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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS UNDER SECTION 12(b) OR 12(g)
OF THE SECURITIES EXCHANGE ACT OF 1934
The Children's Beverage Group, Inc.
(Name of Small Business Issuer in its Charter)
Delaware 87-0459103
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
237 Melvin Drive, Northbrook, Illinois 60062
(Address of Principal Executive Offices Including Zip Code)
(847) 562-4040
(Registrant's Telephone Number, Including Area Code)
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $0.0001 par value
(Title of Class)
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FORWARD-LOOKING STATEMENTS
The Company's management cautions readers that certain important factors
may affect the Company's actual results and could cause such results to differ
materially from any forward-looking statements that may be deemed to have been
made in this Form 10-SB or that are otherwise made by or on behalf of the
Company. For this purpose, any statements contained in the Form 10-SB that are
not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the generality of the foregoing, words such as
"may," "expect," "believe," "anticipate," "intend," "could," "estimate,"
"plans," or "continue" or the negative or other variations thereof or comparable
terminology are intended to identify forward-looking statements. Factors that
may affect the Company's results include, but are not limited to, the Company's
limited operating history, its ability to produce additional products, its
dependence on one customer and key executive management, its need for additional
financing and competition from its competitors. Any forward-looking statements
in this report should be evaluated in light of the important risk factors
beginning on page 6 of this registration statement. The Company is also subject
to other risks detailed herein or that will be set forth from time to time in
the Company's filings with the Commission. FOR A COMPLETE UNDERSTANDING OF SUCH
FACTORS, THIS ENTIRE DOCUMENT, INCLUDING THE FINANCIAL STATEMENTS AND THE
ACCOMPANYING NOTES, SHOULD BE READ IN ITS ENTIRETY.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Overview
The Children's Beverage Group is a Delaware corporation incorporated on
August 17, 1988 ("TCBG" or the "Company"). TCGB began operating in the
children's beverage market in March 1997. The Company's corporate headquarters
are located in Northbrook, Illinois at 237 Melvin Drive, Northbrook, Illinois,
60062. The Company manufactures and markets juice pouch products for the
children's beverage market.
The Company focuses on providing low-cost juice drink products to major
supermarket chains and mass merchandisers throughout the United States. To that
end, the Company contracts with a manufacturer to make juice drink pouches and
then fill the pouch with any flavor of juice drink requested by its customer.
The product is then shipped to the customer, where it is sold under the private
label of the customer. The Company works in tandem with the customer to ensure
that the packaging, graphic design of the label, and the juice flavors meet
customer specifications.
Company History
The Company was incorporated under in August 1988 and had no material
operations until 1993. On March 25, 1997, the Company purchased all of the
business and assets of a sole
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proprietorship owned by Jon A. Darmstadter, who was doing business as Water
Pouch, Inc. ("Water Pouch"). Water Pouch's principal business was manufacturing
and distributing plastic water containers. After purchasing Water Pouch, the
Company changed its name to The Children's Beverage Group, Inc. in May 1997 and
began conducting business in the children's beverage market.
Principal Product
The Company currently produces all of Wal Mart's private label fruit juice
pouch product line, including Great Values and BackPak. BackPak is available in
four flavors, Wild Cherry, Fruit Punch Splash, Slam Dunk Grape and Kickin
Orange, and is sold in a "stand up" aseptic pouch package. Made of PET film and
a foil lamentation, these packages are graphically striking with up to six
colors on each package.
The Company's juice pouches include a patented, self-contained fluid
dispensing system known as the "rip it sip it" drink system. The system consists
of a built-in straw that is inserted directly into the product-filled pouch
during the manufacturing process. The straw is then accessed via a laser score
line. The consumer simply tears the film and pushes the straw up from the bottom
of the pouch.
Manufacturing
The Company's products are currently produced, packaged and distributed
from one off-site facility located in the Warrenton Products, Inc. facility in
Warrenton, Missouri. This facility houses three of the Company's Volpak 240 DF
machines, which are used to manufacture its juice products. The Company owns two
of these machines and leases a third machine. TCBG rents the space in the
facility at a cost of $0.15 cents per case. TCBG manages the manufacture of its
products in this facility.
TCGB has signed a 10-year lease for a new manufacturing facility in
Rochester, New York. The Company anticipates that manufacturing will commence in
these facilities in the second quarter of 2000.
New Product
The Company has developed a new product known as "Pack-A-Snack." Pack-A-
Snack is a prepackaged plastic food box containing an assortment of snacks for
children, including a 6.75 ounce juice drink pouch. The Pack has a 12-month
shelf life and will be sold directly to grocery stores and mass merchandisers in
the same manner as TCBG's juice drink products. TCBG currently has no contracts
to distribute Pack-A-Snack. The product is not expected to be available in
stores until the first quarter of 2000.
Competition
The market for juice boxes and juice pouch beverages is intensely
competitive. The competitive factors affecting the market for the Company's
juice product include: vendor and product reputation, availability, ease of use,
product quality, price and the effectiveness of
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marketing and sales efforts. The relative importance of each of these factors
depends on the market segment. The Company's major competitors include Capri
Sun, Hi-C Juice Drinks, Minute Maid Premium Juice Drinks, Juicy Juice, Tang and
MOTTS Juices. Many of the Company's competitors have greater capital resources
and experience in the children's beverage industry than the Company. There can
be no assurance that the Company will be able to compete successfully in the
children's beverage industry. Competitive pressures faced by the Company could
materially affect its business, operating results and financial condition. TCBG,
however, is aggressively seeking private label packaging opportunities and
expects this part of the business to increase in the next few years.
Suppliers and Contract Manufacturers
The supplies used in the production and manufacture of the Company's
products include, but are not limited to, water, concentrates, syrups, closures,
lamination and other packaging materials. The Company is not dependent upon any
one supplier. Management believes that there are numerous alternative suppliers
for these materials, therefore the loss of a supplier is not likely to disrupt
the Company's operations.
Currently, the Company relies on one contract manufacturer to produce juice
products for its sole customer. The loss of this manufacturer could disrupt the
Company's operations until alternative manufacturers were obtained.
One Customer
Wal-Mart is currently the Company's sole customer. The loss of Wal-Mart as
a customer would have a material adverse effect on the Company's business,
financial condition and results of operations. TCBG is currently developing new
juice flavors for H & E Butt Company and Kmart Corporation.
Patents and Trademarks
The Company has been granted a worldwide license to use the U.S. patent on
the "rip it sip it" drink system. The patent was applied for and issued to Jon
A. Darmstadter, the President and Chief Executive Officer of the Company in
August 1999. The patent is used in TCBG's production of its juice products. Mr.
Darmstadter has entered into a license agreement with the Company (the "License
Agreement") allowing the Company to use the patent in exchange for a royalty.
The initial royalty fee will be determined based upon an independent valuation
of the patent. Payment will be made through the issuance of common stock equal
to the value of the license. The license value will be periodically reevaluated
in the future, and if the value of the license has increased, additional common
stock will be issued. Under the License Agreement, the Company maintains the
exclusive right to use the patent in its production of juice pouch products for
the life of the patent (approximately 20 years).
Although intellectual property may derive the Company some value, at the
present time, management believes that other factors, such as product
innovations, are of more significance in
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the Company's particular industry. TCBG avoids infringing on patents of others
by monitoring on a regular basis patents issued with respect to food and
beverage packaging.
TCBG has applied for exclusive use of the trademark "Pack-A-Snack" and "Rip
it Sip it." The Company has also applied for exclusive use of the trademark
"Cool Kid," which may be licensed to customers who want the product produced
under this brand name.
Government Regulation
The manufacturing, packaging, labeling, advertising, distribution and sale
of TCBG's products are subject to one or more federal agencies including the
Federal Food, Drug and Cosmetic Act, the Occupational Safety and Health Act and
various federal and state statutes regulating the production, sale, safety,
advertising, labeling and ingredients of such products. The Company is not
subject to any state or federal approvals. To the best of management's
knowledge, the Company complies with applicable state and federal laws necessary
to operate a beverage production and distribution company.
The Company intends to manufacture certain products pursuant to contracts
with customers who will distribute the products under their own or other
trademarks. Such customers are subject to the governmental regulations discussed
in this section in connection with their purchase, marketing, distribution and
sale of such products, and the Company will be subject to such regulations in
connection with the manufacture of such products and its delivery of services to
such customers. However, although the Company's customers are independent
companies, and their labeling, marketing and distribution of such products is
beyond the Company's control, the failure of these customers to comply with
applicable laws or regulations could have a material adverse effect on the
Company. Governmental regulations in foreign countries where the Company plans
to sell products may prevent or delay entry into the market or require the
reformulation of certain of the Company's products. Compliance with such foreign
governmental regulations generally will be the responsibility of the Company's
customers in those countries. Those customers are independent companies over
which the Company will have no control.
TCBG cannot predict the impact of possible changes that may be required
in response to future legislation, rules or inquiries made from time to time by
governmental agencies. Food and Drug Administration regulations may, in certain
circumstances, affect the ability of the Company, as well as others in the
industry, to develop and market new products. However, TCBG does not presently
believe that existing applicable legislative and administrative rules and
regulations will have a significant impact on operations.
Employees
All production and distribution of TCBG's products are outsourced to a
contract manufacturer. As of September 30, 1999 the Company had eight (8) full-
time employees and no part-time employees.
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Reports to Securities Holders
Prior to filing this Form 10-SB, TCBG has not been required to deliver
annual reports to shareholders. However, once TCBG becomes a reporting company,
TCBG shall deliver annual reports to securities holders as required by the
Securities Exchange Act of 1934 (the "Exchange Act"). Such reports will contain
audited financial statements as required.
The public may read and copy any materials that TCGB files with the
Commission at the Commission's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The public may obtain information on the operation of
the Public Reference Room by calling the Commission at 1-800-SEC-0330. The
Commission maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the Commission. The Internet address of the Commission's web
site is http://www.sec.gov. The Company's Internet address is
http://www.TCBGInc.com. The information contained on our Internet site is not
incorporated in this registration statement.
Risk Factors
We have limited revenues and will depend on one customer and additional
financing to stay in business.
From 1997 through 1998, our efforts were devoted to the development of our
principal product and raising capital. We have only recently started receiving
revenues from our product and accordingly, during 1999 we ceased to be a
development stage enterprise. We have incurred losses since inception, have
negative working capital and cash flows from operations. Our independent
certified public accountants, in their report regarding our 1998 financial
statements, have noted that our losses since inception and negative working
capital and cash flows from operations raise substantial doubt about our ability
to continue as a going concern. Currently, we are losing money on our existing
manufacturing operations for the product we produce for Wal-Mart, our sole
customer. Our ability to continue as a going concern is contingent upon our
ability to raise capital, obtain financing, and attain profitable operations.
There can be no assurance that we will be successful in raising additional
capital and financing upon terms that are acceptable to us or attain profitable
operations.
We rely on one customer for all of our revenues, and we expect to continue to
rely on a limited number of customers for all of our revenues.
We currently derive all of our revenue from sales to Wal Mart. We do not
have a written, long-term contract with Wal Mart, and this customer could
terminate purchases of our drink product at any time. In addition, we expect to
continue to rely on a limited number of customers for substantially all of our
revenues. There can be no assurance that Wal Mart will remain our customer or
that we will be successful in obtaining significant orders of our product from
other customers. To the extent that Wal Mart purchases less of our product or
terminates its relationship with us, our revenues would stop and our business
would be seriously harmed.
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We rely on one manufacturer to produce all of our product, and we expect to
continue to rely on this manufacturer in the near future.
All of our product is currently produced by one manufacturer. We are
currently renegotiating this contract. To the extent this manufacturer stops
producing our product, our revenues would stop until alternative manufacturers
were retained and our business would be seriously harmed.
The sector in which we operate is highly competitive and we may not be able to
compete effectively.
We compete with hundreds of other juice box and juice pouch beverage
producers. Our major competitors include Capri Sun, Hi-C Juice Drinks, Minute
Maid Premium Juice Drinks, Juicy Juice, Tang and MOTTS Juices. We face
competition from many entities with significantly greater financial resources,
well-established brand names and larger customer bases. We expect competition to
intensify in the future. To the extent these competitors are successful, we may
face difficulties in expanding our customer base. There can be no assurance that
we will be able to market our products successfully or compete effectively in
the children's beverage marketplace.
We lack necessary financial controls.
Until November 1999, we did not have a chief financial officer, which
hindered our ability to monitor and manage our finances in-house.
In addition, we received a management letter from our independent certified
public accountants in connection with the 1998 audit of our financial
statements, which identified certain matters that they considered to be
"reportable conditions" involving our internal controls. Reportable conditions
involve matters relating to significant deficiencies in the design or operation
of internal control that could adversely affect our ability to record, process,
summarize and report financial data consistent with the assertions of management
in the financial statements.
We must attract and retain personnel in a tight labor market.
Currently, there is intense competition for personnel with the
qualifications we require. In addition, the loss of the services of key
management, such as Jon A Darmstadter, or other personnel, or the failure to
attract additional personnel as required, could have a material adverse effect
on our business. We believe that our future success will depend in large part on
our ability to attract and retain a qualified chief financial officer and other
personnel.
Seasonality may cause fluctuations in our quarterly performance.
Our sales are seasonal. The juice drink beverage industry generally
experiences its highest sales by volume during the spring and summer months and
its lowest sales by volume during the winter months. As a result, working
capital requirements and cash flow vary
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substantially throughout the year. Consumer demand for products is affected by
weather conditions. Cool, wet spring or summer weather could result in decreased
sales of product and could have an adverse effect on our financial position.
Seasonal variations in demand may cause significant variations in our results of
operations and, in turn, the price of our common stock.
Our quarterly revenues and operating results could be volatile and may cause our
stock price to fluctuate.
Our quarterly revenues and operating results may fluctuate significantly in
the future. Our operating results could be volatile and difficult to predict. As
a result, period-to-period comparisons of our operating results may not be a
good indication of our future performance. Our future quarterly operating
results may not meet the expectations of securities analysts or investors, which
in turn may have an adverse effect on the market price of our common stock.
An active market for our common stock cannot be assured.
Our common stock currently trades on the OTC Bulletin Board and has
relatively small volume. There can be no assurance that an active market for the
common stock will develop or be sustained. Our investors are likely to find it
more difficult to dispose of or obtain accurate price quotations regarding our
common stock than stocks listed on an exchange or the Nasdaq National Market.
Our President and Chief Executive Officer has voting control of the Company.
Jon A. Darmstadter beneficially owns approximately 22% of our outstanding
common stock and 100% of our outstanding preferred stock. Each share of
preferred stock owned by Mr. Darmstadter provides him with 25 votes in
comparison to one vote for each share of common stock held. Mr. Darmstadter's
combined ownership of common stock and preferred stock gives him control over
58.22% of the votes that can be cast by stockholders. Accordingly, Mr.
Darmstadter has the ability to control the Company and direct its business and
affairs, including the election of directors and approval of significant
corporate transactions. The concentration of ownership may also have the effect
of delaying or preventing a change in control of the Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
OPERATIONS
The following discussion of the Company's financial condition and results
of operations should be read with the Company's financial statements, including
the notes, included elsewhere in this registration statement.
Overview
The Company has experienced recurring losses since inception and has
negative working capital and cash flows from operations. For the periods ended
December 31, 1997 and 1998, the Company experienced a net loss of $404,972 and
$1,985,420, respectively. As of December 31, 1998, the Company has a working
capital deficit of $1,198,773. For the six-month periods ended June 30, 1998 and
1999, the Company experienced a net loss of $874,301 and $2,183,226,
respectively. As of June 30, 1999, the Company has a working capital deficit of
$699,224.
