its U.S. subsidiary, The Perrier Group, under the
"Arrowhead" and "Poland Spring" names, among others. The Company's principal
domestic competitors include Crystal Geyser Water Co., a California company
which distributes under the "Crystal Geyser" name, Nora Beverage Co., a
Connecticut company which distributes Canadian sourced water under the "Naya"
name, and Mountain Valley Water Co., an Arkansas company which distributes
under the "Mountain Valley" name. Most of these national competitors seek to
compete on a price basis.
In the Hawaiian market, the Company competes primarily with Evian, Crystal
Geyser and Menehune, the only other major Hawaiian producer, which sells
"purified" municipal water, not "natural" or "spring" water. The Company is
the only producer of natural water from Hawaii. The Company believes that it
is likely to remain the only such producer, at least for some time, because
of zoning, water use and other restrictions currently in effect which make
development of a competing source difficult.
EMPLOYEES
The Company has five full-time employees at its executive offices in
Honolulu and one full-time employee in Dana Point, California. The Company
also has ten employees at its bottling facility in Kea'au, including a
full-time plant manager. The other employees at Kea'au are currently employed
on a part-time basis. The Company's employees are not unionized, and the
Company has not experienced any work stoppages or strikes as a result of
labor disputes. The Company considers its relations with its employees to be
satisfactory.
FACILITIES
The Company has a bottling facility in Kea'au on the Big Island of Hawaii
and executive offices in Honolulu. Both of these premises are occupied
pursuant to lease arrangements.
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The Company's bottling facility is located on approximately 14.5 acres of
land owned by Hawaii Brewery Development Co., Inc. ("HBDC"), a principal
stockholder of the Company owned by two of the Company's founders, which was
originally formed for the purpose of developing a beer brewing operation on
the Big Island of Hawaii. The property is located within an agricultural
zone, but has been granted a Special Use Permit for water extraction and
bottling operations. The facility itself consists of a 8,000 square foot
concrete structure built in 1943. The building has been retrofitted by the
Company for its current use, which includes the on-site bottle manufacturing
operation, water bottling and packaging line, office and laboratory space and
storage space for raw materials and supplies. The facility also includes a
limited amount of storage space for finished goods inventory.
The Company's bottling facility and surrounding property, including the
water source and pumping equipment, are leased from HBDC pursuant to a
long-term lease agreement (as amended to date, the "Lease"). The Lease
provides for an initial term of 50 years commencing on October 1, 1994, which
may be extended at the option of the Company for an additional 50 years. The
Lease requires the Company to pay rent to HBDC on a monthly basis at a rate
equal to the greater of (i) a certain base rent (the "Base Rent"), or (ii) 2%
of the Company's net revenues, as defined. The Base Rent will be $5,000 per
month during the first five years of the Lease, and will adjust every five
years thereafter based upon changes in the Consumer Price Index in Hawaii (as
defined). The Lease entitles the Company to exclusive use of the water
source; provided, however, that HBDC may draw up to 50% of the water flow for
use in beer brewing or other beverage production, but may not draw water for
the sale of natural water. The Company believes that even if HBDC were to
draw 50% of the water flow for other such purposes, the remaining 50% would
be adequate for the current and projected future needs of the Company's
business. HBDC currently conducts no other activity on the leased premises,
and the Company believes that HBDC has no current plans to conduct any such
activity in the foreseeable future. See "Risk Factors--Lease of Key Operating
Assets" and "Certain Transactions."
The Company's headquarters are currently located in approximately 5500
square feet of office/warehouse space in Honolulu. The Company leases this
space pursuant to a lease agreement providing for an initial term of three
years, which may be extended, at the option of the Company, for an additional
three years. The Company's rental payments under this lease agreement are
approximately $3,000 per month. The Company sublets a portion of the leased
premises to Hansen Juice Company, an unrelated beverage company. Pursuant to
this sublease, the Company receives rental payments from its sublessee in an
aggregate amount of approximately $250.00 per month.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's current directors and executive officers and their ages, as
of December 31, 1996, are as follows:
<TABLE>
<CAPTION>
Name Age Position with Company
---------------- ----- ----------------------------------------------
<S> <C> <C>
Marcus Bender .. 47 President, Chief Executive Officer and Director
Brian Barbata .. 51 Secretary and Director
Marc Miyahira .. 37 Chief Financial Officer
Wayne Addison .. 53 Vice President, Domestic Sales
Tate Robinson .. 49 Vice President, Administration
John Mayo ...... 46 Director
Michael Chagami . 44 Director
Nathan Keller .. 58 Director
Alexander Brody . 63 Director
</TABLE>
Mr. Bender has been President, Chief Executive Officer and a director of
the Company since its formation in September 1994. He has also been President
of Hawaii Brewery Development Co., Inc. ("HBDC") since its formation in 1986,
and President and sole owner of Bender Consulting, Inc. ("BCI"), since its
formation in March 1990. BCI provides consulting services with respect to the
import and export of beverage dispensing equipment. Mr. Bender has been
involved in the beverage industry in Hawaii since 1981, where he founded
South Pacific Beverages, Ltd. for the purpose of importing and distributing
Hinano Beer from Tahiti.
Mr. Barbata has been Secretary and a director of the Company since its
formation in September 1994. He has also been Vice President of HBDC since
its formation in 1986. Mr. Barbata is President and a stockholder of Inter
Island Petroleum, Inc., a Hawaii petroleum distributor. Prior to founding
Inter Island Petroleum in 1988, he served in various management capacities
for eight years with Pacific Resources, Inc., a major oil refining and
distributing company in Hawaii. Mr. Barbata is also a director of several
other privately held Hawaii companies.
Mr. Miyahira has been Chief Financial Officer of the Company since January
1997. From June 1994 until joining the Company, he was Controller of City
Mill Company, a retail home improvement chain in Honolulu, Hawaii. From July
1993 through May 1994, he was Vice President-Finance of Island Beverage
Company, a beverage distribution company based in Honolulu, Hawaii. Prior
thereto, he was Controller/West Coast Manager of Unicold Corporation, an
operator of cold storage facilities based in Honolulu, Hawaii for more than
seven years.
Mr. Addison has been Vice President, Domestic Sales of the Company since
June 1996. From 1990 until joining the Company, he was President and sole
stockholder of Addison Sales & Marketing, a consulting firm to the food
industry, which he founded. Mr. Addison has been engaged in sales and
marketing in the food industry since 1970. He has served as President of the
Southern California Food Brokers Association and also assisted in
establishing the Arizona Food Brokers Association, where he was President
prior to being assigned to Southern California.
Mr. Robinson has been Vice President, Administration of the Company since
its formation in September 1994. Mr. Robinson was instrumental in the design
and retrofitting of the Company's bottling facility and, as part of his
duties, supervises overall operations there. Prior to joining the Company,
Mr. Robinson was Vice President--Operations of HBDC and Vice
President--Operations of Hawaiian Water Partners for more than five years.
Mr. Mayo has been a director of the Company since its formation in
September 1994. He has been the President and principal owner of National
Tire of Hawaii, Ltd. (D/B/A Lex Brodie's Tire Company), a leading tire
retailer in Hawaii, for more than five years. He is also President and sole
stockholder of Mayo Water Co., Inc., a holding company which holds stock in
the Company.
Mr. Chagami has been a director of the Company since August 1996. He has
been Treasurer of HSC, Inc., a holding company with interests in automobile
dealerships, shopping centers and financial services in Hawaii, for more than
five years. HSC, Inc. is a principal stockholder of the Company.
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Mr. Keller has been a director of the Company since July 1996. He has been
President of West Flo Inc., a California based technical and management
consulting firm to the bottled water industry, since 1989. He has also been
chief financial officer of Bottles Packaging, Inc., a plastic bottle
manufacturer and supplier to the Company, since its formation in July 1995.
See "Certain Transactions." Mr. Keller has over 30 years experience in the
bottled water industry, including senior technical positions with Arrowhead
Waters and Perrier Group of America.
Mr. Brody has been a director of the Company since August 1996. Mr. Brody
is currently Managing Partner of com.com Inc., an advertising consultancy,
which he co-founded in July 1996. com.com Inc. is advising the Company on
branding strategy and advertising support. See "Business--Marketing" and
"Certain Transactions." From January 1993 through December 1995, Mr. Brody
was a consultant to Ogilvy & Mather Worldwide, one of the largest advertising
agencies in the world. From 1986 through December 1992, he was President of
Ogilvy & Mather Worldwide, heading all of Ogilvy & Mather offices outside the
United States.
The Company's Articles of Incorporation authorize a Board of Directors
consisting of not less than four (4) members, the exact number to be
determined from time to time by the Board of Directors. The number of
directors is currently fixed at six. Directors hold office until the next
annual meeting of stockholders or until their successors have been elected
and qualified. Except as otherwise described above, each current director of
the Company was elected at the Company's last Annual Meeting of Stockholders
held on June 5, 1996. All officers serve at the discretion of the Board of
Directors. There are no family relationships among any of the Company's
directors or executive officers.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth certain
information with respect to the compensation paid or accrued by the Company
to its Chief Executive Officer for services rendered to the Company during
the fiscal years ended December 31, 1996 and 1995, respectively. No other
executive officer received compensation in excess of $100,000.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------------ --------------
Securities
Underlying All other
Name and Principal Position Year Salary Bonus Options Compensation
------------------------------ ------ ------------- ------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Marcus Bender ................ 1996 $126,250(1) (2) 150,000(3) --
President and Chief Executive
Officer 1995 85,000(4) -- -- --
</TABLE>
- ------
(1) As of October 10, 1996, Mr. Bender's salary was increased from the annual
rate of $120,000 to $150,000.
(2) Mr. Bender is entitled to an annual bonus of up to $100,000 in the event
that the Company meets certain performance goals to be established by the
Board. No portion of this bonus was paid or accrued in 1996.
(3) Subject to vesting. Fifty thousand options vest on each of the first,
second and third anniversaries of the effective date of the employment
agreement described below, provided that such employment agreement has
not then been terminated for any reason.
(4) As of August 1, 1995, Mr. Bender's salary was increased from the annual
rate of $60,000 to $120,000.
32
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
-----------------
Number of
Securities % of Total
Underlying Options/SARs
Options/ Granted to
SARs Employees in Exercise or Base Expiration
Name Granted Fiscal Year Price ($/Sh) Date
- ---------------------- ------------ -------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Marcus Bender ........ 150,000 75%(1) $4.00(2) October 10, 2001
President and
Chief Executive
Officer..............
</TABLE>
- ------
(1) Options to purchase an additional 50,000 shares of Common Stock granted
to the Company's then Chief Financial Officer during fiscal 1996 expired
unvested upon such officer's resignation in December 1996.
(2) Subject to adjustment so as to equal the public offering price per Unit
in this Offering.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
The following table sets forth information with respect to unexercised
options to purchase Common Stock held by the Chief Executive Officer at
December 31, 1996. No executive officer exercised any stock options during
the fiscal year ended December 31, 1996. Except for the Chief Executive
Officer, no other executive officer held unexercised options at December 31,
1996.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options Held In-The-Money Options
-------------------------------- --------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ----------------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Marcus Bender ......... -- 150,000 -- (1)
President and
Chief Executive
Officer ..............
</TABLE>
(1) The stock options are exercisable at an exercise price equal to the
initial public offering price of the Units offered hereby. Such options
were not in-the-money at December 31, 1996.
Employment Agreement.
In October 1996, the Company entered into an employment agreement with
Marcus Bender, pursuant to which Mr. Bender is employed as the Company's
President and Chief Executive Officer for a five year term. Pursuant to this
employment agreement, Mr. Bender is entitled to receive salary at an initial
annual rate of $150,000, plus up to $100,000 in annual bonus compensation in
the event that the Company meets certain performance goals to be established
by the Board of Directors. The Company has also granted Mr. Bender options to
purchase an aggregate of 150,000 shares of Common Stock at an exercise price
equal to $4.00 per share (subject to adjustment). These options vest at the
rate of 50,000 per year over the first three years of the employment term.
Mr. Bender has agreed to devote his full working time and best efforts to the
performance of his duties on behalf of the Company. Mr. Bender has agreed not
to compete with the Company in the sale of natural water for a period of two
years following termination of the employment agreement.
Consulting Agreement.
In October 1995, the Company entered into a consulting agreement (the
"Consulting Agreement") with David R. Shriner, pursuant to which Mr. Shriner
was engaged to evaluate the Company's capital structure and requirements, to
evaluate potential acquisition or joint venture candidates and to provide
other strategic planning services for the Company. Pursuant to the Consulting
Agreement, the Company agreed to pay Mr. Shriner aggregate fees of $120,000,
payable in installments as follows: $45,000 on August 15, 1996, $25,000 on
October 15, 1996, and the balance of $50,000 on January 15, 1997. The
installments due on October 15, 1996 and January 15, 1997 have not yet been
paid.
33
<PAGE>
Stock Option Plan.
The Company currently has no formal stock option plan, although the Board
of Directors has reserved 1,000,000 shares of Common Stock for issuance upon
the exercise of stock options which may be granted from time to time to
directors, officers, employees and consultants of the Company. The Company
has granted 150,000 of such options to its Chief Executive Officer in
connection with his employment agreement and an additional 75,000 options to
its Chief Financial Officer. None of such options are currently vested. See
"--Employment Agreement." The Company expects to adopt a formal stock option
plan following the completion of this Offering.
Compensation of Directors.
Directors of the Company do not receive any cash compensation for service
on the Board of Directors or any committee thereof. However, directors are
entitled to be reimbursed by the Company for their expenses in connection
with attendance at Board or committee meetings.
34
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's capital stock, as of March 1, 1997, by
(i) each stockholders who is known by the Company to be the beneficial owner
of more than 5% of the Company's Common Stock, the only class of the
Company's capital stock currently outstanding, (ii) each director and
executive officer of the Company who owns any shares of Common Stock, and
(iii) all executive officers and directors as a group. Except as otherwise
indicated, the Company believes that the beneficial owners of the shares
listed below have sole investment and voting power with respect to such
shares, subject to community property laws where applicable.
<TABLE>
<CAPTION>
Shares of Common Stock
Name and Address(1) Beneficially Owned(2) Percent of Common Stock
- ------------------------------- ---------------------- -----------------------------------
Prior to Offering After Offering
----------------- --------------
<S> <C> <C> <C>
Hawaii Brewery 729,264 45.60 20.26
Development Co., Inc.(3)
HSC, Inc.(4) 429,056 26.83 11.92
345 Kekuanoa Street
Hilo, HI 96721
Mayo Water Co., Inc.(5) 160,901 10.06 4.47
701 Queen Street
Honolulu, HI 96813
Jim Ed Norman 160,901 10.06 4.47
20 Music Square East
Nashville, TN 37203-4326
Keijiro Sorimachi 119,090 7.45 3.31
101 Aupuni Street, Suite 1001
Hilo, HI 96720
Marcus Bender(3) 729,264 45.60 20.26
Brian Barbata(3) 729,264 45.60 20.26
Richard Henderson(4) 429,056 26.83 11.92
Michael Chagami(6) 429,056 26.83 11.92
John Mayo(5) 160,901 10.06 4.47
All directors and executive 1,319,221 82.49 36.65
officers as a group (9 persons)
</TABLE>
- ------
(1) Except as otherwise indicated, the address of each stockholder listed
above is c/o Hawaiian Natural Water Company, Inc., 248 Mokauea Street,
Honolulu, Hawaii 96819.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired within 60 days from the date set forth above through the
exercise of any option, warrant or right. Shares of Common Stock subject
to options, warrants or rights that are currently exercisable or
exercisable within 60 days are deemed outstanding for purposes of
computing the percentage ownership of the person holding such options,
warrants or rights, but are not deemed outstanding for purposes of
computing the percentage ownership of any other person.
(3) Hawaii Brewery Development Co., Inc. ("HBDC") is owned 50% by Marcus
Bender and 50% by Brian Barbata. Messrs. Bender and Barbata are directors
and Mr. Bender is an executive officer of the Company. Each of Messrs.
Bender and Barbata may be deemed the beneficial owner of the shares held
by HBDC. Other than through HBDC, neither of Messrs. Bender and Barbata
owns any capital stock of the Company.
(4) HSC, Inc. ("HSC") is majority owned by Richard Henderson. Mr. Henderson
may be deemed the beneficial owner of the shares held by HSC. Other than
through HSC, Mr. Henderson does not own any capital stock of the Company.
(5) Mayo Water Co., Inc. ("MWC") is wholly owned by John Mayo, a director of
the Company. Mr. Mayo may be deemed the beneficial owner of the shares
held by MWC. Other than through MWC, Mr. Mayo does not own any capital
stock of the Company.
(6) As a director of HSC, Mr. Chagami shares the power to vote and dispose of
the shares of Common Stock held by HSC. Therefore he may be deemed the
beneficial owner of these shares.
35
<PAGE>
SELLING SECURITYHOLDERS
An aggregate of 750,000 Selling Securityholders Warrants (identical to the
Redeemable Warrants) which will be issued to certain Selling Securityholders
in exchange for the Bridge Warrants, together with 750,000 shares of Common
Stock issuable upon exercise of such Selling Securityholders Warrants, are
being offered hereby, at the expense of the Company, for the account of the
Selling Securityholders. See "Securities Eligible for Future Sale." The
Bridge Warrants were issued as part of the Bridge Financing. In connection
with the Bridge Financing, the Company paid to the Underwriter, as placement
agent, $150,000 in cash as commissions and a non-accountable expense
allowance of $45,000. The Company also issued to the Placement Agent warrants
(the "Placement Agent Warrants") to purchase 150,000 shares of Common Stock
at an exercise price of $1.50 per share exercisable for four years commencing
October 10, 1997. The Placement Agent Warrants will be canceled prior to the
consummation of this Offering. Sales of such Selling Securityholders Warrants
and the underlying shares of Common Stock may depress the price of the Common
Stock or Redeemable Warrants in any market that may develop for such
securities.
The following table set forth information with respect to persons for whom
the Company is registering the Selling Securityholders Warrants and the
underlying Selling Securityholders Shares for resale to the public in the
Concurrent Offering. Beneficial ownership of Redeemable Warrants and Common
Stock by such Selling Securityholders after the Offering will depend on the
number of securities sold by each Selling Securityholders in the Concurrent
Offering.
<TABLE>
<CAPTION>
Redeemable Warrants(1) Common Stock(1)
------------------------------------- -------------------------------------
Number of
Redeemable Number of
Warrants Owned Common Stock
Prior to and Owned Prior to
Registered in the Percent of Class and Registered in Percent of Class
Concurrent after the the Concurrent after the
Selling Securityholder Offering Offerings(2) Offering Offerings(3)
- -------------------------------------- ----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C>
Stanley S. Arkin 50,000 1.82% 50,000 *
Louis A. and Madeline Best, JTWROS 50,000 1.82 50,000 *
Delaware Charter Guarantee & Trust Co.
FBO Laurence Heller IRA Rollover 25,000 * 25,000 *
Isaack R. Dweck 25,000 * 25,000 *
Jerry Finkelstein 50,000 1.82 50,000 *
Charles Johnston 12,500 * 12,500 *
Jack A. Kaster 25,000 * 25,000 *
Ralph K. Kato 50,000 1.82 50,000 *
J. D. Kosmo 12,500 * 12,500 *
Daniel R. Lee 100,000 3.64 100,000 1.57
Barry J. Lind Revocable Trust 50,000 1.82 50,000 *
Barry J. Lind/Neil G. Bluhm,
tenants in common 50,000 1.82 50,000 *
Christian Ludwigsen 12,500 * 12,500 *
Peter Maher and Patricia Maher, JTWROS 25,000 * 25,000 *
Daniel and Dianne Mine, JTWROS 12,500 * 12,500 *
Frank C. Rathje 25,000 * 25,000 *
Dawn Roccaro 12,500 * 12,500 *
Peter G. Roehl 125,000 4.55 125,000 1.97
Gail Reich 12,500 * 12,500 *
Richard S. Simms II, Keogh 12,500 * 12,500 *
Richard B. Schechter 12,500 * 12,500 *
TOTAL 750,000 27.27% 750,000 11.81%
</TABLE>
- ------
* Less than one percent (1%)
(1) Assumes no purchase by any Selling Securityholder of Common Stock or
Redeemable Warrants offered in the Offering. The Offering and the
Concurrent Offering are referred to as the "Offerings."
(2) Assumes none of the Selling Securityholders Warrants have been exercised
and is therefore based upon 2,750,000 Redeemable Warrants outstanding
after the Offerings. Assumes no Selling Securityholders Warrants have
been sold by any Selling Securityholder.
(3) Assumes the exercise of all Redeemable Warrants, including the 750,000
Selling Securityholders Warrants, and is therefore based upon 6,349,212
shares of Common Stock outstanding after the Offerings and such exercise.
Assumes no shares of Common Stock have been sold by any Selling
Securityholder.
36
<PAGE>
There are no material relationships between any of the Selling
Securityholders and the Company. The securities offered by the Selling
Securityholders are not being underwritten by the Underwriter. Each Selling
Securityholder currently maintains a brokerage account with the Underwriter
subject to the terms and conditions of the Underwriter's standard brokerage
account agreement pursuant to which the Underwriter provides brokerage
services to such individuals/entities. None of these accounts is
discretionary. Other than as described herein, there are no other current or
future plans, proposals, agreements, arrangements or understandings of the
Underwriter or known to the Underwriter with respect to engaging in
transactions with or by the Selling Securityholders in connection with the
sale of their securities. The Selling Securityholders have agreed not to sell
or otherwise dispose of any of the Selling Securityholders Warrants or
Selling Securityholders Shares for a period of 12 months from the date hereof
and thereafter for an additional six months without the prior consent of the
Underwriter. In addition, the Selling Securityholders have agreed that, for a
period of two years from the date hereof, they will not sell such securities
other than through the Underwriter and that, upon any such sale, they will
compensate the Underwriter in accordance with its customary compensation
practices. Subject to these restrictions, the Company anticipates that sales
of the Selling Securityholders Warrants or the underlying Selling
Securityholders Shares may be effected from time to time in transactions
(which may include block transactions) in the over-the-counter market, in
negotiated transactions, or a combination of such methods of sale, at fixed
prices that may be changed, at market prices prevailing at the time of sale,
or at negotiated prices. The Selling Securityholders may effect such
transactions by selling the Selling Securityholders Warrants or Selling
Securityholders Shares directly to purchasers or through broker-dealers that
may act as agent or principals. Such broker-dealers may receive compensation
in the form of discounts, concessions or commissions from the Selling
Securityholders or from the purchasers of the Selling Securityholders
Warrants or the Selling Securityholders Shares for whom such broker-dealers
may act as agents or to whom they sell as principals, or both (which
compensation as to a particular broker-dealer might be in excess of customary
commissions).
