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SCHEDULE 14 C INFORMATION
Information Statement Pursuant to Section 14 (c)
of the Securities Exchange Act of 1934
Check the appropriate box:
/X/ Preliminary Information Statement
/ / Confidential for Use of the Commission (as permitted by
Rule 14c- 5(d)(2))
/ / Definitive Information Statement Only
CARING PRODUCTS INTERNATIONAL, INC.
-------------------------------------------------
(Name of Registrant As Specified in Charter)
Payment of filing Fee (check the appropriate box):
/ / No Fee Required
/X/ Fee computed on table below per Exchange Act Rules
14c-5(g) and 0-11
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.01 per share
-----------------------------------------
(2) Aggregate number of securities to which transaction applies:
1,528,172
-----------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
$0.01 per share, based on one-third of the par value of the shares
-----------------------------------------
(4) Proposed maximum aggregate value of transaction:
$15,282
-----------------------------------------
(5) Total fee paid:
$3
-----------------------------------------
/ / Fee paid previously with preliminary materials
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11 (a)(2) and identify the filing for
which the offsetting fee was paid.
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INFORMATION STATEMENT
SPIN-OFF
OF
CREATIVE PRODUCTS INTERNATIONAL, INC.
We are sending this Information Statement to you and all other holders
of Caring Products International, Inc. ("Caring Products") common stock in
connection with the spin-off of all of the shares of Creative Products
International, Inc. ("Creative Products") owned by Caring Products, which now
represents 80% of the issued and outstanding common stock of Creative Products.
As part of the spin-off, we will distribute to each shareholder of record as of
June 30, 1999 a dividend of one-half share of Creative Products' common stock
for each share of Caring Products common stock that each shareholder of record
owned on June 30, 1999. Following the spin-off, Creative Products will be a
separate company, no longer owned in any way by Caring Products. Should you have
any questions regarding this Information Statement or the spin-off, please
contact Caring Products International, Inc., P.O. Box 9288, Seattle, Washington,
98109, at 206-523-7065.
In reviewing this Information Statement, you should note the
following:
- WE ARE NOT ASKING YOU FOR A PROXY, AND WE REQUEST THAT YOU DO NOT
SEND US A PROXY.
- In assessing the impact of the spin-off on you, as a Caring
Products shareholder, you should review the matters set forth
under the caption "Risk Factors" beginning on page 4.
- Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved our spin-off of
Creative Products. The Securities and Exchange Commission has not
passed upon the fairness or merits of the spin-off of Creative
Products or upon the accuracy or adequacy of the information
contained in this Information Statement.
Please note that the Board of Directors of Caring Products unanimously
approved the spin-off, as it believes that the spin-off is in the best interests
of Caring Products and its shareholders.
You will not need to pay any consideration or surrender or exchange
your Caring Products common stock in order to receive Creative Products common
stock. After the spin-off distribution, we expect, but cannot guarantee, that
Creative Products may file an application to have the common stock of Creative
Products traded on the OTC Bulletin Board.
The date of this Information Statement is ____________ __, 1999.
We mailed this Information Statement to Caring Products International, Inc.
shareholders on or about ____________ __, 1999.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY.................................................................. 1
RISK FACTORS............................................................. 4
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS............................................... 12
THE SPIN-OFF OF CREATIVE PRODUCTS........................................ 13
MANAGEMENT OF CREATIVE PRODUCTS FOLLOWING THE SPIN-OFF................... 16
SELECTED CREATIVE PRODUCTS FINANCIAL DATA................................ 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CREATIVE PRODUCTS OPERATIONS............................................. 24
DESCRIPTION OF CARING PRODUCTS' AND
CREATIVE PRODUCTS'CAPITAL STOCK.......................................... 26
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT........................................................... 29
INDEPENDENT ACCOUNTANTS.................................................. 30
WHERE YOU CAN FIND MORE INFORMATION...................................... 31
</TABLE>
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SUMMARY
The following summary answers certain questions you may have with respect
to Caring Products' spin-off of Creative Products and highlights selected
information from this Information Statement that is important to you. This
summary does not contain all of the information about the spin-off. You should
carefully read this entire Information Statement.
Q. WHAT WILL HAPPEN IN THE SPIN-OFF?
In the spin-off, Caring Products will distribute to its shareholders all of
the shares of Creative Products common stock owned by Caring Products, which now
represents 80% of the issued and outstanding common stock of Creative Products,
by distributing one-half share of Creative Products' common stock for each share
of Caring Products' common stock owned by shareholders of record on June 30,
1999. No fractional shares will be distributed through the spin-off. All
fractional shares will be rounded up to the nearest whole share. To the extent
necessary to round up fractional shares, Caring Products will subscribe for
additional shares of Creative Products' common stock. After the spin-off,
Creative Products will be a separate company, no longer owned in any way by
Caring Products.
Q. WHAT IS CREATIVE PRODUCTS?
Creative Products was formed in March 1999 to pursue the commercialization
of certain development stage, consumer and educational products geared to
parents with children under the age of six, as well as certain internet based
marketing and merchandising vehicles geared to the same target consumer market.
Q. WHY ARE WE UNDERTAKING THE SPIN-OFF?
The Board of Directors determined that the business aspects of Caring
Products' primary line of adult incontinence products varies significantly from
the children's product orientation of Creative Products' business. The Board of
Directors believes that separating Creative Products' business from Caring
Products' business will allow each company to focus on strategies that will
benefit each company's own business. Further, the distribution channels and
marketing strategy for the children's line includes the internet, marketing of
animated properties and commercial media. These areas require a management team
with different marketing and technical skills than healthcare and retail
oriented incontinence product promotion.
Q. WHAT ARE THE PRINCIPAL DIFFERENCES BETWEEN CARING PRODUCTS AND CREATIVE
PRODUCTS' BUSINESSES?
Each company owns different brand names in very distinctive areas of
consumer retailing. Creative Products' proposed line of children's products is
typically marketed to parents with young children. Caring Products' line of
adult incontinence products is typically marketed to individuals over the age of
60 or to their caregivers.
The children's consumer and educational product line, if successful, may
have certain product line extension opportunities through private label and
licensing arrangements. The marketing, production and ongoing creative
requirements of the two companies' product lines are also significantly
different. It is anticipated that Creative Products' proposed children's product
line will be distributed through a marketing partnership or strategic alliance
with a company that has consumer product marketing or strong media and
publishing resources. To date, Caring Products' adult product line has been sold
to retail stores and other customers on a direct basis. In
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addition, it is expected that Creative Products will have a more active
electronic commence component to its business.
Q. WHAT WILL I RECEIVE IN THE SPIN-OFF?
We are making a distribution of Creative Products' common stock to all
holders of Caring Products' common stock. For every one share of Caring
Products' common stock you owned on June 30, 1999, you will receive one-half of
a share of Creative Products' common stock. No fractional shares will be issued.
Instead, fractional shares will be rounded up to the nearest whole share.
Shortly after the completion of the spin-off, you will receive Creative
Products' stock certificates which represent your ownership in Creative
Products.
Q. WHERE WILL CREATIVE PRODUCTS AND CARING PRODUCTS COMMON STOCK BE TRADED
FOLLOWING THE SPIN-OFF?
The common stock of Caring Products will continue to be traded on the OTC
Bulletin Board under the symbol "BDRY." As of the date of this Information
Statement, there is no public market for the common stock of Creative Products.
We believe Creative Products plans to file for trading on the OTC Bulletin Board
as soon as practicable following the completion of the spin-off.
Q. DO I HAVE TO PAY FEDERAL INCOME TAXES ON THE RECEIPT OF CREATIVE PRODUCTS
COMMON STOCK?
Based on Caring Products' determination that it does not have any current
or accumulated earnings and profits, your receipt of the distribution will be
subject to federal income taxation only to the extent that the fair market value
of your Creative Products common stock exceeds the adjusted tax basis in your
Caring Products common stock.
Q. WHEN WILL THE SPIN-OFF OCCUR?
We intend to complete the spin-off prior to December 31, 1999, but it could
be delayed.
Q. WHAT WILL CARING PRODUCTS' BUSINESS BE AFTER THE SPIN-OFF?
Caring Products will continue to sell its adult incontinence products to
surgical supply stores, drug store chains, independent pharmacies, catalogs and
other businesses which serve a home consumer. In early 1999, the Board of
Directors announced that it was reviewing various strategic alternatives to
maximize shareholder value and conserve cash. Such alternatives, which the Board
of Directors continues to review, may include the merger with another business
or the licensing of its products to third parties.
Q. WHAT WILL CREATIVE PRODUCTS' BUSINESS BE AFTER THE SPIN-OFF?
Creative Products will be a separate public company that will own rights to
certain patents, trademarks and copyrights related to various children's
products. All of Creative Products' children's products are in the development
stage. Following the spin-off, Creative Products intends to focus on the
completion of the development and packaging of its core educational products,
animated children's book titles and other companion products to potential
consumer, media and publishing partners. These products include children's
books, parent guide books, song tapes, videos and companion educational products
that help parents teach young
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children good habits and social skills. The themes of the stories and companion
teaching products and learning kits are designed to motivate children to learn
new skills and accept new responsibilities, such as toilet training, with less
frustration and tears. In addition to helping parents introduce the "basics" of
various hygiene skills, the product line also addresses safety issues, good
manners and how to behave when away from home. Many of these products feature
Creative Products' own animated animal and children's characters. Creative
Products will seek a multi-media presence for the animated character properties
and branded story themes including educational, network or cable television, the
internet, home video and published books. This family of branded educational
products is intended to serve as a base for later entry into certain children's
consumer product categories through licensing or private label arrangements.
In addition to selling its branded products on-line, Creative Products
anticipates offering several other electronic consumer services over the
internet. These services may include free parenting tips, product coupons, and
an interactive, educational "playground" for young children that may feature
many of Creative Products' proprietary animated characters. In addition,
Creative Products' internet services may include selective couponing and other
merchandise promotional features.
Q. WILL CARING PRODUCTS AND CREATIVE PRODUCTS COMPETE AGAINST EACH OTHER AFTER
THE SPIN-OFF?
Based on each company's current business plan, it is not anticipated that
they will compete against each other.
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RISK FACTORS
In assessing the impact of the spin-off on you, as a Caring Products'
shareholder, you should be aware of the following risks relating to the spin-off
and to Creative Products' operations:
CREATIVE PRODUCTS RECENTLY COMMENCED OPERATIONS AND IS SUBJECT TO RISKS
ASSOCIATED WITH START-UP COMPANIES.
Creative Products was incorporated in March 1999. As a result, Creative
Products' potential should be considered in light of the risks, expenses, and
problems frequently encountered by companies in their early stage of
development. Such risks include:
- the failure to anticipate and adapt to market conditions;
- the rejection of its products and services;
- development of superior products or services by competitors; and
- the inability to identify, attract, retain, and motivate the
qualified personnel it will need to expand its operations.
