<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 3, 1997
REGISTRATION NO. 333-18289
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
------
AMENDMENT NO. 2
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)
<TABLE>
<CAPTION>
<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>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==============================================================================================================
Proposed maximum Proposed maximum
Title of each class of securities Amount to be offering price per aggregate offering Amount of
to be registered registered security price(1) registration fee
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units consisting of:
(a) Common Stock, no
par value
(b) Common Stock
Purchase Warrants
("Warrants") (2) (2) $ 9,200,000 $2,787.88
- --------------------------------------------------------------------------------------------------------------
Common Stock underlying
Warrants ....................... 2,300,000(3) $6.00(4) $13,800,000 4,181.82
- --------------------------------------------------------------------------------------------------------------
Additional Warrants and
Common Stock underlying
Additional Warrants ............ 750,000(3) $6.00(4) $ 4,500,000 $1,363.64
- --------------------------------------------------------------------------------------------------------------
Total ................................................................................. $8,333.34(5)
==============================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Omitted pursuant to Rule 457(o).
(3) This Registration Statement covers such currently inderminable number of
additional shares of Common Stock as may be issuable upon exercise of the
Warrants.
(4) Calculated pursuant to Rule 457(g), based upon this initial exercise
price of the Warrants.
(5) Of which, $7,787.89 was paid previously.
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF FORM SB-2
<TABLE>
<CAPTION>
Form SB-2 Item Number and Caption Caption or Location in Prospectus
----------------------------------- ----------------------------------
<S> <C> <C>
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>
<TABLE>
<CAPTION>
Form SB-2 Item Number and Caption Caption or Location in Prospectus
----------------------------------- ----------------------------------
<S> <C> <C>
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 FEBRUARY 3, 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.
<PAGE>
================================================================================
Price to Underwriting Proceeds to
Public Discounts(1) Company(2)
- --------------------------------------------------------------------------------
Per Unit ... .................. $ $ $
- --------------------------------------------------------------------------------
Total(3) ... .................. $ $ $
================================================================================
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 $550,000, 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.)
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
(continued from cover page)s
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 18 months following the date of this Prospectus
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.
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(TM)." 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 18 months
following the date hereof 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 $1,550,000, including accrued
interest, incurred in connection with the
Bridge Financing, (ii) to repay other
indebtedness of approximately $642,000,
including accrued interest, owed to
stockholders and other investors, (iii) to
pay deferred compensation and consulting
fees of approximately $115,000, (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 ($843,000) 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) warrants 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
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table sets forth summary financial data of the Company for
the period from inception (September 13, 1994) through December 31, 1994, for
the year ended December 31, 1995 (collectively, the "Year-End Data") and for
the nine month periods ended September 30, 1995 and 1996 (the "Nine-Month
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 Nine-Month Data has been derived from the
unaudited financial statements of the Company. In the opinion of management,
the Nine-Month Data has been prepared in accordance with generally accepted
accounting principles on a basis consistent with the Year-End Data and
includes all adjustments, consisting only of normal recurring adjustments,
necessary for the fair presentation of the Company's financial position and
results of operations set forth therein. The Nine-Month Data may not be
indicative of the results expected for a full year or any other period. 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.
<TABLE>
<CAPTION>
Period From
Inception to Year Ended Nine Months Ended
December 31, December 31, September 30,
-------------- -------------- ----------------------------
1994 1995 1995 1996
-------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net sales ................... $ -- $ 588,920 $ 534,611 $ 748,600
Cost of sales ............... -- 620,593 531,335 698,710
Gross margin ................ -- (31,673) 3,276 49,890
Sales & marketing ........... 10,565 220,651 117,241 137,742
General & administrative .... 69,862 437,289 294,138 533,464
-------------- -------------- ------------ ------------
Total operating expenses .. 80,427 657,940 411,379 671,206
Interest expense, net ....... -- 51,261 36,380 65,498
-------------- -------------- ------------ ------------
Net loss .................... $(80,427) $ (740,874) $ (444,483) $ (686,814)
============== ============== ============ ============
Net loss per share .......... $ (0.09) $ (0.62) $ (0.42) $ (0.43)
============== ============== ============ ============
Weighted average number of
common and common equivalent
shares outstanding ......... 861,357 1,202,540 1,070,306 1,599,212
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 September 30, 1996
----------------- ------------------------------------------------
Pro Forma
Actual Pro Forma(1) As Adjusted(2)
-------------- ------------- --------------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit) ..... $ (721,336) $(1,603,641) $ (933,509) $3,471,776
Total assets .................. 703,272 846,001 2,081,229 5,921,418
Total liabilities ............. 1,104,836 1,948,379 2,996,107 751,392
Stockholders' equity (deficit) (401,564) (1,102,378) (914,878) 5,170,026
</TABLE>
- ------
(1) Gives retroactive effect to the Bridge Financing and the application of the
net proceeds therefrom. See "The Company -- Recent Bridge Financing."
(2) Adjusted to give effect to the Offering and the initial application of the
net proceeds therefrom. 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 $748,600 in net sales
in the nine months ended September 30, 1996. Approximately 72% of these 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 $1,603,641 at December 31, 1995 and September
30, 1996, respectively, and a net loss of $740,874 and $686,814 for the
fiscal year and nine months then ended, respectively. As of September 30,
1996, the Company had an accumulated deficit of $1,544,671. The Company's
results of operations for the fourth quarter of fiscal 1996 and the first
quarter of fiscal 1997 will include aggregate interest expense of
approximately $615,000 relating to the Bridge Financing, including an
aggregate of approximately $565,000 in amortization of original issue
discount and offering expenses. See "The Company" and "Capitalization."
Subsequent to September 30, 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 the fiscal year ended
December 31, 1995 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 42.7% of
the estimated net proceeds of the Offering (approximately 50.5% if the
Over-Allotment Option is exercised in full) is to be used for (i) sales 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 $1,660,000 or 25% 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 $532,000 or
8.0% 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.
Although the Company believes that all of these arrangements are favorable to
the Company and were entered into on terms reflecting arms' length
negotiation, 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 securities subject to such lock-up
agreements. Although the Underwriter does not currently intend to release all
of such securities from the lock-up agreements prior to their expiration, it
may from time to time release all or a portion of securities subject thereto
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 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, approximately 1,028,071
10
<PAGE>
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 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. 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 $2.56 or 64% ($2.41 or 60.3%, if the
Over-Allotment Option is exercised in full). 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 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
11
<PAGE>
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.
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
12
<PAGE>
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, Section 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.
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 $1,122,000 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."
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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 $38,663, 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."
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 $6,650,000
($7,694,000 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
$1,550,000 to repay the Bridge Notes (plus all accrued interest) in full;
(ii) approximately $532,000 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
$115,000 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 ($843,000) 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 possibly 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 ........................... $1,550,000 23.3%
Repayment of indebtedness to stockholders and their affiliates, plus
accrued interest ......................................................... 532,000 8.0
Repayment of unaffiliated investor loan, plus accrued interest ............ 110,000 1.7
Payment of deferred compensation and consulting fees ...................... 115,000 1.7
Improvements to plant and equipment ....................................... 1,500,000 22.6
Sales and marketing ....................................................... 2,000,000 30.0
Working capital and general corporate purposes ............................ 843,000 12.7
------------- -------------
Total ................................................................... $6,650,000 100%
</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
sales and marketing expenses and for general corporate purposes.
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<PAGE>
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 $407,715, 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 $38,663 (plus accrued interest), 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 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."
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company on a pro
forma basis as of September 30, 1996, giving retroactive effect to the Bridge
Financing and the Recapitalization (see "The Company--Recapitalization"),
and pro forma 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 Pro Forma(1) Pro Forma, As Adjusted
------------- -------------- ----------------------
<S> <C> <C> <C>
Loans from related parties ................ $ 507,715 $ 457,715 $ --
Unsecured advances from related parties ... 90,272 -- --
Capital lease obligations ................. 140,492 140,492 140,492
Private investor loan ..................... 100,000 100,000 --
Bank Loan ................................. 300,000 -- --
Bridge Notes .............................. -- 1,312,500(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) ....................... 442,293 629,793 7,279,793
Accumulated deficit ..................... (1,544,671) (1,544,671) (2,109,767)(4)
------------- -------------- ----------------------
Total stockholders' equity (deficit) . (1,102,378) (914,878) 5,170,026
------------- -------------- ----------------------
Total capitalization ............... $ 36,101 $ 1,095,829 $ 5,310,518
============= ============== ======================
</TABLE>
- ------
(1) Gives retroactive effect to the Bridge Financing and the application of
the net proceeds thereof to retire certain liabilities outstanding as of
September 30, 1996 as follows:
<TABLE>
<CAPTION>
Bank loan .............................. $300,000
<S> <C>
Related party loan ...................... 50,000
Unsecured advances from related parties .. 90,272
----------
Total ................................ $440,272
==========
</TABLE>
(2) Includes $187,500 allocated to the value of the Bridge Warrants.
(3) Excludes (i) warrants 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. Includes $187,500 allocated to the value of the Bridge Warrants.
(4) Includes non-recurring interest expense of $565,096 for the unamortized
portion of the original issue discount ($187,500) and loan costs
($377,596) relating to the Bridge Financing.
16
<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, after giving effect to the Offering, and the pro forma net tangible
book value per share as of September 30, 1996. At September 30, 1996, giving
retroactive effect to the Bridge Financing, the pro forma net tangible book
value of the Common Stock was $(914,878) in the aggregate, or $(0.57) 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 $6,650,000, 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 September 30, 1996, would have been
$5,170,026 in the aggregate, or $1.44 per share. This represents an immediate
increase in net tangible book value of $2.01 per share of Common Stock to
existing stockholders and an immediate dilution per share of $2.56, or 64%,
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>
Pro forma net tangible book value per share
before Offering ............................... $(0.57)
Increase attributable to new investors .......... 2.01
---------
Pro forma net tangible book value per share after the Offering .... 1.44
--------
Dilution per share to new investors ............................... $2.56
========
</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>
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 September 30, 1996, after giving effect to the Offering (assuming no
value is attributed to the Redeemable Warrants included in the Units), would
be approximately $6,214,026 or $1.59 per share, and the dilution per share to
new investors would be approximately $2.41 or 60.3%.
The foregoing also assumes no exercise of any outstanding stock options or
warrants. As of September 30, 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. Subsequent to September 30, 1996, the Company granted
additional options to purchase an aggregate of 225,000 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.
17
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company for
the period from inception (September 13, 1994) through December 31, 1995 (the
"Year-End Data") and for the nine month periods ended September 30, 1995 and
1996 (the "Nine Month 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 Nine Month Data has been
derived from the unaudited financial statements of the Company. In the
opinion of management, the Nine Month Data has been prepared in accordance
with generally accepted accounting principles on a basis consistent with the
Year-End Data and includes all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the Company's
financial position and results of operations set forth therein. The Nine
Month Data may not be indicative of the results expected for a full year or
any other period.
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>
Period From
Inception to Year Ended Nine Months Ended
December 31, December 31, September 30,
-------------- -------------- ----------------------------
1994 1995 1995 1996
-------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net sales ........................... $ -- $ 588,920 $ 534,611 $ 748,600
Cost of sales ....................... -- 620,593 531,335 698,710
Gross margin ........................ -- (31,673) 3,276 49,890
Sales & marketing ................... 10,565 220,651 117,241 137,742
General & administrative ............ 69,862 437,289 294,138 533,464
-------------- -------------- ------------ ------------
Total operating expenses .......... 80,427 657,940 411,379 671,206
Interest expense, net ............... -- 51,261 36,380 65,498
-------------- -------------- ------------ ------------
Net loss ............................ $(80,427) $ (740,874) $ (444,483) $ (686,814)
============== ============== ============ ============
Net loss per share .................. $ (0.09) $ (0.62) $ (0.42) $ (0.43)
============== ============== ============ ============
Weighted average number of common and
common equivalent shares outstanding 861,357 1,202,540 1,070,306 1,599,212
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 September 30, 1996
----------------- ------------------
<S> <C> <C>
Balance Sheet Data:
Working capital deficit $ (721,336) $ (1,603,641)
Total assets ........... 703,272 846,001
Total liabilities ...... 1,104,836 1,948,379
Stockholders' deficit .. (401,564) (1,102,378)
</TABLE>
18
<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. Accordingly, the Company does not believe that
its results of operations for the period from inception through December 31,
1994, are useful as a basis for evaluating its current or future results or
that comparisons to its results of operations for the corresponding period of
fiscal 1995 would be meaningful.
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 72% of the Company's net
sales through September 30, 1996. Accordingly, the Company's results of
operations through September 30, 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 September 30, 1996, the Company had an accumulated deficit of
$1,544,671, a loss of $686,814 and negative cash flow from operations of
$425,497 for the nine months then ended. Subsequent to September 30, 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 fourth quarter of fiscal 1996 and the first quarter of
fiscal 1997 will include aggregate interest expense of approximately $615,000
relating to the Bridge Financing, including an aggregate of approximately
$565,000 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 report 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 in 1996.
19
<PAGE>
RESULTS OF OPERATIONS
Net Sales. Net sales increased to approximately $749,000 for the nine
months ended September 30, 1996 (the "1996 Period") from approximately
$535,000 for the nine months ended September 30, 1995 (the "1995 Period").
Since the Company began commercial operations in February 1995, the Company's
results for the 1995 Period are based upon less than eight full months of
operations versus nine months in the 1996 Period. The increase in net
revenues in the 1996 Period was due primarily to unit sales growth from
approximately 64,000 cases in the 1995 Period to approximately 98,000 cases
in the 1996 Period. Sales of approximately $83,000 in the 1995 Period were
reversed in the fourth quarter of 1995 due to product returns in Japan. The
1996 Period includes the resale (at cost) of 6,900 cases of such returned
product. See "Business--Distribution." Sales in the Hawaiian market accounted
for approximately 72% of all sales in the 1996 Period compared to
approximately 67% in the 1995 Period. Beginning in the second quarter of
1995, the Company began export sales to Asia and the Pacific islands. Such
sales accounted for approximately 15% of sales in the 1996 Period. The
average sales price per case decreased approximately 9% in the 1996 Period
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 $699,000
in the 1996 Period from approximately $531,000 in the 1995 Period, primarily
due to unit sales growth. The Company reduced its unit cost in the 1996
Period by switching from a California bottle supplier to a lower cost Hawaii
supplier. Due to higher volume bottle purchases in the 1996 Period, the
Company was able to receive certain quantity discounts and thereby further
reduce unit costs. As a result, gross margin improved to approximately 7% in
the 1996 Period from approximately 1% in the 1995 Period. 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 expects to further reduce its bottling
cost through this arrangement thereby improving gross margins as well as to
improve quality control and inventory scheduling. The Company has recently
entered into negotiations with its bottle supplier 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 these
negotiations will be successfully concluded.
Selling and marketing expenses increased to approximately $138,000 in the
1996 Period from approximately $117,000 in the 1995 Period, primarily as a
result an increase in internal promotional activities, including product
giveaways, and the hiring of certain advertising consultants. General and
administrative expenses increased to approximately $533,000 in the 1996
Period from approximately $294,000 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
$65,000 in the 1996 Period from approximately $36,000 in the 1995 Period due
to reduced interest income in the 1996 Period, increased borrowings under the
Company's bank credit line in the 1996 Period and the incurrence of
approximately $408,000 in loans from related parties in addition to a
$100,000 loan from a private investor in the 1996 Period.
Net Loss. Due to the foregoing, the Company incurred a net loss of
$686,814 in the 1996 Period compared to a net loss of $444,483 in the 1995
Period.
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
20
<PAGE>
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. 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." 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 $160,000 in 1995
compared to approximately $42,000 in 1996. Capital expenditures in 1995
consisted primarily of leasehold improvements to the Company's production
facility to prepare the facility for use. 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 $146,330 at September 30, 1996. The lease
liability was approximately $116,000, net of current portion, at September
30, 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
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
21
<PAGE>
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 $367,000 upon the repayment of the Bridge Notes (expected to be
effected approximately February 10, 1997), consisting of approximately
$122,000 of unamortized original issue discount and approximately $245,000 of
unamortized issuance costs.
The Company intends to use the net proceeds as follows: (i) approximately
$1,550,000 to repay the Bridge Notes (plus all accrued interest) in full;
(ii) approximately $532,000 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
$115,000 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 ($843,000) 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 possibly 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 $1,473,000 as of September 30, 1996. Use of these net
operating losses in future years will be limited pursuant to ss.382 of the
Internal Revenue Code because of the ownership change (as defined) resulting
from the proposed IPO.
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.
22
<PAGE>
BUSINESS
GENERAL
The Company bottles, markets and distributes "natural" water under the
name "Hawaiian Springs(TM)." 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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<PAGE>
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 entered into negotiations with its
bottle supplier 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 these negotiations will be
successfully concluded.
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 September 30, 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 .. 48 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.
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." 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 $120,000.
31
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
-------------------
Number of
Securities % of Total
Underlying Options/SARs
Options/ Granted to
SARs Employees in Exercise or Base Expiration
Name Granted Fiscal Year Price ($/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.
<PAGE>
<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 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.
32
<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.
33
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's capital stock, as of December 15, 1996,
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.
34
<PAGE>
(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.
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.
35
<PAGE>
<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 Dweck 25,000 * 25,000 *
Jerry Finkelstein 50,000 1.82 50,000 *
Charles Johnston 12,500 * 12,500 *
Jack 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. Schecter 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.
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. The Selling
Securityholders have agreed not to sell or otherwise dispose of any of the
Selling Securityholders Warrants or Selling Securityholders Shares during the
Lock-up Period without the prior consent of the Underwriter. With such
consent, the Selling Securityholders may sell the Selling Securityholders
Warrants or the underlying Selling Securityholders Shares at any time on or
after the date hereof. 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,
36
<PAGE>
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 Share 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.
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, respec-
37
<PAGE>
tively, and Mayo Water Co., Inc. ("MWC"), a corporation wholly owned by John
Mayo, a director of the Company, loaned the Company $49,726. These loans also
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. 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
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. 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
38
<PAGE>
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.
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
39
<PAGE>
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.
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. Of these shares, 1,028,071 will become eligible for sale in the public
market under Rule 144 90 days after the date hereof. An additional 237,912
and 333,229 of these shares will first become eligible for sale in the public
markets under Rule 144 on July 1, 1997 and October 1, 1997, respectively.
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 18 months from the date hereof, 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 two years 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
40
<PAGE>
beneficially owned the shares proposed to be sold for at least three 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. The Securities and Exchange Commission (the "Commission") has
recently proposed to amend Rule 144 to shorten each of the two-year and
three-year periods by one year.
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.
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
10b-6 promulgated under the Exchange Act, the Underwriter will be prohibited
from engaging in any market making activities with regard to the Company's
securities for the period from nine business days (or such applicable periods
as Rule 10b-6 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 10b-6 during the period described above, the Underwriter
undertakes to waive unconditionally its rights to receive a commission on the
exercise of such Redeemable Warrants.
41
<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 securities.
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 $______ [120% 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. 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 offering 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 assur-
42
<PAGE>
ance 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."
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.
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.
43
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Public Accountants ..................................................... F-2
Balance Sheet -- December 31, 1995 ........................................................... F-3
Statement of Operations For the Period From Inception (September 13, 1994) to December 31,
1994 and the Year Ended December 31, 1994 ................................................... F-4
Statement of Stockholders' Deficit for the Period From Inception (September 13, 1994) to
December 31, 1994 and the Year Ended December 31, 1995 ...................................... F-5
Statements of Cash Flows for the Period From Inception (September 13, 1994 to December 31,
1994) and the Year Ended December 31, 1995 .................................................. F-6
Notes to Financial Statements ................................................................ F-7
Balance Sheet -- September 30, 1996 (Unaudited) .............................................. F-17
Statement of Operations for the Nine Months Ended September 30, 1995 and 1996 (Unaudited) .... F-18
Statement of Changes in Stockholders' Deficit for the Nine-Month Period Ended September 30,
1996 (Unaudited) ............................................................................ F-19
Statements of Cash Flows for the Nine Months Ended September 30, 1995 and 1996 (Unaudited) ... F-20
Notes to Financial Statements For the Nine Months Ended September 30, 1995 and 1996
(Unaudited) ................................................................................. F-21
</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, 1995, and the
related statements of operations, stockholders' deficit and cash flows for
the period from inception (September 13, 1994) to December 31, 1994 and the
year ended December 31, 1995. 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, 1995, and the results of its operations and
its cash flows for the period from inception (September 13, 1994) to December
31, 1994 and the year ended December 31, 1995, 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
September 5, 1996
F-2
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
BALANCE SHEET -- DECEMBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
<S> <C>
CURRENT ASSETS:
Inventories ................................................................. $ 178,860
Trade Accounts Receivable ................................................... 69,267
Prepaid Expenses ............................................................ 7,698
-----------
Total Current Assets ................................................... 255,825
PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of
$49,846 ........................................................................ 437,803
DEPOSITS ......................................................................... 6,262
ORGANIZATIONAL COSTS, net of accumulated amortization of $1,127 .................. 3,382
-----------
Total Assets ........................................................... $ 703,272
===========
</TABLE>
LIABILITIES
<TABLE>
<CAPTION>
<S> <C>
CURRENT LIABILITIES
Bank Overdraft ................................................................ $ 28,578
Accounts Payable .............................................................. 346,662
Loan Payable to Related Party ................................................. 100,000
Bank Loan ..................................................................... 300,000
Accrued Expenses and Other Current Liabilities ................................ 120,451
Dividends Payable ............................................................. 22,556
Unearned Revenue .............................................................. 13,990
Deferred Compensation ......................................................... 12,500
Capital Lease Obligation -- Current Portion ................................... 32,424
-----------
Total Current Liabilities ................................................ 977,161
CAPITAL LEASE OBLIGATION -- Net of Current Portion ................................. 127,675
-----------
Total Liabilities ........................................................ 1,104,836
-----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
STOCKHOLDERS' DEFICIT:
Preferred Stock, 8% cumulative, convertible; $666.67 par value; 500 authorized;
350 shares issued and outstanding (convertible into an aggregate of 389,000
shares of common stock) ..................................................... 233,334
Common Stock, no par; 20,000,000 authorized; 1,210,212 shares issued and
outstanding ................................................................. 208,959
Accumulated Deficit ........................................................... (843,857)
-----------
Total Stockholders' Deficit .............................................. (401,564)
-----------
Total Liabilities and Stockholders' Deficit .............................. $ 703,272
==========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 13, 1994) TO
DECEMBER 31, 1994 AND THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Period From
Inception to Year Ended
December 31, December 31,
1994 1995
-------------- --------------
<S> <C> <C>
NET SALES ................................. $ -- $ 588,920
COST OF SALES ............................. -- 620,593
-------------- --------------
Gross Margin .................... -- (31,673)
-------------- --------------
EXPENSES:
General and Administrative ........... 69,862 437,289
Selling and Marketing ................ 10,565 220,651
-------------- --------------
80,427 657,940
-------------- --------------
OTHER INCOME (EXPENSE):
Interest Income ...................... -- 2,179
Interest Expense ..................... -- (53,440)
-------------- --------------
-- (51,261)
-------------- --------------
Net Loss ........................ $ (80,427) $ (740,874)
============== ==============
Loss per Common and Common
Equivalent Share .............. $(0.09) $(0.62)
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 13, 1994) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Common Stock Preferred Stock
------------------------ ------------------------
Stock Total
Number of Number of Subscriptions Accumulated Stockholders'
Shares Amount Shares Amount Receivable Deficit Deficit
----------- ----------- ----------- ----------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
ISSUANCE OF SHARES --
SEPTEMBER 13, 1994 ............. 639,071 $ 51,000 200 $133,334 $ -- $ -- $ 184,334
Subscription of stock ......... -- -- -- 100,000 (100,000) -- --
Preferred dividends ........... -- -- -- -- -- (3,889) (3,889)
Net loss ...................... -- -- -- -- -- (80,427) (80,427)
----------- ----------- ----------- ----------- --------------- ------------- --------------
BALANCE AT DECEMBER 31, 1994 .... 639,071 51,000 200 233,334 (100,000) (84,316) 100,018
Issuance of shares --
July 1, 1995 ............... 237,912 65,800 -- -- -- -- 65,800
Issuance of shares --
October 1, 1995 ............ 333,229 92,159 -- -- -- -- 92,159
Collection of stock
subscriptions receivable --
March 1, 1995 ............... -- -- 150 -- 100,000 -- 100,000
Preferred dividends ........... -- -- -- -- -- (18,667) (18,667)
Net loss ...................... -- -- -- -- -- (740,874) (740,874)
----------- ----------- ----------- ----------- --------------- ------------- -------------
BALANCE AT DECEMBER 31, 1995 .... 1,210,212 $208,959 350 $233,334 $ -- $ (843,857) $ (401,564)
=========== =========== =========== =========== =============== ============= =============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-5
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 13, 1994) TO
DECEMBER 31, 1994 AND THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Period From
Inception to Year Ended
December 31, December 31,
1994 1995
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................... $ (80,427) $ (740,874)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ........................... 290 50,682
Net increase in current assets .......................... (701) (255,124)
Net increase in current liabilities ..................... 32,856 489,195
Increase in organizational cost ......................... (4,509) --
Increase in deposits .................................... (1,758) (4,504)
-------------- --------------
Net cash used in operating activities .............. (54,249) (460,625)
-------------- --------------
CASH USED IN INVESTING ACTIVITIES --
Purchase of property and equipment ......................... (131,291) (162,002)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock ......................... 51,000 157,959
Proceeds from sale of preferred stock ...................... 133,334 100,000
Proceeds from bank loan .................................... 20,000 280,000
Proceeds from loan payable to related party ................ -- 100,000
Repayment of principal on capital leases ................... -- (34,126)
-------------- --------------
Net cash provided by financing activities .......... 204,334 603,833
-------------- --------------
NET INCREASE (DECREASE) IN CASH .............................. 18,794 (18,794)
CASH, beginning of period .................................... -- 18,794
-------------- --------------
CASH, end of period .......................................... $ 18,794 $ --
============== ==============
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Acquisition of equipment under capital leases ................ $ 175,795 $ 18,430
============== ==============
Note receivable for subscription of preferred stock .......... $ 100,000 $ --
============== ==============
Preferred dividends .......................................... $ 3,889 $ 18,667
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION (SEPTEMBER 13, 1994) TO DECEMBER 31, 1995
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, 1995, 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, 1995, the Company had an accumulated deficit, negative
cash flows from operations and significant liabilities, some of which were
past due. The Company also 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 13, the Company is planning a private
placement offering to raise gross proceeds of $1.5 million from Accredited
Investors, as defined. In addition, as more fully discussed in Note 13, the
Company also plans an initial public offering for the purpose of raising
gross proceeds of approximately $5 million of capital in order to implement
its planned expansion.
There can be no assurances, however, that these offerings will succeed.
Additionally, should the Company require additional financing subsequent to
these offerings, 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 $588,920 in net sales in the fiscal year ended
December 31, 1995 and $202,405 in net sales in the fiscal quarter ended
March 31, 1996. Approximately 77 percent of these 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.
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.
F-7
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
FROM INCEPTION (SEPTEMBER 13, 1994) TO DECEMBER 31, 1995
1. Summary of Significant Accounting Policies and Risk Factors - (Continued)
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:
<TABLE>
<CAPTION>
The shorter of the useful
Leasehold improvements life or the lease term
--------------------------------- -----------------------------
<S> <C>
Machinery and equipment and
assets under capital lease 7 years
</TABLE>
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 had no advertising expense in the period from inception to December
31, 1994. The Company incurred approximately $48,000 of advertising expense
during the year ended December 31, 1995, which is 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 Company will adopt the new standard in 1996.
Management does not expect that the new standard will have a material impact
on the Company's financial statements.
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
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 con-
F-8
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
FROM INCEPTION (SEPTEMBER 13, 1994) TO DECEMBER 31, 1995
1. Summary of Significant Accounting Policies and Risk Factors - (Continued)
sideration 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 will adopt the
new standard in 1996. Management has not yet determined the impact that this
new standard will have on the Company's financial statements.
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, 1995. 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.
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. Loss Per Common and Common Equivalent Share
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 1,202,540 and 861,357 for 1995 and 1994, respectively. 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 389,000 shares of common stock effected in October 1996.
The effect on loss per Common and Common Equivalent Share of all warrants and
options issued within twelve months prior to the initial public offering
would be anti-dilutive.
2. INVENTORIES
As of December 31, 1995, inventories were comprised of the following:
<TABLE>
<CAPTION>
<S> <C>
Raw materials ................................................ $ 99,394
Finished goods ................................................ 79,466
----------
$178,860
==========
</TABLE>
Raw materials inventory consists of empty bottles, caps, labels and various
packaging and shipping materials. Inventory cost as of December 31, 1995,
consists of the approximate cost of purchased direct materials.
F-9
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
FROM INCEPTION (SEPTEMBER 13, 1994) TO DECEMBER 31, 1995
3. PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Leasehold improvements ......................... $144,855
Assets under capital lease ..................... 194,225
Machinery and equipment ........................ 148,569
----------
487,649
Less: Accumulated depreciation and amortization (49,846)
----------
$437,803
==========
</TABLE>
Depreciation and amortization expense for the period from inception to
December 31, 1994 was insignificant. Depreciation expense for the year ended
December 31, 1995 was $49,780 and is reflected in General and Administrative
Expenses in the accompanying financial statements.
4. RELATED PARTY TRANSACTIONS
In May 1995, the Company executed a $100,000 unsecured promissory note (the
"Loan") due to a business in which the Company's Secretary/Treasurer is the
president and a stockholder. The interest rate on the Loan is 12 percent,
interest is due monthly and principal was originally due on June 24, 1995.
The loan is currently past due and a demand for payment has been made. The
Loan is guaranteed by certain of the Company's directors and an affiliate.
The Company plans to repay $50,000 of the principal and accrued interest to
date on the Loan with proceeds from a planned private placement. The balance
will be retired with the proceeds from a planned initial public offering (see
Notes 1 and 13).
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/Treasurer are owners of a principal
stockholder of the Company. The Company paid total salaries to these
individuals of approximately $28,000 and $102,000 in 1994 and 1995,
respectively. These expenses are reflected in General and Administrative
Expenses in the accompanying financial statements. In August 1995, the
Company's Secretary/Treasurer orally agreed to defer payment of his salary,
until the Company achieves breakeven, as defined. This is reflected as
Deferred Compensation in the accompanying balance sheet.
The Company subleases a portion of its office space to a stockholder and
another business owned by the Company's President. The Company leases the
space under a month-to-month lease agreement, calling for monthly rental
payments of approximately $1,760. The Company receives rental payments of
approximately $400 per month from its sublessees.
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 (see Note 8.b.).
5. BANK LOAN
The Company's bank loan consists of a revolving line of credit with a bank
bearing interest at the bank's prime rate (as defined) plus 2 percent (10.5
percent at December 31, 1995) and was due March 1996. The line is secured by
accounts receivable, inventory and equipment of the Company and is guaranteed
by certain of the Company's directors and an affiliate. As of December 31,
1995 the Company had drawn all available amounts under this line. On June 10,
1996, the bank demanded full repayment of the line. The Company intends to
use a portion of the proceeds from the private placement (see Notes 1 and 13)
to pay the outstanding balance.
F-10
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
FROM INCEPTION (SEPTEMBER 13, 1994) TO DECEMBER 31, 1995
5. Bank Loan - (Continued)
The Company paid and expensed no interest in 1994 and expensed approximately
$53,000 of interest in 1995. The Company paid approximately $46,000 of
interest in 1995.
6. CURRENT LIABILITIES
Unearned revenue represents cash collected from a foreign distributor for a
sale which had not yet been shipped at December 31, 1995.
Approximately $320,000 of the Company's accounts payable were past due as of
December 31, 1995.
7. INCOME TAXES
Certain items of expense are recognized in different periods for income tax
purposes than for financial reporting purposes.
As of December 31, 1995, the Company had approximately $795,000 of net
operating loss (NOL) carryforwards available to reduce future taxable income.
These NOL carryforwards begin to expire in 2010. The major temporary
differences as of December 31, 1995, primarily relate to certain accrued
liabilities not currently deductible for tax purposes.
The deferred tax asset as of December 31, 1995 consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Net operating loss carryforward ................... $ 318,000
Accrued liabilities not deductible for tax purposes . 11,000
-----------
329,000
Valuation allowance ............................... (329,000)
-----------
Net deferred tax asset ............................ $ --
===========
</TABLE>
Due to the uncertainty of its future realization, the net deferred tax asset
has been fully reserved. The Company recorded valuation allowances of $32,000
and $297,000 for the period from inception to December 31, 1994 and for the
year ended December 31, 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 period from inception to December 31, 1994 and the
year ended December 31, 1995.
8. 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, 1995, future minimum
payments were as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 ................................ $ 49,998
1997 ................................ 49,998
1998 ................................ 49,998
1999 ................................ 46,231
2000 ................................ 1,198
----------
Total Future Minimum Payments ....... 197,423
Less -- Amount Representing Interest . 37,324
----------
Total Capital Lease Obligations ..... 160,099
Less -- Current Portion ............ 32,424
----------
Noncurrent Portion .................. $127,675
==========
</TABLE>
F-11
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
FROM INCEPTION (SEPTEMBER 13, 1994) TO DECEMBER 31, 1995
8. Commitments and Contingencies - (Continued)
These capital leases are guaranteed by certain of the Company's directors and
an affiliate.
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. Other significant provisions
of the lease unaffected by the amendment include:
o Provision to allow lessor to draw up to 50 percent of the water flow from
the well.
o Provision to require the Company to relocate on six months advance written
notice (this provision was subsequently removed by the July 1996 amendment
described below).
o The Company is required to maintain adequate levels of insurance for the
property.
Based on the terms of the amended lease the future minimum lease payments as
of December 31, 1995 were as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 ...................................................... $ 24,000
1997 ...................................................... 24,000
1998 ...................................................... 24,000
1999 ...................................................... 24,000
2000 ...................................................... 24,000
Thereafter ................................................ 1,050,000
------------
$1,170,000
============
</TABLE>
The Company paid approximately $6,000 and $23,000 in lease payments in 1994
and 1995, respectively, which is reflected in General and Administrative
Expenses in the accompanying financial statements.
In July 1996, the lease was further amended to include the following
provisions, effective concurrent with the closing of the proposed private
placement (see Note 13):
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.
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).
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.
F-12
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
FROM INCEPTION (SEPTEMBER 13, 1994) TO DECEMBER 31, 1995
9. SIGNIFICANT CUSTOMERS AND SUPPLIERS
During 1995, approximately 81 percent of the Company's sales were made
through a Hawaiian distribution company (the "Distributor"). In 1996, the
Distributor sold the distributorship to a new company that decided not to
carry the Company's product. The Company has since negotiated an oral
agreement with a new distribution company in Hawaii. As such, management does
not expect the loss of the Distributor to have a material adverse impact on
the Company's sales.
During 1995, the Company imported all of its bottles from a single-source
supplier. In December 1995, the Company entered into a three-year Blow
Molding Agreement (the "Agreement") with a bottle vendor (the "Vendor") to
install and operate a bottle-making machine at the Company's production
facility. The machine was installed, tested and became fully operational in
July 1996. The Company is committed to purchase a minimum of $750,000 of
bottles, as defined, each year from the Vendor. The Agreement automatically
renews for a one year term, unless terminated.
In July 1996, an officer of the Vendor was appointed a director of the
Company.
10. 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. This amount is recorded in Accrued Expenses and Other Current
Liabilities in the accompanying financial statements. 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.
11. FOREIGN SALES
The Company sells its product directly to foreign distributors. All sales are
made in U.S. dollars. There were no export sales for the period from
inception to December 31, 1994. Export sales to Asia and the Pacific Islands
for the year ended December 31, 1995 (net of Japan sales returns of
approximately $83,000 as discussed above) were approximately $80,000.
12. 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 will be
$120,000 for the term of the agreement, payable in installments, as defined,
through January 1997. The Company recorded $20,000 of consulting expense
during 1995 which is reflected in Accrued Expenses and Other Current
Liabilities and General and Administrative Expenses in the accompanying
financial statements.
F-13
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
FROM INCEPTION (SEPTEMBER 13, 1994) TO DECEMBER 31, 1995
12. Consulting Agreements - (Continued)
b. Sales Representative
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 in 1995,
commencing June 1995. In June 1996, the Agent became a Vice President of the
Company.
