-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PzwoWGJMRKCJukJkC4yKGZCc0iNVUeokULHW8iy3cPQFiQ57DGswNZp1eWb3VIGW V4SsDLmdNB7dj6Sqnubmeg== 0000950144-99-012227.txt : 19991101 0000950144-99-012227.hdr.sgml : 19991101 ACCESSION NUMBER: 0000950144-99-012227 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19991029 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAHAINA ACQUISITIONS INC CENTRAL INDEX KEY: 0000855684 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 841325695 STATE OF INCORPORATION: CO FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-27480 FILM NUMBER: 99737444 BUSINESS ADDRESS: STREET 1: 5895 WINDWARD PARKWAY STREET 2: SUITE 200 CITY: ALPHARETTA STATE: GA ZIP: 30005 BUSINESS PHONE: 7707546140 MAIL ADDRESS: STREET 1: 5895 WINDWARD PARKWAY STREET 2: SUITE 200 CITY: ALPHARETTA STATE: GA ZIP: 30005 10-Q/A 1 LAHAINA ACQUISITIONS, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-Q/A QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended Commission File Number March 31, 1999 #0-27480 LAHAINA ACQUISITIONS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) COLORADO 84-1325695 (State or Other Jurisdiction of (IRS Employer Identification No.) Incorporation or Organization) 5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30005 ------------------------------------------------------------ (Address, Including Zip Code, of Principal Executive Offices) Registrant's Telephone Number, Including Area Code (770) 754-6140 NOT APPLICABLE -------------- (Former Name, Former Address, and Former Fiscal Year If Changed since Last Report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act or 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No --- --- Indicate the number of shares of each of the issuer's classes of common stock, as of the latest practical date. Class of Common Stock Outstanding at May 16, 1999 no par value 2,321,500 shares 2 LAHAINA ACQUISITIONS, INC. AND SUBSIDIARIES INDEX TO FORM 10-Q
PART I -- FINANCIAL INFORMATION PAGE ITEM 1 Financial Statements Consolidated Balance Sheets for March 31, 1999 3 and for December 7, 1998 Consolidated Statements of Operations for the 4 Three Months Ended March 31, 1999 and for the Period from Inception to March 31, 1999 Consolidated Statements of Changes in Shareholders' 5 Equity for the Period from Inception to March 31, 1999 Consolidated Statements of Cash Flows for the 6 Period from Inception to March 31, 1999 Notes to Consolidated Financial Statements for 7 the Period from Inception to March 31, 1999 ITEM 2 Management's Discussion and Analysis of Financial 13 Condition and Results of Operations PART II -- OTHER INFORMATION ITEM 6 Exhibits and Reports on Form 8-K 15 SIGNATURES
-2- 3 LAHAINA ACQUISITIONS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 (UNAUDITED) DECEMBER 7, 1999 -------------- ---------------- ASSETS Current Assets Cash................................................... $ 50,604 $ -- Accounts Receivable.................................... 31,000 -- Prepaid Expenses....................................... 12,781 17,281 Note Receivable........................................ -- -- Escrow Funds........................................... 31,000 30,000 ---------- ---------- Total Current Assets...................................... 125,385 47,281 Fixed Assets Land................................................... 400,000 400,000 Buildings.............................................. 2,434,289 2,403,623 Equipment.............................................. 150,279 143,738 Accumulated Depreciation............................... (55,179) (24,389) ---------- ---------- Total Fixed Assets........................................ 2,929,389 2,922,972 Other Assets Offering Costs & Reserve............................... 139,251 -- Notes Receivable....................................... 149,700 -- Other.................................................. 22,500 -- ---------- ---------- 311,451 -- TOTAL ASSETS................................................ $3,366,225 $2,970,253 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Current Liabilities Accounts Payable....................................... 201,241 4,250 Notes Payable -- Shareholder........................... 135,367 -- Notes Payable -- Others................................ 465,000 180,000 Accrued Interest Payable............................... 27,400 -- Other Current Liabilities.............................. -- -- Security Deposits Payable.............................. 9,000 9,000 ---------- ---------- Total Current Liabilities................................. 838,008 193,250 Long-Term Debt Note Payable -- Mortgage............................... 1,550,000 1,550,000 Note Payable -- Convertible Debenture.................. 775,000 -- ---------- ---------- Total Long-Term Debt...................................... 2,325,000 1,550,000 ---------- ---------- TOTAL LIABILITIES........................................... 3,163,008 1,743,250 SHAREHOLDERS' EQUITY Preferred Series A Convertible Stock, 10,000,000 Shares Authorized, 1,910,000 shares Issued and Outstanding at March 31, 1999 (Unaudited) and December 7, 1998........... -- -- Common Stock $1.00 Par Value, 500 Shares Authorized, 500 Shares Issued and Outstanding at December 7, 1998......... -- 500 Common Stock, No Par Value, 800,000,000 Shares Authorized, 2,321,500 Shares Issued and Outstanding at March 31, 1999 (Unaudited)............................. 603,004 -- Additional Paid-In capital -- Common Stock.................. -- 1,247,069 Retained Deficit............................................ (399,787) (20,566) ---------- ---------- TOTAL SHAREHOLDERS' EQUITY.................................. 203,217 1,227,003 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $3,366,225 $2,970,253 ========== ==========
The accompanying notes are an integral part of these financial statements. -3- 4 LAHAINA ACQUISITIONS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS From inception (September 25, For the Three 1998) through Months Ended March 31, 1999 March 31, 1999 (Unaudited) ---------------------------------- Revenue.............................. $ 65,000 $ 81,555 Operating Expense ................... 158,144 355,102 ----------- ---------- Operating Loss ...................... $ (93,144) $(273,547) Interest Expense..................... (103,534) (126,240) ----------- ---------- Net Loss ............................ (196,678) (399,787) ----------- ---------- INCOME PER SHARE: Basic ............................... (0.08) (0.17) Shares for basic .................... 2,321,500 2,321,500 Diluted ............................. (0.08) (0.17) Shares for diluted .................. 5,298,798 5,298,798 The accompanying notes are an integral part of these financial statements. -4- 5 LAHAINA ACQUISITIONS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
SERIES A PREFERRED COMMON STOCK -- NO STOCK -- NO PAR VALUE PAR VALUE ADDITIONAL TOTAL ---------------------- -------------------- PAID-IN RETAINED STOCKHOLDERS' SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY ---------- ------- --------- ------ ---------- --------- ------------- Balance at September 24, 1998 (date of inception).............................. -- $ -- -- $ -- $ -- $ -- $ -- Issuance of common stock................. -- -- 500 500 -- -- 500 Non-cash capital contributions........... -- -- -- -- 1,247,069 -- 1,247,069 Net loss................................. -- -- -- -- -- (20,566) (20,566) --------- ----- --------- ----- ---------- --------- ---------- Balance at December 7, 1998.............. -- -- 500 500 1,247,069 (20,566) 1,227,003 Adjustment for Merger.................... -- -- -- (500) 500 -- -- --------- ----- --------- ----- ---------- --------- ---------- Balance at December 7, 1998, as adjusted. -- -- 500 -- 1,247,569 (20,566) 1,227,003 Cash Distribution........................ -- -- -- -- (667,500) -- (667,500) Issuance of common/preferred stock for acquired company........................ 1,910,000 -- 2,246,500 -- (7,065) -- (7,065) Net Loss................................. -- -- -- -- -- (182,543) (182,543) --------- ----- --------- ----- ---------- --------- ---------- Balance at December 31, 1998 (Unaudited)............................. 1,910,000 -- 2,246,500 -- 573,004 (203,109) 369,895 Issuance of common stock................. -- -- 75,000 -- 30,000 -- 30,000 Net Loss................................. -- -- -- -- -- (196,678) (196,678) --------- ----- --------- ----- ---------- --------- ---------- Balance at March 31, 1999 (Unaudited).... 1,910,000 $ -- 2,321,500 $ -- $ 603,004 $(399,787) $ 203,217 ========= ===== ========= ===== ========== ========= ==========
The accompanying notes are an integral part of these financial statements. -5- 6 LAHAINA ACQUISITIONS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
From Inception (September 25, 1998) through March 31, 1999 (Unaudited) ------------------- Net loss ........................................................ $ (399,787) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation ................................................. 30,790 Expenses paid on behalf of the company by the majority shareholder................................................. 11,538 (Increase) decrease in: Accounts receivable........................................ (31,000) Prepaid expenses and other assets.......................... (16,446) Escrow funds .......................................... (1,000) Notes payable.............................................. (149,700) Offering costs........... ................................. (139,251) Increase in accounts payable ................................. 221,548 ----------- Net cash used in operating activities ........................... (473,308) ----------- CASH FLOWS USED IN INVESTING ACTIVITIES -- capital expenditures .......................................... (33,955) ----------- CASH FLOWS PROVIDED BY FINANCING ACTIVITIES: Proceeds from the issuance of notes payable................ 1,195,367 Proceeds from issuance of common stock .................... 30,000 Cash distribution ......................................... (667,500) Repurchase and retirement of common stock ................. -- ----------- Net cash provided by financing activities ....................... 557,867 ----------- Net increase in cash ............................................ 50,604 Cash at beginning of period...................................... -- ----------- Cash at end of period ........................................... $ 50,604 =========== Supplemental disclosure of non-cash items Non-cash capital contribution by majority stockholder.......... 1,247,569 =========== Purchase of Lahaina Acquisitions, Inc. ........................ $ (7,065) ===========
The accompanying notes are an integral part of these financial statements. -6- 7 LAHAINA ACQUISITIONS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements Period from Inception (September 25, 1998) through March 31, 1999 (Unaudited) NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This summary of significant accounting policies is presented to assist in understanding the Registrant's financial statements. The financial statements and notes are representations of the Registrant's management, who are responsible for their integrity and objectivity. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. All adjustments have been made that, in the opinion of management, are necessary for a fair statement of the results of the interim period. Other than the acquisition of Beachside Commons I, Inc. ("Beachside") described in Note O, all adjustments made have been of a normal and recurring nature. These accounting policies conform to generally accepted accounting principles and have been applied in the preparation of the financial statements. REGISTRANT'S ACTIVITIES AND OPERATING CYCLE Lahaina Acquisitions, Inc. (the "Registrant") is engaged in real estate development and property management. The Registrant's fiscal year ends September 30. On December 14, 1998, the Company acquired Beachside Commons I, Inc. (Beachside) from Mongoose Investments, LLC ("Mongoose") in a transaction accounted for as a reverse acquisition (see Note M "SIGNIFICANT EVENTS"). The Registrant's financial statements have been prepared in conformity with principles of accounting applicable to a going concern. These principles contemplate the realization of assets and liquidation of liabilities in the normal course of business. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Registrant and its wholly owned subsidiary, Beachside. All significant intercompany accounts and transactions have been eliminated in consolidation. CASH AND CASH EQUIVALENTS The Registrant considers all highly liquid investments with maturity of three months or less to be cash equivalents for the purpose of determining cash flows. PROPERTY, EQUIPMENT AND DEPRECIATION Property and equipment are stated at cost. Depreciation is provided by straight-line methods for financial reporting and accelerated methods for income tax purposes over estimated useful lives, which range from 5 to 39.5 years. NOTE B - ACCOUNTS RECEIVABLE Accounts receivable includes stock subscriptions receivable of $20,000 for 50,000 shares (total) of common stock per agreements with two directors. Subsequently, the full amount has been received and the stock issues have been delivered. NOTE C - NOTES RECEIVABLE Notes receivable consists of two loans: An operating loan to a customer, secured by security interest in outstanding stock, due through December 31, 1999, bearing interest at a rate of prime plus three (3) percentage points (10.75% at March 31, 1999). $89,700
-7- 8 An operating loan to 1st Southern Mortgage, secured by security interest in outstanding stock, due through December 31, 1999, bearing interest at 10% per annum. $ 60,000
NOTE D - OFFERING COSTS - RESERVE Offering costs reserve consists of costs incurred in preparation of the S-1 Registration Statement filing in the amount of $139,251. Upon completion of the S-1 Registration Statement, these costs will be charged against the equity accounts. If the S-1 Registration Statement is abandoned, these costs will be expensed as administrative costs. NOTE E - NOTES PAYABLE The carrying amount of notes payable approximates fair value and is based on the current rates available to the Registrant for debt of the same remaining maturities with similar collateral requirements. Notes payable at March 31, 1999, consisted of the following: Working capital loan from GCA Strategic Investment Fund, Ltd., dated January 19, 1999, with notes to be funded to $300,000. The purchase price of the note is $850 per $1,000 par value amount purchased. The Registrant used $180,000 of the credit line on January 19, 1999, which is due and payable April 22, 1999. The Registrant used $60,000 of option notes on March 10, 1999, and $60,000 on March 31, 1999, with terms of 90 days from the date the option notes were funded. $ 300,000 Note payable, stockholder, consists of a revolving line of credit, due on demand to a related party, with a maximum borrowing facility of $300,000, bearing interest at 10%, unsecured, revolving line of credit, due on demand. $ 135,367 Notes payable, others, consists of three notes, at an interest rate of 18% payable on demand, from individuals in the amounts of $95,000(2), $50,000, and $20,000. $ 165,000