The Company's ability to continue as a going concern is contingent upon its
ability to secure additional financing and attain profitable operations. In
addition, the Company's ability to continue as a going concern must be
considered in light of the problems, expenses and complications frequently
encountered by entrance into established markets and the competitive environment
in which the Company operates.
Management is pursuing various sources of debt and equity financing.
Although the Company plans to pursue additional financing, there can be no
assurance that the Company will be able to secure financing when needed or
obtain financing on terms satisfactory to the Company. Failure to secure such
financing may result in the Company rapidly depleting its available funds.
Without such funds the Company would be unable to comply with its payment
obligations under its bank loans and with its vendors.
In order to meet anticipated expenses over the next twelve months, the
Company intends to seek additional capital through the sale of common shares.
The Company is currently registered on the OTC Bulletin Board. No underwriter,
agent or other person has agreed to assist the Company in distributing any of
its common shares, and no actions have been taken to ascertain whether to
register such shares under the Securities Act of 1933, as amended (the
"Securities Act") or rely on exemptions from registration to distribute such
shares. No assurance can be given that the Company will be able to sell
securities or raise additional financing to meet its operating needs, or that if
available, such sales could be effected on terms acceptable to the Company. If
the Company is not able to sell additional securities or raise additional
financing to meet its operating expenses, there is substantial doubt that the
Company will be able to continue as a going concern.
The Company's sales are seasonal. The juice drink beverage industry
generally experiences its highest sales by volume during the spring and summer
months and its lowest sales by volume during the winter months. As a result,
working capital requirements and cash flow vary substantially throughout the
year. Consumer demand for products is affected by weather conditions. Cool, wet
spring or summer weather could result in decreased sales of
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product and could have an adverse effect on the Company's financial position,
cash flows and results of operations.
During the twelve-month period ended December 31, 1998, the Company's
activities were primarily directed to the development of the Company's business
plan, organizational structure, negotiations, financing, project evaluations and
relationship building. During the six-month period ended June 30, 1999, the
Company's activities expanded to included significant contract manufacturing and
distribution operations, thus, the Company ceased to be a development stage
enterprise.
Results of Operations
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Net Sales. Net sales increased to $1,787,266 for the six months ended June
30, 1999 from $42,352 for the six months ended June 30, 1998. The increase is
primarily attributable to an increase in the number of orders from the Company's
sole customer, Wal-Mart, for its Back Pak product.
Cost of Sales. Cost of sales increased to $1,984,823 for the six months
ended June 30, 1999 from $47,032 for the six months ended June 30, 1998. The
increase is primarily attributable to the costs to produce the increased number
of orders from the Company's sole customer, Wal-Mart, for its Back Pak product.
Selling, ("S,G&A") General, and Administrative Expenses. Selling, general,
and administrative expenses consist primarily of expenses related to sales
promotion, costs associated with executive management, professional fees, and
other general and administrative expenses. S,G&A expenses increased to
$1,894,291 for the six months ended June 30, 1999 from $874,156 for the six
months ended June 30, 1998. The increase for the six months ended June 30, 1999
was due primarily to an increase in sales promotion totaling $1,125,000, which
was related to the sponsorship of an Indy Racing League car team, as well as an
increase in professional fees and salaries.
Interest Expense. Interest expense increased to $496,568 for the six months
ended June 30, 1999 from $2,164 for the six months ended June 30, 1998. The
increase in interest expense was due primarily to a charge of $395,267 related
to the favorable conversion of notes payable to common stock and increased
borrowings in the period ending June 30, 1999.
Net Loss. The Company's net loss increased to $2,578,493 for the six months
ended June 30, 1999 from $874,301 for the six months ended June 30, 1998. The
1999 period was impacted by the costs associated with increased operating and
promotion of activity.
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Year Ended December 31, 1997 Compared to Year Ended December 31, 1998
Net Sales. Net sales increased to $145,954 for the year ended December 31,
1998 from $90,737 for the period ended December 31, 1997. The increase in net
sales is attributable to the increased production and orders from the Company's
sole customer, Wal-Mart.
Operating Expenses. Operating expenses increased to $2,114,714 for the year
ended December 31, 1998 from $509,241 for the year ended December 31, 1997. The
1997 expenses were limited to personnel, overhead, office equipment and
professional fees incurred in formulating a business plan, developing its
marketing strategy and initial sales efforts. The increase in operating expenses
in 1998 was primarily attributable to a sales promotion expense of $1,300,000,
which was related to the sponsorship of an Indy Racing League car team and to an
the increase in cost of goods sold, selling, general and administrative
expenses, which were limited to general corporate expenses in 1997.
Interest Expense. Interest expense increased to $16,660 for the year ended
December 31, 1998 from $1,977 for the year ended December 31, 1997. The increase
was due to incremental borrowing in the latter part of 1998.
Net Loss. The Company's net loss increased to $1,985,420 for the year ended
December 31, 1998 from $404,972 for the year ended December 31, 1997. The
increase in the Company's net loss reflects the acceleration of its development
activities, along with building corporate infrastructure to support initial
manufacturing operations and expected growth.
Liquidity and Capital Resources
As of the date of this Form 10-SB, the Company has only started to generate
significant revenues from its own operations in the last six months. Prior to
the commencement of these operations, the Company had nominal revenues due to
the start-up nature of such operations, substantial ongoing investment in
business development efforts, and expenditures to build the appropriate
infrastructure to support its expected growth. Consequently, the Company has
been substantially dependent on private placements of its equity securities and
debt financing to fund its cash requirements.
The Company has two credit facilities under secured notes payable with
maturity dates of January 9, 2000 and September 5, 2000, respectively. The
Company can borrow a maximum of $500,000 and $50,000, respectively, under these
agreements. Borrowings are collateralized by substantially all the Company's
assets. Interest is paid monthly at the prime rate (currently 8.25%) and the
prime rate plus 1% (currently 9.25%), respectively. Borrowings of $417,000 were
outstanding on the lines as of June 30, 1999.
The Company made a payment of 2.2 million shares of common stock valued at
$2.25 million in 1999, related to obligations under a sponsorship agreement with
an Indy Racing League car team. The Company's logo is displayed on the racing
team's car and provides advertising for the Company.
Jon A. Darmstadter has made various advances to the Company that total
$440,000 with one year maturity dates. Interest is accrued monthly at 12%. As of
June 30, 1999, no payments on
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principal or interest had been made by the Company. The Company made principal
payments in the amount of $235,000 in the third quarter of 1999.
In October 1999, the County of Monroe Industrial Development Agency (the
"Agency") issued $7.42 million of its Industrial Development Revenue Bonds,
Series 1999 (the "Bonds") under an Indenture of Trust dated as of October 1,
1999 (the "Indenture") by and between the Agency and the trustee. The Bonds were
issued by the Agency for the purpose of providing funds to the Company to
finance certain costs in connection with a project (the "Project") consisting of
the (A)(i) acquisition by the Agency of a fee interest in an approximately 12.39
acre parcel of land located in the County of Monroe, New York (the "Land"), (ii)
construction of an approximately 120,000 square foot manufacturing facility on
the Land (the "Facility"), and (iii) purchase and installation of various
equipment (the "Equipment") to be used in the Facility (the Land, Facility and
Equipment are hereinafter collectively referred to as the "Project Facility");
(B) paying certain costs of issuance of the Bonds; and (C) making a deposit to a
debt service reserve fund and a capitalized interest fund. The Project Facility
is being leased by the Company from Lincoln Park Associates, LLC ("Lessor")
pursuant to a certain lease agreement by and between the Company and the Lessor
dated as of October 1, 1999.
In connection with the Bond deal, the Company received $2.56 million, which
is a combination of Section 108 and EDI loans and a State of New York grant. The
blended rate on the $9.98 million in bond and related financing is 4.6% for a
10-year term.
Net cash (used for) provided by the Company's operations was ($743,351) and
($396,397) for the fiscal year ended December 31, 1998 and the period from
inception to December 31, 1997, respectively, and ($1,106,939) and $65,157 for
the six-month periods ended June 30, 1999 and 1998, respectively. The increase
in net cash used for operating activities in fiscal 1998 was primarily due to a
larger net loss, net of a $1.5 million noncash equity transactions charged to
operations. The increase in net cash used for operating activities for the six-
month period ended June 30, 1999 was primarily due to an increase in accounts
receivable and inventories and decrease in accounts payable.
Cash used in investing activities was for purchases of property and
equipment. Cash used was $397,785 and $164,288 for fiscal year ended December
31, 1998 and the period from inception to December 31, 1997, respectively, and
$181,329 and $317,959 for the six-month periods ended June 30, 1999 and 1998,
respectively.
The Company's primary sources of liquidity have been from the issuance of
common stock and borrowings from shareholders and the bank. Proceeds received
from financing activities were used for the Company's operations and purchases
of property and equipment. Net cash provided by financing activities was
$1,636,636 and $561,000 for the fiscal year ended December 31, 1998 and the
period from inception to December 31, 1997, respectively, and $970,404 and
$252,487 for the six-month periods ended June 30, 1999 and 1998, respectively.
The increase in fiscal 1998 was primarily due to additional proceeds from the
issuance of common stock and capital contributions, as well as increased
proceeds obtained from notes payable. The increase for the period ended June 30,
1999 was due primarily to increased borrowings from shareholders.
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Year 2000
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. Beginning in Year 2000,
these date code fields will need to accept four digit entries in order to
distinguish 21/st/ century dates. All of the Company's computers comply with
"Year 2000" requirements. However, there can be no assurance that other
companies with which the Company transacts business will be corrected on a
timely basis, or that failure by such third party entities to correct a Year
2000 problem, or a correction which is incompatible with the Company's
information systems, would not have a material adverse effect on the Company's
operations or financial condition.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 is effective for financial
statements for years beginning after December 15, 1998. SOP 98-1 provides
guidance over accounting for computer software developed or obtained for
internal use, including the requirement to capitalize and amortize specific
costs. The adoption of this standard did not have a material effect on its
capitalization policy.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities," which establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 is effective for fiscal
years beginning after June 15, 2000. The Company does not expect the adoption of
this statement to have a significant impact on its results of operations,
financial position or cash flows.
ITEM 3. DESCRIPTION OF PROPERTY
TCBG owns no real property. The Company headquarters occupy approximately
1,300 square feet of office space located at 237 Melvin Drive, Northbrook,
Illinois 60062. The Company leases this space under a noncancellable operating
lease through June 30, 2000. Total rent for 1998 was $27,168, which includes a
second office lease under which payments are made on a month-to-month basis. The
future minimum rent for the next two years is approximately $24,300 per year.
TCBG has signed a 10-year lease for a new 120,000 square foot manufacturing
facility in Rochester, New York (118,000 rentable square feet for production and
2,000 square feet for office and lab space). This new facility will be used to
manufacture and distribute TCBG's juice products. TCBG will renovate the
facility and expects to have it operational by the second quarter of 2000. The
aggregate annual lease payments for this lease will be $237,000 for the first
year beginning January 1, 2000. The Company believes that its facilities are
adequate for its proposed needs through 2001.
13
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of shares of voting
stock of TCBG, as of September 30, 1999, (i) each person known by TCBG to
beneficially own 5% or more of the shares of outstanding common stock; (ii) each
of TCBG's executive officers and directors; and (iii) all of TCBG's executive
officers and directors as a group. Except as otherwise indicated, all shares are
beneficially owned, and investment and voting power is held by the persons named
as owners.
Unless otherwise noted (1) each of the persons listed below has sole voting
and investment power with respect to the shares beneficially owned by him as set
forth opposite his name and (2) the address for each of the persons listed below
is: c/o The Children's Beverage Group, Inc., 227 Melvin Drive, Northbrook,
Illinois 60062.
<TABLE>
<CAPTION>
Common Stock
---------------------------
Beneficially Owned(a)(b)
Name and Address of Beneficial Owner No. of Shares % of Class
- ------------------------------------ ------------- -------------
<S> <C> <C>
Jon A. Darmstadter(c) 6,469,731 22.27%
Felicia Murray(d) 2,464,313 8.48%
Edward R. Ferry 60,000 *
All executive officers and directors as a
group (2 persons) 6,529,731 22.48%
</TABLE>
*Represents less than one percent of the total.
(a) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities, subject to community property
laws, where applicable.
(b) The calculations in this table of the percentage of outstanding shares are
based on 29,049,504 shares of the Company's common stock outstanding as of
September 30, 1999.
(c) Does not include 1,000,000 shares of Series A Preferred Stock, which have
25 votes per share, and automatically convert into five shares of common
stock upon a change-in-control event, subject to anti-dilution provisions.
Mr. Darmstadter owns 100% of the Company's outstanding preferred stock. Mr.
Darmstadter's combined ownership of common stock and preferred stock gives
him control over 58.22% of the votes that can be cast in any meeting of
stockholders.
(d) Former officer and director of the Company.
(e) Mr. Ferry is one of the Company's directors and serves as the Vice
President of Marketing.
14
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth the names, ages and positions of the
Company's executive officers and directors as of September 30, 1999:
<TABLE>
<CAPTION>
Name Age Position with the Company
- ---- --- -------------------------
<S> <C> <C>
Jon A. Darmstadter 47 President and Chief Executive
Officer, Director
Edward R. Ferry 49 Vice President/Marketing, Director
</TABLE>
Current Officers
Jon A. Darmstadter has served as the President and Chief Executive Officer
and a director of the Company since March 1997. From 1995 to March 1997, Mr.
Darmstadter was a sole proprietor of a venture known as Water Pouch, which was
purchased by the Company in March 1997. Prior to his position with the Company,
Mr. Darmstadter held positions as Product Development/Brand Manager and National
Sales Manager for United Beverage of Ohio. Prior to working with United Beverage
of Ohio, Mr. Darmstadter was National Sales Manager for Bidderman Industries, a
brand marketer of men's designer clothing.
Edward R. Ferry has served as the Vice President/Marketing since May 1997
and a director of the Company since January 1999. From June 1990 to May 1997,
Mr. Ferry served as the President of Corporate Confectionary/Confection Werks, a
specialty chocolate manufacturing company that he owned. Prior to his
involvement with Corporate Confectionary/Confection Werks, he was the Midwest
Sales Manager for Ralph Lauren Ladies Wear.
Newly Hired Officer
Richard E. Hanik will begin serving as the Chief Financial Officer of the
Company in November 1999. Since December 1998, Mr. Hanik served as a consultant
to Ronald J. Borden and Company, an accounting firm. From April 1996 to November
1998, he was the Chief Financial Officer of Paladyne Corp., a public executive
placement firm. From April 1994 to March 1996, Mr. Hanik was the Chief Financial
Officer of Synaptx Impulse, Inc., an advertising services business. Mr. Hanik is
a CPA.
Board Composition
Each member of the board is elected on an annual basis by the stockholders.
At each annual meeting of stockholders, directors are elected for the next year.
Each director serves for a one (1) year term.
15
<PAGE>
Each officer is elected by, and serves at the discretion of, the board.
There are no family relationships among any of the directors, executive officers
or key employees.
Board Committees
The board has not established any committees.
Compensation of Directors
Messrs. Darmstadter and Ferry receive no compensation for being directors
of the Company.
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation earned by the Company's sole named executive officer in 1998. The
table excludes certain perquisites and other personal benefits received by this
officer that do not exceed the lesser of $50,000 or 10% of any such officer's
salary and bonus disclosed in the table.
