<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q SB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-29280
HAWAIIAN NATURAL WATER COMPANY, INC.
(Exact name of small business issuer as specified in its charter)
HAWAII 99-0314848
(State or jurisdiction of incorporation I.R.S. Employer
or organization) Identification Number)
248 Mokauea Street
Honolulu, Hawaii 96819
(Address of principal executive offices)
(808) 832-4550
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
YES X NO
The issuer had issued and outstanding 3,899,212 shares of Common Stock
on August 11, 1997.
Transitional Small Business Disclosure Format (check one):
YES NO X
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Hawaiian Natural Water Company, Inc.
Balance Sheet
<TABLE>
<CAPTION>
ASSETS December 31, June 30,
1996 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 89,335 $ 1,498,826
Short Term Investment - 3,000,000
Inventories 156,570 113,452
Trade Accounts Receivable 53,515 124,015
Prepaid Expenses and Other 7,945 71,902
------------ ------------
Total Current Assets 307,365 4,808,195
PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of $112,110
and $143,444, respectively 441,352 420,496
ORGANIZATIONAL COSTS, net of accumulated amortization of $2,029 and $2,480, respectively 2,480 2,029
DEFERRED CHARGES AND OTHER, net of accumulated amortization of $82,056 at December 31, 1996 441,196 50,688
------------ ------------
Total Assets $ 1,192,393 $ 5,281,408
------------ ------------
------------ ------------
LIABILITIES
Current Liabilities:
Accounts Payable $ 331,370 $ 208,261
Notes Payable to Related Parties 496,393 -
Notes Payable 1,467,561 -
Accrued Expenses and Other Current Liabilities 156,751 41,582
Deferred Compensation 32,500 -
Capital Lease Obligation - Current Portion 38,264 36,214
------------ ------------
Total Current Liabilities 2,522,839 286,057
CAPITAL LEASE OBLIGATION - Net of Current Portion 87,476 71,035
------------ ------------
Total Liabilities 2,610,315 357,092
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
STOCKHOLDERS' EQUITY (DEFICIT):
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 and 3,899,212
shares issued and outstanding, respectively 442,293 6,338,728
Common Stock Warrants, 774,351 and 3,167,851 warrants outstanding, respectively 187,500 1,989,176
Accumulated Deficit (2,047,715) (3,403,588)
------------ ------------
Total Stockholders Equity (Deficit) (1,417,922) 4,924,316
------------ ------------
Total Liabilities and Stockholders' Equity (Deficit) $ 1,192,393 $ 5,281,408
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Hawaiian Natural Water Company, Inc.
Statement of Operations
For the Three and Six Months Ended June 30,1996 and 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------- -------------------------
1996 1997 1996 1997
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 226,753 $ 283,310 $ 429,128 $ 499,993
COST OF SALES 275,902 301,241 473,225 486,888
---------- ---------- ---------- -----------
Gross Margin (Loss) (49,149) (17,931) (44,097) 13,105
EXPENSES:
General and Administrative 187,604 244,967 382,365 426,001
Selling and Marketing 41,509 189,187 65,693 275,971
---------- ---------- ---------- -----------
229,113 434,154 448,058 701,972
OTHER INCOME ( EXPENSE)
Interest Income - 14,106 - 14,173
Interest Expense (12,331) (178,279) (27,735) (414,474)
Other Income - 1,143 - 2,105
---------- ---------- ---------- -----------
(12,331) (163,030) (27,735) (398,196)
Net Loss Before Extraordinary Item (290,593) (615,115) (519,890) (1,087,063)
Extraordinary Item -
Loss on Extinguishment of Debt - (268,810) - (268,810)
---------- ---------- ---------- -----------
Net Loss $ (290,593) $ (883,925) $ (519,890) $(1,355,873)
------------------------- -------------------------
------------------------- -------------------------
Net Loss Per Share:
Before Extraordinary Item $ (0.18) $ (0.23) $ (0.33) $ (0.50)
------------------------- -------------------------
------------------------- -------------------------
Extraordinary Item $ - $ (0.10) $ - $ (0.12)
------------------------- -------------------------
------------------------- -------------------------
Net Loss Per Share $ (0.18) $ (0.33) $ (0.33) $ (0.63)
------------------------- -------------------------
------------------------- -------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Hawaiian Natural Water Company, Inc.
Statement of Stockholders Equity (Deficit)
For the Period Ending June 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Common Stock Warrants
------------------------ ------------------------- Total
Number of Number of Accumulated Stockholders
Shares Amount Warrants Amount Deficit Equity(Deficit)
--------- ---------- --------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31,1996 1,599,212 $ 442,293 774,351 $ 187,500 $(2,047,715) $(1,417,922)
Cancellation of Bridge Warrants
April 15, 1997 - 26,625 (106,500) (26,625) - -
Sale of shares
and common stock warrants
May 15, 1997 2,000,000 4,947,661 2,000,000 1,462,641 - 6,410,302
Issuance of Underwriter
common stock warrants
May 15, 1997 - - 200,000 146,264 - 146,264
Sale of shares
and common stock warrants
May 27, 1997 300,000 922,149 300,000 219,396 - 1,141,545
Net Loss - - - - (1,355,873) (1,355,873)
--------- ---------- --------- ---------- ----------- ------------
BALANCE AT
JUNE 30, 1997 3,899,212 $6,338,728 3,167,851 $1,989,176 $(3,403,588) $ 4,924,316
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Hawaiian Natural Water Company, Inc.
Statement of Cash Flows
For the six months ended June 30, 1996 and 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1997
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (519,890) $(1,355,873)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 38,064 31,786
Amortization of debt discount - 70,000
Amortization of deferred charges - 165,000
Extraordinary loss on extinguishment of debt - 268,810
Net decrease (increase) in current assets 130,801 (91,339)
Net increase (decrease) in current liabilities 98,897 (104,647)
Increase in deposits and other (61,610) (50,000)
---------- -----------
Net cash used in operating activities (313,738) (1,066,263)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment, net (41,803) (10,479)
Purchase of short-term investment - (3,000,000)
---------- -----------
Net cash used in investing activities (41,803) (3,010,479)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering of common stock - 8,280,000
Payments for services related to the initial public offering - (665,490)
Proceeds from underwriter note payable - 100,000
Proceeds from related party notes payable 289,720 75,000
Repayment of related party notes payable - (75,000)
Advances from affiliates 10,000 100,272
Repayment to affiliates (10,000) -
Advance from private investor borrowing 100,000 -
Repayment of advances from affiliates - (100,272)
Repayment of related party notes payable - (496,393)
Repayment of bridge notes payable - (1,500,000)
Repayment of private investor borrowing - (100,000)
Repayment of bank note payable - (13,394)
Repayment of underwriter note payable - (100,000)
Repayment of principal on capital leases (5,455) (18,490)
---------- -----------
Net cash provided by financing activities 384,265 5,486,233
---------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 28,724 1,409,491
CASH AND CASH EQUIVALENTS, beginning of period - 89,335
---------- -----------
CASH AND CASH EQUIVALENTS, ending of period $ 28,724 $ 1,498,826
------------------------------
------------------------------
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES
Preferred Dividends $ 1,666 $ -
------------------------------
------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
1. GENERAL
The accompanying unaudited financial statements of Hawaiian Natural Water
Company, Inc. (the "Company") should be read in conjunction with the audited
financial statements for the year ended December 31, 1996 and notes thereto
filed with the Securities and Exchange Commission in the Company's
Registration Statement on Form SB-2. In the opinion of management, the
accompanying financial statements reflect all adjustments (consisting only of
normal recurring accruals) considered necessary to fairly present the
financial position of the Company at June 30, 1997 and December 31, 1996 and
the results of its operations for the three and six-month periods ended June
30, 1997 and 1996 in accordance with generally accepted accounting principles
and the rules and regulations of the Securities and Exchange Commission. The
results of operations for interim periods are not neccessarily indicative of
results to be achieved for full fiscal years. Certain amounts from prior
periods have been reclassified to conform to current period presentation.
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 revenue and expenses during the reporting period. Actual results could
differ from those estimates.
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.
2. LOSS PER SHARE
Loss Per Share is computed by dividing the Net Loss by the weighted average
number of Common and Common Equivalent Shares issued and outstanding during
the period. The weighted average number of Common and Common Equivalent
Shares issued and outstanding during the period were as follows:
Common and Common Equivalent
shares issued and outstanding
June 30, 1996 June 30, 1997
------------- -------------
For the three months ended 1,599,212 2,709,212
For the six months ended 1,599,212 2,154,212
Loss per Share and weighted average number of Common and Common Equivalent
Shares retroactively reflect the split 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. As of June 30,
1997, 241,463 options and 3,167,851 warrants to purchase the Company's Common
Stock (including 200,000 warrants issued to the Underwriter of the IPO (See
Note 12)) were
<PAGE>
outstanding. The effect on Loss per Share of all outstanding warrants and
options would be anti-dilutive.
3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of savings accounts and investments in a
money market account with original maturities less than 90 days.
4. SHORT TERM INVESTMENT
The Company has invested $3 million in investment grade commercial paper
bearing interest at 5.61 percent and maturing on September 8, 1997.
5. INVENTORIES
Inventories were comprised of the following:
December 31, June 30,
1996 1997
------------ -----------
(Unaudited)
Raw Materials $ 95,088 $ 73,242
Finished Goods 61,482 40,210
-------- --------
Total $156,570 $113,452
-------- --------
-------- --------
6. NOTES PAYABLE
Notes Payable to Related Parties.
In February 1997, certain shareholders loaned the Company an aggregate of
$75,000, bearing interest at 12 percent per annum. This was in addition to
an aggregate of approximately $496,000 then owed to related parties. All of
these loans , bearing interest between 8% and 12% per annum, plus all accrued
interest, were repaid as shown in the table below.
Note Payable To Managing Underwriter
In April 1997, the managing underwriter (the "Underwriter") for the Company's
IPO (See Note 12) loaned the Company $100,000 on a short-term basis, bearing
interest at 10 percent per annum, in order to enable the Company to meet its
working capital requirements pending completion of the IPO. The Company
repaid this note and accrued interest as shown in the table below.
Bridge Notes Payable
On October 10, 1996, the Company completed a private bridge financing (the
"Bridge Financing"), consisting of (i) an aggregate of $1.5 million of
unsecured promissory notes ("Bridge Notes") of the Company bearing interest
at the rate of 10 percent per annum and (ii) an
<PAGE>
aggregate of 750,000 warrants ("Bridge Warrants") of the Company, each Bridge
Warrant entitling the holder to purchase one share of Common Stock, at an
exercise price of $1.50 per share, subject to adjustment under certain
circumstances, during the thirty-six month period commencing October 10,
1997. In April 1997, certain investors who participated in the Bridge
Financing agreed to cancel an aggregate of 106,500 Bridge Warrants. Upon
completion of the IPO in May 1997, the remaining 643,500 Bridge Warrants were
converted into a like number of Public Warrants (See Note 12), and the Bridge
Notes and accrued interest were repaid in full. The Bridge Warrants were
valued by the Company at $187,500 in the aggregate, and this amount was
recorded as original issue discount ("OID") in October 1996. The Company
amortized the OID to interest expense and recorded approximately $112,000 of
amortization expense from inception through May 1997. In May 1997, upon the
early repayment of the Bridge Loan, the Company wrote off the remaining
$76,000 as an Extraordinary Item - Loss on Extinguishment of Debt.
Direct costs of the Bridge Financing totaled approximately $440,000 and were
reflected as Deferred Charges and Other, net of accumulated amortization as
of December 31, 1996. The Company amortized these direct costs to interest
expense and recorded approximately $247,000 from inception through May 1997.
In May 1997, upon the early repayment of the Bridge Loan, the Company wrote
off the remaining $193,000 as an Extraordinary Item - Loss on Extinquishment
of Debt.
In May 1997, the following notes payable and accrued interest were repaid out
of the proceeds of the IPO:
Principal Interest Total
---------- -------- ----------
Bridge Notes Payable....................... $1,500,000 $ 91,000 $1,591,000
Notes Payable to Related Parties........... 571,000 57,000 628,000
Note Payable to Unaffiliated Investor...... 100,000 12,000 112,000
Note Payable to Underwriter................ 100,000 1,000 101,000
---------- -------- ----------
Total...................................... $2,271,000 $160,000 $2,432,000
---------- -------- ----------
---------- -------- ----------
7. SIGNIFICANT CUSTOMERS AND SUPPLIERS
In 1995, approximately 81 percent of the Company's sales were made through a
Hawaiian distribution company. In 1996, this distribution company was sold
to Anheuser - Busch which terminated sales of all non Anheuser - Busch
products. In June 1996, the Company negotiated an oral agreement with another
distribution company in Hawaii. The following table summarizes the Company's
sales to its Hawaiian distributors during the applicable periods.
Percentage of Sales
June 30, 1996 June 30, 1997
------------- -------------
Three Months Ending 93% 67%
Six Months Ending 78% 71%
<PAGE>
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. In July 1996, an officer of this vendor was appointed a director of
the Company. Pursuant to a Blow Molding Agreement with this vendor, the Company
committed to purchase a minimum of $750,000 of bottles per year, as defined, for
three years. During the first year of the agreement ended June 30, 1997, the
Company purchased approximately $347,000 worth of bottles from this vendor. In
lieu of purchasing the shortfall of bottles in subsequent periods, the Company
has entered into a letter of intent to purchase the bottle making equipment (see
Note 14) . If consummated, the agreement provides that the purchase of the
bottle making equipment will release the Company from any outstanding obligation
to purchase the shortfall of bottles. Management believes that the proposed
purchase price of this equipment represents the fair market value thereof.
8. SALES RETURNS
During 1995, the Company sold approximately $133,000 (13,000) cases of
product to a Japanese importer (the "Importer"). A portion of this shipment
was rejected by the Importer due to dust particle contamination from labels,
the cause of which the Company subsequently identified and corrected. The
Importer returned 8,000 cases in 1995 to the Company and the Company reversed
approximately $83,000 of sales and credited the customer for the returned
product. The Company resold the majority of the product in the first quarter
of 1996 at the Company's approximate cost of $43,000. In connection with the
return of these goods, the Company was required to pay various freight,
storage and customs charges related to these shipments totaling approximately
$67,000. Approximately $33,000 of this amount is recorded in Trade Accounts
Payable at June 30, 1997. In July 1996, the Company received a credit of
approximately $26,000 from the manufacturer of its labels in settlement of
the dust particle contamination issue. This credit was applied to past due
accounts payable to the manufacturer.
There were no significant sales returns during the six months ending June 30,
1997.
9. FOREIGN SALES
The Company sells its product directly to foreign distributors. All sales are
made in U.S. dollars. Export sales were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1996 1997 1996 1997
---- ------- ------- -------
Asia $ - $29,000 $35,000 $33,000
Guam - 25,000 - $36,000
---- ------- ------- -------
Total $ - $54,000 $35,000 $69,000
---- ------- ------- -------
---- ------- ------- -------
10. CONSULTING AGREEMENTS
a. Financial Advisor
<PAGE>
In October 1995, the Company entered into a consulting agreement with a
financial advisor (the "Advisor") for a 12 month term. The Advisor was
engaged to evaluate the Company's capital structure and requirements, to
evaluate potential acquisition or joint venture candidates and to provide
other strategic planning services to the Company. The Advisor's fee was
$120,000 for the term of the agreement, accrued at the rate of $10,000 per
month. The Company recognized $60,000 of consulting expense pursuant to this
agreement during the six month ended June 30, 1996, which is reflected in
General and Administrative Expenses.
b. Sales Representatives
In 1995, the company entered into an agreement with an individual to be the
Company's sales agent for the Western Region of the United States. The
Company paid this agent a fee of $2,000 per month commencing June 1995. In
June 1996, the fee was increased to $4,000 per month, which is reflected in
Sales and Marketing Expense.
In 1996, the Company entered into certain other sales agent agreements with
individuals, covering periods of up to one year. Certain of these agreements
provide for reimbursement to the agents for travel, lodging and communication
expenses and also provide for additional compensation in the form of sales
commissions ranging from 2.5 to 5 percent of sales (as defined) and bonus
payments ranging from $500 to $1,000 for each new distribution agreement
entered into (as defined). Pursuant to the agreements, the Company recorded
aggregate expenses of approximately $15,000 and $26,000 for the three and
six months ended June 30,1997, respectively. These expenses are reflected in
Selling and Marketing Expense.
Effective November 1, 1996, the Company engaged the landlord of the Company's
Honolulu warehouse and office space as a sales representative for a one-year
term. The Company has agreed to pay the landlord $2,000 per month for the
first five months and $1,000 per month for the remainder of the term. The
landlord is also entitled to a 5 percent commission on sales (as defined).
The Company paid approximately $6,000 and $9,000 pursuant to this agreement
for the three and six months ended June 30, 1997, respectively. These
expenses are reflected in Sales and Marketing Expense.
In March 1997, the Company entered into a six month sales agent agreement
with an individual which provided a monthly fee of $500, plus 5 percent
commission on sales (as defined). The Company recorded approximately $1,500
and $2,000 of expense for the three and six months ended June 30, 1997,
respectively. This expense is reflected in Sales and Marketing Expense. In
April 1997, the Company also granted this agent 2,500 options to purchase the
Company's Common Stock (See Note 13). The related option expense was not
material for the three and six months ending June 30, 1997.
c. Marketing Consultants
In July 1996, the Company engaged an outside marketing consultant to develop
a marketing plan for the Company. The Company accrued approximately $25,000
in expenses in 1996 pursuant to this agreement. In March 1997, the Company
retained the services of this consultant on a month to month basis and
recognized expense of approximately $24,000 for the six months ended June 30,
1997, which is reflected in Sales and Marketing Expense. In addition, the
Company granted
<PAGE>
this consultant 3,963 options to purchase the Company's Common Stock (See
Note 13). The related option expense was not material for the three and six
months ending June 30, 1997.
In March 1997, the Company entered into a month to month agreement with an
outside marketing consultant specializing in event and sponsorship marketing
and public relations. The consultant's fee is $4,500 per month plus
reasonable travel expenses (as defined). The Company recorded $13,500 and
$18,000 of expense for the three and six months ended June 30, 1997,
respectively. This expense is recorded in Sales and Marketing Expense.
In June 1997, the Company entered into a two-month agreement with an outside
marketing consultant to revise the Company's marketing plan and to enhance
the graphic design of the Company's label. The consultant's fee is $30,000,
plus travel expenses, payable $24,000 in cash, plus $6,000 in equivalent
stock options (which have not yet been granted or earned). The Company
expensed $8,000 pursuant to this agreement during the six month period ending
June 30, 1997, which is reflected in Sales and Marketing Expense.
d. Advertising Consultant
On July 31, 1996, the Company entered into a one year agreement with an
advertising consultant (who was appointed a Director of the Company in August
1996). The consultant's fee was $5,000 per month. The agreement also
provided that the Company, at its discretion, may grant the consultant stock
options. The agreement was terminated at the end of May 1997, and no stock
options were granted. The Company recorded an expense of $25,000 for the
six month period ending June 30, 1997. This expense is reflected in Sales
and Marketing Expense.
11. OFFICE LEASE COMMITMENT
In October 1996, the Company entered into a three year lease for new office
and warehouse space in Honolulu. Monthly minimum rental payments are $3,000
for the term of the lease. In exchange for the favorable monthly rent, the
Company granted the landlord 10,000 stock options in April 1997. The value
of these options (approximately $24,000 in the aggregate) will be amortized
ratably over a period of 30 months, which is the approximate length of the
remaining lease term (See Note 13). The option related expense was not
material for the three and six month period ending June 30, 1997.
12. RECAPITALIZATION AND INITIAL PUBLIC OFFERING
In July 1996, the Company increased the number of authorized shares of Common
Stock to 20,000,000. In August 1996, the Company effected a 1,111.428 for 1
Common Stock split. In October 1996, the Company increased the number of
authorized shares of Preferred Stock to 5,000,000 and changed the par value
to $1. In October 1996, all outstanding shares of the Company's Convertible
Preferred Stock were converted into an aggregate of 389,000 shares of Common
Stock.
In May 1997, the Company completed an initial public offering ("IPO") of
2,300,000 Units (including 300,000 Units subject to the Underwriter's
over-allotment option) at $4.00 per Unit, each Unit consisting of one share
of Common Stock and one Common Stock purchase warrant
<PAGE>
(each, a "Public Warrant"). Each Public Warrant entitles the holder to
purchase one share of the Company's Common Stock at an exercise price of $6
per share (subject to adjustment) for a period of five years. The IPO
resulted in aggregate net proceeds of approximately $8,280,000, net of
underwriting discounts. Of these proceeds, the Company used approximately
(i) $2,432,000 to repay Notes Payable plus all accrued interest (see Note 6),
(ii) approximately $109,000 to pay deferred compensation and consulting fees,
(iii) approximately $665,000 to pay other related expenses of the IPO and
(iv) $50,000 as an initial down payment on the purchase of a bottle making
machine (See Note 7). Of the remaining $5 million, the Company has invested
$3 million in short-term securities (See Note 4), approximately $1.5 million
in cash equivalents (See Note 3) and the balance has been used for general
corporate and working capital purposes.
Upon closing of the IPO, the Company issued to the Underwriter (for aggregate
consideration of $20) five year warrants to purchase 200,000 shares of
Common Stock. Each warrant may be exercised at any time during a period of
four years commencing on the first anniversary of the date of issuance, to
purchase one share of Common Stock at an exercise price of $6.60 (165 percent
of the IPO price per Unit), subject to adjustment in certain circumstances.
At June 30, 1997, the fair market value of the Public Warrant and Unit were
$1.38 and $5.81, respectively. On that basis, the Company has allocated
approximately 24 percent of the net proceeds of the IPO to the Public
Warrants and the Underwriter's warrants.
13. STOCK OPTIONS
In 1996, the Company reserved an aggregate of 1,000,000 shares of Common
Stock for issuance upon the exercise of stock options which may be granted
from time to time to directors, officers, employees and consultants of the
Company. Options granted to employees are accounted for under APB Opinion No.
25, under which no compensation expense is recognized in connection with the
grant of options. Options granted to non - employees (e.g., consultants and
outside directors) are accounted for under FASB 123, pursuant to which the
fair market value of the options granted is amortized over the related
service period.
In October 1996, the Company granted to its President options (subject to
vesting requirements) to purchase 150,000 shares of the Company's Common
Stock at an initial exercise price of $4.00 per share (subject to
adjustment). In January 1997, the Company granted to its Chief Financial
Officer options (subject to vesting requirements) to purchase 75,000 shares
of the Company's Common Stock at an initial exercise price of $4.00 per share
(subject to adjustment). As of June 30, 1997, none of these options were
exercised, forfeited or expired. The Company has determined that the
aggregate fair market value of the options granted is approximately $550,000
determined on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions; risk-free interest rate of
6.37%; expected dividend yield of zero; expected life of five years; and
expected volatility of 66%. Management believes that the fair value results
from using the Black-Scholes calculation may not be indicative of the
Company's economic cost of issuing stock options to its executives.
As of June 30, 1997, approximately 35,000 of the 225,000 options originally
granted to these officers had been earned. If compensation expense had been
recognized in connection with these
<PAGE>
option grants in accordance with FASB Statement No. 123, the Company's Net
Loss and Net Loss per Share for the period ending June 30, 1997 would not
have been materially impacted.
In 1997, the Company granted outside consultants and its landlord of office
and warehouse space an aggregate of 16,463 stock options valued at
approximately $40,000. In accordance with FASB No. 123 , the cost of options
granted to these individuals will be recognized over the related service
period. Option expense during the three and six month period ending June 30,
1997 was not material to the Company's financial statements.
14. SUBSEQUENT EVENT - PURCHASE OF BOTTLING EQUIPMENT
The Company has agreed in principle to purchase the bottling equipment
subject to the Blow Molding Agreement for $1.2 million, with payment over
five years (See Note 7). The Company deposited $50,000 as an initial down
payment, which is reflected in the Balance Sheet as Deferred Charges and
Other. If the purchase is consummated, the Company will pay an additional
$325,000 at the closing and finance the remaining $825,000 over five years
with the first two years requiring a monthly payment of $13,750. The
remaining $495,000 will be payable in annual principal payments of $165,000
plus 5 percent interest per annum on the unpaid principal balance. Management
believes that the proposed purchase price of this equipment represents the
fair market value thereof.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
THE FOLLOWING DISCUSSION MAY BE DEEMED TO CONTAIN CERTAIN
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995, AS INDICATED BY THE USE OF SUCH TERMS AS
"MAY," "WILL," "EXPECT," "BELIEVE," "ESTIMATE," "ANTICIPATE," "INTEND" OR
OTHER SIMILAR TERMS OR THE NEGATIVE OF SUCH TERMS. FORWARD-LOOKING
STATEMENTS CONTAINED HEREIN MAY INCLUDE, WITHOUT LIMITATION, STATEMENTS
CONCERNING: (I) ANTICIPATED CHANGES IN REVENUE, COST OF MATERIALS, EXPENSE
ITEMS, INCOME OR LOSS, EARNINGS OR LOSS PER SHARE, CAPITAL EXPENDITURES,
CAPITAL STRUCTURE AND OTHER FINANCIAL ITEMS; (II) PLANS OR PROPOSALS OF THE
COMPANY OR ITS MANAGEMENT WITH RESPECT TO THE COMPANY'S GROWTH STRATEGY,
INTRODUCTION OF NEW PRODUCTS, AND POSSIBLE ACQUISITIONS OF ASSETS OR
BUSINESSES; (III) POSSIBLE ACTIONS BY CUSTOMERS, SUPPLIERS, COMPETITORS OR
REGULATORY AUTHORITIES; AND (IV) ASSUMPTIONS UNDERLYING THE FOREGOING. THESE
FORWARD-LOOKING STATEMENTS ARE BASED UPON THE COMPANY'S CURRENT EXPECTATIONS
AND ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES, INCLUDING WITHOUT
LIMITATION, RISKS AND UNCERTAINTIES RELATING TO: (I) THE MARKET FOR THE
COMPANY'S PRODUCTS; (II) THE MAINTENANCE AND DEVELOPMENT OF THE COMPANY'S
DISTRIBUTOR NETWORK; (III) POSSIBLE CHANGES IN THE COMPANY'S BUSINESS
STRATEGY OR THE EXECUTION OF ITS EXISTING STRATEGY; (IV) THE COMPANY'S COST
OF MATERIALS OR SOURCES OF SUPPLY; (V) THE COMPANY'S NEED FOR ADDITIONAL
CAPITAL OR, IF NEEDED, THE AVAILABILITY OF ADDITIONAL CAPITAL ON ACCEPTABLE
TERMS AND CONDITIONS; (VI) THE COMPANY'S ABILITY TO ATTRACT AND RETAIN KEY
PERSONNEL; (VII) REGULATORY ISSUES IN THE U.S. OR ABROAD; AND (VIII) THE
COMPETITIVE ENVIRONMENT IN THE COMPANY'S INDUSTRY. MANY OF THESE RISKS AND
UNCERTAINTIES ARE BEYOND THE COMPANY'S ABILITY TO PREDICT OR CONTROL. SHOULD
ANY UNANTICIPATED CHANGES OCCUR IN THE COMPANY'S BUSINESS, OR SHOULD
MANAGEMENT'S OPERATING ASSUMPTIONS PROVE INCORRECT, THE COMPANY'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY THESE
FORWARD-LOOKING STATEMENTS.
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
FINANCIAL STATEMENTS INCLUDED HEREWITH AND THE NOTES THERETO.
