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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(XX) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1996
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( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
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Commission file number 1-12130
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Great Pines Water Company, Inc.
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(Exact name of small business issuer as specified in its charter)
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<S> <C>
Texas 76-0203752
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 N. Shepherd, Suite #303 Houston, Tx. 77007
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(Address of Principal executive offices) (Zip Code)
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(Issuer's telephone Number) (713) 864-6688
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
X YES NO
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
YES NO
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
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<CAPTION>
Class Outstanding as of September 30, 1996
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(Common stock, $.01 per value) 2,435,512 Shares
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GREAT PINES WATER COMPANY, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
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<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
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(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 648 $ 62
Accounts receivable - trade (net) 611 628
Inventory 92 85
Prepaid sales commissions 0 10
Prepaid insurance 38 168
Other current assets 8 5
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Total current assets 1,397 958
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PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment 8,746 8,636
Accumulated depreciation (3,757) (3,043)
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Total property, plant and equipment 4,989 5,593
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OTHER ASSETS 62 55
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TOTAL ASSETS $ 6,448 $ 6,606
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 118 $ 271
Customer deposits 863 767
Accrued liabilities and other current liabilities 197 154
Note payable -- 143
Current maturities of long-term debt 744 779
Current portion of capital lease obligations 102 126
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Total current liabilities 2,024 2,240
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LONG TERM DEBT 2,739 3,207
CAPITAL LEASE OBLIGATIONS 106 183
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value; 1,000,000 shares
authorized; 5,740 shares outstanding at September 30, 1996
and no shares outstanding at December 31, 1995 6 --
Common stock $.01 par value; 10,000,000 shares
authorized, 2,435,512 and 2,378,700 shares outstanding
outstanding at September 30, 1996 and December 31, 1995,
respectively 24 24
Additional paid-in-capital 3,663 2,988
Retained deficit (2,107) (2,029)
Treasury stock (7) (7)
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Total shareholders' equity 1,579 976
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,448 $ 6,606
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SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
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GREAT PINES WATER COMPANY, INC.
CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
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1996 1995 1996 1995
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(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES:
Water $ 3,672 $ 3,405 $ 1,339 $ 1,317
Equipment rental 1,860 1,807 584 606
Other 171 131 76 53
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5,703 5,343 1,999 1,976
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COST AND EXPENSES:
Transportation costs 1,267 1,307 432 544
Depreciation and amortization 792 892 267 316
Operating costs 1,049 1,000 373 402
Commissions and other selling 733 895 428 492
General and Administrative costs 1,408 1,403 474 545
Interest expense (net) 313 306 105 109
Other Expenses 217 134 45 56
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5,779 5,937 2,124 2,464
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INCOME BEFORE TAXES (76) (594) (125) (488)
TAX EXPENSE 0 0 0 0
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NET INCOME $ (76) $ (594) $ (125) $ (488)
========== ============ ============ ============
NET INCOME PER SHARE $ (0.03) $ (0.25) $ (0.05) $ (0.21)
========== ============ ============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 2,399 2,375 2,426 2,379
========== ============ ============ ============
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SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
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GREAT PINES WATER COMPANY, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
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<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1996 1995
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(UNAUDITED)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ (76) $ (594)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 792 892
Loss on disposal of fixed assets 8 0
Noncash charges 166 26
Changes in current operating assets and liabilities 128 352
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Net cash provided by operating activities 1,018 676
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CASH FLOWS USED BY INVESTING ACTIVITIES
Purchase of property and equipment (215) (196)
Sale of property and equipment 27 0
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Net cash used in investing activities (188) (196)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable and long term debt 101 404
Payments on note payable and long term debt (869) (945)
Issuance of common stock 30 15
Issuance of preferred stock 494 --
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Net cash used in financing activities (244) (526)
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INCREASE IN CASH 586 (46)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 62 177
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 648 $ 131
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SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
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GREAT PINES WATER COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE A - BASIS OF PRESENTATION
Great Pines Water Company, Inc. (the "Company") was incorporated in November
1986 and is engaged in the bottling, distributing and sale of bottled drinking,
purified, and spring water and rental of related dispensing equipment under the
"Texas Premium Waters" proprietary brand name.
The accompanying unaudited condensed financial statements have been prepared in
accordance with Generally Accepted Accounting Principles for interim financial
information and with the instructions to Form 10-QSB and rule 10-01 of
Regulation S-X. They do not include all information and notes required by
Generally Accepted Accounting Principles for complete financial statements. The
accompanying financial statements include all adjustments which in the opinion
of management are necessary in order to make the financial statements not be
misleading.
The accompanying condensed financial statements should be read in conjunction
with the Audited Financial Statements for the Year Ended December 31, 1995 and
the notes thereto contained in the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1995.
The results of operations for the nine month period ended September 30, 1996,
are not necessarily indicative of the results to be expected for the full year.
NOTE B - STOCKHOLDERS' EQUITY
The Company issued 3,000 shares of common stock to a former employee under the
Company's 1993 Stock Option Plan during March 1996 as the employee exercised
vested options.