Summary Compensation Table
<TABLE>
<CAPTION>
Name and Annual
Principal Position Compensation Bonus Other
- ------------------ ------------ ----- -----
<S> <C> <C> <C>
Jon A. Darmstadter, $80,000 -- --
Chief Executive Officer
and President
</TABLE>
Employment Agreement
The Company has entered into an employment agreement with Mr. Darmstadter
effective as of January 1, 1999. Mr. Darmstadter has been hired as the Company's
President and Chief Executive Officer. The agreement is for a term of five
years. The agreement provides for a base annual salary of $104,000 in 1999, and
he is eligible for performance based bonuses and equity-based compensation. In
the event of a change in control of the Company (as defined therein), the
Company has agreed to grant Mr. Darmstadter a royalty in the amount of $0.005
per pouch of children's beverage product sold by the Company, payable on a
quarterly basis.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On or about March 25, 1997, Jon A. Darmstadter, a sole proprietor doing
business as Water Pouch (and now the President and Chief Executive Officer of
the Company), assigned, transferred and conveyed to the Company, all of his
right, title and interest in and to all of the operating assets used in the
conduct of the business of Water Pouch, subject to all of his obligations and
liabilities relating thereto, in consideration for the issuance of 9 million
shares of common stock.
16
<PAGE>
On November 21 1997, the Company authorized the issuance of 1 million
shares of the Company's Series A Preferred Stock to Jon A. Darmstadter at a
purchase price of par value. Because each share of this Preferred Stock has 25
votes, this transaction gave Mr. Darmstadter effective control of the Company.
These shares were issued in January 1999. Upon a change in control of the
Company, each share of this Preferred Stock is automatically converted into five
shares of Common Stock.
The Company has been granted a worldwide license to use the U.S. patent on
the "rip it sip it" drink system. The patent was applied for and issued to Jon
A. Darmstadter, the President and Chief Executive Officer of the Company in
August 1999. The patent is used in TCBG's production of its juice products. Mr.
Darmstadter has entered into a license agreement with the Company (the "License
Agreement") that allows the Company to use the patent in exchange for a fee to
be determined by an independent valuation specialist, which may be increased
periodically. On November 24, 1999, the Company becomes obligated to pay this
fee to Mr. Darmstadter in the form of common stock. Under the License Agreement,
the Company maintains the exclusive right to use the patent in its production of
juice pouch products for the life of the patent (approximately 20 years).
ITEM 8. DESCRIPTION OF SECURITIES
This summary contains a description of all of the material terms of the
Company's capital stock. However, it does not describe every term of the capital
stock contained in the Company's amended and restated certificate of
incorporation. The Company refers you to the provisions of Delaware corporate
law and the Company's amended and restated certificate of incorporation and
amended and restated bylaws, which are attached hereto as exhibits.
Authorized and Outstanding Capital Stock
The Company's amended and restated certificate of incorporation authorizes
the Company to issue 250,000,000 shares of common stock, par value of $0.0001
per share, and 50,000,000 shares of preferred stock, with a par value of $0.001
per share. On September 30, 1999, there were 29,049,504 shares of the Company's
common stock outstanding, held of record by 567 stockholders, and there were
1,000,000 shares of preferred stock outstanding, held of record by one (1)
stockholder.
Common Stock
Voting Rights. Holders of common stock are entitled to one (1) vote per
share on all matters to be voted upon by the stockholders. The holders of common
stock are not entitled to cumulative voting rights with respect to the election
of directors.
Dividend Rights. Subject to preferences that may be applicable to any then
outstanding shares of preferred stock, holders of common stock are entitled to
receive ratably such dividends as may be declared by the board out of funds
legally available therefor.
Liquidation Rights. In the event of the Company's liquidation, dissolution
or winding up, holders of the common stock are entitled to share ratably in all
assets remaining after
17
<PAGE>
payment of liabilities and the liquidation preference of any then outstanding
preferred stock. Holders of common stock have no preemptive, conversion or other
rights to subscribe for additional securities of the Company. No redemption or
sinking fund provisions apply to the common stock. All outstanding shares of
common stock are validly issued, fully paid and nonassessable.
Preferred Stock
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 50,000,000 shares of preferred stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series. The issuance of
preferred stock could adversely affect the voting power of holders of common
stock and could decrease the likelihood that such holders will receive dividend
payments and payments upon liquidation and could have the effect of delaying,
deferring or preventing a change of control of the Company. Accordingly, the
issuance of shares of preferred stock may discourage offers for the Company's
common stock or may otherwise adversely affect the market price of the common
stock.
As of the date of this Registration Statement, there is one series of
preferred stock ("Series A Preferred Stock") outstanding with the following
rights, preferences and privileges:
Voting Rights. Holders of the Company's Series A Preferred Stock are
entitled to 25 votes per share on all matters to be voted upon by the
stockholders. The holder of Series A Preferred Stock is not entitled to
cumulative voting rights with respect to the election of directors.
Dividend Rights. Subject to preferences that may be applicable to any other
outstanding shares of another series of preferred stock, holders of Series A
Preferred Stock are entitled to receive ratably with holders of common stock
such dividends as may be declared by the Board out of funds legally available
therefor.
Liquidation Rights. In the event of the Company's liquidation, dissolution
or winding up, holders of Series A Preferred Stock are entitled to share ratably
in all assets remaining after payment of liabilities (and the liquidation
preference of any other then outstanding preferred stock) together with holders
of common stock.
Conversion Rights. In the event of a change in control of the Company, the
Series A Preferred Stock automatically converts into five shares of common
stock, subject to anti-dilution rights. All outstanding shares of Series A
Preferred Stock are validly issued, fully paid and nonassessable.
Warrants
In April 1999, the Company issued a warrant to purchase 413,000 shares of
common stock, subject to anti-dilution provisions (the "Warrant"). The Warrant
was issued as part of a dispute settlement, and is exercisable for nominal
consideration until April 2000.
18
<PAGE>
Registration Rights
In April 1999, the Company entered into a settlement agreement under which
it issued the Warrant. The Warrant holder has certain piggyback registration
rights covering the 413,000 shares of common stock issuable upon exercise of the
Warrant. At any time prior to the closing of an initial public offering, if the
Company proposes to register any of its securities under the Securities Act,
whether for its own account or for other stockholders, the Warrant holder is
entitled to have its shares of common stock registered by the Company as well,
unless the securities are to be issued pursuant to an employee compensation
program or dividend reinvestment plan or securities issued in a merger,
recapitalization, consolidation, acquisition or similar transaction. These
registration rights are subject to certain conditions and limitations. The
Company must pay expenses related to the registration and distribution of the
shares of common stock held by the Warrant holder under this registration rights
agreement.
In May 1999, the Company entered into a Debt Conversion Agreement under
which a corporation and shareholder (the "Lender") received 988,167 shares of
common stock in exchange for the cancellation of $565,000 plus accrued interest.
In addition, the Lender is entitled to piggyback registration rights with
respect to the shares of common stock that it owns. Each time the Company
proposes to register any of its securities under the Securities Act, whether for
its own account or for other stockholders, the Lender is entitled to have its
shares of common stock registered by the Company as well, unless the Company is
registering securities on Form S-4 or Form S-8. These registration rights are
subject to certain conditions and limitations. The Company must pay expenses
related to the registration and distribution of the shares of common stock held
by the Investor under this registration rights agreement.
Anti-Takeover Provisions
Although management is not presently aware of any takeover attempts, the
Company's Certificate of Incorporation defers to provisions in the Delaware
General Corporations Law (the "DGCL"), which may be deemed to be "anti-takeover"
in nature in that such provisions may deter, discourage or make more difficult
the assumption of control of the Company by another entity or person.
Delaware Anti-Takeover Law
The Company is subject to Section 203 of the DGCL (Section 203) which,
subject to certain exceptions, prohibits a Delaware corporation from engaging in
any business combination with any interested stockholder for a period of three
years following the date that such stockholder became an interested stockholder,
unless: (i) prior to such date, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder, (ii) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced, excluding
for purposes of determining the number of shares outstanding those shares owned
(x) by persons who are directors and also officers and (y) by employee stock
plans in which employee participants do not have the right to determine
confidentially whether
19
<PAGE>
shares held subject to the plan will be tendered in a tender or exchange offer;
or (iii) at or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
66-2/3% of the outstanding voting stock which is not owned by the interested
stockholder.
Section 203 defines business combinations to include: (i) any merger or
consolidation involving the corporation and the interested stockholder, (ii) any
sale, transfer, pledge or other disposition involving the interested stockholder
of 10% or more of the assets of the corporation, (iii) subject to certain
exceptions, any transaction which results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder, (iv)
any transaction involving the corporation which has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder, or (v) the receipt by the
interested stockholder of the benefits of any loans, advances, guarantees,
pledges, or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owned 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock and the Series A
Preferred Stock is Atlas Stock Transfer and its address is 5899 South State,
Murray, Utah 84107.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS OF REGISTRANT'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS
Market Information
The common stock of TCBG currently is trading on the OTC Bulletin Board
under the symbol "TCBG."
Set forth below are the high and low closing bid quotations for the
Company's common stock for the periods indicated as reflected on the electronic
bulletin board. Such quotations reflect interdealer prices without retail mark-
up, mark-down or commissions, and may not reflect actual transactions.
20
<PAGE>
<TABLE>
<CAPTION>
1999 Low High
- ---- --- ----
<S> <C> <C>
October 1 through November 12, 1999 3/4 1-5/32
July 1 through September 30, 1999 27/32 1-31/32
April 1 through June 30, 1999 1-5/16 1-19/32
January 1 through March 31, 1999 1-3/32 2-31/32
1998
- ----
October 1 through December 31, 1998 3/4 1-27/32
July 1 through September 30, 1998 (first 5/8 1-7/8
available)
</TABLE>
Holders
As of September 30, 1999, there were approximately 567 record holders of
the Company's common stock. There is one (1) holder of the Company's outstanding
Series A Preferred Stock.
Dividends
During 1998, the Company declared a one-for-eight stock dividend and issued
2,550,030 shares of Common Stock. The Company has never paid cash dividends on
its capital stock and does not intend to do so in the foreseeable future. TCBG
currently intends to retain its earnings for the operation and expansion of the
business. The Company's continued need to retain earnings for operations and
expansion are likely to limit its ability to pay dividends in the future.
Dividends, if any, will be contingent upon the Company's revenues and
earnings, if any, capital requirements and financial conditions. The payment of
dividends, if any, will be within the discretion of the Company's Board of
Directors.
ITEM 2. LEGAL PROCEEDINGS
Flavorchem Corporation Dispute
Flavorchem Corporation ("Plaintiff") v. The Children's Beverage Group, Inc.
and Jon Darmstadter, Case No. 98 M1-165579, filed in the Chancery Division of
the circuit Court of Cook County, Illinois. On March 8, 1999, the Company was
served with a complaint brought by Flavorchem Corporation seeking $42,542.53,
alleging breach of contract and losses (interest) related thereto. The dispute
arises out of an alleged breach of contract (entered in 1996) between Beverage
Pouch Systems, Inc. and Flavorchem concerning certain flavoring ingredients. The
claim alleges that the Company is legally responsible for the alleged liability
associated with the aforementioned Beverage Pouch System contract with
Flavorchem.
21
<PAGE>
An appearance and answer have been filed on behalf of the Company. Pursuant
to a Motion to Strike Plaintiff's Affirmative Defenses, the Company filed
Amended Affirmative Defenses, which have not been answered or objected to as of
this date. Additionally, the Company has initiated discovery. The Company
continues to vigorously defend itself in this matter.
Dispute with Outlook Graphics Inc.
The Company and Outlook Graphics Inc. were involved in a dispute concerning
the amount owed for products that Outlook Graphics Inc. delivered to the Company
late and non-conforming to contractual specifications. A Settlement Agreement
and Mutual Release was entered by the parties on February 8, 1999, relating to
prior goods delivered. The Settlement Agreement and Mutual Release provided, in
part, that additional materials were to be delivered to the Company. As a result
of delivery delays and additional non-conforming goods, the parties have entered
into a binding arbitration mechanism (as provided for in the aforementioned
Settlement Agreement) concerning the final delivery of the additional goods with
a maximum liability of $76,673.41 plus the potential of arbitration fees. The
money at issue was placed in escrow upon entry of the Settlement Agreement.
On May 21, 1999, an arbitration decision was rendered awarding to the
Company $58,580.11, to be paid out of the escrowed funds. On or about September
1, 1999, the Escrow Agent released said funds to the Company. At the same time,
the Company entered into an Escrow Settlement Agreement with Outlook to address
the arbitrator fees and other related matters. The Escrow Settlement contained
broad mutual general releases.
Sweet Ripe Drinks, Ltd. Dispute
The Company had a contractual relationship with Sweet Ripe Drinks, Ltd.
("Sweet Ripe"), a Canadian company, whereby Sweet Ripe bottled and packaged the
Company's beverage product using machinery provided by the Company. During the
course of dealing, there arose certain disputes between the parties as to a
variety of continuing manufacturing problems. Believing Sweet Ripe to be in
breach of its contractual duties, having provided an opportunity to cure, the
Company caused its bottling and packaging at Sweet Ripe to cease. In response,
Sweet Ripe refused to allow the Company to remove its machinery. Shortly
thereafter, Sweet Ripe filed a Notice of Intention to File a Proposal under the
Canadian Bankruptcy and Insolvency Act, which in effect, caused a stay of
proceedings. The Company then petitioned a Master of the Superior Court of
Justice to lift the stay of proceedings so that the Company could proceed with
an action to recover the manufacturing equipment. In arguing against the stay of
proceedings, Sweet Ripe asserted that the Company owes approximately $700,000 to
Sweet Ripe. The Master did not agree to lift the stay of proceedings but rather
adjourned that matter until November 29, 1999, subject to any orders that the
Bankruptcy Court might make with regard to the matter. The equipment at issue is
valued at approximately $1.5 million. Two of the three major pieces of equipment
at issue are leased and the remaining equipment is owned by the Company. The
Company has engaged McCarthy Tetrault to handle its legal representation with
respect to any related proceedings.
22
<PAGE>
The Company is involved in various other litigation incident to its
business. It is the opinion of management that the outcome of such litigation
will not have a material adverse effect on the Company's financial position or
results of operations.
ITEM 3. DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1997, the Company has sold the unregistered securities
listed below. These issuances were deemed exempt from registration under the
Securities Act in reliance on either (a) Section 4(2) of the Securities Act, as
transactions not involving a public offering, or (b) Rule 701 promulgated under
the Securities Act. No commissions were paid to any placement agent or
underwriter for any of theses issuances.
