<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q SB
(MARK ONE)
/S/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED September 30, 1999
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 99-031484
(State or jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
98-746 Kuahao Place
Pearl City, Hawaii 96782
(Address of principal executive offices)
(808) 483-0520
(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 5,306,727 shares of Common Stock on
November 12, 1999.
Transitional Small Business Disclosure Format (check one):
YES NO X
--- ---
<PAGE>
Hawaiian Natural Water Company, Inc.
Balance Sheet
September 30, 1999
(Unaudited)
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $683,910
Inventories 514,209
Trade accounts receivable, net of allowance for doubtful
accounts of $24,096 478,443
Other current assets 173,038
-----------
Total Current Assets 1,849,600
PROPERTY AND EQUIPMENT, net of accumulated depreciation
and amortization of $588,545 2,409,441
CO-PACKING AGREEMENT 150,000
INTANGIBLE ASSET, net of accumulated amortization of $6,455 152,694
-----------
Total Assets $ 4,561,735
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 682,568
Accrued professional fees 94,651
Accrued vacation 56,728
Accrued payroll and related taxes 54,166
Accrued commissions and billbacks 122,927
Accrued other 89,528
Notes payable - Current portion 11,446
Capital lease obligation - Current portion 40,112
-----------
Total Current Liabilities 1,152,126
-----------
NON-CURRENT LIABILITIES:
Capital lease obligation - net of current portion 38,168
Notes payable - net of current portion 453,645
Other 41,380
-----------
Total Non-Current Liabilities 553,193
-----------
Total Liabilities 1,685,319
-----------
STOCKHOLDERS' EQUITY:
Preferred Stock, $1.00 par value; 5,000,000 shares
authorized; 994 shares issued and outstanding with
conversion rights and aggregate liquidation
preference of $994,000 732,397
Common stock, no par value; 20,000,000 shares authorized;
5,306,727 shares issued and outstanding 7,642,264
Common stock warrants and options; 5,312,125 issued
and outstanding 3,533,992
Accumulated Deficit (9,032,237)
-----------
Total Stockholders' Equity 2,876,416
-----------
Total Liabilities and Stockholders' Equity $ 4,561,735
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements
1
<PAGE>
Hawaiian Natural Water Company, Inc.
Statements of Operations
For the Three and Nine Months Ended September 30, 1998 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
----------------------- ----------------------
1998 1999 1998 1999
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
NET SALES $ 515,465 $ 929,880 $1,392,073 $ 2,158,424
COST OF SALES 473,579 709,988 1,273,652 1,675,579
----------- ----------- ----------- ---------
Gross Margin 41,886 219,812 118,421 482,845
EXPENSES:
Selling and Marketing 234,948 169,342 746,914 493,708
General and Administrative 272,910 423,584 888,783 1,052,615
----------- ----------- ----------- ---------
507,858 592,926 1,635,697 1,546,323
OPERATING LOSS (465,972) (373,034) (1,517,276) (1,063,478)
OTHER INCOME (EXPENSE)
Investor Relations Expense (1,122,913) - (1,122,913) -
Interest and Other Income 17,873 3,933 64,722 8,490
Interest Expense (24,788) (18,223) (74,800) (58,323)
----------- ----------- ----------- ----------
(1,129,828) (14,290) (1,132,991) (49,833)
NET LOSS $ (1,595,800)$ (387,324) $(2,650,267) $(1,113,311)
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
Basic and Diluted
Net Loss Per Share: $ (0.40)$ (0.09)$ (0.68) $ (0.27)
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
Weighted Average Common
Shares Outstanding 3,973,192 4,395,155 3,924,143 4,183,931
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements
2
<PAGE>
Hawaiian Natural Water Company, Inc.
Statement of Stockholders' Equity
For the Nine Months Ended September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK WARRANTS
AND
COMMON STOCK OPTIONS PREFERRED STOCK
------------------------------------------------------------------------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1998 4,024,563 6,693,062 3,757,959 $2,841,329
Issuance of common stock options
to non-employee directors 4,800 7,389
2,700 648
Exercise of common stock options
by financial public relations
advisor
January 11, 1999 50,000 125,000 (50,000)
Issuance of preferred stock
and common stock warrants to
institutional investor, net of
offering costs
March 3, 1999 100,000 97,422 750 488,397
Issuance of common stock and
common stock warrants to
broker for services rendered
March 3, 1999 5,000 18,750 15,000 41,670
Issuance of common stock
options to marketing consultant
May 20, 1999 10,000 4,370
Issuance of common stock
options to marketing consultant
May 24, 1999 30,000 13,110
Issuance of common stock options
to professional advisor for
services rendered
April 1, 1999 12,500 16,226
July 1, 1999 12,500 16,226
Issuance of common stock for
purchase of Net Assets of
Ali'i Water Bottling, Inc.
June 30, 1999 263,040 312,359
Issuance of common stock
to professional advisor for
services rendered
July 14, 1999 2,695 2,695
Issuance of preferred stock
to institutional investor
August 10, 1999 500 500,000
Conversion of preferred stock
to common stock by preferred
shareholder
August 24, 1999 11,429 6,000 (6) (6,000)
Issuance of common stock
pursuant to co-packing agreement
September 13, 1999 100,000 43,750 106,250
Redemption of preferred stock
September 23, 1999 (250) (250,000)
Issuance of common stock
and common stock warrants
in private offering
September 28, 1999 850,000 440,646 1,416,666 389,352
Dividends payable to preferred
stock institutional investor
for period March thru
September, 1999
Net Loss
------------ ------------ ------------ ----------- ------------ --------------
BALANCE AT
SEPTEMBER 30, 1999 5,306,727 $7,642,264 5,312,125 $3,533,992 994 $ 732,397
------------ ------------ ------------ ----------- ------------ --------------
------------ ------------ ------------ ----------- ------------ --------------
TOTAL
ACCUMULATED STOCKHOLDERS
DEFICIT EQUITY
------------ ------------
<S> <C> <C>
BALANCE AT
DECEMBER 31, 1998 $(7,895,737) $ 1,638,654
Issuance of common stock options
to non-employee directors 7,389
646
Exercise of common stock options
by financial public relations
advisor
January 11, 1999 125,000
Issuance of preferred stock
and common stock warrants to
institutional investor, net of
offering costs
March 3, 1999 585,819
Issuance of common stock and
common stock warrants to
broker for services rendered
March 3, 1999 60,420
Issuance of common stock
options to marketing consultant
May 20, 1999 4,370
Issuance of common stock
options to marketing consultant
May 24, 1999 13,110
Issuance of common stock options
to professional advisor for
services rendered
April 1, 1999 16,266
July 1, 1999 16,266
Issuance of common stock for
purchase of Net Assets of
Ali'i Water Bottling, Inc.
June 30, 1999 312,329
Issuance of common stock
to professional advisor for
services rendered
July 14, 1999 2,695
Issuance of preferred stock
to institutional investor
August 10, 1999 500,000
Conversion of preferred stock
to common stock by preferred
shareholder
August 24, 1999 -
Issuance of common stock
pursuant to co-packing agreement
September 13, 1999 150,000
Redemption of preferred stock
September 23, 1999 (250,000)
Issuance of common stock
and common stock warrants
in private offering 830,000
September 28, 1999
Dividends payable to preferred
stock institutional investor
for period March thru
September, 1999 (23,189) (23,189)
Net Loss (1,113,311) (1,113,311)
------------ ------------
BALANCE AT
SEPTEMBER 30, 1999 $(9,032,237) $ 2,876,416
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
Hawaiian Natural Water Company, Inc.
Statements of Cash Flows
For the Nine Months Ended September 30, 1998 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,650,267) $(1,113,311)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 145,112 193,366
Issuance of stock and options to
consultants and distributors 1,176,282 52,627
Issuance of stock options to
non-employee directors - 8,037
Amortization of debt discount 65,452 50,740
Net (increase) in current assets (259,689) (498,453)
Net increase in current liabilities 244,031 262,978
Net increase in other liabilities - 41,380
------------ ------------
Net cash from (used in) operating (1,279,079) 110,675
activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (308,607) (247,873)
Decrease in deposits on equipment - (47,238)
------------ ------------
Net cash used in investing (308,607) (295,201)
activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of preferred stock
and common stock warrants - 1,146,239
Exercise of common stock options by financial
public relations advisor - 125,000
Net proceeds from private placement of common
stock and common stock warrants 795,000
Proceeds from note payable 22,995
Redemption of preferred stock - (250,000)
Repayments of notes payable (126,994) (128,131)
Repayment of principal on capital leases (34,790) (49,645)
------------ ------------
Net cash provided by (used in)
financing activities (161,784) 1,661,458
NET (DECREASE) IN CASH AND CASH EQUIVALENTS $(1,749,470) $ 363,621
CASH AND CASH EQUIVALENTS, beginning of period 2,471,362 320,289
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 721,893 $ 683,910
------------ ------------
------------ ------------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Aquisition of certain assets of Ali'i Water
Bottling, Inc. for common stock $ - $ 312,359
Proceeds from addition of capital leases 54,336
----------- ------------
----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
September 30,1999
(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, 1998 and notes thereto as
filed with the Securities and Exchange Commission in the Company's Annual Report
on Form 10-KSB. The auditor's report on those financial statements included an
explanatory fourth paragraph indicating that there is substantial doubt about
the Company's ability to continue as a going concern. In the opinion of
management, the accompanying financial statements reflect all adjustments (which
consist primarily of normal recurring adjustments) considered necessary to
fairly present the financial position of the Company at September 30, 1999, the
results of its operations for the three and nine month periods ended September
30, 1998 and 1999, and the cash flows for the nine month periods ended September
30, 1998 and 1999, 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 necessarily indicative of
results to be achieved for full fiscal years. Certain amounts from prior periods
have been reclassified to conform to their current period presentation.