During the Second Quarter of 1996, the Company issued 3,200 shares of common
stock to employees under the Company's 1993 Stock Option Plan for exercised
vested options and 10,000 shares of common stock to a consultant under the
Company's 1995 Incentive Stock Plan for legal services rendered.
During the Third Quarter of 1996, the Company issued 9,000 shares of common
stock to an employee under the Company's 1993 Stock Option Plan for the
exercise of vested options. The Company issued 22,500 shares of common stock
under the 1995 Incentive Stock Plan for consulting fees incurred and as
settlement in a lawsuit regarding a former director of the Company. The Company
issued 4,112 shares to a consultant under the Company's 1995 Incentive Stock
Plan for services. The Company also issued 5,000 shares of common stock to a
consultant under the Company's 1995 Incentive Stock Plan for legal services to
be rendered during the Fourth Quarter of 1996.
In October 1996, the Company completed a private placement which raised
$750,000 in gross proceeds with net proceeds to the Company of $652,500 through
the sale of 7,500 shares of Series A Preferred Stock, $1.00 par, at $100 per
share under Rule 506 of Regulation D of the Securities and Exchange Act of 1933.
The Preferred Stock has a 12% cumulative dividend rate payable in monthly
installments. The Preferred Stock is convertible into 24 shares of the
Company's common stock at a conversion price of $4.17 per share. Rule 144
promulgated under the Securities Act requires, among other conditions that two
years elapse from the date the Purchaser purchases the Shares before the
Purchaser can resell (in limited amounts) the Shares (or the Shares of common
stock of the Company issuable upon conversion of the Shares) without having to
satisfy the registration requirements under the Securities Act. The Preferred
Stock is redeemable for cash at any time after March 1, 1998, in whole or in
part, at the option of the Company, at redemption prices that will decline from
$106 per share on March 1, 1998 to $100 per share on September 1, 1999, at a
rate of $1 per three-month period, plus any accrued and unpaid dividends through
the redemption date. As of September 30, 1996,
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5,740 shares of the Company's Preferred Stock had been sold. The remainder was
sold during the Fourth Quarter of 1996.
NOTE C - STOCK OPTION PLANS
The Company's Stock Option Plan ("Option Plan") was adopted in 1993. An
aggregate of 225,000 shares of common stock were reserved for issuance pursuant
to the Option Plan. The Option Plan is administered by the Compensation
Committee established by the Board of Directors (the "Committee"). The
Committee determines, subject to the provisions of the Option Plan, the
employees to whom options are granted and the number of options to be granted.
The Committee may grant (i) "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, and (ii) "non-qualified stock
options" (options which do not meet the requirements of Section 422).
Incentive stock options granted under the Option Plan must have an exercise
price equal to at least the fair market value of the common stock at the date
the option is granted. Each option granted under the Option Plan may have a
term of up to ten years, except that incentive stock options granted to a
shareholder who, at the time of grant, owns more than 10% of the voting stock
of the Company may have a term of up to five years. The exercise price of
incentive stock options granted to shareholders possessing more than 10% of the
total combined voting power of all classes of stock of the Company must be not
less than 110% of the fair market value of the Company's common stock on the
date of grant. As of September 30, 1996, stock options to acquire 224,750
shares of the Company's common stock have been granted under the Option Plan at
an exercise price of $2.00 to $2.948 per share. The options become exercisable
beginning March 30, 1995 through December 28, 1998. As of September 30, 1996,
160,000 of these options are exercisable and 15,200 options had been exercised.
The Company's Non-Employee Director Stock Option Plan ("Non-Employee Director
Plan") was also adopted in 1993. An aggregate of 25,000 shares of common stock
were reserved for issuance pursuant to the Non-Employee Director Plan. Options
to purchase 5,000 shares of common stock are automatically granted to each
person elected for the first time as director of the Company, who is not an
employee of the Company. An option to acquire an additional 1,000 shares is
automatically granted each year thereafter that such director is re-elected.
Options granted under the Non-Employee Director Plan will not qualify as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986. Options granted under the Non-Employee Director Plan
expire ten years after date of grant. As of September 30, 1996, 12,000 options
have been granted under the Non-Employee Director Plan at an exercise price of
$2.00 to $3.375 per share. None of these options are exercisable as of
September 30, 1996.
The Company's Incentive Stock Plan ("Incentive Plan") was adopted in 1995. An
aggregate of 500,000 shares of common stock were reserved for issuance pursuant
to the Incentive Plan. The Incentive Plan is administered by the Committee.
The Committee determines, subject to the provisions of the Incentive Plan, the
employees to whom incentives are awarded. The Committee may award (i)
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, (ii) "non-qualified stock options" (options which do
not meet the requirements of Section 422), (iii) shares of "restricted stock",
and (iv) "stock bonuses". Subject to the terms of the Incentive Plan, the
Committee will also determine the prices, expiration dates and other material
features of the incentive awards. As of September 30, 1996, 46,612 shares of
common stock were issued under the Incentive Plan to consultants.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods included in the accompanying condensed financial
statements.
