<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended Commission File Number
March 31, 1999 #0-27480
LAHAINA ACQUISITIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
COLORADO 84-1325695
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
102 South Tenth Street, Fernandina Beach, FL 32034
--------------------------------------------------
(Address, Including Zip Code, of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code (904) 277-4438
NOT APPLICABLE
--------------
(Former Name, Former Address, and Former Fiscal Year If Changed
since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act or 1934 during
the preceding 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
--- ---
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practical date.
Class of Common Stock Outstanding at May 16, 1999
no par value 2,321,500 shares
<PAGE> 2
LAHAINA ACQUISITIONS, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I -- FINANCIAL INFORMATION PAGE
<S> <C> <C> <C>
ITEM 1 Financial Statements
Consolidated Balance Sheets for March 31, 1999 3
and for September 30, 1998
Consolidated Statements of Operations for the 5
Three Months and Six Months Ended March 31, 1999
and 1998 and for the Period from Inception to
March 31, 1999
Consolidated Statements of Changes in Shareholders' 6
Equity for Six Months End 31, 1999
Consolidated Statements of Cash Flows for 7
the Six Months Ended March 31, 1999 and 1998 and
for the Period from Inception to March 31, 1999
Notes to Consolidated Financial Statements for 9
The Six Months Ended March 31, 1999
ITEM 2 Management's Discussion and Analysis of Financial 15
Condition and Results of Operations
PART II -- OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K 17
SIGNATURES
</TABLE>
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LAHAINA ACQUISITIONS, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
MARCH 31, SEPTEMBER
1999 30, 1998
----------------------------
<S> <C> <C>
ASSETS .................................................. $ $
Current Assets
Cash ............................................... 50,604 28
Accounts Receivable ................................ 31,000 -0-
Prepaid Expenses ................................... 12,781 -0-
Escrow Funds ....................................... 31,000 -0-
----------- --------
Total Current Assets .................................. 125,385 28
Fixed Assets
Land ............................................... 400,000 -0-
Building ........................................... 2,434,289 -0-
Equipment .......................................... 150,279 -0-
Accumulated Depreciation ........................... (55,179) -0-
----------- --------
Total Fixed Assets .................................... 2,929,389 -0-
Other Assets
Discount on Note Payable .......................... 22,500 -0-
Offering Costs & Reserve .......................... 139,251 -0-
Notes Receivable .................................. 149,700 -0-
----------- --------
Total Other Assets .................................... 311,451 -0-
TOTAL ASSETS ............................................ $ 3,366,225 $ 28
=========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Accounts Payable ................................... 201,241 7,093
Accrued Interest Payable ........................... 27,400 -0-
Security Deposits Payable .......................... 9,000 -0-
Notes Payable - Current ............................ 300,000 -0-
----------- --------
Total Current Liabilities ............................. 537,641 7,093
Long-term Debt
Note Payable - Mortgage ............................... 1,550,000 -0-
Note Payable - Convertible Debenture .................. 775,000 -0-
Note Payable - Others ................................. 165,000 -0-
Note Payable - Shareholder ............................ 135,367 -0-
----------- --------
Total Long-term Debt .................................... 2,625,367 -0-
----------- --------
TOTAL LIABILITIES ....................................... $ 3,163,008 $ 7,093
=========== ========
SHAREHOLDERS' EQUITY
Preferred Series A Convertible Stock, 10,000,000 Shares
Authorized, 1,910,000 Shares issued and
outstanding ......................................... 428,823 -0-
Common Stock, No Par Value, 800,000,000 Shares
Authorized, 2,321,500 Shares Issued and
Outstanding.......................................... 37,382 7,093
</TABLE>
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<TABLE>
<S> <C> <C>
Additional Paid-In Capital - Common Stock ............. 53,903 52,653
Deficit Accumulated During the Development Stage ...... (316,891) (66,300)
----------- --------
TOTAL SHAREHOLDERS' EQUITY .............................. 203,217 (7,065)
----------- --------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY ................ $ 3,366,225 $ 28
=========== ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
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LAHAINA ACQUISITIONS, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED FROM INCEPTION
MARCH 31, MARCH 31, (APRIL 1989) TO
1999 1998 1999 1998 MARCH 31, 1999
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<S> <C> <C> <C> <C> <C>
REVENUE: .................. $ 65,000 $ -0- $ 81,555 $ -0- $ 81,555
EXPENSES:
Administrative Expense: . 71,463 -0- 81,951 7,450 152,666
Operating Expense: ...... 87,216 7,450 123,955 -0- 119,684
----------- --------- ----------- --------- -----------
Total Expense: .......... $ 158,679 $ 7,450 $ 205,906 $ 7,450 $ 272,350
LOSS FROM OPERATIONS .... (197,213) (7,450) (124,351) (7,450) (190,795)
INTEREST INCOME/(EXPENSE) (103,534) -0- (126,240) -0- (126,240)
----------- --------- ----------- --------- -----------
NET INCOME/(LOSS) ....... (250,591) (250,591) (250,591) (7,450) (317,035)
INCOME PER SHARE:
Basic ................... (0.08) (0.01) (0.11) (0.01) (0.14)
Shares for basic ........ 2,321,500 996,500 2,321,500 996,500 2,548,798
Diluted ................. (0.08) (0.01) (0.11) (0.01) (0.14)
Shares for diluted ...... 5,298,798 996,500 5,298,798 996,500 5,298,798
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
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LAHAINA ACQUISITIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A DEFICIT
PREFERRED STOCK COMMON STOCK ACCUMULATED
NO PAR VALUE NO PAR VALUE ADDITIONAL DURING THE
PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE TOTAL
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<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1995... $ -0- $ -0- $ 996,500 $ 600 $ -0- $ -0- $ 600
Net Loss for Year Ended
September 30, 1996 ........... -0- -0- -0- -0- -0- (2,982) (2,982)
---------- ---------- ---------- -------- -------- --------- --------
Balance at September 30, 1996... -0- -0- 996,500 600 -0- (2,982) (2,382)
Capital Contribution............ -0- -0- -0- 5,982 -0- -0- 5,982
Net Loss for Year Ended
September 30, 1997 ........... -0- -0- 996,500 6,582 -0- (20,821) (14,239)
---------- ---------- ---------- -------- -------- --------- --------
Balance at September 30, 1997... -0- $ -0- 996,500 $ 6,582 -0- (20,821) (14,239)
Capital Contribution............ -0- -0- -0- -0- 52,653 (66,300) (7,065)
Net Loss for Year Ended
September 30, 1998 ........... -0- -0- -0- -0- -0- (45,479) (45,479)
---------- ---------- ---------- -------- -------- --------- --------
Balance at September 30, 1998... -0- -0- 996,500 $ 6,582 $ 52,653 (66,300) (7,065)
Issues/Subscriptions Stock ..... 1,910,000 428,823 1,325,000 30,800 1,250 -0- 460,873
Net loss for Six Months Ended (53,378) (53,378)
March 31, 1999 ............... -0- -0- -0- -0- -0- (250,591) (250,591)
---------- ---------- ---------- -------- -------- --------- --------
Balance at March 31, 1999 ...... 1,910,000 $ 275,975 2,321,500 $ 37,382 $ 53,903 $(316,891) 203,217
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
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LAHAINA ACQUISITIONS, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
APRIL 1989
FOR THE SIX MONTHS ENDED (INCEPTION) TO
MARCH 31, MARCH 31, 1999
1999 1998
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<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income/(Loss) ...................................... $ (246,464) $ (28,547) $ (316,891)
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities
Depreciation ........................................ 55,179 -0- 55,179
(Increase) Decrease in:
Accounts Receivable .............................. (11,000) -0- (31,000)
Prepaid Expenses ................................. (12,781) -0- (12,781)
Offering Costs ................................... (43,065) -0- (43,065)
Notes Receivable ................................. (149,700) -0- (149,700)
Escrow Funds ..................................... (31,000) -0- -0-
Offering Costs -- Reserve ........................ (139,251) -0- (139,251)
Increase (Decrease) in:
Accounts Payable ................................. 194,148 -0- 201,241
Accrued Interest Payable ......................... 27,400 28,547 27,400
Security Deposits Payable ........................ 9,000 -0- 9,000
Notes Payable - Current .......................... 300,000 -0- 300,000
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES .................. (51,096) -0- (110,303)
CASH FLOWS USED IN INVESTING ACTIVITIES
Capital Expenditures ............................. (2,984,568) -0- (2,984,568)
NET CASH FLOWS USED IN INVESTING
ACTIVITIES .......................................... (2,984,568) -0- (2,984,568)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Proceeds from Borrowing .......................... 2,625,367 -0- 2,625,367
Proceeds from Issuance of Preferred Stock ........ 428,823 -0- 428,823
Proceeds from Issuance of Common Stock ........... 32,050 -0- 91,285
NET CASH FLOWS PROVIDED BY FINANCING ................
ACTIVITIES .......................................... 3,086,240 -0- 3,145,475
----------- ----------- -----------
NET INCREASE IN CASH ................................... 50,576 -0- 50,604
CASH AT BEGINNING OF PERIOD ............................ 28 -0- -0-
----------- ----------- -----------
</TABLE>
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<TABLE>
<S> <C> <C> <C>
CASH AT END OF PERIOD ................................. 50,604 -0- 50,604
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES:
Income Taxes, Paid ................................... -0- -0- -0-
Interest Paid ......................................... 99,128 -0- 99,128
Noncash Investing and Financing Transactions
Common Stock Subscription ........................... 20,000 -0- 20,000
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
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Notes to Consolidated Financial Statements
of Lahaina Acquisitions, Inc.
(a Development Stage Company)
for the Six Months Ended March 31, 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist in
understanding the Registrant's financial statements. The financial statements
and notes are representations of the Registrant's management, who are
responsible for their integrity and objectivity. 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 and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from those estimates.
All adjustments have been made that, in the opinion of management, are necessary
for a fair statement of the results of the interim period. Other than the
acquisition of Beachside Commons I, Inc. ("Beachside") described in Note O, all
adjustments made have been of a normal and recurring nature. These accounting
policies conform to generally accepted accounting principles and have been
applied in the preparation of the financial statements.
REGISTRANT'S ACTIVITIES AND OPERATING CYCLE
Lahaina Acquisitions, Inc. (the "Registrant") is engaged in real estate
development and property management. The Registrant's fiscal year ends September
30. The subsidiary, Beachside Commons I, Inc. ("Beachside"), has a fiscal year
end of December 31.
The Registrant's financial statements have been prepared in conformity with
principles of accounting applicable to a going concern. These principles
contemplate the realization of assets and liquidation of liabilities in the
normal course of business.
DEVELOPMENT STAGE COMPANY
At March 31, 1999, the Registrant is considered to be in the development stage
as defined under the guidelines of Statement of Financial Accounting Standards
No. 7 (SFAS). Under SFAS No. 7, an entity is considered to be in the
development stage when substantially all of its efforts consist of establishing
a new business and, in addition, planned principal operations are underway but
have not yet generated any significant revenue.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Registrant and
its wholly owned subsidiary, Beachside. All significant intercompany accounts
and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Registrant considers all highly liquid investments with maturity of three
months or less to be cash equivalents for the purpose of determining cash flows.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Depreciation is provided by
straight-line methods for financial reporting and accelerated methods for income
tax purposes over estimated useful lives, which range from 5 to 39.5 years.
NOTE B - ACCOUNTS RECEIVABLE
Accounts receivable includes stock subscriptions receivable of $20,000 for
50,000 shares (total) of common stock per agreements with two directors.
Subsequently, the full amount has been received and the stock issues have been
delivered.
