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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission file number 1-12130
Great Pines Water Company, Inc.
(Exact name of small business issuer as specified in its charter)
Texas 76-0203752
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 N. Shepherd, Suite #303 Houston, Texas 77007
(Address of Principal executive offices) (Zip Code)
(Issuer's telephone Number) (713) 864-6688
- --------------------------------------------------------------------------------
(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
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
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:
Class Outstanding as of June 30, 1997
(Common stock, $.01 per value) 2,452,568 Shares
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PART I - FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
GREAT PINES WATER COMPANY, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- ------------
(Unaudited)
-----------
<S> <C> <C>
Assets
Current assets:
Cash $ 245 $ 316
Accounts receivable - Trade (net) 807 685
Inventory 122 100
Prepaid expenses 31 16
Prepaid insurance 107 216
Other current assets 39 8
------- -------
Total current assets 1,351 1,341
Property and equipment, net 5,158 4,861
Other assets 57 61
------- -------
Total Assets $ 6,566 $ 6,263
======= =======
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable, trade $ 375 $ 221
Customer deposits 985 912
Accrued liabilities and other current
liabilities 409 280
Note payable 54 190
Current portion of capital lease
obligations 99 102
Current maturities of long term debt 915 760
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Total current liabilities 2,837 2,465
Long term debt, net of current portion 2,655 2,536
Capital lease obligations, net of
current portion 26 81
Shareholders' equity:
Preferred stock, $1.00 par value;
1,000,000 shares authorized; 7,500
shares outstanding at June 30, 1997
and December 31, 1996 8 8
Common Stock, $.01 par value;
10,000,000 shares authorized;
2,452,568 shares (net of treasury
stock) and 2,449,512 shares (net of
treasury stock) outstanding at June
30, 1997 and December 31, 1996,
respectively 25 25
Additional paid-in capital 3,865 3,853
Accumulated deficit (2,843) (2,698)
Less Treasury Stock, 1,300 shares and
1,300 shares at June 30, 1997 and
December 31, 1996, respectively, at
cost (7) (7)
------- -------
Total shareholders' equity 1,048 1,181
------- -------
Total Liabilities and Shareholders'
Equity $ 6,566 $ 6,263
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
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GREAT PINES WATER COMPANY, INC.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
--------------------------- -----------------------------
1997 1996 1997 1996
------------- ------------ -------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Water $2,562 $2,333 $1,420 $1,264
Equipment rental 1,388 1,276 711 613
Other 170 96 132 52
------------------------------------------------------
4,120 3,705 2,263 1,929
Cost and expenses:
Operating costs 816 676 447 361
Transportation costs 953 834 491 407
Depreciation and amortization 536 526 267 261
Commissions and other selling costs 763 305 443 234
General and administrative expenses 979 1,108 491 588
------------------------------------------------------
4,047 3,449 2,139 1,851
------------------------------------------------------
Income (Loss) from operations 73 256 124 78
Other expense (income):
Interest expense 173 208 87 98
Interest income 0 0 0 0
Other expense (income) 0 0 0 0
------------------------------------------------------
173 208 87 98
------------------------------------------------------
Income (Loss) before income taxes (100) 48 37 (20)
Income tax expense (benefit) 0 0 0 0
------------------------------------------------------
Net Income (Loss) (100) 48 37 (20)
Dividends on Preferred Stock 45 0 23 0
------------------------------------------------------
Income (Loss) attributable to Common
Stock $ (145) $ 48 $ 14 $ (20)
======================================================
Income (Loss) per common share $(0.04) $0.02 $0.01 $(0.01)
======================================================
Weighted average number of common
shares outstanding 2,451 2,386 2,452 2,392
======================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
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GREAT PINES WATER COMPANY, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------
1997 1996
------------- ------------
(Unaudited) (Unaudited)
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(100) $ 48
Adjustments to reconcile net income
(loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 536 526
Loss on disposition of assets 0 8
Provision for lost coolers 9 9
Noncash charges 9 123
Deferred income tax expense (benefit) 0 0
Affect of net changes in operating
accounts:
Accounts receivable, net (122) (4)
Inventory (22) 6
Prepaid expenses 94 53
Other assets (30) (9)
Accounts payable 154 ( 16)
Customer deposits, accrued
liabilities, and other current
liabilities 202 55
-------------------
Net cash provided by (used in)
operating activities 730 799
Cash flows from investing activities:
Additions to property and equipment (839) (126)
Proceeds from fixed asset retirements 0 27
-------------------
Net cash used in investing activities (839) (99)
Cash flows from financing activities:
Proceeds from note payable and long
term debt 669 101
Payments on note payable and long term
debt (531) (551)
Payments on capital lease obligations (58) (26)
Proceeds from issuance of Common
Stock, net 3 12
Proceeds from issuance of Preferred
Stock, net 0 0
Dividends on Preferred Stock (45) 0
Sale (purchase) of treasury stock, net 0 0
-------------------
Net cash provided by (used in)
financing activities 38 (464)
Increase (decrease) in cash and cash
equivalents (71) 236
Cash and cash equivalents, beginning of
period 316 62
-------------------
Cash and cash equivalents, end of period $ 245 $ 298
===================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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GREAT PINES WATER COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1997
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, 1996 and
the notes thereto contained in the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1996.