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED
JUNE 30, 1996
Net Sales. Net Sales increased to approximately $283,000 for the three
months ended June 30,1997 (the "1997 Quarter") from approximately $227,000
for the three months ended June 30, 1996 (the "1996 Quarter"). The increase
in net revenues in the 1997 Quarter was due primarily to unit sales growth
from approximately 30,000 cases in the 1996 Quarter to approximately 41,000
cases in the 1997 Quarter. Sales in the Hawaiian market accounted for
approximately 67% of sales in the 1997 Quarter compared to approximately 93%
of sales in the 1996 Quarter. 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 1997 Quarter compared to no
sales in the 1996 Quarter. The Company's expansion strategy emphasizes
continued growth in this export market as well as increased growth in
domestic markets outside of Hawaii. The average sales price per case
decreased approximately 9% in the 1997 Quarter compared to the 1996 Quarter
due to a general price reduction to promote sales and significant cash
discounts to generate cash prior to the closing of the Company's initial
public offering (the "IPO") in May 1997.
Cost of Sales. The Company's cost of sales increased to approximately
$301,000 in the 1997 Quarter from approximately $276,000 in the 1996 Quarter,
primarily due to unit sales growth. The primary component in Cost of Sales
is the cost of finished bottles. In December 1995, the Company entered into
a Blow Molding Agreement with a California bottle supplier, pursuant to which
such supplier 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 operational in July 1996. The average
cost per case decreased approximately 20% in the 1997 Quarter primarily due
to this arrangement. The Company has entered into negotiations to purchase
the bottle making equipment which , if consummated, will further decrease
the Company's cost of bottles. (See Note 14 to the Financial Statements)
Expenses. Selling and marketing expenses increased to approximately
$189,000 in the 1997 Quarter from approximately $42,000 in the 1996 Quarter,
primarily as a result of an increase in internal and external promotional
activities, including product giveaways, media production,and the hiring of
certain outside sales representatives and marketing and advertising
consultants. The Company terminated its relationship with its advertising
consultant in May 1997 and will continue to evaluate the merits of retaining
the services of present and future outside consultants. (See Note 10 to the
Financial Statements) General and administrative expenses increased to
approximately $245,000 in the 1997 Quarter from approximately $188,000 in the
1996 Quarter. The majority of this increase resulted from increased
compensation to the Company's President and the hiring of a Chief Financial
Officer and other administrative personnel.
Interest Expense, Net. Interest Expense, net increased to approximately
$178,000 in the 1997 Quarter from approximately $12,000 in the 1996 Quarter.
The increase is primarily due to increased borrowings relating to the $1.5
million Bridge Financing incurred in October 1996 as well as certain
additional borrowings from related parties and others prior to the closing of
the IPO. The Company also amortized approximately $78,000 of original issue
discount and offering expenses on the Bridge Financing to interest expense in
the 1997 Quarter. (See Note 6 to the Financial Statements) All of these
borrowings and accrued interest were repaid out of the proceeds from the IPO.
Extraordinary Loss. In May 1997, upon the early retirement of the
Bridge Notes, the Company wrote off the remaining unamortized balance of
original issue discount and offering expenses of the Bridge Financing of
$76,000 and $193,000, respectively.
Net Loss and Net Loss Per Share. Due to the foregoing, the Company
incurred a net loss of $883,925, or $(.33) per share, in the 1997 Quarter
compared to a net loss of $290,593, or $(.18) per share, in the 1996 Quarter.
Weighted average shares outstanding increased to 2,709,212 in the 1997
Quarter from 1,599,212 in the 1996 Quarter due to the completion of the
Company's IPO. (See Note 12 to the Financial Statements) The Company
expects to continue to generate losses until such time, if any, as it
achieves significantly higher sales levels.
<PAGE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED
JUNE 30, 1996
Net Sales. Net sales increased to approximately $500,000 for the six
months ended June 30, 1997 ("1997 First Half") from approximately $429,000
for the six months ended June 30, 1996 (the "1996 First Half"). This
increase was due primarily to unit sales growth from approximately 58,000
cases in the 1996 First Half to approximately 69,000 cases in the 1997 First
Half. Sales in the 1996 First Half included 8,000 cases which were returned
in 1995 and resold in the 1996 First Half at the Company's approximate cost
of $43,000. Sales in the Hawaiian market accounted for approximately 71% in
the 1997 First Half compared to approximately 78% in the 1996 First Half.
Sales to Asia and the Pacific Islands accounted for approximately 12% of
sales in the 1997 First Half compared to 8% in the 1996 First Half. The
average sales price per case decreased approximately 2% in the 1997 First
Half compared to the 1996 First Half due to a general price reduction to
promote sales and significant cash discounts to generate cash prior to the
closing of the IPO.
Cost of Sales. The Company's cost of sales increased to approximately
$487,000 in the 1997 First Half from approximately $473,000 in the 1996
First Half, primarily due to unit sales growth. In December 1995, the
Company entered into a Blow Molding Agreement with a California bottle
supplier, pursuant to which such supplier agreed to manufacture bottles for
the Company on site, using equipment owned by the supplier but installed at
the Company's bottling facility. The average cost per case decreased
approximately 13% in the 1997 First Half primarily due to this arrangement.
Expenses. Selling and marketing expenses increased to approximately
$276,000 in the 1997 First Half from approximately $66,000 in the 1996 First
Half, primarily as a result of an increase in internal and external
promotional activities, including product giveaways, media production, and
the hiring of certain outside sales representatives, and marketing and
advertising consultants. (See Note 10 to the Financial Statements) General
and administrative expenses increased to approximately $426,000 in the 1997
First Half from approximately $382,000 in the 1996 First Half. The majority
of this increase resulted from increased compensation to the Company's
President and the hiring of a Chief Financial Officer and other
administrative personnel.
Interest Expense, Net. Interest Expense, net increased to approximately
$414,000 in the 1997 First Half from approximately $28,000 in the 1996 First
Half. The increase is primarily due to increased borrowings relating to the
$1.5 million Bridge Financing incurred in October 1996 as well as certain
additional borrowings from related parties and others prior to the closing of
the IPO. The Company also amortized approximately $314,000 of original issue
discount and offering expenses on the Bridge Financing to interest expense in
the 1997 First Half. (See Note 6 to the Financial Statements) All of these
borrowings and accrued interest were repaid out of the proceeds of the IPO.
Net Loss and Net Loss Per Share. Due to the foregoing, the Company
incurred a net loss of $1,355,873, or $(.63) per share, in the 1997 First
Half compared to a net loss of $519,890, or $(.33) per share, in the 1996
First Half. Weighted average shares outstanding increased to 2,154,212 in
the 1997 First Half from 1,599,212 in the 1996 First Half due to the
completion of the Company's IPO. (See Note 12 to the Financial Statements)
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Until the completion of the Bridge Financing in October 1996, 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. In 1996, the Company borrowed an aggregate
of $417,715 from three of its stockholders in the form of unsecured loans,
bearing interest at 12 percent per annum, and received additional unsecured,
non-interest bearing advances from these stockholders in the aggregate amount
of $100,272.
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 percent. This line of credit was
secured by a security interest in all of the Company's equipment, accounts
receivable, inventory and general intangibles and was also personally
guaranteed by certain directors and an affiliate of the Company. This line
of credit expired on March 31,1996 and was not renewed. Outstanding borrowings
remained at the maximum level until the line was repaid in full in October
1996. In addition, in May 1996, the Company obtained a $100,000 subordinated,
unsecured loan from an unrelated private investor. In connection with such
loan, the Company issued to the lender a warrant to purchase 24,351 shares of
Common Stock at an exercise price of $.00009 per share.
The Company consummated the Bridge Financing on October 10, 1996 (See
Note 6 to the Financial Statements). The Company used the net proceeds of
approximately $1,131,000: (i) to repay all borrowings from FHB in full
(approximately $300,000); (ii) to repay a portion of the indebtedness to an
affiliate in the amount of approximately $62,000 and; (iii) to pay fees and
expenses in connection with the IPO. The balance was used for working
capital and general corporate purposes. Due to continuing losses from
operations, these proceeds were exhausted during the first quarter of 1997.
As a result, the Company needed to solicit additional loans from stockholders
in order to sustain its operations.
In February and March 1997, the Company borrowed an aggregate of $75,000
from three stockholders, bearing interest at 12 percent per annum. In April
1997, the Underwriter of the IPO loaned the Company $100,000, bearing
interest at 10% per annum, to enable the Company to meet its working capital
requirements pending the completion of the IPO. All outstanding borrowings of
the Company from its stockholders or their affiliates and other private
investors were repaid in full out of the proceeds from the IPO. There can be
no assurance that affiliates of the Company will lend or invest any
additional funds to or in the Company or guarantee any additional borrowings
of the Company in the future.
In May 1997, the Company completed an IPO consisting of 2,300,000 Units
(including 300,000 Units subject to the Underwriter's over-allotment option)
at $4.00 per Unit, yielding aggregate net proceeds of approximately
$8,280,000, net of underwriting discounts. Of these proceeds, the Company
used (i) approximately $1,591,000 to repay the Bridge Notes (including all
accrued interest) in full; (ii) approximately $628,000 to repay all of the
Company's outstanding indebtedness to stockholders or their affiliates
(including accrued interest), including an aggregate of approximately $40,000
of indebtedness (including accrued interest) incurred in connection with the
conversion of the Company's previously outstanding Convertible Preferred
Stock; (iii) approximately $213,000 to repay all of the Company's outstanding
indebtedness (including accrued interest) to unaffiliated parties (including
the Underwriter); and (iv) approximately $115,000 to pay deferred
compensation and consulting fees. As a result, all outstanding borrowings of
the Company (other than accounts payable and capital lease obligations),
including all indebtedness to related parties, were repaid in full. (See
Note 6 to the Financial Statements) The Company's cash position increased
from approximately nil immediately prior to the IPO to approximately $1.5
million at June 30,1997, plus an
<PAGE>
additional $3 million in short term investments (See Notes 3 and 4 to the
Financial Statements). The Company intends to use up to $1,500,000 for
improvements to plant and equipment as further described below. The Company
also anticipates expenditures of up to $2,000,000 to further develop and
enhance its sales and marketing programs. The Company may also consider the
acquisition of other assets or businessess in order to expand its operations,
and may utilize a portion of the proceeds of the IPO in connection with any
such acquisitions. The Company has not entered into any agreements with respect
to any such acquisitions, and there can be no assurance that any such
acquisitions will be consummated.
The Company believes that the proceeds of the IPO will be sufficient to fund
its operations for at least 12 months following the completion of the IPO.
Depending upon the Company's results of operations, the Company may need to
obtain additional financing thereafter. There can be no assurance that any
such financing, if needed, will be available to the Company on acceptable
terms or conditions. The Company would like to obtain a new bank credit
facility if it could be obtained on favorable terms. However, the Company is
not currently in discussions concerning any such facility, and there
can be no assurance that the Company will be able to obtain new bank
financing due to continuing losses from operations.
The Company made capital expenditures of approximately $42,000 and
$10,000 for the six months ended June 30, 1996 and 1997, respectively. In
March 1995, the Company financed certain equipment purchases
through a capital lease agreement 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 $126,000 at June 30, 1997.
The lease liability was approximately $71,000, net of current portion, at
June 30, 1997. The Company's obligation under this lease agreement are
personally guaranteed by certain directors and an affiliate of the Company.
The Company has agreed in principle to purchase the bottling equipment
subject to the Blow Molding Agreement for $1.2 million, with payment over
five years. The Company deposited $50,000 as an initial down payment and has
agreed in principal to pay $325,000 at the closing of this agreement. The
remaining $825,000 will be financed over five years with the first two years
requiring a monthly payment of $13,750. The remaining $495,000 will be
payable in annual principal payments of $165,000 plus 5 percent per annum on
the unpaid principal balance.
Net operating loss carryforwards available to offset future taxable
income were approximately $3.3 million as of June 30,1997. Use of these net
operating losses in future years will likely be limited pursuant to Section
382 of the Internal Revenue Code due to the ownership change (as defined)
resulting from the 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.
PART II: OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(c) During the three months ended June 30 1997, the Company granted to
certain consultants and sales agents stock options to purchase an aggregate
of 16,463 shares of Common Stock at an exercise price of $4.00 per share
(subject to adjustment). In May 1997, the Company also issued to the
managing underwriter (the "Underwriter") of its initial public offering
("IPO") warrants, exercisable for four years commencing on the first
anniversary of the date of issuance, to purchase 200,000 shares of Common
Stock at an exercise price of $6.60 per share (subject to adjustment). In
April 1997, the Underwriter also loaned
<PAGE>
the Company $100,000 on a short-term basis in order to enable the Company to
meet its working capital requirements pending the completion of the IPO.
This loan bore interest at the rate of 10 percent per annum and was repaid in
full out of the proceeds of the IPO. (See Notes and 6 and 12 to the
Financial Statements included in Part I hereof). All of the foregoing
transactions were exempt from registration under the Securities Act of 1933,
as amended, pursuant to Section 4(2) thereof and the rules and regulations
thereunder.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------- -----------
4.1 Specimen Stock Certificate for the Registrant's Common Stock
4.2 Warrant Agreement between the Registrant and Continental
Stock Transfer & Trust Company, as Warrant Agent
4.3 Specimen Public Warrant Certificate
4.4 Underwriter's Warrant Agreement between the Registrant and
Joseph Stevens & Company, Inc.
4.5 Underwriter's Warrant Certificate
4.6 Form of Lock-Up Agreement between Joseph Stevens & Company, Inc.
and each of the Selling Securityholders in the Registrant's
initial public offering (Incorporated by reference to Exhibit 4.6
to the Registrant's Registration Statement on Form SB-2
(File No. 333-18289) (the "Form SB-2")
4.7 Form of Lock-Up Agreement between Joseph Stevens & Company, Inc.
and certain officers, directors and stockholders of the
Registrant
10.1 Underwriting Agreement between the Registrant and Joseph
Stevens & Company, Inc.
10.2 Financial Advisory and Consulting Agreement between the
Registrant and Joseph Stevens & Company, Inc.
10.3 Promissory Note dated as of April 15, 1997, in the original
principal amount of $100,000, payable by the Registrant to
Joseph Stevens & Company, Inc. (Incorporated by reference to
Exhibit 10.13 to the Form SB-2)
<PAGE>
10.4 Form of Cancellation Agreement between the Registrant and
certain holders of Bridge Warrants relating to an aggregate of
106,500 Bridge Warrants (Incorporated by reference to
Exhibit 10.14 to the Form SB-2)
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
HAWAIIAN NATURAL WATER COMPANY, INC.
(Registrant)
August 13, 1997 By: /s/ MARCUS BENDER
-----------------------------------
Marcus Bender
President & Chief Executive Officer
August 13, 1997 By: /s/ MARC MIYAHIRA
-----------------------------------
Marc Miyahira
Chief Financial Officer
<PAGE>
Exhibit Index
Exhibit
Number Description
------- -----------
4.1 Specimen Stock Certificate for the Registrant's Common Stock
4.2 Warrant Agreement between the Registrant and Continental
Stock Transfer & Trust Company, as Warrant Agent
4.3 Specimen Public Warrant Certificate
4.4 Underwriter's Warrant Agreement between the Registrant and
Joseph Stevens & Company, Inc.
4.5 Underwriter's Warrant Certificate
4.6 Form of Lock-Up Agreement between Joseph Stevens & Company, Inc.
and each of the Selling Securityholders in the Registrant's
initial public offering (Incorporated by reference to Exhibit 4.6
to the Registrant's Registration Statement on Form SB-2
(File No. 333-18289) (the "Form SB-2")
4.7 Form of Lock-Up Agreement between Joseph Stevens & Company, Inc.
and certain officers, directors and stockholders of the
Registrant
10.1 Underwriting Agreement between the Registrant and Joseph
Stevens & Company, Inc.
10.2 Financial Advisory and Consulting Agreement between the
Registrant and Joseph Stevens & Company, Inc.
10.3 Promissory Note dated as of April 15, 1997, in the original
principal amount of $100,000, payable by the Registrant to
Joseph Stevens & Company, Inc. (Incorporated by reference to
Exhibit 10.13 to the Form SB-2)
10.4 Form of Cancellation Agreement between the Registrant and
certain holders of Bridge Warrants relating to an aggregate of
106,500 Bridge Warrants (Incorporated by reference to
Exhibit 10.14 to the Form SB-2)
27.1 Financial Data Schedule
<PAGE>
COMMON STOCK COMMON STOCK
NUMBER HAWAIIAN SHARES
H- NATURAL
WATER COMPANY, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF HAWAII
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 419883 10 3
THIS CERTIFIES THAT
IS THE OWNER OF
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(New York, NY) TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED OFFICER
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, NO PAR VALUE OF
HAWAIIAN NATURAL WATER COMPANY, INC.
(herein called the "Corporation"), transferable only on the books of the
Corporation by the holder hereof in person or by duly authorized attorney
upon the surrender of this Certificate properly endorsed or assigned for
transfer. This Certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
/s/ Brian Barbata /s/ Marcus Bender
SECRETARY PRESIDENT
HAWAIIAN NATURAL WATER COMPANY, INC.
INCORPORATED STATE OF HAWAII
SEPT. 13, 1994
[SEAL]
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
- -------------------------------------------------------------------------------
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM- as tenants in common UNIF GIFT MIN ACT-________ Custodian _______
TEN ENT- as tenants by the (Cust) (Minor)
entireties
JT TEN- as joint tenants with
right of survivorship and under Uniform Gifts to Minors
not as tenants in common Act__________________________
(State)
Additional abbreviations may also be used though not in the above list.
For Value received, ______________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________________________________________________
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_________________________________________________________________________Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ____________________ Attorney, to transfer
the said stock on the books of the within named Corporation with full power
of substitution in the premises.
Dated, ___________________
X_______________________________________
X_______________________________________
NOTICE: THE SIGNATURE(S) TO THIS
ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF
THE CERTIFICATE, IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATSOEVER.
SIGNATURE GUARANTEED: ________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION,
(BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
HAWAIIAN NATURAL WATER COMPANY, INC.
AND
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
-----------------
WARRANT AGREEMENT
DATED AS OF MAY 14, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
WARRANT AGREEMENT, dated this 14th day of May, 1997 by and between HAWAIIAN
NATURAL WATER COMPANY, INC., a Hawaiian corporation (the "Company"), and
CONTINENTAL STOCK TRANSFER & TRUST COMPANY.
WITNESSETH:
WHEREAS, in connection with (i) the offering (the "Offering") to the
public of 2,000,000 units (the "Units"), each Unit consisting of one share of
the Company's common stock, no par value per share (the "Common Stock"), and
one redeemable warrant (the "Warrants"), each Warrant entitling the holder
thereof to purchase one share of Common Stock, (ii) the over-allotment option
granted to Joseph Stevens & Company, Inc., (the "Underwriter") in the public
offering referred to above, to purchase up to an additional 300,000 Units
(the "Over-Allotment Option"), and (iii) 643,500 Warrants to be issued upon
consummation of the Offering and registered for the account of certain
securityholders of the Company in exchange for certain warrants ("Bridge
Warrants") issued in connection with the Company's bridge financing
consummated in October 1996 (the "Bridge Financing"), the Company will issue
up to 2,943,500 Warrants (subject to increase as provided herein);
WHEREAS, the Company desires to provide for the issuance of certificates
representing the Warrants; and
WHEREAS, the Company desires the Warrant Agent (as defined in SECTION
1(r) hereof) to act on behalf of the Company, and the Warrant Agent is
willing to so act, in connection with the issuance, registration, transfer
and exchange of certificates representing the Warrants and the exercise of
the Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms
and provisions of the Warrants
<PAGE>
and the certificates representing the Warrants and the respective rights and
obligations thereunder of the Company, the Underwriter, the holders of
certificates representing the Warrants and the Warrant Agent, the parties
hereto agree as follows:
SECTION 1. DEFINITIONS. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:
(a) "Act" shall mean the Securities Act of 1933, as amended.
(b) "Commission" shall mean the Securities and Exchange Commission.
(c) "Common Stock" shall have the meaning set forth in SECTION 8(d)
hereof.
(d) "Company" shall have the meaning assigned to such term in the first
(1st) paragraph of this Agreement.
(e) "Corporate Office" shall mean the office of the Warrant Agent at
which at any particular time its principal business in New York, New York
shall be administered, which office is located on the date hereof at 2
Broadway, New York, New York 10004.
(f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(g) "Exercise Date" shall mean, subject to the provisions of
SECTION 5(b) hereof, as to any Warrant, the date on which the Warrant Agent
shall have received both (i) the Warrant Certificate representing such
Warrant, with the exercise form thereon duly executed by the Registered
Holder (as defined in SECTION 1(m) hereof) thereof or his attorney duly
authorized in writing, and (ii) payment in cash or by check made payable to
the Warrant Agent for the account of the Company of an amount in lawful money
of the United States of America equal to the applicable Purchase Price (as
defined in SECTION 1(k) hereof).
(h) "Initial Warrant Exercise Date" shall mean May 14, 1997.
2
<PAGE>
(i) "Initial Warrant Redemption Date" shall mean May 14, 1998.
(j) "NASD" shall mean the National Association of Securities Dealers, Inc.
(k) "Purchase Price" shall mean, subject to modification and adjustment as
provided in SECTION 8 hereof, $6.00 per Share.
(1) "Redemption Date" shall mean the date (which may not occur before the
Initial Warrant Redemption Date) fixed for the redemption of the Warrants in
accordance with the terms hereof.
(m) "Registered Holder" shall mean the person in whose name any certificate
representing the Warrants shall be registered on the books maintained by the
Warrant Agent pursuant to SECTION 6(b) hereof.
(n) "Subsidiary" or "Subsidiaries" shall mean any corporation or
corporations, as the case may be, of which stock having ordinary power to
elect a majority of the board of directors of such corporation or
corporations (regardless of whether or not at the time the stock of any other
class or classes of such corporation shall have or may have voting power by
reason of the happening of any contingency) is at the time directly or
indirectly owned by the Company or by one or more Subsidiaries, or by the
Company and one or more Subsidiaries.
(o) "Transfer Agent" shall mean Continental Stock Transfer & Trust
Company of New York, New York or its authorized successor.
(p) "Underwriting Agreement" shall mean the underwriting agreement dated
May 14, 1997 between the Company and the Underwriter relating to the purchase
for resale to the public of 2,000,000 Units (without giving effect to the
Over-Allotment Option).
3
<PAGE>
(q) "Warrant Agent" shall mean Continental Stock Transfer & Trust
Company of New York, New York or its authorized successor.
(r) "Warrant Certificate" shall mean a certificate representing each of
the Warrants substantially in the form annexed hereto as EXHIBIT A.
(s) "Warrant Expiration Date" shall mean, unless the Warrants are
redeemed as provided in SECTION 9 hereof prior to such date, 5:00 p.m. (New
York time) on May 13, 2002 or, if such date shall in the State of New York be
a holiday or a day on which banks are authorized to close, then 5:00 p.m.
(New York time) on the next following day which in the State of New York is
not a holiday or a day on which banks are authorized to close, subject to the
Company's right, prior to the Warrant Expiration Date, with the consent of
the Underwriter, to extend such Warrant Expiration Date on five (5) business
days prior written notice to the Registered Holders.
SECTION 2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES.
(a) One Warrant shall initially entitle the Registered Holder of the
Warrant Certificate representing such Warrant to purchase at the Purchase
Price therefor from the Initial Warrant Exercise Date until the Warrant
Expiration Date one (1) share of Common Stock upon the exercise thereof,
subject to modification and adjustment as provided in SECTION 8 hereof.
(b) Upon execution of this Agreement, Warrant Certificates representing
2,000,000 Warrants to purchase up to an aggregate of 2,000,000 shares of
Common Stock (subject to modification and adjustment as provided in SECTION 8
hereof), shall be executed by the Company and delivered to the Warrant Agent.
(c) Upon exercise of the Over-Allotment Option, in whole or in part,
Warrant Certificates representing up to 300,000 Warrants to purchase up to an
aggregate of
4
<PAGE>
300,000 shares of Common Stock (subject to modification and adjustment as
provided in SECTION 8 hereof) shall be executed by the Company and delivered
to the Warrant Agent.
(d) [Intentionally omitted]
(e) Upon consummation of the Offering, Warrant Certificates representing
643,500 Warrants, issued to certain security holders of the Company in
exchange for certain Bridge Warrants, entitling the holders thereof to
purchase up to an aggregate of 643,500 shares of Common Stock (subject to
modification and adjustment as provided in SECTION 8) shall be executed by
the Company and delivered to the Warrant Agent.
(f) From time to time, up to the Warrant Expiration Date, the Warrant
Agent shall countersign and deliver Warrant Certificates in required
denominations of one or whole number multiples thereof to the person entitled
thereto in connection with any transfer or exchange permitted under this
Agreement. No Warrant Certificates shall be issued except (i) Warrant
Certificates initially issued hereunder, (ii) Warrant Certificates issued
upon any transfer or exchange of Warrants, (iii) Warrant Certificates issued
in replacement of lost, stolen, destroyed or mutilated Warrant Certificates
pursuant to SECTION 7 hereof, and (iv) at the option of the Company, Warrant
Certificates in such form as may be approved by its Board of Directors, to
reflect any adjustment or change in the Purchase Price, the number of shares
of Common Stock purchasable upon the exercise of a Warrant or the redemption
price therefor.
SECTION 3. FORM AND EXECUTION OF WARRANT CERTIFICATES.
(a) The Warrant Certificates shall be substantially in the form annexed
hereto as EXHIBIT A (the provisions of which are hereby incorporated herein)
and may have such letters, numbers or other marks of identification or
designation and such legends, summaries or endorsements printed, lithographed
or engraved thereon as the Company may deem appropriate
5
<PAGE>
and as are not inconsistent with the provisions of this Agreement, or as may
be required to comply with any law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange on
which the Warrants may be listed, or to conform to usage. The Warrant
Certificates shall be dated the date of issuance thereof (whether upon
initial issuance, transfer, exchange or in lieu of mutilated, lost, stolen or
destroyed Warrant Certificates).
(b) Warrant Certificates shall be executed on behalf of the Company by
its Chief Executive Officer, President or any Vice President and by its
Treasurer or an Assistant Treasurer or its Secretary or an Assistant
Secretary, by manual signatures or by facsimile signatures printed thereon,
and shall have imprinted thereon a facsimile of the Company's seal. Warrant
Certificates shall be manually countersigned by the Warrant Agent and shall
not be valid for any purpose unless so countersigned. In case any officer of
the Company who shall have signed any of the Warrant Certificates shall cease
to be such officer of the Company before the date of issuance of the Warrant
Certificates or before countersignature by the Warrant Agent and issue and
delivery thereof, such Warrant Certificates, nevertheless, may be
countersigned by the Warrant Agent and issued and delivered with the same
force and effect as though the officer of the Company who signed such Warrant
Certificates had not ceased to hold such office.
SECTION 4. EXERCISE.
(a) Warrants in denominations of one or whole number multiples thereof
may be exercised commencing at any time on or after the Initial Warrant
Exercise Date, but not after the Warrant Expiration Date, upon the terms and
subject to the conditions set forth herein (including the provisions set
forth in SECTIONS 5 and 9 hereof) and in the applicable Warrant Certificate.