Since there is no operating history, an investor must consider the risks and
difficulties frequently encountered by early stage companies in new and rapidly
evolving markets such as the internet and highly competitive markets such as
children's products and programming. These risks include Creative Products'
ability to:
- complete core children's product development;
- establish marketing and distribution partners;
- increase product and brand loyalty;
- identify strategic relationships;
- attract a large audience to its internet site;
- attract a large number of advertisers from a variety of
industries;
- respond effectively to competitive pressures;
- continue to develop and upgrade technology;
- continue to develop innovative and appealing products for
children and adults; and
- attract, retain and motivate qualified personnel.
There can be no assurance that Creative Products will be successful in
addressing these risks. There can be no assurance that Creative Products will
achieve or sustain profitability or positive cash flow from its operations.
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CREATIVE PRODUCTS IS PLANNING TO INTRODUCE SEVERAL NEW PRODUCTS, THE SUCCESS OF
WHICH WILL DEPEND ON MANY FACTORS.
Creative Products' planned products have not been in the marketplace before,
other than through limited test marketing of certain products, and as such there
is no operating history upon which to evaluate if these products will be
successful. Because Creative Products business varies significantly from Caring
Products' business, it is impossible to forecast the scope, magnitude or timing
of any future revenues, if any. Further, there is no assurance that Creative
Products will be able to generate any advertising revenue from its web sites or
enter into any strategic alliances for any of the planned retail products, media
concepts and internet activities. Therefore, you should consider these prospects
in light of the risks and uncertainties encountered by companies trying to
establish a new line of business, particularly companies proposing to enter
markets dominated by large and well-known competitors.
IF CREATIVE PRODUCTS NEEDS ADDITIONAL CAPITAL TO FUND ITS OPERATIONS, IT MAY NOT
BE ABLE TO OBTAIN SUFFICIENT CAPITAL AND MAY BE FORCED TO LIMIT THE SCOPE OF ITS
OPERATIONS.
Creative Products may not have enough capital to fund its future operations
without additional capital investments. Creative Products anticipates that it
will need additional capital resources to finance the completion of the product
line, to launch its e-commerce business and produce intended children's songs,
animated videos and television programming.
If Creative Products cannot obtain additional funding, it may be required to:
- reduce its investments in research and development;
- limit its marketing efforts;
- decrease the level of customer service and support; and
- decrease or eliminate capital expenditures.
Such reductions could materially adversely affect Creative Products' ability to
compete.
Even if Creative Products finds a source of additional capital, it may not be
able to negotiate terms and conditions for receiving the additional capital that
are acceptable to it. Any future capital investments could dilute or otherwise
materially adversely affect the holdings or rights of Creative Products'
shareholders.
IF CREATIVE PRODUCTS IS UNABLE TO DEVELOP AND MAINTAIN A BRAND IDENTITY FOR ITS
PRODUCTS AND SERVICES, IT MAY NOT BE ABLE TO ATTRACT CUSTOMERS OR EXPAND ITS
BUSINESS.
Establishing and maintaining Creative Products' brands is and will continue to
be an important aspect of Creative Products' efforts to:
- attract and expand its customer base;
- increase traffic on its internet properties;
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- develop its advertising relationships; and
- develop its relationships with manufacturers, distributors, and
other vendors.
Promotion and enhancement of Creative Products' brands will depend on its
success in providing high-quality products and services. Creative Products
expects the importance of brand recognition to increase due to the number of
competitors, many of which already have well established brand names.
The results of Creative Products' operations and financial condition will be
materially and adversely affected if:
- it fails to promote its brand successfully;
- it incurs excessive expenses in an attempt to promote and
maintain its brand;
- there is a breach or alleged breach of security or privacy
involving its products or services;
- a third party undertakes illegal or harmful actions utilizing its
products or services;
- visitors to its online properties, advertisers or other
businesses do not perceive its existing services to be of high
quality;
- it introduces new services or enter into new business ventures
that are not favorably received;
- it is forced to alter or modify its brand image; or
- it elects or is forced to abandon or modify any of the names or
marks that it uses in connection with its business.
CREATIVE PRODUCTS MAY BE SUBJECT TO LEGAL LIABILITY FOR ITS ONLINE SERVICES.
Creative Products plans to offer a wide variety of services that enable
individuals to exchange information, generate content, conduct business, and
engage in various online activities. The law relating to the liability of
providers of these online services for activities of their users is currently
unsettled. Claims could be brought against it for:
- defamation;
- negligence;
- copyright or trademark infringement;
- tort (including personal injury);
- fraud; or
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- other legal theories.
Third parties could bring claims against Creative Products for a variety of
reasons, including, but not limited to, damage arising from:
- third-party products, services or content Creative Products
offers under its brands or via distribution on the internet;
- products, services, or content Creative Products markets,
broadcasts or provides through the internet; or
- erroneous information Creative Products provides though the
internet.
In the past, these types of claims have been brought against companies with
operations similar to that of Creative Products. Investigating and defending any
of these types of claims can be expensive, even if the claims do not result in
liability.
CREATIVE PRODUCTS E-COMMERCE ACTIVITIES MAY EXPOSE IT TO UNCERTAIN LEGAL RISKS
AND POTENTIAL LIABILITIES.
Creative Products may enter into agreements with sponsors, content providers,
service providers and merchants under which it is entitled to receive a share
of revenue from the purchase of goods and services by users of Creative Products
web sites. These types of arrangements may expose Creative Products to potential
liabilities relating to those products and services. Creative Products does not
maintain, and does not anticipate maintaining in the future, any liability
insurance. As a result, Creative Products is exposed to the risk that it could
be forced to cover the entire cost of any such claims. If such a claim results
in liability, Creative Products could suffer a material financial crisis that
would require it to liquidate some or all of its assets or cause it to become
insolvent. Even to the extent these types of claims do not result in material
liability, investigating and defending such claims can be expensive.
CREATIVE PRODUCTS MUST ATTRACT AND RETAIN QUALIFIED EMPLOYEES.
Current economic conditions make it difficult to attract, compensate and retain
qualified employees. As of the date of this Information Statement Susan A.
Schreter is the sole employee of Creative Products. Creative Products expects to
hire additional personnel and expand its management team. Creative Products'
success will depend on getting the right people involved in the continued growth
and development of Creative Products. Its business could be materially adversely
affected if it is not able to attract new, qualified employees or to retain and
motivate its existing employee.
Creative Products is in the process of organizing a management team, with
appropriate marketing, internet architecture and maintenance, and media property
development, media production and internet advertising experience. In addition,
Creative Products is in the process of locating and securing corporate office
space and establishing a full-service corporate headquarters with supporting
financial, administrative and investor relations staff.
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Creative Products depends on the continued service of its current and future key
personnel. The loss of any key employee could dramatically affect Creative
Products' productivity until it finds and trains a replacement.
Creative Products does not maintain key person life insurance for any of its
personnel. As a result, it is, exposed and in the future may be exposed,
to the costs associated with the death of one or more of its key employees.
These risks include:
- costs of finding and training a replacement;
- loss of institutional memory; and
- reduction in its productivity.
THERE IS SIGNIFICANT COMPETITION IN THE MARKETPLACE WHICH MAY HINDER CREATIVE
PRODUCTS' ABILITY TO ESTABLISH DISTRIBUTION FOR ITS PRODUCTS.
Children's books, consumer products geared to young children, toilet training
products, and increasingly, the sale of merchandise on the internet and through
other home delivery distribution channels is highly competitive. Each product
marketed by Creative Products will face competition from companies with far
greater financial, distribution, management, advertising and research and
development resources than Creative Products. There is no assurance that
Creative Products will be successful in obtaining a marketing, distribution or
publishing partner to improve its competitive position. Further, there is no
assurance that Creative Products will be able to establish a long-term presence
in a market for children's products that is often dominated or influenced by
media trends and popular tastes.
LACK OF A CURRENT MARKET FOR CREATIVE PRODUCTS' COMMON STOCK MAKES THE FUTURE
PERFORMANCE OF CREATIVE PRODUCTS COMMON STOCK DIFFICULT TO PREDICT.
There is no current public market for Creative Products' common stock. Creative
Products intends to file a listing application to have its common stock traded
on the OTC Bulletin Board as soon as practicable after the spin-off. There is no
assurance that Creative Products will be able to qualify for trading on the OTC
Bulletin Board. Even if Creative Products qualifies for trading on the OTC
Bulletin Board, there can be no guarantee that a market for Creative Products
common stock will develop or be maintained. No assurance can be given regarding
the prices at which Creative Products' common stock will trade after the
spin-off. Until Creative Products' common stock is distributed and an orderly
market develops, the price at which Creative Products' common stock trades may
fluctuate significantly.
THE TRADING PRICES OF CARING PRODUCTS' AND CREATIVE PRODUCTS' COMMON STOCK AFTER
THE SPIN-OFF IS UNCERTAIN.
As a result of the spin-off, you will own shares of Caring Products and Creative
Products common stock. Following the spin-off, the Caring Products shares will
continue to be traded on the OTC Bulletin Board, but there will be no organized
market for the shares of Creative Products you will receive through the
spin-off. The combined price of the Caring Products and Creative Products
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common stock may be greater or less than, or equal, to the trading price of
Caring Products' common stock immediately prior to the spin-off.
CREATIVE PRODUCTS IS PROJECTED TO LOSE MONEY AND GENERATE NEGATIVE CASH FLOW FOR
THE FORESEEABLE FUTURE AND MAY NEVER BECOME PROFITABLE.
Creative Products expects to incur operating losses and to generate negative
cash flow during the completion of Creative Products' product line. Even if
Creative Products is successful in defining one or more distribution channels
for Creative Products' products with the assistance of a strategic partner, no
assurance can be given that Creative Products will achieve or sustain
profitability or positive cash flow from operating activities in the future or
that it will generate sufficient cash flow to service its operating obligations.
CREATIVE PRODUCTS' GROWTH DEPENDS ON THE CONTINUED SERVICES OF SUSAN SCHRETER.
Creative Products is dependent on the continued services of Susan A. Schreter,
who currently has day to day management responsibilities for Caring Products. If
Ms. Schreter is unable to continue to design and develop products for retail and
internet commercialization, Creative Products' business may be adversely
affected. On September 24, 1999, Creative Products entered into a three-year
employment agreement with Susan Schreter, which is subject to automatic one-year
extensions unless terminated by Ms. Schreter or Creative Products. Under the
terms of the agreement, Ms. Schreter is to spend up to 25% of her time working
for Creative Products and is to receive a $25,000 salary for her services to
Creative Products. If in the opinion of Creative Products' Board of Directors,
Mr. Schreter needs to devote 100% of her efforts to the business of Creative
Products and Ms. Schreter is legally permitted to devote such efforts under the
terms of her employment agreement with Caring Products, she will receive a
$150,000 salary. Also, as part of the employment agreement, Creative Products
sold to Ms. Schreter 384,000 shares of its common stock for an aggregate cash
consideration of $19,200, which consideration the independant directors of
Creative Products concluded represented no less than the fair value of such
shares. In reaching such conclusion, the independent directors took into
consideration, among other things, an appraisal of such shares that was
conducted by an independent valuation firm. The 384,000 shares are being held in
escrow until the completion of the spin-off. In the event the spin-off is not
completed prior to March 31, 2000, Creative Products has the right to repurchase
the 384,000 shares at $0.05 per share. Ms. Schreter is also entitled to
participate in certain employee benefit programs that are, or may in the future
be, offered by Creative Products.