The results of operations for the three month period ended June 30, 1997, are
not necessarily indicative of the results to be expected for the full year.
NOTE B - STOCK OPTION PLANS
The Company's 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 Board of Directors or a stock
option committee established by the Board of Directors (the "Plan
Administrator"). The Plan Administrator 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 June 30, 1997, stock options to acquire 197,350 shares of the
Company's common stock have been granted under the Option Plan at exercise
prices of $2.00 to $2.948 per share. The options are exercisable beginning March
28, 1995 through December 28, 1999. As of June 30, 1997, 155,000 of these
options are exercisable and 26,800 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 June 30, 1997, 14,000 options have
been granted under the Non-Employee Director Plan at exercise prices of $2.00 to
$5.75 per share. As of June 30, 1997, 12,000 of these options are exercisable
and no options had been exercised.
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
4
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compensation committee. The compensation committee determines, subject to the
provisions of the Incentive Plan, the employees to whom incentives are awarded.
The compensation 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 compensation committee will also determine the
prices, expiration dates and other material features of the incentive awards. As
of June 30, 1997, 51,468 shares of common stock were issued under the Incentive
Plan to consultants, and 600 shares of common stock were issued under the
Incentive Plan to an employee as a stock bonus. As of June 30, 1997, stock
options to acquire 78,000 shares of the Company's common stock have been granted
under the Incentive Plan at exercise prices of $2.50 to $7.375 per share. The
options are exercisable beginning October 26, 1995 through March 10, 2000. As of
June 30, 1997, 11,000 of these options are exercisable and no options had been
exercised.
NOTE C - SHAREHOLDERS' EQUITY
During the First Quarter of 1997, the Company issued 1,600 shares of common
stock to employees under the Company's 1993 Stock Option Plan for exercised
vested options and 600 shares of common stock to an employee under the Company's
1995 Incentive Stock Plan for a stock bonus.
During the Second Quarter of 1997, the Company issued 856 shares of its common
stock under the 1995 Stock Incentive Plan to a consultant.
During the Third Quarter of 1997, the Company completed a private placement
which raised $1,000,000 in gross proceeds with net proceeds to the Company of
$870,000 through the sale of 10,000 shares of Series B 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 16.67
shares of the Company's common stock at a conversion price of $6.00 per share.
The Preferred Stock is redeemable for cash at any time after March 1, 1999, in
whole or in part, at the option of the Company, at redemption prices that will
decline from $106 per share on March 1, 1999 to $100 per share on September 1,
2000, at a rate of $1 per three-month period, plus any accrued and unpaid
dividends through the redemption date. As of June 30, 1997, no shares of the
Company's Preferred Stock had been sold.
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 1995, 1996, and 1997.
The Company attributes the growth in customer accounts 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.
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 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.
5
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Depreciation and amortization and operating expenses consist of depreciation of
the Company's delivery trucks and vans, water dispensers and bottles and the
bottling plants. Depreciation and amortization are expected to increase as the
Company continues to commit resources to its growing customer base.
General and administrative expenses include centralized administration and
support costs.
The Company provides for coolers which are lost or stolen as a reduction of
fixed assets.