The Selling Securityholders and any broker-dealers that act in connection
with the sale of the Selling Securityholders Warrants or Selling
Securityholders Shares as principals may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act and any commission
received by them and any profit on the resale of such securities as
principals might be deemed to be underwriting discounts and commissions under
the Securities Act. The Selling Securityholders may agree to indemnify any
agent, dealer or broker-dealer that participates in transactions involving
sales of such securities against certain liabilities arising under the
Securities Act. The Company will not receive any proceeds from the sales of
the Selling Securityholders Warrants or Selling Securityholders Shares by the
holders thereof, although the Company will receive proceeds from any exercise
of the Selling Securityholders Warrants. Sales of the Selling Securityholders
Warrants or Selling Securityholders Shares by the holders thereof, or even
the potential of such sales, could have an adverse effect on the market price
of the Units, the Redeemable Warrants and Common Stock.
At the time a particular offer of Selling Securityholders Warrants or the
Selling Securityholders Shares is made, except as herein contemplated, by or
on behalf of a Selling Securityholders, to the extent required, a Prospectus
will be distributed which will set forth the number of Selling
Securityholders Warrants or Selling Securityholders Shares being offered and
the terms of the offering, including the name or names of any underwriters,
dealers or agents, if any, the purchase price paid by any underwriter for the
securities purchased and any discounts, commissions or concessions allowed or
reallowed or paid to dealers.
Under the Exchange Act and the regulations thereunder, any person engaged
in a distribution of the securities of the Company offered by this Prospectus
may not simultaneously engage in market-making activities with respect to
such securities of the Company during the applicable "cooling-off" period
(two or nine days) prior to the commencement of such distribution. In
addition, and without limiting the foregoing, the Selling Securityholders
will be subject to applicable provisions of the Exchange Act and the rules
and regulations thereunder, including, without limitation, Rules 10b-6 and
10b-7, in connection with transactions in such securities, which provision
may limit the timing of purchases and sales of such securities by the Selling
Securityholders.
37
<PAGE>
CERTAIN TRANSACTIONS
The Company has been substantially dependent upon equity investments,
loans and guarantees from its stockholders or their affiliates in order to
finance its operations. In May 1995, Inter Island Petroleum, Inc., a company
of which Brian Barbata, a director of the Company, is President and a
stockholder, loaned the Company $100,000. This loan bears interest at the
annual rate of 12% and was originally due in June 1995. The Company repaid
$50,000 in principal plus accrued interest thereon (approximately $12,000)
out of the proceeds of the Bridge Financing and agreed to repay the balance
of this loan, plus all accrued interest, out of the proceeds of this
Offering. See "Use of Proceeds." Certain directors and an affiliate of the
Company are personal guarantors of this indebtedness and the Company's
$200,000 equipment lease agreement with First Hawaiian Leasing, Inc. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-- Liquidity and Capital Resources."
In July 1995, certain stockholders of the Company made an equity
contribution to the Company in the aggregate amount of $65,800, in exchange
for an aggregate of 237,912 shares of Common Stock. In September 1995, all of
the stockholders of the Company made an additional equity contribution, on a
pro rata basis, in the aggregate amount of $92,159, in exchange for an
aggregate of 333,229 shares of Common Stock. In February 1996, Marcus Bender,
the Company's President, loaned the Company $10,000 on an interest free basis
in order to meet certain then current obligations. The Company repaid $4,500
of this loan in March 1996, and repaid the balance in April 1996. In March
1996, HSC advanced the Company $40,000 on an interest free basis. In April
1996, HSC loaned the Company an additional $67,320, and the earlier $40,000
advance was converted into an interest bearing loan on the same terms. HBDC
also loaned the Company $182,400 in April 1996. These loans bear interest at
an annual rate of 12% and are due in April 1997 or, if earlier, upon
consummation of this Offering. In July and August 1996, HBDC and HSC loaned
the Company an additional $42,985 and $25,284, respectively, and Mayo Water
Co., Inc. ("MWC"), a corporation wholly owned by John Mayo, a director of the
Company, loaned the Company $49,726. In February 1997, HSC, MWC and HBDC made
further loans to the Company in the amount of $24,500, $11,922 and $38,578,
respectively. All of these loans bear interest at an annual rate of 12% and
are due in April 1997 or, if earlier, upon consummation of this Offering. In
July, August and September 1996, HSC, MWC and HBDC advanced the Company an
aggregate of $90,272 on an unsecured, non-interest bearing basis. These
advances were repaid out of the proceeds of the Bridge Financing. See "Risk
Factors" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations-- Liquidity and Capital Resources."
The Company leases its bottling facility and rights to use of its water
source pursuant to a long-term lease agreement with HBDC. HBDC is jointly
owned by Marcus Bender and Brian Barbata, two of the Company's directors and
executive officers. See "Risk Factors--Lease of Key Operating Assets" and
"Business--Facilities."
In 1995, the Company purchased certain equipment for use in the Company's
bottling operations from a company wholly owned by Mr. Bender for an
aggregate of $25,000.
In December 1995, the Company entered into a Blow Molding Agreement with
Bottles Packaging, Inc. ("BPI"), a California bottle manufacturer. Nathan
Keller, a director of the Company since July 1996, is the chief financial
officer of BPI. The Company has agreed in principle to purchase the bottling
equipment subject to the Blow Molding Agreement from BPI for aggregate
payments over five years of $1,200,000, and, if such purchase is consummated,
the Company will use up to $375,000 of the net proceeds of this Offering as
an initial payment toward such purchase. The price and other terms of such
possible purchase are being determined by negotiation between the Company and
BPI. The final terms of this arrangement will be approved by a majority of
the Company's directors, excluding Mr. Keller. There can be no assurance that
this purchase will be consummated on terms no less favorable then could have
been obtained from an unaffiliated third party, if at all. See "Business--
Bottling Operations."
In July 1996, the Company entered into a one year agreement with com.com.
Inc, pursuant to which com.com Inc. was engaged to advise the Company on
branding strategy and advertising support. This agreement provides for a fee
of $5,000 per month, plus the award of certain stock options, in the
Company's discretion, based upon performance. To date, no such options have
been granted. See "Business--Marketing." Alexander Brody is Managing Partner
of com.com Inc. In August 1996, Mr. Brody was elected a director of the
Company.
Management believes that each of the transactions described above was
effected on terms no less favorable to the Company than would have been
available from unaffiliated third parties. All future transactions between
38
<PAGE>
the Company and any of its officers, directors, principal stockholders and
their affiliates, including loan transactions, will be approved by a majority
of the Board of Directors, including a majority of the independent and
disinterested directors, and will be on terms no less favorable to the
Company than could be obtained from unaffiliated third parties.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, no par value, and 5,000,000 shares of Preferred Stock, $1.00
par value. As of the date hereof, the Company has outstanding 1,599,212
shares of Common Stock held of record by five stockholders. No shares of
Preferred Stock are outstanding. All outstanding shares of capital stock of
the Company are fully paid and non-assessable.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held
of record on all matters submitted to a vote of the stockholders. Pursuant to
applicable provisions of Hawaii law, stockholders of the Company are entitled
to cumulate their votes in the election of directors upon delivery of a
written request thereof to any officer of the Company at least 48 hours prior
to the date of any annual or special meeting at which directors are to be
elected; provided, however, that this right may be restricted, qualified or
eliminated by a provision of the Company's Articles of Incorporation or
By-Laws, if the Company has a class of equity securities registered pursuant
to the Exchange Act which are either listed on a national securities exchange
or traded on the National Market System of Nasdaq (the "NMS"). The Company
has adopted a provision in its By-Laws eliminating this right, which
provision will take effect at such time as the Company has a class of equity
securities listed on a national securities exchange or traded on the NMS. The
Company will not have a class of equity securities listed on a national
securities exchange or traded on the NMS upon completion of this Offering,
and there can be no assurance that any class of the Company's equity
securities will ever be so listed or traded. Therefore, stockholders of the
Company may be entitled to cumulate their votes in the election of directors
indefinitely.
Subject to preferences that may be applicable to any then outstanding
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of the Company, holders of Common Stock are
entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any then outstanding Preferred
Stock. Holders of Common Stock have no preemptive rights and no right to
convert their shares into any other securities.
PREFERRED STOCK
The Preferred Stock may be issued in one or more series from time to time
with such designation, rights, preferences and limitations as the Board of
Directors may determine. The rights, preferences and limitations of separate
series of Preferred Stock may differ with respect to such matters as may be
determined by the Board of Directors, including, without limitation, the rate
of dividends, method or nature of payment of dividends, terms of redemption,
amounts payable on liquidation, sinking fund provisions, conversion rights
and voting rights. Such undesignated shares could also be used as an
anti-takeover device by the Company since they could be issued with
"super-voting rights" and placed in the control of parties friendly to the
current management. The Company has no present plans to issue any of the
undesignated shares.
THE UNITS
Each Unit consists of one share of Common Stock and one Redeemable
Warrant, which entitles the registered holder thereof to purchase one share
of Common Stock at an initial exercise price of $ per share [150% of the
initial public offering price per Unit], subject to adjustment. The shares of
Common Stock and Redeemable Warrants comprising the Units will be detachable
and separately tradeable upon issuance. The Company and the Underwriter may
jointly determine, based upon market conditions, to delist the Units upon the
expiration of the 30-day period commencing on the date of this Prospectus.
39
<PAGE>
THE REDEEMABLE WARRANTS
The Redeemable Warrants, including the Selling Securityholders Warrants,
will be issued under and subject to the terms of a Warrant Agreement (the
"Warrant Agreement") dated as of the date hereof between the Company and
Continental Stock Transfer & Trust Company, as warrant agent (the "Warrant
Agent"). Set forth below is a summary of certain provisions of the Warrant
Agreement. Such summary does not purport to be complete and is subject to and
qualified in its entirety by reference to all of the provisions of the
Warrant Agreement. A copy of the Warrant Agreement is filed as an exhibit to
the Registration Statement of which this Prospectus forms a part.
General. Each Redeemable Warrant entitles the registered holder thereof to
purchase one share of Common Stock at an initial exercise price of $ per
share [150% of the initial public offering price per Unit], subject to
adjustment, at any time following the date of issuance until 5:00 p.m. New
York time, , 2001 [60 months from the date of this Prospectus] (the
"Expiration Date"), unless previously redeemed. Each Redeemable Warrant will
be issued in registered form and will be transferable from and after the date
of issuance and prior to the Expiration Date. Warrantholders are not
entitled, by virtue of being Warrantholders, to receive dividends or to vote
at or receive notice of any meeting of stockholders or to exercise any other
rights whatsoever as stockholders of the Company. Commencing , 1997 [12
months from the date of this Prospectus], the Company will have the right to
redeem all, but not less than all, of the Redeemable Warrants at a price of
$.05 per Redeemable Warrant on 30 days' prior written notice, provided that
the Company shall have obtained the written consent of Joseph Stevens &
Company, Inc. (the "Underwriter"), and the average closing bid price of the
Common Stock equals or exceeds 150% of the then exercise price per share,
subject to adjustment, for any 20 trading days within a period of 30
consecutive trading days ending on the fifth trading day prior to the date of
the notice of redemption.
Adjustments. The exercise price of the Redeemable Warrants and the number
of shares of Common Stock issuable upon exercise thereof are subject to
adjustment in certain events, including stock splits or combinations, stock
dividends, or through a recapitalization resulting from a stock split or
combination. The remaining shares of Common Stock still subject to the
Warrant and the purchase price thereof will be appropriately adjusted by the
Company.
Amendments. The Board of Directors of the Company, in its discretion, may
amend the terms of the Redeemable Warrants to, among other things, reduce the
exercise price; provided, however, that no amendment adversely affecting the
rights of the holders of the Redeemable Warrants may be made without the
approval of the holders of not less than a majority of the Redeemable
Warrants then outstanding.
Exercise of Redeemable Warrants. The Redeemable Warrants may be exercised
by surrendering to the Warrant Agent the warrant certificate evidencing the
Warrant, duly executed by the Warrantholder or his duly authorized agent and
indicating such Warrantholder's election to exercise all or a portion of the
Redeemable Warrants evidenced by such warrant certificate. Surrendered
warrant certificates must be accompanied by payment of the aggregate exercise
price of the Redeemable Warrants to be exercised, which payment may be made,
at the Warrantholder's election, in cash or by delivery of a cashier's or
certified check or any combination of the foregoing. A current Prospectus
must be in effect in order for holders of Redeemable Warrants to exercise
such Redeemable Warrants. Pursuant to the terms of the Warrant Agreement, the
Company has agreed to maintain a current Prospectus in effect until the
Expiration Date, subject to certain exceptions.
Upon receipt of duly executed Redeemable Warrants and payment of the
exercise price, the Company shall issue and cause to be delivered, to or upon
the written order of exercising Warrantholders, certificates representing the
number of shares of Common Stock so purchased. if fewer than all of the
Redeemable Warrants evidenced by any warrant certificate are exercised, a new
warrant certificate evidencing the Redeemable Warrants remaining unexercised
will be issued to the Warrantholder.
The Company has authorized and will reserve for issuance a number of
shares of Common Stock sufficient to provide for the exercise of all
Redeemable Warrants. When delivered in accordance with the Warrant Agreement,
such shares will be fully paid and non-assessable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock of the Company is
Continental Stock Transfer & Trust Company, New York, New York.
40
<PAGE>
SECURITIES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding an
aggregate of 3,559,212 shares of Common Stock assuming (i) the issuance by
the Company of 2,000,000 shares of Common Stock included in the Units offered
hereby, (ii) no issuance of shares of Common Stock relating to outstanding
warrants to purchase Common Stock, and (iii) no exercise of outstanding
options to purchase Common Stock. Of these shares, the 2,000,000 shares
included in the Units will be freely tradeable without restriction or further
registration under the Securities Act, except for shares held by Affiliates
of the Company (whose sales would be subject to certain limitations and
restrictions described below) and the regulations promulgated thereunder).
The remaining 1,599,212 shares were sold by the Company in reliance on
exemptions from the registration requirements of the Securities Act and are
"restricted securities" within the meaning of Rule 144 under the Securities
Act. All of these shares will become eligible for sale in the public market
under Rule 144 90 days after the date hereof; however, all of these shares
are subject to lock-up agreements and will be subject to restrictions on sale
until the expiration of the Lock-up Period, unless released therefrom by the
Underwriter.
The Redeemable Warrants underlying the Units offered hereby and the shares
of Common Stock underlying such Redeemable Warrants, upon exercise thereof,
will be freely tradable without restriction under the Securities Act, except
for any Redeemable Warrants or shares of Common Stock purchased by an
Affiliate, which will be subject to the resale limitation of Rule 144 under
the Securities Act. In addition, 750,000 Selling Securityholders Warrants and
750,000 Selling Securityholders Shares are being registered in the Concurrent
Offering. The Selling Securityholders have agreed not to transfer such
securities for a period of 12 months from the date hereof, and thereafter
such securities may not be sold for an additional six months without the
prior written consent of the Underwriter. An appropriate legend shall be
marked on the face of the certificates representing such securities.
In addition, without the consent of the Underwriter, the Company has
agreed not to sell or offer for sale any of its securities during the Lock-up
Period, except pursuant to outstanding options and warrants and pursuant to
the Company's existing option plans and no option shall have an exercise
price that is less than the fair market value per share of Common Stock on
the date of grant. An appropriate legend shall be marked on the face of
certificates representing all such securities.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an Affiliate, who has beneficially
owned shares for at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of
(i) 1% of the then outstanding shares of Common Stock (approximately 35,992
shares immediately after this Offering) or (ii) the average weekly trading
volume in the Common Stock during the four calendar weeks preceding such
sale, subject to the filing of a Form 144 with respect to such sale and
certain other limitations and restrictions. In addition, a person who is not
deemed to have been an Affiliate of the Company at any time during the 90
days preceding a sale and who has beneficially owned the shares proposed to
be sold for at least two years would be entitled to sell such shares under
Rule 144 without regard to the requirements described above. To the extent
that shares were acquired from an Affiliate of the Company, such
stockholder's holding period for the purpose of effecting a sale under Rule
144 commences on the date of transfer from the Affiliate.
Sales of substantial amount of Common Stock in the public market could
adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital through the sale of its equity
securities.
41
<PAGE>
UNDERWRITING
Joseph Stevens & Company, Inc. (the "Underwriter") has entered into an
Underwriting Agreement with the Company pursuant to which, and subject to the
terms and conditions thereof, it has agreed to purchase from the Company, and
the Company has agreed to sell to the Underwriter, on a firm commitment
basis, all of the Units offered by the Company hereby.
The Company has been advised by the Underwriter that the Underwriter
initially proposes to offer the Units to the public at the public offering
price set forth on the cover page of this Prospectus and that the Underwriter
may allow to certain dealers who are members of the National Association of
Securities Dealers, Inc. ("NASD") concessions not in excess of $______ per
Unit, of which amount an amount not in excess of $______ per Unit may in turn
be reallowed by such dealers to other dealers. After the commencement of the
Offering, the public offering price, concessions and reallowances may be
changed. The Underwriter has informed the Company that it does not expect
sales to discretionary accounts by the Underwriter to exceed five percent of
the securities offered by the Company hereby.
The Company has granted to the Underwriter an option, exercisable within
45 days of the date of this Prospectus, to purchase from the Company at the
offering price, less underwriting discounts and the non-accountable expense
allowance, all or part of an additional 300,000 Units on the same terms and
conditions of the Offering for the sole purpose of covering over-allotments,
if any.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act. The Company has
agreed to pay to the Underwriter a non-accountable expense allowance equal to
three percent (3%) of the gross proceeds derived from the sale of the Units
underwritten, $25,000 of which has been paid to date.
Upon the exercise of any Redeemable Warrants more than one year after the
date of this Prospectus, which exercise was solicited by the Underwriter, and
to the extent not inconsistent with the guidelines of the NASD and the Rules
and Regulations of the Commission, the Company has agreed to pay the
Underwriter a commission which shall not exceed five percent (5%) of the
aggregate exercise price of such Redeemable Warrants in connection with bona
fide services provided by the Underwriter relating to any warrant
solicitation. In addition, the individual must designate the firm entitled to
such warrant solicitation fee. If the individual fails to designate the firm
entitled to such warrant solicitation fee, it shall be presumed that such
exercise was unsolicited. Additionally, no compensation will be paid to the
Underwriter in connection with the exercise of the Redeemable Warrants if (a)
the market price of the Common Stock is lower that the exercise price of the
Redeemable Warrants, (b) the Redeemable Warrants were held in a discretionary
account or (c) the Redeemable Warrants are exercised in an unsolicited
transaction. Unless granted an exemption by the Commission from its Rule 101
under Regulation M promulgated under the Securities Act, the Underwriter will
be prohibited from engaging in any market making activities with regard to
the Company's securities for the period from five business days (or such
applicable periods as Rule 101 under Regulation M may provide) prior to any
solicitation of the exercise of the Redeemable Warrants until the later of
the termination of such solicitation activity or the termination (by waiver
or otherwise) of any right the Underwriter may have to receive a fee. As a
result, the Underwriter may be unable to continue to provide a market for the
Company's Units, Common Stock or Redeemable Warrants during certain periods
while the Redeemable Warrants are exercisable. If the Underwriter has engaged
in any of the activities prohibited by Rule 101 under Regulation M during the
period described above, the Underwriter undertakes to waive unconditionally
its rights to receive a commission on the exercise of such Redeemable
Warrants.
42
<PAGE>
All of the holders of the issued and outstanding shares of Common Stock
prior to the Offering have agreed (i) not to transfer any securities issued
by the Company, including shares of Common Stock or securities convertible
into or exchangeable or exercisable for or evidencing any right to purchase
of subscribe for any shares of Common Stock during the Lock-up Period,
without the prior written consent of the Underwriter and (ii) that, for 24
months following the effective date of the Registration Statement, any sales
of the Company's securities shall be made through the Underwriter in
accordance with its customary brokerage practices either on a principal of
agency basis. An appropriate legend shall be marked on the face of
certificates representing all such secur- ities.
In connection with the Offering, the Company has agreed to issue and sell
to the Underwriter and/or its designees, at the closing of this Offering, for
nominal consideration, the Underwriter's Warrants to purchase 200,000 Units.
The Underwriter's Warrants are exercisable at a price of $______ [165% of the
public offering price of the Units] per Unit at any time during a period of
four years commencing twelve months after the date of this Prospectus and are
restricted from sale, transfer, assignment or hypothecation for a period of
twelve months from the date hereof, except to officers of the Underwriter.
The shares of Common Stock, Redeemable Warrants, and shares of Common Stock
underlying the Redeemable Warrants, and shares of Common Stock underlying the
Redeemable Warrants issuable upon the exercise of the Underwriter's Warrant
are identical to those offered to the public, provided that the Redeemable
Warrants underlying the Underwriter's Warrants, while held by the Underwriter
or its designees, are initially exercisable at a price equal to 140% of the
initial exercise price of the Redeemable Warrants underlying the Units
offered to the public. The Underwriter's Warrants contain anti-dilution
provisions providing for adjustment of the number of warrants and exercise
price under certain circumstances. The Underwriter's Warrants grant to the
holders thereof and to the holders of the underlying securities certain
rights of registration, at the Company's expense, with respect to the
securities underlying the Underwriter's Warrants.
In connection with the Bridge Financing, the Company paid to the
Underwriter, as placement agent, $150,000 in cash as commissions and a
non-accountable expense allowance of $45,000. The Company also issued to the
Placement Agent warrants (the "Placement Agent Warrants") to purchase 150,000
shares of Common Stock at an exercise price of $1.50 per share exercisable
for four years commencing October 10, 1997. The Placement Agent Warrants will
be canceled prior to the consummation of this Offering.
The Company has agreed that for five years from the effective date of the
Registration Statement, the Underwriter may designate one person for election
to the Company's Board of Directors (the "Designation Right"). In the event
that the Underwriter elects not to exercise its Designation Right, then it
may designate one person to attend all meetings of the Company's Board of
Directors for a period of five years. The Company has agreed to reimburse the
Underwriter's designee for all out-of-pocket expenses incurred in connection
with the designee's attendance at meetings of the Board of Directors.
Pursuant to the Financial Advisory and Consulting Agreement, the Company has
also agreed to retain the Underwriter as the Company's financial consultant
for a period of 24 months from the date hereof and to pay the Underwriter a
monthly retainer of $2,000, all of which is payable in advance on the closing
of this Offering. The Company has also agreed to compensate Joseph Stevens &
Company, Inc. during the 60 month period from the date hereof for any advice
furnished in connection with acquisitions or mergers, joint ventures, license
and royalty agreements and other financings, other than the private or public
sale of the Company's securities for cash. The amount of compensation Joseph
Stevens & Company, Inc. shall receive shall be dependent upon the value of
consideration involved in the business transaction for which advice is
rendered. The Company has further agreed to indemnify and hold harmless
Joseph Stevens & Company, Inc. from all liabilities which are related to or
arise from any actions taken or omitted to be taken in connection with Joseph
Stevens & Company, Inc.'s engagement as a consultant pursuant to the
Financial Advisory and Consulting Agreement.