A Warrant shall be deemed to have been exercised immediately prior to the
close
6
<PAGE>
of business on the Exercise Date, provided that the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by
the Registered Holder thereof or his attorney duly authorized in writing,
together with payment in cash or by check made payable to the Warrant Agent
for the account of the Company of an amount in lawful money of the United
States of America equal to the applicable Purchase Price, have been received
by the Warrant Agent. The person entitled to receive the securities
deliverable upon such exercise shall be treated for all purposes as the
holder of such securities as of the close of business on the Exercise Date.
As soon as practicable on or after the Exercise Date and in any event within
three (3) business days after such date, the Warrant Agent, on behalf of the
Company, shall cause to be issued to the person or persons entitled to
receive the same a Common Stock certificate or certificates for the shares of
Common Stock deliverable upon such exercise, and the Warrant Agent shall
deliver the same to the person or persons entitled thereto. Upon the exercise
of any Warrants, the Warrant Agent shall promptly notify the Company in
writing of such fact and of the number of securities delivered upon such
exercise and, subject to SECTION 4(b) hereof, shall cause all payments in
cash or by check made payable to the order of the Company in respect of the
Purchase Price to be deposited promptly in the Company's bank account or
delivered to the Company.
(b) At any time upon the exercise of any Warrants after one year and one
day from the date hereof, the Warrant Agent shall, on a daily basis, within
two business days after such exercise, notify the Underwriter, its successors
or assigns of the exercise of any such Warrants and shall, on a weekly basis
(subject to collection of funds constituting the tendered Purchase Price, but
in no event later than five business days after the last day of the calendar
week in which such funds were tendered), for solicitation by the Underwriter
of the exercise of
7
<PAGE>
Warrants of the Registered Holders then being exercised, remit to the
Underwriter an amount equal to five percent (5%) of the Purchase Price of
such Warrants then being exercised unless the Underwriter shall have notified
the Warrant Agent that the payment of such amount with respect to such
Warrant is violative of the General Rules and Regulations promulgated under
the Exchange Act, or the rules and regulations of the NASD or applicable
state securities or "blue sky" laws, in which event, the Warrant Agent shall
have to pay such amount to the Company; provided, that, the Warrant Agent
shall not be obligated to pay any amounts pursuant to this SECTION 4(b)
during any week that such amounts payable are less than $1,000 and the
Warrant Agent's obligation to make such payments shall be suspended until the
amount payable aggregates $1,000, and provided further, that, in any event,
any such payment (regardless of amount) shall be made not less frequently
than monthly.
(c) The Company shall not be obligated to issue any fractional share
interests or fractional warrant interests upon the exercise of any Warrant or
Warrants, nor shall it be obligated to issue scrip or pay cash in lieu of
fractional interests. Any fractional interest shall be eliminated by rounding
any fraction up to the next full share or Warrant, as the case may be, or
other securities, properties or rights.
SECTION 5. RESERVATION OF SHARES, LISTING, PAYMENT OF TAXES. ETC.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of
issuance upon the exercise of Warrants, such number of shares of Common Stock
as shall then be issuable upon the exercise of all outstanding Warrants. The
Company covenants that, upon exercise of the Warrants and payment of the
Purchase Price for the shares of Common Stock underlying the Warrants, all
shares of Common Stock which shall be issuable upon such exercise shall be
duly
8
<PAGE>
and validly issued, fully paid, non-assessable, free from all preemptive or
similar rights. and free from all taxes, liens and charges with respect to
the issuance thereof, and that upon issuance such shares shall be listed or
quoted on each securities exchange, if any, on which the other shares of
outstanding Common Stock are then listed or quoted, or if not then so listed
or quoted on each place (whether the Nasdaq Stock Market, Inc., the NASD OTC
Electronic Bulletin Board, the National Quotation Bureau "pink sheets" or
otherwise) on which the other shares of outstanding Common Stock are listed
or quoted.
(b) The Company covenants that if any securities reserved for the
purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law
before such securities may be validly issued or delivered upon such exercise,
then the Company will file a registration statement under the federal
securities laws or a post-effective amendment to a registration statement,
use its best efforts to cause the same to become effective, keep such
registration statement current while any of the Warrants are outstanding and
deliver a prospectus which complies with Section 10(a)(3) of the Act. to the
Registered Holder exercising the Warrant (except, if in the opinion of
counsel to the Company, such registration is not required under the federal
securities law or if the Company receives a letter from the staff of the
Commission stating that it would not take any enforcement action if such
registration is not effected). The Company will use its best efforts to
obtain appropriate approvals or registrations under the state "blue sky"
securities laws of all states in which Registered Holders reside. Warrants
may not be exercised by, nor may shares of Common Stock be issued to, any
Registered Holder in any state in which such exercise would be unlawful.
9
<PAGE>
(c) The Company shall pay all documentary, stamp or similar taxes
and other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance or delivery of any shares of Common
Stock upon exercise of the Warrants; PROVIDED, HOWEVER, that if shares of
Common Stock are to be delivered in a name other than the name of the
Registered Holder of the Warrant Certificate representing any Warrant being
exercised, then no such delivery shall be made unless the person requesting
the same has paid to the Warrant Agent the amount of transfer taxes or
charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized as the
Transfer Agent to requisition from time to time certificates representing
shares of Common Stock or other securities required upon exercise of the
Warrants, and the Company will comply with all such requisitions.
SECTION 6. EXCHANGE AND REGISTRATION OF TRANSFER.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants or may be
transferred in whole or in part. Warrant Certificates to be so exchanged
shall be surrendered to the Warrant Agent at its Corporate Office, and the
Company shall execute and the Warrant Agent shall countersign, issue and
deliver in exchange therefor the Warrant Certificate or Certificates which
the Registered Holder making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep, at such office, books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof. Upon due presentment for
registration of transfer of any Warrant Certificate at such office, the
Company shall execute and the Warrant Agent shall issue and deliver to the
10
<PAGE>
transferee or transferees a new Warrant Certificate or Certificates
representing an equal aggregate number of Warrants.
(c) With respect to any Warrant Certificates presented for
registration of transfer, or for exchange or exercise, the subscription or
assignment form, as the case may be, on the reverse thereof shall be duly
endorsed or be accompanied by a written instrument or instruments of
subscription or assignment, in form satisfactory to the Company and the
Warrant Agent, duly executed by the Registered Holder thereof or his attorney
duly authorized in writing.
(d) No service charge shall be made for any exchange or
registration of transfer of Warrant Certificates. However, the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange shall be promptly cancelled by the Warrant Agent.
(f) Prior to due presentment for registration or transfer thereof,
the Company and the Warrant Agent may deem and treat the Registered Holder of
any Warrant Certificate as the absolute owner thereof of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than the Company or the Warrant Agent) for all
purposes and shall not be affected by any notice to the contrary.
SECTION 7. LOSS OR MUTILATION. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and the
loss, theft, destruction or mutilation of any Warrant Certificate and (in the
case of loss, theft or destruction) of indemnity satisfactory to them, and
(in case of mutilation) upon surrender and cancellation thereof, the Company
shall execute and the Warrant Agent shall countersign and deliver in lieu
thereof a new
11
<PAGE>
Warrant Certificate representing an equal number of Warrants. Applicants for
a substitute Warrant Certificate shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Warrant Agent may
prescribe.
SECTION 8. ADJUSTMENTS TO PURCHASE PRICE AND NUMBER OF SECURITIES.
(a) SUBDIVISION AND COMBINATION. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock, the Purchase Price
shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
(b) STOCK DIVIDENDS AND DISTRIBUTIONS. In case the Company shall
pay dividend in, or make a distribution of, shares of Common Stock or of the
Company's capital stock convertible into Common Stock, the Purchase Price
shall forthwith be proportionately decreased. An adjustment made pursuant to
this SECTION 8(b) shall be made as of the record date for the subject stock
dividend or distribution.
(c) ADJUSTMENT IN NUMBER OF SECURITIES. Upon each adjustment of the
Purchase Price pursuant to the provisions of this SECTION 8, the number of
shares of Common Stock issuable upon the exercise at the adjusted Purchase
Price of each Warrant shall be adjusted to the nearest whole number by
multiplying a number equal to the Purchase Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of the Warrants immediately prior to such adjustment and dividing
the product so obtained by the adjusted Purchase Price.
(d) DEFINITION OF COMMON STOCK. For the purpose of this Agreement,
the term "Common Stock" shall mean (i) the class of stock designated as
Common Stock in the Articles of Incorporation of the Company as may be
amended or restated as of the date hereof,
12
<PAGE>
or (ii) any other class of stock resulting from successive changes or
reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value.
In the event the Company shall after the date hereof issue Common Stock with
greater or superior voting rights than the shares of Common Stock outstanding
as of the date hereof, each Holder, at its option, may receive upon exercise
of any Warrant either shares of Common Stock or a like number of such
securities with greater or superior voting rights.
(e) MERGER OR CONSOLIDATION OR SALE.
(i) 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), the corporation formed by such
consolidation or surviving such merger shall execute and deliver to the
Holder a supplemental warrant agreement providing that the holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
Warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation, merger, sale or transfer by a
Holder of the number of shares of Common Stock of the Company for which such
Warrant might have been exercised immediately prior to such consolidation,
merger, sale or transfer. Such supplemental warrant agreement shall provide
for adjustments which shall be identical to the adjustments provided in this
SECTION 8. The above provision of this subsection shall similarly apply to
successive consolidations or mergers.
(ii) In the event of (A) the sale by the Company of all or
substantially all of its assets, or (B) the engagement by the Company or any
of its affiliates in a "Rule 13e-3
13
<PAGE>
transaction" as defined in paragraph (a)(3) of Rule 13e-3 of the General
Rules and Regulations under the Exchange Act or (C) a distribution to the
Company's stockholders of any cash, assets, property, rights, evidences of
indebtedness, securities or any other thing of value, or any combination
thereof, the Holders of the unexercised Warrants shall receive notice of such
sale, transaction or distribution twenty (20) days prior to the date of such
sale or the record date for such transaction or distribution, as applicable,
and, if they exercise such Warrants prior to the date of such transaction or
distribution, they shall be treated as holders of Common Stock of the Company
upon the consummation of such transaction or distribution.
(f) NO ADJUSTMENT OF EXERCISE PRICE IN CERTAIN CASES. No adjustment
of the Exercise Price shall be made if the amount of said adjustment shall be
less than ten cents (10 CENTS) per share of Common Stock, provided, however,
that in such case any adjustment that would otherwise be required then to be
made shall be carried forward and shall be made at the time of and together
with the next subsequent adjustment which, together with any adjustment so
carried forward, shall amount to at least ten cents (10 CENTS) per share of
Common Stock.
SECTION 9. REDEMPTION.
(a) Commencing on the Initial Warrant Redemption Date, the Company
may (but only with the prior written consent of the Underwriter), on not less
than thirty (30) days' prior written notice (the "Redemption Notice"), redeem
all of the Warrants, in whole and not in part, at a redemption price of five
cents ($.05) per Warrant; PROVIDED, HOWEVER, that before any such call for
redemption of Warrants can take place, the (i) average closing bid price for
the Common Stock, as reported by the National Association of Securities
Dealers Automated Quotation System, or (ii) if not so quoted, as reported by
any other recognized quotation system on which the Common Stock is quoted,
shall have for any twenty (20) trading days within a
14
<PAGE>
period of thirty (30) consecutive trading days ending on the fifth (5th)
trading day prior to the date on which the Redemption Notice is given,
equalled or exceeded 150% of the then exercise price per share of Common
Stock (subject to adjustment in the event of any stock splits or other
similar events as provided in SECTION 8 hereof).
(b) In case the Company shall exercise its right to redeem all of
the Warrants, it shall give or cause to be given notice to the Registered
Holders of the Warrants, by mailing to such Registered Holders the Redemption
Notice, first class, postage prepaid, at their last address as shall appear
on the records of the Warrant Agent. Any Redemption Notice mailed in the
manner provided herein shall be conclusively presumed to have been duly given
whether or not the Registered Holder receives such Redemption Notice. Not
less than five (5) business days prior to the mailing to the Registered
Holders of the Warrants of the Redemption Notice, the Company shall deliver
or cause to be delivered to the Underwriter or its successors or assigns a
similar notice telephonically and confirmed in writing, together with a list
of the Registered Holders (including their respective addresses and number of
Warrants beneficially owned by them) to whom such Redemption Notice has been
or will be given.
(c) The Redemption Notice shall specify (i) the redemption price,
(ii) the date fixed for redemption, which shall in no event be less than
thirty (30) days after the date of mailing of such notice, (iii) the place
where the Warrant Certificates shall be delivered and the redemption price
shall be paid, and (iv) that the Underwriter is the Company's exclusive
warrant solicitation agent and shall receive the commission contemplated by
SECTION 4(b) hereof and (v) that the right to exercise the Warrant shall
terminate at 5:00 p.m. (New York time) on the business day immediately
preceding the date fixed for redemption. The date fixed for the redemption of
the Warrants shall be the "Redemption Date" for purposes of this Agreement.
15
<PAGE>
No failure to mail the Redemption Notice nor any defect therein or in the
mailing thereof shall affect the validity of the proceedings for such
redemption except as to a holder (A) to whom notice was not mailed or (B)
whose notice was defective. An affidavit of the Warrant Agent or the
Secretary or Assistant Secretary of the Company that the Redemption Notice
has been mailed shall, in the absence of fraud, be prima facie evidence of
the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 p.m.
(New York time) on the business day immediately preceding the Redemption
Date. The redemption price payable to the Registered Holders shall be mailed
to such persons at their addresses of record.
(e) The Company shall indemnify the Underwriter and each person, if
any, who controls the Underwriter within the meaning of Section 15 of the Act
or Section 20(a) of the 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 otherwise, arising from the
registration statement or prospectus referred to in SECTION 5(b) hereof to
the same extent and with the same effect (including the provisions regarding
contribution) as the provisions pursuant to which the company has agreed to
indemnify the Underwriter contained in Section 7 of the Underwriting
Agreement.
(f) Five business days prior to the Redemption Date, the Company
shall furnish to the Underwriter (i) opinions of counsel to the Company,
dated such date and addressed to the Underwriter, and (ii) a "cold comfort"
letter dated such date addressed to the Underwriter, signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus
16
<PAGE>
included therein) and, in the case of such accountants' letter, with respect
to events subsequent to the date of such financial statements, as are
customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities, including, without limitation, those matters covered in Sections
6(d), 6(e) and 6(j) of the Underwriting Agreement.
(g) The Company shall as soon as practicable after the Redemption
Date, and in any event within 15 months thereafter, make "generally available
to its security holders" (within the meaning of Rule 158 under the Act) an
earnings statement (which need not be audited) complying with Section 11(a)
of the Act and covering a period of at least 12 consecutive months beginning
after the Redemption Date.
(h) The Company shall deliver within five business days prior to
the Redemption Date copies of all correspondence between the Commission and
the Company, its counsel or auditors and all memoranda relating to
discussions with the Commission or its staff with respect to such
registration statement and permit the Underwriter to do such investigation,
upon reasonable advance notice, with respect to information contained in or
omitted from the registration statement as it deems reasonably necessary to
comply with applicable securities laws or rules of the NASD. Such
investigation shall include access to books, records and properties and
opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable
times and as often as the Underwriter shall reasonably request.
SECTION 10. CONCERNING THE WARRANT AGENT.
(a) The Warrant Agent acts hereunder as agent and in a ministerial
capacity for the Company and the Underwriter, and its duties shall be
determined solely by the provisions
17
<PAGE>
hereof. The Warrant Agent shall not, by issuing and delivering Warrant
Certificates or by any other act hereunder, be deemed to make any
representations as to the validity or value or authorization of the Warrant
Certificates or the Warrants represented thereby, or of any securities or
other property delivered upon exercise of any Warrant or whether any stock
issued upon exercise of any Warrant is fully paid and non-assessable.
(b) The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be
made any adjustment of the Purchase Price provided in this Agreement, or to
determine whether any fact exists which may require any such adjustment, or
with respect to the nature or extent of any such adjustment, when made, or
with respect to the method employed in making the same. It shall not (i) be
liable for any recital or statement of fact contained herein or for any
action taken, suffered or omitted by it in reliance on any Warrant
Certificate or other document or instrument believed by it in good faith to
be genuine and to have been signed or presented by the proper party or
parties, (ii) be responsible for any failure on the part of the Company to
comply with any of its covenants and obligations contained in this Agreement
or in any Warrant Certificate, or (iii) be liable for any act or omission in
connection with this Agreement except for its own gross negligence or willful
misconduct.
(c) The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company or the Underwriter)
and shall incur no liability or responsibility for any action taken, suffered
or omitted by it in good faith in accordance with the opinion or advice of
such counsel.
(d) Any notice, statement, instruction, request, direction, order
or demand of the Company shall be sufficiently evidenced by an instrument
signed by the Chairman of the
18
<PAGE>
Board of Directors, President or any Vice President (unless other evidence in
respect thereof is herein specifically prescribed). The Warrant Agent shall
not be liable for any action taken, suffered or omitted by it in accordance
with such notice, statement, instruction, request, direction, order or demand.
(e) The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its
reasonable expenses hereunder; the Company further agrees to indemnify the
Warrant Agent and hold it harmless against any and all losses, expenses and
liabilities, including judgments, costs and counsel fees, for anything done
or omitted by the Warrant Agent in the execution of its duties and powers
hereunder except losses, expenses and liabilities arising as a result of the
Warrant Agent's gross negligence or willful misconduct.
(f) The Warrant Agent may resign its duties and be discharged from
all further duties and liabilities hereunder (except liabilities arising as a
result of the Warrant Agent's own gross negligence or willful misconduct),
after giving thirty (30) days' prior written notice to the Company. At least
fifteen (15) days prior to the date such resignation is to become effective,
the Warrant Agent shall cause a copy of such notice of resignation to be
mailed to the Registered Holder of each Warrant Certificate at the Company's
expense. Upon such resignation the Company shall appoint in writing a new
warrant agent. If the Company shall fail to make such appointment within a
period of thirty (30) days after it has been notified in writing of such
resignation by the resigning Warrant Agent, then the Registered Holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed
by the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last
19
<PAGE>
published report to its stockholders, of not less than ten million dollars
($10,000,000) or a stock transfer company doing business in New York, New
York. After acceptance in writing of such appointment by the new warrant
agent is received by the Company, such new warrant agent shall be vested with
the same powers, rights, duties and responsibilities as if it had been
originally named herein as the warrant agent, without any further assurance,
conveyance, act or deed; but if for any reason it shall be necessary or
expedient to execute and deliver any further assurance, conveyance, act or
deed, the same shall be done at the expense of the Company and shall be
legally and validly executed and delivered by the resigning Warrant Agent.
Not later than the effective date of any such appointment, the Company shall
file notice thereof with the resigning Warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
(g) Any corporation into which the Warrant Agent or any new warrant
agent may be converted or merged, any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party, or any corporation succeeding to the corporate trust business of the
Warrant Agent or any new warrant agent shall be a successor warrant agent
under this Agreement without any further act, provided that such corporation
is eligible for appointment as successor to the Warrant Agent under the
provisions of the preceding paragraph. Any such successor warrant agent shall
promptly cause notice of its succession as warrant agent to be mailed to the
Company and to the Registered Holders of each Warrant Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates, and any of its
or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same
manner and to the same extent and with like effect
20
<PAGE>
as though it were not Warrant Agent. Nothing herein shall preclude the
Warrant Agent from acting in any other capacity for the Company or for any
other legal entity.
(i) The Warrant Agent shall retain for a period of two (2) years from
the date of exercise any Warrant Certificate received by it upon such
exercise.
SECTION 11. MODIFICATION OF AGREEMENT.
The Warrant Agent and the Company may by supplemental agreement make any
changes or corrections in this Agreement (a) that they shall deem appropriate
to cure any ambiguity or to correct any defective or inconsistent provision
or manifest mistake or error herein contained, or (b) that they may deem
necessary or desirable and which shall not adversely affect the interests of
the holders of Warrant Certificates; PROVIDED, HOWEVER, that this Agreement
shall not otherwise be modified, supplemented or altered in any respect
except with the consent in writing of the Registered Holders holding not less
than sixty-six and two-thirds percent (66-2/3%) of the Warrants then
outstanding; PROVIDED, FURTHER, that no change in the number or nature of the
securities purchasable upon the exercise of any Warrant, and no change that
increases the Purchase Price of any Warrant, other than such changes as are
specifically set forth in this Agreement as originally executed, shall be
made without the consent in writing of each Registered Holders affected by
such change. In addition, this Agreement may not be modified, amended or
supplemented without the prior written consent of the Underwriter or its
successors or assigns, other than to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained or to make any such change that the Warrant Agent and the Company
deem necessary or desirable and which shall not adversely affect the
interests of the Underwriter or its successors or assigns.
21
<PAGE>
SECTION 12. NOTICES.
All notices, requests, consents and other communications hereunder shall
be in writing and shall be deemed to have been made when delivered or mailed
first-class postage prepaid or delivered to a telegraph office for
transmission, if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the
Warrant Agent; if to the Company at Hawaiian Natural Water Company, Inc., 248
Mokauea Street, Honolulu, Hawaii 96819, Attention: Marcus Bender, Chief
Executive Officer, or at such other address as may have been furnished to the
Warrant Agent in writing by the Company; and if to the Warrant Agent, at its
Corporate Office. Copies of any notice delivered pursuant to this Agreement
shall be delivered to Joseph Stevens & Company, Inc., 33 Maiden Lane, 8th
Floor, New York, NY 10038, Attention: Joseph Sorbara, Chief Executive Officer
or at such other address as may have been furnished to the Company and the
Warrant Agent in writing.
SECTION 13. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without giving effect to conflicts of laws
rules or principals.
SECTION 14. BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of the
Company, the Warrant Agent and their respective successors and assigns and
the holders from time to time of Warrant Certificates or any of them. Except
as hereinafter stated, nothing in this Agreement is intended or shall be
construed to confer upon any other person any right, remedy or claim or to
impose upon any other person any duty, liability or obligation. The
Underwriter is, and shall at all times irrevocably be deemed to be, a
third-party beneficiary of this Agreement, with full power, authority and
standing to enforce the rights granted to it hereunder.
22
<PAGE>
SECTION 15. COUNTERPARTS.
This Agreement may be executed in several counterparts, which taken
together shall constitute a single document.
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
HAWAIIAN NATURAL WATER CONTINENTAL STOCK TRANSFER
COMPANY, INC. & TRUST COMPANY
As Warrant Agent
By: /s/ Marcus Bender By: /s/ Steven Nelson
------------------------ -----------------------
Name: Marcus Bender Name: Steven Nelson
Title: Cluef Executive Officer Title: Chairman
<PAGE>
EXHIBIT A
No. W ______________ VOID AFTER __________, 2002
____________ WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE SHARES OF COMMON STOCK
HAWAIIAN NATURAL WATER COMPANY, INC.
CUSIP ___
THIS CERTIFIES THAT, FOR VALUE RECEIVED __________________________________
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. One Warrant initially
entitles the Registered Holder to purchase, subject to the terms and
conditions set forth in this Certificate and the Warrant Agreement (as
hereinafter defined), one fully paid and non-assessable share of Common
Stock, no par value per share, of Hawaiian Natural Water Company, Inc., a
Hawaii corporation (the "Company"), at any time from May 14, 1997 and prior
to 5:00 p.m. on the Expiration Date (as hereinafter defined) upon the
presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office of
Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York
10004 as Warrant Agent, or its successor (the "Warrant Agent"), accompanied
by payment of $6.00 per share, subject to adjustment (the "Purchase Price"),
in lawful money of the United States of America in cash or by check made
payable to the Warrant Agent for the account of the Company.
This Warrant Certificate, and each Warrant represented hereby, is issued
pursuant to and is subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated May 14, 1997
by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all of the Warrants represented hereby, the Company
shall cancel this Warrant Certificate upon the surrender hereof and shall
execute and deliver a new Warrant Certificate or Warrant Certificates of like
tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
A-1
<PAGE>
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on May
13, 2002. If such date shall in the State of New York be a holiday or a day
on which banks are authorized to close, then the Expiration Date shall mean
5:00 p.m. (New York time) on the next day which in the State of New York is
not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such
securities is effective or an exemption thereunder is available. The Company
has covenanted and agreed that it will file a registration statement under
the Federal securities laws, use its best efforts to cause the same to become
effective, to keep such registration statement current, if required under the
Act, while any of the Warrants are outstanding, and deliver a prospectus
which complies with Section 10(a)(3) of the Act to the Registered Holder
exercising this Warrant. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an
equal aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment and payment of any
tax or other charge imposed in connection therewith or incident thereto, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, in whole and not in part, at a
redemption price of $.05 per Warrant, at any time commencing May 14, 1998
provided that (i) the average closing bid price for the Company's Common
Stock, as reported by the National Association of Securities Dealers
Automated Quotation System (or, if not so quoted, as reported by any other
recognized quotation system on which the price of the Common Stock is
quoted), shall have, for any twenty (20) trading days within a period of
thirty (30) consecutive trading days ending on the fifth (5th) trading day
prior to the date on which the Notice of Redemption (as defined below) is
given, equalled or exceeded 150% of the then exercise price per share
(subject to adjustment in the event of any stock splits or other similar
events) and (ii) the Company has obtained the prior written consent of Joseph
Stevens & Company, Inc. Notice of redemption (the "Notice of Redemption")
shall be given not later than the thirtieth (30th) day before the date fixed
for redemption, all as provided in the Warrant Agreement. On and after the
date fixed for redemption, the Registered Holder shall have no rights with
respect to this Warrant except to receive the $.05 per Warrant upon surrender
of this Certificate.
A-2
<PAGE>
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in
the Warrant Agreement.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York without giving effect to conflicts of
laws.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: _________, 1997
HAWAIIAN NATURAL WATER COMPANY,
INC.
[SEAL]
By:______________________________
Name: Marcus Bender
Title: Chief Executive Officer
ATTEST:
By:______________________________
Name:
Title:
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By:__________________
Authorized Officer
A-3
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrant
The undersigned Registered Holder hereby irrevocably elects to exercise
_____ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
____________________________
____________________________
____________________________
____________________________
(please print or type name and address)
and be delivered to
____________________________
____________________________
____________________________
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by
this Warrant Certificate, that a new Warrant Certificate for the balance of
such Warrants be registered in the name of, and delivered to, the Registered
Holder at the address stated below.
A-4
<PAGE>
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
l. If the exercise of this Warrant was
solicited by Joseph Stevens & Company,
Inc. please check the
following box / /
2. The exercise of this Warrant was
solicited by / /
_________________________________
3. If the exercise of this Warrant was
not solicited, please check the
following box / /
Dated:__________________________ X___________________________
___________________________
___________________________
Address
___________________________
Social Security or Taxpayer
Identification Number
___________________________
Signature Guaranteed
___________________________
A-5
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED,______________, hereby sells, assigns
and transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER
_______________________________________
_______________________________________
_______________________________________
(please PRINT or TYPE name and address)
_______________________of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints _______________
Attorney to transfer this Warrant Certificate on the books of the Company,
with full power of substitution in the premises.
Dated:______________________________ X___________________________
___________________________
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO
THE NAME(S) AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND
MUST BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF
THE AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE,
MIDWEST STOCK EXCHANGE OR BOSTON STOCK EXCHANGE.
A-6
<PAGE>
WARRANTS WARRANTS
NUMBER
W- HAWAIIAN
NATURAL
WATER COMPANY, INC.