As shown in the accompanying financial statements, the Company has incurred
significant losses since inception. Management expects that the Company will
continue to incur additional losses until the Company achieves significantly
higher levels of sales. The Company is continuing to enhance and implement
its strategic plan and related marketing strategies, which would allow for
the improvement of sales and cash flow. However, in order for the Company to
achieve profitability, it will need to improve revenues. In order to sustain
operations, the Company must obtain additional financing. The ability of the
Company to achieve profitability or obtain sufficient additional financing is
uncertain.
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. The
Company issues refunds to customers or replaces goods which are rejected. The
Company's policy is to provide a reserve for estimated uncollectible trade
accounts receivable. The Company also provides a reserve for estimated sales
returns and related disposal costs. Net sales revenue reflects reductions for
the reserve for sales returns, discounts and freight-out.
GROSS MARGIN. The Company's plant currently has a normal production capacity of
approximately 200,000 cases per calendar quarter. The Company is currently
operating its plant at approximately 68 percent of this capacity. Since a
significant portion of the Company's cost of sales includes fixed production
costs, the Company anticipates higher gross margins as production and sales
increase. The increased utilization of production capacity in the third quarter
of 1999 (68 percent) compared to the third quarter of 1998 (46 percent) enabled
the Company to improve gross margin for the quarter.
5
<PAGE>
2. LOSS PER SHARE
Basic and Diluted Loss Per Share is computed by dividing the Net Loss by the
Weighted Average Common Shares Outstanding during the period. The Weighted
Average Common Shares Outstanding during the three month periods ended September
30, 1998 and 1999 were 3,973,192 and 4,395,155 respectively, and for the nine
month periods ended September 30, 1998 and 1999 were 3,924,143 and 4,183,931
respectively.
The Company's Basic and Diluted Loss Per Share is the same for the third quarter
and first nine months of both 1998 and 1999 in that any exercise of stock
options or warrants would have been anti-dilutive.
3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include savings accounts and investments in a money
market account with original maturities less than 90 days.
4. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. As of September 30, 1999, inventories were comprised of the following:
<TABLE>
<S> <C>
Raw materials $346,139
Finished goods 168,070
--------
$514,209
--------
--------
</TABLE>
Raw materials inventory consists of PET "pre-forms", caps, labels and various
packaging and shipping materials. Finished goods inventory includes materials
and conversion costs.
5. ACQUISITION OF INTANGIBLE ASSET
In June 1999, the Company purchased for $150,000 the beverage products,
trademarks and all other rights related to a line of herbal beverages. The
acquisition cost and related trademark registration expenses have been
capitalized and will be amortized over a 5 year period. The Company intends
to introduce this product line into selected markets over the next year.
6. CO-PACKING AGREEMENT
In June 1999, the Company entered into a five year agreement with an
independent bottler in Los Angeles, California (the "Bottler") for the
production, warehousing, and shipment of the herbal beverages referred to in
Note 5. On September 13, 1999 the Company issued 100,000 shares of common
stock to the principals of the Bottler in partial consideration for these
services. The agreement provides that in the event the market price (as
defined) of the Company's common stock on the first anniversary of the date
of issuance is less than $1.50 per share, the Company will issue, for no
additional consideration, sufficient additional shares of common stock to
bring the then market value of all such shares issued up to $150,000. The
agreement was recorded as an asset on the Company's accounting records in the
amount of $150,000. $43,750 was allocated to the common stock account (based
on the aggregate market value of 100,000 shares of the Company's common stock
on September 13, 1999) and the balance ($106,250) was allocated to common
stock options.
7. NOTES PAYABLE
As discussed in Note 3 to the audited financial statements contained in the
Company's Annual Report on Form 10-KSB, in September 1997, the Company acquired
certain bottle making equipment used in its bottling operations. The
consideration for the equipment was an aggregate of $1.2 million, a portion of
which was paid through the issuance of a promissory note in the original
principal amount of $825,000, payable in installments, as defined. The Company
discounted this equipment note payable using an estimated weighted average cost
of capital of 12%, and amortizes the resulting discount to interest expense
using the effective interest method over the term of the loan.
Additionally, the Company has a $10,436 installment note payable for the
purchase of a vehicle.
6
<PAGE>
In September 1999, the Company acquired a prefabricated warehouse,
which it assembled and installed on its property in Keaau. The warehouse was
purchased for $24,995 with a down payment of $2,000 and a 5 year note, with
monthly payments, comprising $22,995.
The following summarizes the Company's notes payable as of September 30, 1999:
<TABLE>
<S> <C>
Equipment note payable $ 495,000
Less: Unamortized discount (63,340)
---------
Net equipment note payable 431,660
Vehicle installment note payable 10,436
Warehouse note payable 22,995
---------
Subtotal - notes payable 465,091
Less: Current portion (11,446)
---------
Non-current portion $ 453,645
---------
---------
</TABLE>
8. STOCK OPTIONS
The total number of Common Stock warrants and options shown at September 30,
1999 excludes an aggregate of 507,000 options outstanding at such date held by
officers and employees of the Company. 25,000 options were issued to an officer
of the Company in the third quarter of 1999. Stock options granted to employees
are accounted for under APB Opinion No. 25, under which compensation expense is
recognized only if the exercise price is less than the market price at the date
of grant.
Stock options granted to non-employees are accounted for in accordance with
Statement of Financial Accounting Standards No. 123 (SFAS 123) "Accounting
for Stock-Based Compensation," which requires that these transactions be
accounted for based upon the fair value of consideration received or the fair
value of the equity instruments issued, whichever is more reliably
determinable. In the third quarter of 1999, the Company recorded $13,110 for
stock options granted to a marketing consultant and $16,226 for stock options
granted to a legal advisor.
9. SALES BY GEOGRAPHIC REGION
The Company sells its product directly to certain foreign distributors. All
sales are made in U.S. dollars. For the three month periods ended September 30,
1998 and 1999, the Company had the following sales by geographic region:
<TABLE>
<CAPTION>
1998 % 1999 %
-------- --- -------- ---
<S> <C> <C> <C> <C>
Hawaii $491,659 95 $883,623 95
U. S. Mainland (8,142) (1) 39,107 4
International 31,948 6 7,150 1
-------- --- -------- ---
$515,465 100 $929,880 100
-------- --- -------- ---
-------- --- -------- ---
</TABLE>
7
<PAGE>
For the nine month periods ended September 30, 1998 and 1999, the Company had
the following sales by geographic region:
<TABLE>
<CAPTION>
1998 % 1999 %
------- --- ---------- ---
<S> <C> <C> <C> <C>
Hawaii $1,072,847 77 $1,842,940 85
U.S. Mainland 121,671 9 65,529 3
International 197,555 14 249,955 12
--------- --- ---------- ---
$1,392,073 100 $2,158,224 100
---------- --- ---------- ---
---------- --- ---------- ---
</TABLE>
10. SERIES A CONVERTIBLE PREFERRED STOCK
In March 1999, the Company completed the first $750,000 installment of an
aggregate $1.25 million private offering of Series A convertible preferred
stock and three year warrants to purchase an additional 100,000 shares of
common stock. The offering was placed with a single institutional investor
who committed to fund the second $500,000 installment subject to certain
closing conditions. The funding of this second installment occurred in August
1999. In connection with this second investment, the Company agreed to reduce
the exercise price of the 100,000 warrants held by the investor to $1.25 per
share.
Each share of preferred stock has a liquidation preference of $1,000. The
preferred stock is entitled to cumulative dividends at an annual rate of 4%,
payable quarterly commencing May 31, 1999, in cash or common stock at the
election of the Company.
The preferred stock is convertible into common stock, in whole or in part at
the election of the holder, at a variable conversion price based upon the
market price (as defined) of the common stock during a measurement period
prior to each conversion date. The preferred stock is redeemable by the
Company prior to conversion. Under certain circumstances, the Company may
also redeem the conversion shares in cash.
The Company has filed a registration statement with the Securities and Exchange
Commission (SEC) covering the shares of common stock underlying the preferred
stock and warrants. Offering costs, consisting primarily of financial advisory
and legal fees, amounted to approximately $164,000, including the non-cash grant
of common stock and warrants valued at approximately $60,000 using the trading
price of the Company's common stock at the date of grant and the Black-Scholes
option pricing model. Approximately $97,000 of the net proceeds was allocated to
the warrants granted to the preferred stock investor, based upon the relative
fair value of the preferred stock and the stock warrants.
In September 1999, the Company entered into a standstill agreement with the
holder of the preferred stock pursuant to which the Company redeemed 250
shares for an aggregate of $250,000 and was granted a 30-day option to redeem
the balance of the outstanding shares at prices increasing ratably from 75%
of the liquidation preference amount on the first day to 90% on the 30th day.
The investor agreed not to convert any shares of the preferred stock during
the option period. In October 1999, the Company exercised this option with
respect to an aggregate of 625 shares for an aggregate redemption price of
$508,750. In connection with the grant of this option, the Company further
reduced the exercise price of the 100,000 warrants held by the investor to
$.25 per share. In November 1999, the Company entered into a second
standstill agreement with the holder of the preferred stock, pursuant to
which the Company redeemed 50 shares for an aggregate of $50,000 and was
granted a second option to redeem the balance of the outstanding shares (then
319 shares after giving effect to such redemption) at their liquidation
preference amount at any time through January 31, 2000. The investor has
agreed not to convert any shares during such option period. In connection
with the grant of such second option, the Company further reduced the
exercise price of the 100,000 warrants held by the investor to $.01 per share.