NOTE C - NOTES RECEIVABLE
Notes receivable consists of two loans:
<TABLE>
<S> <C>
An operating loan to a customer, secured by security interest in
outstanding stock, due through December 31, 1999, bearing interest at a
rate of prime plus three (3) percentage points (10.75% at March 31, 1999). $89,700
</TABLE>
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<TABLE>
<S> <C>
An operating loan to 1st Southern Mortgage, secured by security interest
in outstanding stock, due through December 31, 1999, bearing interest
at 10% per annum. $ 60,000
</TABLE>
NOTE D - OFFERING COSTS - RESERVE
Offering costs reserve consists of costs incurred in preparation of the S-1
Registration Statement filing in the amount of $139,251. Upon completion of the
S-1 Registration Statement, these costs will be charged against the equity
accounts. If the S-1 Registration Statement is abandoned, these costs will be
expensed as administrative costs.
NOTE E - NOTES PAYABLE
The carrying amount of notes payable approximates fair value and is based on the
current rates available to the Registrant for debt of the same remaining
maturities with similar collateral requirements. Notes payable at March 31,
1999, consisted of the following:
NOTE F - NOTES PAYABLE - CURRENT
<TABLE>
<S> <C>
Working capital loan from GCA Strategic Investment Fund, Ltd., dated January 19,
1999, with notes to be funded to $300,000. The purchase price of the note
is $850 per $1,000 par value amount purchased. The Registrant used $180,000
of the credit line on January 19, 1999, which is due and payable April 22,
1999. The Registrant used $60,000 of option notes on March 10, 1999, and
$60,000 on March 31, 1999, with terms of 90 days from the date the option
notes were funded. $ 300,000
----------
</TABLE>
NOTE G - LONG-TERM DEBT
Long-term debt at March 31, 1999, consisted of the following:
<TABLE>
<S> <C>
Note payable, stockholder, consists of a revolving line of credit, due on
demand to a related party, with a maximum borrowing facility of $300,000,
bearing interest at 10%, unsecured, revolving line of credit, due on
demand. $ 135,367
Notes payable, others, consists of three notes, at an interest rate of 18%
payable on demand, from individuals in the amounts of
$95,000(2), $50,000, and $20,000. $ 165,000
----------
Note payable to Pacific Coast Investment Company (secured by a first mortgage
on the Beachside Commons property), at an interest rate of 15% payable in
monthly installments of interest only. The entire principal is due and
payable November 11, 2003. $1,550,000
</TABLE>
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<TABLE>
<S> <C>
Note payable to GCA Strategic Investment Fund, Ltd.(1), dated December 4, 1998
(secured by a second mortgage on the Beachside Commons property), and
a $25,000 note payable to GCA Strategic Investment Fund, Ltd. dated
November 4, 1998, both at an interest rate of 9%, maturing January 31, 2001
with interest payable quarterly in arrears on the last day of March, June,
September and December of each year until the maturity date.
(Note O - Significant Events) $ 775,000
(Note Q - Subsequent Events) ----------
$2,625,367
==========
</TABLE>
(1) These notes include certain provisions, including issuance of warrants and
conversion to common stock (see Form 8-K dated 12/28/98 for details). Such
shares have been included in the computation of the fully diluted share
amounts.
(2) The amount reported is $10,000 greater than the amount reported for the
same note in the Quarterly Statement on Form 10-Q, filed February 24, 1999.
Due to a clerical error, the note was issued in the amount of $85,000 as
opposed to the agreed upon $95,000.
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending
March 31 Amount
----------- ------
<S> <C>
1999 -0-
2000 -0-
2001 775,000
2002 -0-
2003 1,550,000
</TABLE>
NOTE H - SHAREHOLDERS' EQUITY
The components of shareholders' equity are as follows:
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Preferred stock consists of 9.5% cumulative preferred stock of no par value
with a liquidation value at $1.00 per share for each outstanding share of
Series A Preferred Stock. There are 10,000,000 shares of Series A Preferred
Stock authorized with 1,910,000 shares issued and outstanding at March 31,
1999. This stock may be converted into Common Stock of the Registrant at $1.00
per share, or 1,910,000 shares, at the option of the holder.
Common stock is voting stock with no par value. There are 800,000,000 shares
authorized with 2,321,500 shares issued and outstanding at March 31, 1999.
There are an additional 50,000 shares subscribed.
NOTE I - RELATED PARTY TRANSACTIONS
Included in current debt are loans to the Registrant from the majority
shareholder, Mongoose Investments, LLC, (Mongoose), 1st Southern Mortgage, the
Vice Chairman of which is a director of the Registrant and parties related to
Mongoose, in the following amounts:
<TABLE>
<S> <C>
Mongoose $136,337
1st Southern Mortgage 60,000
Other related parties 70,000
</TABLE>
Mongoose owns 1,775,000 of the 2,321,500 shares of the Registrant's Common Stock
currently outstanding or approximately 76% of such shares. Mongoose has rights
to own an additional 1,910,000 additional shares of Common Stock upon conversion
of its Series A Preferred Stock.
NOTE J - INCOME TAXES
The Registrant has net operating loss carry-forwards of approximately $316,000
which are available to offset future taxable income. The loss carry-forwards
expire $8,000 in 2016, $46,000 in 2017, $53,000 in 2018 and $209,000 in 2019. A
valuation has been established in the full amount of the deferred tax benefit
resulting from the net operating loss carry-forwards for each of the periods
ending March 31, 1999.
NOTE K - EARNINGS PER SHARE
Basic earnings per share was calculated using the 2,321,500 shares outstanding
at March 31, 1999. Fully diluted shares would have been computed as follows:
<TABLE>
<S> <C>
Shares outstanding at March 31, 1999 2,321,500
Assumes conversion of the outstanding 1,910,000
shares Series A Convertible Preferred Stock
Assumes conversion of the $775,000 Convertible Debenture 910,924
Assumes exercise of the Warrant attached to the 84,124
Line of Credit
Assumes exercise of the December 4, 1998 Warrant 65,306
Assumes exercise of the Warrant attached to the
Convertible Debenture 6,944
Assumes exercise of the Right 25,000
---------
Fully diluted shares 5,298,798
=========
</TABLE>
NOTE L - INCOME - INTERIM BASIS
Income on an interim basis for the six months ended March 31, 1998 and the
three months ended December 31, 1997 are the same. Accrued expenses for the
quarter ended December 31 were subsequently eliminated.
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NOTE M - LEGAL PROCEEDINGS
The Registrant is party from time to time to various legal proceedings. The
Registrant currently has a claim arising out of the construction phase of the
Beachside project in the total amount of $30,000. While it expects to prevail
favorably in this proceeding, it has placed sufficient funds in escrow to
accommodate any liabilities in this matter. In the opinion of management, these
proceedings are expected to have no material impact on the Registrant's
financial position or results of operations.
NOTE N - RESERVE FOR DOUBTFUL ACCOUNTS
The Registrant has not taken any reserves for its accounts receivable or notes
receivable at this time, though it may change this policy in the future based on
its experiences with respect to collections.
NOTE O - SIGNIFICANT EVENTS
As a result of the Registrant's initial transaction on December 14, 1998 the
Registrant has become a holding company with an operating subsidiary. This
transaction had a significant impact on the Registrant and created a number of
other changes in the Registrant. As a result of the change in control that
occurred as a result of this transaction, the value of the acquired stock was
recorded at the transferor's basis in a manner similar to a pooling of interest
as described in APB-16, Interpretation #39. The transferor's basis of the
acquired stock was based on its net historical cost, or approximately $1,200,000
as of December 7, 1998. Management believes the fair market value of the
underlying asset, net of debt, would be approximately $2,800,000. A summary of
the transaction follows.
Acquisition Transaction
On December 14, 1998, the Registrant purchased all of the outstanding stock of
Beachside from Mongoose. The purchase was deemed effective as of December 7,
1998. Beachside is the owner of a commercial real estate development located on
Fernandina Beach, Florida in the resort area of Amelia Island, Northeast
Florida.
The Registrant paid the following for the Beachside stock: 1,250,000 newly
issued shares of Common Stock of the Registrant; 1,910,000 newly issued shares
of Series A of Preferred Stock, of the Registrant which shares are convertible
into 1,910,000 shares of Common Stock; and $667,500 in cash, which was a portion
of the $750,000 borrowed in connection with this transaction by the Registrant
under the Original Note, before amendment.
At the same time, Mongoose purchased 750,000 shares of Common Stock from Paxford
Investments, Ltd., ("Paxford") an existing shareholder of the Registrant, for
$300,000. The Stock Purchase Agreement, the Original Note and the related
Securities Purchase Agreement, Registration Rights Agreement, Stock Pledge
Agreement and Warrant are attached as Exhibits or incorporated by reference to
this Form 10-Q.
As a result of the above transactions, a change in the control of the Registrant
has occurred in that Mongoose owns 1,775,000 shares of the 2,321,500 shares of
Common Stock currently outstanding or approximately 76% of such shares. Mongoose
could own an additional 1,910,000 shares of Common Stock upon conversion of its
Series A Preferred Stock. It is currently estimated that the conversion of the
convertible debenture and the exercise of the warrants will result in an
additional 1,200,000 to 2,100,000 shares of Common Stock being issued. According
to current estimates, the convertible debenture as amended will convert into
910,924 shares of Common Stock. The warrant attached to the line of credit is
exercisable for 84,124 shares of Common Stock, the warrant issued December 4,
1998 is exercisable for 65,306 shares of Common Stock, the warrant attached to
the convertible debenture is exercisable for 6,944 shares of Common Stock and
the Right is exercisable for 25,000 shares of Common Stock. Thus, after
conversion of all convertible securities, it is likely that the Registrant will
remain in the control of Mongoose for the foreseeable future. The Managing
Member of Mongoose is Richard P. Smyth.
The assets of Beachside consist of two buildings and unimproved real estate,
leases to tenants in the buildings and minimal operating capital. The Beachside
property is estimated to have a value of approximately $4,500,000. The
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<PAGE> 14
property is subject to (1) a first mortgage securing a loan in the amount of
$1,550,000 bearing interest at 15% per annum, principal and interest payable and
due December 1, 2001, and (2) a second mortgage in favor of GCA securing
repayment of the Note. Once the Note is converted to Common Stock the second
mortgage will be released. The Registrant intends to continue operating the
developed portion of the Beachside property and intends to initiate and complete
the development of the currently undeveloped portion of the Beachside property
when appropriate financing can be obtained.
Bridge Funding
In order to raise the cash portion of the purchase price for the Beachside
stock, the Registrant borrowed $750,000 from GCA. The costs associated with the
transaction were the payment of an $82,500 consulting fee to affiliates of the
Fund and the issuance of a Warrant to purchase 60,000 shares of Common Stock to
LKB Financial, LLC in satisfaction of amounts owed to it for broker/finder
services in connection with the transaction.
The Registrant has received additional operating loans from GCA Strategic
Investment Fund, Ltd. in the form of three ninety-day convertible notes that
total $300,000. The notes include up-front charges totaling $48,000. The charges
expensed during the six months ended March 31, 1999 totaled $25,500. The
remaining discount on these notes of $22,500 will be expensed in the subsequent
period.
NOTE P - Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income,
effective for fiscal years beginning after December 15, 1997. This statement,
which must be adopted by the Registrant by fiscal year ended September 30, 1999,
establishes standards for the reporting and display of comprehensive income and
its components in financial statements. Comprehensive income generally
represents all changes in shareholders' equity except those resulting from
investments by and distributions to owners. The Registrant believes it is in
compliance and this did not have any material impact on the Registrant.