CREATIVE PRODUCTS' DIRECTORS HAVE LIMITED PERSONAL LIABILITY FOR THEIR ACTIONS.
Subject to limitations imposed by Delaware law, Creative Products' Certificate
of Incorporation provides that its directors will not be personally liable to
shareholders for monetary damages if they breach their fiduciary duty of care as
a director, including breaches which constitute gross negligence. Thus, under
certain circumstances, neither Creative Products nor its shareholders will be
able to recover damages even if directors take actions which may be harmful to
shareholder interests.
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CREATIVE PRODUCTS' SHAREHOLDERS MAY EXPERIENCE DILUTION FROM THE EXERCISE OF
OUTSTANDING WARRANTS, FUTURE OFFERING OF SECURITIES AND EMPLOYEE STOCK OPTION
PROGRAMS.
Creative Products may, in the future adopt incentive programs or benefit plans.
The issuance of additional securities or the exercise of any options or warrants
will dilute the percentage ownership of your common stock. In addition, the
exercise of any warrants or options could adversely affect the prevailing market
price of Creative Products' common shares.
THE PRICE OF CREATIVE PRODUCTS' COMMON SHARES CAN FLUCTUATE SIGNIFICANTLY,
SOMETIMES IN A MANNER UNRELATED TO THE PERFORMANCE OF CREATIVE PRODUCTS.
There is no public market for Creative Products' common stock. The price of
Creative Products' common shares could vary widely in response to various
factors and events, including:
- the listing of Creative Products securities on a national
exchange or market;
- the number of common shares being sold and purchased in the
marketplace;
- variations in our operating results;
- press reports;
- regulation and industry trends;
- rumors of significant events which can circulate quickly in the
marketplace, particularly over the internet; and
- the difference between our actual results and the results
expected by shareholders and analysts.
In the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted against
such company. Such litigation could result in substantial costs and a diversion
of management's attention and resources.
CREATIVE PRODUCTS DOES NOT INTEND TO PAY DIVIDENDS.
Creative Products does not intend to pay any dividends in the foreseeable
future. Creative Products intends to retain its cash for continued development
and expansion of its business. Any future payment of a cash dividend on Creative
Products' common stock will be dependent upon the financial condition of
Creative Products and other factors deemed relevant by Creative Products' Board
of Directors.
THERE IS INTENSE COMPETITION FOR INTERNET-BASED BUSINESS.
The number of web sites competing for the attention and spending of members,
users and advertisers has increased and we expect it to continue to increase.
Creative Products may compete for users and advertisers with the following types
of companies:
- Online services or web sites targeted at women, such as
www.Women.com, www.womenconnect.com, www.family.com,
www.ivillage.com, womencentral.msn.com, www.oxygen.com and
www.familyeducation.com;
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- Web search and retrieval and other online service companies,
commonly referred to as portals, such as Excite, Inc., Infoseek
Corporation, Lycos, Inc. and Yahoo! Inc.; and
- Publishers and distributors of traditional media, such as
magazines like Parents, television, radio and other print.
TO BRING ITS PRODUCTS TO MARKET, CREATIVE PRODUCTS MAY RELY ON STRATEGIC
PARTNERS.
Because of Creative Products' lack of resources to compete effectively in a
market which requires significant advertising and product distribution
resources, it may seek an alliance with a larger consumer, media or publishing
partner. There can be no assurance that Creative Products will be able to find
acceptable strategic or joint venture marketing partners, and due to the lack of
control, there can no assurance that any such joint venture will operate in a
manner that increases the value of Creative Products' business.
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CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
The following statements are or may constitute forward-looking statements:
- statements set forth in this Information Statement or statements
incorporated by reference from documents Caring Products has
filed with the Securities and Exchange Commission, including
possible or assumed future results of Caring Products'
operations, including but not limited to any statements contained
herein or therein concerning:
- revenues for the near term;
- the resolution of any intellectual property infringement
claims;
- the status, effectiveness and projected completion of Year
2000 initiatives;
- the outcome of potential litigation;
- Caring Products' expectations concerning its profitability
in 1999 and Caring Products' ability to generate positive
cash flows in the year 2000;
- the outcome and success of the spin-off;
- any statements preceded by, followed by or that include the words
"believes," "expects," "predicts," "anticipates," "intends,"
"estimates," "should," "may" or similar expressions; and
- other statements contained or incorporated by reference in this
Information Statement regarding matters that are not historical
facts.
Because such statements are subject to risks and uncertainties, actual results
may differ materially from those expressed or implied by such forward-looking
statements. Such factors include:
- general economic and business conditions;
- technology changes;
- competition;
- changes in business strategy or development plans;
- the ability to attract and retain qualified management and staff;
- liability and other claims which might be asserted against
Creative Products;
- other factors referenced in this Information Statement, including
without limitation under the captions "Summary", "Risk Factors",
"Management's Discussion and
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Analysis of Financial Condition and Results of Operations of Creative
Products" and "Business of Caring Products and Creative Products after
the spin-off."
You should not place undue reliance on such statements, which speak only as of
the date that they were made. Caring Products' independent public accountants
have not examined or compiled the forward-looking statements and, accordingly,
do not provide any assurance with respect to such statements. These cautionary
statements should be considered in connection with any written or oral
forward-looking statements that Caring Products or Creative Products may issue
in the future. Caring Products does not undertake any obligation to release
publicly any revisions to such forward-looking statements after the effective
date of this Information Statement.
THE SPIN-OFF OF CREATIVE PRODUCTS
GENERAL
Caring Products intends to "spin-off" all of the shares of Creative Products
owned by Caring Products, which now represents 80% of the issued and outstanding
common stock of Creative Products. In the spin-off transaction (the "spin-off"),
Caring Products will distribute to its shareholders one-half share of Creative
Products' common stock for each share of Caring Products' common stock owned on
June 30, 1999. No fractional shares will be distributed through the spin-off.
All fractional shares will be rounded up to the nearest whole share. To the
extent necessary to round up fractional shares, Caring Products will subscribe
for additional shares of Creative Products' common stock. Following the
spin-off, Creative Products will be a separate company, no longer owned in any
way by Caring Products, although there will be some overlapping management.
shareholders who hold shares of Caring Products' common stock through brokerage
and "street name" accounts should expect to receive an account statement from
their brokerage firm reflection the number of shares of Creative Products'
common stock received by such shareholder in the spin-off. Following the
spin-off, shareholders who hold through brokerage accounts may request physical
certificates of their shares of Creative Products' common stock.
No holder of Caring Products' common stock will be required to pay any cash or
other consideration for shares of Creative Products' common stock received in
the spin-off or to surrender or exchange shares of Caring Products' common stock
in order to receive shares of Creative Products' common stock.
MANNER OF EFFECTING THE SPIN-OFF
Following the spin-off, each Caring Products' shareholder of record on June 30,
1999 will receive a Creative Products' stock certificate which represents the
Creative Products' common stock owned by such shareholder. Shareholders that
hold shares of Caring Products' common stock through brokerage and "street name"
accounts should expect to receive an account statement from their brokerage firm
reflecting the number of shares of Creative Products' common stock received by
such shareholder in the spin-off. Following the spin-off, shareholders who hold
through brokerage accounts may request physical certificates for their shares of
Creative Products' common stock. Creative Products expects to mail such stock
certificates to shareholders on or about December 31, 1999, but this could be
delayed.
No holder of Creative Products' common stock will be required to pay any cash or
other consideration for shares of Creative Products' common stock received in
the spin-off or to surrender or exchange shares of Creative Products' common
stock in order to receive shares of Creative Products' common stock. However,
holders will be required to pay income taxes as a result of the spin-off.
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<PAGE> 17
REASONS FOR THE SPIN-OFF
Creative Products intends to develop and pursue business opportunities that will
have, as compared to the business currently carried out through Caring Products,
differences with respect to markets and capital requirements and will require a
different business plan. Caring Products' primary business is the marketing of
incontinence products to retail, wholesale and healthcare customers. The primary
business of Creative Products is the development and commercialization of
certain products that help parents teach young children good habits, safety and
social skills and develop related internet business opportunities.
The Board of Directors of Caring Products approved the spin-off for the
following principal reasons:
Management Focus. Caring Products and Creative Products have different dynamics
and product development cycles, service different customers, are subject to
different competitive forces and must be managed with different long-term and
short-term strategies and goals. Caring Products believes that separating its
businesses into two independent public companies, each with its own management
team and board of directors is necessary to address current and future
management issues and considerations that result from operating these diverse
businesses within a single company. The separation will enable Creative Products
to put in place a management team with skills conducive to growing a company
with interests in media, children's consumer products and promotion and
licensing of animated characters. The separation will enable the management of
each business to manage that business, and to adopt and implement strategies for
that business, solely with regard to the needs and objectives of that business.
In addition, as a result of the separation, and with the exception of Ms.
Schreter, who will work with both companies, the management of each business
will be able to devote its full attention to managing that business.
Capital Structure. Caring Products believes that the spin-off will allow each of
the companies to organize its capital structure and allocate its resources to
support the very different needs and goals of the particular business. Capital
borrowings can be tailored to the specific needs of each business. Each business
will be able to allocate its resources without considering the needs of the
other business.
Attracting and Retaining Key Employees. Caring Products' Board of Directors
believes that the ability to attract and retain key personnel is fundamental to
its ability to establish viable businesses. The spin-off will enable each
company to establish focused equity-based compensation programs that should
enable each of them to better attract and retain key personnel.
Investor Understanding. Potential debt and equity investors and securities
analysts should be able to better evaluate the financial performance of each
company and their respective strategies, thereby enhancing the likelihood that
each will achieve appropriate market recognition. The stock of each of the two
companies will also appeal to investors with differing investment objectives,
and will allow investors to focus their investments more directly to the areas
of their primary interest.
Cost Savings. Each company should be able to rationalize better is
organizational structure after the spin-off.
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<PAGE> 18
BOARD AND SHAREHOLDER APPROVAL; APPRAISAL RIGHTS
After careful consideration, the Caring Products Board of Directors unanimously
approved the spin-off. Caring Products will not hold a meeting or solicit
proxies for the spin-off, as no approval of the Creative Products' spin-off is
requested under Delaware law. Under Delaware law, Caring Products' shareholders
have no right to an appraisal of the value of their shares in connection with
the spin-off.
OUTSIDE CONSULTANTS
Neither Caring Products or Creative Products has engaged a consultant or other
outside party to prepare a report, opinion or appraisal with respect to the
spin-off.
REASONS FOR FURNISHING THE INFORMATION STATEMENT TO CARING PRODUCTS SHAREHOLDERS
This Information Statement is being furnished by Caring Products solely to
provide information to Caring Products' shareholder who will receive the
Creative Products' common stock in the spin-off. It is not, and is not to be
construed as, an inducement or encouragement to buy or sell and securities of
Caring Products or Creative Products. The information contained in this
Information Statement is believed by Caring Products and Creative Products to be
accurate as of the date set forth on its cover. Changes may occur after that
date, and neither Caring Products nor Creative Products will update the
information except in the normal course of their respective public disclosure
practices.