VOID AFTER MAY 13, 2002
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE SHARES OF COMMON STOCK CUSIP 419883 11 1
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. One Warrant initially
entitles the Registered Holder to purchase, subject to the terms and
conditions set forth in this Certificate and the Warrant Agreement (as
hereinafter defined), one fully paid and non-assessable share of Common
Stock, no par value per share, of Hawaiian Natural Water Company, Inc., a
Hawaii corporation (the "Company"), at any time from May l4, 1997 and prior
to 5:00 p.m. on the Expiration Date (as hereinafter defined) upon the
presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office of
Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York
10004 as Warrant Agent, or its successor (the "Warrant Agent"), accompanied
by payment of $6.00 per share, subject to adjustment (the "Purchase Price"),
in lawful money of the United States of America in cash or by check made
payable to the Warrant Agent for the account of the Company.
This Warrant Certificate, and each Warrant represented hereby, is issued
pursuant to and is subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated May 14, 1997 by
and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all of the Warrants represented hereby, the Company
shall cancel this Warrant Certificate upon the surrender hereof and shall
execute and deliver a new Warrant Certificate or Warrant Certificates of like
tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on May 13,
2002. If such date shall in the State of New York be a holiday or a day on
which banks are authorized to close, then the Expiration Date shall mean 5:00
p.m. (New York time) on the next day which in the State of New York is not a
holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of l933, as amended (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Company has
covenanted and agreed that it will file a registration statement under the
Federal securities laws, use its best efforts to cause the same to become
effective, to keep such registration statement current, if required under the
Act, while any of the Warrants are outstanding, and deliver a prospectus which
complied with Section 10(a)(3) of the Act to the Registered Holder exercising
this Warrant. This Warrant shall not be exercisable by a Registered Holder in
any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment and payment of any
tax or other charge imposed in connection therewith or incident thereto, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, in whole and not in part, at a
redemption price of $.05 per Warrant, at any time commencing May 14, 1998,
provided that (i) the average closing bid price for the Company's Common Stock,
as reported by the National Association of Securities Dealers Automated
Quotation System (or, if not so quoted, as reported by any other recognized
quotation system on which the price of the Common Stock is quoted), shall have,
for any twenty (20) trading days within a period of thirty (30) consecutive
trading days ending on the fifth (5th) trading day prior to the date on which
the Notice of Redemption (as defined below) is given, equalled or exceeded 150%
of the then exercise price per share (subject to adjustment in the event of any
stock splits or other similar events) and (ii) the Company has obtained the
prior written consent of Joseph Stevens & Company, Inc. Notice of redemption
(the "Notice of Redemption") shall be given not later than the thirtieth (30th)
day before the date fixed for redemption, all as provided in the Warrant
Agreement. On and after the date fixed for redemption, the Registered Holder
shall have no rights with respect to this Warrant except to receive the $.05
per Warrant upon surrender of this Certificate.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York without giving effect to conflicts of
laws.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile, by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: HAWAIIAN NATURAL WATER COMPANY, INC.
COUNTERSIGNED: By:
CONTINENTAL STOCK TRANSFER &
TRUST COMPANY /s/MARCUS BENDER
as Warrant Agent President
By: ATTEST:
- ---------------------------------------- By:
Authorized Officer /s/BRIAN BARBATA
Secretary
[SEAL]
HAWAIIAN NATURAL WATER COMPANY, INC.
INCORPORATED
STATE OF HAWAII
SEPT. 13, 1994
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrant
The undersigned Registered Holder hereby irrevocably elects to exercise
________ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
- ---------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(please print or type name and address)
and be delivered to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
l. If the exercise of this Warrant was solicited by Joseph Stevens & Company,
Inc. Please Check the following Box / /
2. The Exercise of this Warrant was Solicited by / /
-------------------------
3. If the exercise of this Warrant was not solicited, please check the following
box / /
Dated: X
------------------------ ----------------------------------------
----------------------------------------
----------------------------------------
----------------------------------------
----------------------------------------
Address
----------------------------------------
Social Security or Taxpayer
Identification Number
----------------------------------------
Signature Guaranteed
----------------------------------------
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED,
_______________________________________________________________________________
hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
- ---------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(please print or type name and address)
_______________________ of the Warrants represented by this Warrant Certificate,
and hereby irrevocably constitutes and appoints _______________________ Attorney
to transfer this Warrant Certificate on the books of the Company, with full
power of substitution in the premises.
Dated: X
------------------------ ----------------------------------------
Signature Guaranteed
----------------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME(S) AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST
BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE,
MIDWEST STOCK EXCHANGE OR BOSTON STOCK EXCHANGE.
<PAGE>
UNDERWRITER'S WARRANT AGREEMENT dated as of May 14, 1997 by and
between HAWAIIAN NATURAL WATER COMPANY, INC., a Hawaii corporation (the
"Company"), and JOSEPH STEVENS & COMPANY, INC. ("Joseph Stevens") (Joseph
Stevens is hereinafter referred to variously as the "Holder" or the
"Underwriter").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Underwriter or its
designee(s) warrants ("Warrants") to purchase up to 200,000 shares of the
Company's common stock, no par value per share ("Common Stock"); and
WHEREAS, the Underwriter has agreed pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof between
the Underwriter and the Company in connection with the proposed public
offering of 2,000,000 units (the "Units") at a public offering price of $4.00
per Unit, each Unit consisting of one (1) share of Common Stock and one (1)
redeemable Common Stock purchase warrant ("Redeemable Warrants"), each
Redeemable Warrant to purchase one (1) additional share of Common Stock; and
WHEREAS, the Warrants to be issued pursuant to this Agreement will
be issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Underwriter in consideration for, and as
part of the Underwriter's compensation in connection with, Joseph Stevens
acting as the Underwriter pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment by the
Underwriter to the Company of twenty dollars and no cents ($20.00), the
agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
<PAGE>
1. GRANT. The Underwriter (or its designee(s)) is hereby granted the
right to purchase, at any time from May 14, 1998 until 5:00 p.m., New York
time, on May 13, 2002, up to 200,000 shares of Common Stock at an initial
exercise price (subject to adjustment as provided in Section 8 hereof) of $6.60
per share subject to the terms and conditions of this Agreement.
2. WARRANT CERTIFICATES. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall
be in the form set forth in Exhibit A attached hereto and made a part hereof,
with such appropriate insertions, omissions, substitutions and other variations
as required or permitted by this Agreement.
3. EXERCISE OF WARRANT.
3.1 METHOD OF EXERCISE. The Warrants are initially exercisable at an
initial exercise price per share set forth in Section 6 hereof payable by
certified or official bank check in New York Clearing House funds, subject to
adjustment as provided in Section 8 hereof. Upon surrender of a Warrant
Certificate, together with the annexed Form of Election to Purchase duly
executed and payment of the Exercise Price (as hereinafter defined) for the
shares of Common Stock purchased at the Company's principal offices in
Honolulu, Hawaii (presently located at 248 Mokauea Street, Honolulu, Hawaii
96819) the registered holder of a Warrant Certificate ("Holder" or "Holders")
shall be entitled to receive a certificate or certificates for the shares of
Common Stock so purchased. The purchase rights represented by each Warrant
Certificate are exercisable at the option of the Holder thereof, in whole or in
part (but not as to fractional shares of the Common Stock underlying the
Warrants). Warrants may be exercised to purchase all or part of the shares of
Common Stock represented thereby. In the case of the purchase of less than all
the shares of Common Stock purchasable under any Warrant Certificate,
2
<PAGE>
the Company shall cancel said Warrant Certificate upon the surrender thereof
and shall execute and deliver a new Warrant Certificate of like tenor for the
balance of the shares of Common Stock purchasable thereunder.
3.2 EXERCISE BY SURRENDER OF WARRANT. In addition to the method of
payment set forth in Section 3.1 and in lieu of any cash payment required
thereunder, the Holder(s) of the Warrants shall have the right at any time and
from time to time to exercise the Warrants in full or in part by surrendering
the Warrant Certificate in the manner specified in Section 3.1 in exchange for
the number of shares of Common Stock equal to the product of (x) the number of
shares of Common Stock as to which the Warrants are being exercised, multiplied
by (y) a fraction, the numerator of which is the Market Price (as defined in
Section 3.3 hereof) of the Common Stock minus the Exercise Price of the Common
Stock and the denominator of which is the Market Price per share of Common
Stock. Solely for the purposes of this Section 3.2, Market Price shall be
calculated either (i) on the date on which the form of election attached hereto
is deemed to have been sent to the Company pursuant to Section 14 hereof
("Notice Date") or (ii) as the average of the Market Price for each of the five
trading days immediately preceding the Notice Date, whichever of (i) or (ii)
results in a greater Market Price.
3.3 DEFINITION OF MARKET PRICE.
(a) As used herein, the phrase "Market Price" of the Common Stock at
any date shall be deemed to be the last reported sale price, or, in case no
such reported sale takes place on such day, the average of the last reported
sale prices for the last three (3) trading days, in either case as officially
reported by the principal securities exchange on which the Common Stock is
listed or admitted to trading or by the Nasdaq National Market ("Nasdaq
National Market") or the Nasdaq Small Cap Market ("Nasdaq Small Cap"), or, if
the Common Stock is
3
<PAGE>
not listed or admitted to trading on any national securities exchange or quoted
by the National Association of Securities Dealers Automated Quotation System
("Nasdaq"), the average closing bid price as furnished by the National
Association of Securities Dealers, Inc: ("NASD") through Nasdaq or similar
organization if Nasdaq is no longer reporting such information.
(b) If the Market Price of the Common Stock cannot be determined
pursuant to Section 3.3(a) above, the Market Price of the Common Stock shall be
determined in good faith (using customary valuation methods) by resolution of
the members of the Board of Directors of the Company, based on the best
information available to it.
4. ISSUANCE OF CERTIFICATES. Upon the exercise of the Warrants, the
issuance of certificates for shares of Common Stock or other securities,
properties or rights underlying such Warrants, shall be made forthwith (and in
any event such issuance shall be made within three (3) business days
thereafter) without charge to the Holder thereof including, without limitation,
any tax which may be payable in respect of the issuance thereof, and such
certificates shall (subject to the provisions of SECTIONS 5 and 7 hereof) be
issued in the name of, or in such names as may be directed by, the Holder
thereof.
The Warrant Certificates and the certificates representing the shares
of Common Stock underlying the Warrants or other securities, property or rights
shall be executed on behalf of the Company by the manual or facsimile signature
of the then present Chairman or Vice Chairman of the Board of Directors or
President or Vice President of the Company under its corporate seal reproduced
thereon, attested to by the manual or facsimile signature of the then present
Secretary or Assistant Secretary or Treasurer or Assistant Treasurer of the
Company. Warrant Certificates shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or transfer.
4
<PAGE>
5. RESTRICTION ON TRANSFER OF WARRANTS. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof; that the Warrants may not be sold, transferred, assigned, hypothecated
or otherwise disposed of, in whole or in part, for a period of one (1) year
from the effective date of the Company's Registration Statement on form SB-2
(Registration No. 333-18289) (the "Registration Statement"), except to officers
of the Underwriter.
6. EXERCISE PRICE.
6.1 INITIAL AND ADJUSTED EXERCISE PRICE. Except as otherwise provided
in Section 8 hereof, the initial exercise price of each Warrant shall be $6.60
per share of Common Stock. The adjusted exercise price shall be the price which
shall result from time to time from any and all adjustments of the initial
exercise price in accordance with the provisions of Section 8 hereof.
6.2 EXERCISE PRICE. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the
context.
7. REGISTRATION RIGHTS.
7.1 REGISTRATION UNDER THE SECURITIES ACT OF 1933. The Warrants and
the shares of Common Stock underlying the Warrants and the other securities
issuable upon exercise of the Warrants (collectively, the "Warrant Securities")
have not been registered under the Securities Act of 1933, as amended (the
"Act"). Upon exercise, in part or in whole, of the Warrants, certificates
representing the shares of Common Stock underlying the Warrants, and the other
securities issuable upon exercise of the Warrants shall bear the following
legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended ("Act"),
5
<PAGE>
and may not be offered, sold, pledged, hypothecated, assigned or
transferred except pursuant to (i) an effective registration statement
under the Act, (ii) to the extent applicable, Rule 144 under the Act
(or any similar rule under such Act relating to the disposition of
securities), or (iii) an opinion of counsel, if such opinion shall be
reasonably satisfactory to counsel to the issuer, that an exemption
from registration under such Act is available.
7.2 PIGGYBACK REGISTRATION. If, at any time commencing after the date
hereof and expiring seven (7) years after the effective date of the
Registration Statement, the Company proposes to register any of its securities
under the Act (other than pursuant to Form S-8, S-4 or a comparable
registration statement) the Company will give written notice by registered
mail, at least thirty (30) days prior to the filing of each such registration
statement, to the Underwriter and to all other Holders of the Warrants and/or
the Warrant Securities of its intention to do so. If the Underwriter or other
Holders of the Warrants and/or Warrant Securities notifies the Company within
twenty (20) days after receipt of any such notice of its or their desire to
include any of the shares of Common Stock underlying the Warrants or any other
securities issuable upon exercise of the Warrants in such proposed registration
statement, the Company shall afford the Underwriter and such Holders of the
Warrants and/or Warrant Securities the opportunity to have any of the shares of
Common Stock underlying the Warrants or any other securities issuable upon
exercise of the Warrants registered under such registration statement.
Notwithstanding the provisions of this Section 7.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 7.2 (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 thereof.
6
<PAGE>
7.3 DEMAND REGISTRATION.
(a) At any time commencing after the date hereof and expiring five
(5) years after the effective date of the Registration Statement, the Holders
of the Warrants and/or Warrant Securities 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 Section 7.2 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
opinion of both counsel for the Company and counsel for the Underwriter and
Holders, in order to comply with the provisions of the Act, so as to permit a
public offering and sale of their respective shares of Common Stock underlying
the Warrants or any other securities issuable upon exercise of the Warrants for
nine (9) consecutive months by such Holders and any other Holders of the
Warrants and/or Warrant Securities 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 7.3, 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
7
<PAGE>
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 7.3, 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 registration shall not count as a registration under this SECTION 7.3. In
addition, the Company may, one time, in any 12 month period, suspend the
effectiveness of any registration statement filed pursuant to this SECTION 7.3
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 7.3 a
certificate signed by the 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 7.3 a
notice stating that the Suspension Period has been terminated within three (3)
business days following the date of such termination..
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within
ten (10) days from the date of the receipt of any such registration request.
(c) Notwithstanding anything to the contrary contained herein, if the
Company shall not have filed a registration statement for the applicable
securities within the time period specified in Section 7.4(a) hereof pursuant
to the written notice specified in Section 7.3(a) of a
8
<PAGE>
Majority of the Holders of the Warrants and/or Warrant Securities, the Company
shall have the option upon the written concurrence of a Majority of the Holders
of the Warrants and/or Warrant Securities to repurchase (i) any and all Warrant
Securities at the higher of the Market Price per share of Common Stock on (x)
the date of the notice sent pursuant to Section 7.3(a) or (y) the expiration of
the period specified in Section 7.4(a) and (ii) any and all Warrants at such
Market Price less the Exercise Price of such Warrant. Such repurchase shall be
in immediately available funds and shall close within two (2) days after the
later of (i) the expiration of the period specified in Section 7.4(a) or (ii)
the delivery of the written notice of election specified in this Section 7.3(c).
(d) In addition to the registration rights under Section 7.2 and
subsection (a) of this Section 7.3, at any time commencing after the date
hereof and expiring five (5) years thereafter, any Holder of Warrants and/or
Warrant Securities shall have the right, exercisable by written request to
the Company, to have the Company prepare and file, on one occasion, with the
Commission a registration statement so as to permit a public offering and
sale for nine (9) consecutive months by any such Holder of its shares of
Common Stock underlying the Warrants or any other securities issuable upon
exercise of the Warrants provided, however, that the provisions of Section
7.4(b) hereof shall not apply to any such registration request and
registration and all costs incident thereto shall be at the expense of the
Holder or Holders making such request.
7.4 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. In
connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
9
<PAGE>
(a) The Company shall use its best efforts to file a registration
statement within forty-five (45) 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.
(b) The Company shall pay all costs (excluding fees and expenses of
Holder(s)' counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. The
Holder(s) will pay all costs, fees and expenses in connection with any
registration statement filed pursuant to Section 7.3(d). If the Company shall
fail to comply with the provisions of Section 7.4(a), the Company shall be
liable for any equitable or other relief available at law to the Holder(s)
requesting registration of their Warrant Securities, excluding consequential
damages.
(c) The Company will take all necessary action which may be required
in qualifying or registering the securities included in a registration
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 execute or file any general consent to service of
process or to qualify as a foreign corporation to do business under the laws of
any such jurisdiction.
(d) 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
10
<PAGE>
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 otherwise,
arising from such registration statement but only to the same extent and with
the same effect as the provisions pursuant to which the Company has agreed to
indemnify the Underwriter contained in Section 7 of the Underwriting
Agreement. The Company further agree(s) that upon demand by an indemnified
person, at any time or from time to time, it 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
Company has indemnified such person pursuant hereto. Notwithstanding the
foregoing provisions of this Section 7.4(d) any such payment or reimbursement
by the Company 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 Holder(s) or such person's gross negligence or willful misfeasance will
be promptly repaid to the Company.
(e) 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
11
<PAGE>
whatsoever) to which they may become subject under the Act, the Exchange Act
or otherwise, arising from information furnished by or on behalf of such
Holders, or their successors or assigns, for specific inclusion in such
registration statement to the same extent and with the same effect as the
provisions contained in Section 7 of the Underwriting Agreement pursuant to
which the Underwriter has agreed to indemnify the Company. 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 7.4(e) 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).
(f) Nothing contained in this Agreement shall be construed as requiring
the Holder(s) to exercise their Warrants prior to the initial filing of any
registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities other
than the Warrant Securities to be included in any registration statement
filed pursuant to Section 7.3 hereof, or permit any registration statement to
be or remain effective during the effectiveness of a registration statement
filed pursuant to Section 7.3 hereof, without the prior written consent of
the Holders of the Warrants and Warrant Securities
12
<PAGE>
representing a Majority of such securities (assuming the exercise of all of
the Warrants) other than (i) the Warrant Securities or (ii) any securities
issuable upon the exercise of that certain common stock purchase warrant
dated May 24, 1996 issued to Leisure Fund Ltd. in accordance with the
registration rights of such warrant, as in effect on the date hereof, unless
such party shall have waived such registration rights.
(h) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company,
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, an opinion dated the
date of the closing under the underwriting agreement), and (ii) a "cold
comfort" letter dated the effective date of such registration statement (and,
if such registration includes an underwritten public offering, a letter dated
the date of the closing under the underwriting agreement) signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to underwriters in underwritten
public offerings of securities.
(i) The Company shall as soon as practicable after the effective date
of the registration statement, and in any event within 15 months thereafter,
make "generally available to its security holders" (within the meaning of
Rule 158 under the Act) an earnings statement (which need not be audited)
complying with Section 11(a) of the Act
13
<PAGE>
and covering a period of at least 12 consecutive months beginning after the
effective date of the registration statement.
(j) The Company shall deliver promptly to each Holder participating in
the offering requesting the correspondence and memoranda described below and
to the managing underwriter, if any, copies of all correspondence between the
Commission and the Company, its counsel or auditors and all memoranda
relating to discussions with the Commission or its staff with respect to the
registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems
reasonably necessary to comply with applicable securities laws or rules of
the NASD. Such investigation shall include access to books, records and
properties and opportunities to discuss the business of the Company with its
officers and independent auditors, all to such reasonable extent and at such
reasonable times and as often as any such Holder or underwriter shall
reasonably request.
(k) 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, which may be the Underwriter. 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
14
<PAGE>
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.
(1) In addition to the Warrant Securities, upon the written request
therefor by any Holder(s), the Company shall include in the registration
statement any other securities of the Company held by such Holder(s) as of
the date of filing of such registration statement, including without
limitation, restricted shares of Common Stock, options, warrants or any other
securities convertible into shares of Common Stock.
(m) For purposes of this Agreement, the term "Majority" in reference to
the Holders of Warrants or Warrant Securities shall mean in excess of fifty
percent (50%) of the then outstanding Warrants or 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.
8. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES.
8.1 SUBDIVISION AND COMBINATION. In case the Company shall at any
time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
15
<PAGE>
8.2 STOCK DIVIDENDS AND DISTRIBUTIONS. In case the Company shall
pay dividend in, or make a distribution of, shares of Common Stock or of the
Company's capital stock convertible into Common Stock, the Exercise Price
shall forthwith be proportionately decreased. An adjustment made pursuant to
this Section 8.2 shall be made as of the record date for the subject stock
dividend or distribution.
8.3 ADJUSTMENT IN NUMBER OF SECURITIES. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 8, the number
of Warrant Securities issuable upon the exercise at the adjusted Exercise
Price of each Warrant shall be adjusted to the nearest whole number by
multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of Warrant Securities issuable upon exercise
of the Warrants immediately prior to such adjustment and dividing the product
so obtained by the adjusted Exercise Price.
8.4 DEFINITION OF COMMON STOCK. For the purpose of this Agreement,
the term "Common Stock" shall mean (i) the class of stock designated as
Common Stock in the Articles of Incorporation of the Company as may be
amended or restated as of the date hereof, or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par value,
or from no par value to par value.
8.5 MERGER OR CONSOLIDATION OR SALE.
(a) 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), the corporation formed by such
consolidation or merger shall execute and deliver to the
16
<PAGE>
Holder a supplemental warrant agreement providing that the holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
Warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation, merger, sale or transfer by a
holder of the number of shares of Common Stock of the Company for which such
Warrant might have been exercised immediately prior to such consolidation,
merger, sale or transfer. Such supplemental warrant agreement shall provide
for adjustments which shall be identical to the adjustments provided in this
Section 8. The above provision of this subsection shall similarly apply to
successive consolidations or mergers.
(b) In the event of (i) the sale by the Company of all or substantially
all of its assets, or (ii) the engagement by the Company or any of its
affiliates in a "Rule 13e-3 transaction" as defined in paragraph (a)(3) of
Rule 13e-3 of the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended, or (iii) a distribution to the Company's
stockholders of any cash, assets, property, rights, evidences of
indebtedness, securities or any other thing of value, or any combination
thereof, the Holders of the unexercised Warrants shall receive notice of such
sale, transaction or distribution twenty (20) days prior to the date of such
sale or the record date for such transaction or distribution, as applicable,
and, if they exercise such Warrants prior to such date, they shall be treated
as holders of Common Stock of the Company upon the consummation of such
transaction or distribution.
8.6 NO ADJUSTMENT OF EXERCISE PRICE IN CERTAIN CASES. No adjustment
of the Exercise Price shall be made if the amount of said adjustment shall be
less than ten cents (10 CENTS) per Warrant Security, provided, however, that
in such case any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time of and
17
<PAGE>
together with the next subsequent adjustment which, together with any
adjustment so carried forward, shall amount to at least ten cents (10 CENTS)
per Warrant Security.
9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by
the registered Holder at the principal executive office of the Company, for a
new Warrant Certificate of like tenor and date representing in the aggregate
the right to purchase the same number of shares of Common Stock in such
denominations as shall be designated by the Holder thereof 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 any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable
expenses incidental thereto, and upon surrender and cancellation of the
Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not be
required to issue certificates representing fractions of shares of Common
Stock upon the exercise of the Warrants, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up
to the nearest whole number of shares of Common Stock or other securities,
properties or rights.
11. RESERVATION AND LISTING OF SECURITIES. The Company shall at all
times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Warrants,
such number of shares of Common Stock or other securities, properties or
rights as shall be issuable upon the exercise thereof. The Company
18
<PAGE>
covenants and agrees that, upon exercise of the Warrants and payment of the
Exercise Price therefor, all shares of Common Stock and other securities
issuable upon such exercise shall be duly and validly issued, fully paid,
non-assessable and not subject to the preemptive rights of any stockholder.
As long as the Warrants shall be outstanding, the Company shall use its best
efforts to cause all shares of Common Stock issuable upon the exercise of the
Warrants to be listed (subject to official notice of issuance) on all
securities exchanges on which the Common Stock issued to the public in
connection herewith may then be listed and/or quoted on Nasdaq National
Market or Nasdaq Small Cap Market.
12. NOTICES TO WARRANT HOLDERS. Nothing contained in this Agreement
shall be construed as conferring upon the Holders 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. If, however, at any
time prior to the expiration of the Warrants and their exercise, any of the
following events shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on the
books of the Company; or
(b) the Company shall offer to all the holders of its Common Stock any
additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the Company, or any
option, right or warrant to subscribe therefor; or
19
<PAGE>
(c) a dissolution, liquidation or winding up of the Company (other than
in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall
be proposed; then, in any one or more of said events, the Company shall give
written notice of such event at least twenty (20) days prior to the date
fixed as a record date or the date of closing the transfer books for the
determination of the stockholders entitled to such dividend, distribution.
convertible or exchangeable securities or subscription rights, or entitled to
vote on such proposed dissolution, liquidation, winding up or sale. Such
notice shall specify such record date or the date of closing the transfer
books, as the case may be. Failure to give such notice or any defect therein
shall not affect the validity of any action taken in connection with the
declaration or payment of any such dividend, or the issuance of any
convertible or exchangeable securities, or subscription rights, options or
warrants, or any proposed dissolution, liquidation, winding up or sale.
13. [INTENTIONALLY OMITTED]
14. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to the registered Holder of the Warrants, to the address of such
Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 hereof or
to such other address as the Company may designate by notice to the Holders.
15. SUPPLEMENTS AND AMENDMENTS. The Company and the Underwriter may
from time to time supplement or amend this Agreement without the approval of
any Holders of
20
<PAGE>
Warrant Certificates (other than the Underwriter) in order to cure any
ambiguity, to correct or supplement any provision contained herein which may be
defective or inconsistent with any provisions herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and the Underwriter may deem necessary or desirable and which the Company and
the Underwriter deem shall not adversely affect the interests of the Holders of
Warrant Certificates.
16. SUCCESSORS. All the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company, the Holders
and their respective successors and assigns hereunder.
17. TERMINATION. This Agreement shall terminate at the close of
business on May 13, 2004. Notwithstanding the foregoing, the indemnification
provisions of Section 7 shall survive such termination until the close of
business on May 13, 2009.
18. GOVERNING LAW, SUBMISSION TO JURISDICTION. This Agreement and
each Warrant Certificate issued hereunder shall be deemed to be a contract
made under the laws of the State of New York and for all purposes shall be
construed in accordance with the laws of said State without giving effect to
the rules of said State governing the conflicts of laws.
The Company, the Underwriter and the Holders hereby agree that any
action, proceeding or claim against it arising out of, or relating in any way
to, this Agreement shall be brought and enforced in the courts of the State
of New York or of the United States of America for the Southern District of
New York, and irrevocably submits to such jurisdiction. which jurisdiction
shall be exclusive. The Company, the Underwriter and the Holders hereby
irrevocably waive any objection to such exclusive jurisdiction or
inconvenient forum. Any such process or summons to be served upon any of the
Company, the Underwriter and the Holders
21
<PAGE>
(at the option of the party bringing such action, proceeding or claim) may be
served by transmitting a copy thereof, by registered or certified mail,
return receipt requested, postage prepaid, addressed to it at the address as
set forth in Section 14 hereof. Such mailing shall be deemed personal service
and shall be legal and binding upon the party so served in any action,
proceeding or claim. The Company, the Underwriter and the Holders agree that
the prevailing party(ies) in any such action or proceeding shall be entitled
to recover from the other party(ies) all of its/their reasonable legal costs
and expenses relating to such action or proceeding and/or incurred in
connection with the preparation therefor.