11. INVESTOR RELATIONS
In July 1998, the Company engaged a financial public relations advisor for a
two-year term. As compensation for its services, the Company issued to this
advisor 100,000 shares of common stock, plus options to purchase an aggregate of
565,000 additional shares at exercise prices ranging from $2.50 to $6.00 per
share. In January 1999, the advisor exercised 50,000 of these options, at an
exercise price of $2.50 per share, which resulted in cash proceeds to the
Company of $125,000. Options with respect to 250,000 shares expired in August
1999.
8
<PAGE>
12. ACQUISITION OF ALI'I WATER BOTTLING, INC.
Effective June 30, 1999, the Company purchased all of the operating assets,
net of certain liabilities, of Ali'i Water Bottling, Inc.("Ali'i"). Ali'i
bottles and distributes purified water to the home and office market on the
Big Island of Hawaii and also sells purified water in PET plastic bottles
through retail channels throughout the Hawaiian Islands. The consideration
for the net assets purchased was 300,000 shares of common stock of the
Company, subject to adjustment based upon the Net Current Assets (as defined)
of Ali'i as of the closing. This post-closing adjustment resulted in the
cancellation of 36,960 shares. The Company assumed Ali'i's trade payables and
contractual obligations related to continuing operations but did not assume
any note(s) payable, line of credit or liabilities for federal, state,or
local taxes incurred by Ali'i. The net assets acquired were recorded in the
accounting records of the Company on June 30, 1999 in the amount of $312,359,
which was the fair value of the 263,040 issued shares (based upon the closing
sales price of the common stock on the closing date). No significant goodwill
resulted from this acquisition. Acquisition costs were not material. The
shares issued are "restricted securities" as defined in Rule 144 under the
Securities Act of 1933, and may not be sold except in compliance with such
Rule or other exemption from registration under the Securities Act.
Had the acquisition occurred at the beginning of the current and prior fiscal
years, the unaudited and pro forma net sales, net loss, diluted net loss per
share and diluted weighted average common shares outstanding would be as
follows:
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-------------------------
1998 1999
--------- ------------
<S> <C> <C>
Net sales $ 1,850,893 $ 2,635,225
Net loss $(1,762,667) $(1,528,020)
Diluted net loss per share $(0.29) $(0.26)
Diluted weighted average
common shares outstanding 4,162,252 4,338,155
</TABLE>
13. PRIVATE OFFERING OF COMMON STOCK AND WARRANTS
In September 1999, the Company completed a private offering of common stock
and warrants, resulting in aggregate proceeds to the Company of $850,000
($830,000 net of offering expenses). An investment of $750,000 was received
from two unaffiliated private investors and certain affiliated entities; and
an additional $100,000 was received from the Company's Chief Executive
Officer.
The offering involved the issuance of an aggregate of 850,000 shares of
common stock at a purchase price of $1.00 per share. The investors were also
granted, for no additional consideration, five year warrants to purchase an
aggregate of (i) 850,000 shares of common stock at $1.00 per share, and (ii)
566,666 shares of common stock at $1.50 per share. The warrants are subject
to standard anti-dilution protection, and are redeemable under certain
circumstances.
Approximately $389,000 of the net proceeds of the offering was allocated to the
warrants granted to the investors, based upon the trading price of the common
stock on the date of grant and the Black-Scholes option pricing model.
9
<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 TERMS SUCH 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: 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; PLANS OR OBJECTIVES OF THE COMPANY WITH RESPECT TO THE
COMPANY'S GROWTH STRATEGY, INTRODUCTION OF NEW PRODUCTS, AND PROPOSED
ACQUISITIONS OF ASSETS OR BUSINESSES; POSSIBLE ACTIONS BY CUSTOMERS,
SUPPLIERS, COMPETITORS OR REGULATORY AUTHORITIES; AND 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: THE PROSPECT FOR CONTINUING LOSSES; THE
COMPANY'S NEED FOR ADDITIONAL CAPITAL AND THE POSSIBLE UNAVAILABILITY OF SUCH
CAPITAL ON ACCEPTABLE TERMS AND CONDITIONS; POSSIBLE ADVERSE CONDITIONS IN
THE MARKET FOR THE COMPANY'S SECURITIES, INCLUDING THE RECENT DELISTING FROM
THE NASDAQ SMALLCAP MARKET, AND THE POSSIBLE ADVERSE IMPACT OF SUCH
CONDITIONS ON THE COMPANY'S ABILITY TO RAISE ADDITIONAL CAPITAL AS NEEDED;
POSSIBLE ADVERSE CHANGES IN THE MARKET FOR THE COMPANY'S PRODUCTS, INCLUDING
AS A RESULT OF ADVERSE ECONOMIC CONDITIONS, SUCH AS THOSE RECENTLY AFFECTING
CERTAIN ASIAN TARGET MARKETS; POSSIBLE ADVERSE EFFECTS OF CHANGES IN CURRENCY
EXCHANGE RATES; POSSIBLE ADVERSE CHANGES IN THE COMPANY'S DISTRIBUTOR
NETWORK; POSSIBLE ADVERSE DEVELOPMENTS IN THE EXECUTION OF THE COMPANY'S
EXISTING BUSINESS STRATEGY OR IN THE IMPLEMENTATION OF CHANGES THERETO;
POSSIBLE ADVERSE CHANGES IN THE COMPANY'S COST OF MATERIALS OR SOURCES OF
SUPPLY; POSSIBLE ADVERSE DEVELOPMENTS IN THE COMPANY'S ABILITY TO ATTRACT AND
RETAIN KEY PERSONNEL; POSSIBLE ADVERSE DEVELOPMENTS IN GOVERNMENTAL
REGULATION IN THE U.S. OR ABROAD; AND POSSIBLE ADVERSE DEVELOPMENTS IN THE
COMPETITIVE ENVIRONMENT FOR THE COMPANY'S PRODUCT. MANY OF THESE RISKS AND
UNCERTAINTIES ARE BEYOND THE ABILITY OF THE COMPANY 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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
Net Sales. Net Sales increased 80% to approximately $930,000 for the
three months ended September 30, 1999 (the "1999 Quarter") from approximately
$515,000 for the three months ended September 30, 1998 (the "1998 Quarter").
The increase in net sales in the 1999 Quarter was due primarily to unit sales
growth from approximately 93,000 cases in the 1998 Quarter to approximately
136,000 cases in the 1999 Quarter. The average sales price per case increased
12% in the 1999 Quarter compared to the 1998 Quarter due to a reduction in
promotional allowances and discounts as a percentage of sales. In addition,
as of June 30, 1999, the Company acquired the business of Ali'i Water
Bottling, Inc. ("Ali'i"). This acquisition enabled the Company to enter the
home and office delivery market on the Big Island during the 1999 Quarter and
also to expand its retail sales of PET products through the sale of purified
water under the "Ali'i" name. Approximately half of the increase in revenues
during the 1999 Quarter was attributable to the acquisition of Ali'i. Sales
in the Hawaiian market accounted for 95% of sales in both the 1999 and 1998
Quarters. U.S. Mainland sales accounted for 4% in the 1999 Quarter compared
to (1%) in the 1998 Quarter. International sales accounted for 1% of sales in
the 1999 Quarter compared to 6% in the 1998 Quarter. The Company plans to
expand its home and office delivery business including by means of
acquisition, subject to available financing. The Company also expects to
expand revenues through the sale of its line of herbal beverages, currently
scheduled for introduction in December 1999. See Notes 5 and 6 to the
Financial Statements.
10
<PAGE>
Cost of Sales. The Company's aggregate cost of sales increased 23% to
approximately $581,000 in the 1999 Quarter from approximately $474,000 in the
1998 Quarter, primarily due to unit sales growth. However, the average cost
per case sold decreased 13% in the 1999 Quarter. Contributing to the decrease
in the average cost per case were a reduction in (1) the amount of fixed
production costs per case as a result of the increase in unit sales, and (2)
raw material cost. A primary raw material cost component in Cost of Sales is
the cost of the finished bottle, which was substantially reduced in the 1999
Quarter compared to the 1998 Quarter as a result of a reduction in labeling
costs. Bottling costs were also reduced through the installation of new
equipment used to further automate the Company's bottling line. The Company
continues to implement improvements to its bottling line, which it believes
will further reduce its direct costs in the remainder of 1999.
Gross Margin. Gross margin increased to approximately $229,000 in the 1999
Quarter from approximately $42,000 in the 1998 Quarter, primarily as a result
of higher sales volume, the decrease in the Company's bottling costs, and the
increase in unit sales prices described above under "Net Sales." Plant
utilization improved to 68% of capacity in the 1999 Quarter, compared to 30%
in the 1998 Quarter.
Expenses. Selling and marketing expenses decreased 28% to approximately
$169,000 in the 1999 Quarter from approximately $235,000 in the 1998 Quarter.