Currently, no differences exist between the Registrant's net income or loss and
comprehensive net income or loss.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, Disclosures About Segments of an Enterprise and Related Information ("SFAS
No. 131"), effective for fiscal years beginning after December 15, 1997. This
statement, which must be adopted by the Registrant by fiscal year ended
September 30, 1999, established standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report information about
operating segments in interim financial reports. SFAS No. 131 also establishes
standards for related disclosures about products and services, geographic areas
and major customers. The Registrant believes it is in compliance and this did
not have any material impact on the Registrant
In March 1998, the American Institute of Certified Public Accounts ("AICPA")
issued Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed For or Obtained For Internal Use ("SOP" No. 98-1"). SOP No. 98-1 is
effective for fiscal years beginning after December 15, 1998. SOP No. 98-1 will
require the capitalization of certain costs incurred after the date of adoption
in connection with developing or obtaining software for internal-use. The
Registrant believes it is in compliance and this did not have any material
impact on the Registrant.
NOTE Q - SUBSEQUENT EVENTS
As of March 31, 1999, the Registrant had agreements for the acquisition of three
companies: Klein Real Estate Services ("KRES"), JP Concepts, Inc. ("JP
Concepts") and 1st Southern Mortgage ("1st Southern"). All transactions are
subject to the transfer of certain licenses.
The common stock subscribed has been issued. Subsequently, there are 2,321,500
shares outstanding with a carrying value of $58,593.
-14-
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the results of operations and financial condition of
the Registrant should be read in conjunction with the Registrant's Consolidated
Financial Statements and Notes thereto immediately preceding this section. This
discussion contains forward-looking statements based on current expectations
which involve risks and uncertainties. Actual results and the timing of certain
events may differ significantly from those projected in such forward-looking
statements due to a number of factors, including, but not limited to, the
possibilities that the demand for the Registrant's services may decline as a
result of possible changes in general and industry specific economic conditions
and the effects of competitive services and pricing, required financing may not
be available upon terms acceptable to the Registrant, in which case the
Registrant will not grow as expected, and such other risks and uncertainties as
are described in reports and other documents filed by the Registrant from time
to time with the Securities and Exchange Commission.
OVERVIEW
The Registrant was formed with the intent to actively seek, locate,
evaluate, structure and complete mergers with or acquisitions of private
companies, partnerships or sole proprietorships. The Registrant intends to
implement a business strategy that will allow it to facilitate opportunistic
acquisitions or investment in real estate, related operations and businesses
with an emphasis on asset oriented opportunities, such as real estate, equipment
or other physical assets. The acquisition on December 14, 1998 of Beachside,
whose main activity is real estate development and redevelopment and investment
in businesses within resort market places, is consistent with that business
strategy.
Since inception, the Registrant generated no revenues until its acquisition
of Beachside on December 14, 1998.
Because the Registrant is in the development stage, the Registrant's model
is significantly different from many existing real estate development companies.
Since the Registrant was a holding company with limited assets until the
December 14, 1998 acquisition of Beachside, the Registrant has only a limited
operating history upon which an evaluation of the Registrant and its prospects
can be based. This limited operating history makes the prediction of future
operating results difficult if not impossible. The Registrant has incurred
losses every quarter since inception and expects to continue to incur losses for
the foreseeable future. The Registrant had an accumulated deficit as of
September 30, 1998 of $53,271 and as of September 30, 1997 of $7,193. The
Registrant had a loss for the six-month period ending March 31, 1999 of $250,591
and a loss for the six-month period ending March 31, 1998 of $7,450. At March
31, 1999, the accumulated deficit was $316,891. The Registrant's business must
be considered in light of the risks, uncertainties, expenses and difficulties
frequently encountered by companies in the early stages of development,
particularly companies in new and rapidly evolving markets, such as the market
for resort development. There can be no assurance that the Registrant will
successfully generate sufficient revenues to achieve profitability. Although the
Registrant has experienced revenue growth in recent periods, historical growth
rates are not sustainable and are not indicative of future operating results,
and there can be no assurance that the Registrant will achieve or maintain
profitability. See "Results of Operations."
As of March 31, 1999, the Registrant had agreements in place for the acquisition
of three operations: KRES, a small real estate sales business, JP Concepts, a
restaurant operations business, and 1st Southern, a mortgage brokerage
operation. All are small transactions with minimal consideration given by the
Registrant. All transactions are subject to the transfer of certain licenses and
all are expected to be completed during the quarter ended June 30, 1999.
The Registrant continues to seek other acquisition candidates which would allow
it to increase its size and financial strength. It is currently evaluating a
number of potential transactions but has no agreements in place at this date
other than those incloving KRES, JP and 1st Southern.
-15-
<PAGE> 16
RESULTS OF OPERATIONS
The following table sets forth unaudited quarterly statement of operations
data for the eight quarters ended March 31, 1999. This unaudited quarterly
information has been derived from unaudited financial statements of the
Registrant and, in the opinion of management, includes all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the information for the periods covered. The quarterly data
should be read in conjunction with the Registrant's Consolidated Financial
Statements and the Notes thereto. The operating results for any quarter are not
necessarily indicative of the operating results for any future period.
<TABLE>
<CAPTION>
Statement of Operations for the Three Months Ending
(unaudited)
------------------------------------------------------------------------------------------------
Dec. 31, Mar. 31, June 30, Dec. 31, Mar. 31, June 30, Dec. 31, Mar. 31,
1996 1997 1997 1997 1998 1998 1998 1999
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ........... $ -0- $ -0- $ 4,690 $ -0- $ -0- $ -0- $ 16,555 $ 81,555
Expenses:
Legal and Accounting
Fees ............. 1,260 -0- 45 28,297 7,450 3,594 -0- -0-
Administrative
Expense .......... -0- -0- -0- -0- -0- -0- 36,739 81,951
Stock Transfers .... -0- 448 1,921 -0- -0- -0- -0- -0-
Printing ........... -0- -0- 537 250 -0- -0- -0- -0-
Net Income (Loss) .. (1,260) (448) (2,187) (28,547) (7,450) (3,594) (30,672) (119,684)
</TABLE>
(1) Figures for the three months ending September 30, 1996, September 30,
1997 and September 30, 1998 are not presented. They correspond with the
end of the fiscal year and were not required.
(2) Figures for the periods ending March 31 are for a six month period.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS AND SEASONALITY
As a result of the Registrant's limited operating history in resort development
and the emerging nature of the markets in which the Registrant competes, the
Registrant is unable to accurately forecast its revenues. The Registrant's
current and future expense levels are based predominantly on its operating
plans and estimates of future revenues and, while relevant to management for
planning purposes, should not be relied upon by potential investors. The
Registrant may be unable to adjust spending in a timely manner to compensate
for any unexpected revenue shortfall. Accordingly, any significant shortfall in
revenues would likely have an immediate material adverse effect on the
Registrant's business, operating results and financial condition. Further, the
Registrant currently intends to substantially increase its operating expenses
to increase advertising, develop and offer new and expanded services, to fund
increased sales and marketing and customer service operations and to develop
its technology and systems. To the extent such expenses precede or are not
subsequently followed by increased revenues, the Registrant's operating results
will fluctuate and anticipated net losses in a given quarter may be greater
than expected.
The Registrant expects to experience significant fluctuations in its future
quarterly operating results due to a variety of other factors, many of which
are outside the Registrant's control. Factors that may adversely affect the
Registrant's quarterly operating results include, but are not limited to (i)
general economic conditions and economic conditions specific to the real estate
industry, (ii) the level of use of resort facilities as well as seasonal
fluctuation in vacationers' demands, (iii) the Registrant's ability to upgrade
and develop its systems and infrastructure and to attract new personnel in a
timely and effective manner, (iv) the amount and timing of operating costs and
capital expenditures relating to expansion of the Registrant's business,
operations and infrastructure, (v) governmental regulation, (vi) unforeseen
events affecting the industry, and (vii) the timing associated with the start,
completion and closing associated with the land development or construction
activities of the Registrant.
Due to the foregoing factors, quarterly revenues and operating results are
difficult to forecast, and the Registrant believes that period-to-period
comparisons of its operating results will not necessarily be meaningful and
should not be relied upon as an indication of future performance. It is likely
that the Registrant's future quarterly operating results from time to time will
not meet the expectations of security analysts or investors. In such event, the
price of the Registrant's Common Stock would likely be materially and adversely
affected.
LIQUIDITY AND CAPITAL RESOURCES
As the result of a number of transactions aimed at funding the operations of
the shell as a start-up company, the Registrant issued 5,298,798 fully diluted
shares for a total of $1,200,000 in transactions occurring from August 1989 to
March 31, 1999.
The Registrant has recently begun operations. As a result of this change from a
shell company into a holding company with operations it will have a need for
significant financial resources as it adds operations and grows the current
operations. At this time the Registrant is not currently generating profits
from its operations. Further, the Registrant is currently consuming cash at a
rate greater than it is generating cash, and is expected to continue in this
manner for the foreseeable future.
The Registrant believes that its current cash, cash equivalents and its debt
arrangements will be sufficient to meet its anticipated cash needs for working
capital and capital expenditures for at least the next several months. However,
the Registrant's capital requirements depend on several factors, including the
level of acquisition activity and other factors. The timing and amount of such
capital requirements cannot accurately be predicted. If capital requirements
vary materially from those currently planned, the Registrant may require
additional financing sooner than anticipated. The Registrant has no commitments
for any additional financing, and there can be no assurance that any such
commitments can be obtained on favorable terms, if at all. Any additional equity
financing may be dilutive to the Registrant's shareholders and debt financing,
if available, may involve restrictive covenants with respect to dividends,
raising capital and other financial and operational matters which could restrict
its operations or finances. If the Registrant is unable to obtain additional
financing as needed, the Registrant may be required to reduce the scope of its
operations or its intended expansion, which could have a material adverse effect
on the Registrant's business, results of operations and financial condition.
-16-
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Registrant currently has a claim arising out of the construction
phase of the Beachside project in the total amount of $30,000, as reported in
the Registrant's Quarterly Statement on Form 10-Q, filed February 24, 1999.
There have been no material developments since the previous report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
Number Description Page
<S> <C> <C>
2.1 Stock Purchase Agreement dated December 3, 1998, by and between Lahaina Acquisitions, Inc.
and Mongoose Investments, LLC (1)
2.2 Common Stock Purchase Warrant in the amount of 60,000 shares to be issued by Lahaina
Acquisitions, Inc. and purchased by LKB Financial, LLC, expiring on December 20, 2003 (1)
2.3 Common Stock Purchase Warrant in the amount of 100,000 shares to be issued by Lahaina
Acquisitions, Inc. and purchased by GCA Strategic Investment Fund, Ltd., expiring on January
19, 2004
2.4 Common Stock Purchase Warrant in the amount of 15,000 shares to be issued by Lahaina
Acquisitions, Inc. and purchased by LKB Financial, LLC, expiring on January 19, 2004
3.1 Articles of Incorporation (2)
3.2 Amendment to Certificate of Incorporation
3.3 Bylaws of the Registrant (2)
4.1 Securities Purchase Agreement dated December 7, 1998, by and between Lahaina Acquisitions,
Inc. and GCA Strategic Investment Fund, Ltd. (1)
4.2 9% Convertible Note of Lahaina Acquisitions, Inc. payable to GCA Strategic Investment Fund,
Ltd., in the principal amount of $750,000 (1)
4.3 Letter Agreement dated January 19, 1999 by and between Lahaina Acquisitions, Inc. and GCA
Strategic Investment Fund, Ltd. amending 9% Convertible Note (3)
4.4 Registration Rights Agreement dated December 7, 1998, by and between Lahaina Acquisitions,
Inc. and GCA Strategic Investment Fund, Ltd. (1)
4.5 Letter Agreement dated January 19, 1999 by and between Lahaina Acquisitions, Inc. and GCA
Strategic Investment Fund, Ltd. confirming conversion of $25,000 Beachside Commons Note (3)
4.6 Working Capital Line dated January 1, 1999, by and between Lahaina Acquisitions, Inc. and
GCA Strategic Investment, Ltd. (3)
4.7 Note Guaranty by Richard P. Smyth with respect to $300,000 of indebtedness of Lahaina
Acquisitions, Inc. (3)
4.8 Line of Credit for up to $250,000 between Lahaina Acquisitions, Inc. and Mongoose
Investments, LLC (3)
4.9 Form of Stock Certificate (2)
4.10 18% Note of Mongoose Investments, LLC payable to Elaine Oppenheimer, in the principal
amount of $85,000. This note was transferred to Lahaina Acquisitions, Inc. on December 7,
1998 (3)
4.11 18% Note of Mongoose Investments, LLC payable to Nancy Estroff Smyth, in the principal
amount of $50,000. This note was transferred to Lahaina Acquisitions, Inc. on December 7,
1998 (3)
4.12 18% Note of Mongoose Investments, LLC payable to Nancy Estroff Smyth, in the principal
amount of $20,000. This note was transferred to Lahaina Acquisitions, Inc. on December 7,
1998 (3)
10 Contract of Engagement dated January 19, 1999 by and between Lahaina Acquisitions, Inc. and
LKB Financial LLC (3)
</TABLE>
-17-
<PAGE> 18
<TABLE>
<CAPTION>
Number Description Page
<S> <C> <C>
27 Financial Data Schedule (for SEC use only)
</TABLE>
(1) Incorporated by reference to the Registrant's Current Report on Form
8-K, filed December 28, 1998.