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 will be
approximately $25,000.
13. SUBSEQUENT EVENTS
a. Financing Arrangements
In anticipation of the following financial arrangements, in June 1996, the
Company increased the authorized shares of its common stock to 20,000,000
shares. In August 1996, the Company effected a 1,111.428 for 1 common stock
split.
Private Placement -- In September 1996, the Company is planning to offer for
sale to persons who qualify as "accredited investors," as defined, a total of
thirty Units (the "Offering"), each Unit (the "Unit") consisting of (i) an
unsecured promissory note of the Company in the principal amount of $50,000
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) 25,000 warrants (the "Warrants") of
the Company, each Warrant exercisable to purchase one share of common stock
of the Company, no par value (the "Common Stock"), at an exercise price of
$1.50 per share, subject to adjustment under certain circumstances, during
the thirty-six month period commencing one year from the date the Warrants
are issued. The Warrants will 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 (the "IPO")
prior to the last day on which the Warrants may be exercised and such IPO
includes warrants (the "Public Warrants") to purchase shares of Common Stock,
each Warrant which is then unexercised will automatically, without any action
by the holder thereof be converted into a new warrant exercisable to purchase
the same number of shares of Common Stock as are then purchasable pursuant to
the 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 Warrants.
The Units will be offered through a placement agent (the "Placement Agent")
on an exclusive basis. In consideration for placing the Units, the Placement
Agent will receive, upon the closing of the offering, a sales commission
equal to 10 percent of the aggregate subscription price of the Units sold
plus an expense allowance equal to three percent of the aggregate
subscription price. The Placement Agent will also be entitled to receive
150,000 Warrants and reimbursements for legal fees not to exceed $50,000.
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 shall underwrite, on a firm
commitment basis, such number of IPO Units resulting in gross proceeds of
approximately $5 million in an initial public offering.
Private Investor Borrowing -- In May 1996, the Company entered into a
$100,000 subordinated, unsecured note agreement (the "Borrowing") with a
private investor (the "Lender"). The Borrowing bears interest at 12 percent
F-14
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
FROM INCEPTION (SEPTEMBER 13, 1994) TO DECEMBER 31, 1995
13. Subsequent Events - (Continued)
per annum and is due in one year. Concurrent with the Borrowing, the Lender
also received a common stock purchase warrant (the "Investor Warrant") to
purchase 24,351 shares of the common stock of the Company 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.
Stockholder Loans -- Subsequent to year-end, three stockholders collectively
loaned the Company $407,715 on an unsecured basis, bearing interest at 12
percent and due in 1997.
Increase in Authorized Preferred Stock -- Concurrent with the closing of the
Offering, the Company plans to increase the number of authorized preferred
shares to 5,000,000 and change the par value to $1.
Conversion of Preferred Stock To Common Stock -- The holders of the preferred
stock have agreed to convert all shares of preferred stock held by them to
common stock concurrent with the closing of the Offering. Each share of
preferred stock will be converted to one share of common stock on a pre-split
basis (or 1,111.428 shares post-split). The cumulative dividend payable to
preferred stockholders (approximately $23,000 at December 31, 1995 and
$32,000 at June 30, 1996) will be declared at the time of the conversion and
will be payable in the form of promissory notes.
Proforma Stockholders' Deficit Information at March 31, 1996 (Unaudited) --
The following schedule reflects the proforma stockholders' deficit as of
March 31, 1996, including the planned increase in authorized preferred stock
and the planned conversion of preferred stock to common stock (as discussed
above). These transactions are expected to occur concurrent with the closing
of the Offering. The information in this schedule has not been audited.
<TABLE>
<CAPTION>
Pro forma
As of March 31,
1996
---------------
<S> <C>
Preferred stock, $1 par value, 5,000,000 shares authorized, no
shares issued or outstanding ...................................... $ --
Common stock, no par value, 20,000,000 shares authorized, 1,599,212
shares issued and outstanding ..................................... 442,293
Accumulated deficit ................................................ (1,043,318)
---------------
Total stockholders' deficit ...................................... $ (601,025)
===============
</TABLE>
b. Purchase Order
In June 1996, the Company amended the Blow Molding Agreement by increasing
its purchase order to $1,825,000 for 10,000,000 bottles for the period from
July 1, 1996 to June 30,1997 in order to receive more favorable pricing.
c. 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.
d. Employment Agreement
In August 1996, the Company entered into a 5-year employment agreement (the
"Employment Agreement") with its President. The Employment Agreement 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-15
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
FROM INCEPTION (SEPTEMBER 13, 1994) TO DECEMBER 31, 1995
13. Subsequent Events - (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 Offering 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 one year following termination of the Employment Agreement.
F-16
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
BALANCE SHEET -- SEPTEMBER 30, 1996
(UNAUDITED)
Although the following unaudited financial statements for the nine months
ended September 30, 1996 have not been audited by Arthur Andersen LLP, Arthur
Andersen LLP, has informed the Company that, if the uncertainty described in
Note 1 continues to exist at the time of their audit of the financial
statements for the year ended December 31, 1996, their report on those
statements will include an explanatory fourth paragraph describing the
uncertainty.
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash ........................................................................ $ 10,890
Restricted Cash ............................................................. 100,000
Inventories ................................................................. 46,572
Trade Accounts Receivable ................................................... 60,694
Prepaid Expenses ............................................................ 10,840
----------
Total Current Assets ................................................... 228,996
PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of
$94,551 ........................................................................ 435,092
DEPOSITS ......................................................................... 6,262
ORGANIZATIONAL COSTS, net of accumulated amortization of $1,804 .................. 2,705
DEFERRED CHARGES AND OTHER ....................................................... 172,946
----------
Total Assets ........................................................... $846,001
==========
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
LIABILITIES
CURRENT LIABILITIES:
Accounts Payable ............................................................$ 566,905
Loans Payable to Related Parties ............................................ 507,715
Loans Payable ............................................................... 400,000
Accrued Expenses and Other Current Liabilities .............................. 171,439
Unsecured Advances From Related Parties ..................................... 90,272
Dividends Payable ........................................................... 36,556
Deferred Compensation ....................................................... 35,000
Capital Lease Obligation -- Current Portion ................................. 24,750
------------
Total Current Liabilities .............................................. 1,832,637
CAPITAL LEASE OBLIGATION -- Net of Current Portion ............................... 115,742
------------
Total Liabilities ...................................................... 1,948,379
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
STOCKHOLDERS' DEFICIT:
Preferred Stock, 8% cumulative, convertible; $666.67 par value; 500 authorized;
350 shares issued and outstanding (convertible into an aggregate of 389,000
shares of common stock) ................................................... 233,334
Common Stock, no par; 20,000,000 authorized; 1,210,212 shares issued and
outstanding ............................................................... 208,959
Accumulated Deficit ......................................................... (1,544,671)
-----------
Total Stockholders' Deficit ............................................ (1,102,378)
-----------
Total Liabilities and Stockholders' Deficit ............................$ 846,001
===========
</TABLE>
See Notes to Financial Statements.
F-17
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1995 1996
--------------- ---------------
<S> <C> <C>
NET SALES ................................. $ 534,611 $ 748,600
COST OF SALES ............................. 531,335 698,710
--------------- ---------------
Gross Margin .......................... 3,276 49,890
EXPENSES:
General and Administrative .............. 294,138 533,464
Selling and Marketing ................... 117,241 137,742
--------------- ---------------
411,379 671,206
0THER INCOME (EXPENSE):
Interest Income ......................... 2,179 --
Interest Expense ........................ (38,559) (65,498)
--------------- ---------------
(36,380) (65,498)
--------------- ---------------
Net Loss .............................. $(444,483) $(686,814)
=============== ===============
LOSS PER COMMON AND COMMON EQUIVALENT SHARE $ (0.42) $ (0.43)
=============== ===============
</TABLE>
See Notes to Financial Statements.
F-18
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Preferred Stock
-------------------------- --------------------------
Total
Number of Number of Accumulated Stockholders'
Shares Amount Shares Amount Deficit Deficit
----------- ----------- ----------- ----------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 ....... 1,210,212 $208,959 350 $233,334 $ (843,857) $ (401,564)
Preferred cumulative dividends --
January 1 - September 30, 1996 . -- -- -- -- (14,000) (14,000)
Net loss -- January 1 - September
30, 1996 ...................... -- -- -- -- (686,814) (686,814)
----------- ----------- ----------- ----------- -------------- ---------------
BALANCE AT SEPTEMBER 30, 1996 ...... 1,210,212 $208,959 350 $233,334 $(1,544,671) $(1,102,378)
=========== =========== =========== =========== ============== ===============
</TABLE>
See Notes to Financial Statements.
F-19
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1995 1996
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................... $(444,483) $ (686,814)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization ....................................... 35,653 45,381
Net increase in current assets ...................................... (300,294) (35,227)
Net increase in current liabilities ................................. 264,626 251,163
Increase in deposits ................................................ (6,378) --
--------------- ---------------
Net cash used in operating activities .......................... (450,876) (425,497)
--------------- ---------------
CASH USED IN INVESTING ACTIVITIES --
Purchase of property and equipment, net ................................ (160,009) (41,993)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock ..................................... 121,388 --
Proceeds from sale of preferred stock .................................. 100,000 --
Proceeds from bank loan ................................................ 278,370 --
Proceeds from private investor loan .................................... -- 100,000
Proceeds from loans payable to related parties ......................... 100,000 407,715
Proceeds from unsecured advances from related parties .................. -- 100,272
Purchase of Restricted Certificate of Deposit .......................... (100,000)
Repayment of unsecured advances from related parties ................... -- (10,000)
Repayment of principal on capital leases ............................... (7,667) (19,607)
--------------- ---------------
Net cash provided by financing activities ...................... 592,091 478,380
--------------- ---------------
NET INCREASE (DECREASE) IN CASH .......................................... (18,794) 10,890
CASH, beginning of period ................................................ 18,794 --
--------------- ---------------
CASH, end of period ...................................................... $ -- $ 10,890
=============== ===============
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITY:
Preferred dividends .................................................... $ 14,000 $ 14,000
=============== ===============
</TABLE>
See Notes to Financial Statements.
F-20
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
(UNAUDITED)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
1. GENERAL
The interim unaudited operating results for the nine months ended September
30, 1996 and 1995 have been prepared in accordance with generally accepted
accounting principles consistent with the audited financial statements and,
in the opinion of management, include all adjustments (consisting only of
normal recurring accruals) necessary in order to make the financial
statements not misleading. The results of operations for interim periods are
not necessarily indicative of results to be achieved for full fiscal years.
Due to the accumulated deficit, negative cash flow from operations and
significant liabilities, some of which are past due as of September 30, 1996
and for the nine months then ended, there continues to be substantial doubt
about the Company's abilities to continue as a going concern. Managements
plans in regard to this matter as well as certain othere risk factors are
more fully described in Note 1 to the December 31, 1995 audited financial
statements. Refer to the December 31, 1995 notes to financial statements on
page F-8 of this document for further information.
2. LOSS PER COMMON AND COMMON EQUIVALENT SHARE
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 1,070,306 for 1996 and 1995, respectively. 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 389,000 shares of common stock effected in October 1996.
The effect on loss per Common and Common Equivalent Share of all warrants and
options issued within twelve months prior to the initial public offering
would be anti-dilutive.
3. RESTRICTED CASH
Restricted cash consists of a bank certificate of deposit to provide
additional security for the repayment of a $300,000 past-due bank loan. This
bank loan was repaid in October 1996 (see Note 9).
4. INVENTORIES
As of September 30, 1996, inventories were comprised of the following:
<TABLE>
<CAPTION>
<S> <C>
Raw materials .................................................. $23,585
Finished goods .................................................. 22,987
---------
$46,572
=========
</TABLE>
5. SIGNIFICANT CUSTOMERS AND SUPPLIERS
In 1995, approximately 81 percent of the Company's sales were made through a
Hawaiian distribution company (the "Distributor"). In 1996, the Distributor
sold the distributorship to a new company that decided not to carry the
Company's product after May 1996. In June 1996, the Company negotiated an
oral agreement with a new distribution company in Hawaii. For the nine months
ended September 30, 1996, approximately 67 percent of the Company's sales
were made through these two Hawaiian distributors.
Prior to July 1996, the Company imported all of its bottles from a
single-source supplier. Subsequent to July 1996, the Company began to
purchase bottles from a vendor who operates a bottle-making machine at the
Company's production facility. 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,
the Company amended the Blow Molding Agreement by increasing its purchase
order to $1,825,000 for 10,000,000 bottles for the period from July 1, 1996
to June 30,1997 in order to receive more favorable pricing.
F-21
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
(UNAUDITED)
NOTES TO FINANCIAL STATEMENTS - (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
6. SALES RETURNS
Prior to September 1995, the Company sold approximately $133,000 (13,000
cases) of product to a Japanese importer (the "Importer"). In November 1995,
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 the fourth
quarter of 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. This
amount was also recorded in the fourth quarter of 1995. 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.
7. 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
nine months ended September 30, 1996 and 1995 (net of Japan sales returns of
approximately $83,000 in 1995 as discussed above) were approximately $116,000
and 80,000, respectively.
8. PAST DUE LIABILITIES
The following liabilities were past due as of September 30, 1996:
<TABLE>
<CAPTION>
<S> <C>
Loan payable to related party .................................. $100,000
Loan payable to bank .......................................... 300,000
Accrued interest payable ...................................... 12,000
Accounts payable .............................................. 358,000
----------
$770,000
==========
</TABLE>
9. SUBSEQUENT EVENT -- OFFICE LEASE COMMITMENT
In October 1996 the Company vacated its former office space and entered into
a 3-year lease for new office and warehouse space in Honolulu. Monthly
minimum rental payments are $3,000 for the term of the lease.
10. SUBSEQUENT EVENT -- $1.5 MILLION BRIDGE LOAN
On October 7, 1996 the Company successfully completed a bridge financing (the
"Bridge Financing"), consisting of (i) an aggregate of $1.5 million of
unsecured promissory 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 (the "Warrants") of the Company, each
Warrant exercisable to purchase one share of common stock of the Company, no
par value (the "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 Warrants will 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 (the "IPO") prior to the last day on which the Warrants may
be exercised and such IPO includes warrants (the "Public Warrants") to
purchase shares of Common Stock, each Warrant which is then unexercised will
automatically, without any action by the holder
F-22
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
(UNAUDITED)
NOTES TO FINANCIAL STATEMENTS - (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
10. Subsequent Event -- $1.5 Million Bridge Loan - (Continued)
thereof be converted into a new warrant exercisable to purchase the same
number of shares of Common Stock as are then purchasable pursuant to the
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 Warrants. The Warrants were valued by the Company at $187,500 in
the aggregate and will be recorded as original issue discount in October
1996.
In connection with the Bridge Financing, the Company also issued 150,000
warrants to the placement agent (the "Placement Agent Warrants"), each
Warrant 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 uses
the same placement agent for the IPO as for the Bridge Financing, the
Placement Agent Warrants will be canceled. The Company anticipates completing
an IPO in early 1997 and expects to use a portion of the IPO proceeds to
repay the Bridge Financing.
Direct costs of completing the Bridge Loan totaled approximately $378,000.
Costs incurred through September 30, 1996 of approximately $158,000 were
accrued and are reflected as Deferred Charges and Other in the accompanying
balance sheet. The remaining costs will be recorded in October 1996 upon the
closing of the Bridge Loan.
The net proceeds of the bridge loan were used as follows:
<TABLE>
<CAPTION>
<S> <C>
Repayment of past-due bank loan .................. $ 300,000
Partial repayment of past-due loan from affiliate 50,000
Repayment of past-due interest ................... 12,000
Reserve for IPO costs ............................ 250,000
General working capital needs .................... 510,000
-----------
Total net proceeds ............................. $1,122,000
===========
</TABLE>
11. PROFORMA STOCKHOLDERS' DEFICIT INFORMATION AT SEPTEMBER 30 , 1996
(UNAUDITED)
The following schedule reflects the proforma stockholders' deficit as of
September 30, 1996, including the increase in authorized preferred stock and
the conversion of preferred stock to common stock which occurred concurrent
with the closing of the Bridge Financing. See the December 31, 1995 financial
statement footnotes for more information.
<TABLE>
<CAPTION>
Pro forma as
of September 30,
1996
----------------
<S> <C>
Preferred stock, $1 par value, 5,000,000 shares authorized, no
shares issued or outstanding ...................................... $ --
Common stock, no par value, 20,000,000 shares authorized, 1,599,212
shares issued and outstanding ..................................... 442,293
Accumulated deficit ................................................ (1,043,318)
----------------
Total stockholders' deficit ...................................... $ (601,025)
================
</TABLE>
12. 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 shall
F-23
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
(UNAUDITED)
NOTES TO FINANCIAL STATEMENTS - (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
12. Initial Public Offering - (Continued)
underwrite, on a firm commitment basis, 2,000,000 IPO Units resulting in
gross proceeds of $8 million in an initial public offering. The Underwriter
also has the option to purchase all or part of an additional fifteen percent
of the securities to be offered 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 proposed offering, the Company plans to issue and
sell to the Underwriter 5-year warrants to purchase such number of Units as
shall equal ten percent of the number of Units to be offered (excluding
over-allotments) 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 of 120 percent of the IPO price per Unit.
13. STOCK OPTIONS
In October 1996 and January 1997, the Company granted to its President and
Chief Financial Officer an aggregate of 225,000 options to purchase the
Company's Common Stock at $4.00 per share, subject to adjustment.
F-24
<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
<TABLE>
<CAPTION>
Page
---------
<S> <C>
Prospectus Summary ................................................. 4
Risk Factors ....................................................... 8
The Company ........................................................ 14
Use of Proceeds .................................................... 14
Dividend Policy .................................................... 15
Capitalization ..................................................... 17
Dilution ........................................................... 17
Selected Financial Data ............................................ 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ........................................................ 19
Business ........................................................... 23
Management ......................................................... 30
Principal Stockholders ............................................. 34
Selling Securityholders ............................................ 35
Certain Transactions ............................................... 37
Description of Capital Stock ....................................... 38
Securities Eligible for Future Sale ................................ 40
Underwriting ....................................................... 41
Legal Matters ...................................................... 43
Experts ............................................................ 43
Available Information .............................................. 43
Index to Financial Statements ...................................... F-1
</TABLE>
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:
"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 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 this 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 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.
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:
<TABLE>
<CAPTION>
<S> <C>
Registration Fee ............................... $ 8,334.00
NASD Fee ....................................... 3,250.00
NASDAQ Listing Fee ............................. 10,000.00
Legal Fees and Expenses ........................ 85,000.00
Blue Sky Fees and Expenses ..................... 45,000.00
Accounting Fees and Expenses ................... 45,000.00
Printing and Engraving Expenses ................ 60,000.00
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 ........................................ $310,000.00
==============
</TABLE>
All of the foregoing expenses will be borne by the Registrant. The Selling
Securityholders will not bear any of such expenses.
- ------
* To be filed by amendment
(1) Such insurance premium will be expensed over the period covered by the
policy. No such expense has been incurred to date.
II-1
<PAGE>
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)").
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 warrants to purchase an aggregate of 24,351 shares of Common
Stock at an exercise price of $.000009 per share, to one investor 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).
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
5.1 Opinion of Graham & James**
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.**
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
----------- -----------
<S> <C>
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Graham & James (Included in Exhibit 5.1 hereto)**
24.1 Power of Attorney*
27. Financial Data Schedule
</TABLE>
- ------
* Filed previously.
** To be filed by amendment.
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-3
<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 January 29, 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 January 29, 1997
----------------------- (Principal Executive Officer)
Marcus Bender
/s/ Marc Miyahira Chief Financial Officer (Principal Financial and January 29, 1997
----------------------- Accounting Officer)
Marc Miyahira
* Director January 29, 1997
-----------------------
Brian Barbata
* Director January 29, 1997
-----------------------
John Mayo
* Director January 29, 1997
-----------------------
Michael Chagami
* Director January 29, 1997
-----------------------
Nathan Keller
* Director January 29, 1997
-----------------------
Alexander Brody
*By: /s/ MARCUS BENDER
--------------------
Marcus Bender
Attorney-in-fact
</TABLE>
II-4
<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
5.1 Opinion of Graham & James**
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.**
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Graham & James (Included in Exhibit 5.1 hereto)**
24.1 Power of Attorney*
27. Financial Data Schedule
</TABLE>
- ------
* Filed previously.
** To be filed by amendment.
<PAGE>
STATE OF HAWAII
<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
-12-
<PAGE>
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
-13-
<PAGE>
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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<PAGE>
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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<PAGE>
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>
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND THEY MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, ASSIGNED
OR TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER THE ACT
WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, OR
(ii) PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE ACT BUT ONLY
UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE
COMPANY, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY, THAT THE
PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE ACT AS
WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR STATE SECURITIES LAW.
_________ __, 1996
HAWAIIAN NATURAL WATER COMPANY, INC.
COMMON STOCK
PURCHASE WARRANT
The Transferability of this Warrant is
Restricted as Provided in Section 3
W- ______ Warrants
For good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by HAWAIIAN NATURAL WATER COMPANY,
INC., a Hawaii corporation (the "Company"), _______________ is hereby granted
the right to purchase, at the initial exercise price of $1.50 per share (subject
to adjustment as provided herein), at any time from ___________, 1997 [12 months
from the date hereof] until 5:00 p.m. on ________, 2000 [4 years from the date
hereof], ________ shares of common stock of the Company, no par value per share
(the "Shares").
Each Common Stock Purchase Warrant (the "Warrant") initially
is exercisable at a price of $1.50 per Share, payable in cash or by certified or
official bank check in New
<PAGE>
York Clearing House funds, subject to adjustments as provided in Section 5
hereof. Upon surrender of this Warrant, with the annexed Subscription Form duly
executed, together with payment of the Purchase Price (as hereinafter defined)
for the Shares purchased at the offices of the Company, the registered holder of
this Warrant (the "Holder") shall be entitled to receive a certificate or
certificates for the Shares so purchased.
1. Exercise of Warrant.
The purchase rights represented by this Warrant are
exercisable at the option of the Holder, in whole or in part (but not as to
fractional Shares underlying this Warrant), during any period in which this
Warrant may be exercised as set forth above. In the case of the purchase of less
than all the Shares purchasable under this Warrant, the Company shall cancel
this Warrant upon the surrender hereof and shall execute and deliver a new
Warrant of like tenor for the balance of the Shares purchasable hereunder.
2. Issuance of Certificates.
Upon the exercise of this Warrant and payment in full for the
Shares, the issuance of certificates for Shares underlying this Warrant shall be
made forthwith (and in any event within five (5) business days thereafter)
without charge to the Holder, including, without limitation, any tax which may
be payable in respect of the issuance thereof, and such certificates shall
(subject to the provisions of Section 3 hereof) be issued in the name of, or in
such names as may be directed by, the Holder; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any such certificates in a
name other than that of the Holder and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount
2
<PAGE>
of such tax or shall have established to the satisfaction of the Company that
such tax has been paid. The certificates representing the Shares underlying this
Warrant shall be executed on behalf of the Company by the manual or facsimile
signature of the present or any future Chairman, Vice Chairman, President or
Vice President and Secretary or Assistant Secretary of the Company.
3. Restriction on Transfer; Registration Under the Securities
Act of 1933, as amended.
3.1 Neither this Warrant nor any Shares issuable upon exercise
hereof has been registered under the Securities Act of 1933, as amended (the
"Act"), and none of such securities may be offered, sold, pledged, hypothecated,
assigned or transferred except (i) pursuant to a registration statement under
the Act which has become effective and is current with respect to such
securities, or, (ii) pursuant to a specific exemption from registration under
the Act but only upon a Holder hereof first having obtained the written opinion
of counsel to the Company, or other counsel reasonably acceptable to the
Company, that the proposed disposition is consistent with all applicable
provisions of the Act as well as any applicable "Blue Sky" or similar state
securities law. Upon exercise, in part or in whole, of this Warrant, each
certificate issued representing the Shares underlying this Warrant shall bear a
legend to the foregoing effect.
3.2 If at any time during the five year period commencing
_____________, 1997 [12 months from the date hereof], the Company proposes to
register any of its securities under the Act (other than in connection with a
merger, acquisition or exchange offer on Form S-4 or pursuant to Form S-8 or
successor forms), it will give written notice by registered mail, at least
thirty (30) days prior to the filing of each such registration statement to the
Holder(s) of the Warrants and/or Shares of its intention to do so. Upon the
3
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written request of any Holder of the Warrants and/or Shares given within ten
(10) days after receipt of any such notice of its or their desire to include any
such Warrants and/or Shares in such proposed registration statement, the Company
shall afford such Holder(s) of the Warrants and/or Shares the opportunity to
have any such Warrants and/or Shares registered under such registration
statement.
Notwithstanding the provisions of this Section 3.2, the
Company shall have the right at any time after it shall have give written notice
pursuant to this Section 3.2 (irrespective of whether a written request for
inclusion of any such securities shall have been made) to elect not to file any
such proposed registration statement, or to withdraw the same after the filing
but prior to the effective date hereof.
If any registration pursuant to this Section 3.2 shall be
underwritten in whole or in part, the Company may require that the Warrants
and/or Shares requested for inclusion pursuant to this Section 3.2 be included
in the underwriting on the same terms and conditions as the securities otherwise
being sold through the underwriter(s).
3.3 At any time during the five-year period commencing
______________, 1997 [12 months from the date hereof], if the Company is
subject to the reporting requirements of Section 13 or Section 15(d) under the
Exchange Act of 1934, as amended (the "Exchange Act"), the Holders of the
Warrants and/or Shares representing a "Majority" (as hereinafter defined) of
such securities (assuming the exercise of all of the Warrants) shall have the
right (which right is in addition to the registration rights under Sections 3.2
and 6 hereof), exercisable by written notice to the Company, to have the Company
prepare and file with the Securities and Exchange Commission (the "Commission"),
on one occasion, a registration statement and such other documents, including a
prospectus, as may be necessary in the
4
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opinion of both counsel for the Company and counsel for the Underwriter and the
Holders, in order to comply with the provisions of the Act, so as to permit a
public offering and sale of their respective Shares for twenty-four (24)
consecutive months by such Holders and any other Holders of the Warrants and/or
Shares who notify the Company within ten (10) days after receiving notice from
the Company of such request; provided, however, upon receipt of a request for a
registration pursuant to this Section 3.3, the Company may, one time, in any 12
month period, (i) postpone the filing of a registration statement for a period
not to exceed ninety (90) days from the date of receipt of such request, if the
President of the Company furnishes to the Holders requesting registration a
certificate signed by the Company's President stating that in the good faith
judgment of the Board of Directors of the Company it would be seriously
detrimental to the Company for a public offering of the Company's securities to
be commenced in the near future or (ii) postpone the filing of a registration
statement for a period not to exceed ninety (90) days from the effective date of
any registration statement relating to a primary underwritten offering of
securities of the Company which has been declared effective prior to the date of
receipt of a request for registration. If the Company so determines to postpone
a registration requested by the Holders pursuant to this Section 3.3, it shall
promptly notify the requesting Holders of such determination including the
reason therefor, whereupon the requesting Holders shall be entitled to withdraw
such request and such request shall not be deemed as a request for registration
under this Section 3.3. In addition, the Company may, one time, in any 12 month
period, suspend the effectiveness of any registration statement filed pursuant
to this Section 3.3 for a period of forty-five (45) days, if the President of
the Company furnishes to the Holders of securities registered pursuant to this
Section 3.3 a certificate signed by the
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Company's President stating that the Board of Directors of the Company has
determined, upon advice of counsel, that it would be required to disclose any
significant corporate development which disclosure would have a material effect
on the Company; provided, however, that the period of time which such
registration statement is required to be effective shall be increased by the
number of days that the registration statement was suspended (the "Suspension
Period"); and provided, further, that the Company shall furnish to each Holder
of securities registered pursuant to Section 3.3 a notice stating that the
Suspension Period has been terminated within three (3) business days following
the date of such termination.
The Company covenants and agrees to give written notice of any
registration request under this Section 3.3 by any Holder or Holders to all
other registered Holders of the Warrants and/or Shares within ten (10) days from
the date of the receipt of any such registration request.
3.4 In connection with any registration under Sections 3.2,
3.3 or 6 hereof, the Company covenants and agrees as follows:
(a) The Company shall pay all costs (excluding fees and
expenses of Holder(s)' counsel and any underwriting or selling commissions or
other charges of any broker-dealer acting on behalf of Holder(s)), fees and
expenses in connection with all registration statements filed pursuant to
Sections 3.2, 3.3 and 6 hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses.
(b) The Company will take all necessary action which may be
required in qualifying or registering the Warrants and Shares and/or New
Warrants and New Shares as defined in Section 6 hereof (collectively, the
"Warrant Securities"), included in a registration
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statement for offering and sale under the securities or blue sky laws of such
states as reasonably are requested by the Holder(s), provided that the Company
shall not be obligated to qualify as a foreign corporation to do business under
the laws of any such jurisdiction.
(c) The Company shall indemnify the Holder(s) of the Warrant
Securities to be sold pursuant to any registration statement and each person, if
any, who controls such Holders within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or any other statute, common law or otherwise, arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in such registration statement executed by the Company or based upon
written information furnished by the Company filed in any jurisdiction in order
to qualify the Warrant Securities under the securities laws thereof or filed
with the Commission, any state securities commission or agency, the National
Association of Securities Dealers, Inc., The Nasdaq Stock Market or any
securities exchange, or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements contained
therein not misleading, unless such statement or omission was made in reliance
upon and in conformity with written information furnished to the Company by the
Holder(s) expressly for use in such registration statement, any amendment or
supplement thereto or any application, as the case may be. If any action is
brought against the Holder(s) or any controlling person of the Holder(s) in
respect of which indemnity may be sought against the Company pursuant to this
Section 3.4(c), the Holder(s) or such controlling person shall within thirty
(30) days
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after the receipt thereby of a summons or complaint notify the Company in
writing of the institution of such action and the Company shall assume the
defense of such action, including the employment and payment of reasonable fees
and expenses of counsel (which counsel shall be reasonably satisfactory to the
Holder(s) or such controlling person), but the failure to give such notice shall
not affect such indemnified person's right to indemnification hereunder except
to the extent that the Company's defense of such action was materially adversely
affected thereby. The Holder(s) or such controlling person shall have the right
to employ its or their own counsel in any such case, but the fees and expenses
of such counsel shall be at the expense of the Holder(s) or such controlling
person unless the employment of such counsel shall have been authorized in
writing by the Company in connection with the defense of such action, the
Company shall not have employed counsel to have charge of the defense of such
action or such indemnified party or parties shall have reasonably concluded that
there may be defenses available to it or them which are different from or
additional to those available to the Company (in which case the Company shall
not have the right to direct the defense of such action on behalf of the
indemnified party or parties), in any of which events the fees and expenses of
not more than one additional firm of attorneys for the Holder(s) and/or such
controlling person shall be borne by the Company. Except as expressly provided
in the previous sentence, in the event that the Company shall not previously
have assumed the defense of any such action or claim, the Company shall not
thereafter be liable to the Holder(s) or such controlling person in
investigating, preparing or defending any such action or claim. The Company
agrees promptly to notify the Holder(s) of the commencement of any litigation or
proceedings against the Company or any of its officers, directors or
8
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controlling persons in connection with the resale of the Warrant Securities or
in connection with such registration statement.
(d) The Holder(s) of the Warrant Securities to be sold
pursuant to a registration statement, and their successors and assigns, shall
severally, and not jointly, indemnify the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage or expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished in writing by or on behalf of such Holders, or their
successors or assigns, for specific inclusion in such registration statement.
The Holder(s) further agree(s) that upon demand by an indemnified person, at any
time or from time to time, they will promptly reimburse such indemnified person
for any loss, claim, damage, liability, cost or expense actually and reasonably
paid by the indemnified person as to which the Holder(s) have indemnified such
person pursuant hereto. Notwithstanding the foregoing provisions of this Section
3.4(d), any such payment or reimbursement by the Holder(s) of fees, expenses or
disbursements incurred by an indemnified person in any proceeding in which a
final judgment by a court of competent jurisdiction (after all appeals or the
expiration of time to appeal) is entered against the Company or such indemnified
person as a direct result of the Company or such person's gross negligence or
willful misfeasance will be promptly repaid to the Holder(s).
9
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(e) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants or New Warrants prior to the
initial filing of any registration statement or the effectiveness thereof.
(f) Subject to Section 3.3, the Company shall use its best
efforts to file a registration statement within sixty (60) days of receipt of
any demand therefor, shall use its best efforts to have any registration
statement declared effective at the earliest possible time, and shall furnish
each Holder desiring to sell Warrant Securities such number of prospectuses as
shall reasonably be requested.
(g) The company shall enter into an underwriting agreement
with the managing underwriter selected for such underwriting by Holders holding
a Majority of the Warrant Securities requested to be included in such
underwriting. Such agreement shall be satisfactory in form and substance to the
Company, each Holder and such managing underwriter, and shall contain such
representations, warranties and covenants by the Company and such other terms as
are customarily contained in agreements of that type used by the managing
underwriter. The Holders shall be parties to any underwriting agreement relating
to an underwritten sale of their Warrant Securities and may, at their option,
require that any or all of the representations, warranties and covenants of the
Company to or for the benefit of such underwriters shall also be made to and for
the benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(h) For purposes of this Agreement, the term "Majority" in
reference to the Holders of Warrant Securities shall mean in excess of fifty
percent (50%) of the then
10
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outstanding Warrant Securities that (i) are not held by the company, an
affiliate, officer, creditor, employee or agent thereof or any of their
respective affiliates, members of their family, persons acting as nominees or in
conjunction therewith and (ii) have not been resold to the public pursuant to a
registration statement filed with the Commission under the Act.
3.5 In connection with any registration made pursuant to
Sections 3.2, 3.3 or 6 hereof, the Holder(s) of the Warrant Securities agree(s)
as follows:
(a) Any public sale of the Warrant Securities included in such
registration statement shall be effected through the underwriter for such
registration and the Holder(s) shall compensate the underwriter in accordance
with its customary compensation practices for such transactions.
4. Price.
4.1 Initial and Adjusted Purchase Price. The initial purchase
price shall be $1.50 per Share. The adjusted purchase price shall be the price
which shall result from time to time from any and all adjustments of the initial
purchase price in accordance with the provisions of Section 5 hereof and subject
to Section 6 hereof.
4.2 Purchase Price. The term "Purchase Price" herein shall
mean the initial purchase price or the adjusted purchase price, depending upon
the context.
5. Adjustments of Purchase Price and Number of Shares.
In the event that, prior to the issuance by the Company of all
the Shares issuable upon exercise of this Warrant, there shall be any change in
the outstanding common stock of the Company by reason of the declaration of
stock dividends, or through stock splits or combinations, the remaining Shares
still subject to this Warrant and the purchase price
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<PAGE>
thereof shall be appropriately adjusted (but without regard to fractions) by the
Board of Directors of the Company to reflect such change.
6. Automatic Conversion.
If the Company consummates a public offering of its securities
prior to the last day on which this Warrant may be exercised, which offering
includes warrants to purchase shares of common stock of the Company ("Redeemable
Warrants") and this Warrant shall not have been exercised in full, then the
unexercised portion of this Warrant shall automatically, without any action by
the Holder, be converted into Redeemable Warrants (the "New Warrants")
exercisable to purchase the same number of Shares as are purchasable upon the
exercise of the unexercised portion of this Warrant but having terms identical
to those of the Redeemable Warrants, including, but not limited to, the
anti-dilution provisions contained therein and an exercise price per share equal
to the exercise price per share of the Redeemable Warrants offered in the public
offering. The Company shall cause the New Warrant and the underlying shares of
common stock of the Company (the "New Warrant Shares") to be included in the
registration statement for such offering. In the event that the provisions of
this Section 6 shall become applicable, the Holder shall be required to return
this Warrant Certificate to the Company for cancellation or, if this Warrant
Certificate cannot then be located, to execute and deliver to the Company a lost
security affidavit and indemnity agreement reasonably satisfactory to the
Company. In addition, in the event that the provisions of this Section 6 shall
become applicable, this Warrant Certificate shall no longer be of any force or
effect and the certificate representing the New Warrants shall set forth the
respective rights and obligations of the Holder and the Company.