The majority of this decrease is attributable to reduced consulting fees and
expenses due to the termination of certain Mainland sales representatives. In
light of its limited capital resources, the Company has elected to refocus
its marketing efforts on Hawaii and certain foreign markets in preference to
the highly competitive U.S. Mainland. General and administrative expenses
increased 55% to approximately $424,000 in the 1999 Quarter from
approximately $273,000 in the 1998 Quarter. This increase resulted primarily
from increased professional fees relating to the unusually large volume of
financing and acquisition transactions billed during the period. Additionally
in the 1998 Quarter, the Company received a $73,480 payment in settlement of
the termination of a distribution agreement. That payment was recorded in the
1998 Quarter as a reduction of the general and administrative expenses
previously incurred in support of that agreement.
Other (Expense). Net Other (Expense) was approximately $(14,000) in the
1999 Quarter compared to approximately $(1,130,000) in the 1998 Quarter. The
Company incurred a $1,122,913 non-cash investor relations expense in the 1998
Quarter which did not recur in the 1999 Quarter.
Net Loss and Net Loss Per Share. Due to the foregoing, the Company
incurred a net loss of $(387,324), or $(.09) per share, in the 1999 Quarter
compared to a net loss of $(1,595,800), or $(.40) per share, in the 1998
Quarter. Weighted Average Shares Outstanding were 4,395,155 in the 1999
Quarter compared to 3,973,192 in the 1998 Quarter.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1998
Net Sales. Net sales increased 55% to approximately $2,158,000 for the
nine months ended September 30, 1999 (the "1999 First Three Quarters") from
approximately $1,392,000 for the nine months ended September 30, 1998 (the
"1998 First Three Quarters"). This increase was due primarily to unit sales
growth from approximately 225,000 cases in the 1998 First Three Quarters to
approximately 338,000 cases in the 1999 First Three Quarters. The average
sales price per case was substantially unchanged in both periods. Sales in
the Hawaiian market accounted for approximately 85% of sales in the 1999
First Three Quarters compared to 77% in the 1998 First Three Quarters. Sales
to the U.S. Mainland and international markets accounted for approximately 3%
and 12% of sales, respectively, in the 1999 First Three Quarters compared to
9% and 14% of sales, respectively, in the 1998 First Three Quarters. As
indicated above, in 1999 the Company elected to refocus its marketing efforts
away from the highly competitive U.S. Mainland.
11
<PAGE>
Cost of Sales. The Company's aggregate cost of sales increased 21% to
approximately $1,546,000 in the 1999 First Three Quarters from approximately
$1,274,000 in the 1998 First Three Quarter, primarily due to unit sales
growth. However, the average cost per case sold decreased approximately 20%
in the 1999 First Three Quarters.
Expenses. Selling and marketing expenses decreased 34% to approximately
$494,000 in the 1999 First Three Quarters from approximately $747,000 in the
1998 First Three Quarters. The majority of this decrease is attributable to
an overall reduction in expenditures for advertising and promotion. General
and administrative expenses increased 18% during the 1999 First Three
Quarters as compared to the 1998 First Three Quarters.
Other (Expense). Other (Expense) decreased to approximately ($50,000) in
the 1999 First Three Quarters from approximately ($1,133,000) in the 1998
First Three Quarters, primarily due to a non-recurring $1,122,913 investor
relations expense incurred in the third quarter of 1998. See Note 11 to the
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased from approximately $320,000 at
December 31, 1998 to approximately $684,000 at September 30, 1999. The
Company received approximately $2,100,000 in net cash proceeds from financing
activity during 1999, including (i) an offering of convertible preferred
stock (see Note 10 to the Financial Statements), (ii) the exercise of certain
stock options (see Note 11 to the Financial Statements), and (iii) a private
placement of common stock and warrants in September 1999 (see Note 13 to the
Financial Statements). Most of this cash increase was consumed in continuing
losses from operations, capital expenditures and debt repayment.
Additionally, $250,000 was used to redeem a portion (250 shares) of the
outstanding convertible preferred stock. Subsequent to the end of the 1999
Quarter, the Company repurchased an additional 675 shares of preferred stock
for an aggregate of $558,750. The Company anticipates redeeming additional
shares of preferred stock if and when sufficient funds become available. The
Company has received commitments for an additional $300,000 in common stock
and warrants, which are expected to be received in December 1999. Additional
funds may be received from time to time from the exercise of warrants issued
to the private placement investors. The Company is also seeking additional
equity financing from other sources.
The Company's principal borrowings currently consist of a promissory
note issued in connection with the purchase of certain bottle making
equipment in September 1997. The Company issued to the seller of the
equipment a promissory note in the original principal amount of $825,000. The
balance of this note is payable in three annual installments of $165,000,
plus interest at the annual rate of 5% on the unpaid principal balance. The
first such installment is due in September 2000.
The Company acquired approximately $302,000 of capital assets for
non-cash consideration in June 1999 related to the purchase of the operating
assets of Ali'i. (See Note 12 to the Financial Statements). The Company
acquired approximately $302,000 of additional capital assets (equipment and
intangibles) for cash during the 1999 First Three Quarters, compared to
approximately $309,000 in net capital expenditures in the 1998 First Three
Quarters. In addition, the Company relocated its executive offices to a
larger facility in Pearl City subsequent to the end of the 1999 Quarter.
Leasehold improvements relating to this new facility aggregated approximately
$25,000. In connection with this move, the Company is also updating its
computer system (hardware and software) at an aggregate cost of approximately
$25,000.
During the 1999 First Three Quarters, the Company purchased for $150,000
the beverage products name, trademark and all rights related to a line of
herbal beverages. Additionally, approximately $9,000 of related legal fees
were incurred. These expenditures have been recorded in the Company's records
at September 30, 1999 as an intangible asset. See Note 5 to the Financial
Statements. The Company intends to introduce this product line into selected
areas over the next year.
The Company does not believe that cash on hand will be sufficient to
fund operations until such time as the Company is able to generate positive
cash flow from operations. Therefore, the Company will need to raise
additional capital. The Company is currently negotiating with certain sources
concerning additional equity investments. However, there can be no assurance
that such capital will become available on acceptable terms. The Company does
not anticipate obtaining bank financing at this time.
12
<PAGE>
YEAR 2000 ISSUE
All statements contained in the following section are "Year 2000 Readiness
Disclosures" within the meaning of the Year 2000 Information and Disclosure Act.
The Year 2000 issue (the "Year 2000 Issue") in computers arises from the
common industry practice of using two digits to represent a date in computer
software code and databases to enhance both processing time and save storage
space. Therefore, when dates in the Year 2000 and beyond are indicated and
computer programs read the date "00", the computer may default to the year
"1900" rather than the correct "2000." This could result in incorrect
calculations, faulty data and computer shutdowns, which would cause
disruptions of operations. In addition, the year 2000 is a leap year and
systems need to recognize it as such.
The Company has developed a multi-phase program for Year 2000 Issues that
consists of the following: (1) assessment of the corporate systems and
operations of the Company that could be affected by the Year 2000 Issue, (2)
remediation of non-compliant systems and components, if any, and (3) testing of
systems and components following remediation. The Company has focused its Year
2000 compliance assessment program on three principal areas: (a) the Company's
internal information technology system applications, including voice and data
systems ("IT Systems"), (b) the Company's internal non-IT facilities systems,
including embedded software in environmental controls, security systems, fire
protection systems, and public utility connections for gas, electric and
telephone systems ("Facilities Systems"), (c) Year 2000 compliance by third
parties with which the Company has a material relationship, such as significant
customers, vendors, financial institutions and insurers.
The Company has completed an inventory and risk assessment of its own
internal IT Systems, Facilities Systems, and equipment that it believes could
be adversely affected by the Year 2000 Issue, and believes (except for
certain computer accounting software upgrades to be purchased in November
1999) that its own internal systems are, at present, substantially compliant
based upon internal system tests, currently available information and
reasonable assurance by its equipment and software vendors. The cost to
remediate any Year 2000 Issues with regard to the Company's IT, Facilities
Systems and equipment is not material.
In the third quarter of 1999, the Company began sending questionnaires
to and/or contacting its outside vendors and customers regarding their state
of readiness with respect to identifying and remediating their Year 2000
Issues. It is not possible for the Company to determine or be assured that
adequate remediation of the Year 2000 Issue will be accomplished by such
vendors and customers. Furthermore, it is not possible for the Company to
determine or be assured that third parties upon which the Company's vendors
are dependent, will accomplish adequate remediation of the their Year 2000
Issue. Except for the Company's public utility service vendors, who have
indicated that they expected to be in compliance by mid-1999, the Company
believes that, should a Year 2000 Issue exist with respect to any of the
Company's major outside vendors, alternative vendors are readily available
that could furnish the Company with similar supplies or services without
undue cost or expense. However, with respect to customers, there can be no
assurance that a major Year 2000 Issue would not materially impact the
Company's operations.
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.
CURRENCY FLUCTUATIONS
The Company is not directly affected by currency fluctuations in overseas
markets, since all of the Company's sales are quoted in U.S. dollars. However,
currency fluctuations can adversely affect the demand for the Company's product
in foreign markets by increasing the price of the product in local currency. To
date, the Company has not been prevented from expanding distribution into Asian
markets as a result of the strength of the U.S. dollar relative to local
currencies. However, further strengthening of the U.S. dollar could negatively
impact developments in these markets.