(2) Incorporated by reference to the Registration Statement on Form 10,
filed December 29, 1995.
(3) Incorporated by reference to the Quarterly Statement on Form 10-Q,
filed February 24, 1999.
(B) REPORTS ON FORM 8-K
A report on Form 8-K was filed on February 10, 1999 reporting (i) a
change in the Registrant's certifying accountant and (ii) that the
company had formed, acquired or was in discussions to acquire a number
of small businesses in order to complement its current operations and
increase its overall size.
-18-
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LAHAINA ACQUISITIONS, INC.
(Registrant)
By: /s/ Richard P. Smyth
----------------------------------
Richard P. Smyth
Chairman, Chief Executive Officer,
and Treasurer
May 17, 1999
-19-
<PAGE> 1
EXHIBIT 2.3
THIS COMMON STOCK PURCHASE WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING
THIS COMMON STOCK PURCHASE WARRANT, AGREES FOR THE BENEFIT OF THE COMPANY THAT
SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
COMPANY, (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT ("PURCHASE
AGREEMENT"), DATED DECEMBER 7, 1998, A COPY OF WHICH MAY BE OBTAINED FROM THE
COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL
AGREEMENTS AMONG THE PARTIES, INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH
LIMIT THE EXERCISE RIGHTS OF THE HOLDER AND SPECIFY MANDATORY REDEMPTION
OBLIGATIONS OF THE COMPANY. THE PURCHASE AGREEMENT APPLIES TO THIS WARRANT ONLY
TO THE EXTENT EXPRESSLY REFERENCED IN THE TEXT OF THIS WARRANT.
--------------------------
COMMON STOCK PURCHASE WARRANT
<TABLE>
<CAPTION>
<S> <C> <C> <C>
No. 2
Number of shares: 100,000 Holder: GCA Strategic Investment
Fund Limited
Strike Price: $2.60 Mechanics Building
Expiration Date: January 19, 2004 12 Church Street
Hamilton HM II, Bermuda
</TABLE>
For identification only. The governing terms of this Warrant are set
forth below.
Lahaina Acquisitions, Inc., a Colorado corporation (the "Company"), hereby
certifies that, for value received, GCA Strategic Investment Fund Limited or
assigns, is entitled, subject to the terms set forth below, to purchase from the
Company at any time or from time to time after the date hereof and prior to the
fifth anniversary hereof (the "Exercise Period"), at the Purchase Price
hereinafter set forth, One Hundred Thousand (100,000) shares of fully paid and
nonassessable shares of Common Stock of the Company. The number and character of
<PAGE> 2
such shares of Common Stock and the Purchase Price are subject to adjustment as
provided herein.
The purchase price per share of Common Stock issuable upon exercise of
this Warrant (the "Purchase Price") shall be Two Dollars and Sixty Cents
($2.60); provided, however, that the Purchase Price shall be adjusted from time
to time as provided herein.
Capitalized terms used herein not otherwise defined shall have the
meanings ascribed thereto in the Purchase Agreement. As used herein the
following terms, unless the context otherwise requires, have the following
respective meanings:
(a) The term "Company" shall include Lahaina Acquisitions, Inc., and
any corporation that shall succeed or assume the obligations of such corporation
hereunder.
(b) The term "Common Stock" includes (a) the Company's common stock, no
par value per share, (b) any other capital stock of any class or classes
(however designated) of the Company, authorized on or after such date, the
Holders of which shall have the right, without limitation as to amount, either
to all or to a share of the balance of current dividends and liquidating
dividends after the payment of dividends and distributions on any shares
entitled to preference, and the Holders of which shall ordinarily, in the
absence of contingencies, be entitled to vote for the election of a majority of
directors of the Company (even though the right so to vote has been suspended by
the happening of such a contingency) and (c) any other securities into which or
for which any of the securities described in (a) or (b) may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) that the Holder of this warrant at any time shall be entitled to
receive, or shall have received, on the exercise of this Warrant, in lieu of or
in addition to Common Stock, or that at any time shall be issuable or shall have
been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.
1. Exercise of Warrant
1.1 Method of Exercise.
a. This warrant may be exercised in whole or in part (but not as to a
fractional share of Common Stock), at any time and from time to time during the
Exercise Period by the Holder hereof by delivery of a notice of exercise (a
"Notice of Exercise") substantially
<PAGE> 3
in the form attached hereto as Exhibit A via facsimile to the Company. Promptly
thereafter the Holder shall surrender this Warrant to the Company at its
principal office, accompanied by payment of the Purchase Price multiplied by the
number of shares of Common Stock for which this Warranty is being exercised (the
"Exercise Price"). Payment of the Exercise Price shall be made, at the option of
the Holder, (i) by check or bank draft payable to the order of the Company, (ii)
by wire transfer to the account of the Company, (iii) in shares of Common Stock
having a Market Value on the Exercise Date (as hereinafter defined) equal to the
aggregate Exercise Price or (iv) by presentation and surrender of this Warrant
to be Company for cashless exercise (a "Cashless Exercise"), which such
surrender being deemed a waiver of the Holder's obligations to pay all or any
portion of the Exercise Price. In the event the Holder elects a Cashless
Exercise (which such election shall be irrevocable) the Holder shall exchange
this Warrant for that number of shares of Common Stock determined by multiplying
the number of shares of Common Stock being exercised by a fraction, the
numerator of which shall be the difference between the then current Market Value
of the Common Stock and the Purchase Price, and the denominator of which shall
be the then current Market Value of the Common Stock. If the amount of the
payment received by the Company is less than the Exercise Price, the Holder will
be notified of the deficiency and shall make payment in that amount within five
(5) business days. In the event the payment exceeds the Exercise Price, the
Company will promptly refund the excess to the Holder. Upon exercise, the Holder
shall be entitled to receive, promptly after payment in full, one or more
certificates, issued in the Holder's name or in such name or names as the Holder
may direct, subject to the limitations on transfer contained herein, for the
number of shares of Common Stock so purchased. The shares of Common Stock so
purchased shall be deemed to be issued as of the close of business on the date
on which the Company shall have received from the Holder payment in full of the
Exercise Price (the "Exercise Date").
b. Notwithstanding anything to the contrary set forth herein, upon
exercise of all or a portion of this Warrant in accordance with the terms
hereof, the Holder shall not be required to physically surrender this Warrant to
the Company. Rather, records showing the amount so exercised and the date of
exercise shall be maintained on a ledger substantially in the form of Annex B
attached hereto (a copy of which shall be delivered to the Company or transfer
agent with each Notice of Exercise). It is specifically contemplated that the
Holder hereof shall act as the calculation agent for all exercises of this
Warrant. In the event of any dispute or discrepancies, such records maintained
by the Holders shall be controlling and determinative in the absence of manifest
error. The Holder and any assignee, by acceptance of this Warrant, acknowledge
and agree that, by reason of the provisions of this paragraph, following an
exercise of a portion of this Warrant, the number of shares of Common Stock
represented by this Warranty will be the amount indicated on Annex B attached
hereto (which may be less than the amount stated on the fact hereof).
<PAGE> 4
1.2 Regulation D Restrictions. The Holder hereof represents and
warrants to the Company that it has acquired this Warrant and anticipates
acquiring the shares of Common Stock issuable upon exercise of the Warrant
solely for its own account for investment purposes and not with a view to or for
resale of such securities unless such resale has been registered with the
Commission or an applicable exemption is available therefor. At the time this
Warrant is exercised, the Company may require the Holder to state in the Notice
of Exercise such representations concerning the Holder as are necessary or
appropriate to assure compliance by the Holder with the Securities Act.
1.3 Limitation on Exercise. Notwithstanding the rights of the Holder to
exercise all or a portion of this Warrant as described herein, such exercise
rights shall be limited, solely to the extent set forth in the Purchase
Agreement as if such provisions were specifically set forth herein. In addition,
the number of shares of Common Stock issuable upon exercise of this Warrant is
subject to reduction as specified in Section 10.3 of the Purchase Agreement.
2. Delivery of Stock Certificates, etc. on Exercise. As soon as practicable
after the exercise of this Warrant, and in any event within five (5) business
days thereafter, the Company at its expense (including the payment by it of any
applicable issue, stamp or transfer taxes) will cause to be issued in the name
of and delivered to the Holder thereof, or, to the extent permissible hereunder,
to such other person as such Holder may direct, a certificate or certificates
for the number of fully paid and nonassessable shares of Common Stock (or Other
Securities) to which such Holder shall be entitled on such exercise, plus, in
lieu of any fractional share to which such Holder would otherwise be entitled,
cash equal to such fraction multiplied by the then applicable Purchase Price,
together with any other stock or other securities and property (including cash,
where applicable) to which such Holder is entitled upon such exercise pursuant
to Section 1 or otherwise.
3. Adjustment for Extraordinary Events. The Purchase Price to be paid by the
Holder upon exercise of this Warrant, and the consideration to be received upon
exercise of this Warrant, shall be adjusted in case at any time or from time to
time pursuant to Article XI of the Purchase Agreement as if such provisions were
specifically set forth herein.
4. No Impairment. The Company will not, by amendment of 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 taking of all such action as may be necessary or appropriate
in order to protect the rights of the Holder of this Warrant against impairment.
Without limiting the generality of the foregoing, the Company (a) will not
<PAGE> 5
increase the par value of any shares of stock receivable on the exercise of this
Warrant above the amount payable therefor on such exercise, (b) will take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and unassessable shares of stock on the
exercise of this Warrant, and (c) will not transfer all or substantially all of
its properties and assets to any other person (corporate or otherwise), or
consolidate with or merge into any other person or permit any such person to
consolidate with or merge into the Company (if the Company is not the surviving
person), unless such other person shall expressly assume in writing and will be
bound by all the terms of this Warrant.
5. Accountant's Certificate as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of this Warrant, the Company at its expense will promptly cause
independent certified public accountants of national standing selected by the
Company to compute such adjustment or readjustment in accordance with the terms
of this Warrant and prepare a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment and
readjustment is based, including a statement of (a) the consideration received
or receivable by the Company for any additional shares of Common Stock (or Other
Securities) issued or sold or deemed to have been issued or sold, (b) the number
of shares of Common Stock (or Other Securities) outstanding or deemed to be
outstanding, and (c) the Purchase Price and the number of shares of Common Stock
to be received upon exercise of this Warrant, in effect immediately prior to
such issue or sale and as adjusted and readjusted as provided in this Warrant.