Prior to this Offering, there has been no public market for the Units, the
Common Stock, or the Redeemable Warrants. Accordingly, the initial public
offering price of the Units and the terms of the Redeemable Warrants were
determined by negotiation between the Company and the Underwriter. The
factors considered in determining such prices and terms, in addition to the
prevailing market conditions, included the history of and the prospects for
the industry in which the Company competes, an assessment of the Company's
management, the prospects of the Company, its capital structure and such
other factors that were deemed relevant. The offer-
43
<PAGE>
ing price does not necessarily bear any relationship to the assets, results
of operations or net worth of the Company.
The Underwriter commenced operations in May 1994 and therefore does not
have extensive expertise as an underwriter of public offerings of securities.
In addition, the Underwriter is a relatively small firm and no assurance can
be given that the Underwriter will be able to participate as a market maker
in the Units, the Common Stock or in the Redeemable Warrants, and no
assurance can be given that any broker-dealer will make a market in the
Units, the Common Stock or the Redeemable Warrants. The Underwriter has acted
as managing underwriter of nine public offerings. See "Risk Factors --
Underwriter's Lack of Experience; Underwriter's Potential Influence on the
Market."
In connection with this Offering, the Underwriter and certain selling
group members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market prices of the Units, the
Common Stock and/or the Redeemable Warrants (the "Securities"). Such
transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase the Securities for the purpose of stabilizing their respective
market prices. The Underwriter also may create a short position for the
account of the Underwriter by selling more Securities in connection with the
Offering than it is committed to purchase from the Company, and in such case
may purchase Securities in the open market following completion of the
Offering to cover all or a portion of such short position. The Underwriter
may also cover all or a portion of such short position, up to 300,000 Units,
by exercising the Over- Allotment Option referred to above. In addition, the
Underwriter may impose "penalty bids" under contractual arrangements with
dealers whereby it may reclaim from a dealer participating in the Offering
for the account of the Underwriter, the selling concession with respect to
the Securities that are distributed in the Offering but subsequently
purchased for the account of the Underwriter in the open market. Any of the
transactions described in this paragraph may result in the maintenance of the
prices of the Securities at a level above that which might otherwise prevail
in the open market. None of the transactions described in this paragraph is
required, and, if they are undertaken, they may be discontinued at any time.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a
copy of each such agreement which are filed as exhibits to the Registration
Statement. See "Available Information."
LEGAL MATTERS
The validity of the Units offered hereby have been passed upon for the
Company by Graham & James LLP, Los Angeles, California. Orrick, Herrington &
Sutcliffe LLP, New York, New York, has acted as counsel for the Underwriter
in connection with the Offering.
EXPERTS
The financial statements included in this prospectus and elsewhere in the
Registration Statement, to the extent and for the periods indicated in their
report, have been audited by Arthur Andersen LLP, independent public
accountants, and are included herein in reliance upon the authority of said
firm as experts in giving said report. Reference is made to said report which
includes an explanatory paragraph which states that there is substantial
doubt about the Company's ability to continue as a going concern.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2, including amendments thereto, relating to the Units offered hereby, the
Common Stock and Redeemable Warrants included therein, the Selling
Securityholders Warrants, the Common Stock underlying each of the Redeemable
Warrants and the Selling Securityholders Shares. This Prospectus does not
contain all of the information set forth in the Registration Statement and
the exhibits thereto. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete; however, all material information with respect to such contracts
and documents are disclosed in this Prospectus. In each instance reference is
made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all
respects by such reference.
44
<PAGE>
For further information with respect to the Company and the securities
offered hereby, reference is made to such Registration Statement, exhibits
and schedules. A copy of the Registration Statement may be inspected by
anyone without charge at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and will also be available for inspection and copying at the
regional offices of the Commission located at 7 World Trade Center, New York,
New York 10048 and at Citicorp Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material may also be obtained
from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. Such material may also be
accessed electronically by means of the Commission's home page on the
Internet at http://www.sec.gov. As a result of the Offering, the Company will
be subject to the informational requirements of the Exchange Act. So long as
the Company is subject to the periodic reporting requirements of the Exchange
Act, it will furnish the reports and other information required thereby to
the Commission. The Company intends to furnish holders of the Units, the
Common Stock and the Redeemable Warrants with annual reports containing,
among other information, audited financial statements certified by an
independent accounting firm. The Company also intends to furnish such other
reports as it may determine or as may be required by law.
45
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Public Accountants ............................................. F-2
Balance Sheet -- December 31, 1996 ................................................... F-3
Statements of Operations For the Years Ended December 31, 1995 and 1996 .............. F-4
Statements of Stockholders' Deficit for the Years Ended December 31, 1995 and 1996 ... F-5
Statements of Cash Flows for the Years Ended December 31, 1995 and 1996 ............... F-6
Notes to Financial Statements -- December 31, 1996 ................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
of Hawaiian Natural Water Company, Inc.:
We have audited the accompanying balance sheet of HAWAIIAN NATURAL WATER
COMPANY, INC., (a Hawaii corporation) as of December 31, 1996, and the related
statements of operations, stockholders' deficit and cash flows for each of the
two years in the period ended December 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hawaiian Natural Water Company,
Inc. as of December 31, 1996, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the accompanying
financial statements, the accumulated deficit, negative cash flows from
operations, significant liabilities and the need for additional capital raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are described in Note 1. The
financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
/s/ Arthur Andersen LLP
Honolulu, Hawaii
March 5, 1997
F-2
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
BALANCE SHEET -- DECEMBER 31, 1996
ASSETS
<TABLE>
<CAPTION>
<S> <C>
CURRENT ASSETS:
Cash .................................................................... $ 89,335
Inventories ............................................................. 156,570
Trade Accounts Receivable ............................................... 53,515
Prepaid Expenses ........................................................ 7,945
-----------
Total Current Assets ............................................... 307,365
PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization
of $112,110 ................................................................ 441,352
ORGANIZATIONAL COSTS, net of accumulated amortization of $2,029 .............. 2,480
DEFERRED CHARGES AND OTHER, net of accumulated amortization of $82,056 ....... 441,196
-----------
Total Assets ....................................................... $1,192,393
===========
</TABLE>
LIABILITIES
<TABLE>
<CAPTION>
<S> <C>
CURRENT LIABILITIES:
Accounts Payable ........................................................ $ 331,370
Notes Payable to Related Parties ........................................ 496,393
Notes Payable ........................................................... 1,467,561
Accrued Expenses and Other Current Liabilities .......................... 156,751
Deferred Compensation ................................................... 32,500
Capital Lease Obligation -- Current Portion ............................. 38,264
-------------
Total Current Liabilities .......................................... 2,522,839
CAPITAL LEASE OBLIGATION -- Net of Current Portion ........................... 87,476
-------------
Total Liabilities .................................................. 2,610,315
-------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
STOCKHOLDERS' DEFICIT:
Preferred Stock, $1 par value, 5,000,000 shares authorized, no shares
issued or
outstanding ........................................................... --
Common Stock, no par; 20,000,000 shares authorized; 1,599,212 shares
issued and outstanding, including warrants ............................ 629,793
Accumulated Deficit ..................................................... (2,047,715)
-------------
Total Stockholders' Deficit ........................................ (1,417,922)
-------------
Total Liabilities and Stockholders' Deficit ........................ $ 1,192,393
=============
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-3
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
------------ --------------
<S> <C> <C>
NET SALES .................................... $ 588,920 $ 866,060
COST OF SALES ................................ 620,593 754,159
------------ --------------
Gross Margin ....................... (31,673) 111,901
------------ --------------
EXPENSES:
General and Administrative .............. 437,289 787,592
Selling and Marketing ................... 220,651 264,617
------------ --------------
657,940 1,052,209
------------ --------------
OTHER INCOME (EXPENSE):
Interest and Rental Income .............. 2,179 722
Interest Expense ........................ (53,440) (248,165)
------------ --------------
(51,261) (247,443)
------------ --------------
Net Loss ........................... $(740,874) $(1,187,751)
============ ==============
Net Loss per common and common
equivalent share ................. $ (0.62) $ (0.74)
============ ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
Common Stock Preferred Stock
------------------- ------------------- Stock
Number of Number of Subscriptions
Shares Amount Shares Amount Receivable
---------- ------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1994 ............ 639,071 $ 51,000 222,286 $ 233,334 $(100,000)
Issuance of shares
July 1, 1995 ............. 237,912 65,800 -- -- --
Issuance of shares
October 1, 1995 ........... 333,229 92,159 -- -- --
Collection of stock
subscriptions
receivable --
March 1, 1995 ............. -- -- 166,714 -- 100,000
Preferred
dividends ................ -- -- -- -- --
Net loss .................... -- -- -- -- --
----------- ----------- ----------- ----------- ------------
BALANCE AT
DECEMBER 31, 1995 ........... 1,210,212 208,959 389,000 233,334 --
Conversion of
preferred stock
to common stock
October 10, 1996 .......... 389,000 233,334 (389,000) (233,334) --
Issuance of common
stock
warrants --
October 10, 1996 .......... -- -- -- -- --
Preferred
dividends ................ -- -- -- -- --
Net loss .................... -- -- -- -- --
----------- ----------- ----------- ----------- ------------
BALANCE AT
DECEMBER 31, 1996 ........... 1,599,212 $442,293 -- $ -- $ --
=========== =========== =========== =========== =============
</TABLE>
<TABLE>
<CAPTION>
Common Stock Warrants
----------------------
Total
Number of Accumulated Stockholders'
Warrants Amount Deficit Deficit
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1994 ..... -- $ -- $ (84,316) $ 100,018
Issuance of shares
July 1, 1995 ...... -- -- -- 65,800
Issuance of shares
October 1, 1995 -- -- -- 92,159
Collection of stock
subscriptions
receivable --
March 1, 1995 ...... -- -- -- 100,000
Preferred
dividends ......... -- -- (18,667) (18,667)
Net loss ............. -- -- (740,874) (740,874)
----------- ----------- ---------- -----------
BALANCE AT
DECEMBER 31, 1995 .... -- -- (843,857) (401,564)
Conversion of
preferred stock
to common stock--
October 10, 1996 ... -- -- -- --
Issuance of common
stock warrants --
October 10, 1996 ... 750,000 187,500 -- 187,500
Preferred
dividends ......... -- -- (16,107) (16,107)
Net loss ............. -- -- (1,187,751) (1,187,751)
--------- --------- --------- -----------
BALANCE AT
DECEMBER 31, 1996..... 750,000 $187,500 $ (2,047,715) $ (1,417,922)
========= ========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................... $ (740,874) $ (1,187,751)
Adjustments to reconcile net loss to net cash used in
operating
activities:
Depreciation and amortization ........................... 50,682 63,167
Amortization of debt discount ........................... -- 41,667
Amortization of deferred charges ........................ -- 82,056
Net decrease (increase) in current assets ............... (255,124) 38,697
Net increase (decrease) in current liabilities .......... 489,195 (1,560)
Net (increase) decrease in deferred charges and other ... (4,504) 4,673
------------- ---------------
Net cash used in operating activities .............. (460,625) (959,051)
------------- ---------------
CASH USED IN INVESTING ACTIVITIES --
Purchases of property and equipment ........................ (162,002) (65,814)
------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock ......................... 157,959 --
Proceeds from sale of preferred stock ...................... 100,000 --
Proceeds from bank loan .................................... 280,000 --
Repayment of bank loan ..................................... -- (300,000)
Proceeds from notes payable ................................ -- 1,329,307
Proceeds from loans payable to related parties ............. 100,000 407,715
Repayment of loan from affiliate ........................... -- (50,000)
Proceeds from advances from affiliates ..................... -- 100,272
Repayment of advances from affiliates ...................... -- (100,272)
Increase in deferred charges ............................... -- (238,477)
Repayment of principal on capital leases ................... (34,126) (34,345)
------------- ---------------
Net cash provided by financing activities .......... 603,833 1,114,200
------------- ---------------
NET (DECREASE) INCREASE IN CASH .............................. (18,794) 89,335
CASH, beginning of period .................................... 18,794 --
------------- ---------------
CASH, end of period .......................................... $ -- $ 89,335
============= ===============
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Acquisition of equipment under capital leases ................ $ 18,430 $ --
============= ===============
Conversion of preferred stock to common stock ................ $ -- $ 233,334
============= ===============
Preferred dividends .......................................... $ 18,667 $ 16,107
============= ===============
Issuance of common stock warrants ............................ $ -- $ 187,500
============= ===============
Conversion of preferred dividends payable to note payable .... $ -- $ 38,678
============= ===============
Costs related to borrowings included in deferred charges ..... $ -- $ 284,087
============= ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RISK FACTORS
a. Organization
Hawaiian Natural Water Company, Inc. (the "Company") was incorporated in the
state of Hawaii on September 13, 1994. The Company was formed for the purpose
of bottling, marketing and distributing Hawaiian natural water in the United
States and foreign markets. As of December 31, 1996, the Company was in the
initial stage of its operations with marketing and distribution arrangements
being formulated and established. The Company's initial product introduction
occurred in the first quarter of 1995.
b. Basis of Accounting
The Company's accounting policies are in accordance with generally accepted
accounting principles in the United States.
c. Going Concern and Risk Factors
As of December 31, 1996, the Company had an accumulated deficit, negative
cash flows from operations and significant liabilities, some of which were
past due. The Company needs to raise additional capital to sustain and expand
its operations. These factors raise substantial doubt about the Company's
ability to continue as a going concern. The accompanying financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
As more fully discussed in Note 4, in October 1996 the Company sucessfully
completed a bridge financing that raised proceeds, net of expenses, of
approximately $1.13 million from Accredited Investors, as defined. In
addition, as more fully discussed in Note 17, the Company also plans an
initial public offering ("IPO") for the purpose of raising gross proceeds of
approximately $8 million of capital in order to implement its planned
expansion.
There can be no assurances that the IPO will be consummated. Additionally,
should the Company require additional financing subsequent to the IPO, there
can be no assurance that the required additional financing will be available.
The following are other significant risk factors:
o The Company has been engaged in commercial operations since February 1995.
The Company generated net sales of $866,060 and $588,920 for the years
ended December 31, 1996 and 1995, respectively. Approximately 71 percent
and 82 percent, respectively, of each year's sales occurred in the
Hawaiian market. The Company's objective is to become a leading provider
of premium quality bottled water on a national and international basis. To
date, however, the Company has only begun to penetrate some of these major
target markets, such as the mainland United States, which is far larger
than the Company's local market and will likely have a significant impact
on the ultimate success of the Company's business. While the Company
believes that is has a distinctive product with a basis for worldwide
acceptance, to date, demand for the product on a national and
international level has been largely untested.
o The industry in which the Company plans to market its products is highly
competitive, including established companies with significantly greater
financial resources than the Company. Accordingly, even if the Company is
successful in obtaining the financing it needs, it will be necessary for
the Company to succeed in its efforts to market its products to the
public.
o The Company leases its key operating assets, including the water source,
which results in the Company exercising less control over its operations
than if the Company had ownership of these assets. In addition, the lease
agreement requires the Company to make rental payments to the lessor which
could be substantial, depending upon the Company's level of gross sales.
F-7
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1996
1. Summary of Significant Accounting Policies and Risk Factors - (Continued)
o The Company depends upon the services of its President for development and
management of the business to date. Loss of the services of this
individual could have an adverse effect on the Company.
o The Company currently depends upon a Hawaii distributor for the majority
of the Company's sales. Termination of this oral distribution agreement
could have a material adverse impact on the Company.
o The Company's operations are subject to regulation by various governmental
agencies. Failure of the Company to meet applicable regulations both in
the United States and in foreign markets could lead to costly recalls,
loss of certification to market the product or loss of revenue resulting
from negative publicity.
d. Property and Equipment
Property and equipment are stated at cost, which includes the cost of labor
used to install equipment and perform major leasehold improvements.
Maintenance, repairs and minor renewals are expensed as incurred.
Depreciation and amortization are provided by the straight line method over
the following estimated useful lives:
The shorter of the useful
Leasehold improvements life or the lease term
Machinery and equipment and
assets under capital lease 7 years
e. Revenue Recognition
The Company recognizes revenue on the accrual method of accounting when title
transfers upon shipment. The Company also grants customers the right to
return goods which are defective or otherwise unsuitable for sale. The
Company issues refunds to customers or replaces goods which are rejected.
The Company's policy is to provide a reserve for estimated uncollectible
trade accounts receivable, if any. The Company also provides a reserve for
estimated sales returns and related disposal costs. Net sales revenue
reflects the reduction for the reserve for sales returns, discounts and
freight-out.
f. Advertising
The Company charges the cost of advertising to expense as incurred. The
Company incurred approximately $34,000 and $48,000 of advertising expense
during the years ended December 31, 1996 and 1995, respectively, which are
reflected in Selling and Marketing Expenses in the accompanying financial
statements.
g. New Accounting Pronouncements
Long-Lived Assets
In 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." This statement requires that long-lived assets to be held
and used by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of the asset may not be
recoverable. This statement is effective for fiscal years beginning after
December 15, 1995. The adoption of the new standard in 1996 did not
materially impact the Company.
Stock-Based Compensation
In 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation." This statement establishes
financial accounting and reporting standards for stock-based compensation
plans, including all arrangements by which employees receive shares of stock
or other equity instruments of the employer or the employer incurs
liabilities to employees in amounts based on the price of the employer's
F-8
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1996
1. Summary of Significant Accounting Policies and Risk Factors - (Continued)
stock. This statement also applies to transactions in which an entity issues
its equity instruments to acquire goods or services from non-employees. Those
transactions must be accounted for based on the fair value of the
consideration received or the fair value of the equity instruments issued,
whichever is more reliably determinable. This statement is effective for
fiscal years beginning after December 15, 1995. The Company adopted the new
standard's disclosure requirements in 1996. The Company accounts for the
issuance of equity instruments to employees under APB Opinion No. 25 (see
related discussion at Note 16).
h. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
i. Organizational Costs
Costs incurred in organizing the Company are being amortized over a five year
period.
j. Fair Value of Financial Instruments
Management believes that it is not practicable to estimate the fair value of
the Company's notes payable as of December 31, 1996. Because of the Company's
deteriorating financial condition, the fair value as of such date may be
significantly less than the amounts at which the notes payable are carried.
k. Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under this statement, income tax liabilities
and assets are recognized at enacted tax rates for the expected future tax
consequences of temporary differences between carrying amounts and the tax
basis of assets and liabilities. A reserve is provided to reduce the tax
effect of deferred tax assets to estimated realizable value (see Note 9).
l. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
m. Net Loss Per Common and Common Equivalent Share
Net Loss per Common and Common Equivalent Share is based on the weighted
average number of Common and Common Equivalent Shares issued and outstanding
during the period of 1,599,212 and 1,202,540 for 1996 and 1995, respectively.
Net Loss per Common and Common Equivalent Share and weighted average number
of Common and Common Equivalent Shares retroactively reflect the
recapitalization of the Company's outstanding common shares on a
1,111.428-for-one basis effected in August 1996 and the conversion of all
outstanding shares of Convertible Preferred Stock into an aggregate of
389,000 shares of the Company's common stock ("Common Stock") effected in
October 1996.
2. INVENTORIES
As of December 31, 1996, inventories were comprised of the following:
Finished goods............................................. $ 95,088
Raw materials.............................................. 61,482
----------
$156,570
==========
Raw materials inventory consists of empty bottles, caps, labels and various
packaging and shipping materials. Finished goods inventory as of December 31,
1996 consists of the approximate cost of purchased direct materials and
direct labor. In 1996 the Company changed its finished goods inventory
costing policy to include the cost of direct labor. This change resulted in a
reduction of 1996 Cost of Sales of approximately $9,000.
F-9
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1996
3. PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
Leasehold improvements .................................. $ 156,004
Assets under capital lease .............................. 194,226
Machinery and equipment ................................. 203,232
---------
553,462
Less: Accumulated depreciation and amortization .......... (112,110)
---------
$ 441,352
=========
Depreciation and amortization expense for the years ended December 31, 1996
and 1995 was $62,265 and $49,780, respectively, and is reflected in General
and Administrative Expenses in the accompanying financial statements.
Accumulated amortization of assets under capital lease was approximately
$55,000 at December 31, 1996.
4. NOTES PAYABLE
Notes Payable are summarized as follows:
Bridge financing notes payable .......................... $1,500,000
Less: Unamortized original issue discount ................ (145,833)
----------
Bridge financing notes payable, net ................... 1,354,167
Private investor borrowing ............................ 100,000
Bank note payable ..................................... 13,394
----------
$1,467,561
==========
BRIDGE FINANCING NOTES PAYABLE
On October 10, 1996, the Company successfully completed a private bridge
financing (the "Bridge Financing"), consisting of (i) an aggregate of $1.5
million of unsecured promissory notes ("Bridge Notes") of the Company bearing
interest at the rate of 10 percent per annum (the principal balance and
accrued interest of which is due and payable on the earlier of (a) the
closing of the sale of securities or other financing of the Company from
which the Company receives gross proceeds of at least $2 million or (b) one
year from the date of issuance), and (ii) an aggregate of 750,000 warrants
("Bridge Warrants") of the Company, each warrant entitling the holder thereof
to purchase one share of Common Stock, at an exercise price of $1.50 per
share, subject to adjustment under certain circumstances, during the
thirty-six month period commencing October 10, 1997. The Bridge Warrants do
not confer upon the holders thereof any voting or other rights of a
stockholder of the Company. In the event that the Company consummates an
initial public offering of its securities (See Note 17) prior to the last day
on which the Bridge Warrants may be exercised and such IPO includes warrants
("Public Warrants") to purchase shares of Common Stock, each Bridge Warrant
which is then unexercised will automatically, without any action by the
holder thereof be converted into a new Public Warrant exercisable to purchase
the same number of shares of Common Stock as are then purchasable pursuant to
the Bridge Warrant but otherwise having terms identical to those of the
Public Warrants, including, but not limited to, the anti-dilution provisions
and the exercise price thereof which, in all likelihood, will be higher than
the exercise price of the Bridge Warrants. The Bridge Warrants were valued by
the Company at $187,500 in the aggregate and this amount was recorded as
original issue discount ("OID") in October 1996. The OID is being amortized
to interest expense over the one- year term of the Bridge Notes. In 1996, the
Company recorded approximately $42,000 of amortization expense related to
this OID.
F-10
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1996
4. Notes Payable - (Continued)
The Company also issued 150,000 warrants (the "Placement Agent Warrants") to
Joseph Stevens & Company, Inc., the placement agent for the Bridge Financing
("Placement Agent"). Each Placement Agent Warrant is exercisable to purchase
one share of Common Stock at an exercise price of $1.50 per share, subject to
adjustment under certain circumstances, and expiring on October 10, 2001. In
the event that the Company successfully completes an IPO within one year of
the date of the Bridge Financing and the Placement Agent is the managing
underwriter of such IPO, the Placement Agent Warrants will be canceled. Since
the Company anticipates completing an IPO in March 1997, no value has been
assigned to the Placement Agent Warrants.