NOTE F - LONG-TERM DEBT Long-term debt at March 31, 1999, consisted of the following: Note payable to Pacific Coast Investment Company (secured by a first mortgage on the Beachside Commons property), at an interest rate of 15% payable in monthly installments of interest only. The entire principal is due and payable November 11, 2003. $1,550,000
-8- 9 Note payable to GCA Strategic Investment Fund, Ltd.(1), dated December 4, 1998 (secured by a second mortgage on the Beachside Commons property), and a $25,000 note payable to GCA Strategic Investment Fund, Ltd. dated November 4, 1998, both at an interest rate of 9%, maturing January 31, 2001 with interest payable quarterly in arrears on the last day of March, June, September and December of each year until the maturity date. (Note O - Significant Events) $ 775,000 (Note Q - Subsequent Events) ---------- $2,325,000 ==========
(1) These notes include certain provisions, including issuance of warrants and conversion to common stock (see Form 8-K dated 12/28/98 for details). Such shares have been included in the computation of the fully diluted share amounts. (2) The amount reported is $10,000 greater than the amount reported for the same note in the Quarterly Statement on Form 10-Q, filed February 24, 1999. Due to a clerical error, the note was issued in the amount of $85,000 as opposed to the agreed upon $95,000. Maturities of long-term debt are as follows:
Year Ending March 31 Amount ----------- ------ 1999 -0- 2000 -0- 2001 775,000 2002 -0- 2003 1,550,000
NOTE G - SHAREHOLDERS' EQUITY The components of shareholders' equity are as follows: -9- 10 Preferred stock consists of 9.5% cumulative preferred stock of no par value with a liquidation value at $1.00 per share for each outstanding share of Series A Preferred Stock. There are 10,000,000 shares of Series A Preferred Stock authorized with 1,910,000 shares issued and outstanding at March 31, 1999. This stock may be converted into Common Stock of the Registrant at $1.00 per share, or 1,910,000 shares, at the option of the holder. Common stock is voting stock with no par value. There are 800,000,000 shares authorized with 2,321,500 shares issued and outstanding at March 31, 1999. There are an additional 50,000 shares subscribed. NOTE H - RELATED PARTY TRANSACTIONS Included in current debt are loans to the Registrant from the majority shareholder, Mongoose Investments, LLC, (Mongoose), 1st Southern Mortgage, the Vice Chairman of which is a director of the Registrant and parties related to Mongoose, in the following amounts: Mongoose $136,337 1st Southern Mortgage 60,000 Other related parties 70,000
Mongoose owns 1,775,000 of the 2,321,500 shares of the Registrant's Common Stock currently outstanding or approximately 76% of such shares. Mongoose has rights to own an additional 1,910,000 additional shares of Common Stock upon conversion of its Series A Preferred Stock. NOTE I - INCOME TAXES The Registrant has net operating loss carry-forwards of approximately $316,000 which are available to offset future taxable income. The loss carry-forwards expire $8,000 in 2016, $46,000 in 2017, $53,000 in 2018 and $209,000 in 2019. A valuation has been established in the full amount of the deferred tax benefit resulting from the net operating loss carry-forwards for each of the periods ending March 31, 1999. NOTE J - EARNINGS PER SHARE Basic earnings per share was calculated using the 2,321,500 shares outstanding at March 31, 1999. Fully diluted shares would have been computed as follows: Shares outstanding at March 31, 1999 2,321,500 Assumes conversion of the outstanding 1,910,000 shares Series A Convertible Preferred Stock Assumes conversion of the $775,000 Convertible Debenture 910,924 Assumes exercise of the Warrant attached to the 84,124 Line of Credit Assumes exercise of the December 4, 1998 Warrant 65,306 Assumes exercise of the Warrant attached to the Convertible Debenture 6,944 Assumes exercise of the Right 25,000 --------- Fully diluted shares 5,298,798 =========
-10- 11 NOTE K - LEGAL PROCEEDINGS The Registrant is party from time to time to various legal proceedings. The Registrant currently has a claim arising out of the construction phase of the Beachside project in the total amount of $30,000. While it expects to prevail favorably in this proceeding, it has placed sufficient funds in escrow to accommodate any liabilities in this matter. In the opinion of management, these proceedings are expected to have no material impact on the Registrant's financial position or results of operations. NOTE L - RESERVE FOR DOUBTFUL ACCOUNTS The Registrant has not taken any reserves for its accounts receivable or notes receivable at this time, though it may change this policy in the future based on its experiences with respect to collections. NOTE M - SIGNIFICANT EVENTS On December 14, 1998, the Registrant purchased all of the outstanding shares of Beachside in a transaction accounted for as a reverse acquisition. In accordance with the provisions of Staff Accounting Bulletin No. 97, Beachside was deemed to be the accounting acquirer of Lahaina as its stockholders received the largest portion of the voting rights in the combined corporation. The acquired company, Lahaina, was recorded at its historical cost basis, as it was a shell company prior to its acquisition of Beachside. A summary of the transaction follows. Acquisition Transaction On December 14, 1998, the Registrant purchased all of the outstanding stock of Beachside from Mongoose. The purchase was deemed effective as of December 7, 1998. Beachside is the owner of a commercial real estate development located on Fernandina Beach, Florida in the resort area of Amelia Island, Northeast Florida. The Registrant paid the following for the Beachside stock: 1,250,000 newly issued shares of Common Stock of the Registrant; 1,910,000 newly issued shares of Series A of Preferred Stock, of the Registrant which shares are convertible into 1,910,000 shares of Common Stock; and $667,500 in cash, which was a portion of the $750,000 borrowed in connection with this transaction by the Registrant under the Original Note, before amendment. At the same time, Mongoose purchased 750,000 shares of Common Stock from Paxford Investments, Ltd., ("Paxford") an existing shareholder of the Registrant, for $300,000. The Stock Purchase Agreement, the Original Note and the related Securities Purchase Agreement, Registration Rights Agreement, Stock Pledge Agreement and Warrant are attached as Exhibits or incorporated by reference to this Form 10-Q. As a result of the above transactions, a change in the control of the Registrant has occurred in that Mongoose owns 1,775,000 shares of the 2,321,500 shares of Common Stock currently outstanding or approximately 76% of such shares. Mongoose could own an additional 1,910,000 shares of Common Stock upon conversion of its Series A Preferred Stock. It is currently estimated that the conversion of the convertible debenture and the exercise of the warrants will result in an additional 1,200,000 to 2,100,000 shares of Common Stock being issued. According to current estimates, the convertible debenture as amended will convert into 910,924 shares of Common Stock. The warrant attached to the line of credit is exercisable for 84,124 shares of Common Stock, the warrant issued December 4, 1998 is exercisable for 65,306 shares of Common Stock, the warrant attached to the convertible debenture is exercisable for 6,944 shares of Common Stock and the Right is exercisable for 25,000 shares of Common Stock. Thus, after conversion of all convertible securities, it is likely that the Registrant will remain in the control of Mongoose for the foreseeable future. The Managing Member of Mongoose is Richard P. Smyth. The assets of Beachside consist of two buildings and unimproved real estate, leases to tenants in the buildings and minimal operating capital. The -11- 12 property is subject to (1) a first mortgage securing a loan in the amount of $1,550,000 bearing interest at 15% per annum, principal and interest payable and due December 1, 2001, and (2) a second mortgage in favor of GCA securing repayment of the Note. Once the Note is converted to Common Stock the second mortgage will be released. The Registrant intends to continue operating the developed portion of the Beachside property and intends to initiate and complete the development of the currently undeveloped portion of the Beachside property when appropriate financing can be obtained. Bridge Funding In order to raise the cash portion of the purchase price for the Beachside stock, the Registrant borrowed $750,000 from GCA. The costs associated with the transaction were the payment of an $82,500 consulting fee to affiliates of the Fund and the issuance of a Warrant to purchase 60,000 shares of Common Stock to LKB Financial, LLC in satisfaction of amounts owed to it for broker/finder services in connection with the transaction. The Registrant has received additional operating loans from GCA Strategic Investment Fund, Ltd. in the form of three ninety-day convertible notes that total $300,000. The notes include up-front charges totaling $48,000. The charges expensed during the six months ended March 31, 1999 totaled $25,500. The remaining discount on these notes of $22,500 will be expensed in the subsequent period. NOTE N - Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income, effective for fiscal years beginning after December 15, 1997. This statement, which must be adopted by the Registrant by fiscal year ended September 30, 1999, establishes standards for the reporting and display of comprehensive income and its components in financial statements. Comprehensive income generally represents all changes in shareholders' equity except those resulting from investments by and distributions to owners. The Registrant believes it is in compliance and this did not have any material impact on the Registrant. Currently, no differences exist between the Registrant's net income or loss and comprehensive net income or loss. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, Disclosures About Segments of an Enterprise and Related Information ("SFAS No. 131"), effective for fiscal years beginning after December 15, 1997. This statement, which must be adopted by the Registrant by fiscal year ended September 30, 1999, established standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report information about operating segments in interim financial reports. SFAS No. 131 also establishes standards for related disclosures about products and services, geographic areas and major customers. The Registrant believes it is in compliance and this did not have any material impact on the Registrant In March 1998, the American Institute of Certified Public Accounts ("AICPA") issued Statement of Position 98-1, Accounting for the Costs of Computer Software Developed For or Obtained For Internal Use ("SOP" No. 98-1"). SOP No. 98-1 is effective for fiscal years beginning after December 15, 1998. SOP No. 98-1 will require the capitalization of certain costs incurred after the date of adoption in connection with developing or obtaining software for internal-use. The Registrant believes it is in compliance and this did not have any material impact on the Registrant. NOTE O - SUBSEQUENT EVENTS As of March 31, 1999, the Registrant had agreements for the acquisition of three companies: Klein Real Estate Services ("KRES"), JP Concepts, Inc. ("JP Concepts") and 1st Southern Mortgage ("1st Southern"). All transactions are subject to the transfer of certain licenses. The common stock subscribed has been issued. Subsequently, there are 2,321,500 shares outstanding. -12- 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the results of operations and financial condition of the Registrant should be read in conjunction with the Registrant's Consolidated Financial Statements and Notes thereto immediately preceding this section. This discussion contains forward-looking statements based on current expectations which involve risks and uncertainties. Actual results and the timing of certain events may differ significantly from those projected in such forward-looking statements due to a number of factors, including, but not limited to, the possibilities that the demand for the Registrant's services may decline as a result of possible changes in general and industry specific economic conditions and the effects of competitive services and pricing, required financing may not be available upon terms acceptable to the Registrant, in which case the Registrant will not grow as expected, and such other risks and uncertainties as are described in reports and other documents filed by the Registrant from time to time with the Securities and Exchange Commission. OVERVIEW The Registrant was formed with the intent to actively seek, locate, evaluate, structure and complete mergers with or acquisitions of private companies, partnerships or sole proprietorships. The Registrant intends to implement a business strategy that will allow it to facilitate opportunistic acquisitions or investment in real estate, related operations and businesses with an emphasis on asset oriented opportunities, such as real estate equipment or other physical assets. On December 14, 1998, the Registrant purchased all of the outstanding shares of Beachside Commons I, Inc. ("Beachside") in a transaction accounted for as a reverse acquisition. In accordance with the provisions of Staff Accounting Bulletin No. 97, Beachside was deemed to be the accounting acquirer of Lahaina as its stockholders received the largest portion of the voting rights in the combined corporation. The acquired company, Lahaina, was recorded at its historical cost basis, as it was a shell company prior to its acquisition of Beachside. The acquisition of Beachside, whose main activity is real estate development and redevelopment and investment in businesses within resort market places, is consistent with that business strategy. Since inception, the Registrant generated no revenues until its acquisition of Beachside. RESULTS OF OPERATIONS Prior to December 14, 1998, the Registrant was a shell company and did not conduct an active business, and its historical results of operations were not meaningful. As a result of the Company's acquisition of Beachside on December 