LISTING AND TRADING OF CARING PRODUCTS' COMMON STOCK AND CREATIVE PRODUCTS'
COMMON STOCK
After the spin-off, the common stock of Caring Products will continue to be
traded on the OTC Bulletin Board under the symbol BDRY. Creative Products
expects to file a listing application with the OTC Bulletin Board as soon as
practicable after the completion of the spin-off. The combined trading prices of
Caring Products' common stock and Creative Products' common stock may be greater
or less than, or equal to, the trading price of Caring Products' common stock
immediately prior to the spin-off.
Creative Products initially will have approximately 134 shareholders of record
based upon the number of shareholders of record of Caring Products as of June
30, 1999. The prices at which the Creative Products' common stock will trade
will be determined by the marketplace and may be influenced by many factors,
including, among others, the depth and liquidity of the market for the Creative
Products' common stock, investor perception of Creative Products and the
healthcare industry, Creative Products' dividend policy and general economic and
market conditions.
Shares of Creative Products' common stock distributed to Caring Products'
shareholders in the spin-off will be freely transferable, except for securities
received by persons who may be deemed to be "affiliates" of Creative Products
after the spin-off, which generally include individuals or entities that
control, are controlled by, or are under common control with, Creative Products
and may include certain officers and directors of Creative Products as well as
principal shareholders of Creative Products. Persons who are affiliates of
Creative Products will be permitted to sell their shares of Creative Products'
common stock only pursuant to an effective registration statement under the
Securities Act or an exemption from the registration requirements of the
Securities Act.
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<PAGE> 19
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The discussion of U.S. Federal income tax consequences set forth below is a
summary only and is not intended to address the specific tax consequences to
each Caring Products shareholder or those of Caring Products. Each shareholder
should consult his own tax advisor as to the Federal, state, local and foreign
tax consequences of the spin-off to such shareholder.
The spin-off of Creative Products will be a taxable distribution under the
Internal Revenue Code of 1986, as amended (the "Code"). Caring Products will
recognize gain equal to the excess of (x) the fair market value of the Creative
Products common stock on the distribution date, over (y) Caring Products'
adjusted tax basis in the Creative Products common stock on such date. Each
shareholder of Caring Products common stock who receives Creative Products
common stock in the spin-off will be treated as receiving a distribution in an
amount equal to the fair market value of such Creative Products common stock on
the distribution date. The amount received in the distribution will not be
taxable as a dividend to such shareholder because Caring Products, taking into
consideration the gain recognized by Caring Products in this spin-off, will not
have any current or accumulated earnings and profits. Accordingly, the
distribution of Creative Products common stock will be a nontaxable return of
capital to the extent of each shareholder's adjusted tax basis in the Caring
Products common stock, with any remaining amount being taxed as a capital gain,
assuming such shareholder has held the Caring Products common stock as a capital
asset. If such shareholder has held the Caring Products common stock for more
than one year, the capital gain will be subject to long-term capital gains
rates.
The tax basis in a shareholder's share of Caring Products common stock after the
spin-off will be reduced by the portion of the distribution, if any, that was
treated as a nontaxable return of capital. The tax basis of such shareholder's
shares of Creative Products common stock received in the spin-off will be their
fair market value as of the distribution date, and the holding period for such
shares will commence the day following the distribution.
MANAGEMENT OF CREATIVE PRODUCTS FOLLOWING THE SPIN-OFF
After the spin-off, the following officers and directors shall serve Creative
Products. Additional directors are expected to be named following the spin-off.
Susan A. Schreter 38 Chairman of the Board, CEO, and Director
Lisa Indovino 37 Director
Joan Lundgren 46 Director
Susan A. Schreter has been president and a director of Caring Products
International, Inc. since January 1993 where she was responsible for the design
and commercialization of Caring Products' products as well as other executive
functions. She will continue to serve as president and a director of Caring
Products International, Inc. following the spin-off. From July 1985 to December
1992 she was president of Beta International, Inc., New York, New York, a firm
providing consulting services to growing companies, private business investors
and buy-out funds in the areas of acquisition due diligence, cash flow planning,
strategic business planning and
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<PAGE> 20
capital investment. From February 1992 to January 1995, Ms. Schreter served as a
director of Omnicorp Limited, a provider of environmental services.
Lisa Indovino is a telecommunications expert with over 15 years of
specialization in the commercialization planning and market introductions of new
internet and cellular technologies. Since 1997 she has been Director of Business
Development at Lucent Technologies where she is responsible for identifying
internet based acquisition and joint venture opportunities. From 1993 to 1996,
Ms. Indovino was Executive Vice President and a founding partner of Customer
Information, Inc. of Randallstown, Maryland, a firm which provided
telecommunications technology research and consulting to Fortune 500 companies
including IBM. From 1992 to 1993, Ms. Indovino was a Program Manager for
Mercedes-Benz of North America, Montvale, New Jersey where she was responsible
for the design and implementation of the company's first nationwide cellular
program to Mercedes dealerships.
Joan Lundgren served as Vice President of Retail Chain Sales for Caring Products
International, Inc. from February 1995 to August 1999 where she was responsible
for product introduction to retail chains and development of in-store
advertising programs and "roto's" promotional programs. From March 1988 to
January 1995, Ms. Lundgren worked as Senior Vice President for Yegen Associates
and an affiliate of Yegen Associates, Lion Associates, in Paramus, New Jersey.
Ms. Lundgren was responsible for the marketing program development and credit
quality standard review for a privately-held consumer lending organization which
had 75 offices nationwide. Ms. Lundgren has served in other marketing and sales
capacities in the financial services and banking sector.
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<PAGE> 21
SELECTED CREATIVE PRODUCTS FINANCIAL DATA
The following table sets forth certain selected shareholder equity data.
All the data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Creative Products"
and Creative Products' financial statements and notes thereto.
[ON PETERSON SULLIVAN P.L.L.C. LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Creative Products International, Inc.
Seattle, Washington
We have audited the accompanying balance sheet of Creative Products
International, Inc. (a development stage company) as of September 30, 1999,
and the related statements of income, stockholder's equity, and cash flows
for the period March 25, 1999 (date of incorporation) to September 30, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of September
30, 1999, and the results of its operations and its cash flows for the period
from March 25, 1999 (date of incorporation) to September 30, 1999, in
conformity with generally accepted accounting principles.
/s/ PETERSON SULLIVAN P.L.L.C.
October 5, 1999
CREATIVE PRODUCTS INTERNATIONAL, INC.
(A Development Stage Company)
BALANCE SHEET
September 30, 1999
<TABLE>
<S> <C>
Current asset - cash $ 350,000
Intangible assets 160,981
-----------------
$ 510,981
=================
Stockholder's Equity
Common stock, par value $.01 per share, 15,000,000 shares
authorized, 1,528,172 shares issued and outstanding $ 15,282
Additional paid-in capital 500,370
Retained earnings (deficit) (4,671)
-----------------
$ 510,981
=================
See Notes to Financial Statements
</TABLE>
CREATIVE PRODUCTS INTERNATIONAL, INC.
(A Development Stage Company)
STATEMENT OF INCOME
March 25, 1999 (Date of Incorporation) to September 30, 1999
<TABLE>
<S> <C>
Amortization expense $
4,671
-----------------
Net (loss) $ (4,671)
=================
Net (loss) per common share $ (0.14)
=================
See Notes to Financial Statements
</TABLE>
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<PAGE> 22
CREATIVE PRODUCTS INTERNATIONAL, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDER'S EQUITY
March 25, 1999 (Date of Incorporation) to September 30, 1999
<TABLE>
<CAPTION>
Common Stock
-----------------------------
Additional Retained
Date of Number Paid-In Earnings
Transaction of Shares Par Value Capital (Deficit) Total
-------------------- ------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Shares issued to parent
for cash March 25, 1999 $ $ 50,000 $ $
1 - - 50,000
Intangible assets contributed
by parent at historical cost June 30, 1999 165,652 165,652
- - -
Shares issued to parent
for cash September 27, 1999 1,528,171 15,282 284,718 300,000
-
Net loss (4,671)
- - - (4,671)
------------- ------------- -------------- -------------- --------------
1,528,172 $ 15,282 $ 500,370 $ (4,671) $ 510,981
============= ============= ============== ============== ==============
See Notes to Financial Statements
</TABLE>
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<PAGE> 23
CREATIVE PRODUCTS INTERNATIONAL, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS March 25,
1999 (Date of Incorporation) to September 30, 1999
<TABLE>
<S> <C>
Cash Flows from Operating Activities
Net loss $ (4,671)
Amortization expense 4,671
-----------------
Net cash provided from operating activities -
Cash Flows from Financing Activities, proceeds from issuance
of common stock to parent 350,000
Cash at March 25, 1999 (date of incorporation)
-
-----------------
Cash at September 30, 1999 $ 350,000
=================
See Notes to Financial Statements
</TABLE>
NOTES TO FINANCIAL STATEMENTS
Note 1. Organization and Description of Business
Creative Products International, Inc. ("the Company") was incorporated on March
25, 1999, in Delaware as a wholly-owned subsidiary of Caring Products
International, Inc. In June 1999, Caring Products International, Inc. announced
the spin-off of the Company's outstanding common shares as a dividend to its
shareholders. The spin-off is expected to occur prior to December 31, 1999.
The Company is in the development stage. The Company's objective is to
commercialize educational and consumer products for children under the age of
six, as well as other Internet-based promotion, marketing and merchandising.
Management anticipates that these products, once developed, will be offered to
consumers through retail, catalog and Internet sources. The Company plans to
seek additional financing through strategic partnerships in the publishing,
media, video production, consumer products and electronic commerce markets. At
June 30, 1999, Caring Products International, Inc. transferred its intellectual
property associated with toddler training products together with other
complementary items to the Company to assist in achieving its business
objective.
The Company's fiscal year will end annually on December 31.
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<PAGE> 24
Note 2. Summary of Significant Accounting Policies
Cash
Cash consists of an amount held in a demand deposit account. The amount held in
this account at September 30, 1999, exceeds the Federally insured limit.
Intangible Assets
Intangible assets consist of the following:
<TABLE>
<S> <C>
Purchased technology $ 72,656
Patent 43,181
Copyright 29,583
Trademark 20,232
------------------
165,652
Less accumulated amortization (4,761)
------------------
$ 160,981
==================
</TABLE>
These assets were transferred to the Company by Caring Products International,
Inc. at historical cost at June 30, 1999. Amortization is recorded using the
straight-line method over the estimated useful lives of the assets which does
not exceed ten years.
The Company periodically reviews intangible assets to assess recoverability.
Impairment will be recognized in results of operations when intangible assets
are deemed unrecoverable. Management has determined that these intangible assets
will be recoverable.
Revenue Recognition
The Company will recognize revenue as contractual terms are satisfied.
Advertising
Advertising costs will be expensed during the period incurred.
Research and Development
Research and development costs will be expensed during the period incurred.
Stock-Based Compensation
Compensation expense for employee stock option or purchase plans is to be
measured by the excess, if any, of the market price of the Company's stock at
the measurement date over the amount an employee is required to pay for the
stock. There was no stock-based compensation for the period ended September 30,
1999.