12
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7. Merger or Consolidation.
In case of any consolidation of the Company with, or merger of
the Company with, or merger of the Company into, another corporation (other than
a consolidation or merger which does not result in any reclassification or
change of the outstanding common stock of the Company), the corporation formed
by such consolidation or merger shall execute and deliver to the Holder a
supplemental warrant agreement providing that the Holder shall have the right
thereafter (until the expiration of such Warrant) to receive, upon exercise of
his Warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger by a holder of the number
of shares of common stock of the Company for which his Warrant might have been
exercised immediately prior to such consolidation, merger, sale or transfer.
Such supplemental warrant agreement shall provide for the automatic conversion
provision of Section 6 and adjustments which shall be identical to the
adjustments provided in Section 5. The above provisions of this Section 7 shall
similarly apply to successive consolidations or mergers.
8. Exchange and Replacement of Warrant.
This Warrant is exchangeable without expense, upon the
surrender hereof by the registered Holder at the principal executive office of
the Company for a new Warrant of like tenor and date representing in the
aggregate the right to purchase the same number of Shares as are purchasable
hereunder in such denominations as shall be designated by the Holder hereof at
the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and, in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it, and reimbursement to the
13
<PAGE>
Company of all reasonable expenses incidental thereto, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will make and deliver a
new Warrant of like tenor, in lieu of this Warrant.
9. Elimination of Fractional Interests.
The Company shall not be required to issue certificates
representing fractions of Shares on the exercise of this Warrant, nor shall it
be required to issue scrip or pay cash in lieu of fractional interests, it being
the intent of the parties that all fractional interests shall be eliminated.
10. Reservation of Securities.
The Company shall at all times reserve and keep available out
of its authorized common stock, solely for the purpose of issuance upon the
exercise of this Warrant, such number of Shares as shall be issuable upon the
exercise hereof. The Company covenants and agrees that, upon exercise of this
Warrant and payment of the Purchase Price therefor, all Shares issuable upon
such exercise shall be duly and validly issued, fully paid and nonassessable.
11. Notices to Warrant Holders.
Nothing contained in this Warrant shall be construed as
conferring upon the Holder hereof the right to vote or to consent or to receive
notice as a stockholder in respect of any meetings of stockholders for the
election of directors or any other matter, or as having any rights whatsoever as
a stockholder of the Company.
12. Notices.
All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall be delivered
personally, telegraphed or sent by
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certified, registered, or express mail, postage prepaid, and shall be deemed
given when so delivered personally, telegraphed or, if mailed, five days after
the date of deposit in the United States mails, as follows:
(a) If to the Company, to:
Hawaiian Natural Water Company., Inc.
4747 Kilauea Avenue
Suite 201
Honolulu, Hawaii 9816
Attn: Marcus Bender
Chief Executive Officer
(b) If to the registered Holder, to the address of such Holder
as shown on the books of the Company.
13. Successors.
All the covenants, agreements, representations and warranties
contained in this Warrant shall bind the parties hereto and their respective
heirs, executors, administrators, distributees, successors and assigns.
14. Headings.
The headings in this Warrant are inserted for purposes of
convenience only and shall have no substantive effect.
15. Law Governing.
This Warrant is delivered in the State of New York and shall
be construed and enforced in accordance with, and governed by, the laws of the
State of New York, without giving effect to conflicts of law principles.
15
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed in its corporate name by, and such signature to be attested to by, a duly
authorized officer and has caused its corporate seal to be affixed hereto on the
date first above written.
HAWAIIAN NATURAL WATER COMPANY, INC.
By:
-----------------------------------
Name: Marcus Bender
Title: Chief Executive Officer
[SEAL]
Attest:
- ----------------------
Secretary
16
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SUBSCRIPTION FORM
(To be Executed by the Registered Holder
in order to Exercise the Warrant)
The undersigned hereby irrevocably elects to exercise the
right to purchase ______ Shares represented by this Warrant in accordance to the
conditions hereof and herewith makes payment of the Purchase Price of such
Shares in full.
------------------------------
Signature
------------------------------
Address
------------------------------
Dated: Social Security Number or
Taxpayer's Identification
Number
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AFTER RECORDATION RETURN BY MAIL TO:
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TITLE OF DOCUMENT:
LEASE AGREEMENT
\convey\leases\hibrew.doc
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PARTIES:
LESSOR: HAWAII BREWERY DEVELOPMENT CO., INC., a Hawaii corporation
LESSEE: HAWAIIAN NATURAL WATER COMPANY, INC., a Hawaii corporation
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PROPERTY DESCRIPTION: / LIBER/PAGE:
/
That certain land situate at Keaau / DOCUMENT NO.
District of Puna, Island, County /
and State of Hawaii, being Lot /
Numbers A-31-B and A-31-A-1, /
bearing TMK(s)(3)_____________ /
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<PAGE>
LEASE AGREEMENT
THIS LEASE, made this 3rd day of October, 1994, by and between:
PARTIES:
HAWAII BREWERY DEVELOPMENT CO., INC., a Hawaii corporation, whose
principal place of business and mailing address is 4747 Kailua Avenue, Suite
213, Honolulu, Hawaii 96816, hereinafter called "Lessor" and HAWAIIAN NATURAL
WATER COMPANY, INC., a Hawaii corporation, whose principal place of business and
mailing address is 4747 Kailua Avenue, Suite 213, Honolulu, Hawaii 96816,
hereinafter called "Lessee".
W I T N E S S E T H:
AGREEMENT TO LEASE:
The Lessor agrees to demise and lease, and the Lessee does hereby accept to
rent under the terms and conditions being agreed to in this Lease Agreement the
following:
1. A portion of that certain approximately twenty-one (21) acre parcel of
real property (hereinafter "Property") situated in Keeau, Puna, Hawaii, said
parcel being described in Exhibit "A" attached hereto, which portion of said
parcel shall hereinafter be more particularly described, including the
non-exclusive use of the water well located thereon (hereinafter "Well") and the
non-
<PAGE>
exclusive use of all of the appurtenant well pumping equipment more particularly
described in Exhibit "B" attached hereto and by this reference made a part
hereof (hereinafter "Equipment").
Together with a non-exclusive easement of ingress and egress over and upon
that certain road leading from Highway 11 to the Property and described in
Exhibit "C" attached hereto and made a part hereof by this reference.
The leased portion of the Property, Well and Equipment hereafter
collectively referred to as the "Premises".
TERMS:
1. Lease Term:
The Lease term shall be for a total of fifty (50) years beginning on
Ocotber 1st, 1994, and ending at midnight on Ocotber 30th, 2044.
2. Quiet Enjoyment:
The Lessor promises the Lessee that upon payment by the Lessee of the rent
required and performed by the Lessee of its obligations, that the Lessee shall
peaceably hold and enjoy the Property for the term of this Lease without
hindrance or interruption by Lessor or any other person or persons lawfully
claiming by, through or under Lessor, except as otherwise expressly provided by
this Lease.
3. Payment of Rent and Gross Excise Tax:
A. During the term of this Lease, Lessee shall pay Lessor as consideration
for this Lease, at Lessor's principal place of business in Honolulu, Hawaii, in
lawful money of the United
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<PAGE>
States of America, the annual rent and royalties set forth below:
(i) Land Rent:
(a) For the first five (5) years of the Lease term, the sum of Two
Thousand and no/100 Dollars ($2,000.00) per month on the first day of each and
every month;
(b) For the next five (5) years of the Lease term, the sum of Four
Thousand and no/100 Dollars ($4,000.00) per month on the first day of each and
every month;
(c) Thereafter the minimum land rent shall be subject to yearly
increases of Five percent (5%).
(ii) Additional Rent:
A. In addition to the land rent provided above at such time as Lessee
achieves gross sales in excess of One Million Seven Hundred Thousand and no/100
Dollars ($1,700,000.00), Lessee shall for the remaining term of lease pay
additional rent measured by a percentage of gross sales. During the first five
(5) years of the lease term the additional rent shall equal two percent (2%) of
gross sales. During the second five (5) years of the lease term the additional
rent shall equal four percent (4%) of gross sales. During the third five (5)
years of the lease term the additional rent shall equal six percent (6%) of
gross sales. During the fourth five (5) years of the lease term the additional
rent shall equal eight percent (8%) of gross sales. For the remaining term of
the lease the additional rent shall equal ten percent (10%) of gross sales.
B. To measure additional rent required hereby Lessee
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<PAGE>
shall provide Lessor with sales invoices of product sold and such other records
as Lessor may reasonably request.
C. On all base rent and additional rent, Lessee shall pay to Lessor
the amount of the Hawaii General Excise Tax due on said payments.
D. Lessee shall, also, pay interest of one percent (1%) per month on
all base rent or additional rent which are not paid on or before their due
dates.
4. Payment of Charges and Taxes:
Lessee will pay directly, before the same becomes delinquent, all
assessments and taxes, including real property taxes on the Premises and any
improvements thereon, and all rates and other costs of every description to
which the Premises or any of its part or any improvement to the Property for
which Lessor and Lessee may during this Lease be assessed or become liable in
the same proportion as Lessee's gross revenue derived from products produced on
the demised premises bears to Lessor's gross revenues from products produced on
the demised premises but not to exceed thirty percent (30%). Provided, however,
that all services that are metered and billed separately, including electricity,
gas, refuse collection, telephone, sewage disposal, water, or any other
utilities or services or any connections or meters therefor, shall be paid by
the party incurring such charge.
5. Use:
A. The Lessee shall use the Premises solely for the extraction of water
from the Well into bulk containers for
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<PAGE>
transportation and shipment to other sites and in addition may engage in the
processing, bottling, packaging and wholesale sales of the water. It is
understood that no retail sales shall take place on the Premises. The Lessee may
conduct all activities as is reasonably required to carry on the permitted use,
such as, but not necessarily limited to, the repair, maintenance and operation
of the Well and Equipment, and the storage of trucks and bulk containers;
provided, however, that all such activities shall be consistent with, and
permitted by law for the Property. In the event that the permitted use or the
activities engaged in by Lessee to conduct such permitted use shall be enjoined
or prohibited by the County of Hawaii or any other governmental entity or agency
due to its non-compliance with zoning ordinances, land use classifications or
other applicable governmental regulations, the Lessee shall cease or modify its
operations. If, however, Lessee desires to seek a change of zone, a special use
permit or such other governmental authorization as would allow Lessee to engage
in or continue the use permitted by this Lease, then Lessor shall cooperate with
Lessee to obtain such permit; provided, however, that said documents shall not
impose upon Lessor, or subject Lessor to, any civil liability or damages, for
criminal sanctions nor obligate Lessor to perform any of the covenants therein
undertaken by Lessee, or to warrant or confirm the truth or accuracy of the
representations made therein by Lessee. Nor shall Lessor be obligated to allow
Lessee to extend or modify its permitted uses in such a manner as would unduly
interfere with any of Lessor's
-5-
<PAGE>
business operations conducted or to be conducted on the Premises.
B. The Lessee shall not make any changes, alterations or restrictions in
the surface water or drainage patterns on the Premises without the Lessor's
prior written consent. This includes, but is not limited to, the digging of
ditches and the construction of dams or diversions.
C. Lessee shall not grade the Property, nor add fill or otherwise alter the
slope, grade or topography of the easement area without Lessor's prior written
consent.
D. The Lessee shall not drill any other well within the Premises without
the Lessor's prior written consent, which consent may be withheld for any reason
at the Lessor's sole discretion. However, Lessor agrees that should the existing
Well become unusable or should the Well generate insufficient quantities of
water to satisfy both the needs of Lessor and Lessee for such water, and Lessee
desires to drill a second well then Lessee shall be allowed to do so Lessee
shall not be charged any additional land rent with respect to said second well
but shall pay the same royalties for the extraction of water therefrom.
6. Joint Use of Well:
It is understood and agreed that Lessor shall be entitled to extract water
from any Well located on the Premises to meet its requirements for the brewing
of beer or the manufacture of other beverages provided that Lessor shall not be
allowed to use Well water for irrigation, cleaning or purposes other than
beverage production as described above and provided, further, that in no
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<PAGE>
event shall Lessor be entitled to more than fifty percent (50%) of the water
production from the Wells located on the Premises. Lessor shall be required to
meter its water usage and Lessee shall not be liable to Lessor for any royalties
with respect to water pumped for Lessor's use. At the end of each calendar year,
Lessor shall pay its pro rata share of the utility, maintenance and repair costs
for the Well pump which shall be based upon the ratio which Lessor's gallonage
bears to the Lessee's gallonage.
7. Maintenance and Repair of Premises:
Lessee will, at is own expense, during the whole of said term, make, build,
maintain and repair all improvements, including but not limited to, sewers,
drains, pavements and parking areas which now exist, or are later built by the
Lessee or which may be required by law to be made, built by the Lessee or which
may be required by law to be made, built, maintained and repaired upon the
Premises or any part of it. In addition, Lessee shall operate, maintain, repair
and replace, if necessary, the Equipment at Lessee's sole expense. Lessee shall
be entitled to the benefit of any warranty relating to the Equipment as may be
available or provided, to the Lessor by any well drilling company.
8. Use of Existing Buildings:
Lessee shall be allowed the temporary use of the existing building
facilities located on the demised Premises for the bottling and processing of
water and office quarters. Provided, however, that in the event that the Lessor
requires the use of the existing premises or any portion thereof for its own
purposes then
-7-
<PAGE>
the Lessor shall provide Lessee with a six (6) month advance notice to vacate
the existing buildings or any portion thereof and shall together with or prior
to such notice to vacate, designate a portion of the land within the demised
Premises adjacent or in reasonable proximity to the well site with a minimum
size of one-half (1/2) acre and shall permit Lessee to construct a building and
other facilities reasonably necessary for Lessee's permitted use of the Premises
and shall cooperate with Lessee in seeking any necessary governmental permits
and utility services for such buildings and other improvements.
Lessee shall not make any improvements or alterations to the existing
buildings and facilities without Lessor's prior written approval. If Lessee does
make such approved improvements they may be amortized over a five (5) year
period. If Lessee requires that Lessee vacate the existing building and
facilities Lessor shall pay to Lessee the unamortized portion of any such
improvement.
In the event that Lessee requires more than one-half of the premises for
the conduct of its business Lessee shall act in good faith to accommodate
Lessee's needs after taking into consideration its own usage of the premises and
well if reasonably practicable allow Lessee the additional area needed with an
appropriate and equitable adjustment in the base rent.
9. Observance of Laws:
Lessee will, at all times during this Lease, keep the Premises and any
improvements on it in good order and in a strictly sanitary condition and
observe, abide by, and perform all laws, ordinances,
-8-
<PAGE>
rules and regulations now or hereafter made by governmental authority.
10. Prohibition Against Strip or Waste:
Lessee will not commit or permit any strip or waste or unlawful, improper
or offensive use of the Premises including the pollution of the Well by
irresponsible surface use or grossly negligent maintenance of the Well. If
Lessor in its discretion deems Lessee's maintenance of the well to be inadequate
in any respect then Lessor may undertake such additional maintenance as Lessor
deems warranted and Lessee shall bear its proportionate share of the charges
therefor.
11. Assiqnment, Mortqaqe or Sublease:
Lessee may not, without the prior written consent of Lessor, mortgage or
otherwise encumber Lessee's leasehold interest in the Premises, nor assign or
sublet or part with possession of the whole or any part of the Premises and any
attempt to do so without the required approval shall be void and Lessee will be
in default under this Lease.
Furthermore, Lessee will not, without the prior written consent of Lessor,
assign or sublet or part with possession of the whole or any part of said
Premises and any attempt to do so without the required approval shall be void
and Lessee will be in default under this Lease. It is understood between Lessor
and Lessee that Lessor has entered into this Lease for the primary purpose of
allowing Lessee to extract water from the leased Well, as further described in
Paragraph 5 herein. If Lessee should propose to
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<PAGE>
assign or sublet in whole or part these Premises for a use unrelated to that
described in Paragraph 5, Lessor may arbitrarily withhold its consent to the
assignment or sublease.
12. Indemnification.
Lessee will save, indemnify and hold harmless from and against all claims
and demands for loss or damage, including property damage, personal injury and
wrongful death, arising out of or in connection with the use or occupancy of
said Premises by Lessee or any person claiming by, through or under Lessee
except as caused by the Lessor's negligence or wilful misconduct and will
reimburse Lessor for all its costs and expenses, including reasonable attorney's
fees, incurred in connection with the defense of any such claims.
13. Surrender of Premises and Who owns Improvements.
At the end of the Lease term or upon sooner termination of this Lease by
mutual consent, Lessee will peaceably deliver up to Lessor possession of the
Premises, including all improvements, fixtures, buildings and other structures
placed upon the Premises by the Lessor and paid for by the Lessor. Lessee shall
be entitled to remove any improvements or trade fixtures installed or
constructed upon the Premises by the Lessee provided that the Lessee do so prior
to the end of the Lease term and that the Lessee shall repair all damages caused
by the removal.
14. Liability Insurance:
Lessee shall obtain and keep in effect and maintain at the Lessee's own
expense during the term a policy or policies of
-10-
<PAGE>
comprehensive general liability insurance with respect to said Premises with a
responsible insurance company in the sum of not less than Two Million and no/100
Dollars ($2,000,000.00) coverage for personal injury and death and Five Hundred
Thousand and no/100 Dollars ($500,000.00) coverage for property damage, which
policy or policies shall name the Lessor as an additional insured. Should the
Lessee fail to procure and/or maintain such insurance, the Lessor shall have the
right to so procure and/or maintain such policy of policies, and charge the
Lessee for it. The amount of coverage required hereunder may be reviewed every
three (3) years to take into account inflation in the economy and increase in
risks upon and in the use of the demised Premises. Lessee shall provide proof of
coverage within fifteen (15) days of execution of this Lease together with a
statement from the insurer that Lessor will be notified if the policy is
canceled.
15. Liens:
Lessee promises at all times to keep the Premises free from any mechanic's
or materialmen's liens or any other encumbrance caused by acts or omissions of
the Lessee or those claiming under the Lessee.
16. Condemnation:
In the event of condemnation of the Premises or any part hereof, then this
Lease shall cease as to the part so condemned. The Lessee shall not be entitled
to any adjustment of the base rent or of the royalties as a result of the
condemnation. The Lessee's sole recourse shall be to cancel the Lease. If the
remaining
-11-
<PAGE>
Property is not financially practical to use for the same or similar purposes or
if the condemnation causes a material adverse effect on the Lessee's business
operation, then the Lease shall be canceled upon thirty (30) days notice. All
proceeds from a condemnation shall be payable and belong to the Lessor. All
proceeds will be presumed to be payments for the Lessor's interest except for
any sums which the Lessee may be able to prove is exclusively for property
interests of the Lessee under the Lease.
17. Waiver:
The acceptance of rent by the Lessor shall never be considered a waiver of
any breach by the Lessee of any of Lessee's duties under this Lease no matter
when the breach occurred. Lessor shall never lose by accepting rent any rights
it might otherwise have had against the Lessee.
18. Default:
If the Lessee shall fail to observe or perform any of the covenants and
agreements contained in this Lease or shall fail to pay the rent when the same
shall fall due and payable and such default continues for thirty (30) days or if
the Lessee shall make late payments more than four (4) times even if less than
thirty (30) days late, or abandon said Premises, or suffer this Lease or any
interest hereunder to be taken under any writ of attachment or execution, then
upon any one of those events, the Lessor may at once enter into and retake
possession of the Premises and any improvements thereon, or any part thereof and
at its option terminate this Lease.
-12-
<PAGE>
Even after evicting Lessee and taking possession, Lessor shall still have
any other remedy or right of action which the law and this Lease allows to the
Lessor.
19. Easements and Roadways:
(A) Lessee shall have non-exclusive access to the leased property over and
across those roadways as designated in Exhibit "C" attached hereto and made a
part hereof by this reference.
(B) Any roadways in existence on the Premises at the beginning of the Lease
whether paved or unpaved and whether or not specifically mentioned in the
Property description, shall not be altered, destroyed or restricted by the
Lessee without the Lessor's prior written consent.
(C) Lessee shall pay in addition to all other rents and charges in this
Lease, its proportionate share of maintenance cost of any roadways which are
regularly used by Lessee in common with others. The Lessee's proportionate share
of the maintenance cost of said roadways shall be based on the size, weight and
frequency of use of the Lessee's vehicles in comparison with the size, weight
and frequency of use of the others' vehicles.
20. Land Clearing and Tree Removal:
No grading, land clearing or other activity which removes trees bearing
trunks more than six (6) inches in diameter at the base will be permitted
without the prior written consent of the Lessor. In the event Lessee does wish
to engage in land clearing or tree cutting, a proposed written plan with map
showing which trees are proposed for removal and which ones are to be retained
-13-
<PAGE>
shall be submitted to the Lessor for Lessor's approval.
21. Disclaimer of Warranty:
Lessor does not guarantee or warrant the quality or suitability of the
water for the Lessee's purposes. If, however, the water quality should be or
become unsuitable for the Lessee's purpose, without fault on the part of the
Lessee, then in that event, the Lessee shall have the right to cancel the Lease
upon written notice sixty (60) days in advance.
22. Proposed Water Code:
If, due to the passage of new legislation or regulation by any governmental
entity or agency, Lessor's right to drill other wells or to extract water from
its other lands shall be prohibited or restricted due to the existence of
Lessee's Well or due to the amount of water being extracted from the Well, or if
any new legislation or regulation shall require the expenditure of monies to
bring the present Well up to new standards, then, if any of these instances,
Lessor and Lessee shall meet to discuss the impact which such new rules and
regulations shall have upon their respective interests and to apportion the
financial burdens equitably between the parties. If the parties are unable to
reach agreement on mitigative measures equitable to both parties, either party
may refer the dispute to arbitration as provided in Section 23 herein. In
exercising their powers, the arbitrators may modify this Lease, require either
or both parties to expend monies for needed improvements to the Well and
appurtenant Equipment, limit the amount of water extracted from the Well or
apportion the amount
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<PAGE>
between the parties, or enter any other order that shall reduce, apportion or
eliminate the financial impact upon, or other adverse consequences to the
parties, in an equitable manner.
23. Arbitration:
If at any time during the term of this Lease, any dispute, difference or
questions shall arise between the parties hereto regarding any matter herein
required to be arbitrated, then such dispute, difference or question shall at
the desire of either party be submitted to and determined by arbitration. If the
parties can agree upon one person to arbitrate the dispute, then that person
shall proceed to determine the matter in question and his decision shall be
final, conclusive and binding upon all parties, unless it shall be vacated,
modified or corrected as provided by Chapter 658, Hawaii Revised Statutes. If
the parties cannot agree upon one person to serve as the sole arbitrator, then
the matter shall be determined by three (3) arbitrators, in the manner provided
by Chapter 658, Hawaii Revised Statutes, as the same now is or may from time to
time be amended, in which case either party may give to the other written notice
of the appointment of an arbitrator, whereupon the other party within ten (10)
days after the receipt of such notice shall name a second arbitrator, and in
case of failure to do so the arbitrator already appointed shall name such second
arbitrator and the two (2) arbitrators so appointed (in either manner) shall
select and appoint the third arbitrator. In the event that any two arbitrators
no appointed arbitrator shall fail to appoint a third arbitrator within ten (10)
days after the naming
-15-
<PAGE>
of the second arbitrator, either party may have the third arbitrator selected or
appointed by the person being the Senior Judge of the Circuit Court of the Third
Circuit, State of Hawaii, holding office at that time, and the three arbitrators
so appointed shall thereupon proceed to determine the matter in question,
disagreement or difference, and the decision of any two of them (including the
disposition of the costs of arbitration) shall be final, conclusive and binding
upon all parties, unless the same shall be vacated, modified or corrected as by
said statute provided. The arbitrators shall have all the powers and duties
prescribed by said statute and judgment may be entered upon any such award by
the Circuit Court of the Third Judicial Circuit as provided in said statute.
24. Notices:
All notices required to be given to either party shall be considered
given if sent in writing by registered mail to the last known address of the
party.
25. Payment of Attorney's Fees and Costs:
If any of the parties hereto become liable for attorney's fees or other
expenses to obtain enforcement of the provisions of this Lease, the party not at
fault shall be entitled to recover from the one at fault all costs and expenses,
including reasonable attorney's fees.
26. Successors:
All of the covenants, agreements, terms and conditions contained in this
Lease shall apply to and be binding upon Lessor
-16-
<PAGE>
and Lessee and their respective successors and assigns.
27. Entire Agreement:
This Lease contains all of the terms, covenants, conditions, stipulations,
agreements and provisions agreed upon between the parties and this Lease
supersedes and cancels each and every other agreement, promise and/or
negotiation between the parties; no employee, agent or representative of the
Lessor or of the Lessee has authority to change, modify of alter the terms of
this Lease, except by mutual agreement, in writing, executed by the duly
authorized persons, agents or officers of the parties.
28. Severability:
If any term, covenant or condition of this Lease or the application of any
part of this Lease to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such term, covenant or condition to persons or circumstances, other than those
as to which it is held invalid or unenforceable, shall not be affected unless
the portion of the Lease which is invalid is so fundamental that enforcement of
the remainder is impractical.
29. Lease Consents:
Except as otherwise provided herein, whenever the consent of the Lessor or
the Lessee is required by this Lease, neither party shall unreasonably withhold
its consent nor shall it charge the other party for such consent.
IN WITNESS WHEREOF, the parties hereto have executed this
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<PAGE>
indenture the day and year first above written.
"LESSOR" HAWAII BREWERY DEVELOPMENT CO.,
INC., a Hawaii corporation
By: /s/ Marcus Bender
--------------------------
Its: Pres.
----------------------
"LESSEE" HAWAIIAN NATURAL WATER COMPANY,
INC., a Hawaii corporation
By: /s/ Marcus Bender
--------------------------
Its: Pres.
----------------------
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<PAGE>
/
/
/
/
/
/
/
- --------------------------------------------------------------------------------
AFTER RECORDATION RETURN BY MAIL TO:
- --------------------------------------------------------------------------------
TITLE OF DOCUMENT:
AMENDMENT TO LEASE AGREEMENT
\convey\leases\hibrew2.doc
- --------------------------------------------------------------------------------
PARTIES:
LESSOR: HAWAII BREWERY DEVELOPMENT Co., INC., a Hawaii corporation
LESSEE: HAWAII NATURAL WATER COMPANY, INC., a Hawaii corporation
- --------------------------------------------------------------------------------
PROPERTY DESCRIPTION: / LIBER/PAGE:
That certain land situate at Keaau, / DOCUMENT NO.
District of Puna, Island, County /
and State of Hawaii, being Lot /
Numbers A-31-B and A-31-A-1, /
bearing TMK(s) (3)________________ /
- --------------------------------------------------------------------------------
<PAGE>
AMENDMENT TO LEASE AGREEMENT
THAT certain LEASE, by and between HAWAII BREWERY DEVELOPMENT CO., INC., a
Hawaii corporation, whose principal place of business and mailing address is
4747 Kilauea Avenue, Suite 213, Honolulu, Hawaii 96816, therein and herein
referred to as "Lessor" and HAWAIIAN NATURAL WATER COMPANY, INC., a Hawaii
corporation, whose principal place of business and mailing address is 4747
Kilauea Avenue, Suite 213, Honolulu, Hawaii 96816, therein and herein referred
to as "Lessee" dated October 3rd, 1994 is hereby amended as follows:
1. Paragraph 1 of said Lease which now reads:
"1. Lease Term:
The Lease term shall be for a total of fifty (50) years beginning on
October 1st, 1994, and ending at midnight on September 30th, 2044."
is hereby deleted and the following is inserted in place thereof:
"1. Lease Term:
The Lease term shall be for a total of fifty (50) years beginning on
October 1st, 1994, and ending at midnight on September 30, 2044.
Lessee shall have an option to extend the term of this Lease for an
additional fifty (50) years under the same terms and conditions except
for duration as set forth herein. In the event that the Lessee, its
successor or assign is still conducting a water related business on
the premises at the expiration of the initial Lease term, then the
Lessee's exercise of the option shall be deemed to have occurred on
the expiration of the initial Lease term, unless Lessee specifically
notifies Lessor in writing of its decision not to elect to extend the
term as set forth herein."
Except as specifically modified herein, all other terms and conditions of
said Lease Agreement shall remain unchanged and in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed the foregoing AMENDMENT
TO LEASE AGREEMENT at Honolulu, Hawaii, on the 18th day of January, 1995.
"LESSOR" HAWAII BREWERY DEVELOPMENT CO.,
INC., a Hawaii corporation
By: /s/ Brian J. Barbata
--------------------------
Its: Vice President
--------------------
"LESSEE" HAWAIIAN NATURAL WATER COMPANY,
INC., a Hawaii corporation
By: /s/ Marcus Bender
--------------------------
Its: President
--------------------
-2-
<PAGE>
STATE OF HAWAII )
) SS
COUNTY OF Honolulu )
On this 19 day of January, 1995, before me appeared Brian J. Barbata, to me
personally known, (or proved to me on the basis of satisfactory evidence) that
he is the Vice President of HAWAII BREWERY DEVELOPMENT, INC. , a Hawaii
corporation, that said corporation has no corporate seal/that the seal affixed
to the foregoing instrument is the corporate seal of said corporation, that said
instrument was signed and sealed in behalf of said corporation by authority of
its Board of Directors and said officers acknowledged said instrument to be the
free act and deed of said corporation.
/s/ Elaine M. Hoeller
------------------------------
Notary Public, State of Hawaii
My commission expires: 4-17-98
-3-
<PAGE>
[LETTERHEAD]
AMENDMENT TO LEASE AGREEMENT
THAT certain LEASE, by and between HAWAII BREWERY DEVELOPMENT CO.,
INC., a Hawaii corporation, whose principal place of business and mailing
address is 4747 Kilauea Avenue, Suite 123, Honolulu, Hawaii 96816, therein and
herein referred to as "Lessor" and HAWAIIAN NATURAL WATER COMPANY, INC., a
Hawaii corporation, whose principal place of business and mailing address is
4747 Kilauea Avenue, Suite 213, Honolulu, Hawaii 96816, therein and herein
referred to as "Lessee" dated October 3, 1994 is hereby amended as follows:
1. Paragraph 3A(i) of said Lease which now reads:
"(i) Land Rent:
(a) For the first five (5) years of the Lease term, the sum of Two
Thousand and no/100 Dollars ($2,000.00) per month on the first day of each
and every month;
(b) For the next five (5) years of the Lease term, the sum of Four
Thousand and no/100 Dollars ($4,000.00) per month on the first day of each
and every month;
(c) Thereafter the minimum land rent shall be subject to yearly
increases of Five percent (5%)."
is hereby deleted and the following is inserted in place thereof:
"(i) Land Rent: The sum of Two Thousand and no/100 Dollars ($2,000.00)
per month on the first day of each and every month."
<PAGE>
2. Paragraph 3A(ii)(A) of said Lease which now reads"
"(ii) Additional Rent:
A. In addition to the land rent provided above at such time as Lessee
achieves gross sales of One Million Seven Hundred Thousand and no/100
Dollars ($1,700,000), Lessee shall for the remaining term of the lease pay
additional rent measured by a percentage of gross sales. During the first
five (5) years of the lease term the additional rent shall equal two
percent (2%) of gross sales. During the second five (5) years of the lease
term the additional rent shall equal four percent (4%) of gross sales.
During the third five (5) years of the lease term the additional rent shall
equal six percent (6% ) of gross sales. During the fourth five (5) years
of the lease term the additional rent shall equal eight percent (8%) of
gross sales. For the remaining term of the lease the additional rent shall
equal ten percent (10%) of gross sales."
Is hereby deleted and the following is inserted in place thereof:
"(ii) Additional Rent:
A. In addition to the land rent provided above at such time as Lessee
achieves gross sales of One Million Seven Hundred Thousand and no/100
Dollars ($1,700,000), Lessee shall for the remaining term of the lease pay
additional rent equal to two percent (2%) of gross sales."
Except as specifically modified herein, all other terms and conditions of
said Lease Agreement shall remain unchanged and in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed the foregoing
AMENDMENT TO LEASE AGREEMENT at ____________________, Hawaii, on the ____ day of
July, 1996.
"LESSOR" HAWAII BREWERY DEVELOPMENT CO.,
INC., a Hawaii corporation
By: /s/ Marcus Bender
---------------------------
Its: Pres
"LESSEE" HAWAIIAN NATURAL WATER COMPANY,
INC., a Hawaii corporation
By: /s/ Tate Robinson
---------------------------
Its: Vice President
<PAGE>
AMENDMENT TO LEASE AGREEMENT
THAT certain LEASE, by and between HAWAII BREWERY DEVELOPMENT CO., INC., a
Hawaii corporation, whose principal place of business and mailing address is
4747 Kilauea Avenue, Suite 213, Honolulu, Hawaii 96816, therein and herein
referred to as "Lessor," and HAWAIIAN NATURAL WATER COMPANY, INC., a Hawaii
corporation, whose principal place of business and mailing address is 4747
Kilauea Avenue, Suite 213, Honolulu, Hawaii 96816, therein and herein referred
to as "Lessee," dated October 3, 1994 is hereby amended as follows, effective as
of and conditioned upon the closing of Lessee's proposed Bridge Loan financing
as more fully described in that certain Confidential Private Offering Memorandum
dated __________, 1996 related thereto:
1. Paragraphs 3A(i) and (ii)(A) of said Lease which now read:
"(i) Land Rent: The sum of Two Thousand and no/100 Dollars ($2,000.00)
per month on the first day of each and every month."
"(ii] Additional Rent:
A. In addition to the land rent provided above at such time as Lessee
achieves gross sales of One Million Seven Hundred Thousand and no/100
Dollars ($l,700,000), Lessee shall for the remaining term of the lease pay
additional rent equal to two percent (2%) of gross sales."
are hereby deleted and the following is inserted in place thereof:
"An amount, payable on the first day of each and every month, equal to the
Base Rent (as hereinafter defined), plus an additional amount (the
"Additional Rent"), payable on a quarterly basis as provided below, equal
to the excess, if any, of (A) 2% of Lessee's Net Sales (as hereinafter
defined) for the fiscal quarter ended immediately prior to the date of
determination (the "Prior Quarter"), over (B) the aggregate Base Rent
payable during the Prior Quarter. For purposes hereof, (A) Base Rent means
$5,000 per month during the first five years of the Lease, adjusted every
five years thereafter based upon changes in the Consumer Price Index in
Hawaii, and (B) Net Sales for any given Prior Quarter means Lessee's net
sales for such Prior Quarter as set forth in its Quarterly Report on
Form 10-Q filed with the Securities and Exchange Commission (the "SEC") for
such Prior Quarter or, if Lessee is not then obligated to file Quarterly
Reports with the SEC, as set forth in Lessee's financial statements for
such Prior Quarter, determined in accordance with generally accepted
accounting principles, less the aggregate amount of (A) any such net sales
which have been written off or reserved against as bad debts, and (B) any
sales or general excise taxes included therein. Additional Rent with
respect to any given Prior Quarter shall be payable as soon as practicable
after the Net Revenues with respect thereto have been determined, but in
no event later than forty-five (45) days following the end of such Prior
Quarter."
<PAGE>
2. The last clause of the first paragraph of Paragraph 1 under the heading
AGREEMENT TO LEASE which now read:
" including the non-exclusive use of the water well located thereon
(hereinafter "Well") and the non-exclusive use of the appurtenant pumping
equipment more particularly described in Exhibit "B" attached hereto and by
this reference made a part hereof (hereinafter "Equipment")."
is hereby deleted and the following is inserted in place thereof:
"including, subject to Paragraph 6 of the Terms hereof, exclusive use of
the water well located thereon (hereinafter "Well") and the appurtenant
pumping equipment more particularly described in Exhibit "B" attached
hereto and by this reference made a part hereof (hereinafter "Eguipment")."
3. The second sentence of Paragraph 5 of the Lease which now reads:
"It is understood that no retail sales shall take place on the Premises
unless and until all conditions imposed by Lessor's Special Use Permit with
respect to the Premises have been met."
is hereby deleted.