14, 1998, which was accounted for as a reverse acquisition, the Company has now become an operating entity. Three Months Ended March 31, 1999 For the three months ended March 31, 1999, the Registrant recorded revenues totaling $65,000, primarily attributable to rental revenue from its Beachside property. Operating expenses for the three months ended March 31, 1999 totaled $158,144, and are primarily expenses associated with operating Beachside, and administrative costs. Net interest expense for the three months ended March 31, 1999 totaled $103,534, principally relating to indebtedness associated with the Beachside property as well as to new borrowings. The Registrant recorded a net operating loss of $196,678 for the three months ended March 31, 1999. From Inception (September 25, 1998) through March 31, 1999 For the period from inception (September 25, 1998) through March 31, 1999, the Registrant recorded revenues totaling $81,555, primarily attributable to rental revenue from its Beachside property. Operating expenses for the period from inception (September 25, 1998) through March 31, 1999 totaled $355,102, and are primarily expenses associated with operating Beachside, as well as expenses associated with consummation of the acquisition of Beachside and administrative costs. Net interest expense for the period from inception (September 25, 1998) through March 31, 1999 totaled $126,240, principally relating to indebtedness associated with the Beachside property as well as to new borrowings. The Registrant recorded a net operating loss of $399,787 for the period from inception (September 25, 1998) through March 31, 1999. -13- 14 POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS AND SEASONALITY As a result of the Registrant's limited operating history in resort development and the emerging nature of the markets in which the Registrant competes, the Registrant is unable to accurately forecast its revenues. The Registrant's current and future expense levels are based predominantly on its operating plans and estimates of future revenues and, while relevant to management for planning purposes, should not be relied upon by potential investors. The Registrant may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in revenues would likely have an immediate material adverse effect on the Registrant's business, operating results and financial condition. Further, the Registrant currently intends to substantially increase its operating expenses to increase advertising, develop and offer new and expanded services, to fund increased sales and marketing and customer service operations and to develop its technology and systems. To the extent such expenses precede or are not subsequently followed by increased revenues, the Registrant's operating results will fluctuate and anticipated net losses in a given quarter may be greater than expected. The Registrant expects to experience significant fluctuations in its future quarterly operating results due to a variety of other factors, many of which are outside the Registrant's control. Factors that may adversely affect the Registrant's quarterly operating results include, but are not limited to (i) general economic conditions and economic conditions specific to the real estate industry, (ii) the level of use of resort facilities as well as seasonal fluctuation in vacationers' demands, (iii) the Registrant's ability to upgrade and develop its systems and infrastructure and to attract new personnel in a timely and effective manner, (iv) the amount and timing of operating costs and capital expenditures relating to expansion of the Registrant's business, operations and infrastructure, (v) governmental regulation, (vi) unforeseen events affecting the industry, and (vii) the timing associated with the start, completion and closing associated with the land development or construction activities of the Registrant. Due to the foregoing factors, quarterly revenues and operating results are difficult to forecast, and the Registrant believes that period-to-period comparisons of its operating results will not necessarily be meaningful and should not be relied upon as an indication of future performance. It is likely that the Registrant's future quarterly operating results from time to time will not meet the expectations of security analysts or investors. In such event, the price of the Registrant's Common Stock would likely be materially and adversely affected. LIQUIDITY AND CAPITAL RESOURCES Prior to December 14, 1998, the Registrant was a shell company and did not conduct an active business, and its historical results of operations were not meaningful. As a result of the Company's acquisition of Beachside on December 14, 1998, which was accounted for as a reverse acquisition, the Company became an operating entity. At March 31, 1999, the Registrant had cash and cash equivalents totaling $50,604. For the period from inception (September 25, 1998) through March 31, 1999, the Registrant used $473,308 of cash in operations, principally relating to its net loss and to a decrease in notes payable of $149,700. An increase in offering costs of $139,251 also contributed to cash flows used in operations. Cash flows used in investing activities during the period from inception (September 25, 1998) through March 31, 1999 totaled $33,955, attributable to capital expenditures. Cash flows provided by financing activities during the period from inception (September 25, 1998) through March 31, 1999 totaled $156,651, of which $1,195,367 was provided by an increase in notes payable and $667,500 was used for a cash distribution relating to the acquisition of Beachside. The increase in notes payable is primarily attributable to the issuance of $775,000 in convertible debentures. The Registrant is not presently generating positive cash flow, and its operations are presently consuming cash at a rate in excess of its present ability to generate cash. The Registrant's operations will continue to consume cash in excess of cash generated from operations for the foreseeable future. The Registrant believes that its current cash, cash equivalents and its debt arrangements will be sufficient to meet its anticipated cash needs for working capital and capital expenditures for at least the next several months. However, the Registrant's capital requirements depend on several factors, including the level of acquisition activity and other factors. The timing and amount of such capital requirements cannot accurately be predicted. If capital requirements vary materially from those currently planned, the Registrant may require additional financing sooner than anticipated. The Registrant has no commitments for any additional financing, and there can be no assurance that any such commitments can be obtained on favorable terms, if at all. Any additional equity financing may be dilutive to the Registrant's shareholders and debt financing, if available, may involve restrictive covenants with respect to dividends, raising capital and other financial and operational matters which could restrict its operations or finances. If the Registrant is unable to obtain additional financing as needed, the Registrant may be required to reduce the scope of its operations or its intended expansion, which could have a material adverse effect on the Registrant's business, results of operations and financial condition. -14- 15 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Registrant currently has a claim arising out of the construction phase of the Beachside project in the total amount of $30,000, as reported in the Registrant's Quarterly Statement on Form 10-Q, filed February 24, 1999. There have been no material developments since the previous report. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS
Number Description Page 2.1 Stock Purchase Agreement dated December 3, 1998, by and between Lahaina Acquisitions, Inc. and Mongoose Investments, LLC (1) 2.2 Common Stock Purchase Warrant in the amount of 60,000 shares to be issued by Lahaina Acquisitions, Inc. and purchased by LKB Financial, LLC, expiring on December 20, 2003 (1) 2.3 Common Stock Purchase Warrant in the amount of 100,000 shares to be issued by Lahaina Acquisitions, Inc. and purchased by GCA Strategic Investment Fund, Ltd., expiring on January 19, 2004 2.4 Common Stock Purchase Warrant in the amount of 15,000 shares to be issued by Lahaina Acquisitions, Inc. and purchased by LKB Financial, LLC, expiring on January 19, 2004 3.1 Articles of Incorporation (2) 3.2 Amendment to Certificate of Incorporation 3.3 Bylaws of the Registrant (2) 4.1 Securities Purchase Agreement dated December 7, 1998, by and between Lahaina Acquisitions, Inc. and GCA Strategic Investment Fund, Ltd. (1) 4.2 9% Convertible Note of Lahaina Acquisitions, Inc. payable to GCA Strategic Investment Fund, Ltd., in the principal amount of $750,000 (1) 4.3 Letter Agreement dated January 19, 1999 by and between Lahaina Acquisitions, Inc. and GCA Strategic Investment Fund, Ltd. amending 9% Convertible Note (3) 4.4 Registration Rights Agreement dated December 7, 1998, by and between Lahaina Acquisitions, Inc. and GCA Strategic Investment Fund, Ltd. (1) 4.5 Letter Agreement dated January 19, 1999 by and between Lahaina Acquisitions, Inc. and GCA Strategic Investment Fund, Ltd. confirming conversion of $25,000 Beachside Commons Note (3) 4.6 Working Capital Line dated January 1, 1999, by and between Lahaina Acquisitions, Inc. and GCA Strategic Investment, Ltd. (3) 4.7 Note Guaranty by Richard P. Smyth with respect to $300,000 of indebtedness of Lahaina Acquisitions, Inc. (3) 4.8 Line of Credit for up to $250,000 between Lahaina Acquisitions, Inc. and Mongoose Investments, LLC (3) 4.9 Form of Stock Certificate (2) 4.10 18% Note of Mongoose Investments, LLC payable to Elaine Oppenheimer, in the principal amount of $85,000. This note was transferred to Lahaina Acquisitions, Inc. on December 7, 1998 (3) 4.11 18% Note of Mongoose Investments, LLC payable to Nancy Estroff Smyth, in the principal amount of $50,000. This note was transferred to Lahaina Acquisitions, Inc. on December 7, 1998 (3) 4.12 18% Note of Mongoose Investments, LLC payable to Nancy Estroff Smyth, in the principal amount of $20,000. This note was transferred to Lahaina Acquisitions, Inc. on December 7, 1998 (3) 10 Contract of Engagement dated January 19, 1999 by and between Lahaina Acquisitions, Inc. and LKB Financial LLC (3)
-15- 16
Number Description Page 27 Financial Data Schedule (for SEC use only)
(1) Incorporated by reference to the Registrant's Current Report on Form 8-K, filed December 28, 1998. (2) Incorporated by reference to the Registration Statement on Form 10, filed December 29, 1995. (3) Incorporated by reference to the Quarterly Statement on Form 10-Q, filed February 24, 1999. (B) REPORTS ON FORM 8-K A report on Form 8-K was filed on February 10, 1999 reporting (i) a change in the Registrant's certifying accountant and (ii) that the company had formed, acquired or was in discussions to acquire a number of small businesses in order to complement its current operations and increase its overall size. -16- 17 SIGNATURES Pursuant to the requirements of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LAHAINA ACQUISITIONS, INC. (Registrant) By: /s/ L. Scott Demerau ---------------------------------- Name: L. Scott Demerau Title: President October 29, 1999 -17- EX-2.3 2 COMMON STOCK PURCHASE WARRANT / 100,000 SHARES 1 EXHIBIT 2.3 THIS COMMON STOCK PURCHASE WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS COMMON STOCK PURCHASE WARRANT, AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT ("PURCHASE AGREEMENT"), DATED DECEMBER 7, 1998, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS AMONG THE PARTIES, INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH LIMIT THE EXERCISE RIGHTS OF THE HOLDER AND SPECIFY MANDATORY REDEMPTION OBLIGATIONS OF THE COMPANY. THE PURCHASE AGREEMENT APPLIES TO THIS WARRANT ONLY TO THE EXTENT EXPRESSLY REFERENCED IN THE TEXT OF THIS WARRANT. -------------------------- COMMON STOCK PURCHASE WARRANT
No. 2 Number of shares: 100,000 Holder: GCA Strategic Investment Fund Limited Strike Price: $2.60 Mechanics Building Expiration Date: January 19, 2004 12 Church Street Hamilton HM II, Bermuda
For identification only. The governing terms of this Warrant are set forth below. Lahaina Acquisitions, Inc., a Colorado corporation (the "Company"), hereby certifies that, for value received, GCA Strategic Investment Fund Limited or assigns, is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time after the date hereof and prior to the fifth anniversary hereof (the "Exercise Period"), at the Purchase Price hereinafter set forth, One Hundred Thousand (100,000) shares of fully paid and nonassessable shares of Common Stock of the Company. The number and character of 2 such shares of Common Stock and the Purchase Price are subject to adjustment as provided herein. The purchase price per share of Common Stock issuable upon exercise of this Warrant (the "Purchase Price") shall be Two Dollars and Sixty Cents ($2.60); provided, however, that the Purchase Price shall be adjusted from time to time as provided herein. Capitalized terms used herein not otherwise defined shall have the meanings ascribed thereto in the Purchase Agreement. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include Lahaina Acquisitions, Inc., and any corporation that shall succeed or assume the obligations of such corporation hereunder. (b) The term "Common Stock" includes (a) the Company's common stock, no par value per share, (b) any other capital stock of any class or classes (however designated) of the Company, authorized on or after such date, the Holders of which shall have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference, and the Holders of which shall ordinarily, in the absence of contingencies, be entitled to vote for the election of a majority of directors of the Company (even though the right so to vote has been suspended by the happening of such a contingency) and (c) any other securities into which or for which any of the securities described in (a) or (b) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. (c) The term "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) that the Holder of this warrant at any time shall be entitled to receive, or shall have received, on the exercise of this Warrant, in lieu of or in addition to Common Stock, or that at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4 or otherwise. 