Direct costs of completing the Bridge Financing totaled approximately
$369,000 and are reflected as Deferred Charges and Other, net of accumulated
amortization. Included in these costs are Placement Agent commissions and
expense reimbursements of approximately $202,000. These direct costs are
being amortized to interest expense over the one-year term of the Bridge
Notes. In 1996, the Company recorded approximately $82,000 of amortization
expense related to these costs.
The effective interest rate (to maturity) on the Bridge Notes, including
amortization of OID and direct costs is approximately 47 percent. The Company
expensed approximately $33,000 of interest on the Bridge Notes in 1996 and has
paid no interest to date. The Company anticipates completing an IPO in March
1997 and expects to use a portion of the IPO proceeds to repay the principal and
accrued interest on the Bridge Notes.
PRIVATE INVESTOR BORROWING
In May 1996, the Company entered into a $100,000 subordinated, unsecured note
agreement with a private investor (the "Investor"). Such note bears interest
at 12 percent per annum and is due in one year. The Company expensed
approximately $7,400 of interest in 1996 and has paid no interest to date on
such note. The Company plans to repay the principal and accrued interest
on such note with a portion of the IPO proceeds.
The Investor also received a common stock purchase warrant ("Investor
Warrant") to purchase 24,351 shares of Common Stock at a total exercise price
of approximately $.22. The Investor Warrant is exercisable at any time during
a period of five years commencing May 1996. The Company has determined that
the value of the Investor Warrant is not material to the Company's financial
statements. As such, no amounts have been recorded related to the Investor
Warrant.
BANK NOTE PAYABLE
In November 1996, the Company borrowed $13,750 from a bank, bearing interest
at the bank's prime rate (as defined) plus 2.5 percent (10.75 percent at
December 31, 1996) and due in monthly installments of principal and interest
through October 6, 1999. The proceeds of the note were used to purchase
certain equipment. The loan is collateralized by a passbook savings account
with a balance of approximately $14,500 at December 31, 1996. Interest
accrued and paid during 1996 was not significant.
5. RELATED PARTY TRANSACTIONS
In 1995, the Company purchased water purification machinery for $25,000 from
a business controlled by the Company's President.
The Company's President and Secretary are owners of a principal stockholder
of the Company. In addition to the amounts accrued, the Company paid total
salaries to these individuals of approximately $126,000 in 1996 and $102,000
in 1995. These expenses are reflected in General and Administrative Expenses
in the accompanying financial statements. In August 1995, the Company's
Secretary orally agreed to defer payment of his salary, until the Company
achieves break-even, as defined. The Company continued to accrue and defer
payment of the Secretary's salary until his resignation as an executive
officer in September 1996. This amount is reflected as Deferred Compensation
in the accompanying balance sheet.
The Company leases its bottling facility and surrounding property, including
the water source and pumping equipment from a principal stockholder, under a
long-term lease (see Note 10.b.).
F-11
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1996
6. NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties are as follows:
Notes payable to shareholders ............................ $407,715
Note payable to affiliate ............................... 50,000
Preferred dividend notes ................................ 38,678
---------
$496,393
=========
NOTES PAYABLE TO SHAREHOLDERS
In April through August 1996, three stockholders collectively loaned the
Company $407,715 on an unsecured basis, bearing interest at 12 percent and
due on April 12, 1997. The Company plans to repay the principal and accrued
interest with the proceeds from the planned IPO. The Company expensed
approximately $31,000 of interest in 1996 and has made no payments to date.
NOTE PAYABLE TO AFFILIATE
In May 1995, the Company borrowed $100,000 on an unsecured basis from a
business in which the Company's Secretary is the president and a stockholder.
The interest rate on this note is 12 percent, interest is due monthly and
principal was originally due on June 24, 1995. The note is currently past due
and a demand for payment has been made. The note is guaranteed by certain of
the Company's directors and an affiliate. In October 1996, the Company paid
$50,000 of the principal and approximately $12,000 of accrued interest to
date on the note with the proceeds from the Bridge Financing. The Company
plans to repay the balance of the note with the proceeds from the planned
IPO. Total interest expense on this note was $11,000 in 1996.
PREFERRED DIVIDEND NOTES
Concurrent with the closing of the Bridge Financing, the holders of the then
outstanding Convertible Preferred Stock converted all such shares to Common
Stock. Each share of Convertible Preferred Stock was converted into one share
of Common Stock on a pre-split basis (or 1,111.428 shares post-split). The
cumulative dividends payable to preferred stockholders (approximately $39,000
at the date of conversion, or approximately $0.10 per share) were declared
and paid in the form of promissory notes bearing interest at 8 percent. The
principal and accrued interest on these notes are due at such time as (i) the
Board of Directors of the Company determines that the Company is able to pay
its debts as they become due in the usual course of business and (ii) the
Company's total assets are at least equal to the sum of its total liabilities
and the maximum amount that would then be payable, in any liquidation, in
respect of any outstanding shares having preferential rights in liquidation.
The Company plans to repay the principal of these notes and accrued interest
thereon with proceeds from the planned IPO. Interest expense on these notes
was not significant in 1996.
7. BANK LOAN
In October 1996, the Company repaid a $300,000 bank loan and accrued interest
with the proceeds of the Bridge Financing. The loan had an interest rate of
prime plus 2 percent and was originally due in March 1996.
The Company expensed approximately $24,000 of interest in 1996 and $53,000 in
1995 related to this loan. Interest payments on the bank loan for the years
ended December 31, 1996 and 1995 were approximately $30,000 and $46,000,
respectively.
8. PAST DUE LIABILITIES
Approximately $215,000 of the Company's accounts payable (representing amounts
greater than 30 days past the respective vendors' invoice date) and a $50,000
Note Payable to Affiliate were past due as of December 31, 1996.
F-12
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1996
9. INCOME TAXES
Certain items of expense are recognized in different periods for income tax
purposes than for financial reporting purposes.
As of December 31, 1996, the Company had approximately $1,960,000 of net
operating loss (NOL) carryforwards available to reduce future taxable income.
These NOL carryforwards expire on various dates through 2011. The major
temporary differences as of December 31, 1996, primarily relate to inventory
costs capitalized for tax purposes and certain accrued liabilities not
currently deductible for tax purposes.
The deferred tax asset as of December 31, 1996 consisted of the following:
Net operating loss carryforward ......................... $ 784,000
Inventory costs capitalized for tax purposes ............ 29,000
Accrued liabilities not deductible for tax purposes 13,000
Other ................................................... 2,000
----------
828,000
Valuation allowance ..................................... (828,000)
----------
Net deferred tax asset .................................. $ --
==========
Due to the uncertainty of its future realization, the net deferred tax asset
has been fully reserved. The Company recorded valuation allowances of
$499,000 and $297,000 for the years ended December 31, 1996 and 1995,
respectively. Upon the close of the planned initial public offering, the
Company will be subject to Internal Revenue Code Section 382 which will limit
the Company's ability to utilize net operating losses generated prior to the
closing.
The Company paid no taxes and had no net deferred or current tax
provision/benefit for the years ended December 31, 1996 and 1995.
10. COMMITMENTS AND CONTINGENCIES
a. Capital Lease Obligations
The Company leases machinery and equipment under capital leases which expire
on various dates through April 2000.
As of December 31, 1996, future minimum payments were as follows:
1997 .................................................... $ 49,998
1998 .................................................... 49,998
1999 .................................................... 46,231
2000 .................................................... 1,198
---------
Total Future Minimum Payments ........................... 147,425
Less -- Amount Representing Interest .................. 21,685
---------
Total Capital Lease Obligations ......................... 125,740
Less -- Current Portion .............................. 38,264
---------
Noncurrent Portion ...................................... $ 87,476
=========
These capital leases are guaranteed by certain of the Company's directors and
an affiliate.
F-13
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1996
10. Commitments and Contingencies - (Continued)
b. Operating Lease Obligations
The Company leases its bottling facility and surrounding property, including
the water source and pumping equipment from a principal stockholder, under a
50 year lease. The lease can be renewed at the Company's option for an
additional 50 years.
In July 1996, the lease was amended to establish base rent at $2,000 per
month and percentage rent at two percent of net annual sales, as defined,
provided that net sales are at least $1,700,000.
In July 1996, the lease was further amended to include the following
provisions, effective concurrent with the closing of the Bridge Financing
(see Note 4):
o Rent is the greater of $5,000 per month (Base Rent), adjusted every five
years based upon changes in the consumer price index in Hawaii, as
defined, or two percent of the Company's gross revenue, as defined.
o The lease entitles the Company to exclusive use of the water source,
except that the lessor may draw up to 50 percent of the water flow for use
in beverage production other than the sale of natural water.
Based on the terms of the amended lease, the future minimum lease payments as
of December 31, 1996 were as follows:
1997 .................................................... $ 60,000
1998 .................................................... 60,000
1999 .................................................... 60,000
2000 .................................................... 60,000
2001 .................................................... 60,000
Thereafter .............................................. 2,622,000
----------
$2,922,000
==========
The Company paid approximately $34,000 and $23,000 in lease payments in 1996
and 1995, respectively, which is reflected in General and Administrative
Expenses in the accompanying financial statements.
In October 1996, the Company vacated its former office space and entered into
a three-year office and warehouse lease in Honolulu. Monthly rental payments
are $3,000 for the initial term with a renewal option. The Company subleases
a portion of the leased premises to an unrelated beverage company for $250
per month, on a month- to-month basis.
c. Insurance
The Company maintains the following insurance coverages:
o General Liability -- $2,000,000 aggregate and $1,000,000 each occurrence.
o Property -- all risk of physical damage and loss, excluding earthquake and
flood up to $706,000 ($35,000 deductible).
o Executive Life Insurance -- $1,000,000 whole life policy for the President
of the Company, purchased in December 1996.
The Company also maintains minimum worker's compensation coverage and ocean
marine cargo insurance written on the value of each shipment. The Company has
an equipment floater policy. The Company does not maintain coverages for
foreign liability, business interruption, earthquake and flood, or mechanical
breakdown. The Company plans to obtain errors and omissions insurance
coverage for its directors and officers.
F-14
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1996
11. SIGNIFICANT CUSTOMERS AND SUPPLIERS
In 1995, approximately 81 percent of the Company's sales were made through a
Hawaii distribution company. In 1996, this distributor was acquired by a
major beer manufacturer which terminated distribution of all non- beer
products. In June 1996, the Company negotiated an oral agreement with a new
distribution company in Hawaii. For the year ended December 31, 1996,
approximately 64 percent of the Company's sales were made through these two
Hawaii distributors.
Prior to July 1996, the Company imported all of its bottles from a
single-source supplier. In July 1996, the Company began to purchase bottles
from a vendor which installed bottle-making equipment at the Company's
production facility. Pursuant to a Blow Molding Agreement with this vendor,
the Company is committed to purchase a minimum of $750,000 of bottles per
year, as defined, for three years. The Agreement automatically renews for a
one year term, unless terminated. In June 1996, in order to obtain the best
price available the Company placed its initial order for 10,000,000 bottles,
calling for aggregate payments of $1,825,000 during the first year of the
contract. The Company expects to fund these bottle purchases out of revenue
from operations, since bottles are only ordered when needed. In the event
that the Company fails to order the minimum number of bottles called for by
its initial purchase order, the Company will lose the volume discount which
would otherwise be applicable, but will not be subject to any other penalty.
The Company has agreed in principle to purchase the bottling equipment
subject to the Blow Molding Agreement for $1.2 million, with payment over 5
years. If such purchase is consummated, the Company will use up to $375,000
of the net proceeds of the planned IPO as an initial payment toward such
purchase. However, there can be no assurance that this purchase will be
completed.
In July 1996, an officer of this vendor was appointed a director of the
Company.
12. SALES RETURNS
During 1995, the Company sold approximately $133,000 (13,000 cases) of
product to a Japanese importer (the "Importer"). A portion of this shipment
was rejected by the Importer due to dust particle contamination from labels,
the cause of which the Company subsequently identified and corrected. The
Importer returned 8,000 cases in 1995 to the Company and the Company reversed
approximately $83,000 of sales and credited the customer for the returned
product. The Company resold the majority of the product in the first quarter
of 1996 at the Company's approximate cost of $43,000. In connection with the
return of these goods, the Company was required to pay various freight,
storage and customs charges related to these shipments totaling approximately
$67,000. Approximately $33,000 of this amount is reflected in Trade Accounts
Payable at December 31, 1996. In July 1996, the Company received a credit of
approximately $26,000 from the manufacturer of its labels in settlement of the
dust particle contamination issue. This credit was applied to past due accounts
payable to the manufacturer.
There were no significant sales returns in 1996.
13. FOREIGN SALES
The Company sells its product directly to foreign distributors. All sales are
made in U.S. dollars. Export sales to Asia and the Pacific Islands for the
years ended December 31, 1996 and 1995 were approximately $146,000 and
$80,000, respectively (net of Japan sales returns of approximately $83,000 in
1995 as discussed in Note 12 above).
F-15
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1996
14. CONSULTING AGREEMENTS
a. Financial Advisor
In October 1995, the Company entered into a consulting agreement with a
financial advisor (the "Advisor") for a 12 month term. The Advisor was
engaged to evaluate the Company's capital structure and requirements, to
evaluate potential acquisition or joint venture candidates and to provide
other strategic planning services to the Company. The Advisor's fee was
$120,000 for the term of the agreement, payable in installments, as defined,
through January 1997. The Company recorded $100,000 and $20,000 of consulting
expense during 1996 and 1995, respectively, which is reflected in General and
Administrative Expenses in the accompanying financial statements. The Company
paid $45,000 to the Advisor in 1996. The Company plans to repay the remaining
amounts owed to the Advisor with a portion of the proceeds of the planned
IPO.
b. Sales Representatives
In 1995, the Company entered into an agreement with an individual to be the
Company's exclusive sales agent (the "Agent") for the Western Region of the
United States. The Company paid the Agent a fee of $2,000 per month
commencing June 1995. In June 1996, the fee was increased to $4,000 per month
and the Agent became a Vice President of the Company.
In 1996 the Company entered into certain other sales agent agreements with
individuals, covering periods of up to one year. At December 31, 1996, the
Company was committed to pay an aggregate of approximately $30,000 to these
agents over the remaining initial term of their agreements. Certain of these
agreements provide for reimbursement to the agents for travel, lodging and
communication expenses and also provide for additional compensation in the
form of sales commissions ranging from 2.5 to 3 percent of sales (as defined)
and bonus payments ranging from $500 to $1,000 for each new distribution
agreement entered-into (as defined). The Company paid approximately $13,000
in 1996 to these agents, which is reflected in Selling and Marketing expense.
Effective November 1, 1996 the Company engaged the landlord of the Company's
Honolulu warehouse and office space as a sales representative for a one year
term. The Company has agreed to pay the landlord $2,000 per month for the first
5 months and $1,000 per month for the remainder of the term of the agreement.
The landlord is also entitled to a 3 percent commission on sales (as defined).
The Company paid approximately $4,000 in 1996 to the landlord pursuant to this
agreement.
c. Marketing Consultant
In July 1996, the Company engaged an outside marketing consultant to develop
a marketing plan for the Company. The marketing consultant's fee was
approximately $25,000 with payment terms of 75 percent payable in cash and 25
percent payable in stock options if the planned initial public offering is
successful, otherwise the total fee is payable in cash. In 1996, the Company
recognized $25,000 of Sales and Marketing Expense and paid the consultant
$11,250.
d. Advertising Consultant
On July 31, 1996 the Company entered into a one year agreement with an
advertising consultant (the "Consultant"). The Consultant's fee is $5,000 per
month. The agreement also provides that the Company, at its discretion, may
grant the Consultant stock options. The amount, exercise price, expiration
date and other attributes of options to be granted are at the Company's
discretion. No options have been granted to the Consultant to date. In August
1996, the Consultant was appointed a Director of the Company.
15. EMPLOYMENT AGREEMENT
In August 1996, the Company entered into a 5-year employment agreement (the
"Employment Agreement") with its President. The Employment Agreement was
effective concurrent with the closing of the Bridge Financing and is subject
to automatic renewal for successive one-year periods thereafter unless
terminated by either party upon written notice, as defined. The major
provisions of the Employment Agreement are as follows:
F-16
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1996
15. Employment Agreement - (Continued)
o Annual salary of $150,000.
o Bonus of up to $100,000 based upon the attainment of certain performance
goals to be determined by the Board of Directors.
o Options to purchase 150,000 shares of the Company's stock (post-split)
granted immediately prior to the closing of the Bridge Financing at an
exercise price equal to the initial public offering price, subject to
certain adjustments as defined. One-third of these options will become
vested on each of the first, second and third anniversaries of the date of
the Employment Agreement, provided the Employment Agreement is still in
effect.
o Covenant not to compete with the Company in the sale of natural water for
a period of two years following termination of the Employment Agreement.
16. STOCK OPTIONS
In 1996, the Company reserved an aggregate of 1,000,000 shares of Common
Stock for issuance upon the exercise of stock options which may be granted
from time to time to directors, officers, employees and consultants of the
Company. The Company accounts for such options issued to employees under APB
Opinion No. 25, under which no compnsation cost has been recognized.
In October 1996 and January 1997, the Company granted to its President and
Chief Financial Officer (respectively) 150,000 and 75,000 5-year options to
purchase the Company's common stock at an exercise price equal to the IPO
price (expected to be $4 per share), subject to adjustment. Had compensation
cost for this plan been determined consistent with FASB Statement No. 123,
the Company's net loss and net loss per common and equivalent share would not
have been materially impacted in 1996.
As of December 31, 1996 no options were vested, exercised, forfeited or
expired. The Company has determined that the fair value of the options
granted is approximately $550,000. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions used for the grants:
risk-free interest rate of 6.37 percent, expected dividend yield of zero,
expected life of 5 years and expected volatility of 66 percent. Management
believes that the fair value results from using Black-Scholes may not be
indicative of the Company's economic cost of issuing stock options to its
executives.
17. INITIAL PUBLIC OFFERING
In May 1996, the Company received a Letter of Intent from an underwriter (the
"Underwriter") to act as the Managing Underwriter in connection with the
proposed IPO of units ("IPO Units") each consisting of one share of Common
Stock and one Public Warrant issued by the Company. It is contemplated that
the Underwriter will underwrite, on a firm commitment basis, 2,000,000 IPO
Units expected to result in aggregate gross proceeds of $8 million. The
Underwriter also has the option to purchase up to an additional 300,000 IPO
Units from the Company to cover any over-allotments for a period of
forty-five days from the date of the Registration Statement.
Each Public Warrant is expected to be exercisable to purchase one share of
Common Stock at a price per share equal to 150 percent of the IPO price per
Unit, subject to adjustment, and will expire 5 years after the date of
issuance. Commencing 12 months after the effective date of the proposed IPO,
with the consent of the Underwriter, the Company shall have the right to
redeem all, but not less than all, of the Public Warrants at a price equal to
five cents per Public Warrant, subject to certain conditions.
Upon the closing of the IPO, the Company has agreed to issue and sell to the
Underwriter 5-year warrants to purchase such number of Units equal to 10
percent of the IPO Units at a price of $.0001 per warrant. Each warrant may
be exercised at any time during a period of four years commencing at the
beginning of the second year after their issuance and sale, to purchase one
Unit at an exercise price equal to 165 percent of the IPO price per Unit.
F-17
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1996
17. Initial Public Offering - (Continued)
In 1996, the Company incurred approximately $153,000 of professional fees and
other costs related to the IPO which have been recorded as Deferred Charges
and Other in the accompanying financial statements. Upon the closing of the
IPO, these costs will be recorded in Common Stock, net of the proceeds of the
IPO.
18. RECAPITALIZATION
In July 1996, the Company increased the number of authorized shares of Common
Stock to 20,000,000. In August 1996, the Company effected a 1,111.428 for 1
Common Stock split. In October 1996, the Company increased the number of
authorized shares of Preferred Stock to 5,000,000 and changed the par value
to $1. As discussed in Notes 1 and 6, in October 1996 all then outstanding
shares of the Company's Convertible Preferred Stock were converted to an
aggregate of 389,000 shares of Common Stock. The accompanying statements of
stockholders' deficit give retroactive effect to this recapitalization.
19. SUBSEQUENT EVENT -- ADDITIONAL SHAREHOLDER LOANS
In February 1997, certain shareholders loaned the Company an aggregate of
$75,000, bearing interest at 12 percent and due on the earlier of April 12,
1997 or upon the successful closing of any public offering of equity
securities of the Company occurring prior to the maturity date with an
aggregate price to investors in such offering in excess of $2,000.000.
F-18
<PAGE>
===============================================================================
No underwriter, dealer, sales representative, or any other person has been
authorized to give any information or to make any representation in
connection with this Offering other than those contained in this Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company, any Selling Securityholder or
any of the Underwriters. This Prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any of the securities offered hereby by
any person in any jurisdiction where such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to anyone to whom it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company since the date hereof or
that the information contained herein is correct as of any time subsequent to
the date hereof.
------
TABLE OF CONTENTS
Page
------
Prospectus Summary ........................ 4
Risk Factors .............................. 8
The Company ............................... 14
Use of Proceeds ........................... 15
Dividend Policy ........................... 16
Capitalization ............................ 17
Dilution .................................. 18
Selected Financial Data ................... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................... 20
Business .................................. 24
Management ................................ 31
Principal Stockholders .................... 35
Selling Securityholders ................... 36
Certain Transactions ...................... 38
Description of Capital Stock .............. 39
Securities Eligible for Future Sale ....... 41
Underwriting .............................. 42
Legal Matters ............................. 44
Experts ................................... 44
Available Information ..................... 44
Index to Financial Statements ............. F-1
Until , 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligations of dealers to
deliver a Prospectus when acting as Underwriters and with respect to their
unsold allotments or subscriptions.
===============================================================================
<PAGE>
===============================================================================
[LOGO] consisting of a pink orchid superimposed on a blue, green and white
rectangular background with the following text "BOTTLED AT THE SOURCE" appearing
above the rectangle and "MAUNA LOA VOLCANO HAWAIIAN SPRINGS (TM) NATURAL
ARTESIAN WATER" appearing below the rectangle.
HAWAIIAN NATURAL
WATER COMPANY, INC.
2,000,000 UNITS
------
PROSPECTUS
------
JOSEPH STEVENS & COMPANY, INC.
, 1997
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article IX of the Registrant's Articles of Incorporation provides as
follows:
(a) The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any proceeding (other than an action by or
in the right of the corporation) if that person is or was a director,
officer, employee or other agent of the corporation (individually and/or
collectively referred to as "agent"), against expenses, judgments, fines,
settlement, and other amounts actually and reasonably incurred in connection
with the proceeding if the person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal proceeding, and no
reasonable cause to believe the conduct of the person was unlawful. The
termination of any proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contenders or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which the person reasonably believed to be in or not opposed to the
best interests of the corporation, or that the person had reasonable cause to
believe that the person's conduct was unlawful.