4. The first sentence of Paragraph 6 of the Lease which now reads:
"It is understood and agreed that Lessor shall be entitled to extract water
from any Well located on the Premises to meet its requirements for the
brewing of beer or the manufacture of other beverages provided that Lessor
shall not be entitled to use Well water for irrigation, cleaning or
purposes other than beverage production as described above and provided,
further, that in no event shall Lessor be entitled to more than fifty
percent (50%) of water production from the Wells located on the Premises."
is hereby deleted and the following is inserted in place thereof:
<PAGE>
"It is understood and agreed that Lessor shall be entitled to extract water
from the Well to meet its requirements for the brewing of beer or the
manufacture of other beverages other than natural water, provided that
Lessor shall not be entitled to use water from the Well or any other well
located on the Premises for irrigation, cleaning or purposes other than
beverage production as described above and provided, further, that in no
event shall Lessor be entitled to more than fifty percent (50%) of water
production from the Well."
5. The first two sentences of Paragraph 8 of the Lease which now read:
"Lessee shall be allowed the temporary use of the existing building
facilities located on the demised Premises for the bottling and processing
of water and office quarters. Provided, however, that in the event that the
Lessor requires the use of the existing premises or any portion thereof for
its own purposes then the Lessor shall provide Lessee with a six (6) month
advance notice to vacate the existing buildings or any portion thereof and
shall together with or prior to such notice to vacate, designate a portion
of the land within the demised Premises adjacent or in reasonable proximity
to the well site with a minimum size of one-half (1/2) acre and shall
permit Lessee to construct a building and other facilities reasonably
necessary for Lessee's permitted use of the Premises and shall cooperate
with Lessee in seeking any necessary governmenta1 permits and utility
services for such buildings and other improvements."
are hereby deleted and the following is inserted in place thereof:
"Lessee shall be allowed the exclusive use of the existing building
facilities located on the demised Premises for the bottling and processing
of water and office quarters.
6. The last sentence of Paragraph 8 of the Lease which now reads:
"In the event that Lessee requires more than one-half of the premises for
the conduct of its business Lessee shall act in good faith to accommodate
Lessee's needs after taking into consideration its own usage of the
premises and will if reasonably practicable allow Lessee the additional
area needed with an appropriate and equitable adjustment in the base rent."
is hereby deleted.
<PAGE>
Except as specifically modified herein, all other terms and conditions of
said Lease Agreement shall remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed the foregoing
AMENDMENT TO LEASE AGREEMENT at Honolulu, Hawaii, on the 29th day of August,
1996.
"LESSOR" HAWAII BREWERY DEVELOPMENT CO.,
INC., a Hawaii corporation
By: /s/ Brian Barbata
--------------------------
Its: Vice President
--------------------
"LESSEE" HAWAIIAN NATURAL WATER COMPANY,
INC., a Hawaii corporation
By: /s/ Marcus Bender
--------------------------
Its: President
--------------------
<PAGE>
BLOW MOLDING AGREEMENT
This Blow Molding Agreement ("Agreement") is made effective as of the date
below, by and between Hawaiian Natural Water Co., Inc. ("Customer"), and Bottles
Packaging, Inc. ("Supplier"). The parties agree as follows:
BLOW MOLDING BUSINESS ("Enterprise"). Undertake all the necessary steps to
assure the successful conclusion of mutually beneficial Enterprise, where by the
Supplier will place a blow molding equipment on Customer premises with an
obligation to provide the Customer with plastic (PET) bottles. Beginning with
February of 1996 the Supplier will provide 100% of Customer annual requirement
for plastic (PET) bottles.
CONDUCT OF BUSINESS. The Enterprise conducted by the Supplier is an independent
and autonomous business operating on the property provided by the Customer. The
Supplier obligates to provide the bottles to the Customer on a priority basis.
The Supplier grants the Customer exclusive rights to sell the PET bottles in the
State of Hawaii. The total volume of bottles sold in the State of Hawaii will
determine the volume pricing and other volume related provisions of this
agreement. The Supplier is free to sell the excess available bottles, not of the
Customer proprietary design, on the open market outside the State of Hawaii.
Volume sold outside the State of Hawaii will not affect the volume related
provisions of this agreement.
TERM. The Agreement term will begin on the effective date of this agreement and
will terminate three (3) years form the date of the first bottle delivery.
RENEWAL TERMS. This Agreement shall automatically renew for an additional period
of one year per renewal term on the same terms as this Agreement, unless either
party gives written notice of the termination no later then sixty days prior to
the end of the term or renewal term.
BOTTLE SIZE. Initial bottle sizes will be one and one half liter (1.5 1.), one
liter (1.0 1.) and one half liter (0.5 1.), followed by additional size(s) as
required by Customer.
BOTTLE DESIGN. The Customer will provide the Supplier with drawings and
technical specifications for the bottles of choice.
BOTTLE VOLUME. Customer obligates to purchase from Supplier 100% of the
requirements of the agreed bottle sizes. In the event the Supplier can not
provide 100% of the requirements, the Customer is free to purchase bottles from
alternate sources.
Bottles Packaging, Inc.
25971 Dundee Drive, Lake Forest, CA 92630 Tel.(714)859-9153 Fax (714) 859-6130
<PAGE>
Blow Molding Agreement 2 of 3
MINIMUM PURCHASE GUARANTEE. The Customer obligates to purchase a minimum of
bottles in the amount of $750,000 annually. The bottle size mix of the one half
liter (0.5 1.) will not exceed 50% of the total volume. The remaining 50% of the
one liter (1.0 1.) and one and one half liter (1.5 1.) can be divided freely.
BOTTLE PRICES. The table below outlines pricing based on volume. The price will
be reviewed annually and is based on market conditions and PET resin cost as of
the date of this agreement; any decrease or increase in the cost of resin will
be passed on to the Customer at cost.
Volume 0.5 Liter 1.0 Liter 1.5 Liter
------ --------- --------- ---------
Up to 3,499,000 .1700 .2200 .3000
3,500,000 to 4,999,000 .1650 .2200 .2850
4,500,000 to 5,999,000 .1600 .2200 .2800
6,000,000 to 7,999,000 .1550 .2200 .2750
8,000,000 to 9,999,000 .1500 .2200 .2700
10,000,000 and up .1350 .2200 .2400
TERMS OF PAYMENT. All invoices for the bottles supplied are due and payable
thirty (30) days from the date of the invoice.
QUALITY. Supplier will maintain all quality and technological standards to meet
industry and legal requirements.
BLOW MOLDING EQUIPMENT. Supplier will procure and install at it's own expense
all the necessary machinery and equipment to produce plastic (PET) bottles on
Customer premises at a location provided by the Customer.
BLOW MOLDING EQUIPMENT RE-PURCHASE. The Customer can re-purchase the equipment
from the Supplier for $ 1.00 after the equipment has been operating at full
capacity producing a minimum of 15,000,000 bottles per year for a minimum of
full three (3) years.
LICENCES AND PERMITS. Supplier will obtain all necessary licenses and permits
required for the operation of the blow molding business.
TAXES. Taxes attributable to the conduct of the Blow Molding business will be
paid by Supplier.
<PAGE>
Blow Molding Agreement 3 of 3
SEVERABILITY. If any portion of this Agreement shall be held to be invalid or
unenforceable for any reason, the remaining provisions shall continue to be
valid and enforceable. If a court finds that any provision of this Agreement is
invalid or unenforceable, but that by limiting such provision, it would become
valid and enforceable, then such provision shall be deemed to be written,
construed and enforced as so limited.
WAIVER. The failure of either party to enforce any provisions of this Agreement
shall not be construed as a waiver or limitation of that party's right to
subsequently enforce and compel strict compliance with every provision of this
Agreement.
CUMULATIVE RIGHTS. The rights of the parties under this Agreement are
cumulative, and shall not be construed as exclusive unless otherwise required by
law.
ARBITRATION. Any controversy or claim arising out of or relating to this
agreement, or the breach thereof, shall be settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
and judgment upon the award rendered by the Arbitrator(s) will be binding on
both parties.
GOVERNING LAW. This Agreement shall be construed in accordance with the laws of
the state of Hawaii.
CUSTOMER: SUPPLIER:
Hawaiian Natural Water Co., Inc. Bottles Packaging Inc.
/s/ Marcus Bender /s/ Nathan Keller
- ------------------------------- -----------------------
Marcus Bender Nathan Keller
President C.E.O.
Date 12/1/95 Date 11/30/95
<PAGE>
[LOGO]
HAWAIIAN
NATURAL
WATER COMPANY, INC.
June 12, 1996
Mr. NATE KELLER, BPI
REF: BOTTLES PACKAGING, INC. (BPI), - ADDENDUM TO BLOW MOLDING AGREEMENT
ORIGINALLY DATED DEC. 1996.
CONFIRMING PURCHASE ORDER ARRANGEMENT - with Mr. Nate Keller, CFO, BPI for the
purchase of 10,000,000 bottles at HNWC plant at Keaau, Hawaii
- --------------------------------------------------------------------------------
NEW SCHEDULE OF LOWEST PRICE BOTTLE COST AT THE 10,000,000 LEVEL:
One third liter $.1350 Note A
One half liter size $.1350 5,000,000 $675,000
One liter size $.22 Note B 2,500,000 $550,000
One and one-half size $.24 2,500,000 $600,000
---------- ----------
10,000,000 $1,825,000
---------- ----------
Note A - Price to be renegotiated in three months for the one third liter size.
Volume to be provided after additional market planning is performed. Quantity
will be shared with the one half liter size.
Note B - The price of the one liter is $.22 cents based upon the 36 gram
preform. BPI will renegotiate the cost when BPI obtains a lighter weight
preform.
HNWC will purchase 10,000,000 bottles from BPI beginning on July 1, 1996 for a
total cost of $1,825,000 for the period July 1, 1996 to June 30, 1997. HNWC will
provide three month estimates to BPI for the quantity to be drawn down.
Estimates will be provided one month in advance and updated each month for
subsequent months. Payment terms for these purchases will be net 15 days for the
first three months and beginning Oct. 1, 1996 the payment terms will be net 30
days.
/s/ Marcus Bender /s/ Nate Keller
MARCUS BENDER, PRESIDENT ACCEPTED BY: NATE KELLER, BPI
DATE: 6/12/96 DATE: 6/13/96
Hawaiian Natural Water, Inc.
Corporate Office: 4747 Kilauea Avenue * Suite 201 * Honolulu, Hawaii 96816 USA
* (808) 733-1002 * FAX (808) 733-1009
Bottling Plant: 16-305 Old Volcano Road * Keaau. Hawaii 96749 USA
* (808) 966-8888
<PAGE>
[LETTERHEAD] First Hawaiian Bank
March 16, 1995
Mr. Marcus Bender
President
Hawaiian Natural Water Company, Inc.
4747 Kilauea Avenue #201
Honolulu, Hawaii 96816
Gentlemen:
First Hawaiian Bank is pleased to inform you that we have approved Hawaiian
Natural Water Company, Inc.'s request for a $300,000 partially secured line of
credit, subject to the following terms and conditions:
Expiration Date of Line: March 31, 1996
Purpose: Short term working capital needs
Rate: 2.00% over FHB prime, moving with prime (Our prime rate
is the fluctuating simple interest annual rate which we
announce publicly from time to time, which rate shall
not necessarily be the best or lowest rate charged by us
from time to time.)
Terms: Notes drawn on 90-day terms
Fee: 1/2% ($1,500)
Security: A security interest over all assets of the subject,
including but not limited to all accounts, equipment,
general intangibles and inventory.
Guarantors: 1) Marcus Bender
2) Brian Barbata
3) Richard Benderson
4) John Mayo
Loan Condition: Annually, there will be a 30-day clean up period.
If the terms and-conditions of this commitment are acceptable to Hawaiian
Natural Water Company, Inc., please sign this letter and return to us by March
31, 1995.
<PAGE>
Hawaiian Natural Water Company, Inc.
March 16, 1995
Page 2
The enclosed copy of the commitment letter is for you to retain for your files.
Should you have any questions, please do not hesitate to call me at 245-4028.
Sincerely,
/s/ Thomas J. Canute
- -------------------------
Thomas J. Canute
Branch Manager
TJC/ls
ACCEPTED BY:
HAWAIIAN NATURAL WATER COMPANY, INC.
By: Marcus Bender Dated: March 31, 1995
------------------------ -------------------------
Its President
GUARANTORS:
Marcus Bender
- ------------------------
Marcus Bender
- ------------------------
Brian Barbata
- ------------------------
Richard Henderson
- ------------------------
John Mayo
<PAGE>
Commercial Continuing Guaranty
1. To induce the FIRST HAWAIIAN BANK to establish or grant credit from time
to time, and for other valuable consideration, the undersigned (hereinafter
called "Guarantor"), for themselves, and their respective heirs, personal
representatives, executors, successors and assigns, jointly and severally,
unconditionally guarantee and promise to pay to FIRST HAWAIIAN BANK (hereinafter
called "Bank"), its successors, transferees, and assigns, on demand, in lawful
money of the United States of America, any and all indebtedness of Hawaiian
Natural Water Company, Inc. (hereinafter called "Borrowers") to Bank. The word
"indebtedness" is used herein in its most comprehensive sense and includes any
and all advances, debts, obligations and liabilities of Borrowers or any one or
more of them, heretofore, now, or hereafter made, incurred or created, whether
Borrowers may be liable individually or jointly with others, or whether recovery
upon such indebtedness may be or hereafter become barred by any statute of
limitations, or whether such indebtedness may be or hereafter become otherwise
unenforceable.
2. The liability of Guarantors shall not exceed at any one time the sum of
(a) Three Hundred Thousand and no/100 Dollars ($300,000.00) for principal, plus
(b) all interest upon the indebtedness or upon such part of the indebtedness as
shall not exceed the foregoing limitation on principal, and plus (c) all costs
and expenses (including reasonable attorneys' fees) incurred by Bank in
connection with the administration or collection of the indebtedness, and the
enforcement of this guaranty or any other documents relating to the
indebtedness, whether or not a suit is brought against Borrowers or Guarantors.
Notwithstanding the foregoing, Bank may permit the indebtedness of Borrowers to
exceed Guarantors' liability. This is a continuing guaranty relating to any
indebtedness, including that arising under successive transactions which shall
either continue the indebtedness or from time to time renew it after it has been
satisfied. This guaranty shall not apply to any indebtedness created after
actual receipt by Bank of written notice of its revocation as to future
transactions. Any payment by Guarantors shall not reduce their maximum
obligation hereunder, unless written notice to that effect be actually received
by Bank at or prior to the time of such payment.
3. The obligations hereunder are joint and several, and independent of the
obligations of Borrowers, and a separate action or actions may be brought and
prosecuted against any or all Guarantors whether action is brought against
Borrowers or whether Borrowers be joined in any such action or actions; and
Guarantors waive the benefit of any statute of limitations affecting their
liability hereunder or the enforcement thereof. This guaranty is given by the
undersigned and each of them, without regard to any other guaranty by the other
signers hereof, or otherwise, and each of the undersigned agrees that it shall
continue in full force and effect notwithstanding the death or release of, or
the extension of time to, any of the other Guarantors, both as to obligations
then existing or thereafter created.
4. Guarantors authorize Bank, without notice or demand and without
affecting their liability hereunder, from time to time to (a) renew, extend,
accelerate or otherwise change the time for payment of, or otherwise change the
terms of the indebtedness or any part thereof, including increase or decrease of
the rate of interest thereon; (b) take and hold security for the payment of this
guaranty or the indebtedness guaranteed, and exchange, enforce, waive and
release any such security; (c) apply such security and direct the order or
manner of sale thereof as Bank in its discretion may determine; (d) release or
substitute any one or more of the endorsers or guarantors; and (e) elect which
specific indebtedness of the Borrowers this guarantee shall apply to, and from
time to time change its election. Bank may without notice assign this guaranty
in whole or in part.
5. The liability of Guarantors under this guaranty shall not be released,
affected, stayed or impaired by (a) any assignment, endorsement, or transfer, in
whole or in part, of the indebtedness, although made without notice to or the
consent of Guarantors; (b) any waiver by Bank of the performance or observance
by Borrowers or any one or more of Guarantors of any agreement, covenant, term
or condition relating to the indebtedness; (c) any receivership, insolvency,
bankruptcy, reorganization or dissolution affecting Borrowers or any one or more
of Guarantors, or their respective assets; (d) the death of any individual
Borrower or Guarantor; or (e) the operation of law or any other cause, whether
similar or dissimilar to the foregoing.
6. Guarantors waive any right to require Bank to (a) proceed against
Borrowers; (b) proceed against or exhaust any security held from Borrowers; or
(c) pursue any other remedy in Bank's power whatsoever. Guarantors waive notice
of acceptance hereof and any real or personal defense arising by reason of any
disability or other defense of Borrowers or by reason of the cessation from any
cause whatsoever of the liability of Borrowers. Until all indebtedness of
Borrowers to Bank shall have been paid in full, even though such indebtedness is
in excess of Guarantors' liability hereunder, Guarantors shall have no right of
subrogation, and waive any right to enforce any remedy which Bank now has or may
hereafter have against Borrowers, and waive any benefit of, and any right to
participate in any security now or hereafter held by Bank Guarantors waive all
presentments, demands for performance, notices of nonperformance, protests,
notices of protest, notices of dishonor, and notices of acceptance of this
guaranty and of the existence, creation, or incurring of new or additional
indebtedness.
7. Guarantors agree that if any payment previously applied to Borrower's
debt must be returned by the Bank as a voidable preference under the bankruptcy
code or for any other reason, whether by court order, administrative order,
settlement or otherwise, Guarantors will remain liable for the full amount
returned. Guarantors will remain liable as if such amount had never been
received by the Bank, notwithstanding any termination of this Guaranty or the
cancellation of any note or other agreement evidencing the obligation of
Borrowers.
8. In addition to all liens upon, and right of setoff against the moneys,
securities or other property of Guarantors given to Bank by law, Bank shall have
a lien upon and a right of setoff against all moneys, securities and other
property of Guarantors now or hereafter in this possession of or on deposit with
Bank, whether held in a general or special account or deposit, or for
safekeeping or otherwise; and every such lien and right of setoff may be
exercised, without demand upon or notice to Guarantors. No lien or right of
setoff shall be deemed to have been waived by any act or conduct on the part of
Bank, or by any neglect to exercise such right of setoff or to enforce such
lien, or by any delay in so doing, and every right of setoff and lien shall
continue in full force and effect until such right of setoff or lien is
specifically waived or released by an instrument in writing executed by Bank.
9. Any indebtedness of Borrowers now or hereafter held by Guarantors is
hereby subordinated to the indebtedness of Borrowers to Bank; and such
indebtedness of Borrowers to Guarantors if Bank so requests shall be collected,
enforced and received by Guarantors as trustees for Bank and be paid over to
Bank on account of the indebtedness of Borrowers to Bank but without reducing or
affecting in any manner the liability of Guarantors under the other provisions
of this guaranty.
10. Where any one or more of Borrowers are corporations or partnerships it
is not necessary for Bank to inquire into the powers of Borrowers or the
officers, directors, partners or agents acting or purporting to act on their
behalf, and any indebtedness made or created in reliance upon the professed
exercise of such powers shall be guaranteed hereunder.
11. In addition to all sums payable hereunder, Guarantors agree to pay all
costs and expenses (including reasonable attorneys' fees) incurred by Bank in
connection with the administration or collection of the indebtedness, and the
enforcement of this guaranty or any other documents relating to the
indebtedness, whether or not a suit is brought against Borrowers or Guarantors.
12. Guarantors will take such further actions as may be reasonably
requested by Bank from time to time to effect the purposes of this guaranty,
including, without limitation, the execution and delivery of all reasonably
necessary documents.
13. This guaranty may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same instrument, and in making proof of this guaranty it shall not be necessary
to produce or account for more than one such counterpart.
14. In all cases where there is only one Borrower or only one Guarantor,
then all words used herein in the plural shall be deemed to have been used in
the singular where the context and construction so require; and where there is
more than one Borrower or more than one Guarantor, the words 'Borrowers' and
'Guarantors', respectively, shall mean all and any one or more of them. This
guaranty shall be construed in accordance with the laws of the State of Hawaii
wherein it shall be performed by the undersigned Guarantors, the Guarantors
hereby irrevocably submitting, for the purposes of any action or proceeding to
enforce this guaranty, to the jurisdiction of the courts of the State of Hawaii
and the Federal District Court for the District of Hawaii, and to venue in
Honolulu, Hawaii.
IN WITNESS WHEREOF, the undersigned Guarantors have executed this guaranty
effective as of December 30 1994.
/s/ Marcus Bender
- ---------------------------------- ----------------------------------
Marcus Bender
- ---------------------------------- ----------------------------------
<PAGE>
LAND COURT SYSTEM REGULAR SYSTEM
------------------------------------------------------------------------------
Return by Mail [ ] Pickup [ ] To:
FIRST HAWAIIAN BANK
Lihue Branch
-------------------------------------
P.O. Box 1111
-------------------------------------
Lihue, Hawaii 96766
--------------------------------------------------------------------
Uniform Commercial Code -- FINANCING STATEMENT FORM UCC-1
IMPORTANT -- Read instructions on back before filling out form This
FINANCING STATEMENT is presented for recordation pursuant to the Hawaii Uniform
Commercial Code.
No. of Additional Sheets Presented:
None
1. Maturity Date, if any (optional):
2. Debtor (Last Name First) and Address:
Hawaiian Natural Water Co., Inc.
4747 Kilauea Ave., Suite #201
Lihue, Hawaii 96766
2a. Additional Debtor(s) (Last name first) and Address(es):
3. Secured Party and Address:
First Hawaiian Bank -- Lihue
P.O. Box 1111
Lihue, Hawaii 96766
4. Assignee of Secured Party, if any, and Address:
5. This Financing Statement covers the following types of items of property:
First lien security interest over all assets of the subject, including
but not limited to all accounts, equipment, general intangibles, and
inventory.
6. Check [x] if applicable:
a. [ ] (If collateral is crops) The above described crops are
growing or are to be grown on:
b. [ ] (If collateral is goods which are or are to become fixtures)
The above described goods in whole or in part are affixed or to
be affixed to:
Describe real estate: (If Land Court property, give lot, application and
certificate of title numbers)
Record Owner:
-------------------------------------------------------------
or
Record Lessee:
-------------------------------------------------------------
<PAGE>
7. Check [x] if applicable: a. [x] Proceeds of collateral are also covered.
b. [ ] Products of collateral are also covered.
8. This statement is filed without the debtor's signature to perfect a security
interest in collateral [Check appropriate box]:
a. [ ] which is already subject to a security interest in another
jurisdiction when it was brought into this state or
b. [ ] which is proceeds of the original collateral described above
in which a security interest was perfected.
HAWAIIAN NATURAL WATER COMPANY, INC.
By /s/ Marcus Bender First Hawaiian Bank
- --------------------------
Its: President
By By/s/ Samuel W. Pratt
- --------------------------- ---------------------------------
Its Assistant Branch Manager
Secured Party
Signature[s) of Debtor(s)
CC-6101 (Revised 1/1/91) 1861N
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is made as of _____________, 1995 between FIRST
HAWAIIAN BANK, a Hawaii corporation (the "Bank") and the parties signing below
as "Owner." In consideration of the Obligations described below of Hawaiian
Natural Water Company, Inc. (the "Borrower") to the Bank for other good and
valuable consideration, Owner agrees as follows:
1. Security Interest. Owner grants, assigns, conveys, delivers and
transfers to the Bank the following described property (the "Collateral")
together with a security interest in such property wherever located, upon the
terms and conditions set forth in this Security Agreement: (Check appropriate
boxes)
[ ] (a) Pledged-Property.
----------------------------------------------
and any products or proceeds (including insurance proceeds) substitutions,
increase, and additions, returns and repossessions, and everything of the
Owner's in the Bank's possession or control, by document of title or otherwise,
including all collateral described in the Bank's collateral receipts to the
Owner or in letters to other secured parties or depository institutions, or to
anyone else holding collateral as the Bank's agent. All such Collateral is
referred to herein as "Pledged Property."
[X] (b) General. All of the Owner's "Accounts," "Equipment," "General
Intangibles," "Inventory" and "Farm Products" as such terms are defined in
paragraph 2 below whether now owned or existing or hereafter acquired or
arising, including but not limited to all "accounts," "instruments,"
"documents," "chattel paper," "equipment," "general intangibles," "inventory"
and "farm products" as such terms are defined in the Uniform Commercial Code,
and without limiting the foregoing, the following property: A security interest
over all assets of the subject, including but not limited to all accounts,
equipment, general intangibles and inventory.
and all replacements, substitutions, additions, parts, packaging, increase,
"accessions" such as accessories and equipment now or later installed in or
attached to the foregoing property, any products or proceeds (including
insurance proceeds and insurance premium rebates, all condemnation proceed(s),
returns and repossessions, everything of the Owner's whatsoever which is or will
be in the Bank's possession or control, by document of title or otherwise, and
all similar property later acquired by the Owner.
[ ] (c) Specific Property Only.
---------------------------------------
and all replacements, substitutions, additions, parts, packaging, increase,
"accessions" such as accessories and equipment now or later installed in or
attached to the foregoing property, any products or proceeds (including
insurance proceeds and insurance premium rebates, all condemnation proceed(s),
returns and repossessions, everything of the Owner's whatsoever which is or will
be in the Bank's possession or control, by document or title or otherwise, and
all similar property later acquired by the Owner.
- ---------------------------------------------------------------------------
Real Estate Description (if collateral includes crops or timber)
2. Definitions. (The following definitions apply to the terms used n this
Security Agreement:
(a) Accounts--All accounts, accounts receivable, other receivable, contract
rights, chattel paper, instruments and documents, and notes; any other
obligations or indebtedness owed to the Owner from whatever source arising; all
rights of the Owner to receive any performance or any payments in money or kind;
all guaranties of the foregoing and security therefor; all of the right, title
and interest of the Owner in and with respect to the goods, services, or other
property that gave rise to or that secure any of the foregoing and insurance
policies and proceeds relating thereto, and all rights of the Owner as an unpaid
seller of goods and services, including, but not limited to, the rights to
stoppage in transit, replevin, reclamation, and resale; and all of the foregoing
whether now owned or existing or hereafter created or acquired. The word
"Accounts" as used in this Security Agreement also includes "documents,"
"instruments" and "chattel paper" as such terms are defined in the Uniform
Commercial Code.
(b) Equipment--All of Owner's now owned or hereafter acquired machinery,
equipment, furniture, furnishing and fixtures, together with tools, aircraft and
motor vehicles of every kind and description, all parts therefor, all other
tangible personal property of the Owner which is not Inventory or Farm Products
or used by the Owner as consumer household goods, and all improvements,
accessions or appurtenances thereto.
(c) General Intangibles--All choses in action and causes of action and all
other intangible personal property of Owner of every kind and nature (other than
Accounts) now owned or hereafter acquired by Owner, including, without
limitation, corporate or other business records, inventions, designs,
blueprints, plans, specifications, patents, patent applications, trademarks,
trade names, trade secrets, goodwill, copyrights, registrations, licenses,
franchises, beneficial interests in trusts, partnership interests, tax refund
claims, insurance proceeds thereof, including without limitation, insurance
covering the lives of key employees on which the Owner is beneficiary and any
letter of credit, guarantee, claim, security interest or other security held by
or granted to Owner to secure payment by an account debtor of any of the
Accounts.
(d) Inventory--Any and all now owned or hereafter acquired goods,
merchandise, or other personal property, raw materials, parts, supplies,
work-in-process and finished products intended for sale, or every kind and
description, in the custody or possession, actual or constructive, of Owner,
including insurance proceeds from insurance on any of the above, any returns
upon any Accounts and other proceeds, resulting from the sale or disposition of
any of the foregoing, including without limitation, raw materials,
work-in-process, and finished goods.
(e) Farm Products--All of Owner's crops, livestock, supplies used or
produced in farming operations, unmanufactured products of crops livestock or
aquaculture.
3. Obligations Secured--The Owner is granting this security interest to
secure all of the Borrower's obligations, debts and liabilities of every
description to the Bank. All of these obligations, debts and liabilities are
collectively referred to in this Security Agreement as the "Obligations,"
whether or not the Obligation is existing or later arising or acquired by the
Bank by purchase, assignment or otherwise, and whether or not direct or
indirect, absolute or contingent, fixed or indefinite as to amount, due or not
due, joint or several, and whether or not the Obligation is secured by
additional collateral. "Obligations" also include obligations or promises to
perform or forbear from performing acts, guaranties, indemnities, warranties,
all amounts represented by letters of credit now or later issued by the Bank for
the Borrower's benefit or at the Borrower's request, and all expenses and
attorneys' fees incurred by the Bank in the preparation, signing, perfection,
administration or enforcement of this Security Agreement, the security interest
created under this Security Agreement or any other documents relating to any
Obligation. "Obligations" also includes all extensions, renewals or revisions of
the Obligations, all late charges and anything else the Borrower or the Owner
owe under this Security Agreement or the Obligations. If the Borrower consists
of more than one party or person or is a partnership or joint venture, the term
"Obligations" refers to and also includes the Obligations, whether joint or
several, of each such party, person or general partner in a partnership or joint
venture.
It is true, clear, and express intention of the Owner that the continuing
grant of the security interests provided for in this Security Agreement remain
as security for payment and performance of the Obligations, whether or not
existing or hereinafter incurred by future advances or otherwise; and whether or
not such Obligations are related to any transaction occurring in connection with
this Security Agreement, by class or kind, or whether or not contemplated by the
parties at the time of the granting of this security interest. Notice of the
continuing grant of this security interest shall not be required to be stated on
the face of any document representing any such Obligation, nor otherwise
identify the Obligation as being secured hereby. Any such Obligation shall be
deemed to have been made pursuant to Section 490:9-204(3), HRS. If no party is
identified above as the "Borrower," then the Borrower for purposes of this
Security Agreement shall be the Owner.
4. Bank's Rights. The Owner is giving the Bank those rights that are stated
in this Security Agreement and also-those rights that Hawaii law, including the
Hawaii Uniform Commercial Code, gives to persons like the Bank who hold security
interest in property. The Owner is giving the Bank these rights in the
Collateral to protect the Bank from possible losses that might result if the
Owner or the borrower fail to (a) pay all the amounts owed the Bank under the
Obligations; (b) keep all of the Borrower's other promises or agreements under
the Obligations; (c) pay, with interest any amounts that the Bank spends under
this Security Agreement to protect the value of the Collateral and the Bank's
right in the Collateral; and (d) keep all of the Owner's other promises and
agreements under this Security Agreement.
5. Ownership and Protection of Collateral. The Owner promises that: (a) the
Owner owns the Collateral and has exclusive control of it; (b)the Owner has the
right to give the Bank a security interest in the Collateral; (c) there are no
outstanding claims or charges against the Collateral (no one else has a security
interest in the Collateral); and (d) all information furnished or to be
furnished the bank by or on behalf of the Owner concerning the Collateral and
the proceeds thereof or in connection with Obligations is (or will be at the
time it is furnished) correct, accurate and complete.
The Owner gives a general warranty of title to the Bank. This means that
the Owner will be fully responsible for any losses which the Bank suffers
because someone other than the Owner has some of the rights in the Collateral
which the Owner promises that it has. The Owner promises that it will define its
ownership of the Collateral (in court if necessary) against any claims of such
rights. The Owner will keep the Collateral in good conditions and repair and
protect it against loss, damage or deterioration. The Owner will let the Bank
know at once if the Collateral is damaged, destroyed, lost or materially
decreases in value. However, the Borrower and the Owner will pay the Bank all
they respectively owe the Bank even if the Collateral is damaged, destroyed or
lost.
The Owner will keep the Collateral free from the claims or interests of
anyone else. The Owner will pay all taxes, insurance premiums, storage charges,
and other charges relating to the Collateral. The Owner will not use or permit
anyone to use the Collateral in violation of any law (such as transporting or
hiding drugs, liquor or contraband) or expose the Collateral to the risk of
confiscation or misuse. The Owner will keep complete records about the
Collateral and show them to the bank and answer any questions relating to the
Collateral at any time the Bank requests. The Owner will notify the Bank
immediately of any important adverse changes which affect the value of the
Collateral, the information given the Bank concerning the Collateral or the
Bank's security interest in the Collateral.
6. Pledged Property. If the Collateral is "Pledged Property" as described
above, at the Bank's request the Owner will give the Bank possession of the
Collateral or any written evidence of it. The Bank will hold the Pledged
Property until the Obligations are satisfied. When the Pledges Property is
returned to the Owner, it may be returned to any person signing as Owner.
Insurance under paragraph 7 on the reverse side of this page is not required for
Pledged Property in possession of the Bank.
The Bank can exercise all rights as to the Pledged Property and deal with
the Pledged Property as if the Bank were the owner (except that the bank can
exercise voting rights only if the Owner is in default under this Security
Agreement). However, the Bank does not have to exercise any
By signing this Security Agreement the Owner agrees to all of the above,
including the terms on the reverse side of this page.
sHAWAIIAN NATURAL WATER COMPANY, INC.
/s/ Marcus Bender
- -------------------------------- ----------------------------
Owner Its President Owner
4747 Kilauea Avenue #201
- -------------------------------- ----------------------------
Address Address
Honolulu, Hawaii 96816
- -------------------------------- ----------------------------
City, State, Zip Code City, State, Zip Code
<PAGE>
FIRST HAWAIIAN LEASING, INC.
BOX 47600
HONOLULU, HAWAII 96847
TELEPHONE 593-5300
MASTER LEASE AGREEMENT NO. A2500
Lessee: HAWAIIAN NATURAL WATER CO.
4747 Kilauea Avenue, Ste. 201
Honolulu, Hawaii 96816
Phone No. (808) 733-1002 Federal ID No. X99-0314848 Hawaii GE Tax No. X10521179
Kind of Business: Corporate
1. MASTER LEASE AGREEMENT. First Hawaiian Leasing, Inc. (the "Lessor")
hereby agrees to lease to the above-described Lessee, and the Lessee agrees to
lease from the Lessor, all machinery, equipment and other personal property
("Equipment") described in the lease schedules ("Lease Schedules") executed
concurrently herewith, or which may from time to time hereafter be executed by
the Lessor and the Lessee and attached hereto and incorporated by reference,
upon the terms and conditions set forth in this Master Lease Agreement and the
Lease Schedules. As used herein, the term "this Lease" includes this Master
Lease Agreement and all Lease Schedules, and unless the Lessor has made an
election to separate this Lease pursuant to paragraph 20 below, this Lease shall
constitute one undivided lease of the Equipment. All of the terms, covenants and
conditions of this Lease shall govern the rights and obligations of the Lessor
and the Lessee, except as specifically modified in writing.
2. LEASE TERM. This Lease shall become effective upon the execution of this
Lease by the parties and shall terminate upon the full performance and
satisfaction of all of the terms, covenants and conditions set forth in this
Lease. The Rental Term for each item of Equipment is provided in the Lease
Schedule. Once the Rental Term has commenced, the Lessee shall have no right to
terminate the lease of the Equipment described in the Lease Schedule prior to
the expiration of such Rental Term.
3. RENT. The Lessee shall pay the Lessor the amount of rent set forth in
the Lease Schedules on the dates specified therein; provided, however, if the
actual Capitalized Cost of the Equipment differs from the amount set forth in
the Lease Schedules, the Lessor may adjust the amount of rent based on the
amount of any such difference. The method of adjusting the rent is set forth in
the Lease Schedules. As used in this Lease, the term "actual Capitalized Cost"
means the cost to the Lessor of purchasing, delivering and, to the extent
approved by the Lessor, the costs of installing and making the Equipment
available for use. Interim rental shall be paid by the Lessee to the Lessor as
provided in the Lease Schedules. All rental payments shall be paid at the office
of the Lessor or such other place as the Lessor may hereafter specify in writing
to the Lessee. If the Lessor's interest in this Lease is assigned to a third
party, all rental payments shall be paid at the office of the assignee or such
place as the assignee may hereafter specify in writing to the Lessee. The Lessee
shall pay all rent to the Lessor or the Lessor's assignee without deduction,
setoff or demand, and the amount of such rent shall not be reduced in amount
during any period in which the Equipment is being serviced or repaired. In
addition to the rental payments, the Lessee shall pay such other sums as are
specified in this Lease.