1. Exercise of Warrant 1.1 Method of Exercise. a. This warrant may be exercised in whole or in part (but not as to a fractional share of Common Stock), at any time and from time to time during the Exercise Period by the Holder hereof by delivery of a notice of exercise (a "Notice of Exercise") substantially 3 in the form attached hereto as Exhibit A via facsimile to the Company. Promptly thereafter the Holder shall surrender this Warrant to the Company at its principal office, accompanied by payment of the Purchase Price multiplied by the number of shares of Common Stock for which this Warranty is being exercised (the "Exercise Price"). Payment of the Exercise Price shall be made, at the option of the Holder, (i) by check or bank draft payable to the order of the Company, (ii) by wire transfer to the account of the Company, (iii) in shares of Common Stock having a Market Value on the Exercise Date (as hereinafter defined) equal to the aggregate Exercise Price or (iv) by presentation and surrender of this Warrant to be Company for cashless exercise (a "Cashless Exercise"), which such surrender being deemed a waiver of the Holder's obligations to pay all or any portion of the Exercise Price. In the event the Holder elects a Cashless Exercise (which such election shall be irrevocable) the Holder shall exchange this Warrant for that number of shares of Common Stock determined by multiplying the number of shares of Common Stock being exercised by a fraction, the numerator of which shall be the difference between the then current Market Value of the Common Stock and the Purchase Price, and the denominator of which shall be the then current Market Value of the Common Stock. If the amount of the payment received by the Company is less than the Exercise Price, the Holder will be notified of the deficiency and shall make payment in that amount within five (5) business days. In the event the payment exceeds the Exercise Price, the Company will promptly refund the excess to the Holder. Upon exercise, the Holder shall be entitled to receive, promptly after payment in full, one or more certificates, issued in the Holder's name or in such name or names as the Holder may direct, subject to the limitations on transfer contained herein, for the number of shares of Common Stock so purchased. The shares of Common Stock so purchased shall be deemed to be issued as of the close of business on the date on which the Company shall have received from the Holder payment in full of the Exercise Price (the "Exercise Date"). b. Notwithstanding anything to the contrary set forth herein, upon exercise of all or a portion of this Warrant in accordance with the terms hereof, the Holder shall not be required to physically surrender this Warrant to the Company. Rather, records showing the amount so exercised and the date of exercise shall be maintained on a ledger substantially in the form of Annex B attached hereto (a copy of which shall be delivered to the Company or transfer agent with each Notice of Exercise). It is specifically contemplated that the Holder hereof shall act as the calculation agent for all exercises of this Warrant. In the event of any dispute or discrepancies, such records maintained by the Holders shall be controlling and determinative in the absence of manifest error. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following an exercise of a portion of this Warrant, the number of shares of Common Stock represented by this Warranty will be the amount indicated on Annex B attached hereto (which may be less than the amount stated on the fact hereof). 4 1.2 Regulation D Restrictions. The Holder hereof represents and warrants to the Company that it has acquired this Warrant and anticipates acquiring the shares of Common Stock issuable upon exercise of the Warrant solely for its own account for investment purposes and not with a view to or for resale of such securities unless such resale has been registered with the Commission or an applicable exemption is available therefor. At the time this Warrant is exercised, the Company may require the Holder to state in the Notice of Exercise such representations concerning the Holder as are necessary or appropriate to assure compliance by the Holder with the Securities Act. 1.3 Limitation on Exercise. Notwithstanding the rights of the Holder to exercise all or a portion of this Warrant as described herein, such exercise rights shall be limited, solely to the extent set forth in the Purchase Agreement as if such provisions were specifically set forth herein. In addition, the number of shares of Common Stock issuable upon exercise of this Warrant is subject to reduction as specified in Section 10.3 of the Purchase Agreement. 2. Delivery of Stock Certificates, etc. on Exercise. As soon as practicable after the exercise of this Warrant, and in any event within five (5) business days thereafter, the Company at its expense (including the payment by it of any applicable issue, stamp or transfer taxes) will cause to be issued in the name of and delivered to the Holder thereof, or, to the extent permissible hereunder, to such other person as such Holder may direct, a certificate or certificates for the number of fully paid and nonassessable shares of Common Stock (or Other Securities) to which such Holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such Holder would otherwise be entitled, cash equal to such fraction multiplied by the then applicable Purchase Price, together with any other stock or other securities and property (including cash, where applicable) to which such Holder is entitled upon such exercise pursuant to Section 1 or otherwise. 3. Adjustment for Extraordinary Events. The Purchase Price to be paid by the Holder upon exercise of this Warrant, and the consideration to be received upon exercise of this Warrant, shall be adjusted in case at any time or from time to time pursuant to Article XI of the Purchase Agreement as if such provisions were specifically set forth herein. 4. No Impairment. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Warrant against impairment. Without limiting the generality of the foregoing, the Company (a) will not 5 increase the par value of any shares of stock receivable on the exercise of this Warrant above the amount payable therefor on such exercise, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and unassessable shares of stock on the exercise of this Warrant, and (c) will not transfer all or substantially all of its properties and assets to any other person (corporate or otherwise), or consolidate with or merge into any other person or permit any such person to consolidate with or merge into the Company (if the Company is not the surviving person), unless such other person shall expressly assume in writing and will be bound by all the terms of this Warrant. 5. Accountant's Certificate as to Adjustments. In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of this Warrant, the Company at its expense will promptly cause independent certified public accountants of national standing selected by the Company to compute such adjustment or readjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment and readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such issue or sale and as adjusted and readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the Holder of this Warrant, and will, on the written request at any time of the Holder of this Warrant, furnish to such Holder a like certificate setting forth the Purchase Price at the time in effect and showing how it was calculated. 6. Notices of Record Date, etc. In the event of (a) any taking by the Company of a record of the Holders of any class or securities for the purpose of determining the Holders thereof who are entitled to receive any dividends or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all the assets of the Company to or consolidation or merger of the Company with or into any other person, or 6 (c) any voluntary or involuntary dissolution, liquidation or winding up of the Company, then and in each such event the Company will mail or cause to be mailed to the Holder of this Warrant a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, and (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any, as of which the Holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for then and in each such event the Company will mail or cause to be mailed to the Holder of this Warrant a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount of character of such dividend, distribution or right, and (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any, as of which the Holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for securities or other property deliverable on such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up. Such notice shall be mailed at least 20 days prior to the date specified in such notice on which any action is to be taken. 7. Reservation of Stock, etc. Issuable on Exercise of Warrant. The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of this Warrant, all shares of Common Stock (or Other Securities) from time to time issuable on the exercise of this Warrant. 8. Exchange of Warrant. (a) On surrender for exchange of this Warrant, properly endorsed and in compliance with the restrictions on transfer set forth in the legend on the face of this Warrant, to the Company, the Company at its expense will issue and deliver to or on the order of the Holder thereof a new Warrant of like tenor, in the name of such Holder or as such Holder (on payment by such Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face of the Warrant so surrendered. (b) Upon written notice from the Purchasers that the Purchasers have elected to transfer amongst each other a portion of this Warrant, and issue and deliver to or on the order of the Holder thereof a new Warrant of like tenor, in the name of such Holder as the 7 Purchasers (on payment by such Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock as set forth in such notice reflecting such transfer. 9. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 10. Remedies. The Company stipulates that the remedies at law of the Holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 11. Negotiability, etc. This Warrant is issued upon the following terms, to all of which each Holder or owner hereof by the taking hereof consents and agrees. (a) title to this Warrant may be transferred by endorsement and delivery in the same manner as in the case of a negotiable instrument transferable by endorsement and delivery. (b) any person in possession of this Warrant properly endorsed is authorized to represent himself as absolute owner hereof and is empowered to transfer absolute title hereto by endorsement and delivery hereof to a bona fide purchaser hereof for value; each prior taker or owner waives and renounces all of his equities or rights in this Warrant in favor of such bona fide purchaser, and each such bona fide purchaser shall acquire absolute title hereto and to all rights represented hereby; (c) until this Warrant is transferred on the books of the Company, the Company may treat the registered Holder as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary; and (d) notwithstanding the foregoing, this Warrant may be sold, transferred or assigned except pursuant to an effective registration statement under the Securities Act or pursuant to an applicable exemption therefrom. 8 12. Notices, etc. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by such Holder or, until any such Holder furnishes to the Company any address, then to, and at the address of, the last Holder of this Warrant who has so furnished an address to the Company. 13. Miscellaneous. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be construed and enforced in accordance with and governed by the internal laws of the State of Georgia. The headings in this Warrant are for the purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. [SIGNATURE PAGE FOLLOWS] 9 DATED as of March 1999. --, Lahaina Acquisitions, Inc. By: ----------------------------------- Richard P. Smyth Chairman 10 EXHIBIT A FORM OF NOTICE EXERCISE - WARRANT (To be executed only upon exercise of the Warrant in whole or in part) To: Lahaina Acquisitions, Inc. The undersigned registered Holder of the accompanying Warranty, hereby exercises such Warrant or portion thereof for, and purchases thereunder, _______________1/ shares of Common Stock (as defined in such Warrant) and herewith makes payment therefor in the amount and manner set forth below, as of the date written below. The undersigned requests that the certificates for such shares of Common Stock be issued in the name of, and delivered to, ___________________________ whose address is __________________________________. The Exercise Price is paid as follows: [X] Bank draft payable to the Company in the amount of $__________. [X] Wire transfer to the account of the Company in the amount of $________. [X] Delivery of ______________ previously held shares of Common Stock having an aggregate Market Price of $___________. [X] Cashless exercise. Surrender of _________ shares purchasable under this Warrant for such shares of Common Stock issuable in exchange therefor pursuant to the Cashless Exercise provisions of the Warrant, as provided in Section 1.1(iv) thereto. Upon exercise pursuant to this Notice of Exercise, the Holder will be in compliance with the Limitation on Exercise (as defined in the Securities Purchase Agreement pursuant to which this Warrant was issued). Date: ---------------------------------- ------------------- (Name must conform to name of Holder as specified on the face of the Warrant) By: ------------------------ Name: ------------------- Title: ------------------- Address of Holder: -------------------------- -------------------------- -------------------------- Date of exercise: ------------------- - --------------------------- 1/ Insert the number of shares of Common Stock as to which the accompanying Warrant is being exercised. In the case of a partial exercise, a new Warrant or Warrants will be issued and delivered, representing the unexercised portion of the accompanying Warrant, to the Holder surrendering the same. 11 ANNEX B WARRANT EXERCISE LEDGER