GENERAL
The Company's revenues consist of sales of the Company's bottled water
products, rental of water dispensers and sales of cups and other miscellaneous
items. The Company's strategy has been to use all available capital for
expansion and increasing its customer base. Because the Company records the
marketing expense associated with the implementation of its growth strategy in
the period in which such expenses are incurred, the Company's earnings will
initially decrease for a period in which the Company experiences rapid growth.
This growth in customer accounts has been accompanied by increased revenues
during 1994 and 1995 and the First Quarter and Second Quarter of 1996 The
Company attributes the growth in customer accounts in 1994 and 1995 to
aggressive marketing, increased bottled water consumption, a change in the type
of closed water system and an effective customer retention program. The
Company anticipates that its customer base and revenues will continue to expand
as sales of bottled water increase and the Company continues to penetrate the
Houston and Dallas/Ft. Worth bottled water markets. Some of the factors that
the Company believes may affect the rate of increase in bottled water sales
include the public perception of the quality of municipal supplies and general
health concerns.
Transportation expenses include fuel, insurance, repair and maintenance
expenses associated with the delivery trucks and vans. Driver and supervisor
salaries are also included in transportation expense.
Depreciation and amortization consist of depreciation of the Company's delivery
trucks and vans, water dispensers and bottles and the bottling plants.
Operating expenses included plant expenses, rent, direct production employee
costs and raw materials.
Commission and other selling expenses comprise the largest controllable
component of expenses. Selling expenses consist primarily of commissions paid
to the sales force and telemarketing expenses. Commissions paid on customer
accounts are expensed as they are incurred. Commissions represent a higher
percentage of total expenses during periods when the Company is adding accounts
at an accelerated rate when compared to other expenses, which are not variable.
General and administrative expenses include centralized administration and
overhead expenses and support costs including utilities, printing, postage, and
liability insurance.
Other expenses include bad debt, a provision for lost coolers and cash
over/short. Other expenses also include all nonrecurring expenses which are not
incurred in the normal course of operations.
Certain reclassifications to prior years' balances were made to conform with
the current years' presentation.
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THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Revenues for the three month period ended September 30, 1996 (the "Third
Quarter of 1996") increased 1% to $1,999,000 versus $1,976,000 during the three
month period ended September 30, 1995 (the "Third Quarter of 1995"). The
principal reason for the increase in revenues was the increase in the number of
customer accounts from the Third Quarter of 1995 to the Third Quarter of 1996.
Transportation expenses decreased 20% during the Third Quarter of 1996 compared
to the Third Quarter of 1995, $432,000 and $544,000 respectively. The decrease
in transportation expenses is due to a decrease in the number of trucks
utilized.
Depreciation and amortization expenses decreased 16% during the Third Quarter
of 1996 from the Third Quarter of 1995, to $267,000 from $316,000, as a result
of certain fixed assets of the Company becoming fully depreciated for book
purposes during 1995 and the First Quarter and Second Quarter of 1996.
Operating expenses decreased 7% during the Third Quarter of 1996 from the
Third Quarter of 1995, to $373,000 from $402,000, due to improved efficiencies
in operations.
Commissions and other selling expenses decreased 13% during the Third Quarter
of 1996 from the Third Quarter of 1995, to $428,000 from $492,000. The Company
decreased the marketing costs and growth of the Company during the First
Quarter of 1996 in order to improve its working capital and financial position.
The Company began its 1996 marketing program in June, 1996.
General and administrative expenses decreased 13% during the Third Quarter of
1996 from the Third Quarter of 1995, to $474,000 from $545,000 due to decreased
support costs.
Interest expenses decreased 4% during the Third Quarter of 1996 from the Third
Quarter of 1995, to $105,000 from $109,000. The decrease is caused by the
retirement of debt and capital leases during 1996.
Other expenses decreased 20% during the Third Quarter of 1996 compared to the
Third Quarter of 1995, $45,000 and $56,000 respectively. The decrease is due
to a reduction in bad debt expense.
The Company reported a loss after income taxes of $125,000 for the Third
Quarter of 1996 compared to a loss after taxes of $488,000 for the Third
Quarter of 1995. The decreased net loss was caused by increased revenues,
decreased commission and selling costs and decreased transportation expenses.
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Revenues for the nine month period ended September 30, 1996 increased 7% to
$5,703,000 versus $5,343,000 during the nine month period ended September 30,
1995. The principal reason for the increase in revenues was the increase in
the number of customer accounts from the nine month period ended September 30,
1996 to the nine month period ended September 30, 1996 and price increases.
Transportation expenses decreased 3% during the nine month period ended
September 30, 1996 compared to the nine month period ended September 30, 1995,
$1,267,000 and $1,307,000 respectively. The decrease in transportation
expenses is due to to a decrease in the number of trucks utilized partially
offset by higher water sales and increased fuel costs.
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Depreciation and amortization expenses decreased 11% during the nine month
period ended September 30, 1996 from the nine month period ended September 30,
1995, to $792,000 from $892,000, as a result of certain fixed assets of the
Company becoming fully depreciated for book purposes during 1995 and the nine
month period ended September 30, 1996.
Operating expenses increased 5% during the nine month period ended September
30, 1996 from the nine month period ended September 30, $1,049,000 and
$1,000,000 respectively. Operating costs did not increase at a rate
proportional to sales due to improved operating efficiencies in operations.