4. GENERAL EXCISE TAX. The Lessee shall pay to the Lessor, as additional
rent, an amount equal to the gross income taxes payable by the Lessor under the
Hawaii general excise tax law, or any similar state, federal or county law which
may be hereafter enacted, on account of any rental income, purchase option price
or other sums actually received or constructively received by the Lessor from
the Lessee pursuant to this Lease. These gross income taxes shall be due at the
time the rental income and other sums subject to gross income taxes are received
by the Lessor.
5. INTEREST ON PAST DUE AMOUNTS AND HANDLING CHARGES. If the Lessee shall
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fail to pay any rental payment or other sum required to be paid to the Lessor
under this Lease, the Lessee shall pay interest on the delinquent payment at the
interest rate specified in the Lease Schedules. If more than one interest rate
is specified in the Lease Schedules, (a) the interest rate specified in the
Lease Schedule shall apply to the rental payments covered thereby, and (b) the
highest rate specified in the Lease Schedules shall apply to all other sums
required to be paid to the Lessor under this Lease. In addition, the Lessee
shall pay, as a handling charge, the amount specified in the Lease Schedules for
returned checks written against insufficient funds.
6. REGISTRATION, LICENSES, EXPENSES, FEES AND TAXES ON EQUIPMENT.
(a) The Lessee shall pay all expenses incurred in the use, maintenance and
operation of the Equipment, including, without limitation, all registration and
license fees, fuel costs, repair and maintenance expenses, towing charges, fines
and penalties.
(b) In addition to the gross income taxes described in paragraph 4 above,
the Lessee shall pay all personal property and ad valorem taxes, sales and use
taxes, assessments, duties and charges now or hereafter imposed by any federal,
state or county taxing authority upon the Equipment or this Lease, whether the
same shall be imposed on the Lessor or the Lessee and together with any
penalties or interest assessed thereon for any late payment; provided, however,
this Lessee covenant shall not apply to the payment of the Lessor's net income
taxes arising from this Lease or to the payment or any penalties or interest
directly attributable to any late payments made by the Lessor.
(c) The Lessee shall reimburse and hold the Lessor harmless for any and all
amounts which the Lessor may pay in satisfaction, release or discharge of the
Lessee's obligations under this paragraph 6.
7. SELECTION, DELIVERY AND INSTALLATION COSTS OF EQUIPMENT.
(a) SELECTION OF EQUIPMENT. The Lessee hereby acknowledges: (i) that it has
selected the type, quantity and method of delivery of the Equipment, and the
manufacturer and/or dealer (sometimes hereafter called the "Vendor") of the
equipment; (ii) that the Lessor has not selected and does not manufacture or
supply the Equipment; (iii) that the Lessor has or will acquire the Equipment
solely in connection with this Lease; (iv) that the Lessor has informed the
Lessee in writing that the Lessee is entitled to the promises and warranties,
including those of any third party, provided to the Lessor by the Vendor in
connection with the contract by which the Lessor has or will acquire the
Equipment, and the Lessee may communicate with the Vendor and receive a
statement of those promises and warranties, including any disclaimers and
limitations of them or of remedies; (v) that the Lessee has selected the
Equipment solely in reliance on the Vendor's warranties and representations; and
(vi) that the Lessor has not made any representations to the Lessee concerning
the use, condition, operation, efficiency or safety of the Equipment. The Lessee
also acknowledges that the sales representatives or other agents of the Vendor
are not the agents of the Lessor, and therefore, are not authorized to waive or
alter any term covenant or condition of this Lease.
(b) DELIVERY OF EQUIPMENT. The Lessor will order the Equipment from the
Vendor selected by the Lessee for delivery to the Lessee (based on shipment
terms determined by the Lessee) at the time and place set forth in each Lease
Schedule. If the Vendor fails to meet the Outside Delivery Date set forth in the
Lease Schedule, either the Lessor or the Lessee may, at its option, terminate
the Lease Schedule by giving the other party written notice thereof within ten
(10) days after the expiration of the Outside Delivery Date; provided, however,
the termination of the Lease Schedule shall not relieve the Lessee of its
obligation to pay any accrued but unpaid carrying charges owed to the Lessor
pursuant to the Lease Schedule or other recourse agreement executed by the
Lessee for any advances paid to the Vendor.
(c) DELIVERY AND INSTALLATION COSTS. The Lessee shall pay all
transportation costs, sales, excise or use taxes, handling and installation
charges for the Equipment; provided, however, if any such charges are advanced
or approved by the Lessor, then these charges may be added to the Capitalized
Cost of the Equipment.
8. INSPECTION AND ACCEPTANCE OF EQUIPMENT; REJECTION.
(a) The Lessee shall make, at its own expense, all necessary inspections
and tests of the Equipment to determine whether the Equipment conforms to the
Lessee's requirements and specifications within the Inspection Period specified
in the Lease Schedule.
(b) Upon the completion of its inspection of the Equipment, the Lessee
shall promptly deliver to the Lessor an executed acceptance certificate (the
"Acceptance
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Certificate") or reject the Equipment pursuant to paragraph 8(c) below.
THE LESSEE SHALL NOT PUT THE EQUIPMENT TO ITS INTENDED USE, OTHER THAN FOR
INSPECTION AND TESTING PURPOSES, PRIOR TO THE EXECUTION AND DELIVERY OF THE
ACCEPTANCE CERTIFICATE. IF THE LESSEE FAILS TO DELIVER THE ACCEPTANCE
CERTIFICATE OR REJECT THE EQUIPMENT PRIOR TO THE EXPIRATION OF THE INSPECTION
PERIOD PROVIDED IN THE LEASE SCHEDULE, THE LESSOR MAY TERMINATE ITS COMMITMENT
TO LEASE THE EQUIPMENT TO THE LESSEE PURSUANT TO THIS LEASE. IN ADDITION, THE
LESSOR SHALL HAVE THE RIGHT, BUT NOT THE OBLIGATION, TO CONSIDER THE LESSEE'S
FAILURE TO DELIVER THE ACCEPTANCE CERTIFICATE AS CONCLUSIVE EVIDENCE THAT THE
EQUIPMENT WAS DELIVERED TO THE LESSEE IN GOOD CONDITION AND THAT IT HAS BEEN
ACCEPTED BY THE LESSEE. THE LESSEE'S ACCEPTANCE OF THE EQUIPMENT PURSUANT TO
THIS PARAGRAPH 8(b) SHALL BE FOR THE SOLE PURPOSE OF COMMENCING THE LESSEE'S
RENTAL PAYMENT AND OTHER OBLIGATIONS TO THE LESSOR UNDER THIS LEASE.
ACCORDINGLY, THE LESSEE'S ACCEPTANCE OF THE EQUIPMENT SHALL BE SOLELY FOR THE
BENEFIT OF THE LESSOR, AND SHALL BE WITHOUT PREJUDICE TO THE LESSEE'S RIGHTS
AGAINST THE VENDOR OF THE EQUIPMENT FOR REMEDYING ANY CLAIMED DEFECTS.
(c) The Lessee may reject the Equipment if such rejection is permitted
under the Hawaii Uniform Commercial Code or any other applicable law governing
the sale of goods. If the Lessee elects to reject the Equipment, the Lessee
agrees (i) to promptly notify the Lessor and the Vendor in writing that the
Equipment has been rejected and the reasons therefor; (ii) to cooperate with the
Lessor in complying with, at the Lessee's own expense, all applicable laws
dealing with the obligations of a purchaser in rejecting the Equipment, (iii) to
follow any reasonable instructions received from the Lessor or the Vendor with
respect to the Equipment, (iv) to hold the Equipment with reasonable care for a
reasonable time after the Lessee's notification of rejection, and (v) to
indemnify and hold harmless, the Lessor from all claims, damages, actions, costs
and expenses (including attorneys' fees) and liabilities arising out of or
connected with the rejection of the Equipment by the Lessee.
9. WARRANTIES.
(a) NO LESSOR'S WARRANTIES. THE LESSOR, NOT BEING THE MANUFACTURER OF THE
EQUIPMENT NOR THE MANUFACTURER'S AGENT, MAKES NO EXPRESS OR IMPLIED WARRANTY OF
ANY KIND WHATSOEVER WITH RESPECT TO THE EQUIPMENT, INCLUDING BUT NOT LIMITED TO:
ANY WARRANTY AGAINST INFRINGEMENT (INCLUDING ANY CLAIMS FOR PATENT INFRINGEMENT)
BY ANY PERSON; THE MERCHANTABILITY OF THE EQUIPMENT OR ITS FITNESS FOR ANY
PARTICULAR PURPOSE; THE DESIGN OR THE CONDITION OF THE EQUIPMENT; THE
WORKMANSHIP OF THE EQUIPMENT; COMPLIANCE OF THE EQUIPMENT WITH THE REQUIREMENTS
OF ANY LAW, RULE, SPECIFICATION OR CONTRACT PERTAINING THERETO; OR ANY DEFECTS
WHATSOEVER; IT BEING UNDERSTOOD THAT THE EQUIPMENT IS BEING LEASED TO THE LESSEE
"AS IS".
(b) VENDOR'S WARRANTIES TO BE IN LIEU OF ALL OTHERS. THE LESSEE HEREBY
AGREES THAT THE VENDOR'S EQUIPMENT WARRANTIES SHALL BE IN LIEU OF ALL OTHERS,
EXPRESSED OR IMPLIED, DURING THE TERM OF THIS LEASE, AND THAT THE LESSOR SHALL
NOT BE LIABLE TO THE LESSEE FOR THE LOSS OF ANY PROFITS, LOSS OF WORKING TIME,
INJURY TO ANY PERSON OR PROPERTY, LOSS OF BUSINESS OR ANY OTHER DAMAGES, DIRECT
OR INDIRECT, SPECIAL, CONSEQUENTIAL OR OTHERWISE CAUSED OR RESULTING FROM THE
POSSESSION, USE AND LOSS OF USE OF THE EQUIPMENT. THE LESSEE SHALL MAKE ANY
CLAIM ON ACCOUNT THEREOF SOLELY AGAINST THE VENDOR. The Lessor agrees to assign
solely for the purpose of assisting the Lessee in the assertion of its claim,
all of the Lessor's rights to any Vendor warranties on the Equipment. All claims
or actions under any Vendor warranties shall be made by the Lessee, at its own
expense, and the Lessor shall have no obligation to make any claim on any such
warranty; provided, however, if to the extent any breach of warranty results in
damage or liability to the Lessor or the Lessor's interest in the Equipment,
Lessor may, but shall not be under any obligation to, make or prosecute a claim
or action in addition to or in lieu of any claim or action by the Lessee. Any
proceeds recovered by the Lessee from any claims made against the Vendor shall
first be used to repair the affected Equipment.
(c) Once the Equipment has been accepted by the Lessee or presumed accepted
by the
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Lessee pursuant to paragraph 8 above, no defects or unfitness of the Equipment
for use in the Lessee's business shall relieve the Lessee of, or shall be a
defense to, the Lessee' performance of its obligations under this Lease,
including, without limitation, the obligation to make the rental payments due to
the Lessor.
(d) The foregoing provisions of paragraph 7 above (relating to selection of
the Equipment), paragraph 8 above (relating to the Lessee's inspection and
acceptance of the equipment), this paragraph 9 (relating to the Lessor's
disclaimer of warranties), and paragraph 27 (relating to indemnification)
reflect the parties' intention of structuring this Lease as a "finance lease"
within the meaning of Hawaii Uniform Code Article 2A - Leases (as codified in
Chapter 490 of the Hawaii Revised Statutes, as amended). These provisions are
material to the determination of the amount of rent payable under this Lease,
and, accordingly, shall be construed to effect this intention of the parties.
10. TITLE TO AND LOCATION OF EQUIPMENT; NO ATTACHMENT TO REALTY; NOTICE OF
OWNERSHIP; ADVERTISEMENTS.
(a) Title to the Equipment shall remain with the Lessor at all times and
the Lessee shall have no right, title or interest therein except as expressly
set forth in this Lease.
(b) The Equipment shall at all times be and remain personal property even
though the Equipment may now or hereafter be affixed to realty.
(c) The Equipment shall be delivered to the location specified in the
appropriate Lease Schedule and shall not thereafter be removed from such
location without the written consent of the Lessor.
(d) The Lessor shall be permitted to display notice of its ownership of the
Equipment by affixing to the Equipment an identifying stencil or plate or any
other indicia of ownership, and the Lessee shall not alter, deface, cover or
remove such ownership identification.
(e) Notwithstanding any provision to the contrary, the Lessee may affix
advertisements or insignia of the Lessee's design to the Equipment but the
Lessee shall, upon the expiration of the Rental Term, restore the Equipment to
its original condition prior to the installation thereof and remove all evidence
of the same. All expenses for the installation and removal thereof shall be
borne by the Lessee.
11. INSURANCE; NOTICE OF ACCIDENTS AND COOPERATION. The Lessee agrees to
provide and maintain at its sole expense:
(a) A policy of commercial general liability insurance issued by a
financially responsible and substantial insurer which (1) insures the Lessor,
the Lessee and the Lessee's agents, servants and employees with respect to their
liability for bodily injury and property damage resulting from or arising out of
the operation of the Equipment, (2) names the Lessor as an additional insured,
(3) provides products liability coverage (if requested by the Lessor) and (4)
shall be in such amounts as are reasonably satisfactory to the Lessor.
(b) A policy of insurance issued by a financially responsible and
substantial insurer which insures the Equipment against all hazards requested by
the Lessor, including but not limited to, fire, lightning, explosion, smoke
damage, theft, vandalism and malicious mischief, water damage, transportation
hazards, and extended coverage. Such insurance shall name the Lessor and the
Lessee as the loss payee as their interests may appear and shall be in such
amounts as are reasonably satisfactory to the Lessor. All proceeds from such
insurance shall be credited by the Lessor toward the Lessee's obligations under
paragraph 12 below, and the balance of the proceeds, if any, shall be the
property of the Lessee.
All insurance shall be in force not only during the Rental Term of the
Equipment, but from the date of execution of the Lease Schedule, or, if the
Equipment is ordered from a Vendor, from the date risk of loss passes from the
Vendor until the date the Equipment is returned to the Lessor at its place of
business or other place designated by the Lessor for the return of the Equipment
(or, in case the Equipment is lost or destroyed, until the Lessee's obligations
are terminated pursuant to paragraph 12 below). All insurance shall provide for
a thirty-day prior written notice to the Lessor of any cancellation of insurance
or change in coverage. The Lessee shall furnish the Lessor with a certificate or
other satisfactory evidence of the maintenance of all insurance required
hereunder. Notwithstanding the foregoing, the Lessee shall have a continuing
duty to inform the Lessor of the cancellation or change in coverage of any
insurance required by this Lease.
The Lessee hereby irrevocably appoints the Lessor as its attorney-in-fact
with full power to negotiate, prosecute, settle or compromise all claims or
actions under or pursuant to such insurance policies and to execute in the name
of the Lessee any proofs of claim or loss and to endorse in the name of the
Lessee on any settlement, draft or check. The Lessee shall cooperate in the
prosecution of all claims.
The Lessee shall also provide and pay for any other insurance or bond that
may be
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required by any governmental authority as a condition to, or in connection with,
the Lessee's use of the Equipment.
If the Equipment is involved in any accident, damaged, stolen or destroyed,
the Lessee shall report the same to the Lessor in writing within 24 hours, and
the Lessee agrees that Lessee shall cooperate fully with the Lessor and any
insurance carriers in the investigation and defense of any and all claims or
suits arising from the Lessee's operation or use of the Equipment.
The Equipment shall not be used by any person, in any manner, or for any
purpose that would cause any insurance required herein to be suspended,
canceled, rendered inapplicable or increased in cost.
The Lessee acknowledges that the Lessor has not conditioned this Lease upon
the Lessee procuring the insurance required hereunder from any insurance company
designated by the Lessor. This Lease constitutes written notice to the Lessee
that the Lessee may procure the insurance required by this Lease from any
insurance company authorized to do business in the State of Hawaii.
12. LOSS, DAMAGE TO OR DESTRUCTION OF EQUIPMENT.
(a) The Lessee shall bear the risk of loss, damage to or destruction
("Loss") of the Equipment, whether resulting from fire, theft, collision,
governmental action or any cause whatsoever, and regardless of whether the Loss
is covered by insurance or not, from the date of execution of the Lease Schedule
(or if the Equipment is ordered from a Vendor, then from the date risk of loss
passes from the Vendor) until the Equipment is returned to the Lessor upon the
expiration of the Rental Term or earlier termination of this Lease.
(b) ANY LOSS OF THE EQUIPMENT SHALL NOT RELIEVE THE LESSEE OF ANY
OBLIGATIONS UNDER THIS LEASE, INCLUDING ITS OBLIGATION TO PAY RENT, UNLESS AND
UNTIL THE LESSEE'S OBLIGATIONS ARE TERMINATED BY THE LESSOR PURSUANT TO
PARAGRAPH 12(d) BELOW.
(c) If the Equipment is damaged, the Lessee shall promptly repair the same
at its own expense. When such damage has been repaired to the satisfaction of
the Lessor and paid for, there shall be paid or credited to the account of the
Lessee, any money received by the Lessor on account of any insurance policy
maintained by the Lessee with respect to such damage under paragraph 11 above.
(d) If any Equipment is stolen, lost, confiscated or damaged beyond repair,
the Lessee shall pay the Lessor, in cash, the "Stipulated Loss Value" specified
in the Lease Schedule. The Lessee shall continue to pay the periodic rental
payments until the Stipulated Loss Value is paid to the Lessor in full, and the
Stipulated Loss Value payable to the Lessor shall be the amount specified for
the month in which the payment of the Stipulated Loss Value is made to the
Lessor. Upon the receipt of such payment, the Lessor shall, subject to the
rights of any insurer providing coverage on the Loss, transfer to the Lessee all
of the Lessor's interest in the Equipment subject to the Loss (on an "as is,
where is" basis) and the rent payable to the Lessor under this Lease shall be
reduced by the amount of rent attributable to such Equipment.
13. LESSOR'S PERFORMANCE OF LESSEE'S OBLIGATIONS. If the Lessee shall fail
to perform promptly any of its obligations under this Lease, the Lessor may, at
its option, perform any act or make any payment which the Lessor deems necessary
for the maintenance and preservation of the Equipment and the Lessor's title
thereto, including payments for satisfaction of liens, repairs, taxes, levies,
and insurance; and all sums paid or incurred by the Lessor in connection
therewith, shall be additional rent under this Lease and shall be payable to the
Lessor on demand. The performance of any act or payment by the Lessor shall not
be deemed a waiver or release of any obligation or default on the part of the
Lessee.
14. SECURITY DEPOSIT. Upon the execution of each Lease Schedule, the Lessee
shall deposit with the Lessor the amount stated therein as security for the full
and faithful performance by the Lessee of all terms, covenants and conditions
required under this Lease. The security deposit shall not be construed as rent
(unless accepted by the Lessor in writing as rent) or release the Lessee of any
obligation to the Lessor, and the Lessor may at any time apply the same to the
payment of any indebtedness of the Lessee to the Lessor or any loss or expense
incurred by the Lessor due to the Lessee's default, and the security deposit (or
the balance thereof) shall be returned to the Lessee, without interest, upon the
Lessee's full performance and satisfaction of all of its obligations to the
Lessor under this Lease.
15. MAINTENANCE OF EQUIPMENT; ALTERATION. The Lessee shall at all times
repair and maintain the Equipment in accordance with standards of good
maintenance, and at the expiration of the Rental Term shall return the Equipment
to the Lessor in good operating condition, subject to normal wear and tear of
the Equipment based on proper use and
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maintenance thereof. The Lessee may, with the Lessor's consent, alter and
remodel the Equipment, and install thereon and remove therefrom any accessories
and equipment as the Lessee shall consider advisable for the purpose of its
operations but not in excess of the manufacturer's rated capacity of the
Equipment; provided, however, the Lessee shall at the expiration of the Rental
Term (if so required by the Lessor), restore the Equipment to its original
condition, subject to normal wear and tear. All parts which are incorporated
into the Equipment shall be the property of the Lessor, and all parts removed
therefrom and replaced in the course of repair, alteration and remodeling or
restoration thereof, shall be the property of the Lessee. During the Rental
Term, the Lessee shall maintain complete records covering the repair,
maintenance, and any alteration or remodeling of the Equipment.
16. USES OF EQUIPMENT; LESSOR'S INSPECTION AND REPORTS. The Lessee may
possess and use the Equipment in accordance with this Lease, provided that any
such use is in conformity with all applicable laws, any insurance policy and any
manufacturer's warranties covering the Equipment. The Lessor shall have the
right, upon reasonable prior notice to the Lessee and during the Lessee's
regular business hours, to inspect the Equipment and maintenance records at the
premises of the Lessee or wherever the Equipment may be located. The Lessee
shall promptly notify the Lessor of all details arising out of any change in
location of the Equipment, any encumbrances thereon or any accident resulting
from the use or operation thereof.
17. LESSOR'S PURCHASE OPTION.
(a) If at the expiration of the Rental Term specified in the Lease Schedule
the Lessee shall not be in default under any provision of this Lease, the Lessee
shall have the option to purchase the Equipment (on an "as is, where is" basis)
for a purchase price equal to the then FAIR MARKET VALUE of such Equipment;
provided that the Lessee has given the Lessor written notice of its intention to
exercise this purchase option at least sixty (60) days prior to the expiration
of the Rental Term.
(b) If the Lessor and the Lessee are unable to determine the fair market
value of the Equipment by mutual agreement, then such value shall be determined
by an independent appraiser mutually acceptable to the Lessor and the Lessee. If
the parties are unable to select the appraiser by mutual agreement, the
appraiser shall be selected pursuant to the rules of the American Arbitration
Association. All costs of the appraisal shall be paid by the Lessee.
(c) Although the Equipment is to be sold (on an "as is, where is" basis) it
shall be assumed for purposes of determining the fair market value of the
Equipment that the Equipment is in good operating condition, subject only to
normal wear and tear (it being understood that the fair market value of the
Equipment shall not be reduced as a result of the Lessee's failure to repair and
properly maintain the Equipment in a good operating condition). Payment of the
purchase option price shall be due no later than the expiration date of the
Rental Term for the Equipment, and if the payment is not made on or before such
expiration date, the Lessee shall pay interest on the purchase option price from
the expiration date to the date on which the purchase option price is paid to
the Lessor. Interest shall be computed at the interest rate specified in the
Lease Schedule for past due amounts.
18. SURRENDER OF EQUIPMENT; HOLDOVER RENT. Upon the expiration of the
Rental Term, and subject to the provisions of paragraph 17 above, the Lessee
shall, at its own expense, deliver the Equipment, in good repair, condition and
working order, ordinary wear and tear resulting from proper use and maintenance
excepted, to the location or person designated by the Lessor for the return of
the Equipment. In addition, the Lessee shall turn over to the Lessor true and
complete copies of all records pertaining to the repair, maintenance, and any
alteration or remodeling of the Equipment during the Rental Term, including the
records covering work performed pursuant to any service contracts entered into
by the Lessee with the vendor or manufacturer of the Equipment. If the Equipment
is not returned to the Lessor upon the expiration of the Rental Term, the Lessee
shall pay to the Lessor, as holdover rent, an amount equal to 1/30th of the
monthly rental payment specified in the Lease Schedule for such Equipment, for
each day following the expiration date until the Equipment is delivered to the
Lessor pursuant to the requirements of this Lease.
19. TAX INDEMNIFICATION.
(a) The Lessor and the Lessee have entered into this Lease on the basis
that it will qualify as a "true lease" for federal and state income tax
purposes, and the Lessee acknowledges that the Lessor shall be entitled to the
depreciation deductions, credits and other benefits ("Tax Benefits") as are
provided by the Internal Revenue Code of 1986, as amended (the "Code"), and by
the tax laws of the State of Hawaii ("Hawaii Tax Law") to the owner of the
Equipment at the time each Lease Schedule is executed by the parties. The Lessee
further acknowledges that the lease rent payable hereunder has been determined,
in
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large part, upon the assumption that the Lessor shall be entitled to claim the
Tax Benefits. The Lessee will not directly or indirectly take any action or file
any tax returns or other documents inconsistent with the intent to qualify this
Lease as a true lease for tax purposes and the Lessee will file such returns,
take such actions and execute such documents as may be reasonable and necessary
to facilitate the intent of this paragraph. For purposes of this paragraph 19,
the "Lessor" shall include any affiliated group of corporations of which the
Lessor is presently or may become a member and which files a consolidated income
tax return.
(b) If for any reason (including, without limitation, changes in or
interpretations of tax laws), the Lessor shall be unable to claim, lose the
benefit of, or suffer a disallowance or recapture of all or any portion of the
Tax Benefits, or if the Lessor's net rate of return with respect to the Lease
shall be adversely affected by a change in the corporate income or franchise tax
rates (all of the foregoing events being hereinafter referred to as a "Loss"),
the Lessee shall, upon written notice thereof by the Lessor, promptly pay to the
Lessor an amount which, after deduction of all taxes required to be paid by the
Lessor in respect to the receipt thereof, shall be equal to (i) such sums as are
necessary to cause the Lessor's net rate of return with respect to this Lease to
equal the net rate of return the Lessor would have received if such Loss had not
occurred, plus (ii) such sums as will reimburse Lessor, on an after-tax basis,
for any reasonable costs, attorneys' fees, interest, and penalties incurred in
connection with the Tax Benefits which are lost, disallowed, or recaptured. The
amount of the indemnification payment shall be determined by the Lessor via the
Warren and Selbert LAS2 lease analysis system or other comparable lease analysis
software program selected by the Lessor. If the Rental Term for the Equipment
has not expired, the Lessee shall have the option of paying the indemnification
payment in a lump sum or spreading it over the remaining lease rental payments.
If any such indemnification payment affects the Stipulated Loss Value of the
Equipment, the Stipulated Loss Value specified in the Lease Schedule shall be
appropriately adjusted by the Lessor. If a verification of the indemnification
payment is requested by the Lessee, the Lessor shall provide, at the Lessee's
expense, a written verification by the Lessor's certified public accounting firm
or other certified public accounting firm of comparable size and stature in the
community, confirming the accuracy of the Lessor's computation of the amounts
claimed by the Lessor pursuant to this indemnification.
If a claim shall be made by the Internal Revenue Service or the Hawaii
Department of Taxation which, if successful, would require the Lessee to
indemnify the Lessor or its assignee under this Paragraph l9(b), and if the
Lessor, at the Lessee's sole cost and expense, receives a written opinion of tax
counsel acceptable to the Lessor that there is substantial authority to contest
such claim, then the Lessor shall either (i) waive its rights to such
indemnification, or (ii) at the Lessee's sole cost and expense, use its best
efforts and take such actions as may be reasonably necessary to contest such
claim. The Lessee's obligations under this paragraph 19 shall survive the
expiration or termination of this Lease.
20. ASSIGNMENT BY LESSOR.
(a) All rights of the Lessor under this Lease and in the Equipment covered
thereby may be assigned, pledged, mortgaged, transferred or otherwise disposed
of, either in whole or in part, without notice to the Lessee, but always subject
to the rights of the Lessee under this Lease. The Lessor may, in its sole
option, elect to sever this Lease and treat each Lease Schedule as a separate
lease, and if this election is made by the Lessor, the Lessee shall, upon the
Lessor's request, execute such instruments as may be necessary to confirm the
severance of this Lease into more than one lease and shall provide an
appropriate estoppel certificate to confirm the absence of any defaults by the
Lessor under this Lease.
(b) If the Lessor assigns this Lease or the rent due or to become due
hereunder or any other interest herein, as security for any of Lessor's
indebtedness or otherwise, no breach or default by the Lessor under this Lease
shall excuse the Lessee's performance of its obligations hereunder, and the
Lessee shall, upon receiving notice of such assignment, pay all rent to the
Lessor's assignee. The Lessee's obligation to pay the rent to the Lessor's
assignee shall be absolute and unconditional and shall not be subject to any
defense or offset, and the Lessor's assignee shall not be obligated to the
Lessee to perform any duty, covenant or condition required to be performed by
the Lessor under this Lease.
(c) No assignment of this Lease by the Lessor shall interfere with the
Lessee's quiet enjoyment and use of the Equipment so long as the Lessee is not
in default in performing its obligations under this Lease.
21. ASSIGNMENT BY LESSEE. The Lessee shall not assign or transfer its
interest in the Lease and the Equipment covered thereby, nor shall Lessee
pledge, mortgage or
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<PAGE>
otherwise encumber the Equipment, without the Lessor's prior written consent.
Without limiting the generality of the foregoing:
(a) If the Lessee is a partnership, a withdrawal or change, voluntary,
involuntary or by operation of law, of any general partner, or the dissolution
of the partnership, shall be deemed an assignment or transfer of the Lessee's
rights under this Lease; and if the partnership is a limited partnership, the
assignment or transfer of a majority interest of the limited partnership units
of the Lessee shall also be deemed an assignment or transfer of the Lessee's
rights under this Lease; and
(b) If the Lessee consists of more than one person, a purported assignment,
voluntary, involuntary or by operation by law, from one person to the other
shall be deemed an assignment or transfer; and
(c) If the Lessee is a corporation, any dissolution, merger, consolidation,
or other reorganization of, the Lessee, or the sale or other transfer of a
controlling percentage of the capital stock of the Lessee or any corporation
directly or indirectly controlling the Lessee, or the sale of at least fifty-one
percent (51%) of the value of the assets of the Lessee shall be deemed an
assignment. The phrase "controlling percentage" means the ownership of, and the
right to vote, stock possessing at least fifty-one percent (51%) of the total
combined voting power of all classes of the Lessee's capital stock issued,
outstanding, and entitled to vote for the election of directors.
No assignment or transfer shall in any way release the Lessee or any
guarantor of this Lease from their obligations under this Lease or any guaranty.
The Lessee and any guarantor shall remain primarily liable to the Lessor for the
payment of rent and the performance of all other obligations due under this
Lease or any guaranty, notwithstanding any such assignment or transfer. If the
Lessee assigns or transfers this Lease without the Lessor's consent, the Lessor
may demand and collect rent payments from the purported assignee or transferee
without waiving its right to enforce this Lease against the Lessee, and such
collection of rent by the Lessor shall not be deemed a waiver of any rights of
the Lessor under this Lease or any guaranty.
If the Lessee desires the Lessor's consent to the assignment or transfer of
this Lease, the Lessee shall give the Lessor not less than sixty (60) days'
prior written notice thereof. Notwithstanding any provision to the contrary, the
Lessor may, in addition to any other reasons supportive of refusal to consent,
refuse to consent to an assignment or transfer because of an honest belief,
reasonably formed:
(a) That the proposed assignee is financially unable to perform in
accordance with the terms of this Lease; or
(b) That the use to be made of the Equipment by the proposed assignee is
not within the scope of the use specified in this Lease or the Lease Schedule.
Without limiting the foregoing, the Lessor must at all times be satisfied
with the proposed assignee's experience, management ability and financial
capacity. The Lessor shall consent to a proposed merger or transfer of the
Lessee's corporate stock or assets only if satisfied with all particulars,
including but not limited to, the financial status, place of incorporation and
the financial, personnel, management and experience qualifications of the
proposed assignee.
The Lessor may require an investigation of the financial condition,
business reputation, credit standing, performance history, quality of business
operation and other relevant aspects of the Lessee's proposed assignee to be
conducted to enable the Lessor to make an informed decision on whether the
Lessor should consent to the assignment. All reasonable costs of such an
investigation shall be paid for by the Lessee.
Any assignment or transfer of this Lease by the Lessee without the prior
written consent of the Lessor, shall constitute an event of default under this
Lease.
22. ADMINISTRATION FEES. The Lessor shall have the right to collect from
the Lessee an administration fee for processing any consents, modifications or
amendments relating to this Lease. The administration fee shall be based upon
the Lessor's standard processing fees, as determined from time to time during
the Lease Term, and shall include all costs and expenses, including reasonable
attorneys' fees, incurred by the Lessor in processing the matters requested by
the Lessee.
23. DEFAULTS. If (1) the Lessee shall default in the payment of rent or any
other amount due to the Lessor under this Lease; or (2) the Lessee shall default
in the observance or performance of any term, covenant or condition of this
Lease. or (3) the Lessee shall die, or become incompetent or insolvent; or (4)
the Lessee shall fail to comply with the insurance requirements of this Lease,
or if the insurance is canceled or the coverage reduced prior to the termination
of this Lease; or (5) the Lessee shall create any unauthorized lien or
encumbrance on the Equipment which shall adversely affect the Lessor's rights
under this
8
<PAGE>
Lease and in the Equipment; or (6) a proceeding in bankruptcy, receivership,
reorganization or insolvency is instituted by or against the Lessee, or the
Lessee shall make an assignment for the benefit of its creditors; or (7) the
Equipment is involuntarily transferred by operation of law, confiscated,
attached, seized or threatened with confiscation, attachment or seizure; or (8)
the Lessee shall be in default under any other lease between the Lessor and the
Lessee and any applicable grace period therefor has expired; or (9) any guaranty
of this Lease shall be repudiated or breached, or any guarantor of this Lease
shall die, or become incompetent, or make an assignment for the benefit of his
creditors, or become involved in any proceeding in bankruptcy, receivership,
reorganization or insolvency affecting his assets, and upon the occurrence of
any of the foregoing events, the Lessee shall fail to provide a substitute
guarantor whose financial responsibility and credit worthiness is, in the
Lessor's reasonable judgment, at least equal to that of the original guarantor
within forty-five (45) days after a request therefor is made by the Lessor; or
(10) the Lessee shall engage in any act or activity which, in the Lessor's
exclusive judgment, shall in any way prejudice or render insecure the Lessor's
rights in the Equipment, THEN in any of such events, the Lessor may terminate
this Lease, or, at its election, exercise any one or more of the following
remedies, with or without terminating this Lease:
(a) Recover from the Lessee the sum of (i) all delinquent rental payments
and other sums due to the Lessor under this Lease, (ii) the amount of the
Stipulated Loss Value (such amount being computed by multiplying the total
Capitalized Cost of the Equipment by the applicable percentage set forth in the
Stipulated Loss Schedule attached to the Lease Schedule, opposite the last month
for which a delinquent monthly rental payment shall be due from the Lessee), and
(iii) interest and late charges due thereon; or
(b) Enter upon the Lessee's premises and take possession of the Equipment,
without notice or demand and without any court order or other process of law,
and the Lessee hereby waives any damages occasioned by such taking of
possession; or
(c) Lease the Equipment to any other person upon such terms and conditions
as the Lessor, in its discretion, shall determine; or
(d) Sell or otherwise dispose of the Equipment in such commercially
reasonable manner as the Lessor shall determine; or
(e) Bring any action for damages or pursue any other remedy provided by
law.
No right or remedy herein conferred upon or reserved by the Lessor is
exclusive, but shall be cumulative and may be enforced separately or
concurrently from time to time. The proceeds of any rental or sale of the
Equipment, after deducting all costs and expenses incurred in the repossession,
repair, storage, rental or sale, shall be credited to the payment of the
Lessee's obligations hereunder. The Lessee shall remain liable for any
deficiency. A termination of this Lease shall occur only upon written notice by
the Lessor to the Lessee. Regardless of the remedy or remedies pursued by the
Lessor, the Lessee shall be liable for all costs of collection, repossession,
storage, rental, sale or other charges, including reasonable attorneys' fees
incurred by the Lessor in enforcing any of its rights under this Lease.
24. FORCE MAJEURE. The Lessor shall not be liable for any delay in
delivering the Equipment, or for any failure to perform any provision hereof,
resulting from fire or casualty, riot, strike or other labor difficulty,
governmental regulation or restriction or any cause beyond the Lessor's control.
25. NO WAIVER. The failure of either the Lessor or the Lessee in any one or
more instances to insist upon the performance of any of the terms, covenants or
conditions of this Lease, to exercise any right or privilege in this Lease
conferred or the waiver of any breach or any term, covenant or condition of this
Lease, shall not be construed as thereafter waiving any such term, covenant,
condition, right or privilege, but the same shall continue and remain in full
force and effect as if no such forbearance or waiver had occurred. Without
limiting the foregoing, the Lessor's acceptance of any partial payments or
delinquent payments (and any late charges or interest thereon) shall not be
deemed to be a waiver by the Lessor of any term, covenant or condition of this
Lease to be performed or observed by the Lessee, and the Lessor shall be
entitled to pursue any remedy available to it hereunder until the Lessee has
fully performed all of its obligations under this Lease. Any check for less than
the full amount owed by the Lessee, with an endorsement or accompanying
statement that the payment constitutes an accord and satisfaction, may be
accepted by the Lessor without prejudice to the Lessor's right to collect the
full amount owed by the Lessee; it being understood that the concept of accord
and satisfaction is not applicable to the payments required by this Lease.