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12 EXHIBIT 2.4 THIS COMMON STOCK PURCHASE WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS COMMON STOCK PURCHASE WARRANT, AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT ("PURCHASE AGREEMENT"), DATED DECEMBER 7, 1998, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS AMONG THE PARTIES, INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH LIMIT THE EXERCISE RIGHTS OF THE HOLDER AND SPECIFY MANDATORY REDEMPTION OBLIGATIONS OF THE COMPANY. THE PURCHASE AGREEMENT APPLIES TO THIS WARRANT ONLY TO THE EXTENT EXPRESSLY REFERENCED IN THIS TEXT OF THIS WARRANT. -------------------------- COMMON STOCK PURCHASE WARRANT No. 4 Number of shares: 15,000 Holder: LKB Financial LLC Strike Price: $2.16 106 Colony Park Drive Expiration Date: January 19, 2004 Suite 900 Cumming, GA 30040 For identification only. The governing terms of this Warrant are set forth below. Lahaina Acquisitions, Inc., a Colorado corporation (the "Company"), hereby certifies that, for value received, LKB Financial LLC or assigns, is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time after the date hereof and prior to the fifth anniversary hereof (the "Exercise Period"), at the Purchase Price hereinafter set forth, Fifteen Thousand (15,000) shares of fully paid and nonassessable shares 13 of Common Stock of the Company. The number and character of such shares of Common Stock and the Purchase Price are subject to adjustment as provided herein. The purchase price per share of Common Stock issuable upon exercise of this Warrant (the "Purchase Price") shall be Two Dollars and Sixteen Cents ($2.16); provided, however, that the Purchase Price shall be adjusted from time to time as provided herein. Capitalized terms used herein not otherwise defined shall have the meanings ascribed thereto in the Purchase Agreement. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: 1.The term "Company" shall include Lahaina Acquisitions, Inc., and any corporation that shall succeed or assume the obligations of such corporation hereunder. 2.The term "Common Stock" includes (a) the Company's common stock, no par value per share, (b) any other capital stock of any class or classes (however designated) of the Company, authorized on or after such date, the Holders of which shall have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference, and the Holders of which shall ordinarily, in the absence of contingencies, be entitled to vote for the election of a majority of directors of the Company (even though the right so to vote has been suspended by the happening of such a contingency) and (c) any other securities into which or for which any of the securities described in (a) or (b) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. 3.The term "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) that the Holder of this warrant at any time shall be entitled to receive, or shall have received, on the exercise of this Warrant, in lieu of or in addition to Common Stock, or that at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4 or otherwise. I.Exercise of Warrant A.Method of Exercise. 1.This warrant may be exercised in whole or in part (but not as to a fractional share of Common Stock), at any time and from time to time during the Exercise Period by the Holder hereof by delivery of a notice of exercise (a "Notice of Exercise") substantially in the form attached hereto as Exhibit A via facsimile to the Company. Promptly thereafter the Holder shall surrender this Warrant to the Company at its principal office, accompanied by payment of the Purchase Price multiplied by the number of shares of Common Stock for ATL/ 14 which this Warranty is being exercised (the "Exercise Price"). Payment of the Exercise Price shall be made, at the option of the Holder, (i) by check or bank draft payable to the order of the Company, (ii) by wire transfer to the account of the Company, (iii) in shares of Common Stock having a Market Value on the Exercise Date (as hereinafter defined) equal to the aggregate Exercise Price or (iv) by presentation and surrender of this Warrant to be Company for cashless exercise (a "Cashless Exercise"), which such surrender being deemed a waiver of the Holder's obligations to pay all or any portion of the Exercise Price. In the event the Holder elects a Cashless Exercise (which such election shall be irrevocable) the Holder shall exchange this Warrant for that number of shares of Common Stock determined by multiplying the number of shares of Common Stock being exercised by a fraction, the numerator of which shall be the difference between the then current Market Value of the Common Stock and the Purchase Price, and the denominator of which shall be the then current Market Value of the Common Stock. If the amount of the payment received by the Company is less than the Exercise Price, the Holder will be notified of the deficiency and shall make payment in that amount within five (5) business days. In the event the payment exceeds the Exercise Price, the Company will promptly refund the excess to the Holder. Upon exercise, the Holder shall be entitled to receive, promptly after payment in full, one or more certificates, issued in the Holder's name or in such name or names as the Holder may direct, subject to the limitations on transfer contained herein, for the number of shares of Common Stock so purchased. The shares of Common Stock so purchased shall be deemed to be issued as of the close of business on the date on which the Company shall have received from the Holder payment in full of the Exercise Price (the "Exercise Date"). 2.Notwithstanding anything to the contrary set forth herein, upon exercise of all or a portion of this Warrant in accordance with the terms hereof, the Holder shall not be required to physically surrender this Warrant to the Company. Rather, records showing the amount so exercised and the date of exercise shall be maintained on a ledger substantially in the form of Annex B attached hereto (a copy of which shall be delivered to the Company or transfer agent with each Notice of Exercise). It is specifically contemplated that the Holder hereof shall act as the calculation agent for all exercises of this Warrant. In the event of any dispute or discrepancies, such records maintained by the Holders shall be controlling and determinative in the absence of manifest error. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following an exercise of a portion of this Warrant, the number of shares of Common Stock represented by this Warranty will be the amount indicated on Annex B attached hereto (which may be less than the amount stated on the fact hereof). B.Regulation D Restrictions. The Holder hereof represents and warrants to the Company that it has acquired this Warrant and anticipates acquiring the shares of Common Stock issuable upon exercise of the Warrant solely for its own account for investment ATL/ 15 purposes and not with a view to or for resale of such securities unless such resale has been registered with the Commission or an applicable exemption is available therefor. At the time this Warrant is exercised, the Company may require the Holder to state in the Notice of Exercise such representations concerning the Holder as are necessary or appropriate to assure compliance by the Holder with the Securities Act. C.Limitation on Exercise. Notwithstanding the rights of the Holder to exercise all or a portion of this Warrant as described herein, such exercise rights shall be limited, solely to the extent set forth in the Purchase Agreement as if such provisions were specifically set forth herein. In addition, the number of shares of Common Stock issuable upon exercise of this Warrant is subject to reduction as specified in Section 10.3 of the Purchase Agreement. II.Delivery of Stock Certificates, etc. on Exercise. As soon as practicable after the exercise of this Warrant, and in any event within five (5) business days thereafter, the Company at its expense (including the payment by it of any applicable issue, stamp or transfer taxes) will cause to be issued in the name of and delivered to the Holder thereof, or, to the extent permissible hereunder, to such other person as such Holder may direct, a certificate or certificates for the number of fully paid and nonassessable shares of Common Stock (or Other Securities) to which such Holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such Holder would otherwise be entitled, cash equal to such fraction multiplied by the then applicable Purchase Price, together with any other stock or other securities and property (including cash, where applicable) to which such Holder is entitled upon such exercise pursuant to Section 1 or otherwise. III.Adjustment for Extraordinary Events. The Purchase Price to be paid by the Holder upon exercise of this Warrant, and the consideration to be received upon exercise of this Warrant, shall be adjusted in case at any time or from time to time pursuant to Article XI of the Purchase Agreement as if such provisions were specifically set forth herein. IV.No Impairment. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Warrant against impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of stock receivable on the exercise of this Warrant above the amount payable therefor on such exercise, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and unassessable shares of stock on the exercise of this Warrant, and (c) will not transfer all or ATL/ 16 substantially all of its properties and assets to any other person (corporate or otherwise), or consolidate with or merge into any other person or permit any such person to consolidate with or merge into the Company (if the Company is not the surviving person), unless such other person shall expressly assume in writing and will be bound by all the terms of this Warrant. V.Accountant's Certificate as to Adjustments. In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of this Warrant, the Company at its expense will promptly cause independent certified public accountants of national standing selected by the Company to compute such adjustment or readjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment and readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such issue or sale and as adjusted and readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the Holder of this Warrant, and will, on the written request at any time of the Holder of this Warrant, furnish to such Holder a like certificate setting forth the Purchase Price at the time in effect and showing how it was calculated. VI.Notices of Record Date, etc. In the event of 1.any taking by the Company of a record of the Holders of any class or securities for the purpose of determining the Holders thereof who are entitled to receive any dividends or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or 2.any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all the assets of the Company to or consolidation or merger of the Company with or into any other person, or 3.any voluntary or involuntary dissolution, liquidation or winding up of the Company, ATL/ 17 then and in each such event the Company will mail or cause to be mailed to the Holder of this Warrant a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, and (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any, as of which the Holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for then and in each such event the Company will mail or cause to be mailed to the Holder of this Warrant a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount of character of such dividend, distribution or right, and (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any, as of which the Holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for securities or other property deliverable on such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up. Such notice shall be mailed at least 20 days prior to the date specified in such notice on which any action is to be taken. VII.Reservation of Stock, etc. Issuable on Exercise of Warrant. The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of this Warrant, all shares of Common Stock (or Other Securities) from time to time issuable on the exercise of this Warrant. VIII.Exchange of Warrant. 1.On surrender for exchange of this Warrant, properly endorsed and in compliance with the restrictions on transfer set forth in the legend on the face of this Warrant, to the Company, the Company at its expense will issue and deliver to or on the order of the Holder thereof a new Warrant of like tenor, in the name of such Holder or as such Holder (on payment by such Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face of the Warrant so surrendered. 2.Upon written notice from the Purchasers that the Purchasers have elected to transfer amongst each other a portion of this Warrant, and issue and deliver to or on the order of the Holder thereof a new Warrant of like tenor, in the name of such Holder as the Purchasers (on payment by such Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock as set forth in such notice reflecting such transfer. ATL/ 18 IX.Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. X.Remedies. The Company stipulates that the remedies at law of the Holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. XI.Negotiability, etc. This Warrant is issued upon the following terms, to all of which each Holder or owner hereof by the taking hereof consents and agrees. 1.title to this Warrant may be transferred by endorsement and delivery in the same manner as in the case of a negotiable instrument transferable by endorsement and delivery. 2.any person in possession of this Warrant properly endorsed is authorized to represent himself as absolute owner hereof and is empowered to transfer absolute title hereto by endorsement and delivery hereof to a bona fide purchaser hereof for value; each prior taker or owner waives and renounces all of his equities or rights in this Warrant in favor of such bona fide purchaser, and each such bona fide purchaser shall acquire absolute title hereto and to all rights represented hereby; 3.until this Warrant is transferred on the books of the Company, the Company may treat the registered Holder as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary; and 4.notwithstanding the foregoing, this Warrant may be sold, transferred or assigned except pursuant to an effective registration statement under the Securities Act or pursuant to an applicable exemption therefrom. XII.Notices, etc. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by such Holder or, until ATL/ 19 any such Holder furnishes to the Company any address, then to, and at the address of, the last Holder of this Warrant who has so furnished an address to the Company. XIII.Miscellaneous. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be construed and enforced in accordance with and governed by the internal laws of the State of Georgia. The headings in this Warrant are for the purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. [SIGNATURE PAGE FOLLOWS] ATL/ 20 DATED as of March 1999. --, Lahaina Acquisitions, Inc. By: --------------------------------- Richard P. Smyth Chairman 21 EXHIBIT A FORM OF NOTICE EXERCISE - WARRANT (To be executed only upon exercise of the Warrant in whole or in part) To: Lahaina Acquisitions, Inc. The undersigned registered Holder of the accompanying Warranty, hereby exercises such Warrant or portion thereof for, and purchases thereunder, _______________1/ shares of Common Stock (as defined in such Warrant) and herewith makes payment therefor in the amount and manner set forth below, as of the date written below. The undersigned requests that the certificates for such shares of Common Stock be issued in the name of, and delivered to, ___________________________ whose address is __________________________________. The Exercise Price is paid as follows: [X] Bank draft payable to the Company in the amount of $__________. [X] Wire transfer to the account of the Company in the amount of $________. [X] Delivery of ______________ previously held shares of Common Stock having an aggregate Market Price of $___________. [X] Cashless exercise. Surrender of _________ shares purchasable under this Warrant for such shares of Common Stock issuable in exchange therefor pursuant to the Cashless Exercise provisions of the Warrant, as provided in Section 1.1(iv) thereto. Upon exercise pursuant to this Notice of Exercise, the Holder will be in compliance with the Limitation on Exercise (as defined in the Securities Purchase Agreement pursuant to which this Warrant was issued). Date:___________________ ___________________________ (Name must conform to name of Holder as specified on the face of the Warrant) By: ----------------------------- Name: ---------------------- Title: --------------------- Address of Holder: -------------------------- -------------------------- -------------------------- Date of exercise: -----------------------