Commissions and other selling expenses decreased 18% during the nine month
period ended September 30, 1996 from the nine month period ended September 30,
1995, to $733,000 from $895,000. The Company decreased the marketing costs and
growth of the Company during the nine month period ended September 30, 1996 in
order to improve its working capital and financial position. The Company began
a marketing program in June, 1996.
General and administrative expenses remained the same during the nine month
period ended September 30, 1996 from the nine month period ended September 30,
1995, to $1,408,000 from $1,403,000. General and administrative expenses did
not increase at a rate proportional to sales due to improved efficiencies.
Interest expenses increased 2% during the nine month period ended September 30,
1996 from the nine month period ended September 30, 1995, to $313,000 from
$306,000. The increase is caused by the additions of subordinated debt during
the Second Quarter of 1995.
Other expenses increased 62% during the nine month period ended September 30,
1996 compared to the nine month period ended September 30, 1995, $217,000 and
$134,000 respectively. The primary reason for the increase is due to the
Company settling a lawsuit with a former director of the Company regarding
stock options and a consulting agreement. The amount of the settlement was
paid in cash and stock issued under the Company's 1995 Incentive Plan in July
1996.
The Company reported a loss after income taxes of $76,000 for the nine months
ended September 30, 1996 compared to a loss after taxes of $594,000 for the
same period in 1995. The decrease in loss was caused by increased revenues,
decreased commission and selling costs and improved efficiencies.
LIQUIDITY AND CAPITAL RESOURCES
The Company has typically financed operations from a combination of vendor
financing, bank loans and leases, placement of securities and cash generated
from operations. The Company generated cash of $2,322,500 from its initial
public offering in 1993. During 1993 and 1994, approximately $500,000 of the
proceeds were used for expansion and overhead costs to enter the Dallas/Fort
Worth market place, approximately $1,500,000 was used for commissions and
selling costs to increase the customer base and approximately $300,000 was used
for working capital.
During the Third Quarter of 1996, the Company issued a Private Placement of
7,500 shares of Series A Preferred Stock, $1.00 par, at $100 per share under
Rule 506 of Regulation D of the Securities and Exchange Act of 1933. The
Preferred Stock has a 12% cumulative dividend rate payable in monthly
installments. The Preferred Stock is convertible into 24 shares of the
Company's common stock at a conversion price of $4.17 per share. The Preferred
Stock is redeemable for cash at any time after March 1, 1998, in whole or in
part, at the option of the Company, at redemption prices that will decline
from
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$106 per share on March 1, 1998 to $100 per share on September 1, 1999, at a
rate of $1 per three-month period, plus any accrued and unpaid dividends
through the redemption date. As of September 30, 1996, 5,740 shares of the
Company's Preferred Stock had been sold. The remainder was sold during the
Fourth Quarter of 1996. The proceeds are to be used for sales and commission
costs and working capital.
The Company acquires water coolers and cooler equipment through vendor
financing. The Company leases its water processing and bottling plants and
various trucks from financial institutions under capital lease arrangements.
Additional trucks and equipment are obtained under operating leases.
Net cash from operating activities for the nine month period ended September
30, 1996 and the nine month period ended September 30, 1995 was $1,018,000 and
$676,000 respectively. The increase is due to increased sales and decreased
marketing costs.
During the nine month period ended September 30, 1996, the Company made capital
expenditures of $215,000 for plant equipment, water bottles and truck
improvements. No significant capital expenditures are anticipated in the near
future.
As of September 30, 1996, the Company's long-term debt amounted to $493,000 in
bank debt, $2,559,000 in vendor financing and $431,000 in convertible
subordinated debt. The Company has capital lease commitments of $208,000.
During the first quarter of 1996, the Company was in default of the net worth
covenant of a bank loan agreement. The loan balance was refinanced with a new
bank to cure the default position. The note is due in monthly installments with
interest at prime plus 2%, adjusted quarterly, through October 1998. The note
is collateralized by accounts receivable, inventory, equipment vehicles, the
assignment of a life insurance policy on a shareholder and 400,000 shares held
by a principal shareholder. The note is guaranteed by a corporation related
through common ownership up to 37.5% of the outstanding balance and is
guaranteed by the Small Business Administration up to 75% of the outstanding
balance. The agreement contains no financial covenant restrictions.
During the Second Quarter of 1996, the Company obtained bank financing of
$21,600 for the purchase of plant equipment previously financed as a capital
lease. The principal balance is due in monthly payments of $600 with interest
at prime plus 2%.
On May 1, 1996 the Company applied $45,000 in accrued interest to the principal
balance of the convertible subordinated debt as per the loan agreement with a
cooler manufacturer in Europe.
Management's strategy is based on increasing the value of the Company by
increasing the customer base. Expenses related to new customer acquisitions
were greatly decreased during the Fourth Quarter of 1995 and the first quarter
of 1996 in order to improve the Company's working capital position. During the
Second Quarter of 1996 the Company reestablished it's marketing team and began
adding new customers. The marketing program is being funded by internally
generated cash from operations and, during the Third and Fourth Quarters of
1996, the private placement of 7,500 shares of the Company's Series A Preferred
Stock. Because the Company records the marketing expense associated with the
implementation of its growth strategy in the period in which such expenses are
incurred, the Company's earnings will initially decrease for a period in which
the Company experiences rapid growth. Despite the short-term effect of growth
on earnings, the Company believes that its strategy of increasing the size of
its customer base will enhance shareholder value and improve the financial
performance of the Company.