(b) The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action
by or in the right of the corporation to procure a judgment in its favor
because that person is or was an agent of the corporation, against expenses
actually and reasonably incurred by the person in connection with the defense
or settlement of the action if the person acted in good faith and in a manner
the person reasonably believed to be in or not opposed to the best interests
of the corporation; except that no indemnification shall be made in respect
of any claim, issue, or matter as to which the person shall have been
adjudged to be liable for negligence or misconduct in the performance of the
person's duty to the corporation unless and only to the extent the court in
which the action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all circumstances of the
case, the person is fairly and reasonably entitled to indemnity for such
expenses as the court deems proper.
(c) To the extent that an agent has been successful on the merits or
otherwise in defense of any proceeding referred to in subsection (a) or (b),
or in defending any claim, issue, or matter therein, the agent shall be
indemnified by the corporation against expenses actually and reasonably
incurred by the agent in connection therewith.
(d) Any indemnification under subsection (a) or (b) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the agent is proper in the circumstances because the agent
has met the applicable standard of conduct set forth in subsection (a) or
(b). The determination shall be made (1) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to the
proceeding, or (2) if a quorum is not obtainable, by independent legal
counsel in a written opinion, or (3) by the stockholders, or (4) by the court
in which the proceeding is or was pending upon application made by the
corporation or the agent or the attorney or other person rendering services
in connection with the defense, whether or not the application by the agent,
attorney, or other person is opposed by the corporation.
(e) Expenses incurred in defending any proceeding may be paid by the
corporation in advance of the final disposition of the proceeding upon
receipt of an undertaking by or on behalf of an agent of the corporation to
repay such amount unless it shall ultimately be determined that the agent is
entitled to be indemnified by the corporation as authorized in this Article.
(f) The indemnification provided by this Article shall not be deemed
exclusive of any other rights to which those indemnified may be entitled
under the By-Laws, or any agreement, vote of stockholders, or disinterested
directors or otherwise, both as to action in a person's official capacity and
as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be an agent and shall inure to the
benefit of the heirs and personal representatives of such a person.
(g) The corporation shall have the power to purchase and maintain
insurance on behalf of any agent of the corporation, against any liability
asserted against or incurred by the agent of the corporation in any such
capac
II-1
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1996
ity or arising out of the agent's status as such, whether or not the
corporation would have the power to indemnify the agent against such
liability under this Article. Any such insurance may be procured from any
insurance company designated by the Board of Directors, including any
insurance company in which the corporation shall have an equity or other
interest, through stock ownership or otherwise.
Article XI of the Registrant's Articles of Incorporation provides as
follows:
(a) No director of the corporation shall bear personal liability in any
action brought by the stockholders or the corporation for monetary damages
for a breach of fiduciary duty as a director, provided, however, that the
corporation shall not have the power to eliminate or limit the personal
liability of a director:
(1) For any breach of the director's duty of loyalty to the corporation or
its stockholders;
(2) For any act or omission of the director not performed in good faith,
or which involves intentional misconduct or knowing violation of law,
or which constitutes a wilful or reckless disregard of the director's
fiduciary duty:
(3) For the director's wilful or negligent violation of any provision of
the Hawaii Business Corporation Act regarding payment of dividends or
stock purchase or redemption; or
(4) For any transaction from which the director received an improper
benefit.
The Registrant maintains liability insurance on behalf of its officers and
directors. The Registrant has not entered into any indemnity agreements, and
has no indemnification arrangements, with any of its officers and directors
except as described above.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various estimated expenses in
connection with the sale and distribution of the securities registered
hereby, other than sales commissions and the non-accountable expense
allowance payable to the Underwriter:
Registration Fee ............................................ $ 8,334.00
NASD Fee .................................................... 3,250.00
NASDAQ Listing Fee .......................................... 10,000.00
Legal Fees and Expenses ..................................... 100,000.00
Blue Sky Fees and Expenses .................................. 45,000.00
Accounting Fees and Expenses ................................ 60,000.00
Printing and Engraving Expenses ............................. 80,000.00
Insurance Premium re Securities Act Liabilities .............. 40,000.00(1)
Transfer Agent's Fees and Expenses .......................... 2,500.00
Miscellaneous Expenses ...................................... 10,916.00
--------------
TOTAL ..................................................... $360,000.00
==============
All of the foregoing expenses will be borne by the Registrant. The Selling
Securityholders will not bear any of such expenses.
- ------
(1) Such insurance premium will be expensed over the period covered by the
policy. No such expense has been incurred to date.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant was initially capitalized in September 1994 through the
issuance of an aggregate of (i) 639,071 shares of Common Stock, no par value
("Common Stock"), to two investors in exchange for an aggregate of $51,000 in
cash and certain leasehold rights to the Registrant's bottling facility as
described in the Prospectus constituting Part I of this Registration
Statement (the "Prospectus") under the heading "Business-- Facilities," and
(ii) 350 shares of Convertible Preferred Stock, par value $666.67 per share
("Convertible Preferred Stock"), of which 200 shares were purchased by one
investor in exchange for $133,334 in cash and the remaining 150 shares were
purchased by another investor in exchange for a promissory note in the amount
of $100,000, which was paid in full in March 1995. In October 1995, all 350
shares of Convertible Preferred Stock then outstanding were converted into an
aggregate of 389,000 shares of Common Stock. The foregoing transactions were
exempt from registration under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to Section 4(2) thereof and the rules and
regulations thereunder ("Section 4(2)").
II-2
<PAGE>
Reference is made to the information contained in the Prospectus under the
heading "Certain Transactions," with respect to subsequent issuances of
additional debt and equity securities by the Registrant to its stockholders,
which information is incorporated herein by reference. All of such issuances
were exempt from registration under the Securities Act pursuant to Section
4(2).
In May 1996, the Registrant issued a promissory note for $100,000,
together with a warrant to purchase an aggregate of 24,351 shares of Common
Stock at an exercise price of $.000009 per share, to Leisure Fund Associates,
L.P. in exchange for $100,000 in cash. Such issuance was exempt from
registration under the Securities Act pursuant to Section 4(2).
Reference is made to the information contained in the Prospectus under the
heading "The Company-- Recent Bridge Financing," with respect to a $1,500,000
Bridge Financing (as defined therein) consummated by the Registrant in
October 1996, which information is incorporated herein by reference. The
Bridge Financing was exempt from registration under the Securities Act
pursuant to Section 4(2), including pursuant to Regulation D promulgated
thereunder, because the securities offered in the Bridge Financing (the
"Bridge Securities") were offered only to a limited number of qualified
investors; were sold only to "accredited investors" as defined in Regulation
D; were not offered or sold by means of any public solicitation or
advertising; and all purchasers to whom the Bridge Securities were sold
represented in writing to the Company that they were purchasing same for
their own account, for investment and not with a view to any resale or
distribution thereof.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
----------- -----------------
<S> <C>
1.1 Form of Underwriting Agreement*
3.1 Articles of Incorporation, as amended, of the Registrant
3.2 By-Laws, as amended, of the Registrant
4.1 Specimen Stock Certificate for the Registrant's Common Stock
4.2 Form of Warrant Agreement between the Registrant and Continental Stock Transfer and Trust Company,
as Warrant Agent*
4.3 Form of Underwriter's Warrant Agreement between the Registrant and Joseph Stevens & Company, L.P, including
form of Underwriter's Warrant Certificate*
4.4 Specimen Redeemable Warrant Certificate
4.5 Form of Bridge Warrant*
4.6 Form of Lock-Up Agreement between the Underwriter and each of the Selling Securityholders
5.1 Opinion of Graham & James LLP
10.1 Lease Agreement dated October 3, 1994, as amended, between the Registrant as Lessee and Hawaii Brewery
Development Co., Inc. as Lessor*
10.2 Blow Molding Agreement dated December 1, 1995, between the Registrant and Bottles Packaging, Inc.*
10.3 Financing Agreement dated March 31, 1995, between the Registrant and First Hawaiian Bank*
10.4 Master Lease Agreement No. A2500, dated December 8, 1994 between the Registrant and First Hawaiian
Leasing and related agreements*
10.5 Employment Agreement, dated October 10, 1996, between the Registrant and Marcus Bender*
10.6 Stock Option Agreement, dated October 10, 1996, between the Registrant and Marcus Bender*
10.7 Form of Financial Advisory and Consulting Agreement between the Registrant and Joseph Stevens & Company,
L.P.*
10.8 Form of Bridge Note*
10.9 Form of Promissory Note evidencing an aggregate of $407,715 in principal amount of indebtedness of
the Registant to certain of its affiliates*
10.10 Promissory Note dated May 24, 1995 in the original principal amount of $100,000 payable by the Registant
to Inter Island Petroleum, Inc.
10.11 Letter Agreement dated August 1, 1996 between the Registrant and com.com Inc.
10.12 Form of Promissory Note evidencing an aggregate of $75,000 in principal amount of indebtedness of the
Registrant to certain of its affiliates
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Graham & James LLP (Included in Exhibit 5.1 hereto)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
----------- -----------------
<S> <C>
24.1 Power of Attorney*
27.1 Financial Data Schedule as of September 30, 1996*
27.2 Financial Data Schedules as of December 31, 1995 and
December 31, 1996
</TABLE>
- ------
* Filed previously.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made
pursuant to Rule 415 under the Securities Act, a post-effective amendment to
this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events which, individually
or in the aggregate, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in the total dollar value of securities offered, if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission (the "Commission") pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
The Registrant will provide to the underwriter for the offering at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 24 above, or
otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The Registrant will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant under Rule 424(b)(1), or (4) or 497(h)
under the Act as part of this registration statement as of the time the
Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and the offering of the securities at that time as the initial
bona fide offering of those securities.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this amendment
to registration statement to be signed on its behalf by the undersigned in
the City of Honolulu, State of Hawaii on March 5, 1997.
HAWAIIAN NATURAL WATER COMPANY, INC.
By: /s/ MARCUS BENDER
------------------------------------
Marcus Bender
President & Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
------------------------- ---------------------------------------------------- ---------------
<S> <C> <C>
/s/ MARCUS BENDER President and Chief Executive Officer and Director March 5, 1997
- ------------------------ (Principal Executive Officer)
Marcus Bender
/s/ MARC MIYAHIRA Chief Financial Officer (Principal Financial and March 5, 1997
- ------------------------ Accounting Officer)
Marc Miyahira
* Director March 5, 1997
- ------------------------
Brian Barbata
* Director March 5, 1997
- ------------------------
John Mayo
* Director March 5, 1997
- ------------------------
Michael Chagami
* Director March 5, 1997
- ------------------------
Nathan Keller
* Director March 5, 1997
- ------------------------
Alexander Brody
</TABLE>
*By: /s/ MARCUS BENDER
---------------------
Marcus Bender
Attorney-in-fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
1.1 Form of Underwriting Agreement*
3.1 Articles of Incorporation, as amended, of the Registrant
3.2 By-Laws, as amended, of the Registrant
4.1 Specimen Stock Certificate for the Registrant's Common Stock
4.2 Form of Warrant Agreement between the Registrant and Continental Stock Transfer and Trust Company, as
Warrant Agent*
4.3 Form of Underwriter's Warrant Agreement between the Registrant and Joseph Stevens & Company, L.P, including
form of Underwriter's Warrant Certificate*
4.4 Specimen Redeemable Warrant Certificate
4.5 Form of Bridge Warrant*
4.6 Form of Lock-Up Agreement between the Underwriter and each of the Selling Securityholders
5.1 Opinion of Graham & James LLP
10.1 Lease Agreement dated October 3, 1994, as amended, between the Registrant as Lessee and Hawaii Brewery
Development Co., Inc. as Lessor*
10.2 Blow Molding Agreement dated December 1, 1995, between the Registrant and Bottles Packaging, Inc.*
10.3 Financing Agreement dated March 31, 1995, between the Registrant and First Hawaiian Bank*
10.4 Master Lease Agreement No. A2500, dated December 8, 1994 between the Registrant and First Hawaiian Leasing
and related agreements*
10.5 Employment Agreement, dated October 10, 1996, between the Registrant and Marcus Bender*
10.6 Stock Option Agreement, dated October 10, 1996, between the Registrant and Marcus Bender*
10.7 Form of Financial Advisory and Consulting Agreement between the Registrant and Joseph Stevens & Company,
L.P.*
10.8 Form of Bridge Note*
10.9 Form of Promissory Note evidencing an aggregate of $407,715 in principal amount of indebtedness of the
Registant to certain of its affiliates*
10.10 Promissory Note dated May 24, 1995 in the original principal amount of $100,000 payable by the Registant
to Inter Island Petroleum, Inc.
10.11 Letter Agreement dated August 1, 1996 between the Registrant and com.com Inc.
10.12 Form of Promissory Note evidencing an aggregate of $75,000 in principal amount of indebtedness of the
Registrant to certain of its affiliates
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Graham & James LLP (Included in Exhibit 5.1 hereto)
24.1 Power of Attorney*
27.1 Financial Data Schedule as of September 30, 1996*
27.2 Financial Data Schedules as of December 31, 1995 and December 31, 1996
</TABLE>
- ------
* Filed previously.
<PAGE>
Nonrefundable Filing Fee: $50.00 DOMESTIC PROFIT
General Amendment
Submit Original and
One True Copy
STATE OF HAWAII
DEPARTMENT OF COMMERCE AND CONSUMER AFFAIRS
Business Registration Division
1010 Richards Street
Mailing Address: P.O. Box 40, Honolulu, Hawaii 96810
ARTICLES OF AMENDMENT
(Section 415-61, Hawaii Revised Statutes)
PLEASE TYPE OR PRINT LEGIBLY IN BLACK INK
The undersigned, duly authorized officers of the corporation submitting
these Articles of Amendment, certify as follows:
1. The name of the corporation is:
HAWAIIAN NATURAL WATER COMPANY, INC.
---------------------------------------------------------------------------
2. The Amendment(s) adopted are attached to these Articles of Amendment
(see page 2).
3. The total number of shares outstanding is: 1,599,212 common, O preferred
---------------------------------
4. If adoption of the amendment(s) was at a meeting, complete the following:
The meeting of the shareholders was held on________________________________
(Month Day Year)
- --------------------------------------------------------------------------------
Class/Series Number of Shares Voting Number of Shares Voting
For Amendment Against Amendment
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. If adoption of the amendment(s) was by unanimous consent, complete the
following:
By written consent dated February 3, 1997
-----------------
(Month Day Year)
the shareholders unanimously adopted the amendment(s).
6. If the amendment(s) provides for any exchange, reclassification, or
cancellation of issued shares, attach a statement describing the manner in
which the exchange, reclassification, or cancellation shall be effected.
Not applicable
----------------------------------------------------------------------------
We certify under the penalties of Section 415-136, Hawaii Revised Statutes, that
we have read the above statements, and that the same are true and correct.
Witness our hands this 4th day of February, 1997
Marcus I. Bender, President Tate Robinson, Vice President
(Type/Print Name & Title) (Type/Print Name & Title)
/s/ Marcus I. Bender /s/ Tate Robinson
-------------------- ---------------------
(Signature of Officer) (Signature of Officer)
Signatures must be in black ink.
Articles must be signed by two individuals who are officers of the corporation.
(See Reverse Side For Instructions)
D1-7
Rev. 7/96 B14 (Fee)
<PAGE>
ATTACHMENT TO ARTICLES OF AMENDMENT
of
HAWAIIAN NATURAL WATER COMPANY, INC.
1. ARTICLE IX of the Articles of Incorporation is hereby amended and
restated in its entirety as follows:
(a) The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any proceeding (other than an action by
or in the right of the corporation) if that person is or was a director,
officer, employee or other agent of the corporation (individually and/or
collectively referred to as "agent"), against expenses, judgments, fines,
settlement, and other amounts actually and reasonably incurred in
connection with the proceeding if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal
proceeding, and no reasonable cause to believe the conduct of the person
was unlawful. The termination of any proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed
to be in or not opposed to the best interests of the corporation, or that
the person had reasonable cause to believe that the person's conduct was
unlawful.
(b) The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed
action by or in the right of the corporation to procure a judgment in its
favor because that person is or was an agent of the corporation, against
expenses actually and reasonably incurred by the person in connection with
the defense or settlement of the action if the person acted in good faith
and in a manner the person reasonably believed to be in or not opposed to
the best interests of the corporation; except that no indemnification
shall be made in respect of any claim, issue, or matter as to which the
person shall have been adjudged to be liable for negligence or misconduct
in the performance of the person's duty to the corporation unless and only
to the extent the court in which the action or suit was brought shall
determine upon application that, despite the adjudication of liability but
in view of all
<PAGE>
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
(c) To the extent that an agent has been successful on the merits or
otherwise in defense of any proceeding referred to in subsection (a) or
(b), or in defending any claim, issue, or matter therein, the agent shall
be indemnified by the corporation against expenses actually and reasonably
incurred by the agent in connection therewith.
(d) Any indemnification under subsection (a) or (b) shall be made by the
corporation only as authorized in the specific case upon a determination
that indemnification of the agent is proper in the circumstances because
the agent has met the applicable standard of conduct set forth in
subsection (a) or (b). The determination shall be made (1) by the Board of
Directors by a majority vote of a quorum consisting of directors who were
not parties to the proceeding, or (2) if a quorum is not obtainable, by
independent legal counsel in a written opinion, or (3) by the
stockholders, or (4) by the court in which the proceeding is or was
pending upon application made by the corporation or the agent or the
attorney or other person rendering services in connection with the
defense, whether or not the application by the agent, attorney, or other
person is opposed by the corporation.
(e) Expenses incurred in defending any proceeding may be paid by the
corporation in advance of the final disposition of the proceeding upon
receipt of an undertaking by or on behalf of an agent of the corporation
to repay such amount unless it shall ultimately be determined that the
agent is entitled to be indemnified by the corporation as authorized in
this Article.
(f) The indemnification provided by this Article shall not be deemed
exclusive of any other rights to which those indemnified may be entitled
under the By-Laws, or any agreement, vote of stockholders, or
disinterested directors or otherwise, both as to action in a person's
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be an agent
and shall inure to the benefit of the heirs and personal representatives
of such a person.
(g) The corporation shall have the power to purchase and maintain
insurance on behalf of any agent of the
2
<PAGE>
corporation, against any liability asserted against or incurred by the
agent of the corporation in any such capacity or arising out of the
agent's status as such, whether or not the corporation would have the
power to indemnify the agent against such liability under this Article.
Any such insurance may be procured from any insurance company designated
by the Board of Directors, including any insurance company in which the
corporation shall have an equity or other interest, through stock
ownership or otherwise.
2. The following shall be added as Article XI of the Articles of
Incorporation:
(a) No director of the corporation shall bear personal liability in any
action brought by the stockholders or the corporation for monetary damages
for a breach of fiduciary duty as a director, provided, however, that the
corporation shall not have the power to eliminate or limit the personal
liability of a director:
(1) For any breach of the director's duty of loyalty to the
corporation or its stockholders;
(2) For any act or omission of the director not performed in good
faith, or which involves intentional misconduct or knowing
violation of law, or which constitutes a wilful or reckless
disregard of the director's fiduciary duty;
(3) For the director's wilful or negligent violation of any provision
of the Hawaii Business Corporation Act regarding payment of
dividends or stock purchase or redemption; or
(4) For any transaction from which the director received an improper
benefit.
3
<PAGE>
STATE OF HAWAII
DEPARTMENT OF COMMERCE AND CONSUMER AFFAIRS
Business Registration Division
1010 Richards Street
Mailing Address: P.O. Box 40, Honolulu, Hawaii 96810
----------------------
DEPARTMENT OF COMMERCE
AND CONSUMER AFFAIRS
STATE OF HAWAII
FILED ON
October 10, 1996
----------------------
AMD 00045917 2-10/18/96 100.00
B23 00045918 2-10/18/96 10.75
811 00045919 2-10/18/96 3.00
ARTICLES OF AMENDMENT
(Section 415-61, Hawaii Revised Statutes)
PLEASE TYPE OR PRINT LEGIBLY IN BLACK INK
The undersigned, duly authorized officers of the corporation submitting
these Articles of Amendment, certify as follows:
1. The name of the corporation is:
HAWAIIAN NATURAL WATER COMPANY, INC.
2. The Amendment(s) adopted are attached to these Articles of Amendment
(see page 2).
3. The total number of shares outstanding is: 1,599,212 common, O preferred
4. If adoption of the amendment(s) was at a meeting, complete the following:
The meeting of the shareholders was held on________________________________
(Month Day Year)
- --------------------------------------------------------------------------------
Class/Series Number of Shares Voting Number of Shares Voting
For Amendment Against Amendment
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. If adoption of the amendment(s) was by unanimous consent, complete the
following:
By written consent dated October 10, 1996
-----------------
(Month Day Year)
the shareholders unanimously adopted the amendment(s).
6. If the amendment(s) provides for any exchange, reclassification, or
cancellation of issued shares, attach a statement describing the manner in
which the exchange, reclassification, or cancellation shall be effected.
See attached
We certify under the penalties of Section 415-136, Hawaii Revised Statutes, that
we have read the above statements, and that the same are true and correct.
Witness our hands this 10th day of October, 1996
Marcus I. Bender, President Tate Robinson, Vice President
(Type/Print Name & Title) (Type/Print Name & Title)
/s/ Marcus I. Bender /s/ Tate Robinson
-------------------- ---------------------
(Signature of Officer) (Signature of Officer)
Signatures must be in black ink.
Articles must be signed by two individuals who are officers of the corporation.
(See Reverse Side For Instructions)
D1-7
Rev. 7/96 B14 (Fee)
<PAGE>
ATTACHMENT TO ARTICLES OF AMENDMENT
of
HAWAIIAN NATURAL WATER COMPANY, INC.
1. ARTICLE IV, Section 1 of the Articles of Incorporation is hereby amended
and restated in its entirety as follows:
"SECTION 1. Authorized Stock. The amount of authorized capital stock of the
corporation shall be TWENTY MILLION (20,000,000) shares of common stock, no par
value, and FIVE MILLION (5,000,000) shares of preferred stock at the par value
of One Dollar ($1.00) per share. The corporation shall have the privilege of
hereafter extending or increasing the authorized capital stock, from time to
time, and to issue shares accordingly. The Board of Directors shall have
authority to divide any or all of the classes of preferred stock into series and
fix and determine the relative rights and preferences of said shares of any
series.
2. ARTICLE IV, Section 2 of the Articles of Incorporation is hereby deleted
in its entirety.
3. ARTICLE IV, Section 3 of the Articles of Incorporation is hereby deleted
in its entirety.
3. ARTICLE XI of the Articles of Incorporation is hereby deleted in its
entirety.
<PAGE>
ATTACHMENT TO ARTICLES OF AMENDMENT
of
HAWAIIAN NATURAL WATER COMPANY, INC.