23
<PAGE>
<TABLE>
<CAPTION>
Date of Amount
Purchase Title Sold Purchasers Consideration
- -------- ----- ---- ---------- -------------
<C> <S> <C> <C> <C>
3/97 Common Stock 9,000,000 Jon A. Darmstadter assets of Water Pouch, a
(director and sole proprietorship
executive officer)
5/97 Common Stock 2,000,000 Felicia Murray --
(former director
and executive
officer)
5/97 Common Stock 9,000,000 Rule 504 investors $511,000
4/98 Common Stock 150,000 individual $163,500
accredited investor
6/98 Common Stock 1,450,000 corporate $812,000
accredited investor
7/98 Common Stock 2,250,030 dividend to --
shareholders
10/98 Common Stock 1,361,269 marketing firm services valued at
$1,300,000
1/99 Series A 1,000,000 Jon A. Darmstadter --
Preferred Stock (executive officer)
3/99 Common Stock 2,200,000 marketing firm services valued at
$2,250,000
3/99 Common Stock 100,000 manufacturing firm settlement of $100,000
obligation
4/99 Warrant to 413,000 corporate settlement of $413,000
purchase accredited investor obligation
Common Stock
7/99 Common Stock 988,167 corporate conversion of $592,900 of
accredited investor Company debt to the
investor; valued at
$988,167
</TABLE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation contains certain provisions
permitted under the DGCL relating to the liability of directors. The provisions
eliminate a director's liability for
24
<PAGE>
monetary damages for a breach of fiduciary duty, except in certain circumstances
involving wrongful acts, such as the breach of a director's duty of loyalty or
acts or omissions which involve intentional misconduct or a knowing violation of
law. TCBG's Certificate of Incorporation also contains provisions obligating the
Company to indemnify its directors and officers to the fullest extent permitted
by the DGCL.
Such indemnification provisions are intended to increase the protection
provided to directors and, thus, increase the Company's ability to attract and
retain qualified persons to serve as directors. Because directors liability
insurance is only available at considerable cost and with low dollar limits of
coverage and broad policy exclusions, the Company does not currently maintain a
liability insurance policy for the benefit of the Company's directors, although
the Company may attempt to acquire such insurance in the future. The Company
believes that the substantial increase in the number of lawsuits being
threatened or filed against corporations and their directors and the general
unavailability of directors liability insurance to provide protection against
the increased risk of personal liability resulting from such lawsuits have
combined to result in a growing reluctance on the part of capable persons to
serve as members of boards of directors of companies, particularly of companies
which intend to become public companies. TCBG also believes that the increased
risk of personal liability without adequate insurance or other indemnity
protection for the Company's directors could result in overcautious and less
effective direction and management of TCBG. Although no directors have resigned
or have threatened to resign as a result of TCBG failure to provide insurance or
other indemnity protection from liability, it is uncertain whether the Company's
directors would continue to serve in such capacities if improved protection from
liability were not provided.
The provisions affecting personal liability do not abrogate a director's
fiduciary duty to TCBG and its shareholders, but eliminates personal liability
for monetary damages for breach of that duty. The provisions do not, however,
eliminate or limit the liability of a director for failing to act in good faith,
for engaging in intentional misconduct or knowingly violating a law, for
authorizing the illegal payment of a dividend or repurchase of stock, for
obtaining an improper personal benefit, for breaching a director's duty of
loyalty (which is generally described as the duty not to engage in any
transaction which involves a conflict between the interest of the Company and
those of the director) or for violations of the federal securities laws. The
provisions also limit or indemnify against liability resulting from grossly
negligent decisions including grossly negligent business decisions relating to
attempts to change control of the Company.
The provisions regarding indemnification provide, in essence, that TCBG
will indemnify directors against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with any action, suit or proceeding arising out of the director's
status as a director of TCBG, including actions brought by or on behalf of the
Company (shareholder derivative actions). The provisions do not require a
showing of good faith. Moreover, they do not provide indemnification for
liability arising out of willful misconduct, fraud, or dishonesty, for "short-
swing" profits violations under the federal securities laws, or for the receipt
of illegal remuneration. The provisions also do not provide indemnification for
any liability to the extent such liability is covered by insurance. One purpose
of the provisions is to supplement the coverage provided by such insurance.
However, as mentioned above, TCBG does not currently provide such insurance to
directors, and there is no
25
<PAGE>
guarantee that TCBG will provide such insurance to directors in the near future,
although the Company may attempt to obtain such insurance.
These provisions diminish the potential rights of action which might
otherwise be available to shareholders by limiting the liability of officers and
directors to the maximum extent allowable under Delaware law and by affording
indemnification against most damages and settlement amounts paid by a director
of the Company in connection with any shareholder derivative action. However,
the provisions do not have the effect of limiting the right of a shareholder to
enjoin a director from taking actions in breach of his fiduciary duty, or to
cause the Company to rescind actions already taken, although as a practical
matter courts may be unwilling to grant such equitable remedies in circumstances
in which such actions have already been taken. Also, because TCBG does not
presently have directors liability insurance and because there is no assurance
that TCBG will retain such insurance or that if such insurance is procured it
will provide coverage to the extent directors would be indemnified under the
provision, TCBG may be forced to bear a portion or all of the cost of the
director's claims for indemnification under such provisions. If TCBG is forced
to bear the cost for indemnification, the value of the Company's common stock
may be adversely affected.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of TCBG pursuant
to the foregoing provisions, or otherwise, TCBG has been advised that such
indemnification, in the opinion of the SEC, is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
The Company believes that these provisions will assist in attracting and
retaining qualified individuals to serve as directors.
PART F/S
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Certified Public Accountants...........................................F-1
Balance sheets as of December 31, 1997 and December 31, 1998.................................F-2
Statements of operations for the periods ended December 31, 1997 and December
31, 1998 and the cumulative amounts from date of inception (March 25, 1997)
through December 31, 1998..................................................................F-4
Statements of changes in stockholders' equity for the periods ended December 31,
1997 and December 31, 1998.................................................................F-5
Statements of cash flows for the periods ended December 31, 1997 and December
31, 1998 and the cumulative amounts from date of inception (March 25, 1997)
through December 31, 1998..................................................................F-6
Notes to audited financial statements........................................................F-8
Unaudited balance sheet as of June 30, 1999.................................................F-17
Unaudited statements of operations for the six-month periods ended June 30, 1999
and June 30, 1998.........................................................................F-18
Unaudited statement of changes in stockholders' equity for the six-month
period ended June 30, 1999 ...............................................................F-19
Unaudited statements of cash flows for the six-month periods ended June 30, 1999
and June 30, 1998.........................................................................F-20
Notes to unaudited financial statements.....................................................F-21
</TABLE>
26
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation
3.2 Amended and Restated By-Laws
3.3 Certificate of Designations of Series A Preferred Stock
4.1 Form of Common Stock Certificate*
4.2 Form of Series A Preferred Stock Certificate
4.3 Registration Rights Agreement between the Company and a warrant
holder dated April 23, 1999
4.4 Debt Conversion Agreement between the Company and Ranger
Enterprises, Inc. dated May 10, 1999
10.1 Amended and Restated Employment Agreement between the Company and
Jon A. Darmstadter*
10.2 Patent License Agreement between the Company and Jon A. Darmstadter
dated September 14, 1999
10.3 Assignment and Assumption Agreement between the Company and Water
Pouch dated January 11, 1999
10.4 Lease Agreement between Company and Lincoln Park Associates, LLC
dated October 1, 1999*
21.1 Subsidiaries
27 Financial Data Schedule
</TABLE>
*To be filed by amendment.
27
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, as
amended, the Company has duly caused this Registration Statement to be signed on
its behalf, by the undersigned, thereunto duly authorized.
Date: November 15, 1999
THE CHILDREN'S BEVERAGE GROUP, INC.
By: /s/ Jon A. Darmstadter
----------------------
Jon A. Darmstadter, President and Chief
Executive Officer
28
<PAGE>
Report of Independent Certified Public Accountants'
The Children's Beverage Group, Inc.
Northbrook, Illinois
We have audited the accompanying balance sheets of The Children's Beverage
Group, Inc. (A Development Stage Company) as of December 31, 1998 and 1997, and
the related statements of operations, changes in stockholders' equity and cash
flows for the year ended December 31, 1998, period ended December 31, 1997 and
the period from inception (March 25, 1997) through December 31, 1998. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide 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 Children's Beverage Group,
Inc. (A Development Stage Company) at December 31, 1998 and 1997 and the results
of its operations and cash flows for the year ended December 31, 1998, period
ended December 31, 1997 and the period from inception (March 25, 1997) through
December 31, 1998, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in the summary of
accounting policies, the Company is in the development stage and has incurred
losses since inception and has negative working capital and cash flows from
operations. These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in the summary of accounting policies. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
BDO Seidman, LLP
Chicago, Illinois
June 3, 1999
F-1
<PAGE>
The Children's Beverage Group, Inc.
(A Development Stage Company)
Balance Sheets
=============================================================================
<TABLE>
<CAPTION>
December 31, 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Assets (Note 2)
Current Assets
Cash and cash equivalents $ 495,815 $ 315
Accounts receivable 103,602 -
Inventories 151,255 -
- -----------------------------------------------------------------------------
Total Current Assets 750,672 315
- -----------------------------------------------------------------------------
Property and Equipment, Net (Notes 1 and 4) 1,717,714 163,163
Other Assets 26,983 5,602
- -----------------------------------------------------------------------------
$ 2,495,369 $ 169,080
- -----------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to financial
statements.
=============================================================================
</TABLE>
F-2
<PAGE>
The Children's Beverage Group, Inc.
(A Development Stage Company)
Balance Sheets
<TABLE>
<CAPTION>
=================================================================================================================
December 31, 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 207,409 $ 13,052
Current portion of capital lease obligations (Note 4) 1,079,636 -
Notes payable - bank (Note 2) 399,500 50,000
Notes payable - stockholder (Note 3) 262,900 -
- -----------------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,949,445 63,052
- -----------------------------------------------------------------------------------------------------------------
Long-Term Liabilities
Capital lease obligations, less current maturities (Note 4) 53,786 -
- -----------------------------------------------------------------------------------------------------------------
Total Long-Term Liabilities 53,786 -
- -----------------------------------------------------------------------------------------------------------------
Total Liabilities 2,003,231 63,052
- -----------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Notes 4, 5 and 8)
Stockholders' Equity (Note 7)
Preferred stock, $.001 par value, 50,000,000 shares authorized, 1,000,000
shares outstanding 1,000 1,000
Common stock - $.0001 par value; 250,000,000 shares authorized,
25,761,337 shares issued and outstanding at December 31, 1998 and
20,250,038 shares issued and outstanding at December 31, 1997,
respectively 2,576 2,025
Additional paid-in capital 2,878,954 507,975
Accumulated deficit during the development stage (2,390,392) (404,972)
- -----------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 492,138 106,028
- -----------------------------------------------------------------------------------------------------------------
$ 2,495,369 $ 169,080
=================================================================================================================
</TABLE>
See accompanying summary of accounting policies and
notes to financial statements.
F-3
<PAGE>
The Children's Beverage Group, Inc.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
=====================================================================================================================
, Cumulative
Amounts from
Date of
Inception
(March 25,
1997)
Through Year ended Period ended
December 31, December 31, December 31,
1998 1998 1997
=====================================================================================================================
<S> <C> <C> <C>
Net Sales (Note 9) $ 236,691 $ 145,954 $ 90,737
- ---------------------------------------------------------------------------------------------------------------------
Operating Expenses
(Notes 5 and 7) 2,623,955 2,114,714 509,241
- ---------------------------------------------------------------------------------------------------------------------
Loss From Operations (2,387,264) (1,968,760) (418,504)
Other Income 15,509 - 15,509
Interest Expense (18,637) (16,660) (1,977)
- ---------------------------------------------------------------------------------------------------------------------
Net Loss $ (2,390,392) $(1,985,420) $(404,972)
=====================================================================================================================
Net Loss Per Common Share $ (0.08) $ (0.02)
=================================== ===================================================
Weighted Average Common
Shares Outstanding 23,977,885 22,800,068
=================================== ===================================================
</TABLE>
See accompanying summary of accounting policies and
notes to financial statements.
F-4
<PAGE>
The Children's Beverage Group Inc.
(A Development Stage Company)
Statement of Changes in Stockholders' Equity
================================================================================
<TABLE>
<CAPTION>
Preferred Stock
Series A Common Stock Additional
--------------------- --------------------- Paid-in
Shares Amount Shares Amount Capital
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares issued in connection with initial
recapitalization and capital contribution
(Note 7) 1,000,000 $1,000 20,250,038 $2,025 $ 507,975
Net loss - - - - -
- ---------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 1,000,000 1,000 20,250,038 2,025 507,975
Issuance of shares of common stock for 160 975,340
cash (Note 7) - - 1,600,000
Capital contributions (Note 7) - - - - 96,030
Issuance of common stock for marketing
services (Note 7) - - 1,361,269 136 1,299,864
Stock dividend (Note 7) - - 2,550,030 255 (255)
Net loss - - - - -
- ---------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 1,000,000 $1,000 25,761,337 $2,576 $2,878,954
===============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Deficit
During the
Development
Stage Total
- -----------------------------------------------------------------------------------
<S> <C> <C>
Shares issued in connection with initial
recapitalization and capital contribution
(Note 7) $ - $ 511,000
Net loss (404,972) (404,972)
- -----------------------------------------------------------------------------------
Balance, December 31, 1997 (404,972) 106,028
Issuance of shares of common stock for - 975,500
cash (Note 7)
Capital contributions (Note 7) - 96,030
Issuance of common stock for marketing
services (Note 7) - 1,300,000
Stock dividend (Note 7) - -
Net loss (1,985,420) (1,985,420)
- -----------------------------------------------------------------------------------
Balance, December 31, 1998 $(2,390,392) $ 492,138
===================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-5
<PAGE>
The Children's Beverage Group Inc.
(A Development Stage Company)
Statements of Cash Flows
================================================================================
<TABLE>
<CAPTION>
Cumulative
Amounts from
Date of
Inception
(March 25,
1997)
Through Year ended Period ended
December 31, December 31, December 31,
1998 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows Used in Operating Activities
Net loss $(2,390,392) $(1,985,420) $(404,972)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 25,075 23,950 1,125
Noncash equity transaction charged to operations
(Note 7) 1,300,000 1,300,000 -
Changes in assets and liabilities
Increase in accounts receivable (103,602) (103,602) -
Increase in inventories (151,255) (151,255) -
Increase in other assets (26,983) (21,381) (5,602)
Increase in accounts payable 207,409 194,357 13,052
- --------------------------------------------------------------------------------------------------------------------------------
Total adjustments 1,250,644 1,242,069 8,575
- --------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,139,748) (743,351) (396,397)
- --------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Purchase of property and equipment (562,073) (397,785) (164,288)
- --------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Proceeds from notes payable 662,400 612,400 50,000
Capital lease obligation payments (47,294) (47,294) -
Proceeds from issuance of common stock and capital
contributions 1,582,530 1,071,530 511,000
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,197,636 1,636,636 561,000
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents 495,815 495,500 315
Cash and Cash Equivalents, at beginning of period - 315 -
- --------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, at end of period $ 495,815 $ 495,815 $ 315
================================================================================================================================
</TABLE>
F-6
<PAGE>
The Children's Beverage Group Inc.
(A Development Stage Company)
Statements of Cash Flows
================================================================================
<TABLE>
<CAPTION>
Cumulative
Amounts from
Date of
Inception
(March 25,
1997)
Through Year ended Period ended
December 31, December 31, December 31,
1998 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for interest $ 18,637 $ 16,660 $ 1,977
================================================================================================================================
</TABLE>
Supplemental Schedule of Noncash Investing and
Financing Activities
During 1998, the Company incurred $1,180,716 of capital lease obligations
related to leases for new equipment.
See accompanying summary of accounting policies and notes to financial
statements.
F-7
<PAGE>
The Children's Beverage Group, Inc.
(A Development Stage Company)
Summary of Accounting Policies
================================================================================
<TABLE>
<CAPTION>
<S> <C>
Description of Business The Children's Beverage Group, Inc. (the
"Company"), located in Northbrook, Illinois, is
engaged in the manufacture and distribution of
children's beverages to customers located
throughout the United States. The Company's
products are manufactured through co-packing
relationships with third party manufacturers.