19. ENTIRE AGREEMENT; MODIFICATION. This Agreement (including the
Underwriting Agreement to the extent portions thereof are referred to herein)
and the Redeemable Warrant Agreement contain the entire understanding between
the parties hereto with respect to the subject matter hereof and may not be
modified or amended except by a writing duly signed by the party against whom
enforcement of the modification or amendment is sought.
20. SEVERABILITY. If any provision of this Agreement shall be held
to be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision of this Agreement.
21. CAPTIONS. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor
should they be construed as, a part of this Agreement and shall be given no
substantive effect.
22. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Underwriter and any other registered Holder(s) of the Warrant Certificates or
Warrant Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole and
22
<PAGE>
exclusive benefit of the Company and the Underwriter and any other Holder(s)
of the Warrant Certificates or Warrant Securities.
23. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall to either constitute but one
and the same instrument.
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
HAWAIIAN NATURAL WATER COMPANY, INC.
By: /s/ Marcus Bender
-------------------------------------
Name: Marcus Bender
Title: Chief Executive Officer
Attest:
/s/ Brian Barbata
- ---------------------------------------
Secretary
JOSEPH STEVENS & COMPANY, INC.
By: /s/ ENRICO SUPPA
-------------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES
ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO
(i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY
SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR
(iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY
TO COUNSEL FOR THE ISSUER. THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT
IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, MAY 13, 2002
No. UW-001 200,000 Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that Joseph Stevens & Company,
Inc., or registered assigns, is the registered holder of 200,000 Warrants to
purchase initially, at any time from May 14, 1998 until 5:00 p.m. New York
time on May 13, 2002 ("Expiration Date"), up to 200,000 shares of common
stock, no par value ("Common Stock"), of HAWAIIAN NATURAL WATER COMPANY,
INC., a Hawaii corporation (the "Company"), at the initial exercise price,
subject to adjustment in certain events (the "Exercise Price"), of $6.60 per
share of Common Stock upon surrender of this Warrant Certificate and payment
of the Exercise Price at an office or agency of the Company, or by surrender
of this Warrant Certificate in lieu of cash payment, but subject to the
conditions set forth herein and in the warrant agreement dated as of May 14,
1997 between the Company and Joseph Stevens & Company, Inc. (the "Warrant
Agreement"). Payment of the Exercise Price shall be made by certified or
official bank check in New York Clearing House funds payable to the order of
the Company or by surrender of this Warrant Certificate.
No Warrant may be exercised after 5:00 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
<PAGE>
The Warrants evidenced by this Warrant Certificate are part of a
duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a
part of this instrument and is hereby referred to for a description of the
rights, limitation of rights, obligations, duties and immunities thereunder
of the Company and the holders (the words "holders" or "holder" meaning the
registered holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be
adjusted. In such event, the Company will, at the request of the holder,
issue a new Warrant Certificate evidencing the adjustment in the Exercise
Price and the number and/or type of securities issuable upon the exercise of
the Warrants; provided, however, that the failure of the Company to issue
such new Warrant Certificates shall not in any way change, alter, or
otherwise impair, the rights of the holder as set forth in the Warrant
Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate
or Warrant Certificates of like tenor and evidencing in the aggregate a like
number of Warrants shall be issued to the transferee(s) in exchange for this
Warrant Certificate, subject to the limitations provided herein and in the
Warrant Agreement, without any charge except for any tax or other
governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such Warrant.
The Company may deem and treat the registered holder(s) hereof as
the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the
purpose of any exercise hereof, and of any distribution to the holder(s)
hereof, and for all other purposes, and the Company shall not be affected by
any notice to the contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed under its corporate seal.
Dated as of , 1997
HAWAIIAN NATURAL WATER COMPANY, INC.
[SEAL] By:
-------------------------------------
Marcus Bender
Chief Executive Officer
Attest:
- ---------------------------------------
Secretary
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right, represented
by this Warrant Certificate, to purchase _______ shares of Common Stock and
herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of HAWAIIAN
NATURAL WATER COMPANY, INC. in the amount of $_________, all in accordance
with the terms of Section 3.1 of the Underwriter's Warrant Agreement dated as
of May 14, 1997 between HAWAIIAN NATURAL WATER COMPANY, INC. and Joseph
Stevens & Company, Inc. The undersigned requests that certificates for such
securities be registered in the name of __________________ whose address is
______________________________ and that such certificates be delivered to
________________________________ whose address is _________________________.
Dated:
Signature________________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
_________________________________________
(Insert Social Security or Other
Identifying Number of Holder)
4
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _______ shares of Common
Stock all in accordance with the terms of Section 3.2 of the Underwriter's
Warrant Agreement dated as of May 14, 1997 between HAWAIIAN NATURAL WATER
COMPANY, INC. and Joseph Stevens & Company, Inc. The undersigned requests
that certificates for such securities be registered in the name of
__________________ whose address is ______________________________ and that
such certificates be delivered to ______________________________ whose
address is _________________________.
Dated:
Signature________________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
_________________________________________
(Insert Social Security or Other
Identifying Number of Holder)
5
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED __________ hereby sells, assigns and transfers unto
________________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint
__________________ Attorney, to transfer the within Warrant Certificate on
the books of the within-named Company, with full power of substitution.
Dated: ___________________________ Signature:_______________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
_________________________________________
(Insert Social Security or Other
Identifying Number of Holder)
6
<PAGE>
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
(ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE
UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION
OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE
ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, MAY 13, 2002
No. UW-001 200,000 Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that Joseph Stevens & Company, Inc.,
or registered assigns, is the registered holder of 200,000 Warrants to
purchase initially, at any time from May 14, 1998 until 5:00 p.m. New York
time on May 13, 2002 ("Expiration Date"), up to 200,000 shares of common
stock, no par value ("Common Stock"), of HAWAIIAN NATURAL WATER COMPANY,
INC., a Hawaii corporation (the "Company"), at the initial exercise price,
subject to adjustment in certain events (the "Exercise Price"), of $6.60 per
share of Common Stock upon surrender of this Warrant Certificate and payment
of the Exercise Price at an office or agency of the Company, or by surrender
of this Warrant Certificate in lieu of cash payment, but subject to the
conditions set forth herein and in the warrant agreement dated as of May 14,
1997 between the Company and Joseph Stevens & Company, Inc. (the "Warrant
Agreement"). Payment of the Exercise Price shall be made by certified or
official bank check in New York Clearing House funds payable to the order of
the Company or by surrender of this Warrant Certificate.
No Warrant may be exercised after 5:00 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of
this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities
<PAGE>
thereunder of the Company and the holders (the words "holders" or "holder"
meaning the registered holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be
adjusted. In such event, the Company will, at the request of the holder, issue
a new Warrant Certificate evidencing the adjustment in the Exercise Price and
the number and/or type of securities issuable upon the exercise of the
Warrants; provided, however, that the failure of the Company to issue such
new warrant Certificates shall not in any way change, alter, or otherwise
impair, the rights of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate
or Warrant Certificates of like tenor and evidencing in the aggregate a like
number of Warrants shall be issued to the transferee(s) in exchange for this
Warrant Certificate, subject to the limitations provided herein and in the
Warrant Agreement, without any charge except for any tax or other
governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such Warrant.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation
of ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
<PAGE>
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase shares of Common Stock
all in accordance with the terms of Section 3.2 of the Underwriter's Warrant
Agreement dated as of May 14, 1997 between HAWAIIAN NATURAL WATER COMPANY,
INC. and Joseph Stevens & Company, Inc. The undersigned requests that
certificates for such securities be registered in the name of _______________
whose address
is of _____________whose and that such certificates be
delivered to ______________whose address is .
Dated:
Signature_______________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
________________________________________
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Date as of May 19, 1997
HAWAIIAN NATURAL WATER COMPANY, INC.
[SEAL] By: /s/ MARCUS BENDER
---------------------------------
Marcus Bender
Chief Executive Officer
Attest:
/s/ BRIAN BARBATA
- -------------------------------
Secretary
<PAGE>
(To be executed by the registered holder
if such holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED________hereby sells, assigns and transfers unto
_______________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint ______________
Attorney, to transfer the within Warrant Certificate on the books of the
within-named Company, with full power of substitution.
Dated:_____________________________ Signature:______________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
________________________________________
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _______ shares of Common
Stock and herewith tenders in payment for such securities a certified or
official bank check payable in New York Clearing House Funds to the order of
HAWAIIAN NATURAL WATER COMPANY, INC. in the amount of $________, all in
accordance with the terms of Section 3.1 of the Underwriter's Warrant
Agreement dated as of May 14, 1997 between HAWAIIAN NATURAL WATER COMPANY,
INC. and Joseph Stevens & Company, Inc. The undersigned requests that
certificates for such securities be registered in the name of ____________
whose address is ___________________ and that such certificates be delivered
to ____________________ whose address is _______________________.
Dated:
Signature_______________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
________________________________________
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
Joseph Stevens & Company, L.P.
33 Maiden Lane
New York, NY 10038
Ladies and Gentlemen:
In order to induce Joseph Stevens & Company, L.P. (the "Underwriter")
and Hawaiian Natural Water Company, Inc. (the "Company") to enter into an
underwriting agreement (the "Underwriting Agreement") with respect to the
offering of securities issued by the Company, the undersigned intending to be
legally bound hereby agrees that for a period commencing on the date hereof
and ending eighteen (18) months following the effective date of the
registration statement (the "Registration Statement") relating to the
underwritten public offering of securities issued by the Company, he, she or
it will not, without the prior written consent of the Underwriter, directly
or indirectly, issue, offer to sell, sell, grant an option for the sale of,
assign, transfer, pledge, hypothecate or otherwise encumber or dispose of any
securities issued by the Company, including common stock or securities
convertible into or exchangeable or exercisable for or evidencing any right
to purchase or subscribe for any shares of common stock ("Securities")
(either pursuant to Rule 144 of the regulations under the Securities Act of
1933, as amended, or otherwise) whether or not beneficially owned by the
undersigned, or dispose of any beneficial interest therein.
In addition, the undersigned agrees that for the period commencing on
the date hereof and extending twenty-four (24) months following the effective
date of the Registration Statement, any sales of Securities shall be made
through the Underwriter in accordance with its customary brokerage policies,
either on a principal or agency basis.
In order to enable the aforesaid covenants, the undersigned hereby
consents to the placing of legends and/or stop-transfer orders with the
Transfer Agent of the Company's securities with respect to any of the
Company's securities registered in the name of the undersigned or
beneficially owned by the undersigned.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York without giving effect to
the choice of law or conflicts of laws principles.
Dated: __________________ 1996 __________________________________________
Name (Please print or type)
______________________________ __________________________________________
Address (Please print or type) Signature
______________________________ __________________________________________
Social Security or Federal Tax I.D. Number
______________________________
<PAGE>
2,000,000 UNITS, EACH
UNIT CONSISTING OF ONE SHARE OF
COMMON STOCK AND ONE REDEEMABLE WARRANT
HAWAIIAN NATURAL WATER COMPANY, INC.
UNDERWRITING AGREEMENT
New York, New York
May 14, 1997
JOSEPH STEVENS & COMPANY, INC.
33 Maiden Lane, 8th Floor
New York, New York 10038
Ladies and Gentlemen:
Hawaiian Natural Water Company, Inc., a Hawaii corporation (the
"Company"),confirms its agreement with Joseph Stevens & Company, Inc.
(hereinafter referred to as "you" or the "Underwriter"), with respect to the
sale by the Company and the purchase by the Underwriter of 2,000,000 units
(the "Units"), each Unit consisting of one (1) share of common stock, no par
value (the "Common Stock") and one (1) redeemable warrant (the "Redeemable
Warrants"). Each Redeemable Warrant is exercisable for one share of Common
Stock. The Common Stock and Redeemable Warrants will be separately tradeable
upon issuance and are hereinafter referred to as the "Firm Units." The
Redeemable Warrants are exercisable commencing May 14, 1997 until May 13,
2002, unless previously redeemed by the Company, at an initial exercise price
equal to $6.00 per share, subject to adjustment. The Redeemable Warrants may
be redeemed by the Company, in whole, and not in part, at a redemption price
of five cents ($.05) per Redeemable Warrant at any time commencing May 14,
1998 on 30 days' prior written notice provided that 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 twenty (20) trading days within a
period of thirty (30) consecutive trading days ending on the fifth (5th)
trading day prior to the date of the notice of redemption and the Company
shall have obtained the prior written consent of the Underwriter. Upon the
Underwriter's request, as provided in Section 2(b) of this Agreement, the
Company shall also issue and sell to the Underwriter up to an additional
300,000 Units for the purpose of covering over-allotments, if any. Such
300,000 Units are hereinafter collectively referred to as the "Option Units."
The Company also proposes to issue and sell to the Underwriter or its
designees warrants (the "Underwriter's Warrants"), pursuant to the
Underwriter's Warrant Agreement (the "Underwriter's Warrant Agreement"), for
the purchase of an additional 200,000 shares of Common Stock. The shares of
Common
<PAGE>
Stock underlying the Underwriter's Warrants are hereinafter collectively
referred to as the "Underwriter's Securities." The shares of Common Stock
issuable upon exercise of the Redeemable Warrants are hereinafter referred to
as the "Warrant Shares." Further, an additional 643,500 Redeemable Warrants
(the "Selling Securityholders Warrants") and 643,500 shares of Common Stock
underlying the Selling Securityholders Warrants (the "Selling Securityholders
Shares"), are being registered for the account of certain selling security
holders in connection with this offering (the "Offering") which are not being
underwritten by the Underwriter. The Selling Securityholders Warrants and the
Selling Securityholders Shares are hereinafter collectively referred to as
the "Selling Securityholders Securities." The Firm Units, the Option Units,
the Underwriter's Warrants, the Underwriter's Securities, the Selling
Securityholders Securities and the Warrant Shares are hereinafter
collectively referred to as the "Securities" and are more fully described in
the Registration Statement and the Prospectus referred to below.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and covenants and agrees with, the Underwriter as
of the date hereof, and as of the Closing Date (hereinafter defined) and the
Option Closing Date (hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and
amendments thereto, on Form SB-2 (Registration No. 333-18289), including any
related preliminary prospectus or prospectuses (each a "Preliminary
Prospectus"), for the registration of the Securities (excluding the
Underwriter's Warrants and the Underwriter's Securities), under the
Securities Act of 1933, as amended (the "Act"), which registration statement
and amendment or amendments have been prepared by the Company in conformity
with the requirements of the Act, and the rules and regulations of the
Commission under the Act. The Company will not file any other amendment to
such registration statement which the Underwriter shall have objected to in
writing after having been furnished with a copy thereof. Except as the
context may otherwise require, such registration statement, as amended, on
file with the Commission at the time it becomes effective (including the
prospectus, financial statements, schedules, exhibits and all other documents
filed as a part thereof or incorporated therein (including, but not limited
to, those documents or that information incorporated by reference therein)
and all information deemed to be a part thereof as of such time pursuant to
paragraph (b) of Rule 430A of the rules and regulations under the Act), is
hereinafter called the "Registration Statement," and the form of prospectus
in the form first filed with the Commission pursuant to Rule 424(b) of the
rules and regulations under the Act is hereinafter called the "Prospectus."
For purposes hereof, "Rules and Regulations" mean the rules and regulations
adopted by the Commission under either the Act or the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary
Prospectus, the Registration Statement or the Prospectus or any part of any
thereof and no proceedings for a stop order suspending the effectiveness of
the Registration Statement or any sale of the Company's securities have been
instituted or are pending or, to the best knowledge of the Company,
threatened. Each of the Preliminary Prospectus and the Registration Statement
and the Prospectus, at the time of filing thereof, conformed in all material
respects with the requirements of the Act and the Rules and
2
<PAGE>
Regulations, and none of the Preliminary Prospectus, the Registration
Statement nor the Prospectus, at the time of filing thereof, contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading; PROVIDED,
HOWEVER, that this representation and warranty does not apply to statements
made or statements omitted in reliance upon and in conformity with written
information furnished to the Company with respect to the Underwriter and its
proposed method of distribution of the Units by or on behalf of the
Underwriter expressly for use in such Preliminary Prospectus, the
Registration Statement or the Prospectus; provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof
or supplement thereto directly relating to the transactions effected by the
Underwriter in connection with this Offering. The Company acknowledges that
the statements with respect to the public offering of the Securities set
forth under the heading "Underwriting" and the stabilization legend in the
Prospectus have been furnished by the Underwriter expressly for use therein
and constitute the only information furnished in writing by or on behalf of
the Underwriter for inclusion in the Prospectus.
(c) When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date and each Option Closing Date,
if any, and during such longer period as the Prospectus may be required to be
delivered in connection with sales by the Underwriter or a dealer, the
Registration Statement and the Prospectus will contain all statements which
are required to be stated therein in accordance with the Act and the Rules
and Regulations, and will conform to the requirements of the Act and the
Rules and Regulations; and, at and through such dates, neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, will contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were
made, not misleading; PROVIDED, HOWEVER, that this representation and
warranty does not apply to statements made or statements omitted in reliance
upon and in conformity with written information furnished to the Company with
respect to the Underwriter and its proposed method of distribution of the
Units by or on behalf of the Underwriter expressly for use in the
Registration Statement or the Prospectus or any amendment thereof or
supplement thereto; provided that such written information or omissions only
pertain to disclosures in the Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment thereof or supplement thereto
directly relating to the transactions effected by the Underwriter in
connection with this Offering. The Company acknowledges that the statements
with respect to the Offering set forth under the heading "Underwriting" and
the stabilization legend in the Prospectus have been furnished by the
Underwriter expressly for use therein and constitute the only information
furnished in writing by or on behalf of the Underwriter for inclusion in the
Prospectus.
(d) The Company has been duly organized and is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation. The Company is duly qualified and licensed and in good
standing as a foreign corporation in each jurisdiction in which its
operations require such qualification or licensing. The Company does not own,
directly or indirectly, an interest in any other corporation, partnership,
trust, joint venture or other business entity. The Company has all requisite
power and authority (corporate
3
<PAGE>
and other), and has obtained any and all necessary authorizations, approvals,
orders, licenses, certificates, franchises and permits of and from all
governmental or regulatory officials and bodies (including, without
limitation, those having jurisdiction over environmental or similar matters),
to own or lease its properties and conduct its business as conducted on the
date hereof and as described in the Prospectus except where the failure to be
so qualified or licensed would not have a material adverse effect; the
Company is and has been doing business in material compliance with all such
authorizations, approvals, orders, licenses, certificates, franchises and
permits and with all federal, state, local and foreign laws, rules and
regulations to which it is subject; and the Company has not received any
notice of proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, prospects, stockholders' equity,
value, operations, properties, business or results of operations of the
Company. The disclosure in the Registration Statement concerning the effects
of federal, state, local and foreign laws, rules and regulations on the
Company's business as currently conducted and as contemplated are correct in
all respects and do not omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
(e) Except for up to 15,863 additional options granted by the
Company, the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Capital Stock" and will have the adjusted capitalization set
forth therein on the Closing Date and the Option Closing Date, if any, based
upon the assumptions set forth therein, and the Company is not a party to or
bound by any instrument, agreement or other arrangement providing for it to
issue any capital stock, rights, warrants, options or other securities,
except for this Agreement, the Underwriter's Warrant Agreement and the
Warrant Agreement (as defined in SECTION 1(ff) hereof of this Agreement) and
as described in the Prospectus. The Securities and all other securities
issued or issuable by the Company on or prior to the Closing Date and each
Option Closing Date, if any, conform or, when issued and paid for, will
conform, in all respects to the descriptions thereof contained in the
Registration Statement and the Prospectus. All issued and outstanding
securities of the Company have been duly authorized and validly issued and
are fully paid and non-assessable; the holders thereof have no rights of
rescission with respect thereto and are not subject to personal liability by
reason of being such holders; and none of such securities were issued in
violation of the preemptive rights of any holder of any security of the
Company or any similar contractual right granted by the Company. The
Securities to be issued and sold by the Company hereunder and pursuant to the
Underwriter's Warrant Agreement and the Warrant Agreement are not and will
not be subject to any preemptive or other similar rights of any stockholder,
have been duly authorized and, when issued, paid for and delivered in
accordance with the terms hereof and thereof, will be validly issued, fully
paid and non-assessable and conform to the descriptions thereof contained in
the Prospectus; the holders thereof will not be subject to any liability
solely as such holders; all corporate action required to be taken for the
authorization, issue and sale of the Securities has been duly and validly
taken; and the certificates representing the Securities, when delivered by
the Company, will be in due and proper form. Upon the issuance and delivery
of the Securities, pursuant to the terms hereof, and pursuant to the Warrant
Agreement and the Underwriter's Warrant Agreement, to be sold by the Company
4
<PAGE>
hereunder and thereunder to the Underwriter, the Underwriter will acquire
good and marketable title to such Securities, free and clear of any lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever asserted against the Company or
any affiliate (within the meaning of the Rules and Regulations) of the
Company.
(f) The financial statements of the Company and the notes thereto
included in the Registration Statement, each Preliminary Prospectus and the
Prospectus fairly present the financial position, changes in stockholders'
equity and the results of operations of the Company at the respective dates
and for the respective periods to which they apply. Such financial statements
have been prepared in conformity with generally accepted accounting
principles and the Rules and Regulations, consistently applied throughout the
periods involved. Except as described in the Prospectus, there has been no
adverse change or development involving a material prospective change in the
condition, financial or otherwise, or in the earnings, prospects,
stockholders' equity, value, operations, properties, business or results of
operations of the Company, whether or not arising in the ordinary course of
business, since the date of the financial statements included in the
Registration Statement and the Prospectus; and the outstanding debt, the
property, both tangible and intangible, and the business of the Company
conform in all respects to the descriptions thereof contained in the
Registration Statement and the Prospectus. The financial information set
forth in the Prospectus under the headings "The Company," "Summary Financial
Information," "Capitalization," "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
fairly presents, on the basis stated in the Prospectus, the information set
forth therein and such financial information has been derived from or
compiled on a basis consistent with that of the financial statements included
in the Prospectus.
(g) The Company (i) has paid all federal, state, local and foreign
taxes for which it is liable, including, but not limited to, withholding
taxes and amounts payable under the Internal Revenue Code of 1986, as amended
(the "Code"), and has furnished all information returns it is required to
furnish pursuant to the Code, (ii) has established adequate reserves for such
taxes which are not due and payable, and (iii) does not have any tax
deficiency or claims outstanding, proposed or assessed against it.
(h) No transfer tax, stamp duty or other similar tax is payable by
or on behalf of the Underwriter in connection with (i) the issuance by the
Company of the Securities, (ii) the purchase by the Underwriter of any of the
Securities from the Company, (iii) the consummation by the Company of any of
its obligations under this Agreement, the Warrant Agreement, or the
Underwriter's Warrant Agreement, or (iv) resales of the Securities in
connection with the distribution contemplated hereby.
(i) The Company maintains insurance policies, including, but not
limited to, general liability, property, personal and product liability
insurance, and surety bonds which insure the Company and its employees
against such losses and risks generally insured against by comparable
businesses. The Company (i) has not failed to give notice or present any
insurance claim with respect to any insurable matter under the appropriate
insurance policy or surety bond in a due and timely manner, (ii) has no
disputes or claims against any underwriter of such insurance policies or
surety bonds, nor has the Company failed to pay any premiums due
5
<PAGE>
and payable thereunder, or (iii) has not failed to comply with all conditions
contained in such insurance policies and surety bonds. There are no facts or
circumstances under any such insurance policy or surety bond which would
relieve any insurer of its obligation to satisfy in full any valid claim of
the Company.
(j) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those pertaining to environmental or similar matters), domestic
or foreign, pending or, to the best knowledge of the Company, threatened
against (or circumstances that may give rise to the same), or involving the
properties or business of, the Company which (i) questions the validity of
the capital stock of the Company, this Agreement, the Underwriter's Warrant
Agreement, the Warrant Agreement or the Consulting Agreement (as defined in
Section 1(gg) hereof) or of any action taken or to be taken by the Company
pursuant to or in connection with this Agreement, the Underwriter's Warrant
Agreement, the Warrant Agreement or the Consulting Agreement, (ii) is
required to be disclosed in the Registration Statement which is not so
disclosed (and such proceedings as are summarized in the Registration
Statement are accurately summarized in all respects), or (iii) might
materially and adversely affect the condition, financial or otherwise, or the
earnings, prospects, stockholders' equity, value, operations, properties,
business or results of operations of the Company.
(k) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, to enter into this
Agreement, the Underwriter's Warrant Agreement, the Warrant Agreement and the
Consulting Agreement and to consummate the transactions provided for in such
agreements; and each of this Agreement, the Underwriter's Warrant Agreement,
the Warrant Agreement and the Consulting Agreement have been duly and
properly authorized, executed and delivered by the Company. Each of this
Agreement, the Underwriter's Warrant Agreement, the Warrant Agreement and the
Consulting Agreement constitutes a legal, valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms (except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to
or affecting the enforcement of creditors' rights and the application of
equitable principles in any motion, legal or equitable, and except as
obligations to indemnify or contribute to losses may be limited by applicable
law). None of the Company's issue and sale of the Securities, execution or
delivery of this Agreement, the Underwriter's Warrant Agreement, the Warrant
Agreement or the Consulting Agreement, its performance hereunder or
thereunder, its consummation of the transactions contemplated herein or
therein, or the conduct of its business as described in the Registration
Statement and the Prospectus and any amendments or supplements thereto,
conflicts with or will conflict with or results or will result in any breach
or violation of any of the terms or provisions of, or constitutes or will
constitute a default under, or result in the creation or imposition of any
lien, charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or assets
(tangible or intangible) of the Company pursuant to the terms of (i) the
articles of incorporation or by-laws of the Company, (ii) any license,
contract, indenture, mortgage, lease, deed of trust, voting trust agreement,
stockholders' agreement, note, loan or credit agreement or other agreement or
instrument evidencing an obligation for borrowed money, or any other
agreement or instrument to which the Company is a party or by which the
Company
6
<PAGE>
is or may be bound or to which its properties or assets (tangible or
intangible) are or may be subject, or (iii) any statute, judgment, decree,
order, rule or regulation applicable to the Company of any arbitrator, court,
regulatory body or administrative agency or other governmental agency or body
(including, without limitation, those having jurisdiction over environmental
or similar matters), domestic or foreign, having jurisdiction over the
Company or any of its activities or properties.
(l) No consent, approval, authorization or order of, and no filing
with, any arbitrator, court, regulatory body, administrative agency,
government agency or other body, domestic or foreign, is required for the
issuance of the Securities pursuant to the Prospectus and the Registration
Statement, this Agreement, the Underwriter's Warrant Agreement and the
Warrant Agreement, the performance of this Agreement, the Underwriter's
Warrant Agreement, the Warrant Agreement and the Consulting Agreement and the
transactions contemplated hereby and thereby, except such as have been
obtained under the Act, state securities or Blue Sky laws and the rules of
the National Association of Securities Dealers, Inc. (the "NASD") in
connection with the issuance and sale of the Securities by the Company and
the Underwriter's purchase and distribution of the Firm Units and the Option
Units.