Certain reclassifications to prior year balances were made to conform with the
current year presentation.
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
Revenues for the three month period ended June 30, 1997 (the "Second Quarter of
1997") increased 17% to $2,263,000 from $1,929,000 for the three month period
ended June 30, 1996 (the "Second Quarter of 1996"). The principal reason for
the increase in revenues was the increase in the number of customer accounts
from the Second Quarter of 1996 to the Second Quarter of 1997.
Operating costs increased 1%, as a percentage of sales, to 20% or $447,000 in
the Second Quarter of 1997 from 19% or $361,000 in the Second Quarter of 1996.
This is primarily due to an increase in the volume of bottles delivered at a
lower average selling price per bottle. Bottles delivered includes customer
trials.
Transportation costs increased less than 1%, as a percentage of sales, to 22% or
$491,000 in the Second Quarter of 1997 from 21% or $407,000 in the Second
Quarter of 1996. The increase in transportation expenses is primarily due to an
increase in repair and maintenance expenses for the Dallas trucks.
Depreciation and amortization costs decreased, as a percentage of sales, to 12%
or $267,000 in the Second Quarter of 1997 from 14% or $261,000 in the Second
Quarter of 1996. The decrease is primarily due to an increase in sales,
partially offset by certain fixed assets of the Company becoming fully
depreciated for book purposes during 1996.
Commissions and other selling costs increased, as a percentage of sales, to 20%
or $443,000 in the Second Quarter of 1997 from 12% or $234,000 in the Second
Quarter of 1996. Management's policy is to use all available cash from
operations and financing activities after debt service for its marketing
activities. During the fourth quarter of 1996, the Company completed a
preferred stock offering with net proceeds of $652,500. The Company was able to
significantly expand it marketing efforts due to the availability of cash.
General and administrative expenses decreased, as a percentage of sales, to 22%
or $491,000 in the Second Quarter of 1997 from 30% or $588,000 in the Second
Quarter of 1996. This is primarily due to a reduction in legal fees and bad
debt expense.
Interest expense decreased, as a percentage of sales, to 4% or $87,000 in the
Second Quarter of 1997 from 5% or $98,000 in the Second Quarter of 1996. This
is primarily due to reductions in long term debt.
The Company reported income after income taxes of $14,000 in the Second Quarter
of 1997 compared to a loss after taxes of $20,000 in the Second Quarter of 1996.
The income was primarily due to increased revenues, partially offset by
increased commissions and other selling costs.
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Revenues for the six month period ended June 30, 1997 increased 11% to
$4,120,000 from $3,705,000 during the six month period ended June 30, 1996. The
principal reason for the increase in revenues was the increase in the number of
customer accounts.
Operating costs increased, as a percentage of sales, to 20% or $816,000 during
the six month period ended June 30, 1997 from 18% or $676,000 during the six
month period ended June 30, 1996. This is primarily due to an increase in the
volume of bottles delivered at a lower average selling price per bottle.
Bottles delivered includes customer trials.
6
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Transportation costs increased less than 1%, as a percentage of sales, to 23% or
$953,000 during the six month period ended June 30, 1997 from 23% or $834,000
during the six month period ended June 30, 1996. The increase in transportation
expenses is primarily due to an increase in repair and maintenance expenses for
the Dallas trucks.
Depreciation and amortization costs decreased, as a percentage of sales, to 13%
or $536,000 during the six month period ended June 30, 1997 from 14% or $526,000
during the six month period ended June 30, 1996. The decrease is primarily due
to an increase in sales partially offset by certain fixed assets of the Company
becoming fully depreciated for book purposes during 1996 and the six month
period ended June 30, 1997.
Commissions and other selling costs increased, as a percentage of sales, to 19%
or $763,000 during the six month period ended June 30, 1997 from 8% or $305,000
during the six month period ended June 30, 1996. Management's policy is to use
all available cash from operations and financing activities after debt service
for its marketing activities. During the fourth quarter of 1996, the Company
completed a preferred stock offering with net proceeds of $652,500. The Company
was able to significantly expand it marketing efforts due to the availability of
cash
General and administrative expenses decreased, as a percentage of sales, to 24%
or $979,000 during the six month period ended June 30, 1997 from 30% or
$1,108,000 during the six month period ended June 30, 1996. This is primarily
due to a reduction in legal fees and bad debt expense.