26. NOTICE. Any notice given under this Lease by the Lessor to the Lessee
may be given personally or by certified mail, postage prepaid, addressed to the
Lessee at the Lessee's address as set forth in this Lease. Any notice given
under this Lease by the
9
<PAGE>
Lessee to the Lessor shall be given by sending the same by certified mail,
postage prepaid, to the Lessor at its address as set forth in this Lease or by
serving the same personally at the office of the Lessor.
27. INDEMNIFICATION. The Lessee shall indemnify and hold harmless the
Lessor, its successors and assigns, from all losses, damages, injuries, claims,
demands, liabilities, costs and expenses (including reasonable attorneys' fees
incurred by the Lessor in the defense of any claims or actions) arising out of
the condition, use or operation of the Equipment during the term of this Lease,
including without limitation, all losses, damages, liabilities, claims, costs
and expenses arising from the death or injury of any person or damage to any
property, irrespective of the theory of liability asserted against the Lessor
(including by way of example and not any limitation, claims that the Lessor was
negligent in leasing the Equipment to the Lessee or in failing to properly
maintain the Equipment, or claims of strict liability in tort or breach of
warranty); provided, however, this indemnification shall not apply to any
losses, damages, injuries, claims, demands, liabilities, costs and expenses
caused by the proven (and not merely alleged) willful misconduct of the Lessor
or any of its agents or employees, but unless the Lessor's willful misconduct
shall be established by a final, nonappealable judgment of a court of competent
jurisdiction, the Lessor shall be entitled to the full benefits of this
indemnification, including the right to reimbursement for all costs and
expenses, including reasonable attorneys' fees, incurred in the defense of any
claims or demands asserted by any party against the Lessor. This indemnification
is based upon the Lessor's status as a finance lessor. The Lessee has selected
the Equipment, and the Lessor has no duty to inspect and maintain the Equipment
and has no right to possession of the Equipment during the Rental Term for the
Equipment. This indemnification is therefore a material business term of this
Lease and shall survive the expiration or termination of this Lease.
28. FURTHER ASSURANCE. The Lessee shall execute and deliver to the Lessor
upon the Lessor's request, such instruments and assurances as the Lessor deems
necessary for the confirmation or perfection of this Lease and the Lessor's
rights hereunder. In furtherance thereof, the Lessor may file or record this
Lease or a financing statement with respect thereto so as to give notice to any
interested parties. Any such filing or recording shall not be deemed evidence of
any intention to create a security interest under the Uniform Commercial Code.
29. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL.
(a) This Lease shall be governed by and interpreted under the laws of the
State of Hawaii. The venue for any legal action relating to this Lease shall be
Honolulu, Hawaii. If the Lessee is not a resident of the State of Hawaii, the
Lessee irrevocably submits to the jurisdiction of the state courts of the State
of Hawaii and the United States District Court for the District of Hawaii for
purposes of any legal action relating to this Lease. However, this paragraph
shall not preclude the Lessor, in its sole discretion, from initiating any legal
action or proceeding in any other jurisdiction where the Lessee or its assets
can be found.
(b) The Lessor and the Lessee each hereby waives trial by jury in any legal
action, proceeding or counterclaim brought by either party against the other on
any matter whatsoever arising out of, or in any way connected with, this Lease
and the Equipment covered thereby, including, without limitation, claims of
breach of contract or claims for injuries and damages.
/s/ MB for HNW Inc.
-------------------
(Lessee's Initials)
30. GENERAL PROVISIONS.
(a) Binding Force. This Lease shall be binding upon and inure to the
benefit of the Lessor, the Lessee, and their respective heirs, personal
representatives, successors, successors in trust, and permitted assigns.
(b) Gender. The use of any gender shall include all genders, and the use of
the singular shall apply in the plural sense, where more than one party has
executed this Lease as the Lessee and the context shall so require.
(c) Joint and Several Liability. The obligations of all persons signing
this Lease as Lessee shall be joint and several.
(d) No Partnership. By entering into this Lease, Lessor shall not, for any
purpose, become a partner of the Lessee in the conduct of the Lessee's business,
a joint venturer or a member of a joint enterprise with the Lessee.
(e) Lessor's Consent. Whenever the Lessor's consent or approval is
required, unless the Lessor has reserved the right of sole or absolute
discretion, such consent or approval
10
<PAGE>
shall not be unreasonably withheld, and no charge shall be made therefor other
than the administration fee described in paragraph 22 and other provisions of
this Lease for processing the Lessor's consent or approval.
(f) Severability. If any provision of this Lease shall be deemed invalid or
unenforceable, the remaining provisions of this Lease shall not be affected
thereby and shall remain in full force and effect as binding obligations of the
parties.
(g) Amendments. This Lease may not be amended except by a written
instrument executed by the parties.
/s/ MB
-------------------
(Lessee's Initials)
(h) No Oral Representations and Agreement. The Master Lease Agreement, all
Lease Schedules now or hereafter executed by the parties, and all other written
instruments now or hereafter attached to or specifically described in this Lease
or acknowledged by both parties in writing (collectively called the "Lease
Documentation".) constitute the entire agreement between the Lessor and the
Lessee with respect to the lease of the Equipment. The Lessee acknowledges that
no other written or oral agreements or representations have been made by the
Lessor with respect to this Lease or the Equipment, except as set forth in the
Lease Documentation or in any written document executed by the Lessor's duly
authorized representative. /s/ MB ------------------- (Lessee's Initials)
(i) Commitment Letters Superseded. This Lease (together with all Lease
Schedules) supersedes all commitment letters or proposal letters relating to the
Equipment, and in the event of any conflict between the provisions of this Lease
and those of any commitment letters or proposal letters, the provisions of this
Lease shall control.
31. SIGNIFICANCE OF LEASE PROVISIONS. Although most of the terms of this
Lease are contained in the Lessor's printed form documentation, the Lessee
acknowledges that the provisions of this Lease have been bargained for by the
Lessor in the Lessor's underwriting of this Lease and the determination of the
lease rental rate to be charged the Lessee under this Lease.
/s/ MB
-------------------
(Lessee's Initials)
32. FINANCING STATEMENTS. The Lessee shall cooperate in executing such
Uniform Commercial Code financing statements as may be required by the Lessor to
perfect the Lessor's interest in the Equipment and the Lessor's security
interest in all rents, profits and proceeds derived by the Lessee from any
sublease of the Equipment. The filing of any such financing statements is not
intended to be a factor in determining whether this Lease constitutes a secured
transaction or a true lease under the Hawaii Uniform Commercial Code.
33. NATURE OF TRANSACTION. IT IS THE INTENTION OF THE PARTIES THAT THIS
LEASE BE A TRUE LEASE, AND NOT A CONDITIONAL SALE OF, OR A LOAN FOR, THE
EQUIPMENT LEASED HEREBY, AND ALL OF THE PROVISIONS OF THIS LEASE SHALL BE
CONSTRUED SO AS TO GIVE EFFECT TO THIS INTENTION OF THE PARTIES.
34. OTHER. (See Attached Addendum)
IN WITNESS WHEREOF, the parties have executed this Master Lease on December
08, 1994.
FIRST HAWAIIAN LEASING, INC. HAWAIIAN NATURAL WATER CO.
By: /s/ PAMELA R. FERN BY: /s/ MARCUS BENDER
-------------------------- ------------------------
Its: PAMELA R. FERN LESSOR Its: PRESIDENT
VICE PRESIDENT
By:
--------------------------
Its:
By:
--------------------------
Its: LESSEE
11
<PAGE>
FIRST HAWAIIAN LEASING, INC.
NON-TAX-ORIENTED LEASE ADDENDUM
This Addendum shall constitute a part of the Master Lease Agreement No.
A2500 (the "Master Lease Agreement") executed by parties. Unless otherwise
defined herein, all capitalized terms shall have the meanings provided in the
Master Lease Agreement.
1. LOSS, DAMAGE TO OR DESTRUCTION OF EQUIPMENT. Paragraph 12(d) of the Lease
is hereby amended to read as follows:
If any Equipment is stolen, lost, confiscated or damaged beyond
repair, the Lessee shall pay the Lessor, in cash, the "Buyout"
specified in the Lease Schedule. The Lessee shall continue to pay the
periodic rental payments until the Buyout is paid to the Lessor in
full. The Buyout payable to the Lessor shall be the amount specified
for the month in which the payment of the Buyout is made to the
Lessor. Upon the receipt of such payment, the Lessor shall, subject to
the rights of any insurer providing coverage on the Loss, transfer to
the Lessee all of the Lessor's interest in the Equipment subject to
the Loss on an "as is, where is" basis and the rent payable to the
Lessor under this Lease shall be reduced by the amount of rent
attributable to such Equipment.
2. LESSEE'S PURCHASE OPTION AND NATURE OF EQUIPMENT. Paragraph 17 is hereby
deleted in its entirety. Lessee's purchase option rights are set forth in
the Lease Schedule. Paragraph 18 of the Lease is hereby amended to delete
the reference to "Paragraph 17 above" and to substitute in lien thereof,
the phrase "the Lease Schedule."
3. TAX INDEMNIFICATION AND NATURE OF TRANSACTION. Paragraphs 19 and 33 of the
Lease are hereby deleted in their entirety, based on the parties agreement
that this Lease shall not constitute a "true lease" for federal income tax
and state tax purposes.
4. DEFAULTS. The remedy described in clause (a) in paragraph 23 of the Lease
is hereby amended to read as follows:
Recover from the Lessee the sum of (i) all delinquent rental payments
and other sums due to the Lessor under this Lease, (ii) the amount of
the Buyout opposite the last month for which a delinquent monthly
rental payment shall be due from the Lessee, and (iii) interest and
late charges due thereon.
DATED: December 8th, 1997
-----------------------
FIRST EAWAIIAN LEASING, INC. HAWAIIAN NATURAL WATER CO.
By: /s/ PAMELA R. FERN BY: /s/ MARCUS BENDER
-------------------------- -------------------------
Its: PAMELA R. FERN LESSOR Its: PRESIDENT
VICE PRESIDENT
By:
--------------------------
Its:
By:
--------------------------
Its: LESSEE
<PAGE>
FIRST HAWAIIAN LEASING, INC.
LEASE SCHEDULE NO. 65048
1. DESCRIPTION OF EQUIPMENT: See Exhibit A attached hereto and made a part
hereof.
2. TOTAL CAPITALIZED COST OF EQUIPMENT: $130,800.80
3. RENTAL TERM: 60 months
The Rental Term specified above shall commence on the earlier of: (a) the
date of expiration of the inspection period specified in paragraph 8 below
for all Equipment described in Exhibit A or (b) the date on which the
Lessee executes the Acceptance Certificate for all of such Equipment;
provided, however, the commencement date for the Rental Term shall be
adjusted to begin on the first day of the next calendar month if the
controlling date under (a) or (b) above does not occur on the first day of
a calendar month. Following the commencement date, the Rental Term shall
continue for the number of months specified above, it being the intention
of the parties that the stated Rental Term be the same for all items of
Equipment described in Exhibit A. This provision shall not be construed,
however, to relieve the Lessee of its obligation for the payment of Interim
Rental provided in paragraph 4 below.
4. MONTHLY RENTAL PAYMENT: $ 2,803.06
Hawaii General Excise Tax at n/a% $ N/A
----------
TOTAL MONTHLY RENTAL PAYMENT $ 2,803.06
LEASE FACTOR: $21.43 PER THOUSAND DOLLARS OF CAPITALIZED COST OF EQUIPMENT
Upon the commencement of the Rental Term, the Lessee shall pay to the
Lessor the Total Monthly Rental Payment specified above. The Lessee hereby
acknowledges and agrees that the Total Monthly Rental Payment is (i) based
upon the total Capitalized Cost of the Equipment and the Lease Factor
stated above; (ii) is inclusive of the Hawaii general excise tax at the
rate currently in effect, and (iii) is subject to adjustment if the actual
Capitalized Cost of the Equipment differs from the amount set forth above
and in Exhibit A, it being understood that the figures stated above and in
Exhibit A are based on the best information available to the Lessor and the
Lessee as of the date hereof.
The first Total Monthly Rental payment, together with any accrued but
unpaid Interim Rental payments, shall be due upon the commencement date of
the Rental Term, and all subsequent Total Monthly Rental Payments shall be
due on the FIRST day of each subsequent calendar month.
INTERIM RENTAL PAYMENT: The Lessee shall pay, as Interim Rental, on any
item of Equipment accepted or used by the Lessee prior to the commencement
of the Rental Term, an amount equal to the product of the Lease Factor
times One One Thousandth (1/1000) of the Capitalized Cost of such
Equipment, plus the amount of the applicable Hawaii general excise tax, to
compensate the Lessor for the Lessee's use and enjoyment of the Equipment
prior to the commencement of the Rental Term. The Interim Rental shall be
payable monthly and shall accrue from the date on which the Equipment is
accepted or used until the commencement of the Rental Term.
5. INTEREST ON PAST DUE AMOUNTS AND HANDLING CHARGES:
(a) Pursuant to paragraph 5 of the Master Lease Agreement, the interest
rate on delinquent payments shall be as follows: 5 % per month, (b) Lessor
will assess a handling charge of $13.50 for each returned check written
against insufficient funds.
6. OTHER CHARGES TO BE PAID BY LESSEE: (Describe):
(a) Recording Fee for UCC-1 Financing Statement (Notice of Lease) $ 20.00
(b) $ -0-
(c) $ -O-
7. DELIVERY OF EQUIPMENT: Delivery of the Equipment to the Lessee will be
scheduled to occur on or before December 15, 1994, (the "Outside Delivery
Date").
8. INSPECTION PERIOD: The Lessee shall have a period of five day(s) after
delivery and installation to inspect the Equipment unless the time for
inspection is extended with the Lessor's approval.
9. LOCATION OF EQUIPMENT: Pursuant to paragraph 10(c) of the Master Lease
Agreement, the Equipment shall be kept at 16-
(continued)
-1-
<PAGE>
TERMS OF GUARANTY
1. Guaranteed Obligations; Continuing Guaranty. As an essential inducement
to Lessor to lease equipment to the Lessee from time to time and as a
consideration for its so doing, the Guarantors hereby unconditionally and
irrevocably guarantee to Lessor that:
(a) The Lessee will duly and punctually pay all lease rentals, purchase
option prices, collection costs, attorneys' fees and all other sums to be paid
by the Lessee under all leases, now existing or hereafter executed, between
Lessor and the Lessee, together with any recourse agreements executed in
connection with such leases (such leases and recourse agreements are
collectively called the "Leases");
(b) The Lessee will duly and punctually observe and perform every other
terms, covenants and conditions on its part to be observed or performed under
the Leases and under all of the documents, instruments and agreements.
contemplated thereby; and
(c) The Guarantors will pay to Lessor upon demand all of Lessor's costs and
expenses, including reasonable attorneys' fees, incurred in connection with any
negotiations or workout involving the Lessee's obligations under the Leases or
the Guarantors' obligations under this Guaranty; or in any collection efforts
affecting the Guarantors, or in the enforcement of this Guaranty.
This Guaranty is to be a continuing guaranty and shall accordingly remain in
effect until all sums due under the Leases have been paid in full and the
Lessee's performance of its obligations under the Leases have been satisfied in
full.
2. Direct and Primary Liability of Guarantors to Lessor. The liability of
the Guarantors to Lessor under this Guaranty is direct and primary, and is
independent of any secondary liability the Guarantors may have by virtue of
their status as a general partner, officer or stockholder of the Lessee (to
extent applicable). Accordingly, this Guaranty may be enforced by Lessor
regardless of any defense or setoff or counterclaim which the Lessee may have or
assert against Lessor, and regardless of whether or not Lessor has instituted
any suit, action or proceeding, or exhausted its remedies against the Lessee, or
exhausted the assets of the Lessee, or taken any steps to enforce any rights
against any other person to compel any such performance or to collect all or
part of such amount, and regardless of whether Lessor has obtained any judgment
against the Lessee for the amounts owed by the Lessee to Lessor under the
Leases.
3. Joint and Several Liability; Counterparts. If this Guaranty is executed
by two or more Guarantors, then the obligation of each Guarantor executing this
Guaranty shall be joint and several. This Guaranty may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same instrument, and in making proof of this
Guaranty, it shall not be necessary to produce or account for more than one such
counterpart.
<PAGE>
4. Waiver. The Guarantors hereby unconditionally:
(a) waive any requirement that Lessor provide the Guarantor with notice of
any Leases hereafter executed by the Lessee which are covered by this Guaranty;
(b) waive any requirement that Lessor, in the event of any default by the
Lessee, first make demand upon, or seek to enforce remedies against, the Lessee
or any security before demanding payment under or seeking to enforce this
Guaranty;
(c) covenant that this Guaranty will not be discharged except by complete
performance by the Lessee of the obligations contained in the Leases;
(d) agree that this Guaranty shall remain in full force and effect without
regard to, and shall not be affected or impaired by, without limitation, any
invalidity, irregularity or unenforceability in whole or in part of any of the
provisions of the Leases or any limitation on the liability of the Lessee
thereunder; and
(e) forever waive any rights of appraisement with regard to the value of
any collateral which Lessor may apply as a credit to the obligations of the
Lessee, through foreclosure or otherwise, and agree that the determination by an
independent appraiser appointed by Lessor of the value of such collateral shall
be binding upon the Guarantors for all purposes.
The Guarantors acknowledge their responsibility for verifying from Lessor from
time to time the delinquent or nondelinquent status of the Lessee's account. To
the extent applicable, the Guarantors hereby unconditionally waive the
requirements of presentment, notice of dishonor and protest, and the Guarantors
hereby unconditionally waive all statutory or common law suretyship defenses now
or hereafter otherwise available.
5. No Release. The obligations of the Guarantors under this Guaranty shall
not be released, affected, stayed or impaired, without the written consent of
Lessor, by:
(a) any assignment of the Leases, although made without notice to, or
without the consent of, any Guarantor of the Leases; or
-2-
<PAGE>
(b) any waiver by Lessor of the performance or observance by the Lessee of
any of the terms, covenants, or conditions contained in the Leases; or
(c) any extension of the time for payment of any amounts payable under or
in connection with the Leases or the time of performance by the Lessee or any
Guarantor of the Leases, of any obligations under or arising out of the Leases,
or any extension or renewal thereof; or
(d) the modification or amendment (whether material or otherwise) of any
duty, agreement or obligation of the Lessee set forth in the Leases, including
any agreement involving a workout of the Lessee's financial obligations to
Lessor under the Leases, or
(e) the voluntary or involuntary liquidation, sale or other disposition of
all or substantially all of the assets of the Lessee or any other Guarantor of
the Leases; or
(f) any receivership, insolvency, bankruptcy, reorganization, dissolution
or other similar proceedings affecting the Lessee or any Guarantor of the Leases
or any of their respective assets; or
(g) the release of any property from any lien or security interest created
by the Leases or the acceptance of additional or substitute property as security
under the Leases; or
(h) the release or discharge of the Lessee from the observance or
performance of any terms, covenants, or conditions contained in the Leases; or
(i) any action which Lessor may take or omit to take by virtue of the
Leases or through any course of dealing with Lessee; or
(j) any resignation, withdrawal, termination or other change in the
Guarantors' relationship with the Lessee;
(k) the addition of a new Guarantor or the release of any Guarantor of the
Leases; or
(1) the operation of law or any other cause, whether similar or dissimilar
to the foregoing.
6. Subrogation. If the Guarantors shall be required to make any payments on
account of the Leases, then, from and after the payment in full of the total
lease rent and other sums to be paid under the Leases and the discharge of all
obligations to be performed under the Leases, the Guarantors shall be subrogated
to the rights of Lessor against the Lessee. Until such payment in full and such
other performance and discharge, the Guarantors waive any rights they may have
to insist that Lessor enforce any of its remedies under the Leases and any
rights of the Guarantors may have to participate in any security for the
repayment of the Lessee's obligations under the Leases.
7. Subordination of Indebtedness of Lessee to Guarantors. Any indebtedness
of the Lessee now or hereafter held by the Guarantors is hereby subordinated to
the indebtedness of the Lessee to Lessor. Accordingly, after Lessor has provided
the Guarantors with notice of the Lessee's default under the Leases, such
indebtedness of the Lessee to the Guarantors shall, at the request of Lessor, be
collected, enforced and received by the Guarantors as trustee for Lessor and
shall be paid over to Lessor on account of the indebtedness of the Lessee to
Lessor without reducing or affecting in any manner the liability of the
Guarantors under the other provisions of this Guaranty.
<PAGE>
8. Change of Financial Condition. The Guarantors will promptly notify
Lessor of any adverse change in any of their respective financial conditions
which might impair or diminish the value of this Guaranty. In the event of any
such adverse change, the Guarantors will, upon request by Lessor, promptly
furnish or make available to Lessor such satisfactory additional security in
such manner as Lessor may reasonably request to compensate for such adverse
change. The Guarantors shall promptly furnish Lessor with such information,
financial or otherwise, as Lessor may from time to time reasonably request
concerning the Guarantors.
9. New Partners or Stockholders. If the Lessee is a partnership or a
professional corporation, the Guarantors shall advise Lessor in writing of any
new partners admitted to the partnership, of any new shareholders of the
professional corporation and shall cause such new partners or shareholders to
execute this Guaranty.
10. Cumulative Rights. The rights and remedies of Lessor hereunder and
under the Leases are cumulative and not exclusive and may be exercised in whole
or in part and in any order and at any time or times as Lessor shall determine.
11. Amendment. The terms of this Guaranty may not be modified or amended,
except by a written agreement executed by the Guarantors with the written
consent of Lessor.
12. Notices. Any notices or demand to be given or served on the Guarantors
shall be in writing and personally delivered, or sent by registered or certified
mail addressed to the Guarantors at the address provided above. The Guarantors
may change its address from time to time by delivering to Lessor written notice
of any change of address. Service of any notice of demand shall be deemed
complete on the date of actual delivery or the expiration of the second day
after the date of mailing, whichever is earlier.
-3-
<PAGE>
13. Submission to Jurisdiction. If any Guarantor is not a resident of the
State of Hawaii, such Guarantor hereby irrevocably submits, for purposes of any
action or proceeding which Lessor may bring to enforce this Guaranty, to the
jurisdiction of the courts of the State of Hawaii and the Federal District Court
for the District of Hawaii. This provision shall not, however, preclude Lessor
from commencing any action against the Guarantors in any other jurisdiction.
14. Binding Force. This Guaranty shall be binding upon the Guarantors and
their heirs, personal representatives, successors and permitted assigns, and it
shall inure to the benefit of and shall be enforceable by Lessor and its
successors and assigns from time to time. Lessor may asign this Guaranty, in
whole or in part, without notice, in connection with any transfer by Lessor of
its interest in the Leases.
15. Governing Law. This Guaranty shall for all purposes be construed in
accordance with the laws of the State of Hawaii.
16. Neuter Terms, etc. The use of the singular shall include the plural,
and the use of the neuter shall include the masculine and feminine, as the case
may be.
17. Special Conditions.
None.
This Guaranty has been executed as of the date written above.
/s/ JOHN MAYO
- -------------------------------------- ---------------------------------------
JOHN MAYO
- -------------------------------------- ---------------------------------------
- -------------------------------------- ---------------------------------------
GUARANTORS
FHL-49
-4-
<PAGE>
13. Submission to Jurisdiction. If any Guarantor is not a resident of the
State of Hawaii, such Guarantor hereby irrevocably submits, for purposes of any
action or proceeding which Lessor may bring to enforce this Guaranty, to the
jurisdiction of the courts of the State of Hawaii and the Federal District Court
for the District of Hawaii. This provision shall not, however, preclude Lessor
from commencing any action against the Guarantors in any other jurisdiction.
14. Binding Force. This Guaranty shall be binding upon the Guarantors and
their heirs, personal representatives, successors and permitted assigns, and it
shall inure to the benefit of and shall be enforceable by Lessor and its
successors and assigns from time to time. Lessor may asign this Guaranty, in
whole or in part, without notice, in connection with any transfer by Lessor of
its interest in the Leases.
15. Governing Law. This Guaranty shall for all purposes be construed in
accordance with the laws of the State of Hawaii.
16. Neuter Terms, etc. The use of the singular shall include the plural,
and the use of the neuter shall include the masculine and feminine, as the case
may be.
17. Special Conditions.
None.
This Guaranty has been executed as of the date written above.
/s/ MARCUS BENDER /s/ BRIAN BARBATA
- -------------------------------------- ---------------------------------------
MARCUS BENDER BRIAN BARBATA
- -------------------------------------- ---------------------------------------
- -------------------------------------- ---------------------------------------
GUARANTORS
FHL-49
-4-
<PAGE>
13. Submission to Jurisdiction. If any Guarantor is not a resident of the
State of Hawaii, such Guarantor hereby irrevocably submits, for purposes of any
action or proceeding which Lessor may bring to enforce this Guaranty, to the
jurisdiction of the courts of the State of Hawaii and the Federal District Court
for the District of Hawaii. This provision shall not, however, preclude Lessor
from commencing any action against the Guarantors in any other jurisdiction.
14. Binding Force. This Guaranty shall be binding upon the Guarantors and
their heirs, personal representatives, successors and permitted assigns, and it
shall inure to the benefit of and shall be enforceable by Lessor and its
successors and assigns from time to time. Lessor may asign this Guaranty, in
whole or in part, without notice, in connection with any transfer by Lessor of
its interest in the Leases.
15. Governing Law. This Guaranty shall for all purposes be construed in
accordance with the laws of the State of Hawaii.
16. Neuter Terms, etc. The use of the singular shall include the plural,
and the use of the neuter shall include the masculine and feminine, as the case
may be.
17. Special Conditions.
+
None.
This Guaranty has been executed as of the date written above.
/s/ RICHARD HENDERSON
- -------------------------------------- ---------------------------------------
RICHARD HENDERSON
- -------------------------------------- ---------------------------------------
- -------------------------------------- ---------------------------------------
GUARANTORS
FHL-49
-4-
<PAGE>
Master No. A2500
FIRST HAWAIIAN LEASING, INC.
December 7, 1994
HAWAIIAN NATURAL WATER CO.
4747 Kilauea Avenue, Suite 201
Honolulu, Hawaii 96816
RE: Notice of Warranties In Connection with Finance Lease
Gentlemen:
This Notice is given to you for the purpose of confirming our lease arrangement
as a "finance lease" (as this term is defined in Article 2A of the Hawaii
Uniform Commercial Code). As you know, First Hawaiian Leasing, Inc. (the
"Lessor"), is not the manufacturer or supplier of any of the equipment (the
"Equipment") to be leased. You have requested the Lessor to acquire the
Equipment and to lease the same to you pursuant to a finance lease (the "Lease")
between Lessor, as the lessor, and you, as the lessee.
By signing this Notice in the space provided below, you acknowledge that (i) you
have selected the persons who manufacture, deal in and/or supply the Equipment
(together called the "Vendor"); and (ii) you have directed the Lessor to acquire
the Equipment from the Vendor in connection with the Lease.
By this Notice, you are informed that under Article 2A of the Hawaii Uniform
Commercial Code, you are entitled to any promises and warranties, including
those given by any third parties, which are provided to the Lessor by the Vendor
with respect to the Equipment, and you may communicate with the Vendor and
receive an accurate and complete statement of those promises and warranties,
including any disclaimers and limitations i of those promises and warranties, or
disclaimers and limitations of remedies.
Kindly acknowledge receipt of this Notice by signing this Notice in the space
provided below and returning it to us.
Sincerely,
FIRST HAWAIIAN LEASING, INC.
/s/ Pamela R. Fern
Pamela R. Fern
Vice President
ACKNOWLEDGED AND RECEIVED THIS ON X Dec. 8th, 1994
HAWAIIAN NATURAL WATER CO.
By: /s/ Marcus Bender
----------------------------
Print Name: Marcus Bender
Its: Pres
FHL-(07/93)
<PAGE>
OFFICER'S CERTIFICATE
FOR
CORPORATE LEASING RESOLUTIONS
I hereby certify to FIRST HAWAIIAN LEASING, INC. that:
1. I am the duly elected and qualified President (Corporate officer title)
of HAWAIIAN NATURAL WATER CO. (the "Corporation"). As an officer of the
Corporation, I have access to the records of the Corporation and am familiar
with the matters contained in this Certificate.
2. The following resolutions were adopted by the Board of Directors of the
Corporation
[check one]
|X| at a meeting duly held on September 19 ,1994, in accordance with the
By-laws of the Corporation:
|_| (for Hawaii corporations only) by unanimous written consent without a
meeting in accordance with Section 415-44 of the Hawaii Revised Statutes:
RESOLVED, that the Corporation enter into lease agreements from time
to time with FIRST HAWAIIAN LEASING, INC. ("Lessor") for the lease of
equipment having an acquisition or capitalized cost not exceeding the
principal sum of TWO HUNDRED THOUSAND AND NO/Dollars ($200,000.00***), it
being understood that the total amount of lease rentals, fees, charges,
expenses and other sums payable to the Lessor under such lease agreements
may exceed this limitation on the acquisition or capitalized cost of any
leased equipment.
RESOLVED, that [check one and list corporate officers' title]
|X| any one of the following officers:
President
---------------------------------------------------------------------------
V.P. Finance
---------------------------------------------------------------------------
|_| any two of the following officers:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
|_| other combination: --------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
is/are authorized and empowered for and in the name of the Corporation as
its corporate act and deed, on such terms and conditions as such officer(s)
may agree upon with the Lessor to execute and deliver to the Lessor lease
agreements, equipment lease schedules, equipment acceptance certificates,
recourse agreements, assignments and such other instruments, certificates,
or agreements as the Lessor may require or such officer(s) may approve by
execution and delivery thereof to consummate the lease transactions
authorized by these resolutions.
RESOLVED, that the above designated officer(s) is/are also authorized
and empowered for and in the name of the Corporation as its corporate act
and deed, on such terms and conditions as such officer(s) may agree upon
with the Lessor to mortgage, pledge, or otherwise encumber to or for the
benefit of the Lessor any or all of the Corporation's property, real or
personal, to secure payment of the lease rentals, fees, charges. expenses
and other sums due to the Lessor under any lease documents.
RESOLVED, that these resolutions shall supplement, and not supersede,
any resolutions previously adopted by the board of directors of the
Corporation, which may
1
FHL-52 (12/88)
<PAGE>
prescribe any limitations on the total acquisition or capitalized cost of
equipment which the Corporation may lease from the Lessor at any one time
or from time to time.
RESOLVED, that all actions previously taken by such officer(s) in
connection with the Corporation's leasing of equipment from the Lessor are
hereby ratified and confirmed.
RESOLVED, that the Secretary, any Assistant Secretary or other officer
of the Corporation be authorized and directed to certify to the Lessor a
copy of these resolutions, the present offers referred to in these
resolutions, and, if and when any change is made in the persons filling any
of the offices.
RESOLVED, that these resolutions shall constitute a continuing
authority to the above designated officer(s) to act on behalf of the
Corporation, and the Lessor is authorized and requested to rely and act
thereon, until these resolutions are revoked by the Corporation and formal
written notice of such revocation, duly certified, shall have been given to
the Lessor.
3. These resolutions have been duly entered in the minutes book of the
Corporation. These resolutions are in conformity with the Articles of
Incorporation and By-Laws of the Corporation and are now in full force and
effect.
4. The consent of the stockholders of the Corporation to the transactions
authorized in the resolutions is not required.
5. No proceeding toward the merger, consolidation, sale of assets or
business, or dissolution or liquidation of the Corporation has been commenced
and no such proceeding is contemplated.
6. First Hawaiian Leasing, Inc. is entitled to act in reliance upon the
matters contained in this Certificate.
Dated this 8th day of December , 1994.
HAWAIIAN NATURAL WATER CO.
By: /s/ Marcus Bender
-------------------------------
Title: Pres.
-----------------------------
(AFFIX CORPORATE SEAL)
2
FHL-52 (12/88)
<PAGE>
FIRST HAWAIIAN LEASING, INC.
ACCEPTANCE CERTIFICATE
This Acceptance Certificate pertains to all of the Equipment described in
the attached Exhibit A. The Equipment is covered by Lease Schedule No. 65169,
which forms a part of Master Lease Agreement No. A2500 executed by the Lessor
and the Lessee (hereinafter call the "Lease").
1. Acceptance of the Equipment. The Lessee hereby certifies to the Lessor
that:
(a) All of the Equipment has been delivered and installed; and
(b) The Lessee has accepted the Equipment for purposes of commencing the
Lessee's rental payment obligations under the Lease.
This acceptance of the Equipment is without prejudice to the Lessee's
rights against the vendor or manufacturer of the Equipment for remedying any
claimed defects.
2. Special Acknowledgments. The Lessee hereby acknowledges:
(a) That the Lessee has selected the type, quantity and method of delivery
of the Equipment and the manufacturer and/or dealer (sometimes
hereafter called the "Vendor") of the Equipment; that the Lessor has
not selected and does not manufacture or supply the Equipment; that
the Lessor has or will acquire the Equipment solely in connection with
the Lease, that the Lessor has informed the Lessee in writing that the
Lessee is entitled to the promises and warranties, including those of
any third party, provided to the Lessor by the Vendor in connection
with the contract by which the Lessor acquired the Equipment and the
Lessee may communicate with the Vendor and receive a statement of
those promises and warranties, including any disclaimers and
limitations of them or of remedies; that the Lessee has selected the
Equipment solely in reliance on the Vendor's warranties and
representations; and that the Lessor has not made any representations
to the Lessee concerning the use, condition, operation, efficiency or
safety of the Equipment. The Lessee also acknowledges that the sales
representatives or other agents of the Vendor are not the agents of
the Lessor, and therefore, are not authorized to waive or alter any
term, covenant or condition of the Lease.
(b) THAT THE LESSOR, NOT BEING THE MANUFACTURER OF THE EQUIPMENT NOR THE
MANUFACTURER'S AGENT, MAKES NO EXPRESS OR IMPLIED WARRANTY OF ANY KIND
WHATSOEVER WITH RESPECT TO THE EQUIPMENT, INCLUDING BUT NOT LIMITED
TO: ANY WARRANTY AGAINST INFRINGEMENT (INCLUDING ANY CLAIMS FOR PATENT
INFRINGEMENT) BY ANY PERSON; THE MERCHANTABILITY OF THE EQUIPMENT OR
ITS FITNESS FOR ANY PARTICULAR PURPOSE; THE DESIGN OR THE CONDITION OF
THE EQUIPMENT; THE WORKMANSHIP OF THE EQUIPMENT; COMPLIANCE OF THE
EQUIPMENT WITH THE REQUIREMENTS OF ANY LAW, RULE, SPECIFICATION OR
CONTRACT PERTAINING THERETO; OR ANY DEFECTS WHATSOEVER; IT BEING
UNDERSTOOD THAT THE EQUIPMENT IS BEING LEASED TO THE LESSEE "AS IS."
(c) That the Vendor's equipment warranties shall be in lieu of all others,
expressed or implied, during the term of the Lease, and that the
Lessor shall not be liable to the Lessee for the loss of any profits,
loss of working time, injury to any person or property, loss of
business or any other damages, direct or indirect, special,
consequential or otherwise caused or resulting from the possession,
use and loss of use of the Equipment; that the Lessee shall make any
claim on account thereof solely against the Vendor; that the Lessor
has agreed to assign solely for the purpose of assisting the Lessee in
the assertion of its claims, all of the Lessor's rights to any Vendor
warranties on the Equipment; that all claims or actions under any
Vendor warranties shall be made by the Lessee, at its own expense; and
that the Lessor shall have no obligation to make any claim on any such
warranty; provided, however, if to the extent any breach of warranty
results in damage or liability to the Lessor or the Lessor's interest
in the Equipment, Lessor may, but shall not be under any obligation
to, make or prosecute a claim or action in addition to or in lieu of
any claim or action by the Lessee.
<PAGE>
(d) That no defects or unfitness of the Equipment for use in the Lessee's
business shall relieve the Lessee of, or shall be a defense to, the
Lessee's performance of its obligations under the Lease, including,
without limitation, the obligation to make the rental payments due to
the Lessor.