- ---------------- 1/ Insert the number of shares of Common Stock as to which the accompanying Warrant is being exercised. In the case of a partial exercise, a new Warrant or Warrants will be issued and delivered, representing the unexercised portion of the accompanying Warrant, to the Holder surrendering the same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o. 4 Number of shares: 15,000 Holder: LKB Financial LLC Strike Price: $ 2.16 106 Colony Park Drive Expiration Date: January 19, 2004 Suite 900 Cumming, GA 30040 For identification only. The governing terms of this Warrant are set forth below. - -----------------------------------------------------------------------------------
Lahaina Acquisitions, Inc., a Colorado corporation (the "Company"), hereby certifies that, for value received, LKB Financial LLC or assigns, is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time after the date hereof and prior to the fifth anniversary hereof (the "Exercise Period"), at the Purchase Price hereinafter set forth, Fifteen Thousand (15,000) shares of fully paid and nonassessable shares of Common Stock of the Company. The number and character of such shares of Common Stock and the Purchase Price are subject to adjustment as provided herein. 2 The purchase price per share of Common Stock issuable upon exercise of this Warrant (the "Purchase Price") shall be Two Dollars and Sixteen Cents ($2.16); provided, however, that the Purchase Price shall be adjusted from time to time as provided herein. Capitalized terms used herein not otherwise defined shall have the meanings ascribed thereto in the Purchase Agreement. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include Lahaina Acquisitions, Inc., and any corporation that shall succeed or assume the obligations of such corporation hereunder. (b) The term "Common Stock" includes (a) the Company's common stock, no par value per share, (b) any other capital stock of any class or classes (however designated) of the Company, authorized on or after such date, the Holders of which shall have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference, and the Holders of which shall ordinarily, in the absence of contingencies, be entitled to vote for the election of a majority of directors of the Company (even though the right so to vote has been suspended by the happening of such a contingency) and (c) any other securities into which or for which any of the securities described in (a) or (b) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. (c) The term "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) that the Holder of this warrant at any time shall be entitled to receive, or shall have received, on the exercise of this Warrant, in lieu of or in addition to Common Stock, or that at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4 or otherwise. 1. Exercise of Warrant 1.1 Method of Exercise. (a) This warrant may be exercised in whole or in part (but not as to a fractional share of Common Stock), at any time and from time to time during the Exercise Period by the Holder hereof by delivery of a notice of exercise (a "Notice of Exercise") substantially in the form attached hereto as Exhibit A via facsimile to the Company. Promptly thereafter the Holder shall surrender this Warrant to the Company at its principal office, accompanied by payment of the Purchase Price multiplied by the number of shares of Common Stock for 3 which this Warranty is being exercised (the "Exercise Price"). Payment of the Exercise Price shall be made, at the option of the Holder, (i) by check or bank draft payable to the order of the Company, (ii) by wire transfer to the account of the Company, (iii) in shares of Common Stock having a Market Value on the Exercise Date (as hereinafter defined) equal to the aggregate Exercise Price or (iv) by presentation and surrender of this Warrant to be Company for cashless exercise (a "Cashless Exercise"), which such surrender being deemed a waiver of the Holder's obligations to pay all or any portion of the Exercise Price. In the event the Holder elects a Cashless Exercise (which such election shall be irrevocable) the Holder shall exchange this Warrant for that number of shares of Common Stock determined by multiplying the number of shares of Common Stock being exercised by a fraction, the numerator of which shall be the difference between the then current Market Value of the Common Stock and the Purchase Price, and the denominator of which shall be the then current Market Value of the Common Stock. If the amount of the payment received by the Company is less than the Exercise Price, the Holder will be notified of the deficiency and shall make payment in that amount within five (5) business days. In the event the payment exceeds the Exercise Price, the Company will promptly refund the excess to the Holder. Upon exercise, the Holder shall be entitled to receive, promptly after payment in full, one or more certificates, issued in the Holder's name or in such name or names as the Holder may direct, subject to the limitations on transfer contained herein, for the number of shares of Common Stock so purchased. The shares of Common Stock so purchased shall be deemed to be issued as of the close of business on the date on which the Company shall have received from the Holder payment in full of the Exercise Price (the "Exercise Date"). (b) Notwithstanding anything to the contrary set forth herein, upon exercise of all or a portion of this Warrant in accordance with the terms hereof, the Holder shall not be required to physically surrender this Warrant to the Company. Rather, records showing the amount so exercised and the date of exercise shall be maintained on a ledger substantially in the form of Annex B attached hereto (a copy of which shall be delivered to the Company or transfer agent with each Notice of Exercise). It is specifically contemplated that the Holder hereof shall act as the calculation agent for all exercises of this Warrant. In the event of any dispute or discrepancies, such records maintained by the Holders shall be controlling and determinative in the absence of manifest error. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following an exercise of a portion of this Warrant, the number of shares of Common Stock represented by this Warranty will be the amount indicated on Annex B attached hereto (which may be less than the amount stated on the fact hereof). 1.2 Regulation D Restrictions. The Holder hereof represents and warrants to the Company that it has acquired this Warrant and anticipates acquiring the shares of Common Stock issuable upon exercise of the Warrant solely for its own account for investment 4 purposes and not with a view to or for resale of such securities unless such resale has been registered with the Commission or an applicable exemption is available therefor. At the time this Warrant is exercised, the Company may require the Holder to state in the Notice of Exercise such representations concerning the Holder as are necessary or appropriate to assure compliance by the Holder with the Securities Act. 1.3 Limitation on Exercise. Notwithstanding the rights of the Holder to exercise all or a portion of this Warrant as described herein, such exercise rights shall be limited, solely to the extent set forth in the Purchase Agreement as if such provisions were specifically set forth herein. In addition, the number of shares of Common Stock issuable upon exercise of this Warrant is subject to reduction as specified in Section 10.3 of the Purchase Agreement. 2. Delivery of Stock Certificates, etc. on Exercise. As soon as practicable after the exercise of this Warrant, and in any event within five (5) business days thereafter, the Company at its expense (including the payment by it of any applicable issue, stamp or transfer taxes) will cause to be issued in the name of and delivered to the Holder thereof, or, to the extent permissible hereunder, to such other person as such Holder may direct, a certificate or certificates for the number of fully paid and nonassessable shares of Common Stock (or Other Securities) to which such Holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such Holder would otherwise be entitled, cash equal to such fraction multiplied by the then applicable Purchase Price, together with any other stock or other securities and property (including cash, where applicable) to which such Holder is entitled upon such exercise pursuant to Section 1 or otherwise. 3. Adjustment for Extraordinary Events. The Purchase Price to be paid by the Holder upon exercise of this Warrant, and the consideration to be received upon exercise of this Warrant, shall be adjusted in case at any time or from time to time pursuant to Article XI of the Purchase Agreement as if such provisions were specifically set forth herein. 4. No Impairment. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Warrant against impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of stock receivable on the exercise of this Warrant above the amount payable therefor on such exercise, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid 5 and unassessable shares of stock on the exercise of this Warrant, and (c) will not transfer all or substantially all of its properties and assets to any other person (corporate or otherwise), or consolidate with or merge into any other person or permit any such person to consolidate with or merge into the Company (if the Company is not the surviving person), unless such other person shall expressly assume in writing and will be bound by all the terms of this Warrant. 5. Accountant's Certificate as to Adjustments. In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of this Warrant, the Company at its expense will promptly cause independent certified public accountants of national standing selected by the Company to compute such adjustment or readjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment and readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such issue or sale and as adjusted and readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the Holder of this Warrant, and will, on the written request at any time of the Holder of this Warrant, furnish to such Holder a like certificate setting forth the Purchase Price at the time in effect and showing how it was calculated. 6. Notices of Record Date, etc. In the event of (a) any taking by the Company of a record of the Holders of any class or securities for the purpose of determining the Holders thereof who are entitled to receive any dividends or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all the assets of the Company to or consolidation or merger of the Company with or into any other person, or (c) any voluntary or involuntary dissolution, liquidation or winding up of the Company, 6 then and in each such event the Company will mail or cause to be mailed to the Holder of this Warrant a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, and (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any, as of which the Holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for then and in each such event the Company will mail or cause to be mailed to the Holder of this Warrant a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount of character of such dividend, distribution or right, and (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any, as of which the Holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for securities or other property deliverable on such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up. Such notice shall be mailed at least 20 days prior to the date specified in such notice on which any action is to be taken. 7. Reservation of Stock, etc. Issuable on Exercise of Warrant. The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of this Warrant, all shares of Common Stock (or Other Securities) from time to time issuable on the exercise of this Warrant. 8. Exchange of Warrant. (a) On surrender for exchange of this Warrant, properly endorsed and in compliance with the restrictions on transfer set forth in the legend on the face of this Warrant, to the Company, the Company at its expense will issue and deliver to or on the order of the Holder thereof a new Warrant of like tenor, in the name of such Holder or as such Holder (on payment by such Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face of the Warrant so surrendered. (b) Upon written notice from the Purchasers that the Purchasers have elected to transfer amongst each other a portion of this Warrant, and issue and deliver to or on the order of the Holder thereof a new Warrant of like tenor, in the name of such Holder as the Purchasers (on payment by such Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock as set forth in such notice reflecting such transfer. 7 9. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 10. Remedies. The Company stipulates that the remedies at law of the Holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 11. Negotiability, etc. This Warrant is issued upon the following terms, to all of which each Holder or owner hereof by the taking hereof consents and agrees. (a) title to this Warrant may be transferred by endorsement and delivery in the same manner as in the case of a negotiable instrument transferable by endorsement and delivery. (b) any person in possession of this Warrant properly endorsed is authorized to represent himself as absolute owner hereof and is empowered to transfer absolute title hereto by endorsement and delivery hereof to a bona fide purchaser hereof for value; each prior taker or owner waives and renounces all of his equities or rights in this Warrant in favor of such bona fide purchaser, and each such bona fide purchaser shall acquire absolute title hereto and to all rights represented hereby; (c) until this Warrant is transferred on the books of the Company, the Company may treat the registered Holder as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary; and (d) notwithstanding the foregoing, this Warrant may be sold, transferred or assigned except pursuant to an effective registration statement under the Securities Act or pursuant to an applicable exemption therefrom. 