Interest expenses decreased, as a percentage of sales, to 4% or $173,000 during
the six month period ended June 30, 1997 from 6% or $208,000 during the six
month period ended June 30, 1996. This is primarily due to reductions in long
term debt.
The Company reported a loss after income taxes of $145,000 during the six month
period ended June 30, 1997 compared to income after taxes of $48,000 during the
six month period ended June 30, 1996. The net loss was caused by the increased
commissions and other selling costs, partially offset by decreased general and
administrative expenses.
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 acquires water coolers and cooler equipment
through vendor financing. The Company leases 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 provided by operating activities for the six month period ended June
30, 1997 and the six month period ended June 30, 1996 was $730,000 and $799,000
respectively. The decrease is primarily due to increased commissions and other
selling costs.
During the six month period ended June 30, 1997, the Company made capital
expenditures of $172,000 for plant equipment, water bottles and truck
improvements. During the same period, the Company purchased $667,000 of water
coolers, financed by the vendor.
As of June 30, 1997, the Company's long-term debt amounted to $302,000 in bank
debt, $2,889,000 in vendor financing and $379,000 in convertible subordinated
debt. The Company has capital lease commitments of $125,000.
Management's strategy is based on increasing the Company's value by increasing
the customer base. Because the Company records Commissions and other selling
costs associated with the implementation of its growth strategy in the period in
which such expenses are incurred, the Company's net income will initially
decrease for a period in which the Company experiences rapid growth. Despite
the short-term effect of growth on net income, 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. The Company will
not be able to expand significantly or enter into new markets until additional
funding is acquired. There can be no assurance that such arrangements will
become available on terms acceptable to the Company.
7
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PART II - OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. Management believes, based on discussions with
its legal counsel that the outcome of these legal actions will not have a
material adverse effect upon the financial position and results of operations of
the Company.
The Company filed suit against Liqui-Box Corporation ("Liqui-Box") on July 18,
1994 in the United States District Court for the Southern District of Texas. In
the lawsuit , the Company alleged that Liqui-Box sold a defective water system,
which , in turn, the Company leased to its bottled water customers. The Company
sought monetary damages, including lost customers, the cost of replacing
defective equipment, treble damages under the Texas Deceptive Trade Practices
Act, and attorney's fees. During February 1997, the case went to trial and a
jury verdict was reached. Damages of approximately $2.3 million were awarded to
the Company. The amount is subject to appeal and there can be no assurance that
the Company will recover damages in this, or any amount. Liqui-Box had net
sales of $156.4 million for the year ended December 31, 1995. It is publicly
traded under the ticker symbol LIQB.
8
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description of Exhibit
- ----------- ----------------------
3.1 Amended and Restated Articles of Incorporation. Exhibit 3.1 to the
Company's Registration Statement on Form SB-2 (No. 33-63022-FW) that was
initially filed on May 19, 1993 (the "Registration Statement") is
incorporated herein by reference.
3.2 Restated Bylaws. Exhibit 3.2 to the Registration Statement is incorporated
herein by reference.
3.3 Certificate of Designation, Preferences, Rights and Limitations of Series A
Preferred Stock, $1.00 Par Value of Great Pines Water Company, Inc.
Exhibit 3.3 to the Company's quarterly report on Form 10-QSB for the
quarterly period ended September 30, 1996 is incorporated herein by
reference.
3.4 Certificate of Designation, Preferences, Rights and Limitations of Series B
Preferred Stock, $1.00 Par Value of Great Pines Water Company, Inc.
Exhibit 3.4 to the Company's quarterly report on Form 10-QSB for the
quarterly period ended June 30, 1997 is filed herein.
4.1 Specimen stock certificate evidencing shares of Common Stock. Exhibit 4.1
to the Registration Statement is incorporated herein by reference.
9.1 Joshua Slocum Hammond Trust Agreement, dated May 11, 1993. Exhibit 9.1 to
the Registration Statement is incorporated herein by reference.
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 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 for the quarterly period
ended September 30,1995 is incorporated herein by reference.