Basis of Presentation Since its inception, the Company's efforts have
been devoted to the development of its principal
products and raising capital. The Company has
received nominal revenues from the sale of its
products. Accordingly, through the date of these
financial statements, the Company is considered to
be in the development stage and the accompanying
financial statements represent those of a
development stage enterprise.
The Company's financial statements are presented
on a going concern basis, which contemplates the
realization of assets and satisfaction of
liabilities in the normal course of business.
The Company has experienced recurring losses since
inception and has negative working capital and
cash flows from operations. For the periods ended
December 31, 1997 and 1998, the Company
experienced a net loss of $404,972 and $1,985,420,
respectively. At December 31, 1998, the Company
has a working capital deficit of $1,198,773.
The Company's ability to continue as a going
concern is contingent upon its ability to secure
additional financing and attain profitable
operations. In addition, the Company's ability to
continue as a going concern must be considered in
light of the problems, expenses and complications
frequently encountered by entrance into
established markets and the competitive
environment in which the Company operates.
Management is pursuing various sources of debt
and/or equity financing. Although the Company
plans to pursue additional financing, there can be
no assurance that the Company will be able to
secure financing when needed or obtain such on
terms satisfactory to the Company, if at all.
Failure to secure such financing may result in the
Company rapidly depleting its available funds and
not being able to comply with its payment
obligations under its bank loans and with vendors.
</TABLE>
F-8
<PAGE>
The Children's Beverage Group, Inc.
(A Development Stage Company)
Summary of Accounting Policies
================================================================================
<TABLE>
<CAPTION>
<S> <C>
The financial statements do not include any
adjustments to reflect the possible future effects
on the recoverability and classification of assets
or the amounts and classification of liabilities
that may result from the possible inability of the
Company to continue as a going concern.
Inventories Inventories are stated at the lower of cost, or
market, determined on the first-in, first-out
("FIFO") method. At December 31, 1998, inventories
consist primarily of raw materials.
Property, Equipment Property and equipment are stated at cost.
and Depreciation Depreciation is computed over the estimated useful
lives of the assets (three to 10 years) by the
straight-line method.
Fair Value of Financial The carrying amounts reported in the balance
Instruments sheets for cash and cash equivalents, accounts
receivable, and accounts payable approximate fair
value because of the immediate or short-term
maturity of these financial instruments. The
carrying amount reported for notes payable and
long-term debt approximates fair value because, in
general, the interest on the underlying
instruments approximates market rates.
Estimates Preparation of the accompanying financial
statements in accordance with generally accepted
accounting principles requires management to make
estimates, disclosures and assumptions about
future events. Actual results may differ from
those estimates.
Revenue Recognition The Company recognizes revenue and the related
costs when product is shipped.
Advertising Costs Advertising costs, aggregating $1,300,000 in 1998
and $0 in 1997, are expensed as incurred.
Costs of Start-Up Activities In April 1998, the American Institute of Certified
Public Accountants issued Statement of Position
("SOP") 98-5, "Reporting on the Costs of Start-up
Activities". This SOP requires that the costs of
start-up activities, including organization costs,
be expensed as incurred. The Company has followed
this policy since inception.
</TABLE>
F-9
<PAGE>
The Children's Beverage Group, Inc.
(A Development Stage Company)
Summary of Accounting Policies
================================================================================
<TABLE>
<CAPTION>
<S> <C>
Taxes on Income Income taxes are accounted for using the asset and
liability method under which deferred income taxes
are recognized for the estimated tax consequences
of temporary differences between the financial
statement carrying amounts and the tax basis of
assets and liabilities and for the benefits, if
any, of tax credit or loss carryforwards. The
amounts of any future tax benefits are reduced by
a valuation allowance to the extent such benefits
are not expected to be realized.
Net Loss Per Share Net loss per share is calculated using the
weighted average number of common shares
outstanding during the period.
Recent Accounting In June 1997, the FASB issued SFAS No. 130,
Pronouncements "Reporting Comprehensive Income", which
establishes standards for reporting and display of
comprehensive income, its components and
accumulated balances. Comprehensive income is
defined to include all changes in equity except
those resulting from investments by owners and
distributions to owners. Among other disclosures,
SFAS No. 130 requires that all items that are
required to be recognized under current accounting
standards as components of comprehensive income be
reported in a financial statement that is
displayed with the same prominence as other
financial statements. The Company had no items of
comprehensive income (loss) in 1998 or 1997.
In June 1997, FASB issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and
Related Information". This standard requires
enterprises to report information about operating
segments, their products and services, geographic
areas and major customers. This standard became
effective in 1998. As the Company operates within
one segment, the adoption of SFAS No. 131 by the
Company in 1998 did not have a material impact on
the Company.
In March 1998, the American Institute of Certified
Public Accountants ("AICPA") issued Statement of
Position ("SOP") 98-1 "Accounting for the Costs of
Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"). SOP 98-1 is effective
for financial statements for years beginning after
December 15, 1998. SOP 98-1 provides guidance over
accounting for computer software developed or
obtained for internal use, including the
requirement to capitalize and amortize specific
costs. The Company does not expect the adoption of
this standard to have a material effect on its
capitalization policy.
</TABLE>
F-10
<PAGE>
The Children's Beverage Group, Inc.
(A Development Stage Company)
Summary of Accounting Policies
================================================================================
<TABLE>
<CAPTION>
<S> <C>
In June 1998, the FASB issued SFAS No. 133,
"Accounting for Derivatives and Hedging
Activities", which establishes accounting and
reporting standards for derivative instruments,
including certain derivative instruments embedded
in other contracts, (collectively referred to as
derivatives) and for hedging activities. SFAS No.
133 is effective for fiscal years beginning after
June 15, 2000. The Company does not expect the
adoption of this statement to have a significant
impact on its results of operations, financial
position or cash flows.
</TABLE>
F-11
<PAGE>
The Children's Beverage Group, Inc.
(A Development Stage Company)
Notes to Financial Statements
- ------------------------------------------------------------------------------
<TABLE>
<C> <S> <C>
1. Property and Property and equipment are summarized by major classification as follows:
Equipment
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998 1997
--------------------------------------------------------------------------
<S> <C> <C>
Machinery and equipment (Note 4) $1,669,662 $150,000
Automobiles 43,775 5,000
Furniture and fixtures 17,000 6,632
Computers and peripherals 12,352 2,656
--------------------------------------------------------------------------
1,742,789 164,288
Less accumulated depreciation (25,075) (1,125)
--------------------------------------------------------------------------
Total $1,717,714 $163,163
==========================================================================
</TABLE>
<TABLE>
<C> <S> <C>
2. Notes Payable - Bank The Company has two credit facilities under secured notes payable with
maturity dates of July 9, 1999 and September 5, 1999, respectively. The
Company can borrow a maximum of $500,000 and $50,000, respectively,
under these agreements. Borrowings are collateralized by substantially
all of the Company's assets. Interest is paid monthly at 7.75% and
8.75%, respectively. Borrowings of $349,500 and $50,000, respectively,
are outstanding on the lines as of December 31, 1998 and $50,000 at
December 31, 1997.
</TABLE>
<TABLE>
<C> <S> <C>
3. Notes Payable - The Company has two notes payable to a stockholder with maturity dates
Stockholder of November 10, 1999 and December 20, 1999, respectively. Interest is
paid monthly at 12%. Borrowings of $150,000 and $112,900, respectively,
are outstanding as of December 31, 1998.
</TABLE>
<TABLE>
<C> <S> <C>
4. Capital Lease The Company leases certain machinery and equipment under capital leases.
Obligations As lessee, the Company assumes all taxes, maintenance costs, insurance
and other operating costs over the life of the lease. During the year
ended December 31, 1998, principal and interest payments under these
leases amounted to $56,641.
</TABLE>
F-12
<PAGE>
The Children's Beverage Group, Inc.
(A Development Stage Company)
Notes to Financial Statements
====================================================================
<TABLE>
<CAPTION>
Property recorded under such leases at December 31 consist of:
1998
- --------------------------------------------------------------------
<S> <C>
Machinery and equipment $ 1,583,422
Less accumulated depreciation 20,000
- --------------------------------------------------------------------
Total $ 1,563,422
====================================================================
</TABLE>
Future minimum lease payments, excluding operating costs, in the
aggregate and for the years succeeding December 31, 1998 are:
<TABLE>
<CAPTION>
Year ending December 31, Amount
- --------------------------------------------------------------------
<S> <C>
1999 $ 1,192,665
2000 54,211
- --------------------------------------------------------------------
Total future minimum lease payments 1,246,876
Less amount representing interest 113,454
- --------------------------------------------------------------------
Net capital lease obligation 1,133,422
Less current portion 1,079,636
- --------------------------------------------------------------------
Long-term portion $ 53,786
====================================================================
</TABLE>
F-13
<PAGE>
The Children's Beverage Group, Inc.
(A Development Stage Company)
Notes to Financial Statements
================================================================================
5. Leases The Company leases office space under a noncancellable
operating lease through June 30, 2000. Total rent expense
for 1997 and 1998 was $18,644 and $27,168, respectively,
which includes a second office lease under which payments
are made on a month-to-month basis. The future minimum
rental payments required under these leases over the next
two years are as follows:
<TABLE>
<CAPTION>
December 31, Amount
---------------------------------------------------------------------
<S> <C>
1999 $ 16,200
2000 8,100
---------------------------------------------------------------------
Total $ 24,300
=====================================================================
</TABLE>
6. Income Taxes The reasons for the differences between income taxes at the
statutory income tax rates and the provision (benefit) for
income taxes are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1998 1997
---------------------------------------------------------------------
<S> <C> <C>
Income tax benefits at statutory rate $ (794,000) $ (162,000)
Change in valuation allowance related to
deferred tax benefit carryforwards 794,000 162,000
---------------------------------------------------------------------
Income tax benefit $ - $ -
---------------------------------------------------------------------
</TABLE>
Due to net operating losses and the uncertainty of
realization, no tax benefit has been recognized for
operating losses.
At December 31, 1998, net operating losses of approximately
$2.4 million are available for carryforward against future
years' taxable income and expire through the year 2018. The
Company's ability to utilize its net operating loss
carryforwards is uncertain and thus a valuation reserve has
been provided against the Company's net deferred tax assets.
F-14
<PAGE>
The Children's Beverage Group, Inc.
(A Development Stage Company)
Notes to Financial Statements
<TABLE>
<CAPTION>
==========================================================================================================
The net deferred tax assets consist of the following:
1998 1997
-----------------------------------------------------------------------------
<S> <C> <C>
Net operating loss carryforwards $ 956,000 $ 162,000
Valuation allowance (956,000 ) (162,000)
-----------------------------------------------------------------------------
Net deferred tax assets $ - $ -
=============================================================================
</TABLE>
7. Stockholders' Equity Business Reorganization - Reverse Merger
On March 25, 1997, the Company entered into an
asset purchase agreement (the "merger") with The
Children's Beverage Group, Inc. ("TCBG"), formerly
Savant Biotechnology, Inc., an inactive publicly
held shell corporation. Under the terms of this
agreement, the Company merged into TCBG with TCBG
being the surviving corporation. For accounting
purposes, the transaction has been treated as a
recapitalization of the Company, or reverse merger.
The Company had nominal operations prior to the
merger.
As of the date of the merger, the following shares
were issued:
a) 250,038 shares of common stock were the shares
outstanding with former shareholders of Savant.
b) 9,000,000 shares of common stock were issued to
the Company's founder.
c) 11,000,000 shares of common stock were issued
to new shareholders of TCBG in exchange for an
investment of $511,000.
Subsequently, the Company's Founder was issued
1,000,000 shares of preferred stock as part of the
merger.
Common Stock Issuances
In addition to the common stock issued through the
business reorganization, common stock was issued as
follows in 1998:
a) Sales of common stock - In connection with
private placements, the Company sold 150,000
shares in April 1998 for $163,500 and sold
1,450,000 shares in July for $812,000.
F-15
<PAGE>
The Children's Beverage Group, Inc.
(A Development Stage Company)
Notes to Financial Statements
================================================================================
b) Stock dividend - During 1998, the Company
declared a one-for-eight stock dividend and
issued 2,550,030 shares of common stock.
c) Services rendered - The Company issued 1,361,269
shares of common stock to a marketing firm for
services rendered in satisfaction of a
$1,300,000 liability for advertising fees. Such
shares were issued, based on current market
prices
Capital Contributions During 1998, the Company's Chairman made capital
contributions of $96,030.
Preferred Stock The Series A preferred stockholders shall be
entitled to 25 votes for each share owned by them
on all matters required or permitted to be
submitted to a vote of stockholders of the Company.
8. Commitments and a) The Company is required to make payments in cash
Contingencies or common stock totaling $2,250,000 in 1999,
related to obligations under a sponsorship
agreement with an Indy Racing League car team.
b) The Company is involved in various litigation
incident to its business. It is the opinion of
management that the outcome of such litigation
will not have a material adverse effect on the
Company's financial position or results of
operations.
9. Sole Customer All of the Company's sales during 1998 were to one
customer. Accounts receivable of $103,602 were due
from such customer at December 31, 1998. The loss
of this customer would have a material adverse
effect on the Company's financial condition and
results of operations.
F-16
<PAGE>
The Children's Beverage Group, Inc.
<TABLE>
<CAPTION>
Balance Sheet
June 30,
1999
(Unaudited)
-----------
<S> <C>
Assets
Current Assets
Cash and cash equivalents $ 177,451
Accounts receivable 475,178
Inventories 557,317
Prepaid expenses 1,125,000
-----------
Total Current Assets 2,334,946
Property and Equipment, Net 2,326,518
Other Assets 37,518
-----------
$ 4,698,982
===========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 860,844
Current portion of capital lease obligations 1,096,422
Stockholder advances 508,779
Notes payable - bank 417,000
Notes payable - other 151,125
-----------
Total Current Liabilities 3,034,170
-----------
Stockholders' Equity
Preferred stock, $.001 par value; 50,000,000
shares authorized, 1,000,000 shares
outstanding 1,000
Common stock, $.0001 par value; 250,000,000
shares authorized, 29,049,504 shares issued
and outstanding at June 30, 1999 2,905
Additional paid-in-capital 6,629,792
Accumulated deficit (4,968,885)
-----------
Total Stockholders' Equity 1,664,812
-----------
$ 4,698,982
===========
</TABLE>
F-17
<PAGE>
The Children's Beverage Group, Inc.
<TABLE>
<CAPTION>
Statements of Operations
Six Months Six Months
Ended Ended
June 30, 1999 June 30, 1998
(Unaudited) (Unaudited)
<S> <C> <C>
Net Sales $ 1,787,266 $ 42,352
Cost of Sales 1,984,823 47,032
----------- -----------
Gross Loss (197,557) (4,680)
Selling, General, and Administrative Expenses 1,894,291 874,156
----------- -----------
Loss from operations (2,091,848) (878,836)
Other Income 9,923 6,699
Interest Expense (496,568) (2,164)
----------- -----------
Net Loss $(2,578,493) $ (874,301)
=========== ===========
Net Loss Per Common Share - Basic and Diluted $ (0.09) $ (0.04)
=========== ===========
Weighted Average Common Shares Outstanding 27,350,045 22,862,568
</TABLE>
F-18
<PAGE>
The Children's Beverage Group, Inc.