13
<PAGE>
PART II: OTHER INFORMATION
ITEM 3. CHANGES IN SECURITIES AND USE OF PROCEEDS
In August 1999, the Company issued 500 shares of Series A Convertible
Preferred Stock to an institutional investor. In September 1999, the Company
issued an aggregate of 850,000 shares of Common Stock and warrants to
purchase an aggregate of 1,416,666 additional shares of Common Stock to a
group of private investors and the Company's chief executive officer. In
September 1999, the Company also issued 100,000 shares of Common Stock to the
owners of a bottling company as partial consideration for services rendered
pursuant to a co-packing agreement. During the third quarter of 1999, the
Company also granted non-qualified stock options to purchase an aggregate of
2,700 shares of Common Stock to its non-employee directors. The Company also
issued 2,695 shares of Common Stock and non-qualified options to purchase an
additional 12,500 shares to a professional advisor. All of the foregoing
transactions were exempt from registration under the Securities Act of 1933
as amended, by virtue of Section 4(2) hereunder.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE.
14
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.1 Form of Common Stock Purchase Warrant ($1.00 exercise price)
issued in $850,000 private offering in September 1999.
4.2 Form of Common Stock Purchase Warrant ($1.50 exercise price)
issued in $850,000 private offering in September 1999.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Current Report dated September 29, 1999 relating to an $850,000
private placement of Common Stock and warrants and the redemption of
certain shares of Series A Convertible Preferred Stock.
15
<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)
November 12, 1999 By: /s/ MARCUS BENDER
----------------------
Marcus Bender
President & Chief Executive Officer
November 12, 1999 By: /s/ WILLARD D. IRWIN
-----------------------
Willard D. Irwin
Chief Financial Officer
16
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<C> <S>
4.1 Form of Common Stock Purchase Warrant ($1.00 exercise price)
issued in $850,000 private offering in September 1999.
4.2 Form of Common Stock Purchase Warrant ($1.50 exercise price)
issued in $850,000 private offering in September 1999.
27.1 Financial Data Schedule
</TABLE>
17
<PAGE>
EXHIBIT 4.1
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE
"COMMISSION") OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). NEITHER THIS WARRANT NOR THE SHARES ISSUABLE
UPON EXERCISE HEREOF MAY BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
UNDER APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT
FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND UNDER
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS.
STOCK PURCHASE WARRANT
TO PURCHASE [ ] SHARES OF COMMON STOCK OF
HAWAIIAN NATURAL WATER COMPANY, INC.
THIS CERTIFIES that, for value received, [ } or his assigns
(collectively, the "Holder"), is entitled, upon the terms and subject to the
conditions hereinafter set forth, at any time after October 1, 1999 (the
"Initial Exercise Date") and on or prior to the close of business on September
30, 2004 (the "Termination Date") but not thereafter, to subscribe for and
purchase from HAWAIIAN NATURAL WATER COMPANY, INC., a corporation incorporated
in Hawaii (the "Company"), up to [ ( )
shares (the "Warrant Shares") of Common Stock, no par value per share, of the
Company (the "Common Stock"). The purchase price of one share of Common Stock
(the "Exercise Price") under this Warrant shall be One Dollar ($1.00). The
Exercise Price and the number of shares for which the Warrant is exercisable
shall be subject to adjustment as provided herein. This Warrant is being issued
in connection with that certain Subscription Agreement between the Holder and
the Company dated as of September , 1999 (the "Purchase Agreement") and is
subject to its terms and conditions. In the event of any conflict between the
terms of this Warrant and the Purchase Agreement, the Purchase Agreement shall
control.
1. TITLE OF WARRANT. Prior to the expiration hereof and subject
to compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by
the holder hereof in person or by duly authorized attorney, upon surrender of
this Warrant together with the Assignment Form annexed hereto properly
endorsed.
<PAGE>
2. AUTHORIZATION OF SHARES. The Company covenants that all
shares of Common Stock which may be issued upon the exercise of rights
represented by this Warrant will, upon exercise of the rights represented by
this Warrant, be duly authorized, validly issued, fully paid and
nonassessable and free from all taxes, liens and charges in respect of the
issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).
3. EXERCISE OF WARRANT. Except as provided in Section 4 herein,
exercise of the purchase rights represented by this Warrant may be made at
any time or times on or after the Initial Exercise Date, and before the close
of business on the Termination Date, by the delivery of the Notice of
Exercise Form annexed hereto duly executed, at the office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the registered holder hereof at the address of such holder
appearing on the books of the Company) and upon payment to the Company of the
Exercise Price for the shares thereby purchased by wire transfer or cashier's
check drawn on a United States bank, the Holder shall be entitled to receive
a certificate for the number of shares of Common Stock so purchased.
Certificates for shares purchased hereunder shall be delivered to the holder
hereof promptly after the date on which this Warrant shall have been
exercised as aforesaid. This Warrant shall be deemed to have been exercised
and such certificate or certificates shall be deemed to have been issued, and
the Holder or any other person so designated to be named therein shall be
deemed to have become a holder of record of such shares for all purposes, as
of the date the Warrant has been exercised by payment to the Company of the
Exercise Price and all taxes required to be paid by Holder, if any, pursuant
to Section 5 prior to the issuance of such shares, have been paid.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which the Holder would otherwise be
entitled to purchase upon such exercise, the Company shall pay a cash
adjustment in respect of such final fraction in an amount equal to the
Exercise Price.
5. CHARGES, TAXES AND EXPENSES. Issuance of certificates for
shares of Common Stock upon the exercise of this Warrant shall be made
without charge to the Holder for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificate, all of
which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the holder of this Warrant or in such name or
names as may be directed by the holder of this Warrant; provided, however,
that in the event certificates for shares of Common Stock are to be issued in
a name other than the name of the holder of this Warrant, this Warrant when
surrendered for exercise shall be accompanied by the Assignment Form attached
hereto duly executed by the Holder, and the Company may require, as a
condition thereto, the payment of a sum sufficient to reimburse it for any
transfer tax incidental thereto.
6. CLOSING OF BOOKS. The Company will not close its shareholder
books or records in any manner which prevents the timely exercise of this
Warrant.
<PAGE>
7. TRANSFER, DIVISION AND COMBINATION. (a) Subject to compliance
with any applicable securities laws, transfer of this Warrant and all rights
hereunder, in whole or in part, shall be registered on the books of the
Company to be maintained for such purpose, upon surrender of this Warrant at
the principal office of the Company, together with a written assignment of
this Warrant substantially in the form attached hereto duly executed by the
Holder or its agent or attorney and funds sufficient to pay any transfer
taxes payable upon the making of such transfer. Upon such surrender and, if
required, such payment, the Company shall execute and deliver a new Warrant
or Warrants in the name of the assignee or assignees and in the denomination
specified in such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be
exercised by a new holder for the purchase of shares of Common Stock without
having a new Warrant issued.
(b) This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in
which new Warrants are to be issued, signed by the Holder or its agent or
attorney. Subject to compliance with Section 7(a), as to any transfer which
may be involved in such division or combination, the Company shall execute
and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants
to be divided or combined in accordance with such notice.
(c) The Company agrees to maintain, at its aforesaid office,
books for the registration and the registration of transfer of the Warrants.
8. NO RIGHTS AS SHAREHOLDER UNTIL EXERCISE. This Warrant does
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company prior to the exercise hereof. Upon the surrender
of this Warrant and the payment of the aggregate Exercise Price, the Warrant
Shares so purchased shall be and be deemed to be issued to the Holder as the
record owner of such shares as of the close of business on the later of the
date of such surrender or payment.
9. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. The
Company represents and warrants that upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation
of this Warrant certificate or any stock certificate relating to the Warrant
Shares, and in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it, and upon surrender and cancellation of such
Warrant or stock certificate, if mutilated, the Company will make and deliver
a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of such Warrant or stock certificate.
10. SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed
day for the taking of any action or the expiration of any right required or
granted herein shall be a Saturday, Sunday or a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a Saturday, Sunday or legal holiday.
<PAGE>
11. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.
(a) STOCK SPLITS, ETC. The number and kind of securities purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to
adjustment from time to time upon the happening of any of the following. In
case the Company shall (i) pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock to holders of its outstanding Common
Stock, (ii) subdivide its outstanding shares of Common Stock into a greater
number of shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) issue
any shares of its capital stock in a reclassification of the Common Stock,
then the number of Warrant Shares purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that the holder of this
Warrant shall be entitled to receive the kind and number of Warrant Shares or
other securities of the Company which he would have owned or have been
entitled to receive had such Warrant been exercised in advance thereof. Upon
each such adjustment of the kind and number of Warrant Shares or other
securities of the Company which are purchasable hereunder, the holder of this
Warrant shall thereafter be entitled to purchase the number of Warrant Shares
or other securities resulting from such adjustment at an Exercise Price per
such Warrant Share or other security obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of Warrant
Shares purchasable pursuant hereto immediately prior to such adjustment and
dividing by the number of Warrant Shares or other securities of the Company
resulting from such adjustment. An adjustment made pursuant to this
paragraph shall become effective immediately after the effective date of such
event retroactive to the record date, if any, for such event.
(b) REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION
OR DISPOSITION OF ASSETS. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where
there is a change in or distribution with respect to the Common Stock of the
Company), or sell, transfer or otherwise dispose of all or substantially all
its property, assets or business to another corporation and, pursuant to the
terms of such reorganization, reclassification, merger, consolidation or
disposition of assets, shares of common stock of the successor or acquiring
corporation, or any cash, shares of stock or other securities or property of
any nature whatsoever (including warrants or other subscription or purchase
rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("Other Property"), are to be received by or
distributed to the holders of Common Stock of the Company, then the Holder
shall have the right thereafter to receive, upon exercise of this Warrant,
the number of shares of common stock of the successor or acquiring
corporation or of the Company, if it is the surviving corporation, and Other
Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder
of the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the
successor or acquiring corporation (if other than the Company) shall
expressly assume the due and punctual observance and performance of each and
every covenant and condition of this Warrant to be performed and observed by
the Company and all the obligations and liabilities hereunder, subject to
such modifications as may be deemed appropriate (as determined by resolution
of the Board of Directors of the Company) in order to provide for adjustments
of shares of Common Stock for which this Warrant is exercisable which shall
be as nearly
<PAGE>
equivalent as practicable to the adjustments provided for in this Section 11.