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The Company will not be able to expand significantly or enter into new markets
until additional financing is acquired. There can be no assurance that such
arrangements will become available on terms acceptable to the Company.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits.
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<CAPTION>
Exhibit No. Description of Exhibit
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10.1 Loan Agreement, dated November 1, 1988, by and between Great Pines Water Company, Inc. and Bank One Texas,
National Association, as amended. Exhibit 10.1 to the Company's Registration Statement (#33-63022) on Form
SB-2 ("The Registration Statement"), is incorporated herein by reference.
10.2 Authorization and Loan Agreement with the United States Small Business Administration. Exhibit 10.2 to the
Registration Statement is incorporated herein by reference.
10.3 Lease Agreement, dated April 1, 1990, with DBH Investment Partners No. 3, as Amended. Exhibit 10.3 to the
Registration Statement is incorporated herein by reference.
10.4 1993 Stock Option Plan of Great Pines Water Company, Inc. Exhibit 10.4 to the Registration Statement is
incorporated herein by reference.
10.5 1993 Non-Employee Director Stock Option Plan of Great Pines Water Company, Inc. Exhibit 10.5 to the
Registration Statement is incorporated herein by reference.
10.6 Form of Loan Agreement by and between Great Pines Water Company, Inc. and Dependable Acceptance Company for
the purchase of equipment. Exhibit 10.6 to the Company's annual report on Form 10-KSB for the fiscal year
ended December 31, 1994 is incorporated herein by reference.
10.7 Amendment dated December 31, 1994 to Loan Agreement, dated November 1, 1988 by and between Great Pines Water
Company, Inc. and Bank One Texas, N.A. Exhibit 10.7 to the Company's annual report on Form 10-KSB for the
fiscal year ended December 31, 1994 is incorporated herein by reference.
10.8 1995 Incentive Stock Plan of Great Pines Water Company, Inc. Exhibit 10.8 to the Company's quarterly report
on Form 10-QSB is incorporated by reference.
10.9 Convertible Debenture, dated April 21, 1995, together will Form of Convertible Note, by and Between Great
Pines Water Company, Inc. and EBAC Systems Inc. Exhibit 10.9 is filed herewith by reference.
10.10 Promissory Note dated October 13, 1995 between Great Pines Water Company, Inc. and Metrobank, N.A. for the
assumption of equipment loans previously with Bank One Texas, N.A. Exhibit 10.10 to the Company's annual
report on Form 10-KSB for the fiscal year ended December 31, 1995 in incorporated by reference.
10.11 Assignment dated March 22, 1996 of the SBA loan dated October 19, 1991 to SunBelt National Bank, N.A. from
Bank One Texas, N.A. Exhibit 10.10 to the Company's annual report on Form 10-KSB for the fiscal year ended
December 31, 1995 in incorporated by reference.
10.12 Amendment dated March 22, 1996 to the loan agreement, dated November 1,1988 by and between Great Pines Water
Company, Inc. and Bank One Texas, N.A. Exhibit 10.10 to the Company's annual report on Form 10-KSB for the
fiscal year ended December 31, 1995 in incorporated by reference.
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10.13 Amendment to the Lease Agreement dated April, 1 1990, with DBH Investment Partners No. 3. Exhibit 10.10 to
the Company's annual report on Form 10-KSB for the fiscal year ended December 31, 1995 in incorporated by
reference.
10.14 Promissory Note dated June 12, 1996 between GPWC and SunBelt National Bank for the purchase of plant
equipment. Exhibit 10.14 is filed herein by reference.
10.15 Certificate of Designation, Preferences, Rights and Limitations of Series A Preferred Stock, $1.00 Par
Value of Great Pines Water Company, Inc. Exhibit 10.15 is filed herein.
27. Financial Data Schedule. Exhibit 27 is filed herein.
</TABLE>
b) No reports on Form 8-K were filed during the quarter ended September
30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Great Pines Water Company, Inc.
Date: November 13, 1996 By: Kevin F. Vigneaux
--------------------------
Kevin F. Vigneaux
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
PAGE 12
<PAGE> 14
INDEX TO EXHIBIT
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
10.1 Loan Agreement, dated November 1, 1988, by and between Great Pines Water Company, Inc. and Bank One Texas,
National Association, as amended. Exhibit 10.1 to the Company's Registration Statement (#33-63022) on Form
SB-2 ("The Registration Statement"), is incorporated herein by reference.
10.2 Authorization and Loan Agreement with the United States Small Business Administration. Exhibit 10.2 to the
Registration Statement is incorporated herein by reference.
10.3 Lease Agreement, dated April 1, 1990, with DBH Investment Partners No. 3, as Amended. Exhibit 10.3 to the
Registration Statement is incorporated herein by reference.