The Company will forthwith mail a copy of each such certificate to the Holder of
this Warrant, and will, on the written request at any time of the Holder of this
Warrant, furnish to such Holder a like certificate setting forth the Purchase
Price at the time in effect and showing how it was calculated.
6. Notices of Record Date, etc. In the event of
(a) any taking by the Company of a record of the Holders of any class
or securities for the purpose of determining the Holders thereof who are
entitled to receive any dividends or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any transfer of all or
substantially all the assets of the Company to or consolidation or merger of the
Company with or into any other person, or
<PAGE> 6
(c) any voluntary or involuntary dissolution, liquidation or winding up
of the Company,
then and in each such event the Company will mail or cause to be mailed to the
Holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, and
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any, as of which the Holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or Other Securities) for then and in each such event the
Company will mail or cause to be mailed to the Holder of this Warrant a notice
specifying (i) the date on which any such record is to be taken for the purpose
of such dividend, distribution or right, and stating the amount of character of
such dividend, distribution or right, and (ii) the date on which any such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up is to take place, and the time,
if any, as of which the Holders of record of Common Stock (or Other Securities)
shall be entitled to exchange their shares of Common Stock (or Other Securities)
for securities or other property deliverable on such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up. Such notice shall be mailed at least 20
days prior to the date specified in such notice on which any action is to be
taken.
7. Reservation of Stock, etc. Issuable on Exercise of Warrant. The Company
will at all times reserve and keep available, solely for issuance and delivery
on the exercise of this Warrant, all shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of this Warrant.
8. Exchange of Warrant.
(a) On surrender for exchange of this Warrant, properly endorsed and in
compliance with the restrictions on transfer set forth in the legend on the face
of this Warrant, to the Company, the Company at its expense will issue and
deliver to or on the order of the Holder thereof a new Warrant of like tenor, in
the name of such Holder or as such Holder (on payment by such Holder of any
applicable transfer taxes) may direct, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock called for on the face of
the Warrant so surrendered.
(b) Upon written notice from the Purchasers that the Purchasers have
elected to transfer amongst each other a portion of this Warrant, and issue and
deliver to or on the order of the Holder thereof a new Warrant of like tenor, in
the name of such Holder as the
<PAGE> 7
Purchasers (on payment by such Holder of any applicable transfer taxes) may
direct, calling in the aggregate on the face or faces thereof for the number of
shares of Common Stock as set forth in such notice reflecting such transfer.
9. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant and, in
the case of any such loss, theft or destruction of this Warrant, on delivery of
an indemnity agreement or security reasonably satisfactory in form and amount to
the Company or, in the case of any such mutilation, on surrender and
cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
10. Remedies. The Company stipulates that the remedies at law of the Holder of
this Warrant in the event of any default or threatened default by the Company in
the performance of or compliance with any of the terms of this Warrant are not
and will not be adequate, and that such terms may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
11. Negotiability, etc. This Warrant is issued upon the following terms, to all
of which each Holder or owner hereof by the taking hereof consents and agrees.
(a) title to this Warrant may be transferred by endorsement and
delivery in the same manner as in the case of a negotiable instrument
transferable by endorsement and delivery.
(b) any person in possession of this Warrant properly endorsed is
authorized to represent himself as absolute owner hereof and is empowered to
transfer absolute title hereto by endorsement and delivery hereof to a bona fide
purchaser hereof for value; each prior taker or owner waives and renounces all
of his equities or rights in this Warrant in favor of such bona fide purchaser,
and each such bona fide purchaser shall acquire absolute title hereto and to all
rights represented hereby;
(c) until this Warrant is transferred on the books of the Company, the
Company may treat the registered Holder as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary; and
(d) notwithstanding the foregoing, this Warrant may be sold,
transferred or assigned except pursuant to an effective registration statement
under the Securities Act or pursuant to an applicable exemption therefrom.
<PAGE> 8
12. Notices, etc. All notices and other communications from the Company to the
Holder of this Warrant shall be mailed by first class registered or certified
mail, postage prepaid, at such address as may have been furnished to the Company
in writing by such Holder or, until any such Holder furnishes to the Company any
address, then to, and at the address of, the last Holder of this Warrant who has
so furnished an address to the Company.
13. Miscellaneous. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This Warrant shall be construed and enforced in accordance with and
governed by the internal laws of the State of Georgia. The headings in this
Warrant are for the purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 9
DATED as of March 1999.
--,
Lahaina Acquisitions, Inc.
By:
-----------------------------------
Richard P. Smyth
Chairman
<PAGE> 10
EXHIBIT A
FORM OF NOTICE EXERCISE - WARRANT
(To be executed only upon exercise
of the Warrant in whole or in part)
To: Lahaina Acquisitions, Inc.
The undersigned registered Holder of the accompanying Warranty, hereby
exercises such Warrant or portion thereof for, and purchases thereunder,
_______________1/ shares of Common Stock (as defined in such Warrant) and
herewith makes payment therefor in the amount and manner set forth below, as of
the date written below. The undersigned requests that the certificates for such
shares of Common Stock be issued in the name of, and delivered to,
___________________________ whose address is __________________________________.
The Exercise Price is paid as follows:
[X] Bank draft payable to the Company in the amount of $__________.
[X] Wire transfer to the account of the Company in the amount
of $________.
[X] Delivery of ______________ previously held shares of Common Stock
having an aggregate Market Price of $___________.
[X] Cashless exercise. Surrender of _________ shares purchasable
under this Warrant for such shares of Common Stock issuable in
exchange therefor pursuant to the Cashless Exercise provisions
of the Warrant, as provided in Section 1.1(iv) thereto.
Upon exercise pursuant to this Notice of Exercise, the Holder will be
in compliance with the Limitation on Exercise (as defined in the Securities
Purchase Agreement pursuant to which this Warrant was issued).
Date: ----------------------------------
------------------- (Name must conform to name of
Holder as specified on the face of
the Warrant)
By:
------------------------
Name:
-------------------
Title:
-------------------
Address of Holder:
--------------------------
--------------------------
--------------------------
Date of exercise:
-------------------
- ---------------------------
1/ Insert the number of shares of Common Stock as to which the accompanying
Warrant is being exercised. In the case of a partial exercise, a new Warrant or
Warrants will be issued and delivered, representing the unexercised portion of
the accompanying Warrant, to the Holder surrendering the same.
<PAGE> 11
ANNEX B
WARRANT EXERCISE LEDGER
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
ORIGINAL NUMBER OF WARRANTS EXERCISE PRICE PAID NEW BALANCE OF ISSUER INITIALS HOLDER INITIALS
DATE WARRANTS EXERCISED WARRANTS
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 2.4
THIS COMMON STOCK PURCHASE WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY
PURCHASING THIS COMMON STOCK PURCHASE WARRANT, AGREES FOR THE BENEFIT OF THE
COMPANY THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY
(A) TO THE COMPANY, (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT
("PURCHASE AGREEMENT"), DATED DECEMBER 7, 1998, A COPY OF WHICH MAY BE OBTAINED
FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL
AGREEMENTS AMONG THE PARTIES, INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH
LIMIT THE EXERCISE RIGHTS OF THE HOLDER AND SPECIFY MANDATORY REDEMPTION
OBLIGATIONS OF THE COMPANY. THE PURCHASE AGREEMENT APPLIES TO THIS WARRANT ONLY
TO THE EXTENT EXPRESSLY REFERENCED IN THIS TEXT OF THIS WARRANT.
--------------------------
COMMON STOCK PURCHASE WARRANT
<TABLE>
- -----------------------------------------------------------------------------------
<S> <C> <C>
No. 4
Number of shares: 15,000 Holder: LKB Financial LLC
Strike Price: $ 2.16 106 Colony Park Drive
Expiration Date: January 19, 2004 Suite 900
Cumming, GA 30040
For identification only. The governing terms of this Warrant are set forth below.
- -----------------------------------------------------------------------------------
</TABLE>
Lahaina Acquisitions, Inc., a Colorado corporation (the "Company"), hereby
certifies that, for value received, LKB Financial LLC or assigns, is entitled,
subject to the terms set forth below, to purchase from the Company at any time
or from time to time after the date hereof and prior to the fifth anniversary
hereof (the "Exercise Period"), at the Purchase Price hereinafter set forth,
Fifteen Thousand (15,000) shares of fully paid and nonassessable shares of
Common Stock of the Company. The number and character of such shares of Common
Stock and the Purchase Price are subject to adjustment as provided herein.
<PAGE> 2
The purchase price per share of Common Stock issuable upon exercise of
this Warrant (the "Purchase Price") shall be Two Dollars and Sixteen Cents
($2.16); provided, however, that the Purchase Price shall be adjusted from time
to time as provided herein.
Capitalized terms used herein not otherwise defined shall have the
meanings ascribed thereto in the Purchase Agreement. As used herein the
following terms, unless the context otherwise requires, have the following
respective meanings:
(a) The term "Company" shall include Lahaina Acquisitions, Inc., and
any corporation that shall succeed or assume the obligations of such
corporation hereunder.
(b) The term "Common Stock" includes (a) the Company's common stock,
no par value per share, (b) any other capital stock of any class or classes
(however designated) of the Company, authorized on or after such date, the
Holders of which shall have the right, without limitation as to amount, either
to all or to a share of the balance of current dividends and liquidating
dividends after the payment of dividends and distributions on any shares
entitled to preference, and the Holders of which shall ordinarily, in the
absence of contingencies, be entitled to vote for the election of a majority of
directors of the Company (even though the right so to vote has been suspended
by the happening of such a contingency) and (c) any other securities into which
or for which any of the securities described in (a) or (b) may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than
Common Stock) and other securities of the Company or any other person
(corporate or otherwise) that the Holder of this warrant at any time shall be
entitled to receive, or shall have received, on the exercise of this Warrant,
in lieu of or in addition to Common Stock, or that at any time shall be
issuable or shall have been issued in exchange for or in replacement of Common
Stock or Other Securities pursuant to Section 4 or otherwise.
1. Exercise of Warrant
1.1 Method of Exercise.
(a) This warrant may be exercised in whole or in part (but not as to
a fractional share of Common Stock), at any time and from time to time during
the Exercise Period by the Holder hereof by delivery of a notice of exercise (a
"Notice of Exercise") substantially in the form attached hereto as Exhibit A
via facsimile to the Company. Promptly thereafter the Holder shall surrender
this Warrant to the Company at its principal office, accompanied by payment of
the Purchase Price multiplied by the number of shares of Common Stock for
<PAGE> 3
which this Warranty is being exercised (the "Exercise Price"). Payment of the
Exercise Price shall be made, at the option of the Holder, (i) by check or bank
draft payable to the order of the Company, (ii) by wire transfer to the account
of the Company, (iii) in shares of Common Stock having a Market Value on the
Exercise Date (as hereinafter defined) equal to the aggregate Exercise Price or
(iv) by presentation and surrender of this Warrant to be Company for cashless
exercise (a "Cashless Exercise"), which such surrender being deemed a waiver of
the Holder's obligations to pay all or any portion of the Exercise Price. In
the event the Holder elects a Cashless Exercise (which such election shall be
irrevocable) the Holder shall exchange this Warrant for that number of shares
of Common Stock determined by multiplying the number of shares of Common Stock
being exercised by a fraction, the numerator of which shall be the difference
between the then current Market Value of the Common Stock and the Purchase
Price, and the denominator of which shall be the then current Market Value of
the Common Stock. If the amount of the payment received by the Company is less
than the Exercise Price, the Holder will be notified of the deficiency and
shall make payment in that amount within five (5) business days. In the event
the payment exceeds the Exercise Price, the Company will promptly refund the
excess to the Holder. Upon exercise, the Holder shall be entitled to receive,
promptly after payment in full, one or more certificates, issued in the
Holder's name or in such name or names as the Holder may direct, subject to the
limitations on transfer contained herein, for the number of shares of Common
Stock so purchased. The shares of Common Stock so purchased shall be deemed to
be issued as of the close of business on the date on which the Company shall
have received from the Holder payment in full of the Exercise Price (the
"Exercise Date").