(m) All executed agreements, contracts or other documents or copies
of executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which the
Company may be bound or to which its assets, properties or business may be
subject have been duly and validly authorized, executed and delivered by the
Company, and constitute legal, valid and binding agreements of the Company,
enforceable against the Company, in accordance with their respective terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting the enforcement of creditors' rights and the
application of equitable principles in any motion, legal or equitable, and
except as obligations to indemnify or contribute to losses may be limited by
applicable law). The descriptions in the Registration Statement of
agreements, contracts and other documents are accurate and fairly present the
information required to be shown with respect thereto by Form SB-2; and there
are no agreements, contracts or other documents which are required by the Act
to be described in the Registration Statement or filed as exhibits to the
Registration Statement which are not described or filed as required; and the
exhibits which have been filed are complete and correct copies of the
documents of which they purport to be copies.
(n) Subsequent to the respective dates as of which information is
set forth in the Registration Statement and the Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not
(i) issued any securities other than up to 15,863 options or incurred any
liability or obligation, direct or contingent, for borrowed money, (ii)
entered into any transaction other than in the ordinary course of business,
or (iii) declared or paid any dividend or made any other distribution on or
in respect of any class of its capital stock; and, subsequent to such dates,
and except as may otherwise be disclosed in the Prospectus, there has not
been any change in the capital stock, debt (long or short term) or
liabilities of the Company or any material change in the condition, financial
or otherwise, or the earnings, prospects, stockholders' equity, value,
operations, properties, business or results of operations of the Company.
7
<PAGE>
(o) Except as described in the Prospectus, no default exists in the
due performance and observance of any term, covenant or condition of any
material license, permit, contract, indenture, mortgage, lease, deed of
trust, voting trust agreement, stockholders' agreement, note, loan or credit
agreement or any other agreement or instrument evidencing an obligation for
borrowed money, or any other agreement or instrument to which the Company is
a party or by which the Company is or may be bound or to which the property
or assets (tangible or intangible) of the Company is or may be subject.
(p) The Company has generally enjoyed a satisfactory
employer-employee relationship with its employees and the Company is in
material compliance with all federal, state, local and foreign laws, rules
and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours. There are no pending
investigations involving the Company by the United States Department of Labor
or any other governmental agency responsible for the enforcement of any
federal, state, local or foreign laws, rules and regulations relating to
employment. There is no unfair labor practice charge or complaint against the
Company pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or, to the
knowledge of the Company, threatened against or involving the Company, or any
predecessor entity, and none has ever occurred. No representation question
exists respecting the employees of the Company, and no collective bargaining
agreement or modification thereof is currently being negotiated by the
Company. No grievance or arbitration proceeding is pending under any expired
or existing collective bargaining agreements of the Company. No labor dispute
with the employees of the Company exists or, to the knowledge of the Company,
is imminent.
(q) The Company does not maintain, sponsor or contribute to any
program or arrangement that is an "employee pension benefit plan," an
"employee welfare benefit plan" or a "multiemployer plan," as such terms are
defined in Sections 3(2), 3(1) and 3(37), respectively, of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA Plans")
other than the Company's unfunded group health plans and the Company's
disability plan. The Company does not maintain or contribute, now or at any
time previously, to a defined benefit plan, as defined in Section 3(35) of
ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA or
Section 4975 of the Code which could subject the Company to any tax penalty
on prohibited transactions and which has not adequately been corrected. Each
ERISA Plan is in compliance with all material reporting, disclosure and other
requirements of the Code and ERISA as they relate to any such ERISA Plan.
Determination letters have been received from the Internal Revenue Service
with respect to each ERISA Plan which is intended to comply with Code Section
401(a), stating that such ERISA Plan and the attendant trust are qualified
thereunder. The Company has never completely or partially withdrawn from a
"multiemployer plan."
(r) Neither the Company, nor any of its respective employees,
directors, stockholders or affiliates (within the meaning of the Rules and
Regulations), has taken or will take, directly or indirectly, any action
designed to or which has constituted or which might be expected to cause or
result in, under the Exchange Act or otherwise, the stabilization or
8
<PAGE>
manipulation of the price of any security of the Company, whether to
facilitate the sale or resale of the Securities or otherwise.
(s) To the best of the Company's knowledge, none of the trademarks,
trade names, service marks, service names, copyrights, patents and patent
applications, and none of the licenses and rights to the foregoing, presently
owned or held by the Company are in dispute or are in conflict with the right
of any other person or entity. The Company (i) owns or has the right to use,
free and clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects or other restrictions or equities of any kind whatsoever,
all trademarks, trade names, service marks, service names, copyrights,
patents and patent applications, and licenses and rights with respect to the
foregoing, used in the conduct of its business as now conducted or proposed
to be conducted without infringing upon or otherwise acting adversely to the
right or claimed right of any person, corporation or other entity under or
with respect to any of the foregoing and (ii) is not obligated or under any
liability whatsoever to make any payments by way of royalties, fees or
otherwise to any owner or licensee of, or other claimant to, any trademark,
trade name, service mark, service name, copyright, patent or patent
application except as set forth in the Registration Statement or the
Prospectus. There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental or other proceeding, domestic or
foreign, pending or to the knowledge of the Company, threatened (or
circumstances that may give rise to the same) against the Company which
challenges the exclusive rights of the Company with respect to any
trademarks, trade names, service marks, service names, copyrights, patents,
patent applications or licenses or rights to the foregoing used in the
conduct of its business.
(t) The Company owns and has the unrestricted right to use all
trade secrets, know-how (including all unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), inventions,
technology, designs, processes, works of authorship, computer programs and
technical data and information that are material to the development,
manufacture, operation and sale of all products and services sold or proposed
to be sold by the Company, free and clear of and without violating any right,
lien, or claim of others, including, without limitation, former employers of
its employees.
(u) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property
currently used in the conduct of business or stated in the Prospectus to be
owned or leased by it, free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions or
equities of any kind whatsoever, other than liens for taxes not yet due and
payable.
(v) Arthur Andersen LLP whose reports are filed with the Commission
as a part of the Registration Statement, are independent certified public
accountants as required by the Act and the Rules and Regulations.
(w) The holders of all shares of Common Stock and securities
exchangeable for or convertible into shares of Common Stock of the Company,
including each director, officer and principal stockholder of the Company
have executed an agreement (collectively, the "Lock-Up Agreements") pursuant
to which he, she or it has agreed, (i) for a period extending
9
<PAGE>
eighteen (18) months following the effective date of the Registration
Statement (the "Lock-Up Period"), not to, directly or indirectly, offer,
offer to sell, sell, grant an option for the purchase or sale of, transfer,
assign, pledge, hypothecate or otherwise encumber (whether pursuant to Rule
144 of the Rules and Regulations or otherwise) any securities issued or
issuable by the Company, whether or not owned by or registered in the name of
such persons, or dispose of any interest therein, without the prior written
consent of the Underwriter and (ii) for a period extending twenty-four (24)
months following the effective date of the Registration Statement, that all
sales of such securities issued by the Company shall be made through the
Underwriter in accordance with its customary brokerage policies. The Company
will cause its transfer agent to mark an appropriate legend on the face of
stock certificates representing all of such securities and to place "stop
transfer" orders on the Company's stock ledgers.
(x) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities
hereunder or any other arrangements, agreements, understandings, payments or
issuances that may affect the Underwriter's compensation, as determined by
the NASD.
(y) The Units, the Common Stock and the Redeemable Warrants have
been approved for quotation on the Nasdaq SmallCap Market ("Nasdaq").
(z) Neither the Company, nor any of its directors, officers,
stockholders, employees, agents or any other person acting on behalf of the
Company has, directly or indirectly, given or agreed to give any money, gift
or similar benefit (other than legal price concessions to customers in the
ordinary course of business) to any customer, supplier, employee or agent of
a customer or supplier, or any official or employee of any governmental
agency or instrumentality of any government (domestic or foreign) or
instrumentality of any government (domestic or foreign) or any political
party or candidate for office (domestic or foreign) or any other person who
was, is or may be in a position to help or hinder the business of the Company
(or assist the Company in connection with any actual or proposed transaction)
which (i) might subject the Company or any other such person to any damage or
penalty in any civil, criminal or governmental litigation or proceeding
(domestic or foreign), (ii) if not given in the past, might have had a
material and adverse effect on the condition, financial or otherwise, or the
earnings, business affairs, prospects, stockholders' equity, value,
operations, properties, business or results of operations of the Company, or
(iii) if not continued in the future, might materially and adversely affect
the condition, financial or otherwise, or the earnings, business affairs,
prospects, stockholders' equity, value, operations, properties, business or
results of operations of the Company. The Company's internal accounting
controls are sufficient to cause the Company to comply with the Foreign
Corrupt Practices Act of 1977, as amended.
(aa) [intentionally omitted]
(bb) Except as set forth in the Prospectus, no officer, director or
stockholder of the Company and no affiliate or associate (as these terms are
defined in the Rules and Regulations) of any of the foregoing persons or
entities, has or has had, either directly or indirectly, (i) an interest in
any person or entity which (A) furnishes or sells services or products
10
<PAGE>
which are furnished or sold or are proposed to be furnished or sold by the
Company, or (B) purchases from or sells or furnishes to the Company any goods
or services, or (ii) a beneficial interest in any contract or agreement to
which the Company is a party or by which the Company may be bound. Except as
set forth in the Prospectus under "Certain Transactions," there are no
existing agreements, arrangements, understandings or transactions, or
proposed agreements, arrangements, understandings or transactions, between or
among the Company and any officer, director or any person listed in the
"Principal Stockholders" section of the Prospectus or any affiliate or
associate of any of the foregoing persons or entities.
(cc) The minute books of the Company have been made available to the
Underwriter, contain a complete summary of all material actions of the
directors and stockholders of the Company since the time of incorporation,
and reflect all material transactions referred to in such minutes accurately
in all respects.
(dd) Except as to the extent described in the Prospectus, no holder
of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company has the right to
include any securities issued by the Company in the Registration Statement.
Except for the registration rights of Leisure Fund Associates, L.P. relating
to 24,351 warrants to purchase common stock of the Company as set forth in
that certain common stock purchase warrant dated May 24, 1996, no holder of
any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company has the right to
include any securities issued by the Company in any registration statement
(other than on Form S-8) to be filed by the Company or to require the Company
to file a registration statement. Except as set forth in the Prospectus, no
person or entity holds any anti-dilution rights with respect to any
securities of the Company.
(ee) Any certificate signed by any officer of the Company and
delivered to the Underwriter or to Underwriter's Counsel (as defined in
Section 4(d) herein), shall be deemed a representation and warranty by the
Company to the Underwriter as to the matters covered thereby.
(ff) The Company has entered into a warrant agreement, substantially
in the form filed as Exhibit 4.2 to the Registration Statement (the "Warrant
Agreement"), with Continental Stock Transfer & Trust Company, in form and
substance satisfactory to the Underwriter, with respect to the Redeemable
Warrants and providing for the payment of warrant solicitation fees
contemplated by Section 4(x) hereof. The Warrant Agreement has been duly and
validly authorized by the Company and, assuming due execution by the parties
thereto other than the Company, constitutes a valid and legally binding
agreement of the Company, enforceable against the Company in accordance with
its terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to or affecting the enforcement of creditors' rights and
the application of equitable principles in any action, legal or equitable,
and except as obligations to indemnify or contribute to losses may be limited
by applicable law).
(gg) The Company has entered into a financial advisory and
consulting agreement substantially in the form filed as Exhibit 10.7 to the
Registration Statement (the
11
<PAGE>
"Consulting Agreement") with the Underwriter, with respect to the rendering
of consulting services by the Underwriter to the Company. The Consulting
Agreement provides that the Underwriter shall be retained by the Company
commencing on the consummation of the proposed public offering and ending 24
months thereafter. The Consulting Agreement has been duly and validly
authorized by the Company and assuming due execution by the parties thereto
other than the Company, constitutes a valid and legally binding agreement of
the Company, enforceable against the Company in accordance with its terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the application
of equitable principles in any action, legal or equitable, and except as
rights to indemnity or contribution may be limited by applicable law).
(hh) The Company has filed a Form 8-A with the Commission providing
for the registration under the Exchange Act of the Units, the Redeemable
Warrants and the Common Stock and such Form 8-A has been declared effective
by the Commission.
(ii) Each warrant issued in connection with the Private Placement
financing completed in August 1996, (each a "Selling Securityholders
Warrant") has been automatically converted into a Redeemable Warrant without
any action by the holder thereof and all of such Redeemable Warrants, as
converted and the Selling Securityholders Shares, have been registered in the
Registration Statement.
(jj) The Company has as of the effective date of the Registration
Statement (i) entered into an employment agreement with Marcus Bender, in the
form filed as Exhibit 10.6 to the Registration Statement and (ii) purchased
term key man insurance on the life of Marcus Bender, in the amount of
$1,000,000, which policy names the Company as the sole beneficiary thereof.
2. PURCHASE, SALE AND DELIVERY OF THE SECURITIES.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to the Underwriter, and the Underwriter
agrees to purchase from the Company, the Firm Units at a price equal to $3.60
per Unit.
(b) In addition, on the basis of the representations, warranties,
covenants and agreement, herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriter to purchase all or any part of the Option Units at a price equal
to $3.60 per Unit. The option granted hereby will expire forty-five (45) days
after (i) the date the Registration Statement becomes effective, if the
Company has elected not to rely on Rule 430A under the Rules and Regulations,
or (ii) the date of this Agreement if the Company has elected to rely upon
Rule 430A under the Rules and Regulations, and may be exercised in whole or
in part from time to time only for the purpose of covering over-allotments
which may be made in connection with the offering and distribution of the
Firm Units upon notice by the Underwriter to the Company setting forth the
number of Option Units as to which the Underwriter is then exercising the
option and the time and date of payment and delivery for
12
<PAGE>
any such Option Units. Any such time and date of delivery (an "Option Closing
Date") shall be determined by the Underwriter, but shall not be later than
seven (7) full business days after the exercise of said option, nor in any
event prior to the Closing Date, unless otherwise agreed upon by the
Underwriter and the Company. Nothing herein contained shall obligate the
Underwriter to exercise the option granted hereby. No Option Units shall' be
delivered unless the Firm Units shall be simultaneously delivered or shall
theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of certificates
for, the Firm Units shall be made at the offices of the Underwriter at 33
Maiden Lane, New York, New York 10038, or at such other place as shall be
agreed upon by the Underwriter and the Company. Such delivery and payment
shall be made at 10:00 a.m. (New York City time) on May 19, 1997 or at such
other time and date as shall be agreed upon by the Underwriter and the
Company, but not less than three (3) nor more than seven (7) full business
days after the effective date of the Registration Statement (such time and
date of payment and delivery being herein called the "Closing Date"). In
addition, in the event that any or all of the Option Units are purchased by
the Underwriter, payment of the purchase price for, and delivery of
certificates for, such Option Units shall be made at the above mentioned
office of the Underwriter or at such other place as shall be agreed upon by
the Underwriter and the Company. Delivery of the certificates for the Firm
Units and the Option Units, if any, shall be made to the Underwriter against
payment by the Underwriter of the purchase price for the Firm Units and the
Option Units, if any, to the order of the Company by New York Clearing House
funds. Certificates for the Firm Units and the Option Units, if any, shall be
in definitive, fully registered form, shall bear no restrictive legends and
shall be in such denominations and registered in such names as the
Underwriter may request in writing at least two (2) business days prior to
the Closing Date or the relevant Option Closing Date, as the case may be. The
certificates for the Firm Units and the Option Units, if any, shall be made
available to the Underwriter at such offices or such other place as the
Underwriter may designate for inspection, checking and packaging no later
than 9:30 a.m. on the last business day prior to the Closing Date or the
relevant Option Closing Date, as the case may be.
(d) On the Closing Date, the Company shall issue and sell to the
Underwriter or its designees the Underwriter's Warrants for an aggregate
purchase price of $.0001 per warrant, which warrants shall entitle the
holders thereof to purchase an aggregate of an additional 200,000 shares of
Common Stock. The Underwriter's Warrants shall be exercisable for a period of
four (4) years commencing one (1) year from the effective date of the
Registration Statement at a price equaling one hundred and sixty-five percent
(165%) of the initial public offering price of the Units. The Underwriter's
Warrant Agreement and the form of the certificates for the Underwriter's
Warrants shall be substantially in the form filed as Exhibit 4.3 to the
Registration Statement. Payment for the Underwriter's Warrants shall be made
on the Closing Date.
3. PUBLIC OFFERING OF THE UNITS. As soon after the Registration
Statement becomes effective as the Underwriter deems advisable, the
Underwriter shall make a public offering of the Firm Units and such of the
Option Units as the Underwriter may determine (other than to residents of or
in any jurisdiction in which qualification of the Units is required and has
13
<PAGE>
not become effective) at the price and upon the other terms set forth in the
Prospectus. The Underwriter may from time to time increase or decrease the
public offering price after distribution of the Units has been completed to
such extent as the Underwriter, in its sole discretion, deems advisable. The
Underwriter may enter into one or more agreements as the Underwriter, in its
sole discretion, deems advisable with one or more broker-dealers who shall
act as dealers in connection with such public offering.
4. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company covenants
and agrees with the Underwriter as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Act or the Exchange Act before termination of the offering of the
Firm Units and the Option Units to the public by the Underwriter, of which
the Underwriter shall not previously have been advised and furnished with a
copy, or to which the Underwriter shall have objected or which is not in
compliance with the Act, the Exchange Act and the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof,
the Company will advise the Underwriter and confirm the same in writing, (i)
when the Registration Statement, as amended, becomes effective, when any
post-effective amendment to the Registration Statement becomes effective and,
if the provisions of Rule 430A promulgated under the Act will be relied upon,
when the Prospectus has been filed in accordance with said Rule 430A, (ii) of
the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding the outcome of which may result in the
suspension of the effectiveness of the Registration Statement or any order
preventing or suspending the use of the Preliminary Prospectus or the
Prospectus, or any amendment or supplement thereto, or the institution of any
proceedings for that purpose, (iii) of the issuance by the Commission or by
any state securities commission of any proceedings for the suspension of the
qualification of any of the Securities for offering or sale in any
jurisdiction or of the initiation, or the threatening, of any proceeding for
that purpose, (iv) of the receipt of any comments from the Commission, and
(v) of any request by the Commission for any amendment to the Registration
Statement or any amendment or supplement to the Prospectus or for additional
information. If the Commission or any state securities regulatory authority
shall enter a stop order or suspend such qualification at any time, the
Company will make every effort to obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Underwriter) with the Commission, or transmit the
Prospectus by a means reasonably calculated to result in filing the same with
the Commission, pursuant to Rule 424(b)(1) of the Rules and Regulations (or,
if applicable and if consented to by the Underwriter, pursuant to Rule
424(b)(4) of the Rules and Regulations) within the time period specified in
Rule 424(b)(1) (or, if applicable and if consented to by the Underwriter,
Rule 424(b)(4)).
(d) The Company will give the Underwriter notice of its intention
to file or prepare any amendment to the Registration Statement (including any
post-effective amendment)
14
<PAGE>
or any amendment or supplement to the Prospectus (including any revised
prospectus which the Company proposes for use in connection with the offering
of any of the Securities which differs from the corresponding prospectus on
file at the Commission at the time the Registration Statement becomes
effective, whether or not such revised prospectus is required to be filed
pursuant to Rule 424(b) of the Rules and Regulations), and will furnish the
Underwriter with copies of any such amendment or supplement a reasonable
amount of time prior to such proposed filing or use, as the case may be, and
will not file any such amendment or supplement to which the Underwriter or
Orrick, Herrington & Sutcliffe LLP, its counsel ("Underwriter's Counsel"),
shall object.
(e) The Company shall endeavor in good faith, in cooperation with
the Underwriter, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the
securities laws of such jurisdictions as the Underwriter may reasonably
designate to permit the continuance of sales and dealings therein for as long
as may be necessary to complete the distribution contemplated hereby, and
shall make such applications, file such documents and furnish such
information as may be required for such purpose; PROVIDED, HOWEVER, the
Company shall not be required to qualify as a foreign corporation or file a
general or limited consent to service of process in any such jurisdiction.
In each jurisdiction where such qualification shall be effected, the Company
will, unless the Underwriter agrees that such action is not at the time
necessary or advisable, use all reasonable efforts to file and make such
statements or reports at such times as are or may reasonably be required by
the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be delivered
under the Act, the Company shall use all reasonable efforts to comply with
all requirements imposed upon it by the Act, the Exchange Act and the Rules
and Regulations so far as necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and the
Prospectus, or any amendments or supplements thereto. If, at any time when a
prospectus relating to the Securities is required to be delivered under the
Act, any event shall have occurred as a result of which, in the opinion of
counsel for the Company or Underwriter's Counsel, the Prospectus, as then
amended or supplemented, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances in which they
were made, not misleading, or if it is necessary at any time to amend or
supplement the prospectus to comply with the Act, the Company will notify the
Underwriter promptly and prepare and file with the Commission an appropriate
amendment or supplement in accordance with Section 10 of the Act, each such
amendment or supplement to be satisfactory to Underwriter's Counsel, and the
Company will furnish to the Underwriter copies of such amendment or
supplement as soon as available and in such quantities as the Underwriter may
request.
(g) As soon as practicable, but in any event not later than forty
five (45) days after the end of the 12-month period beginning on the day
after the end of the fiscal quarter of the Company during which the effective
date of the Registration Statement occurs (ninety (90) days in the event that
the end of such fiscal quarter is the end of the Company's fiscal year}, the
Company shall make generally available to its security holders, in the manner
specified in Rule 158(b) of the Rules and Regulations, and to the
Underwriter, an earnings statement which will
15
<PAGE>
be in the detail required by, and will otherwise comply with, the provisions
of Section 11(a) of the Act and Rule 158(a) of the Rules and Regulations,
which statement need not be audited unless required by the Act, covering a
period of at least twelve (12) consecutive months after the effective date of
the Registration Statement.
(h) During a period of seven (7) years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual
reports (including financial statements audited by independent public
accountants) and will deliver to the Underwriter:
i) concurrently with furnishing such annual reports to
its stockholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of operations,
stockholders' equity and cash flows of the Company for such fiscal
year, accompanied by a copy of the report thereon of the Company's
independent certified public accountants;
ii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
iii) as soon as they are available, copies of all reports
and financial statements furnished to or filed with the Commission,
the NASD or any securities exchange;
iv) every press release and every material news item or
article of interest to the financial community in respect of the
Company or its affairs which was released or prepared by or on behalf
of the Company; and
v) any additional information of a public nature
concerning the Company (and any future subsidiaries) or its business
which the Underwriter may request.
During such seven-year period, if the Company has active subsidiaries,
the foregoing financial statements will be on a consolidated basis to the
extent that the accounts of the Company and its subsidiaries are
consolidated, and will be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
(i) The Company will maintain a transfer and warrant agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for the Units, the
Common Stock and the Redeemable Warrants.
(j) The Company will furnish to the Underwriter, without charge and
at such place as the Underwriter may designate, copies of each Preliminary
Prospectus, the Registration Statement and any pre-effective or
post-effective amendments thereto (one of which will be signed and will
include all financial statements and exhibits), the Prospectus, and all
amendments and supplements thereto, including any prospectus prepared after
the effective date of the Registration Statement, in each case as soon as
available and in such quantities as the Underwriter may request.
16
<PAGE>
(k) On or before the effective date of the Registration Statement,
the Company shall provide the Underwriter with originally-executed copies of
duly executed, legally binding and enforceable Lock-Up Agreements which are
in form and substance satisfactory to the Underwriter. On or before the
Closing Date, the Company shall deliver instructions to its transfer agent
authorizing such transfer agent to place appropriate legends on the
certificates representing the securities of the Company subject to the
Lock-Up Agreements and to place appropriate stop transfer orders on the
Company's ledgers.
(l) The Company agrees that, for a period of eighteen (18) months
commencing on the effective date of the Registration Statement, and except as
contemplated by this Agreement, it and its present and future subsidiaries
will not, without the prior written consent of the Underwriter (i) issue,
sell, contract or offer to sell, grant an option for the purchase or sale of,
assign, transfer, pledge, distribute or otherwise dispose of, directly or
indirectly, any shares of capital stock or any option, right or warrant with
respect to any shares of capital stock or any security convertible,
exchangeable or exercisable for capital stock, except pursuant to stock
options or warrants issued by the Company or any other person or entity on
the date hereof or up to 759,137 shares of Common Stock issuable pursuant to
options which may be granted after the date hereof, PROVIDED, HOWEVER, that
such options shall have an exercise price which is at least equal to the
greater of (a) the initial public offering price per Unit and (ii) the fair
market value of the Common Stock on the date of grant or (iii) file any
registration statement for the offer or sale by the Company or any other
person or entity securities issued or to be issued by the Company or any
present or future subsidiaries.
(m) Neither the Company nor any of its officers, directors,
stockholders or affiliates (within the meaning of the Rules and Regulations)
will take, directly or indirectly, any action designed to stabilize or
manipulate the price of any securities of the Company, or which might in the
future reasonably be expected to cause or result in the stabilization or
manipulation of the price of any such securities.
(n) The Company shall apply the net proceeds from the sale of the
Securities offered to the public in the manner set forth under "Use of
Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
(o) The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to, any Form SR
required by Rule 463 under the Act) from time to time under the Act, the
Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents will comply as to form and substance with the applicable
requirements under the Act, the Exchange Act and the Rules and Regulations.
(p) The Company shall furnish to the Underwriter as early as
practicable prior to each of the date hereof, the Closing Date and each
Option Closing Date, if any, but no later than two (2) full business days
prior thereto, a copy of the latest available unaudited interim financial
statements of the Company (which in no event shall be as of a date more than
thirty (30) days prior to the date hereof, the Closing Date or the relevant
Option Closing Date, as the
17
<PAGE>
case may be) which have been read by the Company's independent public
accountants, as stated in their letters to be furnished pursuant to SECTION
6(j) hereof.
(q) The Company shall cause the Units, the Common Stock and the
Redeemable Warrants to be quoted on Nasdaq and, for a period of seven (7)
years from the date hereof, use its best efforts to maintain the Nasdaq
quotation listing of the Units, the Common Stock and the Redeemable Warrants
to the extent outstanding.
(r) For a period of five (5) years from the Closing Date, the
Company shall at the request of the Underwriter, furnish or cause to be
furnished to the Underwriter and at the Company's sole expense, (i) daily
consolidated transfer sheets relating to the Units, the Common Stock and the
Redeemable Warrants and (ii) a list of holders of all of the Company's
securities.
(s) For a period of five (5) years from the Closing Date, the
Company shall, at the Company's sole expense, (i) promptly provide the
Underwriter, upon any and all requests of the Underwriter, with a "blue sky
trading survey" for secondary sales of the Company's securities, prepared by
counsel to the Company, and (ii) take all necessary and appropriate actions
to further qualify the Company's securities in all jurisdictions of the
United States in order to permit secondary sales of such securities pursuant
to the "blue sky" laws of those jurisdictions, provided that such
jurisdictions do not require the Company to qualify as a foreign corporation.
(t) As soon as practicable, but in no event more than thirty (30)
days after the effective date of the Registration Statement, the Company
agrees to take all necessary and appropriate actions to be included in
Standard and Poor's Corporation Descriptions and Moody's OTC Manual and to
continue such inclusion for a period of not less than seven (7) years.