3. Payment Authorization. The Lessee hereby authorizes the Lessor to pay for
the Equipment in accordance with the terms of any purchase orders for the
same.
DATED: 4/19 , 1995
HAWAIIAN NATURAL WATER CO.
/s/ Marcus Bender
-------------------------------
Its: Pres.
-------------------------------
LESSEE
FHL-39(Rev. 1/92)
<PAGE>
FIRST HAWAIIAN LEASING, INC.
LEASE SCHEDULE NO. 65169
1. DESCRIPTION OF EQUIPMENT: See Exhibit A attached hereto and made a part
hereof.
2. TOTAL CAPITALIZED COST OF EQUIPMENT: $18,429.84
3. RENTAL TERM: 60 months
The Rental Term specified above shall commence on the earlier of: (a) the
date of expiration of the inspection period specified in paragraph 8 below
for all Equipment described in Exhibit A or (b) the date on which the
Lessee executes the Acceptance Certificate for all of such Equipment;
provided, however, the commencement date for the Rental Term shall be
adjusted to begin on the first day of the next calendar month if the
controlling date under (a) or (b) above does not occur on the first day of
a calendar month. Following the commencement date, the Rental Term shall
continue for the number of months specified above, it being the intention
of the parties that the stated Rental Term be the same for all items of
Equipment described in Exhibit A. This provision shall not be construed,
however, to relieve the Lessee of its obligation for the payment of Interim
Rental provided in paragraph 4 below.
4. MONTHLY RENTAL PAYMENT: $ 399.19
Hawaii General Excise Tax at n/a% $ N/A
--------
TOTAL MONTHLY RENTAL PAYMENT $ 399.19
LEASE FACTOR: $21.66 PER THOUSAND DOLLARS OF CAPITALIZED COST OF EQUIPMENT
Upon the commencement of the Rental Term, the Lessee shall pay to the
Lessor the Total Monthly Rental Payment specified above. The Lessee hereby
acknowledges and agrees that the Total Monthly Rental Payment is (i) based
upon the total Capitalized Cost of the Equipment and the Lease Factor
stated above; (ii) is inclusive of the Hawaii general excise tax at the
rate currently in effect, and (iii) is subject to adjustment if the actual
Capitalized Cost of the Equipment differs from the amount set forth above
and in Exhibit A, it being understood that the figures stated above and in
Exhibit A are based on the best information available to the Lessor and the
Lessee as of the date hereof.
The first Total Monthly Rental payment, together with any accrued but
unpaid Interim Rental payments, shall be due upon the commencement date of
the Rental Term, and all subsequent Total Monthly Rental Payments shall be
due on the first day of each subsequent calendar month.
INTERIM RENTAL PAYMENT: The Lessee shall pay, as Interim Rental, on any
item of Equipment accepted or used by the Lessee prior to the commencement
of the Rental Term, an amount equal to the product of the Lease Factor
times One One Thousandth (1/1000) of the Capitalized Cost of such
Equipment, plus the amount of the applicable Hawaii general excise tax, to
compensate the Lessor for the Lessee's use and enjoyment of the Equipment
prior to the commencement of the Rental Term. The Interim Rental shall be
payable monthly and shall accrue from the date on which the Equipment is
accepted or used until the commencement of the Rental Term.
5. INTEREST ON PAST DUE AMOUNTS AND HANDLING CHARGES:
(a) Pursuant to paragraph 5 of the Master Lease Agreement, the interest
rate on delinquent payments shall be as follows: 5% per month, (b) Lessor
will assess a handling charge of $13.50 for each returned check written
against insufficient funds.
6. OTHER CHARGES TO BE PAID BY LESSEE: (Describe):
(a) Recording Fee for UCC-1 Financing Statement (Notice of Lease) $ 20.00
(b) $ -0-
(c) $ -O-
7. DELIVERY OF EQUIPMENT: Delivery of the Equipment to the Lessee will be
scheduled to occur on or before April 10, 1995, (the "Outside Delivery
Date").
8. INSPECTION PERIOD: The Lessee shall have a period of five day(s) after
delivery and installation to inspect the Equipment unless the time for
inspection is extended with the Lessor's approval.
9. LOCATION OF EQUIPMENT: Pursuant to paragraph 10(c) of the Master Lease
Agreement, the Equipment shall be kept at 15-
-1-
(continued)
<PAGE>
205 Old Volcano Road, Keauu, Hawaii 96749, and shall not be removed
therefrom without the written consent of the Lessor. The Lessor may, in its
sole discretion, withhold its consent to any transfer of the Equipment
outside the State of Hawaii.
10. SECURITY DEPOSIT: $399.19
11. STIPULATED LOSS VALUE OF EQUIPMENT: The amount of the Stipulated Loss Value
to be paid by the Lessee to the Lessor pursuant to paragraph 12(d) of the
Master Lease Agreement for any Equipment lost, damaged, confiscated or
destroyed during the Rental Term shall be determined by multiplying (a) the
total Capitalized Cost of such Equipment by (b) the applicable percentage
set forth in the Stipulated Loss Schedule which is attached hereto and made
a part hereof. The applicable percentage is the figure listed opposite the
month in which the Stipulated Loss Value is actually paid to the Lessor in
full. (This is based on the assumption that the Lessee has paid all
periodic lease rental payments, including the lease rental payment for the
month in which the Stipulated Loss Value is paid to the Lessor in full.)
If, for any reason, the loss shall occur prior to the commencement of the
Rental Term, the Stipulated Loss Value to be paid to the Lessor shall not
be less than the Stipulated Loss Value for the first month of the Rental
Term. In addition, the Lessee shall continue to pay Interim Rental until
the Stipulated Loss Value is paid to the Lessor in full. The actual amount
of the Stipulated Loss Value shall be calculated as of the month in which
the Stipulated Loss Value is paid to the Lessor in full. (This assumes that
the Lessee has paid all Interim Rental, including the Interim Rental for
the month in which the Stipulated Loss Value is paid to the Lessor in
full.)
12. LESSOR'S TAX BENEFITS: For purposes of the tax indemnification provisions
of paragraph 19 of the Master Lease Agreement:
(a) The Lessor will take the maximum depreciation deductions (modified
ACRS) permitted by law as of the date of this Lease Schedule based on
a N/A-year class life.
(b) The Lessor's Tax Benefits are based upon the following tax rates being
applicable during the Rental Term: N/A for federal income tax purposes
and N/A for Hawaii income tax purposes.
(c) The Lessor will be entitled to claim the N/A Capital Goods Excise tax
credit for Hawaii franchise tax purposes, and
(d) The Lessor's Tax Benefits are based upon a Hawaii franchise tax rate
of N/A being applicable during the Rental Term.
(e) Other: N/A.
13. OTHER CONDITIONS:
End of Rental Term Purchase Option Price of the Equipment is $1.00 plus the
amount of any applicable Hawaii general excise tax thereon.
This Lease Schedule shall be attached to and made a part of Master Lease
Agreement No. A2500 (hereinabove called the "Master Lease Agreement").
IN WITNESS WHEREOF, the parties hereto have executed this Lease Schedule on
4/19, 1995.
FIRST HAWAIIAN LEASING, INC. HAWAIIAN NATURAL WATER CO.
/s/ Marcus Bender
-------------------------------
By /s/ Pamela R. Fern Its: Pres.
- ------------------------------------------- -------------------------------
Its: Pamela R. Fern, Vice President LESSOR Its: LESSEE
FHL-15 (10/91)
- 2 -
<PAGE>
EXHIBIT A
Page 1 of 1
LEASE SCHEDULE NO. 65169
FIRST HAWAIIAN LEASING, INC. LESSEE: HAWAIIAN NATURAL WATER CO.
Post Office Box 47600 4747 Kilauea Avenue, Ste. 201
Honolulu, Hawaii 96847 Honolulu, Hawaii 96816
QUANTITY SERIAL NO. DESCRIPTION AMOUNT
- -------- ---------- ----------- ------
BOTTLING EQUIPMENT
Consisting of the following:
1 Videojet Excel Series 100 Printer $10,480.00
1 Value Pack - SEE: EXHIBIT A-2 196.00
1 Detactor, Reflex 275.00
1 Power Conditioner 220.00
1 Adjustable Printhead Stand 490.00
1 Spare Parts Kit - SEE: EXHIBIT A-1 1,055.00
1 Compressed Air Filter System NC
1 Console Stand NC
1 Sim-Co 42" Diameter Stainless Steel
Pack Off Table 5,005.00
Tax 708.84
- --------------------------------------------------------------------------------
TOTAL CAPITALIZED COST $18,429.84
- --------------------------------------------------------------------------------
Dated: /19. 1995
HAWAIIAN NATURAL WATER CO.
By: /s/ Marcus Bender
-------------------------------------
Its: PRES.
<PAGE>
EXHIBIT--A1
RECOMMENDED ON SITE SPARE PARTS KIT FOR USERS OF THE
VIDEOJET EXCEL Series 100
Spare Parts Kit (P/N 355615) for EXCEL Printers consists of the following parts:
PART NO. DESCRIPTION QUANTITY
ELECTRONICS CABINET
205295 Relay -- AC. SS 1
205604 Lamp, 14 V Incandescent 2
363022 Wire Assy. Ground 2
SP207011 Packaged Battery 2
HYDRAULICS CABINET/PRINTHEAD
203305 Ferrule, Front 1/8" dia. 2
203306 Ferrule, Rear 1/8" dia. 2
203307 Fitting, Nut for 1/8" dia. Tube 2
204446 Switch, Pressure Spst 1
206429 Valve, 3-way Solenoid 1
250077 Cable Tie, 7/64" Nylon 2
355258 Thumb Screw Assy. 1
355462 Spring, Compression 2
355961 Piston, Plunger Suction 1
356086 Tube Assy, 1/32" ID 1
356089 Tube Assy, 1/16" ID 1
356093 Tube Assy, 1/16" ID 1
SP205978 Pkd Pump Spring, XFR 1
SP206582 Packaged "0" Ring 1
SP207016 Packaged Diaphragm 1
SP355088 Pkd Pump Spring, Ink 1
SP356134 Pkd Regulator Assy 1
SP355236 Pkd Catcher Assy 1
SP355390 Filter/Tube Assy 2
SP355610 Packaged Diaphragm 1
SP355611 Packaged Diaphragm 1
SP363006 Universal Nozzle 1
EXPENDABLES
204667 Filter, 3 micron 1
SP205825 Pkd Ink Filter, Final 1
SPECIAL TOOLS
188614 Key, Hex. 050 1
186932 Gauge, High Voltage Plate 1
202047 Wash Bottle 1
205416 Cylinder, Graduated 1
355257 Holder, Magnifier 1
355262 Bracket Assy, Printhead Holder 1
355267 Pan, Wash Assy 1
SP251413 Pkd Bleed Tube 1
<PAGE>
Exhibit A2
VideoJet Excel Series 100
1 - #16-82000XM Value Pack
(2) Quarts ink
(7) Quarts makeup fluid
<PAGE>
March 14, 1995
Mr. Marcus Bender
HAWAIIAN NATURAL WATER CO.
4747 Kilauea Avenue, Suite 201
Honolulu, Hawaii 96816
SUBJECT: Lease No: 054-27999-65048
Fogg Rotary Filler
Dear Marcus:
Enclosed are copies of you new lease documents.
Thank you for allowing us to assist you with your leasing requirements. If I can
be of further service, please call me at 593-5330.
Sincerely,
/s/ Donna Kojima
- ------------------------
Donna Kojima
Sr. Documentation Specialist
/dk
Enclosures
<PAGE>
Consisting of the following:
1 Videojet Excel Series 100 Printer $10,480.00
I Value Pack - SEE: EXHIBIT A-2 196.00
1 Detector, Reflex 275.00
1 Power Conditioner 220.00
1 Adjustable Printhead Stand 490.00
1 Spare Parts Kit - SEE: EXHIBIT A-1 1,055.00
1 Compressed Air Filter System NC
1 Console Stand NC
1 Sim-Co 42" Diameter Stainless Steel
Pack Off Table 5,005.00
Tax 708.84
- --------------------------------------------------------------------------------
TOTAL CAPITALIZED COST... $18,429.84
- --------------------------------------------------------------------------------
Dated: 4/19, 1995
HAWAIIAN NATURAL WATER CO.
By: /s/ Marcus Bender
----------------------------
Its: PRES
<PAGE>
First Hawaiian Leasing, Inc.
Stipulated Loss Schedule
HAWAIIAN NATURAL WATER CO. LSE 65048
- --------------------------------------------------------------------------------
Pmt. Date Balance
- --------------------------------------------------------------------------------
1 01-Jan-95 127,997.74
2 01-Feb-95 126,342.24
3 01-Mar-95 122,671.90
4 01-Apr-95 122,986.58
5 01-May-95 121,286.15
6 01-Jun-95 119,570.48
7 01-Jul-95 117,839.43
8 01-Aug-95 116,092.86
9 01-Sep-95 114,330.63
10 01-Oct-95 112,552.60
11 01-Nov-95 110,758.63
12 01-Dec-95 108,948.57
13 01-Jan-96 107,122.29
14 01-Feb-96 105,279.63
15 01-Mar-96 103,420.45
16 01-Apr-96 101,544.60
17 01-May-96 99,651.94
18 01-Jun-96 97,742.31
19 01-Jul-96 95,815,56
20 01-Aug-96 93,871.53
21 01-Sep-96 91,910.07
22 01-Oct-96 89,931.03
23 01-Nov-96 87,934.25
24 01-Dec-96 85,919.56
25 01-Jan-97 83,886.81
26 01-Feb-97 81,835.84
27 01-Mar-97 79,766.48
28 01-Apr-97 77,678.57
29 01-May-97 75,571.94
30 01-Jun-97 73,446.42
31 01-Jul-97 73,301.84
32 01-Aug-97 69,138.04
33 01-Sep-97 66,954.84
34 01-Oct-97 64,752.06
35 01-Nov-97 62,529.53
36 01-Dec-97 60,287.08
37 01-Jan-98 58,024.52
38 01-Feb-98 55,741.68
39 01-Mar-98 53,438.37
40 01-Apr-98 51,114.41
41 01-May-98 48,769.62
42 01-Jun-98 46,403.80
43 01-Jul-98 44,016.77
44 01-Aug-98 41,608.34
45 01-Sep-98 39,178.32
46 01-Oct-98 36,726.51
47 01-Nov-98 34,252.72
48 01-Dec-98 31,756.75
49 01-Jan-99 29,238.40
50 01-Feb-99 26,697.48
51 01-Mar-99 24,133.78
52 01-Apr-99 21,547.09
53 01-May-99 18,937.21
<PAGE>
EXHIBIT A
LEASE SCHEDULE NO. 65048
FIRST HAWAIIAN LEASING, INC. LESSEE: HAWAIIAN NATURAL WATER CO.
Post Office Box 47600 4747 Kilauea Avenue, Ste 201
Honolulu, Hawaii 96847 Honolulu, Hawaii 96816
QUANTITY SERIAL NO. DESCRIPTION AMOUNT
- -------- --------- ----------- -------
1 562-78-9-94 FOGG MODEL FG 155 ROTARY FILLER $125,770.00
Includes the following:
1 1.5 Liter, 1 Liter & One Half
Change Parts
] 618-12-9-94 Fogg FH-25 Sports Capper
1 Timing Screw Infeed
1 Speed Indicator
] Missing Cap Detector
] Backlog Eye
1 Bottle Counter
] Electrical Panel
] Spare Parts Group
Tax 5,030.80
- --------------------------------------------------------------------------------
TOTAL COST..... $130,800.80
- --------------------------------------------------------------------------------
Dated December 8, 1994
HAWAIIAN NATURAL WATER CO.
By: /s/ Marcus Bender
------------------------------
Its: Pres
<PAGE>
FIRST HAWAIIAN LEASING, INC.
ACCEPTANCE CERTIFICATE
This Acceptance Certificate pertains to all of the Equipment described in
the attached Exhibit A. The Equipment is covered by Lease Schedule No. 65048,
which forms a part of Master Lease Agreement No. A2500 executed by the Lessor
and the Lessee (hereinafter call the "Lease").
1. Acceptance of the Equipment. The Lessee hereby certifies to the Lessor that:
(a) All of the Equipment has been delivered and installed; and
(b) The Lessee has accepted the Equipment for purposes of commencing the
Lessee's rental payment obligations under the Lease.
This acceptance of the Equipment is without prejudice to the Lessee's
rights against the vendor or manufacturer of the Equipment for remedying any
claimed defects.
2. Special Acknowledgments. The Lessee hereby acknowledges:
(a) That the Lessee has selected the type, quantity and method of delivery of
the Equipment and the manufacturer and/or dealer (sometimes hereafter
called the "Vendor") of the Equipment; that the Lessor has not selected and
does not manufacture or supply the Equipment; that the Lessor has or will
acquire the Equipment solely in connection with the Lease; that the Lessor
has informed the Lessee in writing that the Lessee is entitled to the
promises and warranties, including those of any third party, provided to
the Lessor by the Vendor in connection with the contract by which the
Lessor acquired the Equipment and the Lessee may communicate with the
Vendor and receive a statement of those promises and warranties, including
any disclaimers and limitations of them or of remedies; that the Lessee has
selected the Equipment solely in reliance on the Vendor's warranties and
representations; and that the Lessor has not made any representations to
the Lessee concerning the use, condition, operation, efficiency or safety
of the Equipment. The Lessee also acknowledges that the sales
representatives or other agents of the Vendor are not the agents of the
Lessor, and therefore, are not authorized to waive or alter any term,
covenant or condition of the Lease.
(b) THAT THE LESSOR, NOT BEING THE MANUFACTURER OF THE EQUIPMENT NOR THE
MANUFACTURER'S AGENT, MAKES NO EXPRESS OR IMPLIED WARRANTY OF ANY KIND
WHATSOEVER WITH RESPECT TO THE EQUIPMENT, INCLUDING BUT NOT LIMITED TO: ANY
WARRANTY AGAINST INFRINGEMENT (INCLUDING ANY CLAIMS FOR PATENT
INFRINGEMENT) BY ANY PERSON; THE MERCHANTABILITY OF THE EQUIPMENT OR ITS
FITNESS FOR ANY PARTICULAR PURPOSE; THE DESIGN OR THE CONDITION OF THE
EQUIPMENT; THE WORKMANSHIP OF THE EQUIPMENT; COMPLIANCE OF THE EQUIPMENT
WITH THE REQUIREMENTS OF ANY LAW, RULE, SPECIFICATION OR CONTRACT
PERTAINING THERETO; OR ANY DEFECTS WHATSOEVER; IT BEING UNDERSTOOD THAT THE
EQUIPMENT IS BEING LEASED TO THE LESSEE "AS IS."
(c) That the Vendor's equipment warranties shall be in lieu of all others,
expressed or implied, during the term of the Lease, and that the Lessor
shall not be liable to the Lessee for the loss of any profits, loss of
working time, injury to any person or property, loss of business or any
other damages, direct or indirect, special, consequential or otherwise
caused or resulting from the possession, use and loss of use of the
Equipment; that the Lessee shall make any claim on account thereof solely
against the Vendor; that the Lessor has agreed to assign solely for the
purpose of assisting the Lessee in the assertion of its claims, all of the
Lessor's rights to any Vendor warranties on the Equipment; that all claims
or actions under any Vendor warranties shall be made by the Lessee, at its
own expense; and that the Lessor shall have no obligation to make any claim
on any such warranty: provided, however, if to the extent any breach of
warranty results in damage or liability to the Lessor or the Lessor's
interest in the Equipment, Lessor may, but shall not be under any
obligation to, make or prosecute a claim or action in addition to or in
lieu of any claim or action by the Lessee.
<PAGE>
(d) That no defects or unfitness of the Equipment for use in the Lessee's
business shall relieve the Lessee of, or shall be a defense to, the
Lessee's performance of its obligations under the Lease, including, without
limitation, the obligation to make the rental payments due to the Lessor.
3. Payment Authorization. The Lessee hereby authorizes the Lessor to pay for
the Equipment in accordance with the terms of any purchase orders for the
same.
X MB
-------
DATED: DEC 31, 1994
HAWAIIAN NATURAL WATER CO.
/s/ Marcus Bender
-------------------------------------
Its: Pres
-------------------------------------
Its: LESSEE
<PAGE>
First Hawaiian Leasing, Inc.
March 2, 1995
Mr. Marcus Bender
HAWAIIAN NATURAL WATER CO.
4747 Kilauea Avenue, Suite 201
Honolulu, Hawaii 96816
SUBJECT: Lease No: 054-27999-65049
Labeling System
Dear Marcus:
Enclosed are copies of your new lease documents.
Thank you for allowing us to assist you with your leasing requirements. If I can
be of further service, please call me at 593-5330.
Sincerely,
/s/ Donna Kojima
- --------------------
Donna Kojima
Sr. Documentation Specialist
/dk
Enclosures
1314 South King Street, 2nd Floor
P O. Box 47600 o Honolulu, Hawaii 96847 o Telephone (808) 593-5300 o
Facsimile (808) 593-5302
<PAGE>
First Hawaiian Leasing, Inc.
Stipulated Loss Schedule
HAWAIIAN NATURAL WATER CO. LSE 65049
- --------------------------------------------------------------------------------
Pmt. Date Balance
- --------------------------------------------------------------------------------
1 01-Jan-95 44,030.68
2 01-Feb-95 43,461.21
3 01-Mar-95 42,886.63
4 01-Apr-95 42,306.90
5 01-May-95 41,721.97
6 01-Jun-95 41,131.80
7 01-Jul-95 40,536.34
8 01-Aug-95 39,935.54
9 01-Sep-95 39,329.35
10 01-Oct-95 38,717.73
11 01-Nov-95 38,100.62
12 01-Dec-95 37,477.98
13 01-Jan-96 36,849.76
14 01-Feb-96 36,215.91
15 01-Mar-96 35,576.37
16 01-Apr-96 34,931.10
17 01-May-96 34,280.04
18 01-Jun-96 33,623.15
19 01-Jul-96 32,960.37
20 01-Aug-96 32,291.65
21 01-Sep-96 31,616.93
22 01-Oct-96 30,936.16
23 01-Nov-96 30,249.29
24 01-Dec-96 29,556.26
25 01-Jan-97 28,857.01
26 01-Feb-97 28,151.50
27 01-Mar-97 27,439.66
28 01-Apr-97 26,721.44
29 01-May-97 25,996.78
30 01-Jun-97 25,265.62
31 01-Jul-97 24,527.91
32 01-Aug-97 23,783.58
33 01-Sep-97 23,032.58
34 01-Oct-97 22,274.84
35 01-Nov-97 21,510.31
36 01-Dec-97 20,738.93
37 01-Jan-98 19,960.63
38 01-Feb-98 19,175.35
39 01-Mar-98 18,383.03
40 01-Apr-98 17,583.61
41 01-May-98 16,777.02
42 01-Jun-98 15,963.20
43 01-Jul-98 15,142.08
44 01-Aug-98 14,313.60
45 01-Sep-98 13,477.69
46 01-Oct-98 12,634.29
47 01-Nov-98 11,783.33
48 01-Dec-98 10,924.74
49 01-Jan-99 10,058.45
50 01-Feb-99 9,184.39
51 01-Mar-99 8,302.50
52 01-Apr-99 7,412.70
53 01-May-99 6,514.92
<PAGE>
First Hawaiian Leasing, Inc.
Stipulated Loss Schedule
HAWAIIAN NATURAL WATER CO. LSE 65049
- --------------------------------------------------------------------------------
Pmt. Date Balance
- --------------------------------------------------------------------------------
54 01-Jun-99 5,609.09
55 01-Jul-99 4,695.14
56 01-Aug-99 3,773.00
57 01-Sep-99 2,842.59
58 01-Oct-99 1,903.84
59 01-Nov-99 956.67
60 01-Dec-99 1.00
<PAGE>
FIRST HAWAIIAN LEASING, INC.
ACCEPTANCE CERTIFICATE
This Acceptance Certificate pertains to all of the Equipment described in
the attached Exhibit A. The Equipment is covered by Lease Schedule No. 65049,
which forms a part of Master Lease Agreement No. A2500 executed by the Lessor
and the Lessee (hereinafter call the "Lease").
1. Acceptance of the Equipment. The Lessee hereby certifies to the Lessor
that:
(a) All of the Equipment has been delivered and installed; and
(b) The Lessee has accepted the Equipment for purposes of commencing the
Lessee's rental payment obligations under the Lease.
This acceptance of the Equipment is without prejudice to the Lessee's
rights against the vendor or manufacturer of the Equipment for remedying any
claimed defects.
2. Special Acknowledgments. The Lessee hereby acknowledges:
(a) That the Lessee has selected the type, quantity and method of delivery of
the Equipment and the manufacturer and/or dealer (sometimes hereafter
called the "Vendor") of the Equipment; that the Lessor has not selected and
does not manufacture or supply the Equipment; that the Lessor has or will
acquire the Equipment solely in connection with the Lease; that the Lessor
has informed the Lessee in writing that the Lessee is entitled to the
promises and warranties, including those of any third party, provided to
the Lessor by the Vendor in connection with the contract by which the
Lessor acquired the Equipment and the Lessee may communicate with the
Vendor and receive a statement of those promises and warranties, including
any disclaimers and limitations of them or of remedies; that the Lessee has
selected the Equipment solely in reliance on the Vendor's warranties and
representations; and that the Lessor has not made any representations to
the Lessee concerning the use, condition, operation, efficiency or safety
of the Equipment. The Lessee also acknowledges that the sales
representatives or other agents of the Vendor are not the agents of the
Lessor, and therefore, are not authorized to waive or alter any term,
covenant or condition of the Lease.
(b) THAT THE LESSOR, NOT BEING THE MANUFACTURER OF THE EQUIPMENT NOR THE
MANUFACTURER'S AGENT, MAKES NO EXPRESS OR IMPLIED WARRANTY OF ANY KIND
WHATSOEVER WITH RESPECT TO THE EQUIPMENT, INCLUDING BUT NOT LIMITED TO: ANY
WARRANTY AGAINST INFRINGEMENT (INCLUDING ANY CLAIMS FOR PATENT
INFRINGEMENT) BY ANY PERSON; THE MERCHANTABILITY OF THE EQUIPMENT OR ITS
FITNESS FOR ANY PARTICULAR PURPOSE; THE DESIGN OR THE CONDITION OF THE
EQUIPMENT; THE WORKMANSHIP OF THE EQUIPMENT; COMPLIANCE OF THE EQUIPMENT
WITH THE REQUIREMENTS OF ANY LAW, RULE, SPECIFICATION OR CONTRACT
PERTAINING THERETO; OR ANY DEFECTS WHATSOEVER; IT BEING UNDERSTOOD THAT THE
EQUIPMENT IS BEING LEASED TO THE LESSEE "AS IS."
(c) That the Vendor's equipment warranties shall be in lieu of all others,
expressed or implied, during the term of the Lease, and that the Lessor
shall not be liable to the Lessee for the loss of any profits, loss of
working time, injury to any person or property, loss of business or any
other damages, direct or indirect, special, consequential or otherwise
caused or resulting from the possession, use and loss of use of the
Equipment; that the Lessee shall make any claim on account thereof solely
against the Vendor; that the Lessor has agreed to assign solely for the
purpose of assisting the Lessee in the assertion of its claims, all of the
Lessor's rights to any Vendor warranties on the Equipment; that all claims
or actions under any Vendor warranties shall be made by the Lessee, at its
own expense; and that the Lessor shall have no obligation to make any claim
on any such warranty; provided, however, if to the extent any breach of
warranty results in damage or liability to the Lessor or the Lessor's
interest in the Equipment, Lessor may, but shall not be under any
obligation to, make or prosecute a claim or action in addition to or in
lieu of any claim or action by the Lessee.
<PAGE>
(d) That no defects or unfitness of the Equipment for use in the Lessee's
business shall relieve the Lessee of, or shall be a defense to, the
Lessee's performance of its obligations under the Lease, including, without
limitation, the obligation to make the rental payments due to the Lessor.
3. Payment Authorization. The Lessee hereby authorizes the Lessor to pay for
the Equipment in accordance with the terms of any purchase orders for the
same.
DATED: DEC. 31, 1994
HAWAIIAN NATURAL WATER CO.
/s/ Marcus Bender
--------------------------
Its: Pres
--------------------------
LESSEE
<PAGE>
FIRST HAWAIIAN LEASING, INC.
LEASE SCHEDULE NO. 65049
1. DESCRIPTION OF EQUIPMENT: See Exhibit A attached hereto and made a part
hereof.
2. TOTAL CAPITALIZED COST OF EQUIPMENT: $44,994.92
3. RENTAL TERM: 60 months
The Rental Term specified above shall commence on the earlier of: (a) the
date of expiration of the inspection period specified in paragraph 8 below
for all Equipment described in Exhibit A or (b) the date on which the
Lessee executes the Acceptance Certificate for all of such Equipment;
provided, however, the commencement date for the Rental Term shall be
adjusted to begin on the first day of the next calendar month if the
controlling date under (a) or (b) above does not occur on the first day of
a calendar month. Following the commencement date, the Rental Term shall
continue for the number of months specified above, it being the intention
of the parties that the stated Rental Term be the same for all items of
Equipment described in Exhibit A. This provision shall not be construed,
however, to relieve the Lessee of its obligation for the payment of Interim
Rental provided in paragraph 4 below.
4. MONTHLY RENTAL PAYMENT: $ 964.24
Hawaii General Excise Tax @ n/a% $ N/A
--------
TOTAL MONTHLY RENTAL PAYMENT $ 964.24
LEASE FACTOR: $21.43 PER THOUSAND DOLLARS OF CAPITALIZED COST OF EQUIPMENT
Upon the commencement of the Rental Term, the Lessee shall pay to the
Lessor the Total Monthly Rental Payment specified above. The Lessee hereby
acknowledges and agrees that the Total Monthly Rental Payment is (i) based
upon the total Capitalized Cost of the Equipment and the Lease Factor
stated above; (ii) is inclusive of the Hawaii general excise tax at the
rate currently in effect, and (iii) is subject to adjustment if the actual
Capitalized Cost of the Equipment differs from the amount set forth above
and in Exhibit A, it being understood that the figures stated above and in
Exhibit A are based on the best information available to the Lessor and the
Lessee as of the date hereof.
The first Total Monthly Rental payment, together with any accrued but
unpaid Interim Rental payments, shall be due upon the commencement date of
the Rental Term, and all subsequent Total Monthly Rental Payments shall be
due on the FIRST day of each subsequent calendar month.
INTERIM RENTAL PAYMENT: The Lessee shall pay, as Interim Rental, on any
item of Equipment accepted or used by the Lessee prior to the commencement
of the Rental Term, an amount equal to the product of the Lease Factor
times One One Thousandth (1/1000) of the Capitalized Cost of such
Equipment, plus the amount of the applicable Hawaii general excise tax, to
compensate the Lessor for the Lessee's use and enjoyment of the Equipment
prior to the commencement of the Rental Term. The Interim Rental shall be
payable monthly and shall accrue from the date on which the Equipment is
accepted or used until the commencement of the Rental Term.
5. INTEREST ON PAST DUE AMOUNTS AND HANDLING CHARGES:
(a) Pursuant to paragraph 5 of the Master Lease Agreement, the interest
rate on delinquent payments shall be as follows: 5 % per month, (b) Lessor
will assess a handling charge of $13.50 for each returned check written
against insufficient funds.
6. OTHER CHARGES TO BE PAID BY LESSEE: (Describe):
(a) Recording Fee for UCC-I Financing Statement (Notice of Lease) $ 20.00
(b) $ -0-
(c) $ -0-
7. DELIVERY OF EQUIPMENT: Delivery of the Equipment to the Lessee will be
scheduled to occur on or before December 15, 1994, (the "Outside Delivery
Date").
8. INSPECTION PERIOD: The Lessee shall have a period of five day(s) after
delivery and installation to inspect the Equipment unless the time for
inspection is extended with the Lessor's approval.
9. LOCATION OF EQUIPMENT: Pursuant to paragraph 10(c) of the Master Lease
Agreement, the Equipment shall be kept at 16-
(continued)
<PAGE>
305 Old Volcano Road, Keeau, Hawaii 96749, and shall not be removed therefrom
without the written consent of the Lessor. The Lessor may, in its sole
discretion, withhold its consent to any transfer of the Equipment outside the
State of Hawaii.
10. SECURITY DEPOSIT: $964.24
11. STIPULATED LOSS VALUE OF EQUIPMENT: The amount of the Stipulated Loss Value
to be paid by the Lessee to the Lessor pursuant to paragraph 12(d) of the
Master Lease Agreement for any Equipment lost, damaged, confiscated or
destroyed during the Rental Term shall be determined by multiplying (a) the
total Capitalized Cost of such Equipment by (b) the applicable percentage
set forth in the Stipulated Loss Schedule which is attached hereto and made
a part hereof. The applicable percentage is the figure listed opposite the
month in which the Stipulated Loss Value is actually paid to the Lessor in
full. (This is based on the assumption that the Lessee has paid all
periodic lease rental payments, including the lease rental payment for the
month in which the Stipulated Loss Value is paid to the Lessor in full.)
If, for any reason, the loss shall occur prior to the commencement of the
Rental Term, the Stipulated Loss Value to be paid to the Lessor shall not
be less than the Stipulated Loss Value for the first month of the Rental
Term. In addition, the Lessee shall continue to pay Interim Rental until
the Stipulated Loss Value is paid to the Lessor in full. The actual amount
of the Stipulated Loss Value shall be calculated as of the month in which
the Stipulated Loss Value is paid to the Lessor in full. (This assumes that
the Lessee has paid all Interim Rental, including the Interim Rental for
the month in which the Stipulated Loss Value is paid to the Lessor in
full.)
12. LESSOR'S TAX BENEFITS: For purposes of the tax indemnification provisions
of paragraph 19 of the Master Lease Agreement:
(a) The Lessor will take the maximum depreciation deductions (modified
ACRS) permitted by law as of the date of this Lease Schedule based on
a N/A-year class life.
(b) The Lessor's Tax Benefits are based upon the following tax rates being
applicable during the Rental Term: N/A for federal income tax purposes
and N/A for Hawaii income tax purposes.
(c) The Lessor will be entitled to claim the N/A Capital Goods Excise tax
credit for Hawaii franchise tax purposes, and
(d) The Lessor's Tax Benefits are based upon a Hawaii franchise tax rate
of N/A being applicable during the Rental Term.
(e) Other: N/A.
13. OTHER CONDITIONS:
End of Rental Term Purchase Option Price of the Equipment is $1.00 plus the
amount of any applicable Hawaii general excise tax thereon.
This Lease Schedule shall be attached to and made a part of Master Lease
Agreement No. A2500 (hereinabove called the "Master Lease Agreement").
IN WITNESS WHEREOF, the parties hereto have executed this Lease Schedule on
Dec 8, 1994.
FIRST HAWAIIAN LEASING, INC. HAWAIIAN NATURAL WATER CO.
By: /s/ Pamela R. Fern /s/ Marcus Bender
- ------------------------------------ ---------------------------
Its: Pamela R. Fern, Vice President Its: Pres
---------------------------
LESSEE
<PAGE>
EXHIBIT A
LEASE SCHEDULE NO. 65049
FIRST HAWAIIAN LEASING, INC. LESSEE: HAWAIIAN NATURAL WATER CO.
Post Office Box 47600 4747 Kilauea Avenue, Ste 201
Honolulu, Hawaii 96847 Honolulu, Hawaii 96816
QUANTITY SERIAL NO. DESCRIPTION AMOUNT
1 Q694-059 VERSALINE VERTICAL ROLLER WRAP
LABELING MACHINE $42,839.35
Includes the following:
Spare Parts Kit
Spare Belts
Freight 425.00
Tax 1,730.57
- --------------------------------------------------------------------------------
TOTAL COST..... $44,994.92
- --------------------------------------------------------------------------------
Dated: December 8 , 1994
HAWAIIAN NATURAL WATER CO.