12. Notices, etc. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by such Holder or, until 8 any such Holder furnishes to the Company any address, then to, and at the address of, the last Holder of this Warrant who has so furnished an address to the Company. 13. Miscellaneous. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be construed and enforced in accordance with and governed by the internal laws of the State of Georgia. The headings in this Warrant are for the purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. [SIGNATURE PAGE FOLLOWS] 9 DATED as of March __, 1999. Lahaina Acquisitions, Inc. By: ------------------------------------- Richard P. Smyth Chairman 10 EXHIBIT A FORM OF NOTICE EXERCISE - WARRANT (To be executed only upon exercise of the Warrant in whole or in part) To: Lahaina Acquisitions, Inc. The undersigned registered Holder of the accompanying Warranty, hereby exercises such Warrant or portion thereof for, and purchases thereunder, _______________1/ shares of Common Stock (as defined in such Warrant) and herewith makes payment therefor in the amount and manner set forth below, as of the date written below. The undersigned requests that the certificates for such shares of Common Stock be issued in the name of, and delivered to, ___________________________ whose address is ______________________________________________________________________________. The Exercise Price is paid as follows: [ ] Bank draft payable to the Company in the amount of $__________. [ ] Wire transfer to the account of the Company in the amount of $________. [ ] Delivery of ______________ previously held shares of Common Stock having an aggregate Market Price of $___________. [ ] Cashless exercise. Surrender of _________ shares purchasable under this Warrant for such shares of Common Stock issuable in exchange therefor pursuant to the Cashless Exercise provisions of the Warrant, as provided in Section 1.1(iv) thereto. Upon exercise pursuant to this Notice of Exercise, the Holder will be in compliance with the Limitation on Exercise (as defined in the Securities Purchase Agreement pursuant to which this Warrant was issued). Date: ------------------------------- ---------------------------------- (Name must conform to name of Holder as specified on the face of the Warrant) By: ---------------------------- Name: ----------------------- Title: ---------------------- Address of Holder: ----------------------------- ----------------------------- ----------------------------- Date of exercise: ------------------------- - ------------------------------- 1/ Insert the number of shares of Common Stock as to which the accompanying Warrant is being exercised. In the case of a partial exercise, a new Warrant or Warrants will be issued and delivered, representing the unexercised portion of the accompanying Warrant, to the Holder surrendering the same. 11 ANNEX B WARRANT EXERCISE LEDGER
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EX-3.2 4 AMENDMENT TO CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.2 AMENDMENT TO CERTIFICATE OF INCORPORATION OF LAHAINA ACQUISITIONS, INC. (Incorporated on April 5, 1989) Lahaina Acquisitions, Inc. (the "Corporation"), a corporation organized and existing under and by virtue of the Business Corporation Act of the State of Colorado (the "Colorado Law"), does hereby certify: I. That the Board of Directors of the Corporation, by a written consent executed in accordance with Section 7-108-202 of the Colorado Law as of December 14, 1998, adopted the following resolution: That the Certificate of Incorporation of the Corporation be amended to effect the preferences, limitations and relative rights of the Series A Preferred Stock as reflected in the Series A Preferred Stock Terms attached as Exhibit A. II. That the Series A Preferred Stock Terms are as follows: Rights, Preferences and Restrictions of Preferred Stock. The Preferred Stock authorized by the Articles of Incorporation of Lahaina Acquisitions, Inc. (the "Corporation") may be issued from time to time in one or more series. The rights, preferences, privileges, and restrictions granted to and imposed on the Series A Preferred Stock, which series shall consist of 3,000,000 shares of no par value per share Preferred Stock (the "Series A Preferred Stock") are set forth below. Dividend Provisions. Subject to the rights of any series of Preferred Stock that may from time to time come into existence, the holders of shares of Series A Preferred Stock shall be entitled to receive dividends out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of this Corporation) on the Common Stock of this Corporation, at the rate of $0.095 per share, per annum (as adjusted for any stock splits, stock dividends, recapitalizations or the like), payable when, as, and if declared by the Board of Directors. Such dividends are cumulative. The holders of the outstanding Series A Preferred Stock can waive any dividend preference that such holders shall be entitled to receive under this Section 1 2 upon the affirmative vote or written consent of the holders of a majority of the Series A Preferred Stock. 2. Liquidation Preference. (a) In the event of any liquidation, dissolution or winding up of this Corporation, either voluntary or involuntary, subject to the rights of series of Preferred Stock that may from time to time come into existence, the holders of Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of this Corporation to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to the sum of $1.00 for each outstanding share of Series A Preferred Stock (the "Series A Liquidation Price"), plus declared but unpaid dividends on such share (subject to adjustment of such fixed dollar amounts for any stock splits, stock dividends, combinations, recapitalizations or the like). (b) Upon completion of the distribution required by subsection (a) of this Section 2, all of the remaining assets of this Corporation available for distribution to stockholders shall be distributed among the holders of Series A Preferred Stock and Common Stock pro rata based on the number of shares of Common Stock held by each (assuming full conversion of all shares of Series A Preferred Stock). (c) (i) For purposes of this Section 2, a liquidation, dissolution or winding up of this Corporation shall be deemed to be occasioned by, or to include (unless the holders of a majority of the Series A Preferred Stock then outstanding shall determine otherwise), (A) the acquisition of this Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation) that results in the transfer of fifty percent (50%) or more of the outstanding voting power of this Corporation; or (B) a sale of all or substantially all of the assets of this Corporation. (ii) In any of such events, if the consideration received by this Corporation is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows: (A) Securities not subject to investment letter or other similar restrictions on free marketability covered by (B) below: (1) If traded on a securities exchange or through the Nasdaq National Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the thirty (30) day period ending three (3) days prior to the closing; 2 3 (2) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty (30) day period ending three (3) days prior to the closing; and (3) If there is no active public market, the value shall be the fair market value thereof, as mutually determined by this Corporation and the holders of at least a majority of the voting power of all then outstanding shares of Series A Preferred Stock. (B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in (A) (1), (2) or (3) to reflect the approximate fair market value thereof as mutually determined by this Corporation and the holders of at least a majority of the voting power of all then outstanding shares of such Series A Preferred Stock. (iii) In the event the requirements of this subsection 2(c) are not complied with, this Corporation shall forthwith either: (A) cause such transaction to be postponed until such time as the requirements of this Section 2 have been complied with; or (B) cancel such transaction, in which event the rights, preferences and privileges of the holders of the Series A Preferred Stock shall revert to and be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in subsection 2(c)(iv) hereof. (iv) This Corporation shall give each holder of record of Common Stock and Preferred Stock written notice of such impending transaction not later than twenty (20) days prior to the stockholders' meeting called to approve such transaction, or twenty (20) days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction and the provisions of this Section 2, and this Corporation shall thereafter give such holders prompt notice of any material changes. The transaction shall in no event take place sooner than twenty (20) days after this Corporation has given the first notice provided herein or sooner than ten (10) days after this Corporation has given notice of any material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of the holders of Common Stock and Preferred Stock that are entitled to such notice rights or similar notice rights and that represent at least a majority of the voting power of all then outstanding shares of such Common Stock and Series A Preferred Stock. 3 4 3. Redemption. The Series A Preferred Stock is redeemable only at the election of the Board of Directors of this Corporation upon 20 days notice to the holders of Series A Preferred Stock at a price per share equal to the Series A Liquidation Price plus accrued (whether or not declared) but unpaid dividends on each such share (subject to adjustment as set in Subsection 2(a). 4. Conversion. The holders of the Series A Preferred Stock shall have conversion rights as follows (the "Conversion Rights") (a) Right to Convert. Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, and until 5:00 p.m. Eastern Time of the day fixed for redemption as set forth in Section 3, at the office of this Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Series A Liquidation Price by the Conversion Price applicable to such share, determined as hereafter provided, in effect on the date the certificate is surrendered for conversion. The initial Conversion Price per share for shares of Series A Preferred Stock shall be $1.00, subject to adjustment as set forth in subsection 4(d). (b) Automatic Conversion. Each share of Series A Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Price at the time in effect for such Series A Preferred Stock immediately upon the earlier of (i) this Corporation's sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement on Form S-l or Form SB-2 under the Securities Act of 1933, as amended, the public offering price of which was not less than $10.00 per share (as adjusted for any stock splits, stock dividends, recapitalizations or the like) and $10,000,000 in the aggregate or (ii) the date specified by written consent or agreement of the holders of a majority of the then outstanding shares of Series A Preferred Stock. (c) Mechanics of Conversion. Before any holder of Series A Preferred Stock shall be entitled to convert the same into shares of Common Stock, he or she shall surrender the certificate or certificates therefor, duly endorsed, at the office of this Corporation or of any transfer agent for the Series A Preferred Stock and shall give written notice to this Corporation at its principal corporate office, of the election to convert the same and shall state therein the names or names in which the certificate or certificates for shares of Common Stock are to be issued. This Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series A Preferred Stock or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series A Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common 4 5 Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. If the conversion is in connection with an underwritten offering of securities registered pursuant to the Securities Act of 1933, the conversion may, at the option of any holder tendering Series A Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the persons entitled to receive the Common Stock upon conversion of the Series A Preferred Stock shall not be deemed to have converted such Series A Preferred Stock until immediately prior to the closing of such sale of securities. (d) Conversion Price Adjustments of Preferred Stock for Certain Dilution Issuances, Splits and Combinations. The Conversion Price of the Series A Preferred Stock shall be subject to adjustment from time to time as follows: (i) If this Corporation shall issue, after the date upon which any shares of Series A Preferred Stock were first issued (the "Purchase Date"), any Additional Stock (as defined below): (A) If such Additional Stock is issued without consideration or for a consideration per share less than the Conversion Price for such Series in effect immediately prior to the issuance of such Additional Stock, the Conversion Price for such Series in effect immediately prior to each such issuance shall forthwith (except as otherwise provided in this clause (i)) be adjusted to a price determined by multiplying such Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance (including shares of Common Stock deemed to be issued pursuant to subsection 4(d)(i)(E)(1) or (2)) plus the number of shares of Common Stock that the aggregate consideration received by this Corporation for such issuance would purchase at such Conversion Price and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance (including shares of Common Stock deemed to be issued pursuant to subsection 4(d)(i)(E)(1) or (2)) plus the number of shares of such Additional Stock. (B) No adjustment of the Conversion Price for the Series A Preferred Stock shall be made in an amount less than one cent per share, provided that any adjustments that are not required to be made by reason of this sentence shall be carried forward and shall be either taken into account in any subsequent adjustment made prior to three (3) years from the date of the event giving rise to the adjustment being carried forward, or shall be made at the end of three (3) years from the date of the event giving rise to the adjustment being carried