(b) Notwithstanding anything to the contrary set forth herein, upon
exercise of all or a portion of this Warrant in accordance with the terms
hereof, the Holder shall not be required to physically surrender this Warrant
to the Company. Rather, records showing the amount so exercised and the date of
exercise shall be maintained on a ledger substantially in the form of Annex B
attached hereto (a copy of which shall be delivered to the Company or transfer
agent with each Notice of Exercise). It is specifically contemplated that the
Holder hereof shall act as the calculation agent for all exercises of this
Warrant. In the event of any dispute or discrepancies, such records maintained
by the Holders shall be controlling and determinative in the absence of
manifest error. The Holder and any assignee, by acceptance of this Warrant,
acknowledge and agree that, by reason of the provisions of this paragraph,
following an exercise of a portion of this Warrant, the number of shares of
Common Stock represented by this Warranty will be the amount indicated on Annex
B attached hereto (which may be less than the amount stated on the fact
hereof).
1.2 Regulation D Restrictions. The Holder hereof represents and
warrants to the Company that it has acquired this Warrant and anticipates
acquiring the shares of Common Stock issuable upon exercise of the Warrant
solely for its own account for investment
<PAGE> 4
purposes and not with a view to or for resale of such securities unless such
resale has been registered with the Commission or an applicable exemption is
available therefor. At the time this Warrant is exercised, the Company may
require the Holder to state in the Notice of Exercise such representations
concerning the Holder as are necessary or appropriate to assure compliance by
the Holder with the Securities Act.
1.3 Limitation on Exercise. Notwithstanding the rights of the Holder
to exercise all or a portion of this Warrant as described herein, such exercise
rights shall be limited, solely to the extent set forth in the Purchase
Agreement as if such provisions were specifically set forth herein. In
addition, the number of shares of Common Stock issuable upon exercise of this
Warrant is subject to reduction as specified in Section 10.3 of the Purchase
Agreement.
2. Delivery of Stock Certificates, etc. on Exercise. As soon as
practicable after the exercise of this Warrant, and in any event within five
(5) business days thereafter, the Company at its expense (including the payment
by it of any applicable issue, stamp or transfer taxes) will cause to be issued
in the name of and delivered to the Holder thereof, or, to the extent
permissible hereunder, to such other person as such Holder may direct, a
certificate or certificates for the number of fully paid and nonassessable
shares of Common Stock (or Other Securities) to which such Holder shall be
entitled on such exercise, plus, in lieu of any fractional share to which such
Holder would otherwise be entitled, cash equal to such fraction multiplied by
the then applicable Purchase Price, together with any other stock or other
securities and property (including cash, where applicable) to which such Holder
is entitled upon such exercise pursuant to Section 1 or otherwise.
3. Adjustment for Extraordinary Events. The Purchase Price to be paid by
the Holder upon exercise of this Warrant, and the consideration to be received
upon exercise of this Warrant, shall be adjusted in case at any time or from
time to time pursuant to Article XI of the Purchase Agreement as if such
provisions were specifically set forth herein.
4. No Impairment. The Company will not, by amendment of 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 taking of all such action as may be
necessary or appropriate in order to protect the rights of the Holder of this
Warrant against impairment. Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any shares of stock
receivable on the exercise of this Warrant above the amount payable therefor on
such exercise, (b) will take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid
<PAGE> 5
and unassessable shares of stock on the exercise of this Warrant, and (c) will
not transfer all or substantially all of its properties and assets to any other
person (corporate or otherwise), or consolidate with or merge into any other
person or permit any such person to consolidate with or merge into the Company
(if the Company is not the surviving person), unless such other person shall
expressly assume in writing and will be bound by all the terms of this Warrant.
5. Accountant's Certificate as to Adjustments. In each case of any
adjustment or readjustment in the shares of Common Stock (or Other Securities)
issuable on the exercise of this Warrant, the Company at its expense will
promptly cause independent certified public accountants of national standing
selected by the Company to compute such adjustment or readjustment in
accordance with the terms of this Warrant and prepare a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon
which such adjustment and readjustment is based, including a statement of (a)
the consideration received or receivable by the Company for any additional
shares of Common Stock (or Other Securities) issued or sold or deemed to have
been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such issue or sale and as adjusted and
readjusted as provided in this Warrant. The Company will forthwith mail a copy
of each such certificate to the Holder of this Warrant, and will, on the
written request at any time of the Holder of this Warrant, furnish to such
Holder a like certificate setting forth the Purchase Price at the time in
effect and showing how it was calculated.
6. Notices of Record Date, etc. In the event of
(a) any taking by the Company of a record of the Holders of any
class or securities for the purpose of determining the Holders thereof who are
entitled to receive any dividends or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any transfer of all
or substantially all the assets of the Company to or consolidation or merger of
the Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or winding
up of the Company,
<PAGE> 6
then and in each such event the Company will mail or cause to be mailed to the
Holder of this Warrant a notice specifying (i) the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or right,
and (ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any, as of which the Holders of
record of Common Stock (or Other Securities) shall be entitled to exchange
their shares of Common Stock (or Other Securities) for then and in each such
event the Company will mail or cause to be mailed to the Holder of this Warrant
a notice specifying (i) the date on which any such record is to be taken for
the purpose of such dividend, distribution or right, and stating the amount of
character of such dividend, distribution or right, and (ii) the date on which
any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, if any, as of which the Holders of record of Common Stock (or
Other Securities) shall be entitled to exchange their shares of Common Stock
(or Other Securities) for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up. Such notice shall be mailed at
least 20 days prior to the date specified in such notice on which any action is
to be taken.
7. Reservation of Stock, etc. Issuable on Exercise of Warrant. The
Company will at all times reserve and keep available, solely for issuance and
delivery on the exercise of this Warrant, all shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of this Warrant.
8. Exchange of Warrant.
(a) On surrender for exchange of this Warrant, properly endorsed and
in compliance with the restrictions on transfer set forth in the legend on the
face of this Warrant, to the Company, the Company at its expense will issue and
deliver to or on the order of the Holder thereof a new Warrant of like tenor,
in the name of such Holder or as such Holder (on payment by such Holder of any
applicable transfer taxes) may direct, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock called for on the face
of the Warrant so surrendered.
(b) Upon written notice from the Purchasers that the Purchasers have
elected to transfer amongst each other a portion of this Warrant, and issue and
deliver to or on the order of the Holder thereof a new Warrant of like tenor,
in the name of such Holder as the Purchasers (on payment by such Holder of any
applicable transfer taxes) may direct, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock as set forth in such
notice reflecting such transfer.
<PAGE> 7
9. Replacement of Warrant. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on surrender
and cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
10. Remedies. The Company stipulates that the remedies at law of the
Holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
11. Negotiability, etc. This Warrant is issued upon the following terms,
to all of which each Holder or owner hereof by the taking hereof consents and
agrees.
(a) title to this Warrant may be transferred by endorsement and
delivery in the same manner as in the case of a negotiable instrument
transferable by endorsement and delivery.
(b) any person in possession of this Warrant properly endorsed is
authorized to represent himself as absolute owner hereof and is empowered to
transfer absolute title hereto by endorsement and delivery hereof to a bona
fide purchaser hereof for value; each prior taker or owner waives and renounces
all of his equities or rights in this Warrant in favor of such bona fide
purchaser, and each such bona fide purchaser shall acquire absolute title
hereto and to all rights represented hereby;
(c) until this Warrant is transferred on the books of the Company,
the Company may treat the registered Holder as the absolute owner hereof for
all purposes, notwithstanding any notice to the contrary; and
(d) notwithstanding the foregoing, this Warrant may be sold,
transferred or assigned except pursuant to an effective registration statement
under the Securities Act or pursuant to an applicable exemption therefrom.
12. Notices, etc. All notices and other communications from the Company to
the Holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such Holder or, until
<PAGE> 8
any such Holder furnishes to the Company any address, then to, and at the
address of, the last Holder of this Warrant who has so furnished an address to
the Company.
13. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or
termination is sought. This Warrant shall be construed and enforced in
accordance with and governed by the internal laws of the State of Georgia. The
headings in this Warrant are for the purposes of reference only, and shall not
limit or otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 9
DATED as of March __, 1999.
Lahaina Acquisitions, Inc.
By:
-------------------------------------
Richard P. Smyth
Chairman
<PAGE> 10
EXHIBIT A
FORM OF NOTICE EXERCISE - WARRANT
(To be executed only upon exercise
of the Warrant in whole or in part)
To: Lahaina Acquisitions, Inc.
The undersigned registered Holder of the accompanying Warranty, hereby
exercises such Warrant or portion thereof for, and purchases thereunder,
_______________1/ shares of Common Stock (as defined in such Warrant) and
herewith makes payment therefor in the amount and manner set forth below, as of
the date written below. The undersigned requests that the certificates for such
shares of Common Stock be issued in the name of, and delivered to,
___________________________ whose address is
______________________________________________________________________________.
The Exercise Price is paid as follows:
[ ] Bank draft payable to the Company in the amount of $__________.
[ ] Wire transfer to the account of the Company in the amount of
$________.
[ ] Delivery of ______________ previously held shares of Common
Stock having an aggregate Market Price of $___________.
[ ] Cashless exercise. Surrender of _________ shares purchasable
under this Warrant for such shares of Common Stock issuable in
exchange therefor pursuant to the Cashless Exercise provisions
of the Warrant, as provided in Section 1.1(iv) thereto.
Upon exercise pursuant to this Notice of Exercise, the Holder will be
in compliance with the Limitation on Exercise (as defined in the Securities
Purchase Agreement pursuant to which this Warrant was issued).
Date:
------------------------------- ----------------------------------
(Name must conform to name of
Holder as specified on the face of
the Warrant)
By:
----------------------------
Name:
-----------------------
Title:
----------------------
Address of Holder:
-----------------------------
-----------------------------
-----------------------------
Date of exercise:
-------------------------
- -------------------------------
1/ Insert the number of shares of Common Stock as to which the accompanying
Warrant is being exercised. In the case of a partial exercise, a new Warrant or
Warrants will be issued and delivered, representing the unexercised portion of
the accompanying Warrant, to the Holder surrendering the same.
<PAGE> 11
ANNEX B
WARRANT EXERCISE LEDGER
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
ORIGINAL NUMBER OF WARRANTS EXERCISE PRICE PAID NEW BALANCE OF ISSUER INITIALS HOLDER INITIALS
DATE WARRANTS EXERCISED WARRANTS
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 3.2
AMENDMENT TO
CERTIFICATE OF INCORPORATION
OF
LAHAINA ACQUISITIONS, INC.
(Incorporated on April 5, 1989)
Lahaina Acquisitions, Inc. (the "Corporation"), a corporation organized
and existing under and by virtue of the Business Corporation Act of the State of
Colorado (the "Colorado Law"), does hereby certify:
I. That the Board of Directors of the Corporation, by a written
consent executed in accordance with Section 7-108-202 of the Colorado Law as of
December 14, 1998, adopted the following resolution:
That the Certificate of Incorporation of the Corporation be amended to
effect the preferences, limitations and relative rights of the Series A
Preferred Stock as reflected in the Series A Preferred Stock Terms attached as
Exhibit A.
II. That the Series A Preferred Stock Terms are as follows:
Rights, Preferences and Restrictions of Preferred Stock. The Preferred
Stock authorized by the Articles of Incorporation of Lahaina Acquisitions, Inc.