By: /s/ Marcus Bender
--------------------------
Its: President
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of October 10, 1996,
is made and entered into by and between Hawaiian Natural Water Company, Inc., a
Hawaii corporation (the "Company"), and Marcus Bender, an individual resident of
the State of Hawaii ("Employee"). This Agreement shall become effective (the
"Effective Date") concurrently with, and conditioned upon, the closing of a
proposed offering of Units by the Company, as more fully described in that
certain Confidential Private Offering Memorandum of the Company, dated September
6, 1996:
WHEREAS, the Company desires to employ Employee as the Company's President
and Chief Executive Officer, and the Employee desires to be employed by the
Company in such capacity, all on the terms set forth herein; and
WHEREAS, Employee has the experience, knowledge and abilities necessary to
enable him to perform his obligations hereunder;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereby agree as follows:
1. Duties.
(a) Within the limitations established by the Company's Bylaws and its
Board of Directors ("the Board"), Employee shall have each and all of the duties
and responsibilities of the President and Chief Executive Officer of the Company
as those duties may from time to time be established by the Board. It is also
anticipated that Employee shall be nominated to serve as a director of the
Company throughout the term of this Agreement. Employee shall not be entitled to
receive any additional compensation for such service as a director, except to
the extent otherwise determined by the Board.
(b) Employee shall devote his full time and best efforts to the performance
of his duties hereunder and to the advancement of the interests of the Company
and shall not, without the express prior written consent of the Board, or the
Chairman, render directly or indirectly to any other person, corporation,
partnership, firm, company, joint venture or other entity any services of any
kind for compensation, or engage in
-1-
<PAGE>
any other activity that would in any manner whatsoever compete with the Company,
be adverse to any interests of the Company, and/or in any manner whatsoever
interfere with the proper performance of Employee's duties and responsibilities
to the Company hereunder. The foregoing notwithstanding, Employee shall be
entitled to serve as President of Bender Consulting, Inc. ("BCI") so long as any
services rendered by Employee on behalf of BCI are not performed during normal
working hours and do not otherwise interfere with Employee's performance of his
duties hereunder and so long as the operations of BCI are not competitive with
those of the Company. In addition, nothing herein shall be deemed to preclude or
prohibit Employee from performing services within the civic community including,
without limitation, serving on boards of civic groups, so long as such services
do not interfere with Employee's performance of his duties hereunder.
2. Term. Unless earlier terminated as provided in Section 8 hereof,
Employee's employment hereunder (the "Employment") shall extend for a term of
five years; provided, however, that the Employment shall automatically be
extended for an additional year (as so extended, the "Term"), and thereafter
from year to year, on the same terms and conditions as are then existing as of
the extension date, unless either party, in its sole discretion, shall have
given written notice of termination to the other party not less than 90 days
prior to the end of the then current term.
3. Salary. During the first three years of the Term, Employee shall be
entitled to receive an annual salary of $150,000, payable in equal installments
on the Company's regular payroll dates. Thereafter, Employee's salary hereunder
shall be adjusted upwards (but not downwards) to reflect any changes in the cost
of living, based upon changes in the Consumer Price Index in Hawaii.
4. Bonus. During each year of the Term, Employee shall be eligible to
receive a bonus of up to $100,000 based upon the achievement by the Company of
certain performance goals to be established by the Board, in its discretion,
during the first quarter of each year of the Term. Any such bonus shall be
payable by the Company in two equal installments not later than April 1 and June
1 following the end of the year in which earned.
5. Option Grant. On the Effective Date, the Company shall grant to Employee
employee stock options to purchase an aggregate of 150,000 shares of common
stock of the Company, all on the terms and conditions (including vesting
provisions) set forth in that certain Option Agreement of even date herewith
-2-
<PAGE>
between Employee and the Company, a copy of which is attached hereto as Exhibit
A.
6. Expenses. The Company shall pay or reimburse Employee for all usual,
reasonable and necessary expenses paid or incurred by him in the performance of
his duties hereunder, subject to receipt by the Company of appropriate
documentary proof of such expenditures and to the right of the Company at any
time to place reasonable limitations on expenses thereafter to be incurred or
reimbursed; provided, however, that Employee may not incur any expense or
related group of expenses in excess of $25,000 in the aggregate without the
express prior written consent of the Board.
7. Employee Benefits. Employee shall be entitled to an automobile allowance
of $600 per month plus the actual cost of his automobile insurance. Employee
shall also be entitled to participate in and receive any and all benefits
pursuant to any benefit programs maintained by the Company during the Term that
are generally available to other senior executives of the Company including,
without limitation, participation in any life insurance, hospital, surgical,
medical or other group health and accident benefit plans. In addition, Employee
shall be entitled to participate in all profit sharing, pension, bonus or
retirement plans of the Company as may be in existence during the Term in
accordance with their respective terms and provisions, but, to the extent
participation or the amount of participation is in the discretion of the Board
or any committee thereof, Employee's participation shall likewise be solely in
such discretion. Employee shall be entitled to four weeks' paid vacation during
each year of the Term.
8. Termination.
(a) The Employment may be terminated by the Company prior to the end of its
then current Term upon notice to Employee at any time For Cause (as hereinafter
defined). The Employment shall also terminate automatically upon Employee's
death or permanent disability (as defined pursuant to the Company's long-term
disability insurance policy as then in effect). If the Company terminates the
Employment For Cause, or if the Employment terminates automatically upon
Employee's death or permanent disability, the Company shall have no further
obligation to Employee under this Agreement, except the obligation to pay
Employee all salary and benefits accrued through the effective date of such
termination including, in the case of death or permanent disability, any
benefits to which Employee may be entitled under long-term disability or other
insurance programs maintained by the Company (collectively, "Termination
Benefits").
-3-
<PAGE>
(b) For purposes hereof, the term "For Cause" means (i) the conviction of
Employee of (or plea of nolo contendere to) a felony or any crime involving
moral turpitude, (ii) any embezzlement or intentional misappropriation by
Employee of any assets of the Company (which for this purpose shall not include
the incurrence of any business expense by Employee in good faith in the
performance of his duties hereunder), or (iii) gross negligence by Employee in
the performance of his duties hereunder, but does not mean the Company's
disagreement with any lawful action undertaken by Employee in the good faith
exercise of his business judgment, subject to the reasonable directives of the
Board.
(c) Subject to receipt of all Termination Benefits then due, for a period
of thirty (30) days following any termination of Employee's employment
hereunder, Employee shall fully cooperate with the Company in all matters
relating to the winding up of Employee's work on behalf of the Company and the
orderly transfer of all pending work and Employee's duties and responsibilities
to such other person or persons as may be designated by the Company, in its sole
discretion. Upon any termination of Employee's employment hereunder, Employee
shall immediately deliver to the Company any and all of the Company's property
of any kind or nature whatsoever in Employee's possession, custody or control,
including, without limitation, any and all Confidential Information (as defined
in Section 9 hereof).
9. Confidential Information.
(a) Employee recognizes, acknowledges and agrees that as a result of or in
connection with the Employment, he will have access to and obtain certain
Confidential Information (as hereinafter defined), relating to the Company's
business and not generally known to the public or to the Company's competitors.
Employee recognizes, acknowledges and agrees that the Confidential Information
constitutes a valuable, special and unique asset of the Company, access to and
knowledge of which is essential to the performance of Employee's duties.
Employee specifically agrees that, except as directed by the Board, Employee
will not at any time during or for a period of five years after any termination
of the Employment, use or disclose any Confidential Information to any person
whomsoever for any purpose other than for the benefit of the Company.
(b) For purposes hereof, the term "Confidential Information" means any and
all marketing surveys; marketing programs; compensation arrangements; customer
lists; contact lists; agency lists; agency agreements; pricing information;
sources of customers' business plans, projections or prospects;
-4-
<PAGE>
actual and/or projected expenses; actual and/or projected revenues; actual
and/or projected profits; research or experimental work; data; lists; files;
notes; books; records; drawings and any and all other documents, work products
and/or materials and other information of the Company or its clients or
customers of a confidential, proprietary or secret nature which is or may be
applicable to or related in any way to the business of the Company or its
clients or customers.
10. Covenant Not to Compete. In partial consideration for his Employment
hereunder, Employee hereby covenants and agrees that he will not, directly or
indirectly, whether for his own account or as a stockholder, investor, director,
officer, employee, consultant or other agent of or to any person or entity,
other than the Company or any affiliate thereof designated by the Board, engage
or participate in any bottled water business in any State or county within the
United States in which the Company is then carrying on its business for a period
of two years following any termination (or nonrenewal) of this Agreement.
11. Injunctive Relief. The parties hereto agree that in the event of the
breach of Section 9 or 10 of this Agreement by Employee, monetary damages alone
would not be an adequate remedy to the Company for the injury that would result
from such breach, and that the Company shall be entitled, at any time after any
such breach, to immediately obtain injunctive relief prohibiting any further
breach of this Agreement. Employee further agrees that any such injunctive
relief obtained by the Company shall be in addition to monetary damages.
12. Waiver of Modification. Any waiver, alteration or modifications of any
of the provisions of this Agreement shall not be valid unless made in writing
and signed by the parties hereto. Waiver by either party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
13. Successors and Assigns: Entire Agreement. This Agreement may not be
assigned by either party hereto without the prior written consent of the other
party hereto. This Agreement shall inure to the benefit of, and be binding upon
any successor or assign of the parties hereto. This Agreement and the Option
Agreement attached hereto constitutes the entire agreement of the parties with
respect to the subject matter hereof and thereof and supersedes all prior
agreements, amendments, memoranda representations or understandings, whether
written or oral, with respect to the subject matter hereof between the Company
and Employee.
-5-
<PAGE>
14. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Hawaii, without regard to the conflicts
of law provisions thereof.
15. Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and delivered in person or sent via facsimile,
with conformation of receipt, by registered, certified or express mail, postage
and fees prepaid, in the case of the Company, to the then-current address of its
then principal office and, in the case of Employee, to the then-current address
of his office of employment hereunder or such other address or to the attention
of such other person as the recipient party will have specified by prior written
notice to the sending party.
16. Descriptive Headings. The descriptive headings for the paragraphs in
this Agreement are inserted for convenience only and do not constitute a part of
this Agreement.
17. Negotiated Agreement. This Agreement reflects the negotiations of both
parties hereto. The language used herein shall be deemed to be the language
chosen by the parties hereto to express their mutual intent, and no rule of
strict construction shall be applied.
18. Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
19. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be construed as an original for all purposes,
but all of which taken together shall constitute one and same Agreement.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement effective the
day and year first above written.
HAWAIIAN NATURAL WATER COMPANY, INC.
By: /s/ Tate Robinson
------------------------------------
Tate Robinson, Vice President
/s/ Marcus Bender
------------------------------------
Marcus Bender
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<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
STOCK OPTION AGREEMENT
This Stock Option Agreement (this "Agreement") is made and entered into as
of October ___, 1996 by and between Hawaiian Natural Water Company, Inc., a
Hawaii corporation (the "Company"), and Marcus Bender, an individual resident of
the State of Hawaii ("Optionee"), with respect to the following:
WHEREAS, concurrently herewith the Company and Optionee are entering into
an employment agreement (the "Employment Agreement") pursuant to which Optionee
will be employed as the President and Chief Executive Officer of the Company for
a period of five years; and
WHEREAS, in connection with the Employment Agreement, the Company has
agreed to grant to Optionee the option provided for herein, and the Company and
Optionee have agreed to enter into this Agreement with respect thereto;
NOW, THEREFORE, in consideration of the premises and the covenants and
conditions contained herein, the parties hereto agree as follows:
1. Grant of Option. The Company hereby grants to Optionee the right
and option (the "Option"), but not the obligation, to purchase a total of
One Hundred Fifty Thousand (150,000) shares of Common Stock, no par value,
of the Company, subject to adjustment as provided herein (the "Shares"), on
the terms and conditions set forth herein. The Option is intended to be a
nonstatutory option and not an incentive stock option within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended.
2. Vesting. The Option shall vest over a three year period as follows:
the Option shall vest as to Fifty Thousand (50,000) Shares on the first
anniversary of the date hereof and as to an additional Fifty Thousand
(50,000) Shares on each of the second and third anniversaries of the date
hereof, provided in each case that the Employment Agreement has not been
terminated for any reason prior to such anniversary date; provided,
however, that if the Employment Agreement is terminated by the Company for
any reason other than For Cause (as defined in the Employment Agreement) or
because of Optionee's death or permanent disability (as defined in the
Employment Agreement), then any portion of the Option which is then
unvested shall thereupon automatically become vested in full. Except as
aforesaid, any portion of the Option which is unvested as of the date of
any termination of the
<PAGE>
Employment Agreement shall thereupon become null and void and of no further
force or effect.
3. Exercise Price. The exercise price of the Option (the "Exercise
Price") shall be $4.00 per Share, subject to adjustment as provided herein;
provided, however, that if the Company effects an initial public offering
of its Common Stock (an "IPO") prior to the first anniversary of the date
hereof at a Price to Public (as hereinafter defined) different from the
Exercise Price then in effect, then upon consummation of such IPO, the
Exercise Price shall automatically be adjusted to equal the Price to Public
in such IPO, subject to further adjustment as provided herein. As used
herein, the term "Price to Public" means the price to the public per share
of Common Stock in the IPO; provided, however, that if the IPO involves an
offering of units (the "Units") consisting of one or more shares of Common
Stock and warrants or other rights to purchase additional shares of Common
Stock, then for purposes hereof, Price to Public shall mean the price to
the public per Unit in the IPO divided by the number of shares of Common
Stock included in each such Unit.
4. Exercise Period. The Option granted hereby shall be exercisable to
the extent vested for a period of five years, commencing on the date hereof
and continuing until the fifth anniversary of the date hereof (the
"Exercise Period").
5. Manner of Exercise. The Option granted hereby may be exercised in
lots of 100 Shares or multiples thereof during the Exercise Period as
provided above, by written notice delivered to the Board of Directors of
the Company. Such notice shall state the number of Shares with respect to
which the Option is being exercised and shall be accompanied by payment of
the purchase price in full (i) in cash, (ii) by the surrender of other
shares of Common Stock held by Optionee, which shall be valued at the fair
market value thereof as determined by the Company's Board of Directors, or
(iii), in the discretion of the Company's Board of Directors, with full
recourse notes payable to the Company. As soon as practicable after any
such exercise of the Option, the Company shall issue and register in the
name of and deliver to Optionee a certificate or certificates for the
Shares issuable upon such exercise.
6. Adjustment Provisions. If, at any time or from time to time during
the Exercise Period, any of the following events shall occur, the Exercise
Price and the number of and kind of Shares then subject to the Option shall
in each instance be adjusted as follows:
2.
<PAGE>
a. Stock Dividends, Split-Ups and Combinations
If a change is effected in the number of outstanding shares of Common
Stock by a stock dividend in Common Stock or by a subdivision or
combination of such shares, the Exercise Price shall be proportionately
reduced or increased, as the case may be, so that it will bear the same
ratio to the Exercise Price in effect immediately before such change as the
number of shares outstanding immediately before such change bears to the
number outstanding immediately thereafter.
Upon any adjustment of the Exercise Price as provided above, the
number of Shares subject to the Option shall be increased or decreased, as
appropriate, so that it will bear the same ratio to the number of shares
subject to the Option immediately before such change as the number of
shares outstanding immediately after such change bears to the number of
outstanding immediately prior thereto.
b. Other Changes in Capital Structure
In the case of any reclassification or other change in the outstanding
Common Stock not covered by the foregoing provisions, other than a change
in par value, or from par value to no par value, or from no par value to
par value, or in the case of any consolidation or merger of the Company
with or into another corporation (other than a merger in which the Company
is the continuing corporation and which does not result in any
reclassification or change of outstanding shares of the Company), or in the
case of any sale or conveyance to another corporation of the property of
the Company as an entirety, or substantially as an entirety, the Optionee
shall have the right, upon exercise of Option, to receive solely a like
amount and kind of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation, merger, sale
or conveyance as Optionee would have been entitled to receive if the
Option, to the extent not previously exercised, had been exercised in full
immediately prior to such reclassification, change, consolidation, merger,
sale or conveyance.
c. Notice of Adjustment
Upon any adjustment of the Exercise Price and change in the number of
Shares or other securities purchasable hereunder, the Company shall give
written notice thereof to Optionee, stating the new price and the increased
or decreased number of Shares or other securities purchasable upon exercise
of the Option and setting forth in reasonable detail the method of
calculation and the pertinent facts upon which such calculation is based.
3.
<PAGE>
7. Non-Transferability of Option. The Option may be exercised during
the lifetime of Optionee only by Optionee and may not be transferred in any
manner other than by will or by the laws of descent and distribution. In
the event of death of Optionee, the person or persons entitled to exercise
the Option under Optionee's will or under the laws of descent and
distribution shall have the same right that Optionee would have had to
exercise any previously unexercised vested portion of the Option as of the
date of Optionee's death, provided that the Company has been supplied with
documentation satisfactory to it with respect to the appointment of such
person or persons as such. The terms of this Option shall be binding upon
the executors, administrators, heirs and successors of Optionee.
8. Representations of Optionee. Optionee acknowledges that he has been
informed that the Shares subject to the Option, if and when issued, will
not be registered under the Securities Act of 1933, as amended (the "Act").
Optionee acknowledges that he has been informed that the Company is
granting the Option in reliance upon exemptions contained in the Act and
the General Rules and Regulations under the Act as promulgated and from
time to time amended by the Securities and Exchange Commission on the
grounds that, subject to Section 10 hereof, the grant of the Option and the
issuance and sale of the Shares subject to the Option when exercised are
transactions not involving any public offering and that, consequently, such
transactions are exempt from registration under the Act by virtue of the
provisions of Section 4(2) thereof. Optionee acknowledges that reliance
upon this exemption is predicated in part upon his representation that he
has no intention of dividing his participation for any interest in the
Option and the Shares subject to the Option with others or otherwise
distributing all or any part thereof but that, subject to Section 10
hereof, any Shares acquired by him upon exercise of the Option will be
acquired for investment only. In addition, Employee specifically authorizes
the Company to place an appropriate legend on the Shares in the form set
forth in Section 11 hereof.
9. Representation of the Company. The Company represents and warrants
that the Shares issuable upon any exercise of the Option, when purchased
and paid for as herein provided, will be validly issued, fully paid and
non-assessable.
10. Piggyback Registration. In the event that the Company elects to
register its existing stock option plan or any other employee stock option
plan adopted by the Company subsequent to the date hereof on Form S-8 (or
any successor form, if applicable) under the Act, the Company hereby
covenants and agrees to include the Option and the Shares subject to the
Option in such registration, subject to any limitations or restrictions
imposed by Form S-8 (or any successor form, if applicable).
4.
<PAGE>
11. Legend. The certificates representing the Shares issued upon any
exercise of the Option granted hereby shall bear the following legend:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR
UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER, IN FORM
AND SUBSTANCE SATISFACTORY TO THE ISSUER, SUCH OFFER, SALE, TRANSFER,
PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION OR IS OTHERWISE IN
COMPLIANCE WITH THE ACT AND SUCH LAWS.
12. No Employment Contract. Nothing in this Agreement shall confer
upon the Optionee any right to continue to be an employee of the Company or
shall interfere with or restrict in any way the rights of the Company,
which are hereby expressly reserved, to discharge the Optionee, at any
time, subject to the provisions of the Employment Agreement and applicable
law. This Agreement is not an employment contract.
13. Income Tax Withholding. Optionee authorizes the Company to
withhold in accordance with applicable law from any compensation payable to
him or her any taxes required to be withheld by Federal, state or local
laws as a result of the exercise of the Option. Furthermore, in the event
of any determination that the Company has failed to withhold a sum
sufficient to pay all withholding taxes due in connection with the exercise
of the Option, Optionee agrees to pay the Company the amount of any such
deficiency in cash within five (5) days after receiving a written demand
from the Company to do so, whether or not Optionee is an employee of the
Company at that time.
5.
<PAGE>
14. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Hawaii.
IN WITNESS WHEREOF, the parties have executed this Stock Option Agreement
as of the date first above written.
HAWAIIAN NATURAL WATER COMPANY, INC.
(the "Company")
By: /s/ Tate Robinson
------------------------------------
Tate Robinson, Vice President
/s/ Marcus Bender
------------------------------------
Marcus Bender ("Optionee")
6.
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION
STATEMENT UNDER THE ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT
TO THESE SECURITIES, OR (ii) PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION
UNDER THE ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN
OPINION OF COUNSEL TO THE CORPORATION, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO
THE CORPORATION, THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE
PROVISIONS OF THE ACT AS WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR STATE
SECURITIES LAW.
HAWAIIAN NATURAL WATER COMPANY, INC.
PROMISSORY NOTE
The Transferability of this Note
is Restricted as Provided in Section 3
N-___ Dated: ________ __, 1996
$__________ New York, New York
FOR VALUE RECEIVED, Hawaiian Natural Water Company, Inc. , a Hawaii corporation
(the "Company"), promises to pay to __________ or assigns (the "Holder") the
principal amount of $__________ DOLLARS ($______) (the "Principal Amount"), in
such coin or currency of the United States of America as at the time of payment
shall be legal tender for the payment of public and private debts, together with
simple interest thereon at the rate of ten percent (10%) per annum (calculated
on the basis of a 360-day year of 30-day months), at the principal office of the
Company, upon the earlier of (a) the closing of the sale of securities or other
financing of the Company from which the Company or any of its subsidiaries
receives gross proceeds of at least two million dollars ($2,000,000) or (b)
__________, 1997 [twelve months from the date hereof]. No payments of principal
and/or interest shall be due until maturity.
Notwithstanding anything to the contrary herein contained, the
Principal Amount of this Note or any interest hereon may be prepaid at any time
or from time to time, prior to the maturity of this Note, in whole or in part,
without prior notice and without penalty or premium. Prepayments shall be
applied first to interest due and then to principal.
1. The Notes: This Note is one of several promissory notes made and
issued by the Company in an aggregate principal amount of $1,500,000
(individually, a "Note," and together, the "Notes"), pursuant to the terms and
subject to the conditions of Subscription Agreements and Investment
Representations (the "Subscription Agreements"), by and among
<PAGE>
the Company and certain investors. Reference is made to the Subscription
Agreements for agreements of the parties applicable to this Note.
2. Covenants: The Company covenants and agrees that, so long as any of
the Notes shall be outstanding and unpaid:
2.1 Payment of Notes. The Company will punctually pay or cause
to be paid the Principal Amount and interest on this Note. Any sums required to
be withheld from any payment of Principal Amount or interest on this Note by
operation of law or pursuant to any order, judgment, execution, treaty, rule or
regulation may be withheld by the Company and paid over in accordance therewith.
Nothing in this Note or in any other agreement between the Holder and
the Company shall require the Company to pay, or the Holder to accept, interest
in an amount which would subject the Holder to any penalty or forfeiture under
applicable law. In the event that the payment of any charges, fees or other sums
due under this Note or provided for in any other agreement between the Company
and the Holder are or could be held to be in the nature of interest and would
subject the Holder to any penalty or forfeiture under applicable law, then ipso
facto the obligations of the Company to make such payment to the Holder shall be
reduced to the highest rate authorized under applicable law and, in the event
that the Holder shall have ever received, collected, accepted or applied as
interest any amount in excess of the maximum rate of interest permitted to be
charged by applicable law, such amount which would be excess interest under
applicable law shall be applied first to the reduction of principal then
outstanding, and, second, if such principal amount is paid in full, any
remaining excess shall forthwith be returned to the Company.
2.2 Maintenance of Corporate Existence; Merger and Consolidation. The
Company will at all times cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence and all of its rights and
franchises and shall not be consolidated with or merge into any other
corporation or transfer all or substantially all of its assets to any person
unless (A)(i) the survivor of such consolidation or merger is the Company, or
(ii) the corporation formed by such consolidation or into which the Company is
merged or to which the assets of the Company are transferred is a corporation
which expressly assumes all of the obligations of the Company under the Notes,
and (B) after giving effect to such transaction, no Event of Default (as
hereinafter defined), and no event which, after notice or lapse of time, or
both, would become an Event of Default, shall have occurred and be continuing.
2.3 Maintenance of Properties. The Company will reasonably
maintain in good repair, working order and condition its properties and other
assets, and from time to time make all reasonably necessary or desirable
repairs, renewals and replacements thereto.
-2-
<PAGE>
2.4 Payment of Taxes. The Company will cause to be paid, set
aside for payment, or cause to be discharged, before the same shall become
delinquent, all taxes, assessments and governmental charges levied or imposed
upon the Company or upon its income, profits or property; provided, however,
that the Company shall not be required to cause to be paid or discharged any
such tax, assessment or charge whose amount, applicability or validity is being
contested in good faith by appropriate proceedings.
2.5 Compliance with Statutes. The Company will comply in all
material respects with all applicable statutes and regulations of the United
States of America and of any state or municipality, and of any agency of any
thereof, in respect of the conduct of business, and the ownership of property by
the Company; provided, however, that nothing contained in this Section 2.5 shall
require the Company to comply with any such statute or regulation so long as its
legality or applicability shall be contested in good faith; and provided further
that an unintentional violation of this covenant done in good faith or
inadvertently shall not be deemed an Event of Default under Section 4 hereof.
2.6 Liens. The Company will not create, incur or suffer to
exist any liens, claims or encumbrances upon any of its assets or properties,
except for those in existence as of the date hereof, those incurred in
connection with indebtedness permitted pursuant to Section 2.9 or those incurred
in the ordinary course of business.
2.7 Restrictions on Dividends, Redemptions, etc. The Company
will not (i) declare or pay any dividend or make any other distribution on any
equity securities of the Company, except dividends or distributions payable in
equity securities of the Company, (ii) purchase, redeem or otherwise acquire or
retire for value any equity securities of the Company, except equity securities
acquired upon conversion thereof into other equity securities of the Company, or
(iii) permit a subsidiary of the Company to purchase, redeem or otherwise
acquire or retire for value any equity securities of the Company, if, upon
giving effect to such dividend, distribution, purchase, redemption, or other
acquisition or retirement, the net worth of the Company would be reduced to less
than an amount equal to the remaining indebtedness outstanding under the Notes.
2.8 Transactions with Affiliates. Except as described in the
confidential private offering memorandum dated September 6, 1996 the Company
will not itself, and will not permit any subsidiary to, engage in any
transaction of any kind or nature with any affiliate (as such term is used in
Rule 405 under the Act) of the Company, other than a wholly-owned subsidiary,
unless such transaction is upon terms which are fair to the Company or such
subsidiary, as the case may be, and which are reasonably similar to, or more
beneficial to the Company or such subsidiary than the terms deemed likely to
occur in similar transactions with unrelated persons under the same
circumstances.
2.9 Indebtedness. The Company shall not incur any liability or
obligation, direct or contingent, for borrowed money, except for those incurred
in the ordinary course of
-3-
<PAGE>
business; without limiting the generality of the foregoing extensions or
renewals of the Company's credit facility with First Hawaiian Bank ("FHB") for
up to $500,000 on the terms that are substantially the same as the terms of the
FHB credit facility as in effect on the date hereof or the Company's execution
and delivery of a credit facility with another financial institution for up to
$500,000 on terms that are substantially the same as the terms of the FHB credit
facility as in effect on the date hereof shall be deemed in the ordinary course
of business.
3. Restrictions Upon Transferability. This Note has not been registered
under the Act, and may not be offered, sold, pledged, hypothecated, assigned or
transferred except (i) pursuant to a registration statement under the Act which
has become effective and is current with respect to this Note, or (ii) pursuant
to a specific exemption from registration under the Act but only upon a Holder
hereof first having obtained the written opinion of counsel to the Company, or
other counsel reasonably acceptable to the Company, that the proposed
disposition is consistent with all applicable provisions of the Act as well as
any applicable "blue sky" or other state securities law.
4. Events of Default and Remedies. An "Event of Default" shall occur
if:
4.1 Payment of Notes. The Company defaults in the payment of
Principal Amount or interest of this Note, when and as the same shall become due
and payable whether at maturity thereof, or by acceleration or otherwise, which
default shall continue uncured for a period of thirty (30) days from the date
thereof; or
4.2 Performance of Covenants, Conditions or Agreements. The
Company fails to comply with any of the covenants, conditions or agreements set
forth in this Note and such default shall continue uncured for a period of
thirty (30) days after receipt of written notice to the Company from any Holder
stating the specific default or defaults; or
4.3 Bankruptcy, Insolvency, etc. The Company shall file or
consent by answer or otherwise to the entry of an order for relief or approving
a petition for relief, reorganization or arrangement or any other petition in
bankruptcy for liquidation or to take advantage of any bankruptcy or insolvency
law of any jurisdiction, or shall make an assignment for the benefit of its
creditors, or shall consent to the appointment of a custodian, receiver, trustee
or other officer with similar powers of itself or of any substantial part of its
property, or shall be adjudicated a bankrupt or insolvent, or shall take
corporate action for the purpose of any of the foregoing, or if a court or
governmental authority of competent jurisdiction shall enter an order appointing
a custodian, receiver, trustee or other officer with similar powers with respect
to the Company or any substantial part of its property or an order for relief or
approving a petition for relief or reorganization or any other petition in
bankruptcy or for liquidation or to take advantage of any bankruptcy or
insolvency law, or an order for the dissolution, winding up or liquidation of
the Company, or if any such petition
-4-
<PAGE>
shall be filed against the Company and such petition shall not be dismissed
within sixty (60) days.
4.4. Remedies. In case an Event of Default (other than an
Event of Default resulting from the Company's failure to pay the Principal
Amount of, or any interest upon, this Note, when the same shall be due and
payable in accordance with the terms hereof (after giving affect to applicable
"cure" provisions herein) and an Event of Default resulting from bankruptcy,
insolvency or reorganization) shall occur and be continuing, the Holders of the
Notes representing at least fifty-one percent (51%) in the aggregate of the
Principal Amount of all Notes then outstanding, may declare by notice in writing
to the Company all unpaid Principal Amount and accrued interest on all of the
Notes then outstanding to be due and payable immediately. Any such acceleration
may be annulled and past defaults (except, unless theretofore cured, a default
in payment of Principal Amount or interest on the Notes) may be waived by the
Holders of at least 51% in Principal Amount of the Notes then outstanding. In
case an Event of Default resulting from the Company's nonpayment of Principal
Amount of, or interest upon, this Note shall occur, the Holder may declare all
unpaid Principal Amount and accrued interest on this Note held by such Holder to
be due and payable immediately. In case an Event of Default resulting from
bankruptcy, insolvency or reorganization shall occur, all unpaid principal and
accrued interest on the Notes held by each Holder shall be due and payable
immediately without any declaration or other act on the part of such Holders.
5. Costs of Collection. Should the indebtedness represented by this
Note or any part thereof be collected in any proceeding, or this Note be placed
in the hands of attorneys for collection after default, the Company agrees to
pay as an additional obligation under this Note, in addition to the Principal
Amount and interest due and payable hereon, all costs of collecting this Note,
including reasonable attorneys' fees.
6. Waiver and Amendments. This Note may be amended, modified,
superseded, canceled, renewed or extended, and the terms hereof may be waived
only by a written instrument signed by the Company and Holders of at least
fifty-one percent (51%) in Principal Amount of the Notes at the time
outstanding; provided, however, that the consent of a Holder shall be required
to modify the terms of this Note affecting the payment of Principal Amount of,
or interest on, such Holder's Note or the term of such Holder's Note. No delay
on the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver hereof, nor shall any waiver on the part of any party
of any right, power or privilege or privilege hereunder preclude any other or
further exercise hereof or the exercise of any other right, power or privilege
hereunder. The rights and remedies provided herein are cumulative and are not
exclusive of any rights or remedies which any party may otherwise have at law or
in equity.
7. Loss, Theft, Destruction or Mutilation of Note. Upon receipt by the
Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or
-5-
<PAGE>
mutilation of this Note, and of indemnity or security reasonably satisfactory to
the Company, and upon reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of this Note, if
mutilated, the Company will make and deliver a new Note of like tenor, in lieu
of this Note. Any Note made and delivered in accordance with the provisions of
this Section 7 shall be dated as of the date to which interest has been paid on
this Note, or if no interest has theretofore been paid on this Note, then dated
the date hereof.
8. Notice. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed or
sent by certified, registered, or express mail, postage prepaid, and shall be
deemed given when so delivered personally, telegraphed or, if mailed, five (5)
days after the date of deposit in the United States mails, as follows:
(i) if to the Company, to:
Hawaiian Natural Water Company, Inc.
4747 Kilauea Avenue
Suite 201
Honolulu, Hawaii 96816
Attn: Marcus Bender, Chief Executive Officer
(ii) if to the Holder, to the address of such Holder as shown on
the books of the Company.
9. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to its
conflicts of law principles. The Company agrees that any dispute or controversy
arising out of this Note shall be adjudicated in a court located in New York
City, and hereby submits to the exclusive jurisdiction of the courts of the
State of New York located in New York, New York and of the federal courts in the
Southern District of New York, and irrevocably waives any objection it now or
hereafter may have respecting the venue of such action or proceeding brought in
such a court or respecting the fact that such court is an inconvenient forum,
and consents to the service of process in any such action or proceeding by means
of registered or certified mail, return receipt requested.
10. Successors and Assigns. All the covenants, stipulations, promises
and agreements in this Note contained by or on behalf of the Company shall bind
its successors and assigns, whether or not so expressed.
-6-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be signed in
its corporate name by a duly authorized officer and to be dated as of the date
first above written.
HAWAIIAN NATURAL WATER COMPANY, INC.
By:
----------------------------------------
Name: Marcus Bender
Title: Chief Executive Officer
-7-
<PAGE>
_______________, 1996 $ __________
HAWAIIAN NATURAL WATER COMPANY, INC.
12% Note
FOR GOOD AND VALUABLE CONSIDERATION, receipt of which is hereby
acknowledged, the undersigned, Hawaiian Natural Water Company, Inc., a Hawaii
corporation ("Maker"), hereby promises to pay to _______________ or registered
assigns ("Holder"), the principal sum of __________ Dollars ($__________), plus
interest thereon as provided below, in lawful money of the United States of
America, upon the terms and conditions set forth in this 12% Note (this "Note").
This Note is one of a series of Notes aggregating $407,715 in principal
amount.
1. Payment. Subject to Section 1 hereof, the entire outstanding principal
amount of this Note, plus all accrued but unpaid interest thereon at the rate
set forth below, shall be due and payable on April 12, 1997 (the "Maturity
Date"). Interest on this Note shall accrue at the rate of Twelve Percent (12%)
per annum, compounded annually, until this Note shall have been paid in full.
Interest shall be computed on the basis of a 360-day year, consisting of twelve
(12) 30-day months.
2. Prepayment. 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 $2,000,000.
Maker may prepay the principal amount of this Note, in whole or from time
to time in part, plus all accrued but unpaid interest thereon to the date of
such prepayment, at any time prior to the Maturity Date without premium or
penalty.
3. Default. The occurrence of any or the following events shall constitute
a default (a "Default") hereunder: (i) the failure of Maker to make any
principal or interest payment when due as provided in Section 1 hereof, and (ii)
an assignment for the benefit of creditors of Maker, or the involuntary
application for,
<PAGE>
or appointment of, a receiver for Maker or any assets of Maker, or the
commencement of any bankruptcy or insolvency proceedings against Maker under any
of the provisions of the Federal bankruptcy laws or of any comparable rule of
law of any other jurisdiction to which Maker is subject.
In case of a Default, all unpaid principal and accrued interest on this
Note shall ipso facto become and be immediately due and payable without notice
to or action of any kind by Holder.
If the payment of principal or interest required to be made pursuant to
this Note is not paid in full when due, Maker shall pay to Holder all costs and
expenses of collection, including (without limitation) reasonable attorneys'
fees, arbitration fees and costs, and court fees and costs.
4. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of Hawaii, without regard to principles of
conflicts of law thereof.
HAWAIIAN NATURAL WATER COMPANY, INC.
________________________________________
By: Marcus Bender, President
- 2 -
<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
January 31, 1997
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 110,890
<SECURITIES> 0
<RECEIVABLES> 60,694
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<INVENTORY> 46,572
<CURRENT-ASSETS> 228,996
<PP&E> 435,092
<DEPRECIATION> 94,551
<TOTAL-ASSETS> 846,001
<CURRENT-LIABILITIES> 1,832,637
<BONDS> 0
0
233,334
<COMMON> 208,959
<OTHER-SE> (1,544,671)
<TOTAL-LIABILITY-AND-EQUITY> 846,001
<SALES> 748,600
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