6. Immediately preceding the adoption and approval of the proposed
amendments to the Articles of Incorporation, the issued and outstanding Three
Hundred Fifty (350) shares of convertible preferred stock at a par value of Six
Hundred Sixty Six and 67/100 Dollars ($666.67) (the "Convertible Preferred
Stock") was converted to an aggregate Three Hundred Eighty-Nine Thousand
(389,000) shares of common stock.
Accordingly, Article IV, Section 1 has been amended to delete the reference
to the authorized Five Hundred (500) shares of Convertible Preferred Stock, and
Article IV, Sections 2 and 3 have been deleted in their entirety to confirm that
the rights and preferences related to the Convertible Preferred Stock have been
eliminated.
<PAGE>
STATE OF HAWAII
DEPARTMENT OF COMMERCE AND CONSUMER AFFAIRS
Business Registration Division
1010 Richards Street
Mailing Address: P.0. Box 40, Honolulu, Hawaii 96810
----------------------
DEPARTMENT OF COMMERCE
AND CONSUMER AFFAIRS
STATE OF HAWAII
FILED ON
July 30, 1996
----------------------
[Three columns illegible numbers]
ARTICLES OF AMENDMENT
(Section 415-61, Hawaii Revised Statutes)
PLEASE TYPE OR PRINT LEGIBLY IN BLACK INK
The undersigned, duly authorized officers of the corporation submitting
these Articles of Amendment, certify as follows:
1. The name of the corporation is:
HAWAIIAN NATURAL WATER COMPANY, INC.
2. The Amendment(s) adopted are attached to these Articles of Amendment
(see page 2)
3. The total number of shares outstanding is: Common 1,000 Shares - Preferred
500 Shares
4. If adoption of the amendment(s) was at a meeting, complete the following:
The meeting of the shareholders was held on June 5, 1996
(Month Day Year)
- --------------------------------------------------------------------------------
Class/Series Number of Shares Voting Number of Shares Voting
For Amendment Against Amendment
- --------------------------------------------------------------------------------
Common 1,000 Shares - 0 -
Preferred 350 Shares - 0 -
- --------------------------------------------------------------------------------
5. If adoption of the amendment(s) was by unanimous consent, complete the
following:
By written consent dated _________________________________
(Month Day Year)
the shareholders unanimously adopted the amendment(s).
6. If the amendment(s) provides for any exchange, reclassification, or
cancellation of issued shares, attach a statement describing the manner in
which the exchange, reclassification, or cancellation shall be effected.
No Change
We certify under the penalties of Section 415-136, Hawaii Revised Statutes, that
we have read the above statements, and that the same are true and correct.
Witness our hands this 25th day of June, 1996.
Marcus Bender, President Tate Robinson, Vice President
(Type/Print Name & Title) (Type/Print Name & Title)
/s/ Marcus Bender /s/ Tate Robinson
-------------------- ---------------------
(Signature of Officer) (Signature of Officer)
Signatures must be in black ink.
Articles must be signed by two individuals who are officers of the corporation.
(See Reverse Side For Instructions)
D1-7
4/96 B14 (Fee)
<PAGE>
ATTACHMENT TO ARTICLES OF AMENDMENT
of
HAWAIIAN NATURAL WATER COMPANY, INC.
(Corporate Name)
Fill in applicable blank(s) and insert text of the amendment.
Article IV, Section 1, Sentence 1, Paragraph___, is amended to read as follows:
The amount of authorized capital stock of the corporation shall be 20,000,000
shares of common stock, no par value and 500 shares of preferred stock at the
par value of Six Hundred Sixty-six and 67/100 Dollars ($667.67) per share.
<PAGE>
IN THE DEPARTMENT OF COMMERCE AND CONSUMER AFFAIRS
OF THE
STATE OF HAWAII
AR1 00034672 2-9/22/94 90.00
In the Matter of the Incorporation )
)
of )
)
HAWAIIAN NATURAL WATER COMPANY, INC. )
)
- -------------------------------------)
- ------------------------------------
RECEIVED
SEP 13 1994
3:50 PM
Dept. of Commerce & Consumer Affairs
STATE OF HAWAII
- ------------------------------------
96863 01
ARTICLES OF INCORPORATION
OF
HAWAIIAN NATURAL WATER COMPANY, INC.
ROBERT L. SMITH 2109
Attorney at Law, A Law Corporation
Kuakini Plaza South, Suite 200
77-6400 Nalani Street
Kailua-Kona, Hawaii 96740
Telephone: 329-3511
Attorney for Incorporators
<PAGE>
----------------------
DEPARTMENT OF COMMERCE
AND CONSUMER AFFAIRS
STATE OF HAWAII
FILED ON
September 13, 1994
----------------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, desiring to become incorporated as a corporation
under and in accordance with the laws of the State of Hawaii and to obtain the
benefits conferred by said laws upon incorporation, do hereby mutually agree
upon and enter into the following Articles of Incorporation, the terms whereof
shall be equally obligatory upon the parties hereto as well as upon all other
persons who from time to time may be stockholders in the corporation:
ARTICLE I
The name of the corporation shall be HAWAIIAN NATURAL WATER COMPANY, INC.
ARTICLE II
The place of the principal office of the corporation shall be 4747 Kilauea
Avenue, Suite 213, Honolulu, Hawaii. Upon incorporation the mailing address will
be 4747 Kilauea Avenue, Suite 213, Honolulu, Hawaii 96816. There may be such
subordinate or branch offices in such place or places within or without said
State as may be deemed necessary or requisite by the Board of Directors to
transact the business of the corporation. Such branch or subordinate offices
shall be under the supervision of such person or persons as may be appointed by
the Board of Directors.
<PAGE>
ARTICLE III
Section 1. The purposes for which this corporation is organized are the
following:
(a) To extract, package and wholesale and/or distribute water for domestic
and international sale and consumption.
(b) To lease and improve real property and well facilities in the State of
Hawaii or elsewhere;
(c) To transact any other lawful business for which corporations may be
incorporated under Chapter 415 of the Hawaii Revised Statutes, as amended, in
its corporate capacity, in a partnership status, as part of a joint venture or
in any other capacity.
Section 2. And in furtherance of said purposes, the corporation shall have
all powers, rights, privileges and immunities, and shall be subject to all of
the liabilities conferred or imposed by law upon corporations of this nature,
and shall be subject to and have all the benefits of all general laws with
respect to corporations.
The corporation has all powers necessary or proper to carry on its
business, that is to say:
(a) To have succession by its corporate name in perpetuity; to sue and be
sued in any court; to make and use a common seal and to alter the same at its
pleasure; to hold, purchase and convey such property as the purposes of the
corporation shall require, without limit as to amount and to mortgage the same
to secure any debt of the corporation; to appoint such subordinate officers or
-2-
<PAGE>
agents as the business of the corporation shall require; to make and adopt and
from time to time amend or repeal bylaws not inconsistent with any existing law
for the management of its properties, the election and removal of its officers,
the regulation of its affairs and the transfer of its stock and for all other
purposes permitted by law;
(b) To borrow money or otherwise incur indebtedness with or without
security and to secure any indebtedness by deed of trust, mortgage, pledge,
hypothecation or other lien upon all or any part of the real or personal
property of the corporation and to execute bonds, promissory notes, bills of
exchange, debentures or other obligations or evidences of indebtedness of all
kinds, whether secured or unsecured, and to owe debts in an amount which may at
any time be in excess of its capital stock;
(c) To purchase on commission or otherwise subscribe for, hold, own, sell
on commission or otherwise, acquire or dispose of and generally to deal in
stocks, scripts, bonds, notes, debentures, commercial papers, obligations and
securities, including, so far as permitted by law, its own issued shares of
capital stock or other securities, and also any other securities, or evidences
of indebtedness whatsoever, or any interest therein, and while the owner of the
same to exercise all the rights, powers and privileges of ownership;
(d) To draw, make, accept, endorse, assign, discount, execute and issue all
such bills of exchange, bills of lading, promissory notes warrants and other
instruments to be assignable, negotiable
-3-
<PAGE>
or transferable by delivery or to order, or otherwise, as the business of the
corporation shall acquire;
(e) To lend and advance money or to give credit, with or without security,
to such persons, firms or corporations, and on such terms as may be thought fit;
and if with security, then upon mortgages, deeds of trust, pledges or other
hypothecation of interest therein or thereto;
(f) To aid in any manner any corporation of which any of the bonds or other
securities or evidences of indebtedness or stock are held by this corporation,
and to do any acts or things to preserve, protect, improve or enhance the value
of any such bonds or other securities or evidences of indebtedness or stock,
including specifically the right and power to enter into and take the management
of any business enterprise of any kind or nature, and, while so managing any
such business, to do the acts and things incidental or necessary thereto;
(g) To enter into partnership contracts (as a general partner or as a
limited partner) with any other person or persons (natural or corporate), to
enter into agreements of joint venture with any such natural or corporate person
or persons, and to enter into and perform contracts, undertakings and
obligations of every kind and character to the same extent as if this
corporation were a natural person;
(h) To promote, assist, subscribe or contribute to any association,
organization, society, company, institution or object, charitable or otherwise,
calculated to benefit the corporation or
-4-
<PAGE>
any persons in its employ or having dealings with the corporation, or deemed to
be for the common or public welfare;
(i) To become a party to and effect a merger or consolidation with another
corporation or other corporations, and to enter into agreements and
relationships not in contravention of laws with any persons, firms or
corporations;
(j) To become surety for or guarantee any dividends, bonds, stocks,
contracts, debts, or other obligations, or undertakings of any other person,
firm or corporation, and to convey, transfer or assign, by way of pledge or
mortgage, all or any of the corporation's property or rights, both present and
future, at such terms and conditions as the corporation may determine; and
(k) To do all or any of the above things in any part of the world, directly
or indirectly, and as principal, agent, factor, contractor or otherwise, and by
or through trustees, agents or otherwise, and either alone or in conjunction
with others.
Section 3. The enumeration herein of the objects and purposes of this
corporation shall be construed as powers as well as objects and purposes and
shall be liberally construed both as to purposes and power and shall not be
deemed to exclude by inference any powers, objects or purposes which this
corporation is or may be empowered to exercise, whether expressly by force of
law now or hereafter in effect, or impliedly by the reasonable construction of
any law.
ARTICLE IV
-5-
<PAGE>
SECTION 1. The amount of authorized capital stock of the corporation shall
be ONE THOUSAND (1,000) shares of common stock, no par value and FIVE HUNDRED
(500) shares of preferred stock at the par value of Six Hundred Sixty-Six and
67/100 Dollars ($666.67) per share. The corporation shall have the privilege of
hereafter extending or increasing the authorized capital stock, from time to
time, and to issue shares thereof accordingly, which increase may be divided
into common shares and preferred shares in such proportions as the common
shareholders of this corporation may decide.
A statement of the preferences, privileges, and restrictions granted to or
imposed upon the respective classes of shares or the holders thereof is as
follows:
SECTION 2. Voting Riqhts. The holders of common shares and preferred shares
issued and outstanding, except where otherwise provided by law or by these
Articles of Incorporation, shall have and possess the right to notice of
shareholders' meetings and the equal voting rights and powers.
Subject to all of the rights of the preferred shares, dividends may be paid
on the common shares, as and when declared by the Board of Directors, out of any
funds of this Corporation legally available for the payment of such dividends
only after payment of dividend to preferred shareholders.
SECTION 3. Preferred Shares. The terms of the preferred shares of the
corporation shall be as follows:
(a) Dividends. The holders of preferred shares shall be
-6-
<PAGE>
entitled to receive out of any funds of this corporation at the time legally
available for the declaration of dividends, dividends at the rate of eight
percent (8%) per annum of the par value thereof, and no more, payable in cash
annually, or at such intervals as the Board of Directors may from time to time
determine, when and as declared by the Board of Directors. Dividends on the
preferred shares first issued shall accrue from the date of issuance of such
shares, and dividends on all preferred shares thereafter issued, if any, shall
accrue from the day following the last day of the period for which dividends
have already been paid on outstanding preferred shares. Dividends on all issued
and outstanding preferred shares shall accrue from day to day, whether or not
earned or declared. Such dividends shall be payable before any dividends shall
be declared or paid upon or set apart for the common shares, and shall be
cumulative, so that if in any year or years after the first year dividends upon
the outstanding preferred shares at the rate of eight percent (8%) per annum of
the par value thereof shall not have been paid thereon or declared and set apart
therefor, the amount of the deficiency shall be fully paid or declared and set
apart for payment, but without interest, before any distribution, whether by way
of dividend or otherwise, shall be declared or paid upon, or set apart for, the
common shares.
(b) Liquidation. In the event of a voluntary liquidation, dissolution, or
winding up of this corporation, the holders of preferred share shall be entitled
to receive out of the assets of
-7-
<PAGE>
this corporation, whether such assets are capital or surplus of any nature, an
amount equal to 100 percent (100%) of the par value of such preferred shares,
and, in addition to such amount, a further amount equal to the dividends unpaid
and accumulated thereon, as provided in paragraph (a) of this Section, to the
date of such distribution, whether earned or declared or not, and no more,
before any payment shall be made or any assets distributed to the holders of
common shares.
In the event of an involuntary liquidation, dissolution, or winding up of
this corporation, the holders of the preferred shares shall be entitled to
receive, out of the assets of this corporation, whether such assets are capital
or surplus of any nature, an amount equal to 100 percent (100%) of the par value
of such preferred shares and a further amount equal to the dividends unpaid and
accumulated thereon as provided in paragraph (a) of this Section to the date of
such distribution, whether earned or declared or not, and no more, before any
payment shall be made or any assets distributed to the holders of common shares.
If upon such liquidation, dissolution, or winding up, whether voluntary or
involuntary, the assets thus distributed among the holders of the preferred
shares shall be insufficient to permit the payment to such shareholders of the
full preferential amounts, then the entire assets of this corporation to be
distributed shall be distributed ratably among the holders of the preferred
shares.
In the event of any liquidation, dissolution, or winding up of this
corporation, whether voluntary or involuntary, subject to
-8-
<PAGE>
all of the preferential rights of the holders of preferred shares on
distribution or otherwise, the holders of common shares shall be entitled to
receive, ratably, all of the remaining assets of this corporation.
A consolidation or merger of this corporation with or into any other
corporation or corporations shall not be deemed to be a liquidation,
dissolution, or winding up, within the meaning of this clause.
(c) Conversion. At the end of three (3) years from the date of issuance
thereof all preferred stock shall automatically convert, share for share, to
common stock of no par value, with all of the same rights and privileges that
pertain to the initial common stock of the corporation. In the event that at the
time of conversion any dividends on the preferred shares have accumulated and
remain unpaid such unpaid dividends shall constitute a debt of the corporation
to the holder of such preferred stock which debt will be evidenced by the
issuance by the corporation of a promissory note in the amount of such unpaid
dividend.
Any of all of the preferred shareholders may at their option elect to
convert their preferred stock to common stock prior to the expiration of three
(3) years from the date of issuance thereof.
The names of the initial subscribers for shares, the number of shares
subscribed for by each subscriber, the subscription price for the share
subscribed for by each subscriber, and the amount of the capital paid in cash by
each subscriber are as follows:
-9-
<PAGE>
NUMBER AND SUBSCRIPTION
TYPE OF SHARES PRICE FOR THE AMOUNT OF
NAMES OF THE SUBSCRIBED SHARES SUB- CAPITAL PAID
SUBSCRIBERS FOR BY EACH SCRIBED FOR BY IN CASH BY
FOR SHARE SUBSCRIBER EACH SUBSCRIBER EACH SUBSCRIBER
- --------- ---------- --------------- ---------------
HAWAII BREWERY 500 Common $ 1,000.00 $ 1,000.00
DEVELOPMENT CO.,
INC., a Hawaii
corporation
LEX BRODIE'S COMMERCIAL 150 Preferred $ 100,000.50 $100,000.50
TIRE CO., INC.,
a Hawaii corporation
HSC, INC., 200 Preferred $ 133,334.00 $133,334.00
a Hawaii
corporation
ARTICLE V
SECTION 1. The officers of the corporation shall consist of a president,
one or more vice-presidents as may be prescribed by the bylaws, a secretary and
a treasurer, each of whom shall be elected or appointed by the Board of
Directors at such time and in such manner as may be prescribed by the bylaws.
Such other officers and assistant officers and agents as may be deemed necessary
may be elected or appointed by the Board of Directors or chosen in such other
manner as may be prescribed by the by-laws. Any two or more offices may be held
by the same person.
All officers and agents of the corporation, as between themselves and the
corporation, shall have such authority and perform such duties in the management
of the corporation as may be provided in the by-laws, or as may be determined by
resolution of
-10-
<PAGE>
the Board of Directors not inconsistent with the bylaws.
SECTION 2. There shall be a Board of Directors of not less than four (4)
members. The number of directors may be increased from time to time by the
bylaws. The directors shall be elected or appointed and any vacancies at any
time occurring in the Board of Directors shall be filled by the stockholders or
the Board of Directors in such manner and for such terms as the bylaws may
prescribe. The bylaws also may provide for the election or appointment of
alternate or substitute directors and their powers and duties.
SECTION 3. The following persons are the first officers and directors of
the corporation:
Name and Office Residence Address Mailing Address
- --------------- ----------------- ---------------
Richard Henderson 110 Waianuenue Ave. 110 Waianuenue Ave.
Director Hilo, HI 96720 Hilo, HI 96720
Brian Barbata 1221 Mokulua Drive 1221 Mokulua Drive
Secretary/Treas. Kailua, HI 96734 Kailua, HI 96734
Director
Marcus I. Bender 2592 Makiki Heights Dr. 2592 Makiki Heights Dr.
President/ Honolulu, HI 96822 Honolulu, HI 96822
Director
John Mayo 701 Queen St. 701 Queen St.
Director Honolulu, HI 96813 Honolulu, HI 96813
Tate Robinson 4233 Keanu Street, #4 4233 Keanu Street, #4
Vice-President Honolulu, HI 96816 Honolulu, HI 96816
of Operations
SECTION 4. All the powers and authority of the corporation shall be vested
in and may be exercised by the Board of Directors except as otherwise provided
by law, these Articles of
-11-
<PAGE>
Incorporation or any by-laws of the corporation; and in furtherance and not in
limitation of said general powers, the Board of Directors shall have power: To
acquire and dispose of property; to appoint a general manager, branch managers
and such other managers, officers or agents of the corporation as in its
judgment the business thereof may require, and to confer upon and to delegate to
them by power of attorney or otherwise such power and authority as it shall
determine; to fix the salaries or compensation of any or all of its officers,
agents and employees and in its discretion require the security of any of them
for the faithful performance of any of their duties; to declare dividends in
accordance with law when it shall deem it expedient; to make rules and
regulations not inconsistent with law or these Articles of Incorporation or the
bylaws for the transaction of business; to instruct the officers or agents of
the corporation with respect thereto and to authorize the voting of stock of
other corporations owned or held by this corporation; to incur indebtedness as
may be deemed necessary, which indebtedness may exceed the amount of the
corporation's capital stock; to create such committee (including an executive
committee) and to designate as members of such committees such persons as it
shall determine, and to confer upon such committees such powers and authority as
may by resolution be set forth for the purpose of carrying on or exercising any
of the powers of the corporation; to create and set aside reserve funds for any
purpose, and to invest any funds of the corporation in such securities or other
property as to it may seem proper; to remove or suspend any
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officer; and, generally, to do any and every lawful act necessary or proper to
carry into effect the powers, purposes and objects of the corporation.
ARTICLE VI
The corporation shall have succession by its corporate name in perpetuity
and shall have all the powers now or which may hereinafter be provided by law
for incorporated companies.
ARTICLE VII
Service of legal process may be made upon the corporation in the manner
provided by law.
ARTICLE VIII
No stockholder shall be liable for the debts of the corporation beyond the
amount which may be due or unpaid upon any share or shares of stock of the
corporation owned by him; except as agreed to by all of the shareholders.
ARTICLE IX
Each director or officer, or former director or officer of this
corporation, and his legal representatives, shall be indemnified by the
corporation against liabilities, expenses, counsel fees and costs reasonably
incurred by him or his estate in connection with, or arising out of, any action,
suit, proceeding or claim in which he is made a party by reason of his being or
having
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been such a director or officer; and any person who, at the request of this
corporation, serves as director or officer of another corporation in which this
corporation owned corporate stock, and his legal representative, shall in like
manner be indemnified by this corporation; provided, that in neither case shall
the corporation indemnify such director or officer with respect to any matter as
to which he shall be finally adjudged liable for negligence or misconduct in the
performance of his duty to the corporation unless and only to the extent that
the Court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such Court shall deem proper, and shall
further be indemnified as to any compromise or settlement of any such action,
suit or proceeding or claim asserted against such director or officer (including
expenses, counsel fees and costs reasonably incurred in connection therewith),
provided the Board of Directors shall have first approved such proposed
compromise settlement and determined the officer or director involved was not
guilty of negligence or misconduct; but, in taking such action, any director
involved shall not be qualified to vote thereon, and if for this reason a quorum
of the Board cannot be obtained to vote on such matter, it shall be determined
by a committee of three (3) persons appointed by the shareholders at a duly
called special meeting or a regular meeting. In determining whether or not a
director or officer was guilty of negligence or
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misconduct in relation to any such matter, the Board of Directors or committee
appointed by the shareholders, as the case may be, may rely conclusively upon an
opinion of independent counsel selected by such Board or Committee. The right to
indemnification herein provided shall not be exclusive of any other right to
which such director or officer may be lawfully entitled.
ARTICLE X
No holder of shares of this corporation shall be entitled as of right to
subscribe for, purchase or receive any part of any new or additional issue of
stock of any class, whether now or hereafter authorized, or of any bonds,
debentures, or other securities convertible into stock of any class; and all
such additional shares of stock, bonds, debentures or other securities
convertible into stock may be issued and disposed of by the Board of Directors
to such person or persons and on such terms and for such consideration (so far
as may be permitted by law) as the Board of Directors, in their absolute
discretion, may deem advisable.