Statement of Changes in Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock
Series A Common Stock Additional
------------------- -------------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1999 1,000,000 $1,000 25,761,337 $2,576 $2,878,954 $(2,390,392) $ 492,138
Issuance of common stock
for goods and services - - 2,300,000 230 2,349,770 - 2,350,000
Issuance of warrants - - - - 413,000 - 413,000
Conversion of notes payable - - 988,167 99 988,068 - 988,167
Net loss - - - - - (2,578,493) (2,578,493)
-------------------------------------------------------------------------------------------
Balance June 30, 1999 1,000,000 $1,000 29,049,504 $2,905 $6,629,792 $(4,968,885) $ 1,664,812
===========================================================================================
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
The Children's Beverage Group, Inc.
Statement of Cash Flows
Six Month Six Month
Period-End Period-End
June 30, 1999 June 30, 1998
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows (Used in) Provided by Operating Activities
Net loss (2,578,493) (874,301)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 86,025 -
Noncash equity transactions charged to operations 1,520,267
Changes in assets and liabilities
Increase in accounts receivable (371,576) -
Increase in inventories (406,062) -
Increase in other assets (10,535) -
Increase in accounts payable 653,435 939,458
-------------- --------------
Total adjustments 1,471,554 939,458
-------------- --------------
Net cash (used in) provided by operating activities (1,106,939) 65,157
-------------- --------------
Cash Flows From Investing Activities
Purchase of property and equipment (181,829) (317,959)
-------------- --------------
Cash Flows From Financing Activities
Proceeds from notes payable - bank 17,500 -
Capital lease obligation paymnts (37,000) -
Proceeds from notes payable and stockholder advances 989,904
Proceeds from issuance of common stock and
capital contributions - 252,487
-------------- --------------
Net cash provided by financing activities 970,404 252,487
-------------- --------------
Net increase in Cash and Cash Equivalents (318,364) (315)
Cash and Cash Equivalents, at beginning of period 495,815 315
-------------- --------------
Cash and Cash Equivalents, at end of period 177,451 -
============== ==============
Supplemental Schedule of Noncash Investing and Financing Activities
During the period ended June 30, 1999, the Company converted $592,900 of
stockholder notes payable into common stock with a value of
$988,167. Accordingly, the reduction of debt was recorded with an
increase to equity. The excess value of the common stock at the
time of conversion was recorded as interest expense.
During the period ended June 30, 1999, the Company purchased machinery
for $513,000 in exchange for common stock and warrants. Accordingly,
assets and equity were recorded for this amount.
During the period ended June 30, 1999, the Company paid for $2,250,000 of
advertising through the issuance of common stock. Accordingly, assets
and equity were recorded for this amount. Of the total payment,
$1,125,000 was charged to expense through June 30, 1999 and $1,125,000
is included in prepaid expenses at June 30, 1999.
</TABLE>
F-20
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. The accompanying financial statements for the six months ended June 30,
1999 and 1998 have been prepared, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. The condensed financial statements and these
notes should be read in conjunction with the financial statements for the
year ended December 31, 1998 included in the Company's Registration
Statement on Form 10-SB dated November 12, 1999.
Through December 31, 1998 the Company was a development stage enterprise
with minimal operations. During the period ended June 30, 1999 the Company
ceased to be a development stage enterprise.
The Company's financial statements are presented on a going concern basis,
which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business.
The Company has experienced recurring losses since inception and has
negative working capital and cash flows from operations. For the six months
ended June 30, 1998 and 1999, the Company experienced a net loss of
$874,301 and $2,578,493, respectively. At June 30, 1999, the Company has a
working capital deficit of $699,224
The Company's ability to continue as a going concern is contingent upon its
ability to secure additional financing and attain profitable operations. In
addition, the Company's ability to continue as a going concern must be
considered in light of the problems, expenses and complications frequently
encountered by entrance into established markets and the competitive
environment in which the Company operates.
Management is pursuing various sources of debt and/or equity financing.
Although the Company plans to pursue additional financing, there can be no
assurance that the Company will be able to secure financing when needed or
obtain such on terms satisfactory to the Company, if at all. Failure to
secure such financing may result in the Company rapidly depleting its
available funds and not being able to comply with its payment obligations
under its bank loans and with vendors.
The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result from the
possible inability of the Company to continue as a going concern.
2. The information furnished herein reflects all adjustments (consisting only
of normal recurring accruals) which are, in the opinion of management,
necessary for a fair presentation of the financial position and results of
operations for the interim period. Results of operations for the six months
ended June 30, 1999 and 1998 are not indicative of results to be expected
for the entire years.
3. Inventories are stated at the lower of cost, or market, determined on the
first-in, first-out ("FIFO") method. At June 30, 1999, inventories consist
primarily of raw materials.
4. Stockholder advances represent short-term borrowings from the Company's
Chairman with interest at 12%.
F-21
<PAGE>
5. Stockholders' Equity
a) During May 1999 the Company entered into an agreement to convert
approximately $592,900 of outstanding stockholder notes payable into
988,167 shares of common stock. As of June 30, 1999, the Company had not
issued the 988,167 shares of common stock, however, the accompanying
financial statements have been adjusted to reflect the issuance and related
value of these shares, which were issued in July 1999. The common stock had
a value of approximately $988,000. The excess value of the common stock was
recorded as interest expense at the time of conversion.
b) On April 23, 1999, the Company entered into a Settlement Agreement
with a vendor, under which the Company issued the vendor warrants to
purchase 413,000 shares of common stock at par value in exchange for
machinery and equipment with a value of $413,000. In addition, on March 24,
1999, the Company issued 100,000 shares of common stock to this vendor as
payment for an additional $100,000 of machinery and equipment.
c) On March 24, 1999, the Company issued 2,200,000 shares of common stock
to satisfy its $2,250,000 obligations under a sponsorship agreement with an
Indy Racing League car team.
6. Commitments and Contingencies
The Company had a contractual relationship with Sweet Ripe Drinks, Ltd.
("Sweet Ripe"), a Canadian company, whereby Sweet Ripe bottled and packaged
the Company's beverage product using machinery provided by the Company.
During the course of dealing, there arose certain disputes between the
parties as to a variety of continuing manufacturing problems. Believing
Sweet Ripe to be in breach of its contractual duties, having provided an
opportunity to cure, the Company caused its bottling and packaging at Sweet
Ripe to cease. In response, Sweet Ripe refused to allow the Company to
remove its machinery. Shortly thereafter, Sweet Ripe filed a Notice of
Intention to File a Proposal under the Canadian Bankruptcy and Insolvency
Act, which in effect, caused a stay of proceedings. The Company then
petitioned a Master of the Superior Court of Justice to lift the stay of
proceedings so that the Company could proceed with an action to recover the
manufacturing equipment. In arguing against the stay of proceedings, Sweet
Ripe asserted that the Company owes approximately $700,000 to Sweet Ripe.
The Master did not agree to lift the stay of proceedings but rather
adjourned that matter until November 29, 1999, subject to any orders that
the Bankruptcy Court might make with regard to the matter. The equipment at
issue is valued at approximately $1.5 million. Two of the three major
pieces of equipment at issue are leased and the remaining equipment is
owned by the Company. The Company has engaged McCarthy Tetrault to handle
its legal representation with respect to any related proceedings.
The Company is involved in various other litigation incident to its
business. It is the opinion of management that the outcome of such
litigation will not have a material adverse effect on the Company's
financial position or result of operations.
7. Sole Customer and Contract Manufacturer
All of the Company's sales during 1999 and 1998 were to one customer.
Outstanding accounts receivable at June 30, 1999 were due from such
customer. The loss of this customer would have a material adverse effect on
the Company's financial condition and results of operations.
Currently, the Company relies on one contract manufacturer to produce juice
products for its sole customer. The loss of this manufacturer would disrupt
the Company's operations until alternative manufacturers were obtained.
8. Subsequent Events
a) On September 17, 1999, the Company entered into a Patent License
Agreement ("the Agreement") with its Chairman. The patent was applied
for and issued to the Company's Chairman in August 1999. The Agreement
provides the Company the exclusive right to use the U.S. patent used
in the production of the Company's juice pouch products for the life
of the patent.
In exchange for the license, the Company will issue its Chairman
common stock equal to the value of the license granted in lieu of cash
or other compensation. The license value will then be reevaluated
periodically in the future and if the value of the license has
increased, additional common stock shall be issued to the President.
b) In October 1999 the Company entered into an agreement with the County
of Monroe Industrial Development Agency and the State of New York for
approximately $10 million in Industrial Development Revenue ("IRB")
Bonds with interest at a rate of approximately 5% for a 10 year term.
The Bonds were issued for the purpose of providing funds to the
Company to finance the construction of a manufacturing facility in
Rochester, New York. In conjunction with this agreement, the Company
signed a 10-year lease for a 120,000 square foot manufacturing
facility, which will be constructed with the proceeds from the IRB.
The aggregate annual lease payments for the lease will be $237,000 for
the first year beginning January 1, 2000.
F-22
<PAGE>
Exhibit 3.1
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 10/25/1999
991452110 - 2169784
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
THE CHILDREN'S BEVERAGE GROUP, INC.
It is hereby certified that:
1. The present name of the Corporation (hereinafter called the
"Corporation") is The Children's Beverage Group, Inc. The name of the
Corporation when first incorporated was Zoniverse, Inc., the date of filing the
original Certificate of Incorporation of the Corporation with the Secretary of
State of the State of Delaware is August 17, 1988.
2. The provisions of the Certificate of Incorporation of the Corporation
as heretofore amended and/or supplemented, and as herein amended, are hereby
restated and integrated into the single instrument which is hereinafter set
forth, in accordance with Sections 242 and 245 of the General Corporation Law of
Delaware, and which is entitled Amended and Restated Certificate of
Incorporation of The Children's Beverage Group, Inc.
3. The Amended and Restated Certificate of Incorporation as hereinafter
set forth has been duly approved by the Board of Directors of the Corporation,
in accordance with Sections 242 and 245 of the General Corporation Law of
Delaware,.
4. The Amended and Restated Certificate of Incorporation as hereinafter
set forth has been duly approved by less than unanimous written consent of the
holders of stock entitled to vote thereon in accordance with Section 228 of the
General Corporation Law of Delaware.
5. The Certificate of Incorporation of the Corporation, as amended and
restated herein, shall at the effective time of this Amended and Restated
Certificate of Incorporation read as follows:
"Amended and Restated Certificate of Incorporation
of
The Children's Beverage Group, Inc.
FIRST: The name of the Corporation is:
The Children's Beverage Group, Inc.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, City of Wilmington, County of
Newcastle, 19805. The name of the registered agent at such address is The
Corporation Trust Company.
THIRD: The nature of the business and of the purposes to be conducted and
promoted by the Corporation shall be to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of the
State of Delaware.
<PAGE>
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is Three Hundred Million (300,000,000) which are divided
into two classes as follows:
250,000,000 shares of Common Stock having a par value of $0.0001 per share
(the "Common Stock");
50,000,000 shares of Preferred Stock having a par value of $0.001 per
shares (the "Preferred Stock").
The designations, voting powers, preferences and relative participating,
optional or other special rights, and qualifications, limitation or restrictions
of the above classes of stock are as follows:
1. Common Stock
------------
A. Liquidation. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation and after the payment of any
preferential amounts to be distributed to the holders of Preferred Stock,
the remaining cash and other property available for distribution to the
stockholders of the Corporation shall be distributed to the holders of
Common Stock, ratably in proportion to the number of shares of Common Stock
that each such holder holds.
B. Dividends. The Board may declare a dividend or distribution upon the
Common Stock only at such time as the preferential dividends upon the
Preferred Stock, to the extent such stock may be entitled thereto, shall
have been paid or declared and set apart for payment. Subject to the right
of the holders of the Preferred Stock to participate in such dividend or
distribution, dividends or distributions so declared by the Board shall be
paid to the holders of Common Stock ratably in proportion to the number of
shares of such Common Stock held by each such holder on the date as of
which the holders of such Common Stock of record entitled to receive such
dividends or distribution were determined.
C. Voting Rights. The shares of Common Stock shall have voting rights and
the registered holders of such shares shall be entitled to receive notice
of all meetings of the stockholders of the Corporation and to one vote for
each share of Common Stock standing in the name of the holder on the books
of the Corporation on each and every matter to come before the stockholders
for vote or decision.
2. Preferred Stock
---------------
The stated value, dividend rate, if any, and voting powers, if any, of the
Preferred Stock and the designations, preferences and relative, participating,
optional or other special rights and the qualifications, limitations or
restrictions thereof shall be fixed by resolutions of the
<PAGE>
Board of Directors at the time of issuance subject in all cases to the laws of
the State of Delaware applicable thereto, and set forth in a certificate of
designations filed and recorded in accordance with the laws of the State of
Delaware.
FIFTH: The name and the mailing address of the sole incorporator is as
follows:
Name Mailing Address
---- ---------------
Ann M. Spitler Sachnoff & Weaver, Ltd.
30 South Wacker Drive
Suite 2900
Chicago, Illinois 60606
SIXTH: The books of the Corporation may be kept (subject to any
provision contained in the statutes) outside the State of Delaware at such place
or places as may be designated from time to time by the Board of Directors or in
the By-Laws of the Corporation.
SEVENTH: For the management of the business and for the conduct of the
affairs of the Corporation and in further definition, limitation and regulation
of the powers of the Corporation and of its directors and stockholders, it is
further provided:
The number of directors of the Corporation shall be as specified in the By-
Laws of the Corporation, but such number may from time to time be increased or
decreased in such manner as may be prescribed by the By-Laws. In no event shall
the number of directors be less than the minimum prescribed by law. The
election of directors need not be by ballot. Directors need not be
stockholders.
In furtherance and not in limitation of the powers conferred by the laws of
the State of Delaware, the Board of Directors is expressly authorized and
empowered to make, alter, amend, and repeal By-Laws, subject to the power of the
stockholders to alter or repeal By-Laws made by the Board of Directors. A
quorum of the board of directors must include a majority of the directors then
in office.
Any director or any officer elected or appointed by the stockholders or by
the Board of Directors may be removed at any time in such manner as shall be
provided in the By-Laws of the Corporation.
In the absence of fraud, no contract or other transaction between the
Corporation and one (1) or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one (1) or more of its directors or officers, are
directors or officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the director or officer is present at
or participates in the meeting of the Board or committee which authorizes the
contract or transaction, or solely because any such director's or officer's
votes are counted for such purpose, if: (1) The material facts as to the
<PAGE>
director's or officer's relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or the
committee, and the Board or committee in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or (2)
the material facts as to the director's or officer's relationship or interest
and as to the contract or transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by a vote of the shareholders; or (3) the
contract or transaction is fair as to the Corporation as of the time it was
authorized, approved or ratified, by the Board of Directors, a committee or the
shareholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
EIGHTH: No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, as the same exists or hereafter may be amended, or (iv) for any transaction
from which the director derived an improper personal benefit. Any repeal or
modification of this article, directly or by adoption of any inconsistent
provision of this Certificate of Incorporation by the stockholders of the
Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification. Nothing herein shall limit or
otherwise affect the obligation or right of the Corporation to indemnify its
directors pursuant to the provisions of this Certificate of Incorporation, the
Bylaws of the Corporation or as may be permitted by the Delaware General
Corporation Law.
NINTH: The Corporation shall have the right to indemnify the officers
and directors of the Corporation to the fullest extent permitted under the
Delaware General Corporation Law, as amended from time to time.