Income Taxes
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<PAGE> 25
Income taxes are accounted for using the asset and liability approach, which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred income taxes will be provided for the
temporary differences between the financial reporting basis and the tax basis of
the Company's assets and liabilities. A valuation allowance will be recognized
for deferred tax assets not likely to be realized. Deferred taxes are to be
measured by the provisions of currently enacted tax laws. The deferred tax asset
(approximately $1,400) resulting from the loss at September 30, 1999, has been
fully reserved.
Earnings Per Share
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding in the
period. Diluted earnings per share takes into consideration common shares
outstanding (computed under basic earnings per share) and potentially dilutive
common shares; however, there are no dilutive securities. The weighted average
number of shares outstanding was 32,343 for the period ended September 30, 1999.
Preferred Stock
The Company has authorized 1,000,000 shares of preferred stock at a par value of
$.01 per share. No preferred shares had been issued nor had preferences been
determined as of September 30, 1999.
Use of Accounting Estimates in the Preparation of the Financial Statements
The preparation of financial statements in accordance 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 revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Comprehensive Income
The Company had no elements of comprehensive income for the period ended
September 30, 1999. Further, there are no other new financial accounting
standards which would have an effect on these financial statements.
Note 3. Employment Agreement
On September 24, 1999, the Company entered into a three-year employment
agreement with its chairperson, Susan Schreter. The agreement may be extended in
one-year increments. Ms. Schreter is obligated to spend up to 25% of her time on
Company business at an annual compensation of $25,000. In the event she devotes
100% of her time to the Company, she will receive an annual salary of $150,000.
On October 4, 1999, the Company sold 384,000 shares of the Company's common
stock to Ms. Schreter for $19,200 in cash. As part of the employment agreement,
these shares are held in
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<PAGE> 26
escrow until the spin-off discussed in Note 1 is completed. If the spin-off is
not completed before March 31, 2000, the Company has the right to purchase the
escrowed shares for $19,200.
Note 4. Warrant
On August 25, 1999, the Company entered into an agreement with a Hong Kong based
company for the identification of product manufacturing sources in China. As
part of the agreement, the Company is obligated to issue a warrant to purchase
26,000 shares of its common stock upon the first successful shipment of product
from China. The exercise price of the warrant is to be determined by the closing
bid price of the Company's shares on the date of approval of the product by the
Company's board of directors which is to occur within 30-days of shipment. The
warrant is for a five-year period beginning on the date of Board approval.
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<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF CREATIVE PRODUCTS OPERATIONS
The following discussion should be read in conjunction with Creative
Products' Financial Statements and Notes set forth elsewhere in this Information
Statement.
OVERVIEW
Creative Products is a development stage company organized to
commercialize certain educational and consumer products geared to children under
the age of six, as well as other internet-based promotion, marketing and
merchandising businesses. Management anticipates that these products, once
developed, will be offered to consumers through retail, catalog and the
internet. Creative Products plans to seek to finance the development of its
business through strategic partnerships in the publishing, media, video
production, consumer products and electronic commerce markets.
PLAN OF OPERATION
The management of Creative Products believes that while there are many
educational products on the market which help teach young children the alphabet
and beginning arithmetic, there is no single brand of products or collection of
animated characters synonymous with helping parents teach young children all the
"basics" of good habits and behavior in a highly consistent and reliable way.
Creative Products is attempting to be the first such company. Creative Products'
line of merchandise incorporates educational activities and teaching techniques
in playful games, activities and story lines which feature engaging, "cool"
animated characters. It is expected that these underlying positive behavior
themes will be a strong competitive advantage affecting parent purchasing
decisions and support of the brand.
Creative Products intends to employ an innovative cross-media strategy
to market and promote the selected products and brand names to parents as a
source of high quality parenting information and products. Creative Products is
developing several parent guide books, designed to help parents introduce new
skills in sensible, child-friendly stages to maximize child interest and
retention. These books and companion products have been designed to be sold
through retail, catalog, television and internet distribution channels.
Creative Products has developed a line of 28 animated children's
characters, called the Booster Kids and several animated animal characters that
help the Booster Kids overcome fears, learn new skills, recognize safety
concerns, resolve disputes and promote good-natured behavior at home and in
public. These characters are being incorporated into a library of 30 rhyming
stories, song tapes, video and children's television concepts and various other
"kit" and learning skills development products. The management of Creative
Products intends to explore opportunities for developing a presence for its
animated characters and branded, positive educational themes on public, cable or
major network television.
Creative Products expects that it will seek to expand the range of
products that feature the Booster Kids and other Booster characters through
licensing or private label relationships with established consumer product
companies and media companies. Products that may be most conducive to licensing,
private label or promotional merchandising include bubble bath, soaps,
sleepwear, wash cloths, towels, bath toys, tooth brushes, birthday party ware
and toy figurines.
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<PAGE> 28
Additionally, Creative Products intends to contract a feasibility study
to determine the capital and technical requirements associated with Creative
Products internet plans. Creative Products has reserved the domain name
BoosterBasics.com as one of its first intended sites for the promotion of
various children's animated properties and the sale of related Booster Basics
consumer and educational products. Creative Products anticipates that it will
offer parenting information, featured articles written by pre-school teachers,
child psychologists, education experts, pediatricians, parents and grandparents,
step-by-step topic specific teaching programs, topic specific gift sets of
related consumer and educational products, and an on-line children's animated
activity center through BoosterBasics.com. This activity center plans to
introduce several highly innovative features including an on-line "read to me"
story section with topic-driven and character selection flexibility. Contests,
free "printables" and posters and other features may be developed to frequently
draw both parents and children to the site.
Given the targeted demographic orientation of BoosterBasics.com's
audience, the management of Creative Products will explore other revenue
generating features of its web site including banner advertising, promotional
feature coupon merchandising, sponsorship arrangements and sale of other
products that have appeal to households with children under the age of six.
RESULTS OF OPERATIONS
Since the conclusion of the first test market of the BumberChute
product line in 1994 and 1995, there have been very limited revenues and
expenses generated by Caring Products of non-adult incontinence related
products. Other than through the amortization of intellectual property, no
revenues or expenses have been generated by Creative Products since its
organization on March 25, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Creative Products' primary source of liquidity are cash deposits of
$50,000 and $300,000 made by Caring Products on March 25, 1999 and on September
27, 1999 respectively. Creative Products has no long-term debt or other
contingent obligations. In addition, Creative Products received $19,200 from the
sale of 384,000 shares of common stock to Susan Schreter in connection with her
employment agreement with Creative Products.
Creative Products expects that it will seek to raise additional capital
through the sale of common stock or other securities to strategic product
distribution partners and investors. Creative Products also will seek to license
some or all of its animated characters and developed books and video concepts to
potential media or publishing partners. There is no assurance that Creative
Products will be able to secure additional financing, through debt or equity,
which is required to complete development of its products, organize a workable
internet web site that can accept product orders or develop income producing
promotional businesses or ultimately implement its retail product
commercialization plan.
YEAR 2000 COMPLIANCE
Creative Products has no software, computer equipment or other
electronic equipment that could be adversely affected by the rollover to the
year 2000 in place. It intends to purchase
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<PAGE> 29
software, products and information systems in the future, which it expects will
use a four-digit year code. As a result, Creative Products believes that its
software, products and information systems will function properly with respect
to dates in the Year 2000 and thereafter. Creative Products cannot assure you,
however, that its technology, products, software and systems or the products,
software, and systems of our manufacturers, distributors, vendors, or customers
will function properly with respect to dates in the Year 2000 and thereafter.
Any resulting system failures could harm Creative Products' business. Creative
Products has identified its critical manufacturers, distributors, vendors, or
customers and is monitoring their Year 2000 compliance programs. Creative
Products is also in the process of establishing its contingency plans, which it
expects to substantially complete by November 1999. The failure of any of its
manufacturers, distributors, vendors, or customers to adequately address the
Year 2000 problem or the failure by Creative Products to successfully implement
its contingency plans could harm Creative Products' business. The cost of the
Year 2000 monitoring of Creative Products' critical manufacturers, distributors,
vendors, or customers is not expected to be material to our results of
operations or financial position.
DESCRIPTION OF CARING PRODUCTS'
AND CREATIVE PRODUCTS' CAPITAL STOCK
DESCRIPTION OF CARING PRODUCTS' CAPITAL STOCK
The authorized capital stock of Caring Products consists of 75,000,000
shares of common stock, par value $0.01 per share, and 1,000,000 shares of
preferred stock, par value $0.01 per share. The following is a summary of
certain terms and rights of Caring Products' common stock and preferred stock.
Preferred Stock
The Board of Directors is authorized, subject to limitations prescribed
by law, to provide for the issuance of the Preferred Stock in series and by
filing a certificate pursuant to the Delaware General Corporation Law to
establish the number of shares to be included in each series. The Preferred
Stock may be issued either as a class without series, or if so determined from
time to time by the Board of Directors, either in whole or in part in one or
more series, each series to be appropriately designated by a distinguishing
number, letter or title prior to the issue of any shares thereof.
The Board of Directors has the authority to fix the voting power, the
designations, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions of the Preferred
Stock in the resolution or resolutions adopted by the Board of Directors
providing for the issuance of the Preferred Stock.
Common Stock
Subject to the provisions of law and the preferences of the Preferred
Stock, dividends may be paid on the Common Stock at such time and in such
amounts as the Board of Directors may deem advisable.
26
<PAGE> 30
The Board of Directors is authorized to effect the elimination of
shares of Common Stock purchased or otherwise reacquired by Caring Products from
the authorized capital stock or number of shares of Caring Products in the
manner provided for in the General Corporation Law of Delaware.
General Provisions Applicable to Both Common and Preferred Stock
No holder of Common Stock or Preferred Stock has any pre-emptive right
to subscribe to stock, obligations, warrants, rights to subscribe to stock or
other securities of any class.
Subject to the provisions of law and the provisions of Caring Products'
Certificate of Incorporation, as amended, Caring Products may issue shares of
its Preferred Stock or Common Stock, from time to time for such consideration
(not less than the par value or stated value thereof) as may be fixed by the
Board of Directors. Shares so issued, for which the consideration has been paid
or delivered to Caring Products, shall be deemed fully paid stock, and shall not
be liable to any further call or assessments thereon, and the holders of such
shares shall not be liable for any further payments in respect of such shares.
DESCRIPTION OF CREATIVE PRODUCTS' CAPITAL STOCK
The authorized capital stock of Creative Products consists of
15,000,000 shares of common stock, $0.01 par value per share and 1,000,000
shares of preferred stock (the "Preferred Stock"). The following is a summary of
certain terms and rights of Creative Products' common stock and preferred stock.
Preferred Stock
The Board of Directors is authorized, subject to limitations prescribed
by law, to provide for the issuance of the Preferred Stock in series and by
filing a certificate pursuant to the Delaware General Corporation Law to
establish the number of shares to be included in each series. The Preferred
Stock may be issued either as a class without series, or if so determined from
time to time by the Board of Directors, either in whole or in part in one or
more series, each series to be appropriately designated by a distinguishing
number, letter or title prior to the issue of any shares thereof.
The Board of Directors has the authority to fix the voting power, the
designations, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions of the Preferred
Stock in the resolution or resolutions adopted by the Board of Directors
providing for the issuance of the Preferred Stock.