forward. Except to the limited extent provided for in subsections (E)(3) and (E)(4), no adjustment of such Conversion Price pursuant to this subsection 4(d)(i) shall have the effect of increasing the 5 6 Conversion Price above the Conversion Price in effect immediately prior to such adjustment. (C) In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by this Corporation for any underwriting or otherwise in connection with the issuance and sale thereof. (D) In the case of the issuance of the Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as determined by the Board of Directors irrespective of any accounting treatment. (E) In the case of the issuance after the applicable Purchase Date of options to purchase or rights to subscribe for Common Stock, securities by their terms convertible into or exchangeable for Common Stock or options to purchase or rights to subscribe for such convertible or exchangeable securities, the following provisions shall apply for all purposes of this subsection 4(d)(i) and subsection 4(d)(ii): (1) The aggregate maximum number of shares of Common Stock deliverable upon exercise (assuming the satisfaction of any conditions to exercisability, including without limitation, the passage of time, but without taking into account potential antidilution adjustments) of such options to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration, determined in the manner provided in subsections 4(d)(i)(C) and (d)(i)(D), if any, received by this Corporation upon the issuance of such options or rights plus the minimum exercise price provided in such options or for the Common Stock covered thereby. (2) The aggregate maximum number of shares of Common Stock deliverable upon conversion of, or in exchange (assuming the satisfaction of any conditions to convertibility or exchangeability, including, without limitation, the passage of time, but without taking into account potential antidilution adjustments) for, any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such securities were issued or such options or rights were issued and for a consideration equal to the consideration, if any, received by this Corporation for any such securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by this Corporation upon the conversion or exchange of such securities or the 6 7 exercise of any related options or rights (the consideration in each case to be determined in the manner provided in subsections 4(d)(i)(C) and (d)(i)(D)). (3) In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to this Corporation upon exercise of such options or rights or upon conversion of or in exchange for such convertible or exchangeable securities, including, but not limited to, a change resulting from the antidilution provisions thereof (unless such options or rights or convertible or exchangeable securities were merely deemed to be included in the numerator and denominator for purposes of determining the number of shares of Common Stock outstanding for purposes of subsection 4(d)(i)(A)), the Conversion Price of the Series A Preferred Stock, to the extent in any way affected by or computed using such options, rights or securities, shall be recomputed to reflect such change, but no other adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such options or rights or the conversion or exchange of such securities. (4) Upon the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, the Conversion Price of the Series A Preferred Stock, to the extent in any way affected by or computed using such options, rights or securities or options or rights related to such securities (unless such options or rights were merely deemed to be included in the numerator and denominator for purposes of determining the number of shares of Common Stock outstanding for purposes of subsection 4(d)(i)(A)), shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and convertible or exchangeable securities that remain in effect) actually issued upon the exercise of such options or rights, upon the conversion or exchange of such securities or upon the exercise of the options or rights relates to such securities. (5) The number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to subsections 4(d)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either subsection 4(d)(i)(E)(3) or (4). (ii) "Additional Stock" shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to subsection 4(d)(i)(E)) by this Corporation after the Purchase Date other than: (A) Common Stock issued pursuant to a transaction described in subsection 4(d)(iii) hereof; or 7 8 (B) up to 100,000 shares of Common Stock (excluding shares repurchased at cost by this Corporation in connection with the termination of service) issuable or issued to employees, consultants, directors or vendors (if in transactions with primarily non-financing purposes) of this Corporation directly or pursuant to a stock option plan or restricted stock plan approved by the Board of Directors of this Corporation; or, (C) up to 1,000,000 shares of Common Stock issuable upon conversion of this Corporation's convertible debentures and warrants (subject to adjustment for any stock splits, stock dividends, combinations, recapitalization or the like). (iii) In the event this Corporation should at any time or from time to time after the Purchase Date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Conversion Price of the Series A Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of such Series shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents. (iv) If the number of shares of Common Stock outstanding at any time after the Purchase Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for the Series A Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of such Series shall be decreased in proportion to such decrease in outstanding shares. (e) Other Distributions. In the event this Corporation shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by this Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in subsection 4(d)(iii), then, in each such case for the purpose of this subsection 4(e), the holders of the Series A Preferred Stock, as the case may be, shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of this Corporation into which their 8 9 shares of Series A Preferred Stock, are convertible as of the record date fixed for the determination of the holders of Common Stock of this Corporation entitled to receive such distribution. (f) Recapitalizations. If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 4 or Section 2), provision shall be made so that the holders of the Series A Preferred Stock shall thereafter be entitled to receive upon conversion of the Series A Preferred Stock, the number of shares of stock or other securities or property of this Corporation or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of the Series A Preferred Stock after the recapitalization to the end that the provisions of this Section 4 (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of the Series A Preferred Stock shall be applicable after that event as nearly equivalent as may be practicable. (g) No Impairment. This Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by this Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series A Preferred Stock. (h) No Fractional Shares and Certificate as to Adjustments. (i) No fractional shares shall be issued upon the conversion of any share or shares of the Series A Preferred Stock and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share. Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Series A Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. (ii) Upon the occurrence of each adjustment or readjustment of the Conversion Price of Series A Preferred Stock pursuant to this Section 4, this Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series A Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. This 9 10 Corporation shall, upon the written request at any time of any holder of Series A Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price for such Series of Preferred Stock at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property that at the time would be received upon the conversion of a share of Series A Preferred Stock. (i) Notices of Record Date. In the event of any taking by this Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, this Corporation shall mail to each holder of Series A Preferred Stock at least twenty (20) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. (j) Reservation of Stock Issuable Upon Conversion. This Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series A Preferred Stock such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series A Preferred Stock, and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series A Preferred Stock, in addition to such other remedies as shall be available to the holder of such Preferred Stock, this Corporation shall take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite shareholder approval of any necessary amendment to this Corporation's Articles of Incorporation. (k) Notices. Any notice required by the provisions of this Section 4 to be given to the holders of shares of Series A Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of this Corporation. 5. Voting Rights. (a) General Voting Rights. The holder of each share of Series A Preferred Stock shall have the right to one vote for each share of Common Stock into which such Series A Preferred Stock, as the case may be, could then be converted, and with respect to such vote, except as set forth in Section 5(b), such holder (i) shall have 10 11 full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, (ii) shall be entitled, notwithstanding any provision hereof, to notice of any stockholders' meeting in accordance with the bylaws of this Corporation, and (iii) shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as-converted basis shall be rounded to the nearest whole number (with one-half being rounded upward). (b) Voting for the Election of Directors. The holders of shares of Series A Preferred Stock shall be entitled to elect one (1) director of this Corporation at each annual election of directors. The holders of Series A Preferred Stock and Common Stock (voting together as a single class and not as separate series, and on an as-converted basis) shall be entitled to elect any remaining directors of this Corporation. In the case of any vacancy (other than a vacancy caused by removal) in the office of a director occurring among the directors elected by the holders of a class or Series of stock pursuant to this Section 5(b), the remaining directors so elected by that class or Series may by affirmative vote of a majority thereof (or the remaining director so elected if there be but one, or if there are no such directors remaining, by the affirmative vote of the holders of a majority of the shares of that class or series), elect a successor or successors to hold office for the unexpired term of the director or directors whose place or places shall be vacant. Any director who shall have been elected by the holders of a class or Series of stock or by any directors so elected as provided in the immediately preceding sentence hereof may be removed during the aforesaid term of office, either with or without cause, by, and only by, the affirmative vote of the holders of the shares of the class or Series of stock entitled to elect such director or directors, given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders, and any vacancy thereby created may be filled by the holders of that class or Series of stock represented at the meeting or pursuant to unanimous written consent. 6. Protective Provisions. Subject to the rights of Series of Preferred Stock that may from time to time come into existence, so long as any shares of Series A Preferred Stock are outstanding, this Corporation shall not: (a) without first obtaining the approval (by vote or written consent, as provided by law) of the holders of a majority of the Series A Preferred Stock then outstanding voting together as a single class: (i) sell, convey, or otherwise dispose of all or substantially all of its property or business or merge into or consolidate with any other corporation (other than a wholly-owned subsidiary corporation) or effect any 11 12 transaction or series of related transactions in which more than fifty percent (50%) of the voting power of this Corporation is disposed of; (ii) redeem, purchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) any share or shares of Preferred Stock or Common Stock; provided, however, that this restriction shall not apply to the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for this Corporation or any subsidiary pursuant to agreements under which this Corporation has the option to repurchase such shares at cost or at cost upon the occurrence of certain events, such as the termination of employment; (iii) amend this Corporation's Articles of Incorporation or bylaws; (iv) declare or pay any dividends on any shares of capital stock; (v) do any act or thing which would result in taxation of the holders of shares of the Series A Preferred Stock under Section 305 of the Interna1 Revenue Code of 1986, as amended (or any comparable provision of the Internal Revenue Code as hereafter from time to time amended); or (vi) authorize or issue, or obligate itself to issue, any other equity security, including any other security convertible into or exercisable for any equity security having a preference over, or being on a parity with, the Series A Preferred Stock with respect to dividends, liquidation or voting. 7. Status of Converted Stock. In the event any shares of Series A Preferred Stock shall be converted pursuant to Section 4 hereof, the shares so converted shall be cancelled and shall not be issuable by this Corporation. The Articles of Incorporation of this Corporation shall be appropriately amended to effect the corresponding reduction in this Corporation's authorized capital stock. 12 13 IN WITNESS WHEREOF, Lahaina Acquisitions, Inc. has cause this Amendment to its Certificate of Incorporation to be executed by its duly authorized officer as of December 14, 1998. LAHAINA ACQUISITIONS, INC. By: -------------------------------- Name: Richard P. Smyth Title: Chairman ATTEST: - ------------------------------------ Name: Gerald F. Sullivan Title: Secretary 13 EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF LAHAINA ACQUISITIONS, INC. FOR MARCH 31, 1999 (UNAUDITED) AND THE STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 1999 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS SEP-30-1998 JAN-01-1998 MAR-31-1999 50,604 0 31,000 0 0 125,385 2,929,389 (55,179) 3,366,225 838,008 0 0 0 0 203,217 3,366,255 0 81,555 0 0 355,102 0 126,240 (399,787) 0 0 0 0 0 (399,787) (0.17) (0.17)
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