TENTH: From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
Certificate are granted subject to the provisions of this Article TENTH.
<PAGE>
THE UNDERSIGNED, being the President of the Corporation, declares and
certifies that this in my act and deed and the facts herein stated are true, and
accordingly have executed this document on October 22, 1999.
/s/ Jon A. Darmstadter
----------------------------------
Jon A. Darmstadter
President
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED BY-LAWS
OF
THE CHILDREN'S BEVERAGE GROUP, INC.
(a Delaware corporation)
ARTICLE I
---------
STOCKHOLDERS
Section 1.1. Annual Meetings. Unless directors are elected by written
consent in lieu of the annual meeting as provided in Section 1.10 of these By-
Laws, an annual meeting of stockholders shall be held, either within or without
the State of Delaware, on such date as the Board of Directors shall designate,
for the purpose of electing directors and for the transaction of such other
proper business as may come before the meeting. If the date of the annual
meeting shall fall upon a legal holiday, the meeting shall be held on the next
succeeding business day. If the annual meeting for the election of directors is
not held on the date designated therefor, or action taken by written consent to
elect directors in lieu of an annual meeting has not been taken, the directors
shall cause the meeting to be held as soon thereafter as is convenient. If any
of the following occurs: (a) a failure to hold the annual meeting, or (b) a
failure to take action by written consent to elect directors in lieu of the
annual meeting within 30 days after the date designated for the annual meeting,
or (c) a failure to designate a date for the annual meeting; and any such
failure continues for a period of 13 months after the latest to occur of (i) the
organization of the corporation, (ii) the date of the last annual meeting of
stockholders, or (iii) the date of the last action by written consent to elect
directors in lieu of an annual meeting; then any stockholder or director may
apply to the Court of Chancery to order a meeting to be held.
Section 1.2. Special Meetings. Special meetings of stockholders for any
purpose other than the election of directors may be held at such time and place,
either within or without the State of Delaware, as shall be stated in the notice
of the meeting. Special meetings may be called by the President, by the Board of
Directors, or by the Secretary on the written request of the holders of not less
than one-fifth of the outstanding stock of the corporation entitled to vote.
Section 1.3. Quorum; Voting. Except as otherwise required by law, by the
Certificate of Incorporation or by these By-Laws, the presence, in person or by
proxy, of stockholders holding a majority of the shares of the corporation
entitled to vote shall
<PAGE>
constitute a quorum at all meetings of the stockholders. Where a separate vote
by class is required, a majority of the outstanding shares of such class,
present in person or represented by proxy at the meeting, shall constitute a
quorum of such class entitled to take action with respect to the vote on that
matter.
Unless otherwise provided in the Certificate of Incorporation, each
stockholder shall be entitled to one vote, in person or by proxy, for each share
of stock held by such stockholder. If the Certificate of Incorporation provides
for more or less than one vote for any share on any matter, every reference in
these By-Laws to a majority or other proportion of stock should refer to such
majority or other proportion of the votes of such stock.
Upon the demand of any stockholder, the vote for directors and the vote
upon any question before the meeting shall be by ballot.
In all matters other than the election of directors, the affirmative vote
of a majority of the shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders. Directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote in the election of directors. Where a separate vote by class is required,
the affirmative vote of a majority of the shares of such class present in person
or represented by proxy at the meeting shall be the act of such class.
Section 1.4. Adjournments. In case a quorum shall not be present at any
meeting, a majority in interest of the stockholders entitled to vote thereat,
present in person or by proxy, shall have power to adjourn the meeting from time
to time. When a meeting is adjourned to another time or place, notice need not
be given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. At the adjourned meeting, the
stockholders may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
Section 1.5. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.
Section 1.6. Stockholder List. A complete list of the stockholders
entitled to vote at the ensuing election, arranged in alphabetical order with
the address of each and
2
<PAGE>
the number of shares held by each, shall be open to the examination of any
stockholder for any purpose germane to the meeting during ordinary business
hours for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Section 1.7. Notice of Meetings. Written notice, stating the place, date
and time of the meeting, and in the case of a special meeting, the purposes for
which the meeting is called, shall be given to each stockholder entitled to vote
thereat at his address as it appears on the records of the corporation, not less
than ten, or in the case of a merger or consolidation, not less than twenty, nor
more than sixty days before the date of the meeting.
Section 1.8. Record Date.
(a) Meeting of Stockholders. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty nor less than ten days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
(b) Action Without Meeting. In order that the corporation may
determine the stockholders entitled to consent to corporate action in writing
without a meeting, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which date shall not be more than ten
days after the date upon which the resolution fixing the record date is adopted
by the Board of Directors. If no record date has been fixed by the Board of
Directors, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is required by law, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the corporation by delivery to its registered office in Delaware,
its principal place of
3
<PAGE>
business, or an officer or agent of the corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
a corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. If no record date has been fixed by the Board of
Directors and prior action by the Board of Directors is required by law, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action.
(c) Dividends. In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty days
prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
Section 1.9. Consent of the Stockholders in Lieu of a Meeting (Other than
for the Election of Directors.) Unless otherwise provided by the Certificate of
Incorporation, any action required to be taken at any annual or special meeting
of stockholders, other than in the election of directors, or any action which
may be taken at any annual or special meeting, may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take action at a meeting at which all shares entitled to vote
thereon were present and voted and shall be delivered to the corporation by
delivery to its registered office in Delaware, its principal place of business,
or an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. Every written consent shall bear the date of
signature of each stockholder who signs the consent and no written consent shall
be effective to take the corporate action referred to therein unless, within
sixty days of the earliest dated consent, written consents signed by a
sufficient number of stockholders to take action are delivered to the
corporation in the manner required herein. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing and who, if the
action had been taken at a meeting, would have been entitled to notice of the
meeting if the record date for such meeting had been the date that written
consents signed by a sufficient number of holders to take the action were
delivered to the corporation as provided above.
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Section 1.10. Consent of the Stockholders in Lieu of an Annual Meeting for
the Election of Directors. Unless otherwise provided in the Certificate of
Incorporation, the stockholders may elect directors by written consent in lieu
of holding an annual meeting; provided, however, that if such consent is less
than unanimous, such election by written consent shall be valid only if all of
the directorships that would have been filled at an annual meeting held at the
effective time of such written consent are vacant and are filled by such action.
An incumbent director may not be replaced by a written stockholder consent that
is less than unanimous unless such director is first removed or resigns from his
directorship.
ARTICLE 11
----------
DIRECTORS
Section 2.1. Powers, Number and Term. The business and affairs of the
corporation shall be managed by or under the direction of a Board of Directors.
The number of directors shall be not less than two (2) and not more than seven
(7). The exact number of directors shall be fixed from time to time by
resolution of the then incumbent directors without further amendment to this by-
law. The directors shall be elected at the annual meeting of the stockholders
and each director shall hold office until his successor is elected and
qualified, or until his earlier death, resignation or removal. Directors need
not be stockholders of the corporation.
Section 2.2. Resignations. Any director, member of a committee or other
officer may resign at any time. Such resignation shall be made in writing, and
shall take effect at the time specified therein, or if no time is specified, at
the time of its receipt by the Board of Directors. The acceptance of a
resignation shall not be necessary to make it effective.
Section 2.3. Vacancies. Vacancies occurring on the Board of Directors or on
any committee of the Board, or new directorships to be filled by reason of an
increase in the number of directors may be filled by a majority of the directors
then in office, or by a sole remaining director. Each director so chosen shall
hold office for the unexpired term and until his successor shall be duly chosen.
Section 2.4. Removal. Any director or the entire Board of Directors may be
removed either with or without cause at any time by the affirmative vote of the
holders of a majority of all the shares of stock then outstanding and entitled
to vote at an election of directors.
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Section 2.5. Committees. The Board of Directors may, by resolution,
designate one or more committees of the Board, each committee to consist of one
or more of the directors of the corporation. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members present at
any meeting and not disqualified from voting, whether or not such member or
members constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors or in these By-Laws, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority to: (i) approve or adopt, or
recommend to the stockholders, any action or matter expressly required by law to
be submitted to the stockholders for approval, or (ii) adopt, amend or repeal
these By-Laws.
Section 2.6. Meetings. An annual meeting of directors for the purpose of
electing officers and for the transaction of such other business as may properly
come before the meeting, shall be held if a quorum is present, immediately after
and at the same place as the annual meeting of the stockholders, without notice
other than this by-law; or at such other time and place as the directors may
determine. If the annual meeting of directors is not held immediately following
the annual meeting of stockholders, then two days' written notice of the place
and time of the meeting shall be given to each of the newly elected directors.
Regular meetings of the directors may be held without notice at such places
and times as shall be determined from time to time by resolution of the
directors without further notice than said resolution.
Special meetings of the board may be called by the President or by the
Secretary on the written request of any director on at least two days' notice to
each director and shall be held at such place or places as may be determined by
the directors, or as shall be stated in the call of the meeting.
Meetings of directors may be held either within or without the State of
Delaware.
Section 2.7. Communications Equipment. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, by means
of a conference telephone or similar communications equipment by means of which
all persons participating in the meeting
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can hear each other. Such participation in a meeting shall constitute presence
in person at the meeting.
Section 2.8. Quorum; Required Vote. A majority of the directors shall
constitute a quorum for the transaction of business. If at any meeting of the
board there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum is obtained, and no further
notice thereof need be given other than by announcement at the meeting which
shall be so adjourned. The vote of a majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors
unless the Certificate of Incorporation or these By-Laws shall require the vote
of a greater number.
Section 2.9. Compensation. The Board of Directors may by resolution fix the
compensation of the directors, which compensation shall be reasonable. Nothing
herein contained shall be construed to preclude any director from serving the
corporation in any other capacity as an officer, agent or otherwise, and
receiving compensation therefor.
Section 2.10. Consent in Lieu of a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting, if a written consent thereto
is signed by all members of the board, or of such committee as the case may be,
and such written consent is filed with the minutes of the proceedings of the
board or committee.
ARTICLE III
-----------
OFFICERS
Section 3.1. Number; Qualifications; Election; Term of Office. The Board of
Directors shall elect such officers as are required by law and such additional
officers as it from time to time may determine. None of the officers of the
corporation, except for the Chairman and Vice Chairman, if elected, need be
directors. The officers shall be elected annually by the Board of Directors at
the first meeting of the Board of Directors held after each annual meeting of
stockholders. Each officer shall hold office until his successor is elected and
qualified or until his earlier death, resignation or removal. Any officer may
resign at any time upon written notice to the corporation. Vacancies may be
filled or new offices created and filled by the Board of Directors. Any number
of offices may be held by the same person.
Section 3.2. Other Officers and Agents. The Board of Directors may appoint
such other officers and agents as it may deem advisable, who shall hold their
offices for
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such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors.
Section 3.3. Removal. Any officer elected or appointed by the Board of
Directors may be removed by the Board whenever, in its judgment, the best
interests of the corporation would be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Section 3.4. Chairman. The Chairman of the Board of Directors, if one is
elected, shall be the Chief executive officer of the corporation. Subject to the
direction of the Board of Directors, he shall have overall charge over the
business, affairs and policies of the corporation. He shall preside at all
meetings of the Board of Directors. He may execute contracts, stock certificates
and other instruments on behalf of the corporation and he shall have and perform
such other duties as from time to time may be assigned to him by the Board of
Directors.
Section 3.5. President. The President shall be the chief operational
officer of the corporation and, if no Chairman is elected, the chief executive
officer of the corporation. Subject to the direction and control of the Board of
Directors, he shall be in charge of the day-to-day business of the corporation.
He shall preside at all meetings of the stockholders if present thereat, and in
the absence or non-election of the Chairman of the Board of Directors, at all
meetings of the Board of Directors; and shall have the general powers and duties
of supervision and management usually vested in the office of president of a
corporation.
Unless the Board of Directors shall authorize the execution thereof in some
manner, he shall execute bonds, mortgages and other contracts on behalf of the
corporation, and shall cause the seal to be affixed to any instrument requiring
it and when so affixed the seal shall be attested by the signature of the
Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer.
Section 3.6. Vice President. The Vice Presidents, if elected, shall assist
the President in the discharge of his duties as the President may direct. In the
absence of the President, the Vice Presidents shall perform the duties of the
President, and when so acting shall have all the powers of and be subject to all
the restrictions upon the President. The Vice Presidents may sign contracts,
stock certificates and other instruments in the name of the Corporation and
shall perform such other duties as may be assigned to them by the President or
by the Board of Directors.
Section 3.7. Treasurer. The Treasurer, if elected, shall have the custody
of the corporate funds and securities and shall keep full and accurate account
of receipts and disbursements in books belonging to the corporation. He shall
deposit all moneys and
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other valuables in the name and to the credit of the corporation in such
depositories as may be designated by the Board of Directors.
The Treasurer shall disburse the funds of the corporation as may be
ordered by the Board of Directors, or the President, taking proper vouchers for
such disbursements. He shall render to the President and Board of Directors at
the regular meetings of the Board of Directors, or whenever they may request it,
an account of all his transactions as Treasurer and of the financial condition
of the corporation. If required by the Board of Directors, he shall give the
corporation a bond for the faithful discharge of his duties in such amount and
with such surety as the Board shall prescribe.
Section 3.8. Secretary. The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors, and all other notices
required by law or by these By-Laws, and in case of his absence or refusal or
neglect so to do, any such notice may be given by any person thereunto directed
by the President, or by the directors, or stockholders, upon whose request the
meeting is called as provided in these By-Laws. He shall record all the
proceedings of the meetings of the stockholders and of the directors in a book
to be kept for that purpose, and shall perform such other duties as may be
assigned to him by the directors or the President. He shall have the custody of
the seal of the corporation and shall affix the same to all instruments
requiring it, when authorized by the directors or the President, and attest the
same.
Section 3.9. Assistant Treasurers; Assistant Secretaries. Assistant
Treasurers and Assistant Secretaries, if any, shall assist the Treasurer and the
Secretary, respectively, in the discharge of their duties, and shall have such
powers and shall perform such additional duties as shall be assigned to them by
the directors.
ARTICLE IV
----------
STOCK
Section 4.1. Certificates of Stock. Certificates of stock, signed by the
Chairman or Vice Chairman of the Board of Directors, if they are elected, or by
the President or a Vice President, and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary, shall be issued to each
stockholder certifying the number and class of shares owned by him in the
corporation. Any or all of the signatures may be facsimiles.
Section 4.2. Lost Certificates. A new certificate of stock may be issued in
the place of any certificate theretofore issued by the corporation, alleged to
have been lost or destroyed, and the directors may, in their discretion, require
the owner of the lost or destroyed certificates, or his legal representative, to
give the corporation a bond, in such
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sum as they may direct, not exceeding double the value of the stock, to
indemnify the corporation against any claim that may be made against it on
account of the alleged loss of any such certificate, or the issuance of any such
new certificate.
Section 4.3. Transfer of Shares. The shares of stock of the corporation
shall be transferable only upon its books by the holders thereof in person or by
their duly authorized attorneys or legal representatives, and upon such transfer
the old certificates shall be surrendered to the corporation by the delivery
thereof to the person in charge of the stock and transfer books and ledgers, or
to such other person as the directors may designate, by whom they shall be
canceled, and new certificates shall thereupon be issued. A record shall be made
of each transfer and whenever a transfer shall be made for collateral security,
and not absolutely, it shall be so expressed in the entry of the transfer.