For purposes of this Section 11, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is
not preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or
upon the arrival of a specified date or the happening of a specified event
and any warrants or other rights to subscribe for or purchase any such stock.
The foregoing provisions of this Section 11 shall similarly apply to
successive reorganizations, reclassifications, mergers, consolidations or
disposition of assets.
12. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may at any
time during the term of this Warrant, reduce the then current Exercise Price
to any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
13. NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares
or number or kind of securities or other property purchasable upon the
exercise of this Warrant or the Exercise Price is adjusted, as herein
provided, the Company shall promptly mail by registered or certified mail,
return receipt requested, to the Holder notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities
or property) purchasable upon the exercise of this Warrant and the Exercise
Price of such Warrant Shares (and other securities or property) after such
adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was
made. Such notice, in absence of manifest error, shall be conclusive
evidence of the correctness of such adjustment.
14. NOTICE OF CORPORATE ACTION. If at any time:
(a) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the Company
or any consolidation or merger of the Company with, or any sale, transfer or
other disposition of all or substantially all the property, assets or
business of the Company to, another corporation or,
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to the Holder
(i) at least five (5) business days' prior written notice of the date on
which a record date shall be selected for such dividend, distribution or
right or for determining rights to vote in respect of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger,
<PAGE>
consolidation, sale, transfer, disposition, dissolution, liquidation or
winding up, at least five (5) business days' prior written notice of the date
when the same shall take place. Such notice in accordance with the foregoing
clause also shall specify (i) the date on which any such record is to be
taken for the purpose of such dividend, distribution or right, the date on
which the holders of Common Stock shall be entitled to any such dividend,
distribution or right, and the amount and character thereof, and (ii) the
date on which any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or
winding up is to take place and the time, if any such time is to be fixed, as
of which the holders of Common Stock shall be entitled to exchange their
shares of Common Stock for securities or other property deliverable upon such
disposition, dissolution, liquidation or winding up. Each such written
notice shall be sufficiently given if addressed to the Holder at the last
address of the Holder appearing on the books of the Company and delivered in
accordance with Section 16(d).
15. AUTHORIZED SHARES. The Company covenants that during the
period the Warrant is outstanding, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the
issuance of the Warrant Shares upon the exercise of any purchase rights under
this Warrant. The Company further covenants that its issuance of this
Warrant shall constitute full authority to its officers who are charged with
the duty of executing stock certificates to execute and issue the necessary
certificates for the Warrant Shares upon the exercise of the purchase rights
under this Warrant. The Company will take all such reasonable action as may
be necessary to assure that such Warrant Shares may be issued as provided
herein without violation of any applicable law or regulation, or of any
requirements of Nasdaq or any domestic securities exchange upon which the
Common Stock may be listed.
The Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant, but will
at all times in good faith assist in the carrying out of all such terms and
in the taking of all such actions as may be necessary or appropriate to
protect the rights of the Holder against impairment. Without limiting the
generality of the foregoing, the Company will (a) not increase the par value
of any shares of Common Stock receivable upon the exercise of this Warrant
above the amount payable therefor upon such exercise immediately prior to
such increase in par value, (b) take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully
paid and nonassessable shares of Common Stock upon the exercise of this
Warrant, and (c) use its best efforts to obtain all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction
thereof as may be necessary to enable the Company to perform its obligations
under this Warrant.
Before taking any action which would cause an adjustment
reducing the current Exercise Price below the then par value, if any, of the
shares of Common Stock issuable upon exercise of the Warrants, the Company
shall take any corporate action which may be necessary in order that the
Company may validly and legally issue fully paid and non-assessable shares of
such Common Stock at such adjusted Exercise Price.
<PAGE>
Before taking any action which would result in an
adjustment in the number of shares of Common Stock for which this Warrant is
exercisable or in the Exercise Price, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be
necessary from any public regulatory body or bodies having jurisdiction
thereof.
16. REDEMPTION. This Warrant may be redeemed, at the option of
the Company, in whole or in part, at any time, upon thirty (30) days' prior
written notice to the Holder (the "Redemption Notice"), in the event that the
average closing bid price of the Common Stock, as reported by Nasdaq (or any
national or regional stock exchange on which the Common Stock may then be
listed) for a period of ten (10) trading days immediately preceding the
delivery date of the Redemption Notice, is at least 200% of the then exercise
price of this Warrant, as adjusted as provided above. The redemption price
shall be $.05, multiplied by the number of Warrant Shares with respect to
which the Redemption Notice applies (the "Redemption Price"). This Warrant
shall be fully exercisable by the Holder until the date fixed for redemption
(the "Redemption Date"). On and after the Redemption Date, the Holder shall
have no rights with respect to that portion of this Warrant called for
redemption, except the right to receive the Redemption price, upon surrender
of this Warrant.
17. MISCELLANEOUS.
(a) JURISDICTION. This Warrant shall be binding upon any
successors or assigns of the Company. This Warrant shall constitute a
contract under the laws of Hawaii, without regard to its conflict of law,
principles or rules, and be subject to arbitration pursuant to the terms set
forth in the Agreement.
(b) RESTRICTIONS. The Holder acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered, will
have restrictions upon resale imposed by state and federal securities laws
and by the Agreement.
(c) NONWAIVER AND EXPENSES. No course of dealing or any
delay or failure to exercise any right hereunder on the part of the Holder
shall operate as a waiver of such right or otherwise prejudice the Holder's
rights, powers or remedies, notwithstanding all rights hereunder terminate on
the Termination Date. If the Company fails to make, when due, any payments
provided for hereunder, or fails to comply with any other provision of this
Warrant, the Company shall pay to the Holder such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys' fees, including those of appellate proceedings,
incurred by the Holder in collecting any amounts due pursuant hereto or in
otherwise enforcing any of its rights, powers or remedies hereunder.
<PAGE>
(d) NOTICES. Any notice, request or other document required
or permitted to be given or delivered to the Holder by the Company shall be
delivered in accordance with the notice provisions of the Agreement.
(e) LIMITATION OF LIABILITY. No provision hereof, in the
absence of affirmative action by the Holder to purchase shares of Common
Stock, and no enumeration herein of the rights or privileges of the Holder,
shall give rise to any liability of the Holder for the purchase price of any
Common Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.
(f) REMEDIES. The Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant. The
Company agrees that monetary damages would not be adequate compensation for
any loss incurred by reason of a breach by it of the provisions of this
Warrant and hereby agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(g) SUCCESSORS AND ASSIGNS. Subject to applicable securities
laws, this Warrant and the rights and obligations evidenced hereby shall
inure to the benefit of and be binding upon the successors of the Company and
the successors and permitted assigns of the Holder. The provisions of this
Warrant are intended to be for the benefit of all Holders from time to time
of this Warrant and shall be enforceable by any such Holder or holder of
Warrant Stock.
(h) COOPERATION. The Company shall cooperate with the Holder
in supplying such information as may be reasonably necessary for the Holder
to complete and file any information reporting forms presently or hereafter
required by the Commission as a condition to the availability of an exemption
from the Securities Act for the sale of any Warrant or Restricted Common
Stock.
(i) INDEMNIFICATION. The Company agrees to indemnify and
hold harmless the Holder from and against any liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims, costs,
attorneys' fees, expenses and disbursements of any kind which may be imposed
upon, incurred by or asserted against the Holder in any manner relating to or
arising out of any failure by the Company to perform or observe in any
material respect any of its covenants, agreements, undertakings or
obligations set forth in this Warrant; PROVIDED, HOWEVER, that the Company
will not be liable hereunder to the extent that any liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims, costs,
attorneys' fees, expenses or disbursements are found in a final
non-appealable judgment by a court to have resulted from the Holder's
negligence, bad faith or willful misconduct in its capacity as a stockholder
or warrantholder of the Company.
(j) AMENDMENT. This Warrant may be modified or amended or
the provisions hereof waived with the written consent of the Company and the
Holder.
<PAGE>
(k) SEVERABILITY. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Warrant shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Warrant.
(l) HEADINGS. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a
part of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: September , 1999
HAWAIIAN NATURAL WATER COMPANY, INC.
By:
------------------------------------------
Marcus Bender, President
<PAGE>
NOTICE OF EXERCISE
To: HAWAIIAN NATURAL WATER COMPANY, INC.
(1) The undersigned hereby elects to purchase shares of
Common Stock, no par value per share (the "Common Stock"), of HAWAIIAN
NATURAL WATER COMPANY, INC. pursuant to the terms of the attached Warrant,
and tenders herewith payment of the exercise price in full, together with all
applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in such other name
as is specified below:
-------------------------------
(Name)
-------------------------------
(Address)
-------------------------------
Dated:
-------------------------------
Signature
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute
this form and supply required information.
Do not use this form to exercise the Warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
whose address is
- -----------------------------------------------
.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Dated: ,
--------- ----------
Holder's Signature:
-----------------------------
Holder's Address:
-----------------------------
-----------------------------
Signature Guaranteed:
-----------------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as
it appears on the face of the Warrant, without alteration or enlargement or
any change whatsoever, and must be guaranteed by a bank or trust company.