10.4 1993 Stock Option Plan of Great Pines Water Company, Inc. Exhibit 10.4 to the Registration Statement is
incorporated herein by reference.
10.5 1993 Non-Employee Director Stock Option Plan of Great Pines Water Company, Inc. Exhibit 10.5 to the
Registration Statement is incorporated herein by reference.
10.6 Form of Loan Agreement by and between Great Pines Water Company, Inc. and Dependable Acceptance Company for
the purchase of equipment. Exhibit 10.6 to the Company's annual report on Form 10-KSB for the fiscal year
ended December 31, 1994 is incorporated herein by reference.
10.7 Amendment dated December 31, 1994 to Loan Agreement, dated November 1, 1988 by and between Great Pines Water
Company, Inc. and Bank One Texas, N.A. Exhibit 10.7 to the Company's annual report on Form 10-KSB for the
fiscal year ended December 31, 1994 is incorporated herein by reference.
10.8 1995 Incentive Stock Plan of Great Pines Water Company, Inc. Exhibit 10.8 to the Company's quarterly report
on Form 10-QSB is incorporated by reference.
10.9 Convertible Debenture, dated April 21, 1995, together will Form of Convertible Note, by and Between Great
Pines Water Company, Inc. and EBAC Systems Inc. Exhibit 10.9 is filed herewith by reference.
10.10 Promissory Note dated October 13, 1995 between Great Pines Water Company, Inc. and Metrobank, N.A. for the
assumption of equipment loans previously with Bank One Texas, N.A. Exhibit 10.10 to the Company's annual
report on Form 10-KSB for the fiscal year ended December 31, 1995 in incorporated by reference.
10.11 Assignment dated March 22, 1996 of the SBA loan dated October 19, 1991 to SunBelt National Bank, N.A. from
Bank One Texas, N.A. Exhibit 10.10 to the Company's annual report on Form 10-KSB for the fiscal year ended
December 31, 1995 in incorporated by reference.
10.12 Amendment dated March 22, 1996 to the loan agreement, dated November 1,1988 by and between Great Pines Water
Company, Inc. and Bank One Texas, N.A. Exhibit 10.10 to the Company's annual report on Form 10-KSB for the
fiscal year ended December 31, 1995 in incorporated by reference.
</TABLE>
<PAGE> 15
INDEX TO EXHIBIT - CONT.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
10.13 Amendment to the Lease Agreement dated April, 1 1990, with DBH Investment Partners No. 3. Exhibit 10.10 to
the Company's annual report on Form 10-KSB for the fiscal year ended December 31, 1995 in incorporated by
reference.
10.14 Promissory Note dated June 12, 1996 between GPWC and SunBelt National Bank for the purchase of plant
equipment. Exhibit 10.14 is filed herein by reference.
10.15 Certificate of Designation, Preferences, Rights and Limitations of Series A Preferred Stock, $1.00 Par Value
of Great Pines Water Company, Inc. Exhibit 10.15 is filed herein.
27 Financial Data Schedule. Exhibit 27 is filed herein.
</TABLE>
<PAGE> 1
EXHIBIT 10.15
CERTIFICATE OF DESIGNATION, PREFERENCES,
RIGHTS AND LIMITATIONS OF
SERIES A PREFERRED STOCK, $1.00 PAR VALUE,
OF
GREAT PINES WATER COMPANY, INC.
Pursuant to Section 2.13 of the Texas Business Corporation Act, Robert
A. Hammond, Jr., President and Robert A. Hammond, Sr., Secretary, of Great
Pines Water Company, Inc., a Texas corporation ("Corporation"),
DO HEREBY CERTIFY that pursuant to the authority conferred upon the
Board of Directors by the Articles of Incorporation of the Corporation, as
amended, and pursuant to Section 2.13 of the Texas Business Corporation Act,
said Board of Directors, by unanimous written consent dated September 4, 1996,
duly adopted resolutions providing for the issuance of a series of 7,500 shares
of Series A Preferred Stock, par value $1.00, which resolutions are and read as
follows:
"RESOLVED, that, pursuant to the authority expressly granted and
vested in the Board of Directors of Great Pines Water Company, Inc. (the
"Corporation") by the provisions of the Articles of Incorporation of the
Corporation, as amended, this Board of Directors by this resolution
(hereinafter this "Designation") hereby creates out of the Preferred Stock, par
value $1.00 per share, of the Corporation (the "Preferred Stock") a series of
the Preferred Stock to consist of 7,500 shares, and to be designated as "Series
A Preferred Stock" (hereinafter "Series A Preferred Stock"), and this Board of
Directors hereby fixes the designations, powers, preferences and rights, and
the qualifications, limitations or restrictions thereof, of the shares of such
series as follows:
SERIES A PREFERRED STOCK
The relative preferences, powers, rights, qualifications, limitations
and restrictions in respect of the Series A Preferred Stock are as follows:
(a) Voting Rights. Except as otherwise provided in this
Designation or as required by law, the holders of Series A Preferred Stock
shall have no voting rights, including, without limitation, any class voting
rights.