Common Stock
Subject to the provisions of law and the preferences of the Preferred
Stock, dividends may be paid on the Common Stock at such time and in such
amounts as the Board of Directors may deem advisable.
The Board of Directors is authorized to effect the elimination of
shares of Common Stock purchased or otherwise reacquired by Creative Products
from the authorized capital stock or
27
<PAGE> 31
number of shares of Creative Products in the manner provided for in the General
Corporation Law of Delaware.
General Provisions Applicable to Both Common and Preferred Stock
No holder of Common Stock or Preferred Stock has any pre-emptive right
to subscribe to stock, obligations, warrants, rights to subscribe to stock or
other securities of any class.
Subject to the provisions of law and the provisions of Creative
Products' Certificate of Incorporation, as amended, Creative Products may issue
shares of its Preferred Stock or Common Stock, from time to time for such
consideration (not less than the par value or stated value thereof) as may be
fixed by the Board of Directors. Shares so issued, for which the consideration
has been paid or delivered to Creative Products, shall be deemed fully paid
stock, and shall not be liable to any further call or assessments thereon, and
the holders of such shares shall not be liable for any further payments in
respect of such shares.
PENNY STOCK RULES
The Securities and Exchange Commission has adopted Rule 15g-9 which
established the definition of a "penny stock", for the purposes relevant to
Creative Products, as any equity security that has a market price of less than
$5.00 per share or with an exercise price of less than $5.00 per share, subject
to certain exceptions. For any transaction involving a penny stock, unless
exempt, the rules require: (I) that a broker or dealer approve a person's
account for transactions in penny stocks; and (ii) the broker or dealer receive
from the investor a written agreement to the transaction, setting forth the
identity and quantity of the penny stock to be purchased. In order to approve a
person's account for transactions in penny stocks, the broker or dealer must (I)
obtain financial information and investment experience objectives of the person;
and (ii) make a reasonable determination that the transactions in penny stocks
are suitable for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks. The broker or dealer must also deliver, prior to
any transaction in a penny stock, a disclosure schedule prepared by the
Commission relating to the penny stock market, which, in highlight form, (I)
sets forth the basis on which the broker or dealer made the suitability
determination; and (ii) that the broker or dealer received a signed, written
agreement from the investor prior to the transaction. Disclosure also has to be
made about the risks of investing in penny stocks in both public offerings and
in secondary trading and about the commissions payable to both the broker-dealer
and the registered representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in penny stock
transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks. If Creative Products' stock is listed at a price
of less that $5.00 the stock will be a penny stock. As a penny stock the shares
could be less liquid than if the stock was not so classified.
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<PAGE> 32
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Creative Products is subject to the provisions of Section 203 of the
Delaware General Corporation Law ("DGCL"). Subject to certain exceptions,
Section 203 of the DGCL prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested shareholder" for a
period of three years after the date of the transaction in which the person
became an interested shareholder. Subject to certain exceptions, an "interested
shareholder" is a person who, together with affiliates and associates, owns, or
within three years did own, 15% or more of the corporation's voting stock. A
"business combination" includes (1) mergers, consolidations and sales or other
dispositions of 10% or more of the assets of a corporation to or with an
interested shareholder, (2) certain transactions resulting in the issuance or
transfer to an interested shareholder of any stock of such corporation or its
subsidiaries, and (3) other transactions resulting in a disproportionate
financial benefit to an interested shareholder.
The restrictions of Section 203 of the Delaware General Corporation Law
do not apply where: (1) the business combination or the transaction in which the
shareholder becomes interested is approved by the corporation's Board of
Directors prior to the date the interested shareholder acquired its shares; (2)
the interested shareholder acquired at least 85% of the outstanding voting stock
of the corporation in the transaction in which the shareholder became an
interested shareholder excluding, for determining the number of shares
outstanding, shares owned by persons who are directors as well as officers and
by employee stock plans in which participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer; or (3) the business combination is approved by the
Board of Directors and the affirmative vote of two-thirds of the outstanding
voting stock not owned by the interested shareholder at an annual or special
meeting.
The business combinations provisions of Section 203 of the DGCL may
have the effect of deterring merger proposals, tender offers or other attempts
to effect changes in control of Creative Products that are not negotiated with
and approved by the Board of Directors.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The spin-off will be on the basis of one-half share of Creative
Products common stock for each share of Caring Products common stock owned on
June 30, 1999. In connection with the spin-off, no options or warrants will be
issued to holders of Caring Products options or warrants as of June 30, 1999.
The following table sets forth certain information regarding the
anticipated beneficial ownership of Creative Products common stock following the
spin-off by (i) each person anticipated by Caring Products to own beneficially
5% or more of the Creative Products common stock and (ii) the directors and
officers of Creative Products; and all directors and officers of Creative
Products as a group. Unless otherwise indicated, the information in the table is
based upon the actual holdings of Caring Products common stock as of June 30,
1999 and such information is derived based upon the hypothetical assumption that
the effective date of the spin-off was June 30, 1999, so as to inform the reader
what the beneficial ownership of Creative Products common stock would have been
at that time. Actual ownership on the spin-off Payment Date may vary from that
shown in the table.
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<PAGE> 33
Unless otherwise indicated, all persons listed have sole voting power
and investment power with respect to such shares, subject to community property
laws, where applicable, and the information contained in the notes to the table.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
<TABLE>
<CAPTION>
NUMBER OF %
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OWNED OWNED
- ------------------------------------ ------------ -----
<S> <C> <C>
Susan A. Schreter 468,447* 24.5%
c/o Creative Products International, Inc.
5843 Woodlawn Ave. N
Seattle, WA 98103
</TABLE>
*This number includes 384,000 shares that were sold to Ms. Schreter on October
4, 1999 in connection with her employment agreement with Creative Products.
SECURITY OWNERSHIP OF MANAGEMENT
<TABLE>
<CAPTION>
NUMBER OF %
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OWNED OWNED
- ------------------------------------ ------------ -----
<S> <C> <C>
Susan A. Schreter 468,447* 24.5%
c/o Creative Products International, Inc.
5843 Woodlawn Ave. N
Seattle, WA 98103
Lisa Indovino -- --
118 Bellevue Ave
Upper Montclaire, NJ 07043
Joan Lundgren 32,500 1.7%
326 Prospect Ave.
Hackensack, NJ
All executive officers and directors as a group 500,947* 26.2%
</TABLE>
*This number includes 384,000 shares that were sold to Ms. Schreter on October
4, 1999 in connection with her employment agreement with Creative Products.
INDEPENDENT ACCOUNTANTS
The Board of Directors of Creative Products has selected Peterson
Sullivan P.L.L.C. to audit its financial statements for the year ending
March 31, 1999.
30
<PAGE> 34
WHERE YOU CAN FIND MORE INFORMATION
The descriptions in this information statement concerning the contents of any
contract, agreement or documents are not necessarily complete. For those
contracts, agreements or documents that are filed as exhibits to the
registration statement, you should read the exhibit for a more complete
understanding of the document or subject matter involved.
Because Caring Products is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, it files reports, proxy statements
and other information with the Securities and Exchange Commission. You may read
and copy the registration statement, including the attached exhibits and
schedules, and any reports, proxy statements or other information that we file
at the Securities and Exchange Commission's public reference room in Washington,
D.C. at 450 Fifth Street, N.W., 20549. You can request copies of these documents
by writing to the Securities and Exchange Commission and paying a duplicating
charge. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the operation of its public reference rooms in other
cities. The Securities and Exchange Commission makes our filings available to
the public on its internet site (http://www.sec.gov).
The Commission allows companies to "incorporate by reference" information into
registration statements that have been previously filed with the Commission,
which means that Caring Products can disclose important information to you by
referring you to other documents that it filed separately with the Commission.
You should consider the incorporated information as if it were reproduced in
this prospectus, except for any information directly superseded by information
subsequently filed with the Securities and Exchange Commission and incorporated
in this registration statements, or directly contained in this registration
statements.
Caring Products incorporates by reference the documents listed below which were
filed with the Commission under the Securities Exchange Act of 1934, as amended,
and any future filings made with the Commission under Sections 13(a), 13(c), 14,
or 15(d) of the Securities Exchange Act of 1934, as amended, until such time as
all of the securities covered by this prospectus supplement have been sold.
- The registrant's Annual Report on Form 10-KSB for the fiscal year
ended March 31, 1998 (filed on July 14, 1999).
- The registrant's Quarterly Reports on Form 10-QSB for the period
ended June 30, 1999 (filed on August 17, 1999).
Caring Products may file additional documents with the Securities and Exchange
Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended, on or after the date of this registration
statement. The Securities and Exchange Commission allows us to incorporate by
reference into this registration statement such documents. You should consider
any statement contained in this registration statement (or in a document
incorporated into this registration statement) to be modified or superseded to
the extent that a statement in a subsequently filed document modifies or
supersedes such statement.
31
<PAGE> 35
You may request a copy of these filings, at no cost, by writing or telephoning
us at the following address:
Susan A. Schreter
Caring Products International, Inc.
P.O. Box 9288
Seattle, Washington 98109
32
<PAGE> 36
Exhibit Index
10.1 Restated and Amended Employment Agreement
dated September 24, 1999, between Caring Products,
International, Inc. and Susan A. Schreter
23.1 Consent of Peterson Sullivan P.L.L.C.
<PAGE> 1
EXHIBIT 10.1
RESTATED AND AMENDED
EMPLOYMENT AGREEMENT
CARING PRODUCTS INTERNATIONAL, INC.
WITH
SUSAN A. SCHRETER
AGREEMENT, dated September 24, 1999, between CARING PRODUCTS
INTERNATIONAL, INC., a Delaware corporation having an address at P. O. Box 9288
Seattle, Washington 98109 (the "Company"), and SUSAN A. SCHRETER, an individual
residing at 5843 Woodlawn Avenue North, Seattle, Washington 98103 (the
"Executive").
W I T N E S S E T H
The Company and the Executive entered into a Restated and
Amended Employment Agreement, dated as of March 13, 1996 (the "Restated
Agreement"), certain provisions of which they now desire to further amend. Among
other things, the Company and the Executive believe it imperative, and in the
best interest of the Company's shareholders, that the Executive devote a portion
of her business time and attention to the affairs of Creative Products
International, Inc. ("Creative"), a subsidiary of the Company whose shares are
to be spun-off to the Company's shareholders as a dividend (the "Spin-off"). The
Company and the Executive also believe it is imperative, and in the best
interest of the Company's shareholders, to make the Company as attractive as
possible to proposals from third parties in light of the Board of Director's
continuing consideration of the Company's strategic alternatives.
Accordingly, the parties hereto desire to and do hereby amend
and restate in its entirety the Restated Agreement as follows:
1. EMPLOYMENT TERM, DUTIES AND ACCEPTANCE.
(a) The Company hereby retains Executive as the Company's
Chief Executive and President for a period of one (1) year, commencing
on the date hereof (the "Initial Period"), and thereafter the Executive's
employment under this Agreement shall automatically be extended for successive
periods of one (1) year (each, a "Renewal" and collectively, the "Renewals;" the
Initial Period and any and all Renewals are hereinafter collectively referred to
as the "Employment Period") unless no later than ninety (90) days prior to the
expiration of the Initial Period or any Renewal either party hereto shall give
written notice to the other as provided herein of its or her election to
terminate the employment hereunder whereupon such employment shall terminate
effective upon the expiration of the Initial Period or such Renewal, as the case
may be, subject to earlier termination as hereinafter provided.