Officers of corporations and those acting in an fiduciary or other
representative capacity should file proper evidence of authority to assign
the foregoing Warrant.
<PAGE>
EXHIBIT 4.2
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE
"COMMISSION") OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). NEITHER THIS WARRANT NOR THE SHARES ISSUABLE
UPON EXERCISE HEREOF MAY BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
UNDER APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT
FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND UNDER
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS.
STOCK PURCHASE WARRANT
TO PURCHASE [ ] SHARES OF COMMON STOCK OF
HAWAIIAN NATURAL WATER COMPANY, INC.
THIS CERTIFIES that, for value received, [ } or his assigns
(collectively, the "Holder"), is entitled, upon the terms and subject to the
conditions hereinafter set forth, at any time after October 1, 1999 (the
"Initial Exercise Date") and on or prior to the close of business on September
30, 2004 (the "Termination Date") but not thereafter, to subscribe for and
purchase from HAWAIIAN NATURAL WATER COMPANY, INC., a corporation incorporated
in Hawaii (the "Company"), up to [ ( )
shares (the "Warrant Shares") of Common Stock, no par value per share, of the
Company (the "Common Stock"). The purchase price of one share of Common Stock
(the "Exercise Price") under this Warrant shall be One Dollar Fifty Cents
($1.50). The Exercise Price and the number of shares for which the Warrant is
exercisable shall be subject to adjustment as provided herein. This Warrant is
being issued in connection with that certain Subscription Agreement between the
Holder and the Company dated as of September , 1999 (the "Purchase Agreement")
and is subject to its terms and conditions. In the event of any conflict
between the terms of this Warrant and the Purchase Agreement, the Purchase
Agreement shall control.
1. TITLE OF WARRANT. Prior to the expiration hereof and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant together with the Assignment Form annexed hereto properly endorsed.
<PAGE>
2. AUTHORIZATION OF SHARES. The Company covenants that all
shares of Common Stock which may be issued upon the exercise of rights
represented by this Warrant will, upon exercise of the rights represented by
this Warrant, be duly authorized, validly issued, fully paid and
nonassessable and free from all taxes, liens and charges in respect of the
issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).
3. EXERCISE OF WARRANT. Except as provided in Section 4 herein,
exercise of the purchase rights represented by this Warrant may be made at
any time or times on or after the Initial Exercise Date, and before the close
of business on the Termination Date, by the delivery of the Notice of
Exercise Form annexed hereto duly executed, at the office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the registered holder hereof at the address of such holder
appearing on the books of the Company) and upon payment to the Company of the
Exercise Price for the shares thereby purchased by wire transfer or cashier's
check drawn on a United States bank, the Holder shall be entitled to receive
a certificate for the number of shares of Common Stock so purchased.
Certificates for shares purchased hereunder shall be delivered to the holder
hereof promptly after the date on which this Warrant shall have been
exercised as aforesaid. This Warrant shall be deemed to have been exercised
and such certificate or certificates shall be deemed to have been issued, and
the Holder or any other person so designated to be named therein shall be
deemed to have become a holder of record of such shares for all purposes, as
of the date the Warrant has been exercised by payment to the Company of the
Exercise Price and all taxes required to be paid by Holder, if any, pursuant
to Section 5 prior to the issuance of such shares, have been paid.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which the Holder would otherwise be
entitled to purchase upon such exercise, the Company shall pay a cash
adjustment in respect of such final fraction in an amount equal to the
Exercise Price.
5. CHARGES, TAXES AND EXPENSES. Issuance of certificates for
shares of Common Stock upon the exercise of this Warrant shall be made
without charge to the Holder for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificate, all of
which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the holder of this Warrant or in such name or
names as may be directed by the holder of this Warrant; provided, however,
that in the event certificates for shares of Common Stock are to be issued in
a name other than the name of the holder of this Warrant, this Warrant when
surrendered for exercise shall be accompanied by the Assignment Form attached
hereto duly executed by the Holder, and the Company may require, as a
condition thereto, the payment of a sum sufficient to reimburse it for any
transfer tax incidental thereto.
6. CLOSING OF BOOKS. The Company will not close its shareholder
books or records in any manner which prevents the timely exercise of this
Warrant.
<PAGE>
7. TRANSFER, DIVISION AND COMBINATION. (a) Subject to compliance
with any applicable securities laws, transfer of this Warrant and all rights
hereunder, in whole or in part, shall be registered on the books of the
Company to be maintained for such purpose, upon surrender of this Warrant at
the principal office of the Company, together with a written assignment of
this Warrant substantially in the form attached hereto duly executed by the
Holder or its agent or attorney and funds sufficient to pay any transfer
taxes payable upon the making of such transfer. Upon such surrender and, if
required, such payment, the Company shall execute and deliver a new Warrant
or Warrants in the name of the assignee or assignees and in the denomination
specified in such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be
exercised by a new holder for the purchase of shares of Common Stock without
having a new Warrant issued.
(b) This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in
which new Warrants are to be issued, signed by the Holder or its agent or
attorney. Subject to compliance with Section 7(a), as to any transfer which
may be involved in such division or combination, the Company shall execute
and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants
to be divided or combined in accordance with such notice.
(c) The Company agrees to maintain, at its aforesaid office,
books for the registration and the registration of transfer of the Warrants.
8. NO RIGHTS AS SHAREHOLDER UNTIL EXERCISE. This Warrant does
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company prior to the exercise hereof. Upon the surrender
of this Warrant and the payment of the aggregate Exercise Price, the Warrant
Shares so purchased shall be and be deemed to be issued to the Holder as the
record owner of such shares as of the close of business on the later of the
date of such surrender or payment.
9. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. The
Company represents and warrants that upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation
of this Warrant certificate or any stock certificate relating to the Warrant
Shares, and in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it, and upon surrender and cancellation of such
Warrant or stock certificate, if mutilated, the Company will make and deliver
a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of such Warrant or stock certificate.
10. SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed
day for the taking of any action or the expiration of any right required or
granted herein shall be a Saturday, Sunday or a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a Saturday, Sunday or legal holiday.
<PAGE>
11. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.
(a) STOCK SPLITS, ETC. The number and kind of securities purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to
adjustment from time to time upon the happening of any of the following. In
case the Company shall (i) pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock to holders of its outstanding Common
Stock, (ii) subdivide its outstanding shares of Common Stock into a greater
number of shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) issue
any shares of its capital stock in a reclassification of the Common Stock,
then the number of Warrant Shares purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that the holder of this
Warrant shall be entitled to receive the kind and number of Warrant Shares or
other securities of the Company which he would have owned or have been
entitled to receive had such Warrant been exercised in advance thereof. Upon
each such adjustment of the kind and number of Warrant Shares or other
securities of the Company which are purchasable hereunder, the holder of this
Warrant shall thereafter be entitled to purchase the number of Warrant Shares
or other securities resulting from such adjustment at an Exercise Price per
such Warrant Share or other security obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of Warrant
Shares purchasable pursuant hereto immediately prior to such adjustment and
dividing by the number of Warrant Shares or other securities of the Company
resulting from such adjustment. An adjustment made pursuant to this
paragraph shall become effective immediately after the effective date of such
event retroactive to the record date, if any, for such event.
(b) REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR
DISPOSITION OF ASSETS. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where
there is a change in or distribution with respect to the Common Stock of the
Company), or sell, transfer or otherwise dispose of all or substantially all
its property, assets or business to another corporation and, pursuant to the
terms of such reorganization, reclassification, merger, consolidation or
disposition of assets, shares of common stock of the successor or acquiring
corporation, or any cash, shares of stock or other securities or property of
any nature whatsoever (including warrants or other subscription or purchase
rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("Other Property"), are to be received by or
distributed to the holders of Common Stock of the Company, then the Holder
shall have the right thereafter to receive, upon exercise of this Warrant,
the number of shares of common stock of the successor or acquiring
corporation or of the Company, if it is the surviving corporation, and Other
Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder
of the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the
successor or acquiring corporation (if other than the Company) shall
expressly assume the due and punctual observance and performance of each and
every covenant and condition of this Warrant to be performed and observed by
the Company and all the obligations and liabilities hereunder, subject to
such modifications as may be deemed appropriate (as determined by resolution
of the Board of Directors of the Company) in order to provide for adjustments
of shares of Common Stock for which this Warrant is exercisable which shall
be as nearly
<PAGE>
equivalent as practicable to the adjustments provided for in this Section 11.
For purposes of this Section 11, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is
not preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or
upon the arrival of a specified date or the happening of a specified event
and any warrants or other rights to subscribe for or purchase any such stock.
The foregoing provisions of this Section 11 shall similarly apply to
successive reorganizations, reclassifications, mergers, consolidations or
disposition of assets.
12. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may at any
time during the term of this Warrant, reduce the then current Exercise Price
to any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
13. NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares
or number or kind of securities or other property purchasable upon the
exercise of this Warrant or the Exercise Price is adjusted, as herein
provided, the Company shall promptly mail by registered or certified mail,
return receipt requested, to the Holder notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities
or property) purchasable upon the exercise of this Warrant and the Exercise
Price of such Warrant Shares (and other securities or property) after such
adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was
made. Such notice, in absence of manifest error, shall be conclusive
evidence of the correctness of such adjustment.