ARTICLES XI
Before there can be a valid sale or transfer of any of the stock of the
corporation by the holder thereof, other than a record holder of stock, or to
the corporation, the said holder of such stock to be sold or transferred,
whether said stock be owned outright or held as security, must have a written
bona fide offer to purchase said stock, signed by some party not a record holder
of
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stock of the corporation who is ready and able to purchase said stock, and said
holder desiring to sell shall give notice in writing to the corporation and to
each of the remaining holders of stock of the corporation of his desire to sell
or transfer the same, which said notice shall set forth fully the price, terms
and conditions of said written bona fide offer to purchase, the name of the
person desiring to purchase and the reply address of the holder desiring to
sell, and said written notice shall be sent by registered mail to the
corporation at its registered office and to each of the said remaining record
holders of stock at his last known address (the names and last known addresses
of the remaining record holders of stock will be given to said holder desiring
to sell upon the corporation's receipt of this written request therefor) and the
corporation shall have the exclusive right for a period of sixty (60) days from
the receipt by the corporation of said written notice within which to elect to
purchase said stock to be sold at the same price and upon the same terms and
conditions as those contained in said written bona fide offer of stock, and
shall have the right to verify the bona fides of any such offer to purchase by
contacting the person desiring to purchase said stock and obtaining any
reasonable documentation of said offer to purchase, and the holder desiring to
sell said stock shall cooperate fully in accomplishing these inquiries upon the
written request of the corporation or any of the remaining record holders of
stock; PROVIDED, HOWEVER, that the corporation upon electing to purchase said
stock being offered for sale shall, within sixty (60)
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days from the receipt of the above-mentioned written notice by the corporation,
mail, by registered mail, to said holder desiring to sell, at his repty address,
written notice of such election to purchase; and PROVIDED, FURTHER, that if the
corporation does not elect to purchase said stock being offered for sale, then
the said remaining record holders of stock shall have the exclusive right for
the period of thirty (30) days beginning with the day after the date of
expiration of the longest exclusive right theretofore given to any of the said
remaining record holders to elect to purchase all of said stock to be sold at
the same price and upon the same terms and conditions as those contained in said
bona fide offer of purchase; and PROVIDED, FURTHER, that in the event that more
than one of said remaining record holders of stock so elect to purchase stock
being offered for sale, then the record holders of stock so electing to purchase
said stock shall have the right to purchase and shall take the proportions of
said stock being offered for sale which the number of shares of stock of the
corporation owned by those so electing to purchase respectively bears to the
total number of shares of stock owned by all those remaining holders of stock so
electing to purchase that the remaining record holders of stock within the
aforesaid thirty (30) day exclusive period shall mail, by registered mail, to
said holder desiring to sell at his reply address, written notice of such
election to purchase; and PROVIDED, FURTHER, that if none of said remaining
record holders of stock of the corporation nor the corporation so elects to
purchase said stock being offered for sale, then said holder of stock
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desiring to sell may accept the above-mentioned written bona fide offer to
purchase and make a valid sale and transfer of said stock being offered for
sale, upon the terms and conditions contained in said written bona fide offer,
to said offeror and no other.
Notwithstanding any of the provisions herein contained, the corporation
shall have the right to purchase, in accordance with the laws of the State of
Hawaii, now or hereafter in effect, shares of stock of the corporation.
I CERTIFY UNDER THE PENALTIES OF SECTION 415-136, HAWAII REVISED STATUTES,
THAT I HAVE READ THE ABOVE STATEMENTS AND THE SAME ARE TRUE AND CORRECT.
IN WITNESS WHEREOF, the undersigned have set their hands on this 13th day
of September, 1994.
/s/ Marcus Bender
-----------------
<PAGE>
BY-LAWS
OF
HAWAIIAN NATURAL WATER COMPANY, INC.
ARTICLE I - OFFICERS
The principal office of the corporation in the State of Hawaii shall be
located in Kailua-Kona, County of Hawaii. The corporation may have such other
offices, either within or without the State of incorporation as the board of
directors may designate or as the business of the corporation may from time to
time require.
ARTICLE II - STOCKHOLDERS
1. ANNUAL MEETING
The annual meeting of the stockholders shall be held on such day within
ninety (90) days following the close of each fiscal as the Board of Directors
shall designate or, if the Board of Directors shall not have designated such day
by the end of the second month following the close of the fiscal year, and
unless the President designates some other date the annual meeting for that year
shall be held on the fourth Thursday in the third month following the close of
the fiscal year.
2. SPECIAL MEETINGS
Special meetings of the stockholders for any purpose or purposes, unless
otherwise prescribed by statute, may be called by the president or by the
directors, and shall be called by the president at the request of the holders of
not less than Fifty-One Percent (51%) of all the outstanding shares of the
corporation entitled to vote at the meeting.
3. PLACE OF MEETING
The directors may designate any place, either within or without the State
unless otherwise prescribed by statute, as the place of meeting for any annual
meeting or for any special meeting called by the directors. A waiver of notice
signed by all stockholders entitled to vote at a meeting may designate any
place, either within or without the State unless otherwise prescribed by
statute, as the place for holding such meeting.
If no designation is made, or if a special meeting be otherwise called, the
place of meeting shall be the principal office of the corporation.
<PAGE>
4. NOTICE OF MEETING
Written or printed notice stating the place, day and hour of the meeting
and, in case of a special meeting, the purpose or purposes for which the meeting
is called, shall be delivered not less than ten (10) nor more than twenty (20)
days before the date of the meeting, either personally or by mail, by or at the
direction of the president, or the secretary, or the officer or person calling
the meeting, to each stockholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail, addressed to the stockholder at his address as it appears on the
stock transfer books of the corporation, with postage thereon prepaid.
5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE
For the purpose of determining stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, or stockholders
entitled to receive payment of any dividend, or in order to make a determination
of stockholders for any other proper purpose, the directors of the corporation
may provide that the stock transfer books shall be closed for a stated period
but not to exceed, in any case, thirty (30) days. If the stock transfer books
shall be closed for the purpose of determining stockholders entitled to notice
of or to vote at a meeting of stockholders, such books shall be closed for at
least ten (10) days immediately preceding such meeting. In lieu of closing the
stock transfer books, the directors may fix in advance a date as the record date
for any such determination of stockholders, such date in any case to be not more
than twenty (20) days prior to the date on which the particular action requiring
such determination of stockholders is to be taken. If the stock transfer books
are not closed and no record date is fixed for the determination of stockholders
entitled to notice of or to vote at a meeting of stockholders, or stockholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the directors declaring
such dividend is adopted, as the case may be, shall be the record date for such
determination of stockholders. When a determination of stockholders entitled to
vote at any meeting of stockholders has been made as provided in this section,
such determination shall apply to any adjournment thereof.
6. VOTING LISTS
The officer or agent having charge of the stock transfer books for shares
of the corporation shall, at least ten (10) days before each meeting of
stockholders, make a complete list of the stockholders entitled to vote at such
meeting, or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of shares held by each, which list, for a period of
ten (10) days prior to such meeting, shall be kept on
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file at the principal office of the corporation and shall be subject to
inspection by any stockholder at any time during usual business hours. Such list
shall also be produced and kept open at the time and place of the meeting and
shall be subject to the inspection of any stockholder during the whole time of
the meeting. The original stock transfer book shall be prima facie evidence as
to who are the stockholders entitled to examine such list or transfer books or
to vote at the meeting of stockholders.
7. QUORUM
At any meeting of stockholders, sixty-eight percent (68%) of the
outstanding shares of the corporation entitled to vote, represented in person or
by proxy, shall constitute a quorum. If less than said number of the outstanding
shares are represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The stockholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
8. PROXIES
At all meetings of stockholders, a stockholder may vote by proxy executed
in writing by the stockholder or by his duly authorized attorney-in-fact. Such
proxy shall be filed with the secretary of the corporation before or at the time
of the meeting.
9. VOTING
Each stockholder entitled to vote in accordance with the terms and
provisions of the Certificate of Incorporation and these By-Laws shall be
entitled to one vote, in person or by proxy, for each share of stock entitled to
vote held by such stockholder. Upon the demand of any stockholder, the vote for
directors and upon any question before the meeting shall be by ballot. All
elections for directors shall be decided by plurality vote; all other questions
shall be decided by majority vote except as otherwise provided by the
Certificate of Incorporation or the laws of this State.
10. ORDER OF BUSINESS
The order of business at all meetings of the stockholders shall be as
follows:
1. Roll call.
2. Proof of notice of meeting or waiver of notice.
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3. Reading of minutes of preceding meeting.
4. Reports of Officers.
5. Reports of Committees.
6. Election of Directors.
7. Unfinished business.
8. New business.
11. INFORMAL ACTION BY STOCKHOLDERS
Unless otherwise provided by law, any action required to be taken at a
meeting of the shareholders, or any other action which may be taken at a meeting
of the shareholders, may be taken without a meeting if a consent in writing,
setting forth the action so taken, shall be signed by all of the shareholders
entitled to vote with respect to the subject matter thereof.
ARTICLE III - BOARD OF DIRECTORS
1. GENERAL POWERS
The business and affairs of the corporation shall be managed by its board
of directors. The directors shall in all cases act as a board, and they may
adopt such rules and regulations for the conduct of their meetings and the
management of the corporation as they may deem proper, not inconsistent with
these By-Laws and the laws of this State.
2. NUMBER, TENURE AND QUALIFICATIONS
The number of directors of the corporation shall be four (4). Each director
shall hold office until the next annual meeting of stockholders and until his
successor shall have been elected and qualified.
3. REGULAR MEETING
A regular meeting of the directors shall be held without any notice other
than this By-Law immediately after, and at the same place as, the annual
meeting of stockholders. The directors may provide, by resolution, the time and
place for the holding of additional regular meetings without any notice other
than such resolution.
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4. SPECIAL MEETINGS
Special meetings of the directors may be called by or at the request of the
president or any two directors. The person or persons authorized to call special
meetings of the directors may fix the place for holding any special meeting of
the directors called by them.
5. NOTICE
Notice of any special meeting shall be given at least three (3) days
previously thereto by written notice delivered personally or by telegram or
mailed to each director at his business address. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail so addressed,
with postage thereon prepaid. If notice be given by telegram, such notice shall
be deemed to be delivered when the telegram is delivered to the telegraph
company. The attendance of a director at a meeting shall constitute a waiver of
notice of such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened.
6. QUORUM
At any meeting of the directors, fifty-one percent (51%) shall constitute a
quorum for the transaction of business, but if less than said number is present
at a meeting, a majority of the directors present may adjourn the meeting from
time to time without further notice.
7. MANNER OF ACTING
The act of the majority of the directors present at a meeting at which a
quorum is present shall be the act of the directors.
8. NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Newly created directorships resulting from an increase in the number of
directors and vacancies occurring in the board for any reason except the removal
of directors without cause may be filled by a vote of a majority of the
directors then in office, although less than a quorum exists. Vacancies shall be
filled by vote of the stockholders. A director elected to fill a vacancy caused
by resignation, death or removal shall be elected to hold office for the
unexpired term of his predecessor.
9. RESIGNATION
A director may resign at any time by giving written notice to the board,
the president or the secretary of the
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corporation. Unless otherwise specified in the notice, the resignation shall
take effect upon receipt thereof by the board or such officer, and the
acceptance of the resignation shall not be necessary to make it effective.
10. COMPENSATION
No compensation shall be paid to directors, as such, for their services,
but by resolution of the board a fixed sum and expenses for actual attendance at
each regular or special meeting of the board may be authorized. Nothing herein
contained shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
11. PRESUMPTION OF ASSENT
A director of the corporation who is present at a meeting of the directors
at which action on any corporate matter is taken shall be presumed to have
assented to the action taken unless his dissent shall be entered in the minutes
of the meeting or unless he shall file his written dissent to such action with
the person acting as the secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered mail to the secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
12. EXECUTIVE AND OTHER COMMITTEES
The board, by resolution, may designate from among its members an executive
committee and other committees, each consisting of three or more directors. Each
such committee shall serve at the pleasure of the board.
ARTICLE IV - OFFICERS
1. NUMBER
The officers of the corporation shall be a president, a vice-president, a
secretary and a treasurer, each of whom shall be elected by the directors. Such
other officers and assistant officers as may be deemed necessary may be elected
or appointed by the directors.
2. ELECTION AND TERM OF OFFICE
The officers of the corporation to be elected by the directors shall be
elected annually at the first meeting of the directors held after each annual
meeting of the directors held
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after each annual meeting of the stockholders. Each officer shall hold office
until his successor shall have been duly elected and shall have qualified or
until his death or until he shall resign or shall have been removed in the
manner hereinafter provided.
3. VACANCIES
A vacancy in any office because of death, resignation, removal,
disqualification or otherwise, may be filled by the directors for the unexpired
portion of the term.
4. PRESIDENT
The president shall be the principal executive officer of the corporation
and, subject to the control of the directors, shall in general supervise and
control all of the business and affairs of the corporation. He shall, when
present, preside at all meetings of the stockholders and of the directors. He
may sign, with the secretary or any other proper officer of the corporation
thereunto authorized by the directors, certificates for shares of the
corporation, any deeds, mortgages, bonds, contracts, or other instruments which
the directors have authorized to be executed, except in cases where the signing
and execution thereof shall be expressly delegated by the directors or by these
By-Laws to some other officer or agent of the corporation, or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties incident to the office of president and such other duties as may be
prescribed by the directors from time to time.
5. VICE-PRESIDENT
In the absence of the president or in event of his death, inability or
refusal to act, the vice-president shall perform the duties of the president and
when so acting shall have all the powers of and be subject to all the
restrictions upon the president. The vice -president shall perform such other
duties as from time to time may be assigned to him by the president or by the
directors.
6. SECRETARY
The secretary shall keep the minutes of the stockholders' and of the
directors' meetings in one or more books provided for that purpose, see that all
notices are duly given in accordance with the provisions of these By-Laws or as
required, be custodian of the corporate records and of the seal of the
corporation and keep a register of the post office address of each stockholder
which shall be furnished to the secretary by such stockholder, have general
charge of the stock transfer books of the corporation and in general perform all
duties incident to the office of secretary and such other duties as from time to
time may
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be assigned to him by the president or by the directors.
7. TREASURER
If required by the directors, the treasurer shall give a bond for the
faithful discharge of his duties in such sum and with such surety or sureties as
the directors shall determine. He shall have charge and custody of and be
responsible for all funds and securities of the corporation, receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with these By-Laws, and in general perform all of the duties incident to the
office of treasurer and such other duties as from time to time may be assigned
to him by the president or by the directors.
8. SALARIES
The salaries of the officers shall be fixed from time to time by the
directors and no officer shall be prevented from receiving such salary by reason
of the fact that he is also a director of the corporation.
9. FINANCIAL RESPONSIBILITY.
No shareholder shall be liable for the debts of the corporation beyond the
amount which may be due or unpaid upon any share or shares of stock of the
corporation owned by him, unless such shareholder personally guarantees payment
of such debt.
ARTICLE V - CONTRACTS, LOANS, CHECKS AND DEP0SITS
1. CONTRACTS
The directors may authorize any officer or officers, agent or agents, to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the corporation, and such authority may be general or confined to
specific instances.
2. LOANS
No loans shall be contracted on behalf of the corporation and no evidences
of indebtedness shall be issued in its name unless authorized by a resolution of
the directors. Such authority may be general or confined to specific instances.
3. CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money, notes or other
evidences of indebtedness issued in the name of the corporation, shall be signed
by such officer or officers,
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agent or agents of the corporation and in such manner as shall from time to time
be determined by resolution of the directors.
4. DEPOSITS
All funds of the corporation not otherwise employed shall be deposited from
time to time to the credit of the corporation in such banks, trust companies or
other depositories as the directors may select.
ARTICLE VI - CERTIFICATES FOR SHARES AND THEIR TRANSFER
1. CERTIFICATES FOR SHARES
(a) Certificates representing shares of the corporation shall be in such
form as shall be determined by the directors. Such certificates shall be signed
by the president and by the secretary or by such other officers authorized by
law and by the directors. All certificates for shares shall be consecutively
numbered or otherwise identified. All certificates shall express on its face the
name of the corporation, the name of the record holder to whom issued, the
number of shares and class or series represented thereby, the par value or a
statement that the shares are without par value, and the date of issue. The name
and address of the stockholder, the number of shares and date of issue, shall be
entered on the stock transfer books of the corporation.
(b) Each share certificate shall clearly specify the professional financial
responsibility as stated in Article X of the Articles of Incorporation and
Article IV of these By-Laws.
(c) All certificates surrendered to the corporation for transfer shall be
cancelled and no new certificate shall be issued until the former certificate
for a like number of shares shall have been surrendered and cancelled, except
that in case of a lost, destroyed or mutilated certificate, a new one may be
issued therefor upon such terms and indemnity to the corporation as the
directors may prescribe.
2. TRANSFER OF SHARES
(a) Shares of stock of the corporation may be transferred only pursuant to
the restrictions and requirements as set forth in the Articles of Incorporation
and Stock Redemption Agreement, if any.
(b) Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or
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authority to transfer, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, and cancel the old certificate;
every such transfer shall be entered on the transfer book of the corporation
which shall be kept at its principal office.
(c) The corporation shall be entitled to treat the holder of record of any
share as the holder in fact thereof, and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such share on the part
of any other person whether or not it shall have express or other notice
thereof, except as expressly provided by the laws of this state.
(d) Each stock certificate shall contain an appropriate legend setting
forth the transfer restrictions set forth in this Section.
ARTICLE VII - FISCAL YEAR
The fiscal year of the corporation shall be such as may from time to time
be established by the Board of Directors.
ARTICLE VIII - DIVIDENDS
The directors may from time to time declare, and the corporation may pay,
dividends on its outstanding shares in the manner and upon the terms and
conditions provided by law.
ARTICLE IX - SEAL
The directors shall provide a corporate seal which shall be circular in
form and shall have inscribed thereon the name of the corporation, the state of
incorporation, year of incorporation and the words "Corporate Seal".
ARTICLE X - WAIVER OF NOTICE
Unless otherwise provided by law, whenever any notice is required to be
given to any stockholder or director of the corporation under the provisions of
these By-Laws or under the provisions of the Articles of Incorporation, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice.
ARTICLE XI - AMENDMENTS
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These By-Laws may be altered, amended or repealed and new By-Laws may be
adopted by a vote of the stockholder representing a majority of all the shares
issued and outstanding, at any annual stockholders' meeting or at any special
stockholders' meeting when the proposed amendment has been set out in the notice
of such meeting.
I HEREBY CERTIFY the foregoing to be a true and exact copy of the By-Laws
of HAWAIIAN NATURAL WATER COMPANY, INC.
/s/ MARCUS BENDER
------------------------------
Assistant Secretary
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<PAGE>
AMENDMENT NUMBER 1 TO BY-LAWS
OF
HAWAIIAN NATURAL WATER COMPANY, INC.
(Effective as of August 29, 1996)
1. Article III, Section 2 of the By-Laws is hereby amended and restated to read
in full as follows:
"2. NUMBER, TENURE AND QUALIFICATIONS
The authorized number of directors which shall constitute the whole
board shall be at least four, the exact number of directors to be fixed
from time to time by resolution of the board or the stockholders. The exact
number of directors shall be six (6) until changed as provided in this
Section 2. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 8 of this Article III, and each
director elected shall hold office until his successor is elected and
qualified. Directors need not be stockholders."
2. Article III, Section 8 of the By-Laws is hereby amended and restated to read
in full as follows:
"8. NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Newly created directorships resulting from an increase in the number
of directors and vacancies occurring in the board for any reason, except
the removal of directors without cause, may be filled by a vote of a
majority of the directors then in office, although less than a quorum.
Vacancies occurring in the board by reason of a removal of directors
without cause shall be filled by vote of the stockholders. A director
elected to fill a vacancy caused by resignation, death or removal shall be
elected to hold office for the unexpired term of his predecessor."
<PAGE>
AMENDMENT NUMBER 2 TO BY-LAWS
OF
HAWAIIAN NATURAL WATER COMPANY, INC.
(Effective as of February 4, 1997)
1. Article II, Section 2. of the By-Laws is hereby amended and restated to read
in full as follows:
"2. SPECIAL MEETINGS
Special meetings of the stockholders for any purpose or purposes, unless
otherwise prescribed by statute, may be called by the board of directors, the
holders of not less than one-tenth (1/10) of all shares entitled to vote at
the meeting, the Chairman of the Board, or such other persons as may be
authorized in the corporation's Articles of Incorporation or these by-laws."
2. Article II, Section 5. of the By-Laws is hereby amended and restated to read
in full as follows:
"5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE
For the purposes of determining stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, or
stockholders entitled to receive payment of any dividend, or in order to make
a determination of stockholders for any other proper purpose, the directors
of the corporation may provide that the stock transfer books shall be closed
for a stated period but not to exceed, in any case sixty (60) days. If the
stock transfer books shall be closed for the purpose of determining
stockholders entitled to notice of or to vote at a meeting of stockholders,
such books shall be closed for at least ten (10) days immediately preceding
such meeting. In lieu of closing the stock transfer books, the directors may
fix in advance a date as the record date for any such determination of
stockholders, such date in any case to be not more than sixty (60) days and,
in case of a meeting of stockholders, not less than ten (10) days prior to
the date on which the particular action, requiring the determination of
stockholders, is to be taken. If the stock transfer books are not closed and
no record date is fixed for the determination of stockholders entitled to
notice of or to vote at a meeting of stockholders, or stockholders entitled
to receive payment of a dividend, the date on which notice of the meeting is
<PAGE>
mailed or the date on which the resolution of the directors declaring such
dividend is adopted, as the case may be, shall be the record date for such
determination of stockholders. When a determination of stockholders entitled
to vote at any meeting of stockholders has been made as provided herein, such
determination shall apply to any adjournment thereof."
3. The following sentence shall be added to the end of Article II, Section 9. of
the By-Laws:
"Unless otherwise required by law, no stockholder or stockholders shall
have any right to have directors of the corporation elected by cumulative
voting."
4. Article III, Section 7. of the By-Laws is hereby amended and restated to read
in full as follows:
"7. QUORUM
At any meeting of stockholders, a majority of shares of the outstanding
shares entitled to vote, represented in person or by proxy, shall constitute
a quorum. If a quorum is present, the affirmative vote of the majority of the
shares represented at the meeting and entitled to vote on the subject matter
shall be the act of the stockholders, unless the vote of a greater number or
voting by classes is required under Hawaii law, the articles of
incorporation, or these by-laws."
5. Article VI, Section 1.(b) of the By-Laws is hereby deleted in its entirety.
6. Article VI, Section 2.(a) of the By-Laws is hereby deleted in its entirety.
7. Article VI, Section 2.(d) of the By-Laws is hereby deleted in its entirety.
8. Article XI of the By-Laws is hereby amended and restated to read as follows:
"ARTICLE XI - AMENDMENTS
--------------------------
The power to alter, amend, or repeal these By-Laws, subject to repeal or
change by action of the stockholders, shall be vested in the Board of
Directors, unless reserved to the stockholders by the Articles of
Incorporation."
<PAGE>
COMMON STOCK COMMON STOCK
NUMBER NUMBER
HAWAIIAN
NATURAL
WATER COMPANY, INC.
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF HAWAII CUSIP 419883 10 3
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, NO PAR VALUE, OF
HAWAIIAN NATURAL WATER COMPANY, INC.
CERTIFICATE OF STOCK
(herein called the "Corporation"), transferable only on the books of the
Corporation by the holder hereof, in person or by duly authorized attorney, upon
the surrender of this certificate properly endorsed. This certificate is not
valid until countersigned and registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the fascimile
signatures of its duly authorized officers.
Dated:
CORPORATE
SEAL
HAWAIIAN NATURAL WATER COMPANY, INC.