(b) In her capacity as Chief Executive Officer and President
of the Company, the Executive shall be responsible for the operations of the
Company, subject to the direction and control of the Board of Directors. The
Executive shall have the powers and privileges of the President and Chief
Executive Officer of the Company, as defined in the By-Laws of the
<PAGE> 2
Company in effect on the date hereof and as currently interpreted, and, to the
extent not defined therein, as the same are customarily performed and exercised
by a president and chief executive officer of a publicly owned corporation
incorporated in one of the United States of America. If elected, the Executive
shall serve as a member of the Board of Directors (and of any Executive
Committee or similar committee having powers of the Board of Directors now in
existence or hereafter created) of the Company without any additional
compensation for such services. As used in this Agreement, the term "Company"
includes each Subsidiary of the Company, and the terms "Subsidiary" and
"Subsidiaries" shall mean each corporation of which more than 50% of the
outstanding stock entitled to vote for directors is owned directly or indirectly
by the Company. The Executive hereby accepts the foregoing employment and, so
long as she is the Chief Executive Officer and President of the Company, agrees
to devote such portion of her business time and attention to the performance of
her duties hereunder as may be reasonably required so as to promote the profit,
benefit and advantage of the business of the Company. It is understood and
agreed that during the Employment Period, the Executive shall be entitled to
devote approximately twenty-five percent (25%) of her business time and
attention to the affairs of Creative without violating the provisions of this
Agreement and to be compensated therefore as shall be agreed between Creative
and the Executive.
2. COMPENSATION; BENEFITS. As compensation for all services to
be rendered by Executive pursuant to this Agreement, subject to the conditions
stated herein, the Company agrees to pay to Executive all of the foregoing:
(a) BASE SALARY. Beginning on the date hereof and until
September 30, 1999, the Company shall pay the executive a base salary (the "Base
Salary") at a rate of One Hundred Twenty Five Thousand Dollars ($125,000) per
annum; commencing October 1, 1999 and until the expiration of the Employment
Period, the Base Salary shall be decreased to One Hundred Thousand Dollars (US
$100,000) per annum, payable in accordance with the payroll practices of the
Company as from time to time in effect. On or as soon as practicable after each
yearly anniversary of the date hereof, the Board of Directors shall review the
services provided by Executive to determine the amount, if any, that Executive's
Base Salary shall be increased for the forthcoming year. This Agreement shall
not be deemed abrogated or terminated if the Company, in its discretion, shall
determine to increase the compensation to the Executive for any period of time
or if the Executive shall accept such increase, but nothing herein shall be
deemed to obligate the Company to make any such increase.
(b) BONUS. Executive shall be entitled to participate in any
bonus or profit sharing plan that may be adopted from time to time by the
Company and to receive a bonus or distribution thereunder (the "Bonus").
(c) FRINGE BENEFITS. Executive shall receive (subject to the
terms and conditions of particular plans and programs) all rights, privileges
and fringe benefits afforded to other senior executives of the Company,
including, but not by way of limitation, the right to participate in any
pension, retirement, major medical, group health, disability, accident and life
insurance, relocation reimbursement, and other employee benefit programs made
generally available, from time to time, by the Company. Notwithstanding the
foregoing, the Company shall pay, or reimburse Executive, for the cost of major
medical and health insurance irrespective of
2
<PAGE> 3
whether such benefits are provided to any other executives or employees..
(d) EXPENSE REIMBURSEMENT. The Company shall pay or reimburse
Executive for all reasonable expenses incurred in the performance of her
services under this Agreement during the Employment Period, including expenses
incurred in connection with the operation and maintenance of her automobile
consistent with past practice, upon presentation of expense statements, vouchers
or such other supporting documentation as may reasonably be required.
3. TERMINATION OF EMPLOYMENT.
(a) Executive's employment hereunder shall terminate upon the
earliest of the following:
(i) Executive's death or Retirement (as defined in Section
3(e) hereof);
(ii) Thirty (30) days after delivery by the Company to
Executive of written notice that Executive has materially and substantially
failed to perform and discharge her duties hereunder for a period of at least
three (3) consecutive months or for an aggregate of four (4) months in any
twelve (12) month period as a result of physical or mental disability or
incapacity (a "Disability") unless the Executive shall have returned to
full-time performance of her duties hereunder during such thirty (30) day
period;
(iii) Fifteen (15) days after delivery by the Company to
Executive of written notice of termination for "Objectionable Conduct" (as such
term is defined in Section 3 (c) hereof), provided such Objectionable Conduct
has not been cured by Executive within such fifteen (15) day period (or such
longer period as is reasonably required provided that Executive has acted in
good faith to begin to cure such Objectionable Conduct within such fifteen (15)
day period);
(iv) Thirty (30) days after delivery by Executive to the
Company of written notice of termination other than pursuant to Section 3 (a)
(v);
(v) Fifteen (15) days after delivery by Executive to the
Company of written notice of termination for "Good Reason" (as such term is
defined in Section 3 (d) hereof, provided such Good Reason has not been cured by
the Company within such fifteen (15) day period (or such longer period as is
reasonably required provided the Company has acted in good faith to begin to
cure such Good Reason within such fifteen (15) day period).
(vi) Fifteen (15) days after delivery by Executive of
written notice of termination in the event of a "Change of Control" of the
Company (as such term is defined in Section 3 (g) hereof), such notice to
identify the change of control as the cause of the termination and to be
delivered to the company no later than three (3) months following such Change of
Control.
(b) In the event of a dispute between the parties as to what
constitutes a Disability, such dispute shall be finally determined by a
physician mutually agreed upon by Executive and Company. If a mutually
acceptable physician cannot be selected, Executive and the
3
<PAGE> 4
Company shall each choose a physician, and such physicians shall select a third
physician, by mutual agreement, whose determination shall be conclusive. Either
party may request that such a determination be made, in which event the parties
agree to cooperate fully with whatever procedures and examinations may be
required in order to allow such determination to be made. The cost of such
examinations shall be borne by the Company if such determination is that a
Disability exists or by the Executive if such determination is that no
Disability exists.
(c) As used herein, "Objectionable Conduct" shall mean (i) the
material breach by Executive of her duties and obligations hereunder, or (ii)
any act of gross misconduct by Executive materially detrimental to the Company,
including without limitation, misappropriation of the Company's property,
conviction of a felony, or dishonesty or conflict of interest on the part of
Executive.
(d) As used herein, "Good Reason" shall mean (i) the material
breach by the Company of any of its obligations hereunder, (ii) the assignment
by the Company to Executive of duties which are inconsistent with, or require
travel significantly more time-consuming or extensive than, Executive's duties
and business travel obligations on the date hereof, (iii) any diminution in the
duties or authority of the Executive as in effect on the date hereof, (iv) a
change in Executive's assigned site location without Executive's express written
consent, (v) the failure by the Company to pay (or reimburse Executive for) all
reasonable moving expenses incurred by Executive and relating to a change of her
principal residence and to indemnify Executive against any loss by Executive
and/or her spouse in the sale of Executive's principal residence in connection
with any such change of residence, all to the effect that Executive shall incur
no loss on an after-tax basis, (vi) the failure by the Company to obtain the
express written assumption of and agreement to perform this Agreement as
contemplated in Section 14 hereof, or (vii) a reduction by the Company of
Executive's Base Salary as the same may be increased from time to time
hereafter, (viii) the failure of the Company to continue to provide Executive
with substantially the same level of fringe benefits as contemplated in Section
2(c) hereof unless such fringe benefits (excluding major medical insurance)
shall cease to be provided to all senior executive officers and employees of the
Company or (ix) any purported termination of Executive's employment which is not
effected in accordance with the terms of this Agreement.
(e) As used herein, the term "Retirement" shall mean that
Executive shall have retired after reaching the earliest normal or early
retirement date provided in the Company's retirement plans as then in effect.
(f) The date upon which Executive's employment terminates in
accordance with any of the provisions of Section 3 (a) is referred to herein as
the "date of termination". In the event of a termination of this Agreement
pursuant to Section 3(a), the Company shall be obligated to pay to Executive,
and Executive shall be entitled to receive (i) any unpaid Base Salary through
the date of termination, (ii) reimbursement for expenses incurred by Executive
through the date of termination, subject to the procedures set forth in Section
2(d), (iii) any unpaid Bonus in respect of fiscal years prior to the year in
which the date of termination occurs, and (iv) such additional compensation or
benefits, if any, as are set forth in Section 4 hereof . Except for the
compensation and benefits specified in this Section 3 (f) and in Section 4, the
Company shall have no obligation to provide to Executive any compensation or
benefits from and
4
<PAGE> 5
after the date of termination. Executive agrees, upon any such termination, to
resign as an officer and director of the Company and each of its Subsidiaries as
of the date of termination.
(g) As used herein, "Change of Control" of the Company shall
mean the happening of any of the following events:
(i) A change in control of the direction and administration
of the Company's business of a nature that such change would be required to be
reported in response to (a) Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities and Exchange Act of 1934 (the "Exchange Act"),
or (b) Item 1(a) of Form 8-K under the Exchange Act, as each is in effect on the
date hereof and any successor provision of such regulations under the Exchange
Act, irrespective of whether the Company is then subject to such reporting
requirements; or
(ii) Any "person" or "group" (as such term is used in
connection with Section 13(d) and 14(d) or the Exchange Act) but excluding any
employee benefit plan of the Company or any "affiliate" or "associate" of the
company (as defined in Regulation 12b-2 under the Exchange Act) (a) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing fifty
percent (50)) or more of the combined voting power of the Company's outstanding
securities then entitled ordinarily (and apart from rights accruing under
special circumstances) to vote for the election of directors or (b) acquires by
proxy or otherwise 50% or more of the combined voting securities of the Company
having the right to vote for the election of directors of the Company, for any
merger or consolidation of the Company, for the election of Directors, or for
any other matter; or
(iii) During any period of six (6) consecutive months, the
individuals who at the beginning of such period constitute the Board of
Directors of the Company or any individuals who would be "Continuing Directors"
(as hereinafter defined) cease for any reason to constitute at least a majority
thereof; or
(iv) There shall be consummated (A) any consolidation,
merger or recapitalization of the Company or any similar transaction involving
the Company, irrespective of whether the Company is the continuing or surviving
corporation, pursuant to which share s of the Company's common stock, par value
$.01 per share ("Common Stock"), would be converted into cash, securities or
other property, other than a merger of the Company in which the holders of
Common Stock immediately prior to the merger have the same proportion and
ownership of common stock of the surviving corporation immediately after the
merger, (B) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all, or substantially all, of the assets of
the Company or (C) the adoption of a plan of complete liquidation of the Company
(whether or not in connection with the sale of all or substantially all of the
Company's assets) or a series of partial liquidations of the Company that is de
jure or de facto part of a plan of complete liquidation of the Company;
provided, that the diverstiture of less than substantially all of the assets of
the Company in one transaction or a series of related transactions, whether
effected by sale, lease, exchange, spin-off, sale of the stock or merger of a
Subsidiary or
5
<PAGE> 6
otherwise, or a transaction solely for the purpose of reincorporating the
Company in another jurisdiction, shall not constitute a "Change in Control"; or
(v) The Board of Directors of the Company shall approve
any merger, consolidation or like business combination or reorganization of the
Company, the consummation of which would result in the occurrence of any event
described in Section 3(d)(I), (ii) or (iv) above.