10.9 Convertible Debenture, dated April 21, 1995, together with Form of
Convertible Note, by and between Great Pines Water Company, Inc. and EBAC
Systems Inc. Exhibit 10.9 to the Company's quarterly
9
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report on Form 10-QSB for the quarterly period ended September 30, 1995 is
incorporated herein 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 is incorporated
herein by reference.
10.11 Assignment dated March 21, 1996 of the SBA loan dated October 19, 1991 to
Sunbelt National Bank, N.A. from Bank One Texas, N.A. Exhibit 10.11 to the
Company's annual report on Form 10-KSB for the fiscal year ended December
31, 1995 is incorporated herein 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 10.12 to the Company's annual report on Form 10-KSB for the
fiscal year ended December 31, 1995 is incorporated herein by reference.
10.13 Amendment to the Lease Agreement dated April, 1 1990, with DBH Investment
Partners No. 3. Exhibit 10.13 to the Company's annual report on Form 10-
KSB for the fiscal year ended December 31, 1995 is incorporated herein by
reference.
10.14 Promissory Note dated June 12, 1996 between the Great Pines Water Company,
Inc. and Sunbelt National Bank for the purchase of plant equipment.
Exhibit 10.14 to the Company's quarterly report on Form 10-QSB for the
quarterly period ended June 30, 1996 is incorporated herein by reference.
27.1 Financial Data Schedule. Exhibit 27.1 is filed herein.
(b) Reports on Form 8-K:
The Company filed no current reports on Form 8-K during the quarter ended June
30, 1997.
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: August 14, 1997 By: Kevin F. Vigneaux
--------------- --------------------------------
Kevin F. Vigneaux
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
10
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EXHIBIT 3.4
CERTIFICATE OF DESIGNATION, PREFERENCES,
RIGHTS AND LIMITATIONS OF
SERIES B 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 July 7, 1997, duly adopted
resolutions providing for the issuance of a series of 10,000 shares of Series B
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 10,000 shares, and to be designated as "Series B Preferred Stock"
(hereinafter "Series B 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 B PREFERRED STOCK
The relative preferences, powers, rights, qualifications, limitations and
restrictions in respect of the Series B Preferred Stock are as follows:
(a) Voting Rights. Except as otherwise provided in this Designation
or as required by law, the holders of Series B Preferred Stock shall have
no voting rights, including, without limitation, any class voting rights.
(b) Dividend Rights. Holders of shares of Series B 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 B 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 B 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
B Preferred Stock as to dividends or upon liquidation shall be declared or
paid or set apart for payment, the holders of shares of Series B 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 B Preferred Stock as
to dividends in respect of any dividend period unless there shall likewise
be or have been declared on the Series B 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 B 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 B 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 of any class or series of stock of the Corporation ranking junior
to the Series B Preferred Stock (including
<PAGE>
Common Stock) upon liquidation, the holders of the Series B 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 B Preferred Stock
and other class or series or preferred stock ranking prior to or on a
parity with the Series B 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, 1999, the shares
of Series B 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 B Preferred Stock and will decline $1 per share for
each of six three-month periods beginning on March 1, 1999, 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 B
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 B
Preferred Stock until the close of business on the redemption date.
Unless full accumulated dividends on all outstanding shares of the Series B
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 B Preferred Stock
is redeemed, and the Corporation may not purchase any shares of the Series
B Preferred Stock otherwise than pursuant to a purchase offer made on the
terms to all the holders of Series B Preferred Stock, provided that the
Corporation may complete the purchase or redemption of shares of Series B
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 B 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 B 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 B Preferred Stock are
convertible into shares of Common Stock at a conversion rate of 16.67
shares of Common Stock for one share of Preferred Stock.
Shares of Series B 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 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
<PAGE>
the dividend due on such dividend payment date. A holder of Series B
Preferred Stock on a dividend payment record date who (or whose transferee)
converts shares of Series B 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 B 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 B 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 B 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 B Preferred Stock shall
after such consolidation, merger, sale or transfer have the right to
convert such share of Series B 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 B 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 7th day of July, 1997.
GREAT PINES WATER COMPANY, INC.
By:____________________________________________
Robert A. Hammond, Jr.
ATTEST:
__________________________________
Robert A. Hammond, Sr.
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