14. NOTICE OF CORPORATE ACTION. If at any time:
(a) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the Company
or any consolidation or merger of the Company with, or any sale, transfer or
other disposition of all or substantially all the property, assets or
business of the Company to, another corporation or,
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to the Holder
(i) at least five (5) business days' prior written notice of the date on
which a record date shall be selected for such dividend, distribution or
right or for determining rights to vote in respect of any such
reorganization, reclassification, merger,
<PAGE>
consolidation, sale, transfer, disposition, liquidation or winding up, and
(ii) in the case of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or
winding up, at least five (5) business days' prior written notice of the date
when the same shall take place. Such notice in accordance with the foregoing
clause also shall specify (i) the date on which any such record is to be
taken for the purpose of such dividend, distribution or right, the date on
which the holders of Common Stock shall be entitled to any such dividend,
distribution or right, and the amount and character thereof, and (ii) the
date on which any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or
winding up is to take place and the time, if any such time is to be fixed, as
of which the holders of Common Stock shall be entitled to exchange their
shares of Common Stock for securities or other property deliverable upon such
disposition, dissolution, liquidation or winding up. Each such written
notice shall be sufficiently given if addressed to the Holder at the last
address of the Holder appearing on the books of the Company and delivered in
accordance with Section 16(d).
15. AUTHORIZED SHARES. The Company covenants that during the
period the Warrant is outstanding, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the
issuance of the Warrant Shares upon the exercise of any purchase rights under
this Warrant. The Company further covenants that its issuance of this
Warrant shall constitute full authority to its officers who are charged with
the duty of executing stock certificates to execute and issue the necessary
certificates for the Warrant Shares upon the exercise of the purchase rights
under this Warrant. The Company will take all such reasonable action as may
be necessary to assure that such Warrant Shares may be issued as provided
herein without violation of any applicable law or regulation, or of any
requirements of Nasdaq or any domestic securities exchange upon which the
Common Stock may be listed.
The Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant, but will
at all times in good faith assist in the carrying out of all such terms and
in the taking of all such actions as may be necessary or appropriate to
protect the rights of the Holder against impairment. Without limiting the
generality of the foregoing, the Company will (a) not increase the par value
of any shares of Common Stock receivable upon the exercise of this Warrant
above the amount payable therefor upon such exercise immediately prior to
such increase in par value, (b) take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully
paid and nonassessable shares of Common Stock upon the exercise of this
Warrant, and (c) use its best efforts to obtain all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction
thereof as may be necessary to enable the Company to perform its obligations
under this Warrant.
Before taking any action which would cause an adjustment
reducing the current Exercise Price below the then par value, if any, of the
shares of Common Stock issuable upon exercise of the Warrants, the Company
shall take any corporate action which may be necessary in order that the
Company may validly and legally issue fully paid and non-assessable shares of
such Common Stock at such adjusted Exercise Price.
<PAGE>
Before taking any action which would result in an adjustment
in the number of shares of Common Stock for which this Warrant is exercisable
or in the Exercise Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
16. REDEMPTION. This Warrant may be redeemed, at the option of
the Company, in whole or in part, at any time, upon thirty (30) days' prior
written notice to the Holder (the "Redemption Notice"), in the event that the
average closing bid price of the Common Stock, as reported by Nasdaq (or any
national or regional stock exchange on which the Common Stock may then be
listed) for a period of ten (10) trading days immediately preceding the
delivery date of the Redemption Notice, is at least 200% of the then exercise
price of this Warrant, as adjusted as provided above. The redemption price
shall be $.05, multiplied by the number of Warrant Shares with respect to
which the Redemption Notice applies (the "Redemption Price"). This Warrant
shall be fully exercisable by the Holder until the date fixed for redemption
(the "Redemption Date"). On and after the Redemption Date, the Holder shall
have no rights with respect to that portion of this Warrant called for
redemption, except the right to receive the Redemption price, upon surrender
of this Warrant.
17. MISCELLANEOUS.
(a) JURISDICTION. This Warrant shall be binding upon any
successors or assigns of the Company. This Warrant shall constitute a
contract under the laws of Hawaii, without regard to its conflict of law,
principles or rules, and be subject to arbitration pursuant to the terms set
forth in the Agreement.
(b) RESTRICTIONS. The Holder acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered, will
have restrictions upon resale imposed by state and federal securities laws
and by the Agreement.
(c) NONWAIVER AND EXPENSES. No course of dealing or any
delay or failure to exercise any right hereunder on the part of the Holder
shall operate as a waiver of such right or otherwise prejudice the Holder's
rights, powers or remedies, notwithstanding all rights hereunder terminate on
the Termination Date. If the Company fails to make, when due, any payments
provided for hereunder, or fails to comply with any other provision of this
Warrant, the Company shall pay to the Holder such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys' fees, including those of appellate proceedings,
incurred by the Holder in collecting any amounts due pursuant hereto or in
otherwise enforcing any of its rights, powers or remedies hereunder.
<PAGE>
(d) NOTICES. Any notice, request or other document required
or permitted to be given or delivered to the Holder by the Company shall be
delivered in accordance with the notice provisions of the Agreement.
(e) LIMITATION OF LIABILITY. No provision hereof, in the
absence of affirmative action by the Holder to purchase shares of Common
Stock, and no enumeration herein of the rights or privileges of the Holder,
shall give rise to any liability of the Holder for the purchase price of any
Common Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.
(f) REMEDIES. The Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant. The
Company agrees that monetary damages would not be adequate compensation for
any loss incurred by reason of a breach by it of the provisions of this
Warrant and hereby agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(g) SUCCESSORS AND ASSIGNS. Subject to applicable securities
laws, this Warrant and the rights and obligations evidenced hereby shall
inure to the benefit of and be binding upon the successors of the Company and
the successors and permitted assigns of the Holder. The provisions of this
Warrant are intended to be for the benefit of all Holders from time to time
of this Warrant and shall be enforceable by any such Holder or holder of
Warrant Stock.
(h) COOPERATION. The Company shall cooperate with the Holder
in supplying such information as may be reasonably necessary for the Holder
to complete and file any information reporting forms presently or hereafter
required by the Commission as a condition to the availability of an exemption
from the Securities Act for the sale of any Warrant or Restricted Common
Stock.
(i) INDEMNIFICATION. The Company agrees to indemnify and
hold harmless the Holder from and against any liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims, costs,
attorneys' fees, expenses and disbursements of any kind which may be imposed
upon, incurred by or asserted against the Holder in any manner relating to or
arising out of any failure by the Company to perform or observe in any
material respect any of its covenants, agreements, undertakings or
obligations set forth in this Warrant; PROVIDED, HOWEVER, that the Company
will not be liable hereunder to the extent that any liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims, costs,
attorneys' fees, expenses or disbursements are found in a final
non-appealable judgment by a court to have resulted from the Holder's
negligence, bad faith or willful misconduct in its capacity as a stockholder
or warrantholder of the Company.
(j) AMENDMENT. This Warrant may be modified or amended or
the provisions hereof waived with the written consent of the Company and the
Holder.
<PAGE>
(k) SEVERABILITY. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Warrant shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Warrant.
(l) HEADINGS. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a
part of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: September , 1999
HAWAIIAN NATURAL WATER COMPANY, INC.
By:
--------------------------------
Marcus Bender, President
<PAGE>
NOTICE OF EXERCISE
To: HAWAIIAN NATURAL WATER COMPANY, INC.
(1) The undersigned hereby elects to purchase shares of
Common Stock, no par value per share (the "Common Stock"), of HAWAIIAN
NATURAL WATER COMPANY, INC. pursuant to the terms of the attached Warrant,
and tenders herewith payment of the exercise price in full, together with all
applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in such other name
as is specified below:
-------------------------------
(Name)
-------------------------------
(Address)
-------------------------------
Dated:
-------------------------------
Signature
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute
this form and supply required information.
Do not use this form to exercise the Warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
whose address is
- -----------------------------------------------
.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Dated: ,
--------- ----------
Holder's Signature:
-----------------------------
Holder's Address:
-----------------------------
-----------------------------
Signature Guaranteed:
-----------------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as
it appears on the face of the Warrant, without alteration or enlargement or
any change whatsoever, and must be guaranteed by a bank or trust company.
Officers of corporations and those acting in an fiduciary or other
representative capacity should file proper evidence of authority to assign
the foregoing Warrant.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-01-1999 JUL-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 683,910 0
<SECURITIES> 0 0
<RECEIVABLES> 502,539 0
<ALLOWANCES> 24,096 0
<INVENTORY> 514,209 0
<CURRENT-ASSETS> 1,849,600 0
<PP&E> 0 0
<DEPRECIATION> 588,545 0
<TOTAL-ASSETS> 4,561,735 0
<CURRENT-LIABILITIES> 1,152,126 0
<BONDS> 453,645 0
0 0
732,397 0
<COMMON> 11,176,256 0
<OTHER-SE> (9,032,237) 0
<TOTAL-LIABILITY-AND-EQUITY> 4,561,735 0
<SALES> 2,158,424 929,880
<TOTAL-REVENUES> 2,158,424 929,880
<CGS> 1,675,579 709,988
<TOTAL-COSTS> 1,675,579 709,988
<OTHER-EXPENSES> 1,546,323 592,926
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (49,833) (14,290)
<INCOME-PRETAX> (1,113,311) (387,324)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,113,311) (387,324)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,113,311) (387,324)
<EPS-BASIC> (0.27) (0.09)
<EPS-DILUTED> (0.27) (0.09)
</TABLE>