(b) Dividend Rights. Holders of shares of Series A
Preferred Stock will receive an annual dividend payable monthly in arrears
commencing the month after the date of issuance of $12.00 per month. Dividends
will be cumulative, will accumulate from the date of original issuance and will
be payable to holders of record of the Series A Preferred Stock as they appear
on the books of the Corporation on such respective dates, not exceeding 60 days
preceding such dividend payment date, as may be fixed by the Board of Directors
of the Corporation in advance of the payment of each particular dividend.
The Series A Preferred Stock will rank prior to the Corporation's
Common Stock, par value $.01 per share ("Common Stock"), as to dividends.
Before any dividends (other than dividends payable in Common Stock) on any
class or series of capital stock of the Corporation ranking junior to the
Series A Preferred Stock as to dividends or upon liquidation shall be declared
or paid or set apart for payment, the holders of shares of Series A Preferred
Stock shall be entitled to receive cumulative cash dividends at the annual rate
specified above. No dividends shall be declared on any class or series of
capital stock ranking on a parity with the Series A Preferred Stock as to
dividends in respect of any dividend period unless there shall likewise be or
have been declared on the Series A Preferred Stock like dividends for all
monthly periods coinciding with or ending before such monthly period ratably in
proportion to the respective annual dividend rates fixes therefor. If the
Corporation is in default with respect to any dividends payable on, or any
obligations to retire shares of, the Series A Preferred Stock, the Corporation
may not declare or pay or set apart for payment any dividends or make any
distribution in cash or other property on, or redeem, purchase or otherwise
acquire, any other class or series of stock ranking junior to the Series A
Preferred Stock either as to dividends or upon liquidation. Accruals of
dividends will not bear interest.
(c) Liquidation Rights. In the event of any liquidation,
dissolution or winding-up of the Corporation, whether voluntary or involuntary,
before any payment or distribution of the assets of the Corporation, or
proceeds thereof (whether capital or surplus), shall be made to or set apart
for the holders
<PAGE> 2
of any class or series of stock of the Corporation ranking junior to the Series
A Preferred Stock (including Common Stock) upon liquidation, the holders of the
Series A Preferred Stock shall be entitled to receive $100 per share, plus an
amount equal to all dividends (whether or not declared) accrued and unpaid as
of the date of final distribution, but such holders shall not be entitled to
any further payment. If, upon any liquidation, dissolution or winding-up of
the Corporation, the assets of the Corporation, or proceeds thereof,
distributable among the holders of shares of the Series A Preferred Stock and
other class or series or preferred stock ranking prior to or on a parity with
the Series A Preferred Stock as to payments upon liquidation, dissolution or
winding-up shall be insufficient to pay in full the preferential amount
aforesaid, then such assets, or the proceeds thereof, shall be distributed
among such holders pro rata in accordance with the respective amounts that
would be payable on such shares if all amounts payable thereon were paid in
full. The voluntary sale, conveyance, lease, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or substantially all
the property or assets of the Company to, or a consolidation or merger of the
Corporation with, one or more other companies (whether or not the Corporation
is the corporation surviving such consolidation or merger) will not be deemed
to be a liquidation, dissolution or winding-up, voluntary or involuntary.
(d) Optional Redemption. At any time after March 1,
1998, the shares of Series A Preferred Stock may be redeemed, in whole or in
part, by the Corporation at its sole option. The redemption price shall begin
at $106 per share of Series A Preferred Stock and will decline $1 per share for
each of six three-month periods beginning on March 1, 1998, with a final
redemption price of $100 per share. The redemption price should also include
all accrued and unpaid dividends through the date fixed for redemption. The
Corporation shall, on or prior to the date fixed for redemption, but not
earlier than 45 days prior to the redemption date, deposit with its transfer
agent or other redemption agent, as a trust fund, a sum sufficient to redeem
the shares called for redemption, with irrevocable instructions and authority
to such agent to give or complete the required notice of redemption and to pay
the holders of such shares the redemption price upon surrender of their
certificates. Such deposit shall be deemed to constitute full payment of such
shares to their holders and from and after the date of such deposit,
notwithstanding that any payment of such shares shall not have been surrendered
for cancellation, the shares represented thereby shall no longer be deemed
outstanding, the right to receive dividends and distributions shall cease to
accrue from and after the redemption date, and all rights of the holders of the
Series A Preferred Stock called for redemption as shareholders of the
Corporation shall cease and terminate, except the for right to receive the
redemption price, without interest, upon the surrender of their respective
certificates, and except for the right to convert their shares of Series A
Preferred Stock until the close of business on the redemption date.
Unless full accumulated dividends on all outstanding shares of the
Series A Preferred Stock shall have been or contemporaneously are declared and
paid or set apart for payment for all past dividend periods, the Preferred
Stock may not be redeemed unless all of the outstanding Series A Preferred
Stock is redeemed, and the Corporation may not purchase any shares of the
Series A Preferred Stock otherwise than pursuant to a purchase offer made on
the terms to all the holders of Series A Preferred Stock, provided that the
Corporation may complete the purchase or redemption of shares of Series A
Preferred Stock for which a purchase contract was entered into, or notice of
redemption of which was initially given, prior to such default.