INCORPORATED
STATE OF HAWAII
SEPT. 13, 1994
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(NEW YORK, N.Y.) TRANSFER AGENT
AND REGISTRAR
BY:
AUTHORIZED OFFICER
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
- -------------------------------------------------------------------------------
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM- as tenants in common UNIF GIFT MIN ACT-________Custodian________
TEN ENT- as tenants by the entireties (Cust) (Minor)
JT TEN- as joint tenants with
right of survivorship and under Uniform Gifts to Minors
not as tenants in common
Act__________________________
(State)
Additional abbreviations may also be used though not in the above list.
For Value received,______________________________________________ hereby
sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_____________________________________
| |
| |
|_____________________________________|_________________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint______________________________________________
____________________________________________________________________Attorney, to
transfer the said stock on the books of the within named Corporation with full
power of substitution in the premises.
Dated,___________________
X____________________________________________________
X____________________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE
OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
SIGNATURE GUARANTEED:_____________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION, (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
WARRANTS WARRANTS
NUMBER NUMBER
HAWAIIAN
NATURAL
WATER COMPANY, INC.
VOID AFTER , 2002
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE SHARES OF COMMON STOCK
CUSIP 419883 11 1
THIS CERTIFIES THAT FOR VALUE RECEIVED:
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. One Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and non-assessable share of Common Stock, no par value
per share, of Hawaiian Natural Water Company, Inc., a Hawaii corporation (the
"Company"), at any time from , 1997 [the date of the Prospectus] and
prior to 5:00 p.m. on the Expiration Date (as hereinafter defined) upon the
presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office of
Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York 10004
as Warrant Agent, or its successor (the "Warrant Agent"), accompanied by payment
of $ [150% of the initial public offering price per Unit] per share,
subject to adjustment (the "Purchase Price"), in lawful money of the United
States of America in cash or by check made payable to the Warrant Agent for the
account of the Company.
This Warrant Certificate, and each Warrant represented hereby, is issued
pursuant to and is subject in all respects to the terms and conditions set forth
in the Warrant Agreement (the "Warrant Agreement"), dated , 1997 by
and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all of the Warrants represented hereby, the Company
shall cancel this Warrant Certificate upon the surrender hereof and shall
execute and deliver a new Warrant Certificate or Warrant Certificates of like
tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on ,
2002 [the 60 month anniversary of the effective date of the registration
statement]. If such date shall in the State of New York be a holiday or a day
on which banks are authorized to close, then the Expiration Date shall mean
5:00 p.m. (New York time) on the next day which in the State of New York is not
a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Company has covenanted
and agreed that it will file a registration statement under the Federal
securities laws, use its best efforts to cause the same to become effective, to
keep such registration statement current, if required under the Act, while any
of the Warrants are outstanding, and deliver a prospectus which complies with
Section 10(a)(3) of the Act to the Registered Holder exercising this Warrant.
This Warrant shall not be exercisable by a Registered Holder in any state where
such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal number of Warrants will be issued
to the transferee in exchange therefor, subject to the limitations provided in
the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, in whole and not in part, at a redemption
price of $.05 per Warrant, at any time commencing , 1998 [twelve
(12) months from the date of the Prospectus] provided that (i) the average
closing bid price for the Company's Common Stock, as reported by the
National Association of Securities Dealers Automated Quotation System (or, if
not so quoted, as reported by any other recognized quotation system on which the
price of the Common Stock is quoted), shall have, for any twenty (20) trading
days within a period of thirty (30) consecutive trading days ending on the
fifth (5th) trading day prior to the date on which the Notice of Redemption (as
defined below) is given, equalled or exceeded 150% of the then exercise price
per share (subject to adjustment in the event of any stock splits or other
similar events) and (ii) the Company has obtained the prior written consent of
Joseph Stevens & Company, Inc. Notice of redemption (the "Notice of Redemption")
shall be given not later than the thirtieth (30th) day before the date fixed
for redemption, all as provided in the Warrant Agreement. On and after the date
fixed for redemption, the Registered Holder shall have no rights with respect
to this Warrant except to receive the $.05 per Warrant upon surrender of this
Certificate.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations for all purposes and shall not be affected by any notice to the
contrary, except as provided in the Warrant Agreement.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York without giving effect to conflicts of
laws.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in fascimile, by two of its officers thereunto duly
authorized an a fascimile of its corporate seal to be imprinted hereon.
Dated:
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
as Warrant Agent
CORPORATE
SEAL
HAWAIIAN NATURAL WATER COMPANY, INC.
INCORPORATED
STATE OF HAWAII
SEPT. 13, 1994
Attest: Hawaiian Water Company, Inc.
By: By:
Secretary President
By:________________________
Authorized Officer
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrant
The undersigned Registered Holder hereby irrevocably elects to exercise
__________________Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
_____________________________________
| |
| |
|_____________________________________|
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(please print or type name and address)
and be delivered to
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. If the exercise of this Warrant was solicited by Joseph Stevens &
Company, Inc. Please Check the following Box / /
2. The Exercise of this Warrant was Solicited by________________________ / /
3. If the exercise of this Warrant was not solicited, please check
the following box / /
Dated:__________________ X_________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
Address
__________________________________________________
Social Security or Taxpayer Identification Number
__________________________________________________
Signature Guaranteed
__________________________________________________
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED,_______________________________________________________
hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
_____________________________________
| |
| |
|_____________________________________|
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(please print or type name and address)
________________________of the Warrants represented by this Warrant Certificate,
and hereby irrevocably constitutes and appoints_________________________________
________________________________________________________________________Attorney
to transfer this Warrant Certificate on the books of the Company, with full
power of substitution in the premises.
Dated:__________________ X_________________________________________________
Signature Guaranteed
__________________________________________________
THIS SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME(S) AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST
BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE,
MIDWEST STOCK EXCHANGE OR BOSTON STOCK EXCHANGE.
<PAGE>
Joseph Stevens & Company, Inc.
33 Maiden Lane
New York, NY 10038
Ladies and Gentlemen:
The undersigned is the holder of certain warrants ("Warrants") to
purchase common stock, no par value ("Common Stock") of Hawaiian Natural Water
Company, Inc. (the "Company") which Warrants are automatically convertible into
a like number of Redeemable Warrants (as defined below) of the Company upon the
consummation of an underwritten public offering of equity securities including
Redeemable Warrants. In order to induce Joseph Stevens & Company, Inc. (the
"Underwriter") and the Company to enter into an underwriting agreement with
respect to a public offering of units (the "Units") issued by the Company, each
Unit consisting of one share of Common Stock and one Redeemable Common Stock
Purchase Warrant (each a "Redeemable Warrant") exercisable into one share of
Common Stock of the Company, the undersigned, intending to be legally bound,
hereby agrees that he, she or it will not, directly or indirectly, issue, offer
to sell, sell, grant an option for the sale of, assign, transfer, pledge,
hypothecate or otherwise encumber or dispose of any Warrants, Redeemable
Warrants or shares of Common Stock issuable upon exercise of the Warrants or the
Redeemable Warrants (collectively the "Securities") (either pursuant to Rule 144
of the regulations under the Securities Act of 1933, as amended, or otherwise)
whether or not beneficially owned by the undersigned, or dispose of any
beneficial interest therein, (i) for a period commencing on the date hereof and
ending twelve (12) months following the effective date of the registration
statement (the "Registration Statement") relating to the underwritten public
offering of Units issued by the Company (the "Twelve Month Period"), and (ii)
for an additional six (6) month period commencing upon the expiration of the
Twelve Month Period without the prior written consent of the Underwriter.
In addition, the undersigned agrees that for the period commencing
on the date hereof and extending twenty-four (24) months following the effective
date of the Registration Statement, any sales of Securities shall be made
through the Underwriter in accordance with its customary brokerage policies,
either on a principal or agency basis.
In order to enable the aforesaid covenants, the undersigned hereby
consents to the placing of legends and/or stop-transfer orders with the Transfer
Agent of the Company's securities with respect to any of the Securities
registered in the name of the undersigned or beneficially owned by the
undersigned.
<PAGE>
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York without giving effect to the
choice of law or conflicts of laws principles.
Dated: ____________________, 1997
_______________________________
Address (Please print or type)
_______________________________
_______________________________
_______________________________
Name (Please print or type)
_______________________________
Signature
__________________________________________
Social Security or Federal Tax I.D. Number
2
<PAGE>
EXHIBIT 5.1
March 6, 1997
Hawaiian Natural Water Company, Inc.
248 Mokauea Street
Honolulu, Hawaii 96819
Gentlemen:
We have acted as special counsel to Hawaiian Natural Water Company, Inc.,
a Hawaii corporation (the "Company"), in connection with the preparation of a
registration statement (the "Registration Statement") on Form SB-2 (File No.
333-18289) relating to the registration under the Securities Act of 1933, as
amended, of an aggregate of up to 2,300,000 units (the "Units"), including up
to 300,000 Units subject to the Underwriter's Over-Allotment Option. Each
Unit consists of (i) one share of Common Stock, no par value, of the Company
(collectively, the "Shares"), and (ii) one Redeemable Common Stock Purchase
Warrant (collectively, the "Warrants"), each Warrant entitling the holder
thereof to purchase initially one share of Common Stock (collectively, the
"Warrant Shares"), subject to adjustment in certain circumstances. All
capitalized terms used herein without definition have the meanings assigned
to them in the Registration Statement.
In connection with the opinion expressed herein, we have examined, among
other things, certified copies of the Company's Articles of Incorporation and
By-Laws, as amended to date, as well as records of corporate proceedings and
other actions taken by the Company in connection with the issuance and sale
of the Units, the Shares and the Warrants. We have also examined the form of
Warrant Agreement between the Company and Continental Stock Transfer & Trust
Company, as warrant agent (the "Warrant Agreement"), pursuant to which the
Warrants will be issued, and the form of Warrant.
Based upon our examination of the foregoing, and such other matters of
fact or law as we have deemed necessary for purposes hereof, it is our
opinion that:
1. When the Registration Statement shall have become effective and the
Shares shall have been issued and sold in the manner provided for therein,
the Shares will have been duly authorized and validly issued and will be
fully paid and non-assessable.
2. When the Registration Statement shall have become effective and the
Warrant Agreement shall have been duly executed and delivered by the Company
and the Warrant Agent and the Warrants shall have been issued and sold in the
manner provided for in the Registration Statement and the Warrant Agreement,
the Warrants will constitute valid and binding obligations of the Company to
issue and sell, upon exercise thereof and payment therefor in accordance with
their terms, the number of Warrant Shares called for thereby, and the Warrant
Shares, when issued and paid for upon exercise of the Warrants in accordance
with the terms and conditions of the Warrant Agreement and the Warrants, will
be validly issued, fully paid and non-assessable.
We hereby consent to the reference to our firm in the prospectus contained
in the Registration Statement under the heading "Legal Matters" and to the
use of this opinion as an exhibit to the Registration Statement.
Very truly yours,
/s/ Graham & James LLP
----------------------
Graham & James LLP
<PAGE>
PROMISSORY NOTE
$100,000.00 May 24, 1995
- --------------------------------------------------------------------------------
1. Promise to Pay and Interest Rate. The undersigned ("Borrower") promises to
pay to the order of Inter Island Petroleum, Inc.("Lender") the principal amount
of $100,000.00, together with interest on outstanding balances of principal at a
monthly rate of one percent (1%).
2. Payment Schedule. All principal and interest due shall be paid on June 24,
1995. If Lender agrees to defer the principal due, or if only a partial payment
of principal is made, Borrower shall continue to pay interest at the rate of 1%
per month on the outstanding balance on the 24th day of each successive month.
3. Evidence of Loan. The bank records of Borrower and Lender, evidencing the
date of disbursement and principal amount, shall constitute prima facie evidence
of the making of this Loan.
4. Computation of Interest. Interest shall be computed on the basis of the
actual number of days elapsed between payments and on the basis of a 365-day
year.
5. Currency, Place and Dates of Payments. Payments under this Note shall be made
in United States currency at the office of the Lender, or at such other place as
the holder of this Note shall have designated by written notice to the Borrower.
6. Events of Default. Each of the following events is an Event of Default under
this Note: (a) the Borrower's failure to pay when due any sum payable to the
Lender under this Note; or (b) the Borrower's failure to perform any obligation
of the Borrower to the Lender; or (c) any person or organization that guaranteed
payment of this Note ("Guarantor") denies liability under, or attempts to revoke
the guaranty; or (d) death, dissoluton or insolvency of the Borrower or a
Guarantor; or (e) commencement of any proceeding or the taking of any act by or
against the Borrower or a Guarantor for any relief under bankruptcy, insolvency
or similar laws for the protection of debtors, or for the appointment of a
receiver of the business or assets of the Borrower or a Guarantor or the
Borrower's or a Guarantor's inability to pay his, her or its debts as they
become due; or (f) the Borrower's failure to pay any material debt owed by
Borrower to any person or entity other than the Lender, if such failure results
in the acceleration of such debt; or (g) any representation, warranty or other
information made or furnished by the Borrower or a Guarantor in respect of the
Loan evidenced by this Note is or shall be untrue or materially misleading; or
(h) the Lender reasonably believes there has been a material impairment of or
decrease in either the Borrower's ability to pay this Note or the value of any
collateral given to secure payment of this Note.
<PAGE>
7. Acceleration and Post-Maturity Increase in Interest Rate. If any event of
Default shall occur and be continuing, all further obligations of the Lender
shall immediately cease, and the entire principal sum and accrued interest
thereon shall, at the option of the Lender, immediately become due and payable.
Time is of the essence. This Note shall bear interest at a rate three percentage
points above the rate otherwise applicable under this Note, from and after the
maturity of this Note, whether or not resulting from acceleration.
8. Late Charges. If any payment under this Note is not made when it becomes due,
the Borrower will pay to the Lender a late charge in respect of that payment,
in the amount of 5% of the overdue payment.
9. Lender's Expenses. The Borrower will pay on demand all of the Lender's
expenses, including reasonable attorneys' fees, arising out of or related to the
protection or enforcement of the Lender's rights under this Note, whether or not
an Event of Default shall have occurred.
10. Limitation on Payments. In no event shall the Borrower be obligated to pay
any amount under this Note that exceeds the maximum amount allowable by law.
11. Application of Payments. Payments under this Note may be applied by the
Lender to the indebtedness evidenced by this Note in any manner the Lender
deems appropriate.
12. Waivers. The Borrower waives presentment, demand for payment, notice of
dishonor, and any and all other notices or demands in connection with the
delivery, acceptance, performance or enforcement of this Note, and consents to
any extension of time (and even multiple extensions of time for longer than the
original term), renewals, releases of any person or organization liable for the
payment of this Note, and waivers or modifications or other indulgences that may
be granted or consented to by the Lender in respect of the Loan evidenced by
this Note.
13. Severability. If any provision of this Note is invalid or unenforceable,
such invalidity or unenforceability shall not effect any other provision of this
Note that can be given effect. The provisions of this Note are severable.
14. Governing Law. This Note shall be governed by the laws of the State of
Hawaii.
Borrower: Hawaiian Natural Water Co., Inc.
---------------------------------
By: /s/ Marcus Bender
-------------------------
Its President
<PAGE>
Exhibit 10.11
com.com
New York
Silicon Valley
Pacific Rim
The Web
Alexander Brody
managing partner
31 July 1996
Dear Marcus:
The following letter sets out in detail and for your signature the
agreement we reached over breakfast on 27 July, 1996. But first, let me
reiterate the enthusiasm Brian and I share for Hawaiian Springs, the Brand and
you. We think that we will be able to help build the Brand as much as its
success will build com.com.
Here are the points we agreed to in detail;
1. com.com will prepare a brand review and positioning for Hawaiian Springs.
(Already presented and agreed)
2. Based on this positioning com.com will prepare for review and your approval
an advertising print and direct mail campaign aimed at the distribution
channel.
3. We will assist in determining an optimum target audience, as well as
potential test market sites.
4. Based on the target audience, we will prepare a campaign encompassing print,
broadcast and point of sale aimed at the consumer in the test markets as well
as for a sustaining effort in all other areas.
5. In addition we will develop a new label design consistant with the new
positioning. We will also develop a transitional package for the event that
we wish to use both "flower" and "volcano" for a period of time.
6. Based on test market findings and other needs as they occur as the Brand
grows, we, as your agency, will be available to make the necessary
adjustments.
7. We will prepare all the above material up to the point of mechanical
production. Production estimates will be presented for your approval, and
will be charged at cost, including however any costs that we incur, but
without profit.
<PAGE>
8. We will make media recommendations and will place media on your behalf, here
too we will only charge our actual costs including the acquisition of
necessary data and other help to make intelligent choices; these too will be
billed without a profit.
9. We will develop advertising materials for both trade and consumer contests
and other advertising related materials, as needed.
10. We will assist in developing contacts and advertising for markets abroad.
11. We will be proactive with counsel in all aspects of the Brand where we feel
we can contribute.
Again, as discussed at our breakfast, the special first year fee for the
above services will be $5000 a month. The contract period will start on
August 1, 1996, with the first two months coming due on September 1, 1996.
Because the above fee is at a rate covering only our costs (we hope) we have
also agreed that in the case of our performing above expectations and if the
Brand moves towards a profit, we will receive in addition to our monthly fee,
stock options at your discretion. In the case of unexpected financial
performance on the part of com.com we will be back to you and inform you of
same. On May 1, 1997 we will look at revising this agreement for the
following year, should our performance prove satisfactory. This date could
also serve as a time for notice for both parties.
Marcus, I think that I have covered all of our topics. Should I have left out
something of consequence, or if anything in this letter does not agree with
your understanding, please let me know. Otherwise, please sign below, to
indicate your approval and acceptance of the above.
Agreed to and accepted by Agreed to and accepted by
Hawaiian Waters com.com
By: /s/ Marcus Bender By:/s/ Alexander Brody
- --------------------- ----------------------
Date: 8/1/96 Date: July 31, 1996
<PAGE>
PROMISSORY NOTE
February 12, 1997
- -------------------------------------------------------------------------------
1. Promise to Pay and Interest Rate. The undersigned ("Borrower") promises to
pay to the order of ("Lender") principal amount of ,
together with interest on outstanding balances of principal at the annual rate
of 12%.
2. Payment Schedule. All principal and interest due shall be paid on April 12,
1997. If Lender agrees to defer the principal due, or if only a partial payment
is made, Borrower shall continue to pay interest at the rate of 1% per month on
the outstanding balance on the 12th day of each successive month. Maker shall be
obligated to prepay the entire outstanding principal amount of this Note, plus
all accrued but unpaid interest thereon, concurrently with the closing of any
public offering of equity securities of the Company occurring prior to the
Maturity Date with an aggregate price to investors in such offering in excess of
S2,000,000.
3. Evidence of Loan. The bank records of Borrower and Lender, evidencing the
date of disbursement and principal amount, shall constitute prima facie evidence
of the making of this loan.
4. Computation of Interest. Interest shall be computed on the basis of the
actual number of days elapsed between payments and on the basis of a 365-day
year.
5. Currency, Place and Dates of Paymments. Payments under this Note shall be
made in United States currency at the office of the Lender, or at such other
place as the holder of this Note shall have designated by written notice to the
Borrower.
6. Event of Default. Each of the following events is an Event of Default under
this Note: (a) the Borrower's failure to pay when due any sum payable to the
Lender under this Note; or (b) the Borrower's failure to perform any obligation
of the Borrower to the Lender; or (c) any person or organization that guaranteed
payment of this Note ("Guarantor") denies liability under, or attempts to revoke
the guaranty; or (d) death, dissolution or insolvency of the Borrower or a
Guarantor; or (a) commencement of any proceeding or the taking of any act by or
against the Borrower or a Guarantor for any relief under bankruptcy, insolvency
or similar laws for the protection of debtors, or for the appointment of a
receiver of the business or assets of the Borrower or a Guarantor or the
Borrower's or a Guarantor's inability to pay his, her or its debts as they
become due; or (f) the Borrower's failure to pay any material debt owed by
Borrower to any person or entity other than the Lender, if such failure results
in the acceleration of such Debt.
7. Acceleration and Post-Maturity Increase in Interest Rate. If any event of
Default shall occur and be continuing, all further obligations of the Lender
shall immediately cease, and the entire principal sum and accrued interest
thereon shall, at the option of the Lender, immediately
<PAGE>
become due and payable. Time is of the essence. This Note shall bear interest at
a rate three percentage points above the rate otherwise applicable under this
Note, from and after the maturity of this Note whether or not resulting from
acceleration.
8. Lender's Expenses. The Borrower will pay on demand all of the Lender's
expenses, including reasonable attorney's fees, arising out of or related to the
protection, or enforcement of the Lender's rights under this Note, whether or
not an Event of Default shall have occurred.
9. Limitation and Payments. In no event shall the Borrower be obligated to pay
any amount under this Note that exceeds the amount allowable by law.
10. Application of Payments. Payments under this Note may be applied by the
Lender of the indebtedness evidenced by this Note in any manner the Lender deems
appropriate.
11. Waivers. The Borrower waives presentment, demand for payment, notice of
dishonor, and any and all other notices or demands in connection with the
delivery, acceptance, performance or enforcement of this Note, and consents to
any extension of time (and even multiple extensions of time for longer than the
original term), renewals, releases of any person or organization liable for the
payment of this Note, and waivers or modifications or other indulgences that may
be granted or consented to by the lender in respect of the Loan evidenced by
this Note.
12. Severability. If any provision of this Note is invalid or unenforceable,
such invalidity or unenforceability shall not effect any other provision of this
Note that can be given effect. The provisions of this Note are severable.
13. Governing Law. This Note shall be governed by the laws of the State of
Hawaii.
Borrower: Hawaiian Natural Water Co., Inc.
By: ______________________
Its President
Lender:
By: ______________________
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
-------------------------
Arthur Andersen LLP
Honolulu, Hawaii
March 5, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996
<CASH> 0 89,335
<SECURITIES> 0 0
<RECEIVABLES> 69,267 53,515
<ALLOWANCES> 0 0
<INVENTORY> 178,860 156,570
<CURRENT-ASSETS> 255,825 307,365
<PP&E> 487,649 553,462
<DEPRECIATION> 49,846 112,110
<TOTAL-ASSETS> 703,272 1,192,393
<CURRENT-LIABILITIES> 977,161 2,522,839
<BONDS> 0 0
0 0
233,334 0
<COMMON> 208,959 629,793
<OTHER-SE> (843,857) (2,047,715)
<TOTAL-LIABILITY-AND-EQUITY> 703,272 1,192,393
<SALES> 588,920 866,060
<TOTAL-REVENUES> 588,920 866,060
<CGS> 620,593 754,159
<TOTAL-COSTS> 620,593 754,159
<OTHER-EXPENSES> 657,940 1,052,209
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 51,261 247,443
<INCOME-PRETAX> (740,874) (1,187,751)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (740,874) (1,187,751)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (740,874) (1,187,751)
<EPS-PRIMARY> (0.62) (0.74)
<EPS-DILUTED> 0 0
</TABLE>