(the "Corporation") may be issued from time to time in one or more series. The
rights, preferences, privileges, and restrictions granted to and imposed on the
Series A Preferred Stock, which series shall consist of 3,000,000 shares of no
par value per share Preferred Stock (the "Series A Preferred Stock") are set
forth below.
Dividend Provisions.
Subject to the rights of any series of
Preferred Stock that may from time to time come into existence, the holders of
shares of Series A Preferred Stock shall be entitled to receive dividends out of
any assets legally available therefor, prior and in preference to any
declaration or payment of any dividend (payable other than in Common Stock or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock of this
Corporation) on the Common Stock of this Corporation, at the rate of $0.095 per
share, per annum (as adjusted for any stock splits, stock dividends,
recapitalizations or the like), payable when, as, and if declared by the Board
of Directors. Such dividends are cumulative. The holders of the outstanding
Series A Preferred Stock can waive any dividend preference that such holders
shall be entitled to receive under this Section 1
<PAGE> 2
upon the affirmative vote or written consent of the holders of a majority of the
Series A Preferred Stock.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution
or winding up of this Corporation, either voluntary or involuntary, subject to
the rights of series of Preferred Stock that may from time to time come into
existence, the holders of Series A Preferred Stock shall be entitled to receive,
prior and in preference to any distribution of any of the assets of this
Corporation to the holders of Common Stock by reason of their ownership thereof,
an amount per share equal to the sum of $1.00 for each outstanding share of
Series A Preferred Stock (the "Series A Liquidation Price"), plus declared but
unpaid dividends on such share (subject to adjustment of such fixed dollar
amounts for any stock splits, stock dividends, combinations, recapitalizations
or the like).
(b) Upon completion of the distribution required
by subsection (a) of this Section 2, all of the remaining assets of this
Corporation available for distribution to stockholders shall be distributed
among the holders of Series A Preferred Stock and Common Stock pro rata based on
the number of shares of Common Stock held by each (assuming full conversion of
all shares of Series A Preferred Stock).
(c) (i) For purposes of this Section 2, a
liquidation, dissolution or winding up of this Corporation shall be deemed to be
occasioned by, or to include (unless the holders of a majority of the Series A
Preferred Stock then outstanding shall determine otherwise), (A) the acquisition
of this Corporation by another entity by means of any transaction or series of
related transactions (including, without limitation, any reorganization, merger
or consolidation) that results in the transfer of fifty percent (50%) or more of
the outstanding voting power of this Corporation; or (B) a sale of all or
substantially all of the assets of this Corporation.
(ii) In any of such events, if the
consideration received by this Corporation is other than cash, its value will be
deemed its fair market value. Any securities shall be valued as follows:
(A) Securities not subject to
investment letter or other similar restrictions on free marketability covered by
(B) below:
(1) If traded on a
securities exchange or through the Nasdaq National Market, the value shall be
deemed to be the average of the closing prices of the securities on such
exchange or system over the thirty (30) day period ending three (3) days prior
to the closing;
2
<PAGE> 3
(2) If actively traded
over-the-counter, the value shall be deemed to be the average of the closing bid
or sale prices (whichever is applicable) over the thirty (30) day period ending
three (3) days prior to the closing; and
(3) If there is no
active public market, the value shall be the fair market value thereof, as
mutually determined by this Corporation and the holders of at least a majority
of the voting power of all then outstanding shares of Series A Preferred Stock.
(B) The method of valuation of
securities subject to investment letter or other restrictions on free
marketability (other than restrictions arising solely by virtue of a
stockholder's status as an affiliate or former affiliate) shall be to make an
appropriate discount from the market value determined as above in (A) (1), (2)
or (3) to reflect the approximate fair market value thereof as mutually
determined by this Corporation and the holders of at least a majority of the
voting power of all then outstanding shares of such Series A Preferred Stock.
(iii) In the event the requirements of
this subsection 2(c) are not complied with, this Corporation shall forthwith
either:
(A) cause such transaction to
be postponed until such time as the requirements of this Section 2 have been
complied with; or
(B) cancel such transaction, in
which event the rights, preferences and privileges of the holders of the Series
A Preferred Stock shall revert to and be the same as such rights, preferences
and privileges existing immediately prior to the date of the first notice
referred to in subsection 2(c)(iv) hereof.
(iv) This Corporation shall give each
holder of record of Common Stock and Preferred Stock written notice of such
impending transaction not later than twenty (20) days prior to the stockholders'
meeting called to approve such transaction, or twenty (20) days prior to the
closing of such transaction, whichever is earlier, and shall also notify such
holders in writing of the final approval of such transaction. The first of such
notices shall describe the material terms and conditions of the impending
transaction and the provisions of this Section 2, and this Corporation shall
thereafter give such holders prompt notice of any material changes. The
transaction shall in no event take place sooner than twenty (20) days after this
Corporation has given the first notice provided herein or sooner than ten (10)
days after this Corporation has given notice of any material changes provided
for herein; provided, however, that such periods may be shortened upon the
written consent of the holders of Common Stock and Preferred Stock that are
entitled to such notice rights or similar notice rights and that represent at
least a majority of the voting power of all then outstanding shares of such
Common Stock and Series A Preferred Stock.
3
<PAGE> 4
3. Redemption. The Series A Preferred Stock is
redeemable only at the election of the Board of Directors of this Corporation
upon 20 days notice to the holders of Series A Preferred Stock at a price per
share equal to the Series A Liquidation Price plus accrued (whether or not
declared) but unpaid dividends on each such share (subject to adjustment as set
in Subsection 2(a).
4. Conversion. The holders of the Series A Preferred
Stock shall have conversion rights as follows (the "Conversion Rights")
(a) Right to Convert. Each share of Series A
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such share, and until 5:00 p.m. Eastern
Time of the day fixed for redemption as set forth in Section 3, at the office of
this Corporation or any transfer agent for such stock, into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing the
Series A Liquidation Price by the Conversion Price applicable to such share,
determined as hereafter provided, in effect on the date the certificate is
surrendered for conversion. The initial Conversion Price per share for shares of
Series A Preferred Stock shall be $1.00, subject to adjustment as set forth in
subsection 4(d).
(b) Automatic Conversion. Each share of Series A
Preferred Stock shall automatically be converted into shares of Common Stock at
the Conversion Price at the time in effect for such Series A Preferred Stock
immediately upon the earlier of (i) this Corporation's sale of its Common Stock
in a firm commitment underwritten public offering pursuant to a registration
statement on Form S-l or Form SB-2 under the Securities Act of 1933, as amended,
the public offering price of which was not less than $10.00 per share (as
adjusted for any stock splits, stock dividends, recapitalizations or the like)
and $10,000,000 in the aggregate or (ii) the date specified by written consent
or agreement of the holders of a majority of the then outstanding shares of
Series A Preferred Stock.
(c) Mechanics of Conversion. Before any holder
of Series A Preferred Stock shall be entitled to convert the same into shares of
Common Stock, he or she shall surrender the certificate or certificates
therefor, duly endorsed, at the office of this Corporation or of any transfer
agent for the Series A Preferred Stock and shall give written notice to this
Corporation at its principal corporate office, of the election to convert the
same and shall state therein the names or names in which the certificate or
certificates for shares of Common Stock are to be issued. This Corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
such holder of Series A Preferred Stock or to the nominee or nominees of such
holder, a certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Series A Preferred Stock to be converted, and
the person or persons entitled to receive the shares of Common
4
<PAGE> 5
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date. If the
conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, the conversion may, at the
option of any holder tendering Series A Preferred Stock for conversion, be
conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering, in which event the persons entitled to receive the
Common Stock upon conversion of the Series A Preferred Stock shall not be deemed
to have converted such Series A Preferred Stock until immediately prior to the
closing of such sale of securities.
(d) Conversion Price Adjustments of Preferred
Stock for Certain Dilution Issuances, Splits and Combinations. The Conversion
Price of the Series A Preferred Stock shall be subject to adjustment from time
to time as follows:
(i) If this Corporation shall issue,
after the date upon which any shares of Series A Preferred Stock were first
issued (the "Purchase Date"), any Additional Stock (as defined below):
(A) If such Additional Stock is issued
without consideration or for a consideration per share less than the Conversion
Price for such Series in effect immediately prior to the issuance of such
Additional Stock, the Conversion Price for such Series in effect immediately
prior to each such issuance shall forthwith (except as otherwise provided in
this clause (i)) be adjusted to a price determined by multiplying such
Conversion Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issuance (including
shares of Common Stock deemed to be issued pursuant to subsection 4(d)(i)(E)(1)
or (2)) plus the number of shares of Common Stock that the aggregate
consideration received by this Corporation for such issuance would purchase at
such Conversion Price and the denominator of which shall be the number of shares
of Common Stock outstanding immediately prior to such issuance (including shares
of Common Stock deemed to be issued pursuant to subsection 4(d)(i)(E)(1) or (2))
plus the number of shares of such Additional Stock.
(B) No adjustment of the Conversion
Price for the Series A Preferred Stock shall be made in an amount less than one
cent per share, provided that any adjustments that are not required to be made
by reason of this sentence shall be carried forward and shall be either taken
into account in any subsequent adjustment made prior to three (3) years from the
date of the event giving rise to the adjustment being carried forward, or shall
be made at the end of three (3) years from the date of the event giving rise to
the adjustment being carried forward. Except to the limited extent provided for
in subsections (E)(3) and (E)(4), no adjustment of such Conversion Price
pursuant to this subsection 4(d)(i) shall have the effect of increasing the
5
<PAGE> 6
Conversion Price above the Conversion Price in effect immediately prior to such
adjustment.
(C) In the case of the issuance of
Common Stock for cash, the consideration shall be deemed to be the amount of
cash paid therefor before deducting any reasonable discounts, commissions or
other expenses allowed, paid or incurred by this Corporation for any
underwriting or otherwise in connection with the issuance and sale thereof.
(D) In the case of the issuance of the
Common Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair value thereof as
determined by the Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance after
the applicable Purchase Date of options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable for
Common Stock or options to purchase or rights to subscribe for such convertible
or exchangeable securities, the following provisions shall apply for all
purposes of this subsection 4(d)(i) and subsection 4(d)(ii):
(1) The aggregate maximum
number of shares of Common Stock deliverable upon exercise (assuming the
satisfaction of any conditions to exercisability, including without limitation,
the passage of time, but without taking into account potential antidilution
adjustments) of such options to purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time such options or rights were
issued and for a consideration equal to the consideration, determined in the
manner provided in subsections 4(d)(i)(C) and (d)(i)(D), if any, received by
this Corporation upon the issuance of such options or rights plus the minimum
exercise price provided in such options or for the Common Stock covered thereby.
(2) The aggregate maximum
number of shares of Common Stock deliverable upon conversion of, or in exchange
(assuming the satisfaction of any conditions to convertibility or
exchangeability, including, without limitation, the passage of time, but without
taking into account potential antidilution adjustments) for, any such
convertible or exchangeable securities or upon the exercise of options to
purchase or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof shall be deemed to have been
issued at the time such securities were issued or such options or rights were
issued and for a consideration equal to the consideration, if any, received by
this Corporation for any such securities and related options or rights
(excluding any cash received on account of accrued interest or accrued
dividends), plus the minimum additional consideration, if any, to be received by
this Corporation upon the conversion or exchange of such securities or the
6
<PAGE> 7
exercise of any related options or rights (the consideration in each case to be
determined in the manner provided in subsections 4(d)(i)(C) and (d)(i)(D)).