(u) Without the prior written consent of the Underwriter, the
Company hereby agrees that it will not, for a period of eighteen (18) months
from the effective date of the Registration Statement, (i) adopt, propose to
adopt or otherwise permit to exist any employee, officer, director,
consultant or compensation plan or arrangement permitting the grant, issue,
sale or entry into any agreement to grant, issue or sell any option, warrant
or other contract right (x) at an exercise price per share of Common Stock
that is less than the greater of (a) the initial public offering price of the
Units and (b) the fair market value per share of Common Stock on the date of
grant or sale or (y) to any holder of five percent (5%) or more of the Common
Stock other than an officer or director or any holder of five percent (5%) or
more of the Common Stock as the result of the exercise or conversion of
equivalent securities other than an officer or director, including, but not
limited to options, warrants or other contract rights and securities
convertible, directly or indirectly, into shares of Common Stock or any
affiliate of the foregoing; (ii) permit the maximum number of shares of
Common Stock or other securities of the Company purchasable at any time
pursuant to options, warrants or other contract rights to exceed 1,024,351
shares of Common Stock (subject to customary anti-dilution provisions),
excluding the Underwriter's Warrants and the Redeemable Warrants; (iii)
permit the existence of stock appreciation rights, phantom options or similar
arrangements; or (iv) permit the payment for such securities with any form of
consideration other than cash.
18
<PAGE>
(v) Until the completion of the distribution of the Units to the
public, and during any period during which a prospectus is required to be
delivered, the Company shall not, without the prior written consent of the
Underwriter, issue, directly or indirectly, any press release or other
communication or hold any press conference with respect to the Company or its
activities or the offering contemplated hereby, other than trade releases
issued in the ordinary course of the Company's business consistent with past
practices with respect to the Company's operations.
(w) For a period of five (5) years after the effective date of the
Registration Statement, the Company shall use its best efforts to cause one
(1) individual selected by the Underwriter to be elected to the Board of
Directors of the Company (the "Board"), if requested by the Underwriter. In
the event the Underwriter shall not have designated such individual at the
time of any meeting of the Board or such person has not been elected or is
unavailable to serve, the Company shall notify the Underwriter of each
meeting of the Board. An individual selected by the Underwriter shall be
permitted to attend all meetings of the Board and to receive all notices and
other correspondence and communications sent by the Company to members of the
Board. The Company shall reimburse the Underwriter's designee for his or her
out-of-pocket expenses reasonably incurred in connection with his or her
attendance of the Board meetings.
(x) Commencing one year from the date hereof, to pay the
Underwriter a warrant solicitation fee equal to five percent (5%) of the
exercise price of the Redeemable Warrants, payable on the date of the
exercise thereof on terms provided in the Warrant Agreement. The Company will
not solicit the exercise of the Redeemable Warrants through any solicitation
agent other than the Underwriter. The Underwriter will not be entitled to any
warrant solicitation fee unless the Underwriter provides bona fide services
in connection with any warrant solicitation and the investor designates, in
writing, that the Underwriter is entitled to such fee.
(y) For a period equal to the lesser of (i) seven (7) years from
the date hereof, and (ii) the sale to the public of the Underwriter's
Securities, the Company will not take any action or actions which may prevent
or disqualify the Company's use of Form SB-2 or S-1 (or other appropriate
form) for the registration under the Act of the Underwriter's Securities.
(z) For a period of twenty four (24) months after the effective
date of the Registration Statement, the Company shall not restate, amend or
alter any term of any written employment, consulting or similar agreement
entered into between the Company and any officer, director or key employee as
of the effective date of the Registration Statement in a manner which is more
favorable to such officer, director or key employee, without the prior
written consent of the Underwriter.
(aa) The Company will use its best efforts to maintain the
effectiveness of the Registration Statement for a period of five years after
the date hereof.
19
<PAGE>
(bb) The Company agrees, that for a period of twenty-four (24)
months from the effective date of the Registration Statement, it will not
without the prior written consent of the Underwriter (i) declare or pay any
dividend or make any other distribution on any equity securities of the
Company except for the payment of an aggregate of approximately $39,000 in
dividends on preferred stock of the Company which was converted into Common
Stock upon consummation of the Company's bridge financing on October 10,
1996, or (ii) purchase, redeem or otherwise acquire or retire for value any
equity securities of the Company, except for the Redeemable Warrants, or
(iii) permit a subsidiary of the Company to purchase, redeem or otherwise
acquire or retire for value any equity securities of the Company, except for
the Redeemable Warrants.
5. PAYMENT OF EXPENSES.
(a) The Company hereby agrees to pay (such payment to be made, at
the discretion of the Underwriter, on the Closing Date and any Option Closing
Date (to the extent not paid on the Closing Date or a previous Option Closing
Date)) all expenses and fees (other than fees of Underwriter's Counsel except
as provided in (iv) below) incident to the performance of the obligations of
the Company under this Agreement, the Underwriter's Warrant Agreement and the
Warrant Agreement, including, without limitation, (i) the fees and expenses
of accountants and counsel for the Company, (ii) all costs and expenses
incurred in connection with the preparation, duplication, printing,
(including mailing and handling charges) filing, delivery and mailing
(including the payment of postage, overnight delivery or courier charges with
respect thereto) of the Registration Statement and the Prospectus and any
amendments and supplements thereto and the printing, mailing (including the
payment of postage, overnight delivery or courier charges with respect
thereto) and delivery of this Agreement, the Underwriter's Warrant Agreement,
the Warrant Agreement, and agreements with selected dealers, and related
documents, including the cost of all copies thereof and of each Preliminary
Prospectus and of the Prospectus and any amendments thereof or supplements
thereto supplied to the Underwriter and such dealers as the Underwriter may
request, in such quantities as the Underwriter may request, (iii) the
printing, engraving, issuance and delivery of the Securities, (iv) the
qualification of the Securities under state or foreign securities or "blue
sky" laws and determination of the status of such securities under legal
investment laws, including the costs of printing and mailing the "Preliminary
Blue Sky Memorandum," the "Supplemental Blue Sky Memorandum" and "Legal
Investments Survey," if any, and disbursements and fees (such fees not to
exceed $45,000) of counsel in connection therewith, (v) advertising costs and
expenses, including, but not limited to costs and expenses in connection with
"road shows," information meetings and presentations (such costs and expenses
relating to "road shows", information meetings and presentations not to
exceed $25,000), and prospectus memorabilia and "tombstone" advertisement
expenses, (vi) costs and expenses in connection with due diligence
investigations, including, but not limited to, the fees of any independent
counsel or consultants (excluding Underwriter's Counsel's fees relating to
due diligence), (vii) fees and expenses of a transfer and warrant agent and
registrar for the Securities, (viii) applications for assignments of a rating
of the Securities by qualified rating agencies, (ix) the fees payable to the
Commission and the NASD, and (x) the fees and expenses incurred in connection
with the quotation of the Securities on Nasdaq and any other exchange.
20
<PAGE>
(b) If this Agreement is terminated by the Underwriter in
accordance with the provisions of SECTION 6, SECTION 10(a) or SECTION 11
hereof, the Company shall reimburse and indemnify the Underwriter for all of
its actual out-of-pocket expenses, including the fees and disbursements of
Underwriter's Counsel, less any amounts already paid pursuant to SECTION 5(c)
hereof. In addition, the Company shall remain liable for all Blue Sky counsel
fees (such fees not to exceed $45,000) and expenses and Blue Sky filing fees.
(c) The Company further agrees that, in addition to the expenses
payable pursuant to SECTION 5(a) hereof, it will pay to the Underwriter on
the Closing Date by certified or bank cashier's check, or, at the election of
the Underwriter, by deduction from the proceeds of the offering of the Firm
Units, a non-accountable expense allowance equal to three percent (3%) of the
gross proceeds received by the Company from the sale of the Firm Units,
twenty-five thousand dollars ($25,000) of which has been paid to date by the
Company. In the event the Underwriter elects to exercise the over-allotment
option described in SECTION 2(b) hereof, the Company further agrees to pay to
the Underwriter on each Option Closing Date, by certified or bank cashier's
check, or, at the Underwriter's election, by deduction from the proceeds of
the Option Units purchased on such Option Closing Date, a non-accountable
expense allowance equal to three percent (3%) of the gross proceeds received
by the Company from the sale of such Option Units.
6. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligations of
the Underwriter hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof
and as of the Closing Date and each Option Closing Date, if any, as if they
had been made on and as of the Closing Date and each Option Closing Date, as
the case may be; the accuracy on and as of the Closing Date and each Option
Closing Date, if any, of the statements of officers of the Company made
pursuant to the provisions hereof; the performance by the Company on and as
of the Closing Date and each Option Closing Date, if any, of its covenants
and obligations hereunder; and to the following further conditions:
(a) The Registration Statement shall have become effective not
later than 12:00 p.m., New York time, on the date of this Agreement or such
later date and time as shall be consented to in writing by the Underwriter,
and, at the Closing Date and each Option Closing Date, if any, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or
shall be pending or contemplated by the Commission and any request on the
part of the Commission for additional information shall have been complied
with to the reasonable satisfaction of Underwriter's Counsel. If the Company
has elected to rely upon Rule 430A of the Rules and Regulations, the price of
the Units and any price-related information previously omitted from the
effective Registration Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) of the Rules
and Regulations within the prescribed time period, and prior to the Closing
Date the Company shall have provided evidence satisfactory to the Underwriter
of such timely filing, or a post-effective amendment providing such
information shall have been promptly filed and declared effective in
accordance with the requirements of Rule 430A of the Rules and Regulations.
21
<PAGE>
(b) The Underwriter shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Underwriter's opinion, is material, or omits
to state a fact which, in the Underwriter's opinion, is material and is
required to be stated therein or is necessary to make the statements therein,
in light of the circumstances in which they were made not misleading, or that
the Prospectus, or any supplement thereto, contains an untrue statement of
fact which, in the Underwriter's opinion, is material, or omits to state a
fact which, in the Underwriter's opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading.
(c) On or prior to the Closing Date, the Underwriter shall have
received from Underwriter's Counsel such opinion or opinions with respect to
the organization of the Company, the validity of the Securities, the
Registration Statement, the Prospectus and such other related matters as the
Underwriter may request and Underwriter's Counsel shall have received such
papers and information as they may request in order to enable them to pass
upon such matters.
(d) On the Closing Date, the Underwriter shall have received the
favorable opinion of Graham & James LLP, counsel to the Company, dated the
Closing Date, addressed to the Underwriter, in form and substance
satisfactory to Underwriter's Counsel and substantially in the form of
Exhibit A attached hereto:
At each Option Closing Date, if any, the Underwriter shall have
received the favorable opinion of Graham & James LLP counsel to the Company,
dated the relevant Option Closing Date, addressed to the Underwriter, and in
form and substance satisfactory to Underwriter's Counsel confirming as of the
Option Closing Date, the statements made by Graham & James LLP in its opinion
delivered on the Closing Date.
(e) On the Closing Date, the Underwriter shall have received the
favorable opinion of Tam, O'Connor & Henderson, counsel to the Company, dated
the Closing Date, addressed to the Underwriter, in form and substance
satisfactory to Underwriter's Counsel and substantially in the form of
Exhibit B attached hereto.
At each Option Closing Date, if any, the Underwriter shall have
received the favorable opinion of Tam, O'Connor & Henderson counsel to the
Company, dated the relevant Option Closing Date, addressed to the
Underwriter, and in form and substance satisfactory to Underwriter's Counsel
confirming as of the Option Closing Date, the statements made by Tam,
O'Connor & Henderson in its opinion delivered on the Closing Date.
(f) On or prior to each of the Closing Date and each Option
Closing Date, if any, Underwriter's Counsel shall have been furnished with
such documents, certificates and opinions as they may reasonably require for
the purpose of enabling them to review or pass upon the matters referred to
in SECTION 6(c) hereof, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company herein contained.
22
<PAGE>
(g) Prior to the Closing Date and each Option Closing Date, if
any, (i) there shall have been no material adverse change or development
involving a prospective adverse change in the condition, financial or
otherwise, or the earnings, stockholders' equity, value, operations,
properties, business or results of operations of the Company, whether or not
in the ordinary course of business, from the latest dates as of which such
matters are set forth in the Registration Statement and the Prospectus; (ii)
there shall have been no transaction, not in the ordinary course of business,
entered into by the Company from the latest date as of which the financial
condition of the Company is set forth in the Registration Statement and the
Prospectus; (iii) except as disclosed in the Prospectus, the Company shall
not be in default under any provision of any instrument relating to any
outstanding indebtedness; (iv) the Company shall not have issued any
securities except for the Securities and up to 15,863 options having an
exercise price equal to or greater than the initial public offering price of
the Units or declared or paid any dividend or made any distribution in
respect of its capital stock of any class except as set forth in the
Prospectus and there shall not have been any change in the capital stock,
debt (long or short term) or liabilities or obligations of the Company
(contingent or otherwise) from the latest dates as of which such matters are
set forth in the Registration Statement and the Prospectus; (v) no material
amount of the assets of the Company shall have been pledged or mortgaged,
except as set forth in the Registration Statement and the Prospectus; (vi) no
action, suit, proceeding, inquiry, arbitration, investigation, litigation or
governmental or other proceeding, domestic or foreign, shall be pending or
threatened (or circumstances giving rise to same) against the Company or
affecting any of its properties or business before or by any court or
federal, state or foreign commission, board or other administrative agency
wherein an unfavorable decision, ruling or finding may materially and
adversely affect the condition, financial or otherwise, or the earnings,
stockholders' equity, value, operations, properties, business or results of
operations of the Company taken as a whole, except as set forth in the
Registration Statement and Prospectus; and (vii) no stop order shall have
been issued under the Act with respect to the Registration Statement and no
proceedings therefor shall have been initiated, threatened or contemplated by
the Commission.
(h) At the Closing Date and each Option Closing Date, if any, the
Underwriter shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or the relevant Option Closing
Date, as the case may be, to the effect that each of such persons has
carefully examined the Registration Statement, the Prospectus and this
Agreement, and that:
i) The representations and warranties of the Company in this
Agreement are true and correct, in all material respects, as if
made on and as of the Closing Date or the Option Closing Date, as
the case may be, and the Company has complied with all agreements
and covenants and satisfied all conditions contained in this
Agreement on its part to be performed or satisfied at or prior to
such Closing Date or Option Closing Date, as the case may be;
ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no
proceedings for that purpose have been instituted or are pending
or, to the best of each of such person's knowledge, are
contemplated or threatened under the Act;
23
<PAGE>
iii) The Registration Statement and the Prospectus and, if
any, each amendment and each supplement thereto contain all
statements and information required to be included therein, and
none of the Registration Statement, the Prospectus or any amendment
or supplement thereto includes any untrue statement of a material
fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading and
neither the Preliminary Prospectus nor any supplement thereto
included any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances in
which they were made, not misleading; and
iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, (A) the Company has not incurred any material
liabilities or obligations, direct or contingent; (B) the Company
has not paid or declared any dividends or other distributions on
its capital stock; (C) the Company has not entered into any
transactions not in the ordinary course of business; (D) there has
not been any change in the capital stock or long-term debt or any
increase in the short-term borrowings (other than any increase in
short-term borrowings in the ordinary course of business) of the
Company; (E) the Company has not sustained any material loss or
damage to its property or assets, whether or not insured; (F) there
is no litigation which is pending or threatened (or circumstances
giving rise to same) against the Company or any affiliate (within
the meaning of the Rules and Regulations) of the foregoing which is
required to be set forth in an amended or supplemented Prospectus
which has not been set forth; and (G) there has occurred no event
required to be set forth in an amended or supplemented Prospectus
which has not been set forth.
References to the Registration Statement and the Prospectus in this SECTION
6(h) are to such documents as amended and supplemented at the date of such
certificate.
(i) By the Closing Date, the Underwriter will have received
clearance from the NASD as to the amount of compensation allowable or payable
to the Underwriter, as described in the Registration Statement.
(j) At the time this Agreement is executed, the Underwriter shall
have received a letter, dated such date, addressed to the Underwriter and in
form and substance satisfactory in all respects (including the non-material
nature of the changes or decreases, if any, referred to in clause (iii)
below) to the Underwriter and Underwriter's Counsel, from Arthur Andersen LLP.
i) confirming that they are independent certified public
accountants with respect to the Company within the meaning of the
Act and the Rules and Regulations;
24
<PAGE>
ii) stating that it is their opinion that the consolidated
financial statements of the Company included in the Registration
Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and
Regulations and that the Underwriter may rely upon the opinion of
Arthur Andersen LLP with respect to such financial statements and
supporting schedules included in the Registration Statement;
iii) stating that, on the basis of a limited review which
included a reading of the latest unaudited interim financial
statements of the Company, a reading of the latest available
minutes of the stockholders and board of directors and the various
committees of the board of directors of the Company, consultations
with officers and other employees of the Company responsible for
financial and accounting matters and other specified procedures and
inquiries, nothing has come to their attention which would lead
them to believe that (A) the unaudited financial statements and
supporting schedules of the Company included in the Registration
Statement do not comply as to form in all material respects with
the applicable accounting requirements of the Act and the Rules and
Regulations or are not fairly presented in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial
statements of the Company included in the Registration Statement,
or (B) at a specified date nor more than five (5) days prior to the
effective date of the Registration Statement, there has been any
change in the capital stock or long-term debt of the Company, or
any decrease in the stockholders' equity or net current assets or
net assets of the Company as compared with amounts shown in the
December 31, 1996 balance sheet included in the Registration
Statement, other than as set forth in or contemplated by the
Registration Statement, or, if there was any change or decrease,
setting forth the amount of such change or decrease, and (C) during
the period from December 31, 1996 to a specified date not more than
five (5) days prior to the effective date of the Registration
Statement, there was any decrease in net revenues, net earnings or
net earnings per share of Common Stock, in each case as compared
with the corresponding period beginning December 31, 1995, other
than as set forth in or contemplated by the Registration Statement,
or, if there was any such decrease, setting forth the amount of
such decrease;
iv) setting forth, at a date not later than five (5) days
prior to the effective date of the Registration Statement, the
amount of liabilities of the Company (including a break-down of
commercial paper and notes payable to banks);
v) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements
and other financial information pertaining to the Company set forth
in the Prospectus, in each case to the extent that such amounts,
numbers, percentages, statements and information may be derived
from the general accounting records, including work sheets, of the
Company and excluding any questions requiring an interpretation by
legal
25
<PAGE>
counsel, with the results obtained from the application of
specified readings, inquiries and other appropriate procedures
(which procedures do not constitute an audit in accordance with
generally accepted auditing standards) set forth in the letter and
found them to be in agreement; and
vi) statements as to such other matters incident to the
transaction contemplated hereby as the Underwriter may request.
(k) At the Closing Date and each Option Closing Date, if any, the
Underwriter shall have received from Arthur Andersen LLP a letter, dated as
of the Closing Date or the relevant Option Closing Date, as the case may be,
to the effect that (i) it reaffirms the statements made in the letter
furnished pursuant to SECTION 6(j), (ii) if the Company has elected to rely
on Rule 430A of the Rules and Regulations, to the further effect that Arthur
Andersen LLP has carried out procedures as specified in clause (v) of SECTION
6(j) hereof with respect to certain amounts, percentages and financial
information as specified by the Underwriter and deemed to be a part of the
Registration Statement pursuant to Rule 430A(b) and have found such amounts,
percentages and financial information to be in agreement with the records
specified in such clause (v).
(l) The Company shall have received a letter, dated such date,
addressed to the Company, in form and substance satisfactory in all respects
to the Underwriter, from Arthur Andersen LLP stating that they have not
during the immediately preceding five (5) year period brought to the
attention of the Company's management any "weakness," as defined in Statement
of Auditing Standard No. 60 "Communication of Internal Control Structure
Related Matters Noted in an Audit," in any of the Company's internal controls.
(m) On each of the Closing Date and Option Closing Date, if any,
there shall have been duly tendered to the Underwriter the appropriate number
of Securities.
(n) No order suspending the sale of the Securities in any
jurisdiction designated by the Underwriter pursuant to SECTION 4(e) hereof
shall have been issued on either the Closing Date or the Option Closing Date,
if any, and no proceedings for that purpose shall have been instituted or
shall be contemplated.
(o) On or before the effective date of the Registration Statement,
the Company shall have executed and delivered to the Underwriter, the
Underwriter's Warrant Agreement, substantially in the form filed as Exhibit
4.3 to the Registration Statement. On or before the Closing Date, the Company
shall have executed and delivered to the Underwriter the Underwriter's
Warrants in such denominations and to such designees as shall have been
provided to the Company.
(p) On or before Closing Date, the Units, the Common Stock and the
Redeemable Warrants shall have been duly approved for quotation on Nasdaq,
subject to official notice of issuance.
26
<PAGE>
(q) On or before Closing Date, there shall have been delivered to
the Underwriter all of the Lock-Up Agreements, in form and substance
satisfactory to Underwriter's Counsel.
(r) On or before the Closing Date, the Company shall have executed
and delivered to the Underwriter the Consulting Agreement, substantially in
the form filed as Exhibit 10.7 to the Registration Statement.
(s) On or before the effective date of the Registration Statement,
the Company and Continental Stock Transfer & Trust Company shall have
executed and delivered to the Underwriter the Warrant Agreement,
substantially in the form filed as Exhibit 4.2 to the Registration Statement.
(t) At least two (2) full business days prior to the date hereof,
the Closing Date and each Option Closing Date, if any, the Company shall have
delivered to the Underwriter the unaudited interim consolidated financial
statements required to be so delivered pursuant to SECTION 4(p) of this
Agreement.
If any condition to the Underwriter's obligations hereunder to be
fulfilled prior to or at the Closing Date or at any Option Closing Date, as
the case may be, is not so fulfilled, the Underwriter may terminate this
Agreement or, if the Underwriter so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
7. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless the
Underwriter (for purposes of this SECTION 7, "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the
Underwriter), and each person, if any, who controls the Underwriter
("controlling person") within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, from and against any and all losses, claims,
damages, expenses or liabilities, joint or several (and actions, proceedings,
investigations, inquiries and suits in respect thereof), whatsoever
(including but not limited to any and all costs and expenses whatsoever
reasonably incurred in investigating, preparing or defending against such
action, proceeding, investigation, inquiry or suit commenced or threatened,
or any claim whatsoever), as such are incurred, to which the Underwriter or
such controlling person may become subject under the Act, the Exchange Act or
any other statute or at common law or otherwise or under the laws of foreign
countries, arising out of or based upon (A) any untrue statement or alleged
untrue statement of a material fact contained (i) in any Preliminary
Prospectus, the Registration Statement or the Prospectus (as from time to
time amended and supplemented); (ii) in any post-effective amendment or
amendments or any new registration statement and prospectus in which is
included securities of the Company issued or issuable upon exercise of the
Securities; or (iii) in any application or other document or written
communication (in this SECTION 7, collectively referred to as "applications")
executed by the Company or based upon written information furnished by the
Company filed, delivered or used in any jurisdiction in order to qualify the
Securities under the securities laws thereof or filed with the Commission,
any state securities commission or agency, the NASD, Nasdaq or any securities
exchange; (B) the
27
<PAGE>
omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not misleading (in
the case of the Prospectus, in light of the circumstances in which they were
made); or (C) any breach of any representation, warranty, covenant or
agreement of the Company contained herein or in any certificate by or on
behalf of the Company or any of its officers delivered pursuant hereto,
unless, in the case of clause (A) or (B) above, such statement or omission
was made in reliance upon and in conformity with written information
furnished to the Company with respect to any Underwriter by or on behalf of
such Underwriter expressly for use in any Preliminary Prospectus, the
Registration Statement or any Prospectus, or any amendment thereof or
supplement thereto, or in any application, as the case may be. The indemnity
agreement in this Section 7(a) shall be in addition to any liability which
the Company may have at common law or otherwise.
(b) The Underwriter agrees, to indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company
within the meaning of the Act, to the same extent as the foregoing indemnity
from the Company to the Underwriter but only with respect to statements or
omissions, if any, made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any amendment thereof or supplement thereto or
in any application made in reliance upon, and in strict conformity with,
written information furnished to the Company with respect to the Underwriter
by the Underwriter expressly for use in such Preliminary Prospectus, the
Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any such application, provided that such written information or
omissions only pertain to disclosures in the Preliminary Prospectus, the
Registration Statement or the Prospectus directly relating to the
transactions effected by the Underwriter in connection with the offering
contemplated hereby. The Company acknowledges that the statements with
respect to the Offering set forth under the heading "Underwriting" and the
stabilization legend in the Prospectus have been furnished by the Underwriter
expressly for use therein and constitute the only information furnished in
writing by or on behalf of the Underwriter for inclusion in any Preliminary
Prospectus, the Registration Statement or the Prospectus. The indemnity
agreement in this Section 7(b) shall be in addition to any liability which
the Underwriter may have at common law or otherwise.
(c) Promptly after receipt by an indemnified party under this
SECTION 7 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against one or more
indemnifying parties under this SECTION 7, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but
the failure to so notify an indemnifying party shall not relieve it from any
liability which it may have under this SECTION 7 (except to the extent that
it has been prejudiced in any material respect by such failure) or from any
liability which it may have otherwise). In case any such action,
investigation, inquiry, suit or proceeding is brought against any indemnified
party, and it notifies an indemnifying party or parties of the commencement
thereof, the indemnifying party or parties will be entitled to participate
therein, and to the extent it or they may elect by written notice delivered
to the indemnified party promptly after receiving the aforesaid notice from
such indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. Notwithstanding the foregoing, an
indemnified party shall have the right to employ its own counsel in any such
case but the fees and expenses of such counsel shall be at
28
<PAGE>
the expense of such indemnified party unless (i) the employment of such
counsel shall have been authorized in writing by the indemnifying parties in
connection with the defense of such action at the expense of the indemnifying
party, (ii) the indemnifying parties shall not have employed counsel
reasonably satisfactory to such indemnified party to have charge of the
defense of such action within a reasonable time after notice of commencement
of the action, or (iii) such indemnified party shall have reasonably
concluded that there may be defenses available to it which are different from
or additional to those available to one or all of the indemnifying parties
(in which event the indemnifying parties shall not have the right to direct
the defense of such action, investigation, inquiry, suit or proceeding on
behalf of the indemnified party or parties), in any of which events such fees
and expenses of one additional counsel shall be borne by the indemnifying
parties. In no event shall the indemnifying parties be liable for fees and
expenses of more than one counsel (in addition to any local counsel) separate
from their own counsel for all indemnified parties in connection with any one
action, investigation, inquiry, suit or proceeding or separate but similar or
related actions, investigations, inquiries, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle, compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action), unless such settlement, compromise or
consent (i) includes an unconditional release of each indemnified party from
all liability arising out of such claim, action, suit or proceeding and (ii)
does not include a statement as to or an admission of fault, culpability or a
failure to act by or on behalf of any indemnified party. Anything in this
SECTION 7 to the contrary notwithstanding, an indemnifying party shall not be
liable for any settlement of any claim or action effected without its written
consent; PROVIDED, HOWEVER, that such consent may not be unreasonably
withheld.