Notice of redemption shall be mailed to each holder of Series A
Preferred Stock to be redeemed at the address shown on the books of the
Corporation not less than 30 days nor more than 60 days prior to the redemption
date. If less than all of the outstanding shares of Series A Preferred Stock
are to be redeemed, the Corporation will select the shares to be redeemed by
lot, pro rata (as nearly as may be), or in such other equitable manner as the
Board of Directors of the Corporation may determine.
(e) Conversion. The shares of Series A Preferred Stock
are convertible into shares of Common Stock at a conversion rate of 24 shares
of Common Stock for one share of Preferred Stock.
Shares of Series A Preferred Stock surrendered for conversion during
the period from the close of business on any record date for the payment of
dividends on such shares to the opening of business on the corresponding
dividend payment date (except shares called for redemption during such period)
must be accompanied by payment of an amount equal to the dividend payable on
such shares on such dividend payment date. The registered holder of such
shares of Preferred Stock at the close of business on a dividend payment record
date shall be entitled to receive the dividend payable on such shares (except
<PAGE> 3
shares called for redemption between such record date and the dividend payment
date) on the corresponding dividend payment date notwithstanding the conversion
thereof or the Corporation's default in payment of the dividend due on such
dividend payment date. A holder of Series A Preferred Stock on a dividend
payment record date who (or whose transferee) converts shares of Series A
Preferred Stock on a dividend payment date will receive the dividend payable on
such Preferred Stock by the Corporation on such date, and the converting holder
need not include payment in the amount of such dividend upon surrender of
shares of Series A Preferred Stock for conversion. No fractional shares will
be issued upon conversion.
The conversion rate shall be automatically adjusted upon the
occurrence of the following events: (i) the issuance of capital stock of the
Corporation as a dividend or a distribution on Common Stock, (ii) subdivisions,
combinations and reclassification of the Common Stock, (iii) the issuance to
all holders of Common Stock of rights or warrants entitling them to subscribe
for or purchase shares of Common Stock at less than the current market price,
and (iv) the distribution to all holders of Common Stock of evidences of
indebtedness of the Company or of assets (other than cash dividends from
retained earnings) or subscription rights to securities of the Company (other
than those referred to above collectively, "Recapitalization Events"). Upon
the occurrence of a Recapitalization Event, shares of Series A Preferred Stock
should thereafter become convertible into those shares of Common Stock and/or
other securities which the holder of such shares would have held following the
Recapitalization Event had such holder converted such shares into Common Stock
immediately before the Recapitalization Event. Except in these cases, the
conversion rate will not be adjusted for the issuance of Common Stock. No
adjustment of the conversion rate will be required to be made in any case until
cumulative adjustments amount to at least one percent of the current conversion
rate. The Corporation reserves the right to make such increases in the
conversion rate in addition to those required by the foregoing provisions as
the Corporation in its discretion shall determine to be advisable in order that
certain stock related distributions hereafter made by the Company to its
shareholders shall not be taxable.
Except as discussed above, no adjustment upon conversion will be made
for dividends on the Series A Preferred Stock.
In case of any consolidation or merger of the Corporation with or into
any other corporation other than a consolidation or merger in which the
Corporation is the continuing corporation and which does not result in any
reclassification of or changes in outstanding shares of common stock, or any
sale or transfer of all or substantially all the assets of the Corporation, the
holder of each share of Series A Preferred Stock shall after such
consolidation, merger, sale or transfer have the right to convert such share of
Series A Preferred Stock only into the kind and amount of securities, cash and
other property which such holder would have been entitled to receive upon such
consolidation, merger, sale or transfer if the holder had held the common stock
issuable upon the conversion of such share of Series A Preferred Stock
immediately prior to such consolidation, merger, sale or transfer.
IN WITNESS WHEREOF, the undersigned, being the duly elected officers
of the Corporation, hereby declare and certify that the facts herein stated are
true and accordingly execute this instrument as of this 4th day of September,
1996.
GREAT PINES WATER COMPANY, INC.
By:
-----------------------------------
Robert A. Hammond, Jr.
ATTEST:
- ----------------------------
Robert A. Hammond, Sr.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JUL-01-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 648 648
<SECURITIES> 0 0
<RECEIVABLES> 611 611
<ALLOWANCES> 0 0
<INVENTORY> 92 92
<CURRENT-ASSETS> 1,397 1,397
<PP&E> 8,746 8,746
<DEPRECIATION> (3,757) (3,757)
<TOTAL-ASSETS> 6,448 6,448
<CURRENT-LIABILITIES> 2,024 2,024
<BONDS> 0 0
0 0
6 6
<COMMON> 24 24
<OTHER-SE> 1,579 1,579
<TOTAL-LIABILITY-AND-EQUITY> 6,448 6,448
<SALES> 5,703 1,999
<TOTAL-REVENUES> 5,703 1,999
<CGS> 0 0
<TOTAL-COSTS> 3,841 1,500
<OTHER-EXPENSES> 1,625 519
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 313 105
<INCOME-PRETAX> (76) (125)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (76) (125)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (76) (125)
<EPS-PRIMARY> (.03) (.05)
<EPS-DILUTED> 0 0
</TABLE>