(3) In the event of any change
in the number of shares of Common Stock deliverable or in the consideration
payable to this Corporation upon exercise of such options or rights or upon
conversion of or in exchange for such convertible or exchangeable securities,
including, but not limited to, a change resulting from the antidilution
provisions thereof (unless such options or rights or convertible or exchangeable
securities were merely deemed to be included in the numerator and denominator
for purposes of determining the number of shares of Common Stock outstanding for
purposes of subsection 4(d)(i)(A)), the Conversion Price of the Series A
Preferred Stock, to the extent in any way affected by or computed using such
options, rights or securities, shall be recomputed to reflect such change, but
no other adjustment shall be made for the actual issuance of Common Stock or any
payment of such consideration upon the exercise of any such options or rights or
the conversion or exchange of such securities.
(4) Upon the expiration of any
such options or rights, the termination of any such rights to convert or
exchange or the expiration of any options or rights related to such convertible
or exchangeable securities, the Conversion Price of the Series A Preferred
Stock, to the extent in any way affected by or computed using such options,
rights or securities or options or rights related to such securities (unless
such options or rights were merely deemed to be included in the numerator and
denominator for purposes of determining the number of shares of Common Stock
outstanding for purposes of subsection 4(d)(i)(A)), shall be recomputed to
reflect the issuance of only the number of shares of Common Stock (and
convertible or exchangeable securities that remain in effect) actually issued
upon the exercise of such options or rights, upon the conversion or exchange of
such securities or upon the exercise of the options or rights relates to such
securities.
(5) The number of shares of
Common Stock deemed issued and the consideration deemed paid therefor pursuant
to subsections 4(d)(i)(E)(1) and (2) shall be appropriately adjusted to reflect
any change, termination or expiration of the type described in either subsection
4(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any
shares of Common Stock issued (or deemed to have been issued pursuant to
subsection 4(d)(i)(E)) by this Corporation after the Purchase Date other than:
(A) Common Stock issued
pursuant to a transaction described in subsection 4(d)(iii) hereof; or
7
<PAGE> 8
(B) up to 100,000 shares of
Common Stock (excluding shares repurchased at cost by this Corporation in
connection with the termination of service) issuable or issued to employees,
consultants, directors or vendors (if in transactions with primarily
non-financing purposes) of this Corporation directly or pursuant to a stock
option plan or restricted stock plan approved by the Board of Directors of this
Corporation; or,
(C) up to 1,000,000 shares of
Common Stock issuable upon conversion of this Corporation's convertible
debentures and warrants (subject to adjustment for any stock splits, stock
dividends, combinations, recapitalization or the like).
(iii) In the event this Corporation should
at any time or from time to time after the Purchase Date fix a record date for
the effectuation of a split or subdivision of the outstanding shares of Common
Stock or the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common Stock or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price of the Series A Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion of
each share of such Series shall be increased in proportion to such increase of
the aggregate of shares of Common Stock outstanding and those issuable with
respect to such Common Stock Equivalents.
(iv) If the number of shares of Common
Stock outstanding at any time after the Purchase Date is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Price for the Series A Preferred
Stock shall be appropriately increased so that the number of shares of Common
Stock issuable on conversion of each share of such Series shall be decreased in
proportion to such decrease in outstanding shares.
(e) Other Distributions. In the event this
Corporation shall declare a distribution payable in securities of other persons,
evidences of indebtedness issued by this Corporation or other persons, assets
(excluding cash dividends) or options or rights not referred to in subsection
4(d)(iii), then, in each such case for the purpose of this subsection 4(e), the
holders of the Series A Preferred Stock, as the case may be, shall be entitled
to a proportionate share of any such distribution as though they were the
holders of the number of shares of Common Stock of this Corporation into which
their
8
<PAGE> 9
shares of Series A Preferred Stock, are convertible as of the record date
fixed for the determination of the holders of Common Stock of this Corporation
entitled to receive such distribution.
(f) Recapitalizations. If at any time or from
time to time there shall be a recapitalization of the Common Stock (other than a
subdivision, combination or merger or sale of assets transaction provided for
elsewhere in this Section 4 or Section 2), provision shall be made so that the
holders of the Series A Preferred Stock shall thereafter be entitled to receive
upon conversion of the Series A Preferred Stock, the number of shares of stock
or other securities or property of this Corporation or otherwise, to which a
holder of Common Stock deliverable upon conversion would have been entitled on
such recapitalization. In any such case, appropriate adjustment shall be made in
the application of the provisions of this Section 4 with respect to the rights
of the holders of the Series A Preferred Stock after the recapitalization to the
end that the provisions of this Section 4 (including adjustment of the
Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series A Preferred Stock shall be applicable after that event
as nearly equivalent as may be practicable.
(g) No Impairment. This Corporation will not,
by amendment of its Certificate of Incorporation or through any reorganization,
recapitalization, 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 to be observed or performed
hereunder by this Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A Preferred Stock.
(h) No Fractional Shares and Certificate as to
Adjustments.
(i) No fractional shares shall be issued
upon the conversion of any share or shares of the Series A Preferred Stock and
the number of shares of Common Stock to be issued shall be rounded to the
nearest whole share. Whether or not fractional shares are issuable upon such
conversion shall be determined on the basis of the total number of shares of
Series A Preferred Stock the holder is at the time converting into Common Stock
and the number of shares of Common Stock issuable upon such aggregate
conversion.
(ii) Upon the occurrence of each
adjustment or readjustment of the Conversion Price of Series A Preferred Stock
pursuant to this Section 4, this Corporation, at its expense, shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of Series A Preferred Stock a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. This
9
<PAGE> 10
Corporation shall, upon the written request at any time of any holder of Series
A Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment and readjustment, (B) the
Conversion Price for such Series of Preferred Stock at the time in effect, and
(C) the number of shares of Common Stock and the amount, if any, of other
property that at the time would be received upon the conversion of a share of
Series A Preferred Stock.
(i) Notices of Record Date. In the event of any
taking by this Corporation of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to receive
any dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
Corporation shall mail to each holder of Series A Preferred Stock at least
twenty (20) days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
(j) Reservation of Stock Issuable Upon
Conversion. This Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Series A Preferred Stock such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series A Preferred Stock,
and if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of the Series A Preferred Stock, in addition to such other remedies as shall be
available to the holder of such Preferred Stock, this Corporation shall take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes, including, without limitation,
engaging in best efforts to obtain the requisite shareholder approval of any
necessary amendment to this Corporation's Articles of Incorporation.
(k) Notices. Any notice required by the
provisions of this Section 4 to be given to the holders of shares of Series A
Preferred Stock shall be deemed given if deposited in the United States mail,
postage prepaid, and addressed to each holder of record at his address appearing
on the books of this Corporation.
5. Voting Rights.
(a) General Voting Rights. The holder of each
share of Series A Preferred Stock shall have the right to one vote for each
share of Common Stock into which such Series A Preferred Stock, as the case may
be, could then be converted, and with respect to such vote, except as set forth
in Section 5(b), such holder (i) shall have
10
<PAGE> 11
full voting rights and powers equa1 to the voting rights and powers of the
holders of Common Stock, (ii) shall be entitled, notwithstanding any provision
hereof, to notice of any stockholders' meeting in accordance with the bylaws of
this Corporation, and (iii) shall be entitled to vote, together with holders of
Common Stock, with respect to any question upon which holders of Common Stock
have the right to vote. Fractional votes shall not, however, be permitted and
any fractional voting rights available on an as-converted basis shall be rounded
to the nearest whole number (with one-half being rounded upward).
(b) Voting for the Election of Directors. The
holders of shares of Series A Preferred Stock shall be entitled to elect one (1)
director of this Corporation at each annual election of directors. The holders
of Series A Preferred Stock and Common Stock (voting together as a single class
and not as separate series, and on an as-converted basis) shall be entitled to
elect any remaining directors of this Corporation.
In the case of any vacancy (other than a vacancy
caused by removal) in the office of a director occurring among the directors
elected by the holders of a class or Series of stock pursuant to this Section
5(b), the remaining directors so elected by that class or Series may by
affirmative vote of a majority thereof (or the remaining director so elected if
there be but one, or if there are no such directors remaining, by the
affirmative vote of the holders of a majority of the shares of that class or
series), elect a successor or successors to hold office for the unexpired term
of the director or directors whose place or places shall be vacant. Any director
who shall have been elected by the holders of a class or Series of stock or by
any directors so elected as provided in the immediately preceding sentence
hereof may be removed during the aforesaid term of office, either with or
without cause, by, and only by, the affirmative vote of the holders of the
shares of the class or Series of stock entitled to elect such director or
directors, given either at a special meeting of such stockholders duly called
for that purpose or pursuant to a written consent of stockholders, and any
vacancy thereby created may be filled by the holders of that class or Series of
stock represented at the meeting or pursuant to unanimous written consent.
6. Protective Provisions. Subject to the rights of
Series of Preferred Stock that may from time to time come into existence, so
long as any shares of Series A Preferred Stock are outstanding, this Corporation
shall not:
(a) without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of a majority of the
Series A Preferred Stock then outstanding voting together as a single class:
(i) sell, convey, or otherwise dispose
of all or substantially all of its property or business or merge into
or consolidate with any other corporation (other than a wholly-owned
subsidiary corporation) or effect any
11
<PAGE> 12
transaction or series of related transactions in which more than fifty
percent (50%) of the voting power of this Corporation is disposed of;
(ii) redeem, purchase or otherwise
acquire (or pay into or set aside for a sinking fund for such purpose)
any share or shares of Preferred Stock or Common Stock; provided,
however, that this restriction shall not apply to the repurchase of
shares of Common Stock from employees, officers, directors, consultants
or other persons performing services for this Corporation or any
subsidiary pursuant to agreements under which this Corporation has the
option to repurchase such shares at cost or at cost upon the occurrence
of certain events, such as the termination of employment;
(iii) amend this Corporation's Articles
of Incorporation or bylaws;
(iv) declare or pay any dividends on any
shares of capital stock;
(v) do any act or thing which would
result in taxation of the holders of shares of the Series A Preferred
Stock under Section 305 of the Interna1 Revenue Code of 1986, as
amended (or any comparable provision of the Internal Revenue Code as
hereafter from time to time amended); or
(vi) authorize or issue, or obligate
itself to issue, any other equity security, including any other
security convertible into or exercisable for any equity security having
a preference over, or being on a parity with, the Series A Preferred
Stock with respect to dividends, liquidation or voting.
7. Status of Converted Stock. In the event any shares of
Series A Preferred Stock shall be converted pursuant to Section 4 hereof, the
shares so converted shall be cancelled and shall not be issuable by this
Corporation. The Articles of Incorporation of this Corporation shall be
appropriately amended to effect the corresponding reduction in this
Corporation's authorized capital stock.
12
<PAGE> 13
IN WITNESS WHEREOF, Lahaina Acquisitions, Inc. has cause this Amendment
to its Certificate of Incorporation to be executed by its duly authorized
officer as of December 14, 1998.
LAHAINA ACQUISITIONS, INC.
By:
--------------------------------
Name: Richard P. Smyth
Title: Chairman
ATTEST:
- ------------------------------------
Name: Gerald F. Sullivan
Title: Secretary
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF LAHAINA ACQUISITIONS, INC. FOR
MARCH 31, 1999 (UNAUDITED) AND THE STATEMENT OF OPERATIONS FOR THE SIX MONTHS
ENDED MARCH 31, 1999 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 50,604
<SECURITIES> 0
<RECEIVABLES> 31,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 125,385
<PP&E> 2,929,389
<DEPRECIATION> (55,179)
<TOTAL-ASSETS> 3,366,225
<CURRENT-LIABILITIES> 537,641
<BONDS> 0
0
428,823
<COMMON> 37,382
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,366,255
<SALES> 0
<TOTAL-REVENUES> 81,555
<CGS> 0
<TOTAL-COSTS> 205,906
<OTHER-EXPENSES> 81,951
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 126,240
<INCOME-PRETAX> (250,591)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (250,591)
<EPS-BASIC> (.11)
<EPS-DILUTED> (.11)
</TABLE>