(d) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes a claim for indemnification
pursuant to this SECTION 7, but it is judicially determined (by the entry of
a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the
fact that the express provisions of this SECTION 7 provide for
indemnification in such case, or (ii) contribution under the Act may be
required on the part of any indemnified party, then each indemnifying party
shall contribute to the amount paid as a result of such losses, claims,
damages, expenses or liabilities (or actions, investigations, inquiries,
suits or proceedings in respect thereof) (A) in such proportion as is
appropriate to reflect the relative benefits received by each of the
contributing parties, on the one hand, and the party to be indemnified, on
the other hand, from the offering of the Securities or (B) if the allocation
provided by clause (A) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (A) above but also the relative fault of each of the
contributing parties, on the one hand, and the party to be indemnified, on
the other hand, in connection with the statements or omissions that resulted
in such losses, claims, damages, expenses or liabilities, as well as any
other relevant equitable considerations. In any case where the Company is a
contributing party and the Underwriter is the indemnified party, the relative
benefits received by the Company, on the one hand, and the Underwriter, on
the other, shall be deemed to be in
29
<PAGE>
the same proportion as the total net proceeds from the offering of the
Securities (before deducting expenses) bear to the total underwriting
discounts received by the Underwriter hereunder, in each case as set forth in
the table on the cover page of the Prospectus. Relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company or by
the Underwriter, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The amount paid by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions, investigations,
inquiries, suits or proceedings in respect thereof) referred to in the first
(1st) sentence of this SECTION 7(d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action, claim, investigation,
inquiry suit or proceeding. Notwithstanding the provisions of this SECTION
7(d), the Underwriter shall not be required to contribute any amount in
excess of the underwriting discount applicable to the Securities purchased by
the Underwriter hereunder. No person guilty of fraudulent misrepresentation
(within the meaning of SECTION 12(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this SECTION 7(d), each person, if any,
who controls the Company or the Underwriter within the meaning of the Act,
each officer of the Company who has signed the Registration Statement and
each director of the Company shall have the same rights to contribution as
the Company or the Underwriter, as the case may be, subject in each case to
this SECTION 7(d). Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit, inquiry, investigation
or proceeding, against such party in respect to which a claim for
contribution may be made against another party or parties under this SECTION
7(d), notify such party or parties from whom contribution may be sought, but
the omission to so notify such party or parties shall not relieve the party
or parties from whom contribution may be sought from any obligation it or
they may have hereunder or otherwise than under this SECTION 7(d), or to the
extent that such party or parties were not adversely affected by such
omission. Notwithstanding anything in this SECTION 7 to the contrary, no
party will be liable for contribution with respect to the settlement of any
action or claim effected without its written consent. The contribution
agreement set forth above shall be in addition to any liabilities which any
indemnifying party may have at common law or otherwise.
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS TO
SURVIVE DELIVERY. All representations, warranties, covenants and agreements
of the Company contained in this Agreement, or contained in certificates of
officers of the Company submitted pursuant hereto, shall be deemed to be
representations, warranties, covenants and agreements at the Closing Date and
each Option Closing Date, if any, and such representations, warranties,
covenants and agreements of the Company, and the respective indemnity and
contribution agreements contained in SECTION 7 hereof, shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of the Underwriter, the Company, any controlling person of the
Underwriter or the Company, and shall survive the termination of this
Agreement or the issuance and delivery of the Securities to the Underwriter.
9. EFFECTIVE DATE. This Agreement shall become effective at 10:00
a.m., New York City time, on the next full business day following the date
hereof, or at such earlier
30
<PAGE>
time after the Registration Statement becomes effective as the Underwriter,
in its discretion, shall release the Firm Units for sale to the public;
PROVIDED, HOWEVER, that the provisions of SECTIONS 5, 7 and 10 of this
Agreement shall at all times be effective. For purposes of this SECTION 9,
the Securities to be purchased hereunder shall be deemed to have been so
released upon the earlier of dispatch by the Underwriter of telegrams to
securities dealers releasing such Firm Units for offering or the release by
the Underwriter for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. TERMINATION.
(a) Subject to SECTION 10(b) hereof, the Underwriter shall have
the right to terminate this Agreement: (i) if any domestic or international
event or act or occurrence has materially adversely disrupted, or in the
Underwriter's opinion will in the immediate future materially adversely
disrupt, the financial markets; or (ii) if any material adverse change in the
financial markets shall have occurred; or (iii) if trading generally shall
have been suspended or materially limited on or by, as the case may be, any
of the New York Stock Exchange, the American Stock Exchange, the NASD, the
Commission or any governmental authority having jurisdiction over such
matters; or (iv) if trading of any of the securities of the Company shall
have been suspended, or if any of the securities of the Company shall have
been delisted, on any exchange or in any over-the-counter market; or (v) if
the United States shall have become involved in a war or major hostilities,
or if there shall have been an escalation in an existing war or major
hostilities, or a national emergency shall have been declared in the United
States; or (vi) if a banking moratorium shall have been declared by any state
or federal authority; or (vii) if a moratorium in foreign exchange trading
shall have been declared; or (viii) if the Company shall have sustained a
material or substantial loss by fire, flood, accident, hurricane, earthquake,
theft, sabotage, volcanic eruption or other calamity or malicious act which,
whether or not such loss shall have been insured, will, in the Underwriter's
opinion, make it inadvisable to proceed with the delivery of the Securities;
or (ix) if there shall have occurred any outbreak or escalation of
hostilities or any calamity or crisis or there shall have been such a
material adverse change in the conditions or prospects of the Company, or if
there shall have been such a material adverse change in the general market,
political or economic conditions, in the United States or elsewhere, as in
the Underwriter's judgment would make it inadvisable to proceed with the
offering, sale and/or delivery of the Securities; or (x) Mr. Marcus Bender
shall no longer serve the Company in his present capacities.
(b) If this Agreement is terminated by the Underwriter in
accordance with the provisions of SECTION 6, SECTION 10(a) or SECTION 11
hereof the Company shall promptly reimburse and indemnify the Underwriter for
all its actual out-of-pocket expenses, including the fees and disbursements
of Underwriter's Counsel, less amounts previously paid pursuant to SECTION
5(c) hereof. In addition, the Company shall remain liable for all "blue sky"
counsel fees and expenses and "blue sky" filing fees. Notwithstanding any
contrary provision contained in this Agreement, any election hereunder or any
termination of this Agreement (including, without limitation, pursuant to
SECTIONS 6, 10(a) and 11 hereof), and whether or not this Agreement is
otherwise carried out, the provisions of SECTION 5 and SECTION 7 shall not be
in any way be affected by such election or termination or failure to carry
out the terms of this Agreement or any part hereof.
31
<PAGE>
11. DEFAULT BY THE COMPANY. If the Company shall fail at the
Closing Date or any Option Closing Date, as applicable, to sell and deliver
the number of Securities which it is obligated to sell hereunder on such
date, then this Agreement shall terminate (or, if such default shall occur
with respect to any Option Units to be purchased on an Option Closing Date,
the Underwriter may, at its option, by notice from the Underwriter to the
Company, terminate the Underwriter's obligation to purchase Option Units from
the Company on such date) without any liability on the part of any
non-defaulting party other than pursuant to SECTION 5, SECTION 7 and SECTION
10 hereof. No action taken pursuant to this SECTION 11 shall relieve the
Company from liability, if any, in respect of such default.
12. NOTICES. All notices and communications hereunder, except as
herein otherwise specifically provided, shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form
of telecommunication. Notices to the Underwriter shall be directed to the
Underwriter at Joseph Stevens & Company, Inc., 33 Maiden Lane, 8th Floor, New
York, New York 10038, Attention: Mr. Joseph Sorbara, with a copy to Orrick,
Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New York 10103,
Attention: Rubi Finkelstein, Esq. Notices to the Company shall be directed to
the Company at Hawaiian Natural Water Company, Inc., 248 Mokauea Street,
Honolulu, Hawaii 96819, Attention: Marcus Bender, Chief Executive Officer,
with a copy to Graham & James LLP, 801 South Figueroa Street, 15th Floor, Los
Angeles, California 90017, Attention: Richard Manson, Esq.
13. PARTIES. This Agreement shall inure solely to the benefit of,
and shall be binding upon, the Underwriter, the Company and the controlling
persons, directors and officers referred to in SECTION 7 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or
claim under or in respect of or by virtue of this Agreement or any provisions
herein contained. No purchaser of Units from the Underwriter shall be deemed
to be a successor by reason merely of such purchase.
14. CONSTRUCTION. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
without giving effect to choice of law or conflict of laws principles.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of
which taken together shall be deemed to be one and the same instrument.
16. ENTIRE AGREEMENT: AMENDMENTS. This Agreement, the
Underwriter's Warrant Agreement and the Consulting Agreement constitute the
entire agreement of the parties hereto and supersede all prior written or
oral agreements, understandings and negotiations with respect to the subject
matter hereof and thereof. This Agreement may not be amended except in a
writing signed by the Underwriter and the Company.
32
<PAGE>
If the foregoing correctly sets forth the understanding between the
Underwriter and the Company, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
between us.
Very truly yours,
HAWAIIAN NATURAL WATER COMPANY, INC.
By: /s/ MARCUS BENDER
---------------------------------
Name: Marcus Bender
Title: Chief Executive Officer
Confirmed and accepted as of
the date first above written.
JOSEPH STEVENS & COMPANY, INC.
By: /s/ ENRICO SUPPA
-------------------------------------
Name:
Title:
<PAGE>
FINANCIAL ADVISORY AND CONSULTING AGREEMENT
This Agreement is made and entered into as of this 14th day of
May, 1997, by and between HAWAIIAN NATURAL WATER COMPANY, INC., a Hawaii
corporation (the "Company"), and JOSEPH STEVENS & COMPANY, INC. (the
"Consultant").
In consideration of and for the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt
of which is hereby acknowledged, the parties hereto hereby agree as follows:
1. PURPOSE. The Company hereby retains the Consultant during the
term specified in SECTION 2 hereof to render consulting advice to the Company
as an investment banker relating to financial and similar matters, upon the
terms and conditions as set forth herein.
2. TERM. Subject to the provisions of SECTIONS 8, 9 and 10
hereof, this Agreement shall be effective for a period of twenty-four (24)
months commencing May 14, 1997.
3. DUTIES OF CONSULTANT. During the term of this Agreement, the
Consultant will provide the Company with such regular and customary
consulting advice as is reasonably requested by the Company, provided that
the Consultant shall not be required to undertake duties not reasonably
within the scope of the consulting advisory service contemplated by this
Agreement. In performance of these duties, the Consultant shall provide the
Company with the benefits of its best judgment and efforts. It is understood
and acknowledged by the parties that the value of the Consultant's advice is
not measurable in any quantitative manner, and that the Consultant shall be
obligated to render advice, upon the request of the Company, in good faith,
but shall not be obligated to spend any specific amount of time in doing so.
The Consultant's duties may include, but will not necessarily be limited to:
A. Providing sponsorship and exposure in connection with the
dissemination of corporate information regarding the Company to the
investment community at large under a systematic planned approach.
B. Rendering advice and assistance in connection with the
preparation of annual and interim reports and press releases.
C. Arranging, on behalf of the Company and its representatives,
at appropriate times, meetings with securities analysts of major regional
investment banking firms.
D. Assisting in the Company's financial public relations,
including discussions between the Company and the financial community.
E. Rendering advice with regard to internal operations, including:
<PAGE>
(1) advice regarding formation of corporate goals and their
implementation;
(2) advice regarding the financial structure of the Company
and its divisions or subsidiaries or any programs and projects
of such entities;
(3) advice concerning the securing, when necessary and if
possible, of additional financing through banks, insurance
companies and/or other institutions; and
(4) advice regarding corporate organization and personnel.
F. Rendering advice with respect to any acquisition program of
the Company.
G. Rendering advice regarding a future public or private offering
of securities of the Company or of any subsidiary.
4. RELATIONSHIPS WITH OTHERS. The Company acknowledges that the
Consultant and its affiliates are in the business of providing financial
services and consulting advice (of all types contemplated by this Agreement)
to others. Nothing herein contained shall be construed to limit or restrict
the Consultant or its affiliates from rendering such services or advice to
others.
5. CONSULTANT'S LIABILITY. In the absence of gross negligence or
willful misconduct on the part of the Consultant, or the Consultant's breach
of this Agreement, the Consultant shall not be liable to the Company, or to
any officer, director, employee, shareholder or creditor of the Company, for
any act or omission in the course of or in connection with the rendering or
providing of advice hereunder. Except in those cases where the gross
negligence or willful misconduct of the Consultant or the breach by the
Consultant of this Agreement is alleged and proven, the Company agrees to
defend, indemnify and hold the Consultant harmless from and against any and
all reasonable costs, expenses and liability (including, but not limited to,
attorneys' fees paid in the defense of the Consultant) which may in any way
result from services rendered by the Consultant pursuant to or in any
connection with this Agreement.
6. EXPENSES. The Company, upon receipt of appropriate supporting
documentation, shall reimburse the Consultant for any and all reasonable
out-of-pocket expenses incurred by the Consultant in connection with services
rendered by the Consultant to the Company pursuant to this Agreement,
including, but not limited to, hotel, food and associated expenses, all
charges for travel and long-distance telephone calls and all other expenses
incurred by the Consultant in connection with services rendered by the
Consultant to the Company pursuant to this Agreement, provided, however, that
the Consultant shall not incur expenses hereunder for which reimbursement is
sought in excess $1,000 without the prior written consent of the Company.
Expenses payable under this Section 6 shall not include allocable overhead
expenses of the Consultant, including, but not limited to, attorneys' fees,
secretarial charges and rent.
2
<PAGE>
7. [Intentionally omitted].
8. OTHER ADVICE. In addition to the duties set out in SECTION 3
hereof, the Consultant agrees to furnish advice to the Company in connection
with the acquisition of and/or merger with other companies, joint ventures
with any third parties, license and royalty agreements and any other
financing (other than the private or public sale of the Company's securities
for cash), including, but not limited to, the sale of the Company itself (or
any significant percentage, subsidiaries or affiliates thereof).
In the event that any such transactions are directly or indirectly
originated by the Consultant for a period of five (5) years from the date
hereof, unless otherwise agreed in writing between the Company and the
Consultant, the Company shall pay fees to the Consultant as follows:
Legal Consideration Fee
------------------- ---
1. $ -0- - $3,000,000 5% of legal consideration
2. $3,000,001 - $4,000,000 Amount calculated pursuant to line 1
of this computation, plus 4% of
excess over $3,000,000
3. $4,000,001 - 5,000,000 Amount calculated pursuant to lines
1 and 2 of this computation, plus 3%
of excess over $4,000,000
4. above $5.000.000 Amount calculated pursuant to lines
1, 2 and 3 of this computation, plus
2% of excess over $5,000,000.
Legal consideration is defined, for purposes of this Agreement, as
the total of stock (valued at market on the day of closing, or if there is no
public market, valued as set forth herein for other property), cash and
assets and property or other benefits exchanged by the Company or received by
the Company or its shareholders (all valued at fair market value as agreed
or, if not, by any independent appraiser), irrespective of period of payment
or terms.
9. SALES OR DISTRIBUTIONS OF SECURITIES. If the Consultant
assists the Company in the sale or distribution of securities to the public
or in a private transaction, the Consultant shall receive fees in the amount
and form to be arranged separately at the time of such transaction.
10. FORM OF PAYMENT. All fees due to the Consultant pursuant to
SECTION 8 hereof are due and payable to the Consultant, in cash or by
certified check, at the closing or closings of a transaction specified in
such SECTION 8 or as otherwise agreed between the parties hereto; PROVIDED,
however, that in the case of license and royalty agreements specified in
SECTION 8 hereof, the fees due the Consultant in receipt of such license and
royalty agreements shall be
3
<PAGE>
paid as and when license and/or royalty payments are received by the Company.
In the event that this Agreement shall not be renewed for a period of at
least twelve (12) months at the end of the five (5) year period referred to
in SECTION 8 hereof or if terminated for any reason prior to the end of such
five (5) year period then, notwithstanding any such non-renewal or
termination, the Consultant shall be entitled to the full fee for any
transaction contemplated under SECTION 8 hereof which closes within twelve
(12) months after such non-renewal or termination.
11. LIMITATION UPON THE USE OF ADVICE AND SERVICES.
(a) No person or entity, other than the Company or any of its
subsidiaries, shall be entitled to make use of or rely upon the advice of the
Consultant to be given hereunder, and the Company shall not transmit such
advice to others, or encourage or facilitate the use of or reliance upon such
advice by others, without the prior written consent of the Consultant.
(b) It is clearly understood that the Consultant, for services
rendered under this Agreement, makes no commitment whatsoever as to making a
market in the securities of the Company or to recommend or advise its clients
to purchase the securities of the Company. Research reports or corporate
finance reports that may be prepared by the Consultant will, when and if
prepared, be done solely on the merits or judgment of analysts of the
Consultant or senior corporate finance personnel of the Consultant.
(c) The use of the Consultant's name in any annual report or other
report of the Company, or any release or similar document prepared by or on
behalf of the Company, must have the prior written approval of the Consultant
unless the Company is required by law to include the Consultant's name in
such annual report, other report or release, in which event the Consultant
will be furnished with a copy of such annual report, other report or release
using Consultant's name in advance of publication by or on behalf of the
Company.
(d) Should any purchases of securities be requested to be effected
through the Consultant by the Company, its officers, directors, employees or
other affiliates, or by any person on behalf of any profit sharing, pension
or similar plan of the Company, for the account of the Company or the
individuals or entities involved, such orders shall be taken by a registered
account executive of the Consultant, shall not be subject to the terms of
this Agreement, and the normal brokerage commission as charged by the
Consultant will apply in conformity with all rules and regulations of the New
York Stock Exchange, the National Association of Securities Dealers, Inc. or
other regulatory bodies. Where no regulatory body sets the fee, the normal
established fee as used by the Consultant shall apply.
(e) The Consultant shall not disclose confidential information
which it learns about the Company as a result of its engagement hereunder,
except as such disclosure as may be required for Consultant to perform its
duties hereunder.
12. INDEMNIFICATION. Since the Consultant will be acting on behalf
of the Company in connection with its engagement hereunder, the Company and
Consultant have entered into a separate indemnification agreement
substantially in the form attached hereto as
4
<PAGE>
EXHIBIT A and dated the date hereof, providing for the indemnification of
Consultant by the Company. The Consultant has entered into this Agreement in
reliance on the indemnities set forth in such indemnification agreement.
13. SEVERABILITY. Every provision of this Agreement is intended to
be severable. If any term or provision hereof is deemed unlawful or invalid
for any reason whatsoever, such unlawfulness or invalidity shall not affect
the validity of the remainder of this Agreement.
14. MISCELLANEOUS.
(a) Any notice or other communication between the parties hereto
shall be sent by certified or registered mail, postage prepaid, if to the
Company, addressed to it at 248 Mokauea Street, Honolulu, Hawaii 96819,
Attention: Marcus Bender, Chief Executive Officer, with a copy to Graham &
James LLP, 801 South Figueroa Street, 15th Floor, Los Angeles, California
90017, Attention: Richard Manson, Esq., or, if to the Consultant, addressed
to it at 33 Maiden Lane, 8th Floor, New York, New York 10038, Attention:
Joseph Sorbara, Chief Executive Officer, with a copy to Orrick, Herrington &
Sutcliffe LLP, 666 Fifth Avenue, New York, New York 10103, Attention: Rubi
Finkelstein, Esq., or to such address as may hereafter be designated in
writing by one party to the other. Such notice or other communication shall
be deemed to be given on the date of receipt.
(b) If, during the term hereof, the Consultant shall cease to do
business, the provisions hereof relating to the duties of the Consultant and
compensation by the Company as it applies to the Consultant shall thereupon
cease to be in effect, except for the Company's obligation of payment for
services rendered prior thereto. This Agreement shall survive any merger of,
acquisition of, or acquisition by the Consultant and, after any such merger
or acquisition, shall be binding upon the Company and the corporation
surviving such merger or acquisition.
(c) This Agreement embodies the entire agreement and understanding
between the Company and the Consultant and supersedes any and all
negotiations, prior discussions and preliminary and prior agreements and
understandings related to the central subject matter hereof.
(d) This Agreement has been duly authorized, executed and
delivered by and on behalf of the Company and the Consultant.
(e) This Agreement shall be construed and interpreted in
accordance with laws of the State of New York, without giving effect to
conflicts of laws.
(f) This Agreement and the rights hereunder may not be assigned by
either party (except by operation of law) and shall be binding upon and inure
to the benefit of the parties and their respective successors, assigns and
legal representatives.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date hereof,
HAWAIIAN NATURAL WATER COMPANY, INC.
By: /s/ MARCUS BENDER
---------------------------------
Marcus Bender
Chief Executive Officer
JOSEPH STEVENS & COMPANY, INC
By: /s/ ENRICO SUPPA
---------------------------------
<PAGE>
EXHIBIT A
May 14, 1997
JOSEPH STEVENS & COMPANY, Inc.
33 Maiden Lane
8th Floor
New York, New York 10038
Ladies and Gentlemen:
In connection with our engagement of JOSEPH STEVENS & COMPANY, INC.
(the "Consultant") as our financial advisor and investment banker, we hereby
agree to indemnify and hold the Consultant and its affiliates, and the
directors, officers, partners, shareholders, agents and employees of the
Consultant (collectively the "Indemnified Persons"), harmless from and
against any and all claims, actions, suits, proceedings (including those of
shareholders), damages, liabilities and expenses incurred by any of them
(including, but not limited to, fees and expenses of counsel) which are (A)
related to or arise out of (i) any actions taken or omitted to be taken
(including any untrue statements made or any statements omitted to be made)
by us, or (ii) any actions taken or omitted to be taken by any Indemnified
Person in connection with our engagement of the Consultant pursuant to the
Financial Advisory and Consulting Agreement, of even date herewith, between
the Consultant and us (the "Consulting Agreement"), or (B) otherwise related
to or arising out of the Consultant's activities on our behalf pursuant to
the Consultant's engagement under the Consulting Agreement, and we shall
reimburse any Indemnified Person for all expenses (including, but not limited
to, fees and expenses of counsel) incurred by such Indemnified Person in
connection with investigating, preparing or defending any such claim, action,
suit or proceeding (collectively a "Claim"), whether or not in connection
with pending or threatened litigation in which any Indemnified Person is a
party. We will not, however, be responsible for any Claim which is finally
judicially determined to have resulted exclusively from the gross negligence
or willful misconduct of any person seeking indemnification hereunder. We
further agree that no Indemnified Person shall have any liability to us for
or in connection with the Consultant's engagement under the Consulting
Agreement except for any Claim incurred by us solely as a direct result of
any Indemnified Person's gross negligence or willful misconduct.
We further agree that we will not, without the prior written
consent of the Consultant settle, compromise or consent to the entry of any
judgment in any pending or threatened Claim in respect of which
indemnification may be sought hereunder (whether or not
<PAGE>
any Indemnified Person is an actual or potential party to such Claim), unless
such settlement, compromise or consent includes a legally binding,
unconditional, and irrevocable release of each Indemnified Person hereunder
from any and all liability arising out of such Claim.
Promptly upon receipt by an Indemnified Person of notice of any
complaint or the assertion or institution of any Claim with respect to which
indemnification is being sought hereunder, such Indemnified Person shall
notify us in writing of such complaint or of such assertion or institution,
but failure to so notify us shall not relieve us from any obligation we may
have hereunder, unless, and only to the extent that, such failure results in
the forfeiture by us of substantial rights and defenses, and such failure to
so notify us will not in any event relieve us from any other obligation or
liability we may have to any Indemnified Person otherwise than under this
Agreement. If we so elect or are requested by such Indemnified Person, we
will assume the defense of such Claim, including the employment of counsel
reasonably satisfactory to such Indemnified Person and the payment of the
fees and expenses of such counsel. In the event, however, that such
Indemnified Person reasonably determines in its sole judgment that having
common counsel would present such counsel with a conflict of interest or such
Indemnified Person concludes that there may be legal defenses available to it
or other Indemnified Persons different from or in addition to those available
to us, then such Indemnified Person may employ its own separate counsel to
represent or defend it in any such Claim and we shall pay the reasonable fees
and expenses of such counsel. Notwithstanding anything herein to the
contrary, if we fail timely or diligently to defend, contest, or otherwise
protect against any Claim, the relevant Indemnified Party shall have the
right, but not the obligation, to defend, contest, compromise, settle, assert
crossclaims or counterclaims, or otherwise protect against the same, and
shall be fully indemnified by us therefor, including, but not limited to, for
the fees and expenses of its counsel and all amounts paid as a result of such
Claim or the compromise or settlement thereof. In any Claim in which we
assume the defense, the Indemnified Person shall have the right to
participate in such defense and to retain its own counsel therefor at its own
expense.
We agree that if any indemnity sought by an Indemnified Person
hereunder is held by a court to be unavailable for any reason, then (whether
or not the Consultant is the Indemnified Person) we and the Consultant shall
contribute to the Claim for which such indemnity is held unavailable in such
proportion as is appropriate to reflect the relative benefits to us, on the
one hand, and the Consultant, on the other, in connection with the
Consultant's engagement by us under the Consulting Agreement, subject to the
limitation that in no event shall the amount of the Consultant's contribution
to such Claim exceed the amount of fees actually received by the Consultant
from us pursuant to the Consultant's engagement under the Consulting
Agreement. We hereby agree that the relative benefits to us, on the one hand,
and the Consultant, on the other hand, with respect to the Consultant's
engagement under the Consulting Agreement shall be deemed to be in the same
proportion as (a) the total value paid or proposed to be paid or received by
us or our stockholders as the case may be, pursuant to the transaction
(whether or not consummated) for which the Consultant is engaged to render
services bears to (b) the fee paid or proposed to be paid to the Consultant
in connection with such engagement.
2
<PAGE>
Our indemnity, reimbursement and contribution obligations under
this Agreement shall be in addition to, and shall in no way limit or
otherwise adversely affect any rights that an Indemnified Part may have at
law or at equity.
Should the Consultant, or any of its directors, officers, partners,
shareholders, agents or employees, be required or be requested by us to
provide documentary evidence or testimony in connection with any proceeding
arising from or relating to the Consultant's engagement under the Consulting
Agreement, we agree to pay all reasonable expenses (including but not limited
to fees and expenses of counsel) in complying therewith and one thousand
dollars ($1,000) per day for any sworn testimony or preparation therefor,
payable in advance.
We hereby consent to personal jurisdiction and service of process
and venue in any court in which any claim for indemnity is brought by any
Indemnified Person.
It is understood that, in connection with the Consultant's
engagement under the Consulting Agreement, the Consultant may be engaged to
act in one or more additional capacities and that the terms of the original
engagement or any such additional engagement may be embodied in one or more
separate written agreements. The provisions of this Agreement shall apply to
the original engagement and any such additional engagement and shall remain
in full force and effect following the completion or termination of the
Consultant's engagement(s).
Very truly yours,
HAWAIIAN NATURAL WATER COMPANY, INC.
By:
---------------------------------
Marcus Bender
Chief Executive Officer
CONFIRMED AND AGREED TO:
JOSEPH STEVENS & COMPANY, INC.
By:
---------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS,
FOUND ON PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,498,826
<SECURITIES> 3,000,000
<RECEIVABLES> 124,015
<ALLOWANCES> 0
<INVENTORY> 113,452
<CURRENT-ASSETS> 4,808,195
<PP&E> 563,940
<DEPRECIATION> 143,444
<TOTAL-ASSETS> 5,281,408
<CURRENT-LIABILITIES> 286,057
<BONDS> 0
0
0
<COMMON> 6,338,728
<OTHER-SE> 1,989,176
<TOTAL-LIABILITY-AND-EQUITY> 5,281,408
<SALES> 499,993
<TOTAL-REVENUES> 499,993
<CGS> 486,888
<TOTAL-COSTS> 486,888
<OTHER-EXPENSES> 701,972
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 414,474
<INCOME-PRETAX> 1,087,063
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (268,810)
<CHANGES> 0
<NET-INCOME> (1,355,873)
<EPS-PRIMARY> (.63)
<EPS-DILUTED> 0
</TABLE>