(vi) For purposes of this Agreement, "Continuing
Directors" shall mean the directors of the Company in office on the date
hereof and any successor to any such director and any additional director
who after the date hereof (i) was nominated or selected by a majority of the
Continuing Directors in office at the time of his nomination or selection and
(ii) who is not an "affiliate" or "associate" (as defined in Regulation 12b-2
under the Exchange Act) of any person who is the beneficial owner, directly or
indirectly, of securities representing ten percent (10%) or more of the combined
voting power of the Company's outstanding securities then entitled ordinarily to
vote for the election of directors.
4. Additional Benefits Upon Termination.
(i) Bonus. (i) If Executive's employment hereunder terminates
pursuant to the provisions of Sections 3 (a) (i) , 3 (a) (ii), 3 (a) (iv) or 3
(a) (vi), and Executive has served hereunder for at least one-half of the fiscal
year in which the date of termination occurs, Executive (or Executive's estate,
in the event of a termination due to death) will be entitled to receive a pro
rata portion of the Bonus paid to the Executive on account of the immediately
preceding fiscal year (the "Prior Bonus") based on that portion of the fiscal
year for which Executive was employed hereunder. Such amount will be payable to
the Executive within thirty (30) days following such date of termination.
(ii) If Executive's employment hereunder terminates pursuant to
the provisions of Section 3 (a) (v), Executive will be entitled to receive a
bonus for the fiscal year in which the date of termination occurs equal to a pro
rata portion of the Prior Bonus, based on that portion of the current fiscal
year for which Executive was employed hereunder. Such sum will be payable within
thirty (30) days after the date of termination.
(iii) If Executive's employment hereunder terminates pursuant to
the provisions of Section 3 (a) (iii), Executive will not be entitled to receive
any Bonus in respect of the fiscal year in which the date of termination occurs.
(b) Options. (i) Upon any termination of this Agreement pursuant to
Sections 3 (a) (i), 3 (a) (ii), 3 (a) (iii), 3 (a) (iv), 3 (a) (v) or 3(a) (vi),
Executive will be entitled to retain any options granted to her prior to the
date of termination and to hold and exercise such options in accordance with the
terms thereof, provided that in the case of a termination of this Agreement
pursuant to Sections 3(a) (i), 3 (a) (ii), 3 (a) (v) or 3 (a) (vi) Executive
shall be entitled to exercise any options vested on the date of termination for
the full original respective term of such options notwithstanding anything to
the contrary contained in the stock option agreements limiting the
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exercise period in the event of the termination of the Executive.
(c) Additional Benefits. (i) If this Agreement is terminated due to
Executive's Disability pursuant to Section 3 (a) (ii) , Executive will be
entitled to receive, in addition to the other compensation and benefits
described herein, Executive's then effective Base Salary for a period equal to
the balance of the then Employment Period, less the proceeds of any disability
insurance policy on Executive purchased by the Company and the Company will
continue to provide Executive with, or will reimburse Executive the cost of,
major medical and health insurance for such period. The Base Salary for such
period will be payable in the same manner as if Executive continued to be
employed by the Company, and the insurance proceeds will be payable, if at all,
on the basis specified in the applicable disability insurance policy.
5. TRADE SECRETS.
(a) Executive acknowledges that her employment by the Company, which
is in the business of marketing incontinence products, may enable her to obtain
confidential information concerning the Company, its subsidiaries and
affiliates, their products, services, concepts, businesses, trade secrets,
employees, customers, suppliers, vendors, venture partners, and strategic allies
(collectively, the "Confidential Information"). Executive further acknowledges
that the services to be performed under this Agreement are of a special, unique,
unusual and extraordinary character, that the Company's products will be
marketed and licensed throughout the United States and abroad, that the Company
will be competing with other organizations which are or could be located in any
part of the United States or abroad, and that the Confidential Information is of
great value to the Company. Accordingly, Executive agrees that she shall not
knowingly divulge any of the Confidential Information to anyone outside of the
Company except as expressly authorized by the Board of Directors of the Company,
or as is necessary to permit Executive to discharge her duties hereunder in good
faith and in the best interests of the company, or as is required by law.
(b) Except if this Agreement is terminated by way of breach of same
by the Company or for reasons specified in Sections 7 (a) or 7 (b), Executive's
covenants contained herein shall survive the termination or expiration of this
Agreement.
6. RIGHT TO INDEPENDENT COUNSEL.
The parties hereto recognize that this Agreement is a legal
document which may affect them adversely. Consequently, the parties acknowledge
that prior to executing this Agreement they were given the opportunity to seek
the advice of independent legal counsel regarding the provisions of this
Agreement and their legal involvement herein. By executing this Agreement, the
parties acknowledge that they have reviewed this Agreement with independent
counsel or have waived their opportunity to do so.
7. TERMINATION OF AGREEMENT.
This Agreement shall, in addition to other provisions affecting
termination, terminate on the occurrence of any of the following events:
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(a) dissolution of the Company; or
(b) the voluntary agreement of the parties hereto.
8. CONSIDERATION FOR AMENDMENTS.
In consideration of Executive's agreement to forego certain of
her rights under the Restated Agreement by entering into this Agreement,
including, without limitation, with respect to the term of employment, severance
in the event of a change of control, and allocation of options, the Company
agrees to pay to the Executive the sum of $75,000, payable as follows:
(a) $25,000 in cash payable upon the execution of this Agreement;
(b) $25,000 in cash on or before December 31, 1999; and
(c) $25,000 in cash on or before March 31, 2000
9. NOTICES.
All notices, requests, demands, deliveries and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
mailed, postage prepaid, registered or certified mail, return receipt requested
to the parties at the addresses (or at such other address for a party as shall
be specified by like notice) specified on the first page of this Agreement.
10. WAIVER.
No course of dealing nor any delay on the part of the Company
or Executive in exercising any rights hereunder shall operate as a waiver of any
such rights. No waiver of any default or breach of this Agreement shall be
deemed a continuing waiver or a waiver of any other breach or default.
11. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of
Washington. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in Seattle,
Washington, in accordance with the rules of the American Arbitration Association
then in force. Any award rendered in any such proceeding shall be final and
binding on the parties thereto and judgment upon any such award may be entered
in any court of competent jurisdiction.
12. COMPLETE AGREEMENT.
This Agreement constitutes the entire agreement of the parties
hereto and supersedes all prior agreements and proposals, oral and written, and
all other communications between the parties relating to the subject matter
contained herein, including, without limitation, the Employment Agreement.
13. SEVERABILITY.
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If any of the provisions of this Agreement are held to be invalid,
illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
14. EXECUTORS, ADMINISTRATORS, SUCCESSORS AND ASSIGNS.
The rights and obligations of the Company under this Agreement
shall inure to the benefit of and shall be binding upon any successor of the
Company or to the business of the Company. Neither this Agreement or any rights
or obligations of Executive hereunder shall be transferable or assignable by
Executive; provided, however, that this Agreement shall inure to the benefit of
and be enforceable by Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Executive should die while any amounts would still be payable to Executive
hereunder if she had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
Executive's devisee, legatee or other designee or, if there be no such designee,
to Executive's estate. The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by written
agreement, to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. As used in this Agreement, the term
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which executes and delivers the
agreement required by this Section 13, or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
15. MODIFICATION.
This Agreement may only be amended, varied or modified by a
written document executed by the parties hereto.
16. FURTHER INSTRUMENTS.
The parties hereto agree to execute and deliver, or cause to
be executed and delivered, such further instruments or documents and take such
other action as may be required to effectively carry out the transactions
contemplated herein.
17. INDEMNIFICATION AND LEGAL EXPENSES.
(a) In addition to any liability insurance to be provided Executive
under the terms contained in paragraph 2(c) and any indemnification provided
under the Company's certificate of incorporation or by-laws or applicable law,
the Company will indemnify and hold harmless Executive from and against any
claims, damages, expenses (including reasonable attorneys' fees) judgments,
fines, penalties (including any excise taxes assessed with respect to an
employee benefit plan), and amounts paid in settlement incurred by Executive in
connection with the investigation, defense, settlement or appeal of any
threatened, pending or completed action, suit or proceeding (whether civil,
criminal, administrative or investigative, whether formal or informal and
whether brought by or in the right of the corporation, (by a class of its
security
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holders or otherwise) in which Executive may be involved as a party or otherwise
by reason of the fact that Executive is or was a director, officer, stockholder,
employee or agent of the Company or is or was serving at the request of the
Company as a director, officer, partner, trustee, employee or agent of another
entity or by reason of anything done or not done by Executive in any such
capacities; provided, however, that Executive shall not be entitled to
indemnification for the portion of any proceeding in which a final judgment or
other final adjudication adverse to the Executive establishes that Executive's
acts were the result of active and deliberate dishonesty and were material to
the cause of action so adjudicated or that Executive personally gained in fact a
financial profit or advantage to which the Executive was not legally entitled.
(b) The Company shall pay the expenses (including reasonable
attorneys' fees) incurred by the Executive in advance of the final disposition
of a proceeding described in paragraph 17(a) upon receipt of an undertaking by
or on behalf of Executive to repay such amount if it shall ultimately be
determined that Executive is not entitled to indemnification under paragraph 17
(a). Such payments shall be made within thirty (30) days after a written, claim
has been received by the Company or, in the case of attorneys fees and expenses,
shall be paid directly by the Company.
(c) Upon the reasonable request of Executive, the Company shall
provide security satisfactory to Executive for its obligations hereunder.
(d) If it shall be necessary or desirable for Executive to retain
legal counsel and/or to incur other costs and expenses in connection with the
enforcement or validity of Executive's rights under paragraph 17(a) or 17(b) or
any other provisions of this Agreement, the Company shall pay or Executive shall
be entitled to recover from the Company, as the case may be, reasonable
attorneys' fees and costs and expenses, regardless of the final outcome. Such
payments shall be made within thirty (30) days after a written claim has been
received by the Company.
18. SURVIVAL.
All covenants, representations and warranties made in this
Agreement, and all other documents provided for herein, shall survive the
execution, delivery and performance of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
CARING PRODUCTS INTERNATIONAL, INC.
By: /s/ Michael Fleming
-------------------------------
/s/ Susan A. Schreter
-------------------------------
Susan A. Schreter
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EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the use of our auditors' report dated October 5, 1999, on
the Creative Products International, Inc. financial statements as of September
30, 1999, and for the nine-month period ended September 30, 1999, included in
the Creative Products International, Inc. Schedule 14C Information for the
nine-month period ended September 30, 1999.
/s/ Peterson Sullivan P.L.L.C.
October 11, 1999
Seattle, Washington