ARTICLE V
---------
MISCELLANEOUS
Section 5.1. Dividends. The Board of Directors may from time to time
declare, and the corporation may pay, dividends on its outstanding stock, in the
manner and upon the terms and conditions provided by law and its Certificate of
Incorporation.
Section 5.2. Seal. The corporate seal shall be circular in form and shall
contain the name of the corporation, and the words "CORPORATE SEAL DELAWARE."
Said seal may be used by causing it or a facsimile thereof to be impressed,
affixed, reproduced or otherwise.
Section 5.3. Fiscal Year. The fiscal year of the corporation shall begin on
the first day of January and end on the last day of December in each year.
Section 5.4. Checks. All checks, drafts or other orders for the payment of
money, notes or other evidences of indebtedness issued in the name of the
corporation shall be signed by such officer or officers, agent or agents of the
corporation, and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
Section 5.5. Contracts. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the corporation, and such authority
may be general or confined to specific instances.
Section 5.6. Loans. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a
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resolution of the Board of Directors. Such authority may be general or confined
to specific instances.
Section 5.7. Deposits. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositories as the Board of Directors may
select.
ARTICLE VI
----------
NOTICE AND WAIVER OF NOTICE
Section 6.1. Notice. Whenever any notice is required to be given by these
ByLaws, personal notice is not meant unless expressly so stated. If mailed,
notice is given when deposited in the United States mail, postage prepaid,
directed to the stockholder or director at his address as it appears on the
records of the corporation. An affidavit of the Secretary or an Assistant
Secretary or the transfer agent of the corporation that the notice has been
given shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. Stockholders not entitled to vote shall not be entitled to
receive notice of any meetings except as otherwise provided by statute.
Section 6.2. Waiver of Notice. Whenever any notice whatever is required to
be given under the provisions of any law, or under the provisions of the
Certificate of Incorporation of the corporation or these By-Laws, a waiver
thereof in writing, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice unless so required by the Certificate
of Incorporation or these By-Laws.
ARTICLE VII
-----------
INDEMNIFICATION OF OFFICERS, DIRECTORS
EMPLOYEES AND OTHERS
The corporation may indemnify to the full extent authorized by law, any
person who was or is a party or is threatened to be made a party to any
threatened, pending or
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completed action, suit or proceeding, whether civil, criminal, administrative or
investigative in nature, by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, partner, trustee, employee or
agent of another corporation, partnership, joint venture, trust, or other
enterprise, against expenses, including attorneys' fees, judgments, fines and
amounts paid in connection with such action, suit or proceeding. Such
indemnification shall not be deemed exclusive of any other rights to which a
person may be entitled under any by-law, agreement, vote of disinterested
directors, or as a matter of law or otherwise. The corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of this Article.
ARTICLE VIII
------------
AMENDMENTS
These By-Laws may be altered, amended or repealed and new By-Laws may be
adopted by the directors or the stockholders of the corporation.
ARTICLE IX
----------
RESCISSION OF PREVIOUS BY-LAWS
All by-laws in effect prior to the date of adoption of these amended and
restated By-Laws are rescinded in their entirety and are of no further force and
effect.
ADOPTED and EFFECTIVE as of January 11, 1999
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Exhibit 3.3
AMENDED CERTIFICATE OF DESIGNATIONS, PREFERENCES,
RIGHTS AND LIMITATIONS OF PARTICIPATING
SERIES A CONVERTIBLE PREFERRED STOCK,
$0.001 PAR VALUE PER SHARE,
OF
THE CHILDREN'S BEVERAGE GROUP, INC.
PURSUANT TO SECTION 151
OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
THE CHILDREN'S BEVERAGE GROUP, INC. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware, does hereby certify:
That pursuant to authority conferred upon the Board of Directors by the
Certificate of Incorporation, as amended, of the Corporation, and pursuant to
the provisions of Section 151 of the General Corporation Law of the State of
Delaware, said Board of Directors, acting by unanimous written consent dated to
be effective as of September 28, 1999, adopted and approved a resolution
providing for the amendment, in its entirety, of the Certificate of Designation
originally filed in the State of Delaware on January 11, 1999 and which
resolution is as follows:
RESOLVED, pursuant to the authority expressly granted and vested in
the Board of Directors of the Corporation in accordance with the provisions of
its Certificate of Incorporation, as restated, the Board of Directors hereby
amend, in its entirety, the Certificate of Designation, creating a series of
Series A Convertible Preferred Stock ("Series A Preferred") which shall have the
following amended powers, designations, preferences, and relative participating,
optional or other special rights, and qualifications, limitations or
restrictions:
1. Voting Rights. Except as otherwise required by law or expressly provided in
this Certificate of Designations, each share of Series A Preferred shall entitle
the holder thereof to vote on each matter submitted to a vote of the
stockholders of the Corporation and to be entitled to twenty-five (25) votes for
each share of Series A Preferred owned by them. Except as otherwise required by
law or expressly provided in this Certificate of Designations, the holders of
shares of Common and Series A Preferred shall vote together and not as separate
classes.
2. Liquidation Rights. In the event of any liquidation, dissolution or winding
up of the affairs of the Corporation, all assets and funds of the Corporation
legally available for distribution to its stockholders shall be distributed and
paid to the holders of the outstanding shares of Series A Preferred Stock and
Common Stock pro rata without preference or priority of one class of stock over
the other.
3. Dividends. The holders of the Series A Preferred shall be entitled to
receive dividends, when, as and if declared by the Board of Directors out of
funds legally available therefor; and such dividends shall be declared and paid
upon the outstanding Shares of Series A
<PAGE>
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
THE CHILDREN'S BEVERAGE GROUP, INC.
It is hereby certified that:
1. The present name of the Corporation (hereinafter called the
"Corporation") is The Children's Beverage Group, Inc. The name of the
Corporation when first incorporated was Zoniverse, Inc., the date of filing the
original Certificate of Incorporation of the Corporation with the Secretary of
State of the State of Delaware is August 17, 1988.
2. The provisions of the Certificate of Incorporation of the Corporation
as heretofore amended and/or supplemented, and as herein amended, are hereby
restated and integrated into the single instrument which is hereinafter set
forth, in accordance with Sections 242 and 245 of the General Corporation Law of
Delaware, and which is entitled Amended and Restated Certificate of
Incorporation of The Children's Beverage Group, Inc.
3. The Amended and Restated Certificate of Incorporation as hereinafter
set forth has been duly approved by the Board of Directors of the Corporation,
in accordance with Sections 242 and 245 of the General Corporation Law of
Delaware.
4. The Amended and Restated Certificate of Incorporation as hereinafter
set forth has been duly approved by less than unanimous written consent of the
holders of stock entitled to vote thereon in accordance with Section 228 of the
General Corporation Law of Delaware.
5. The Certificate of Incorporation of the Corporation, as amended and
restated herein, shall at the effective time of this Amended and Restated
Certificate of Incorporation read as follows:
"Amended and Restated Certificate of Incorporation
of
The Children's Beverage Group, Inc.
FIRST: The name of the Corporation is:
The Children's Beverage Group, Inc.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, City of Wilmington, County of
Newcastle, 19805. The name of the registered agent at such address is The
Corporation Trust Company.
THIRD: The nature of the business and of the purposes to be conducted and
promoted by the Corporation shall be to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of the
State of Delaware.
<PAGE>
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is Three Hundred Million (300,000,000) which are divided
into two classes as follows:
250,000,000 shares of Common Stock having a par value of $0.0001 per share
(the "Common Stock");
50,000,000 shares of Preferred Stock having a par value of $0.001 per
shares (the "Preferred Stock").
The designations, voting powers, preferences and relative participating,
optional or other special rights, and qualifications, limitation or restrictions
of the above classes of stock are as follows:
1. Common Stock
A. Liquidation. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation and after the
payment of any preferential amounts to be distributed to the holders of
Preferred Stock, the remaining cash and other property available for
distribution to the stockholders of the Corporation shall be distributed to
the holders of Common Stock, ratably in proportion to the number of shares
of Common Stock that each such holder holds.
B. Dividends. The Board may declare a dividend or distribution upon the
Common Stock only at such time as the preferential dividends upon the
Preferred Stock, to the extent such stock may be entitled thereto, shall
have been paid or declared and set apart for payment. Subject to the right
of the holders of the Preferred Stock to participate in such dividend or
distribution, dividends or distributions so declared by the Board shall be
paid to the holders of Common Stock ratably in proportion to the number of
shares of such Common Stock held by each such holder on the date as of
which the holders of such Common Stock of record entitled to receive such
dividends or distribution were determined.
C. Voting Rights. The shares of Common Stock shall have voting rights
and the registered holders of such shares shall be entitled to receive
notice of all meetings of the stockholders of the Corporation and to one
vote for each share of Common Stock standing in the name of the holder on
the books of the Corporation on each and every matter to come before the
stockholders for vote or decision.
2. Preferred Stock
The stated value, dividend rate, if any, and voting powers, if any, of
the Preferred Stock and the designations, preferences and relative,
participating, optional or other special rights and the qualifications,
limitations or restrictions thereof shall be fixed by resolutions of the
<PAGE>
Board of Directors at the time of issuance subject in all cases to the laws of
the State of Delaware applicable thereto, and set forth in a certificate of
designations filed and recorded in accordance with the laws of the State of
Delaware.
FIFTH: The name and the mailing address of the sole incorporator is as
follows:
Name Mailing Address
---- ---------------
Ann M. Spitler Sachnoff & Weaver, Ltd.
30 South Wacker Drive
Suite 2900
Chicago, Illinois 60606
SIXTH: The books of the Corporation may be kept (subject to any provision
contained in the statutes) outside the State of Delaware at such place or places
as may be designated from time to time by the Board of Directors or in the By-
Laws of the Corporation.
SEVENTH: For the management of the business and for the conduct of the
affairs of the Corporation and in further definition, limitation and regulation
of the powers of the Corporation and of its directors and stockholders, it is
further provided:
The number of directors of the Corporation shall be as specified in the By-
Laws of the Corporation, but such number may from time to time be increased or
decreased in such manner as may be prescribed by the By-Laws. In no event shall
the number of directors be less than the minimum prescribed by law. The
election of directors need not be by ballot. Directors need not be
stockholders.
In furtherance and not in limitation of the powers conferred by the laws of
the State of Delaware, the Board of Directors is expressly authorized and
empowered to make, alter, amend, and repeal By-Laws, subject to the power of the
stockholders to alter or repeal By-Laws made by the Board of Directors. A
quorum of the board of directors must include a majority of the directors then
in office.
Any director or any officer elected or appointed by the stockholders or by
the Board of Directors may be removed at any time in such manner as shall be
provided in the By-Laws of the Corporation.
In the absence of fraud, no contract or other transaction between the
Corporation and one (1) or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one (1) or more of its directors or officers, are
directors or officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the director or officer is present at
or participates in the meeting of the Board or committee which authorizes the
contract or transaction, or solely because any such director's or officer's
votes are counted for such purpose, if: (1) The material facts as to the
<PAGE>
director's or officer's relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or the
committee, and the Board or committee in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or (2)
the material facts as to the director's or officer's relationship or interest
and as to the contract or transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by a vote of the shareholders; or (3) the
contract or transaction is fair as to the Corporation as of the time it was
authorized, approved or ratified, by the Board of Directors, a committee or the
shareholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
EIGHTH: No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, as the same exists or hereafter may be amended, or (iv) for any transaction
from which the director derived an improper personal benefit. Any repeal or
modification of this article, directly or by adoption of any inconsistent
provision of this Certificate of Incorporation by the stockholders of the
Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification. Nothing herein shall limit or
otherwise affect the obligation or right of the Corporation to indemnify its
directors pursuant to the provisions of this Certificate of Incorporation, the
Bylaws of the Corporation or as may be permitted by the Delaware General
Corporation Law.
NINTH: The Corporation shall have the right to indemnify the officers and
directors of the Corporation to the fullest extent permitted under the Delaware
General Corporation Law, as amended from time to time.
TENTH: From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
Certificate are granted subject to the provisions of this Article TENTH.
<PAGE>
THE UNDERSIGNED, being the President of the Corporation, declares and
certifies that this in my act and deed and the facts herein stated are true, and
accordingly have executed this document on ____________, 1999.
__________________________________
President
<PAGE>
JT 1335 1/2
COPYRIGHT, 1930, BY
DWIGHT & M. H. JACKSON
CHICAGO
PATENT PENDING
NUMBER SHARES
*** ***
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THE CHILDREN'S BEVERAGE GROUP, INC.
* * *
This Certifies that______________________________________________is the owner of
* * *
____________________________________________________full paid and non-assessable
SERIES A
SHARES OF THE PREFERRED STOCK OF THE CHILDREN'S BEVERAGE GROUP, INC.
transferable only on the books of the Corporation by the holder hereof in person
or by duly authorized Attorney upon the surrender of this Certificate properly
endorsed.
The corporation will furnish without charge to each stockholder who so
requests, the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preference and/or
rights.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation, this__________________day of_______________A.D. 19____.
SPECIMEN
____________________________ ____________________________
SECRETARY PRESIDENT
<PAGE>
Exhibit 4.3
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of April
13, 1999 is made and entered into between THE CHILDREN'S BEVERAGE GROUP, INC., a
Delaware corporation (the "Company"), and CLIFFSTAR CORPORATION, a Delaware
corporation ("Cliffstar").
WHEREAS, the Company and Cliffstar have entered into that certain
Settlement Agreement of even date herewith, pursuant to which the Company, among
other matters, has agreed to issue a warrant (the "Warrant") to Cliffstar to
acquire 413,000 shares of the Company's common stock, par value $.0001 per share
(the "Shares");
WHEREAS, pursuant to the terms of, and in partial consideration for,
Cliffstar's agreement to enter into the Settlement Agreement, the Company has
agreed to provide Cliffstar with certain registration rights with respect to the
Registrable Securities (as defined below).
NOW, THEREFORE, in consideration of the premises, the representations,
warranties, covenants and agreements contained herein and in the Settlement
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, intending to be legally bound
hereby, the parties hereto agree as follows:
1. Definitions. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
(a) "Business Day" means a day other than a Saturday, Sunday or a
public or national bank holiday or the equivalent for banks generally under the
laws of the State of Delaware.
(b) "Commission" means the Securities and Exchange Commission.
(c) "Common Stock" means the shares of Common Stock of the Company as
constituted on the date hereof, any stock into which such Common Stock shall
have been changed, any stock resulting from any stock split, reverse stock
split, stock dividend or any reclassification of such common stock.
(d) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar Federal statute, and the rules and regulations of the
Commission promulgated thereunder, in effect from time to time. Reference to a
particular section of the Exchange Act shall include a reference to the
comparable section, if any, of any such similar Federal statute.
<PAGE>
(e) "Initial Public Offering" means an initial public offering by the
Company of its equity securities to the public pursuant to an effective
registration statement under the Securities Act (as defined below).
(f) "Registrable Securities" means the Shares issued upon exercise of
the Warrant until (i) a registration statement under the Securities Act covering
the offering of such securities has been declared effective by the Commission
and such securities have been disposed of pursuant to such effective
registration statement, (ii) such securities are sold under circumstances in
which all of the applicable conditions of Rule 144 (or any similar provision
then in force) under the Securities Act ("Rule 144") are met, (iii) such
securities have been otherwise transferred and the Company has delivered a new
certificate or other evidence of ownership for such securities not bearing a
restrictive legend or (iv) such time as, in the opinion of counsel to the
Company, which counsel shall be reasonably acceptable to Cliffstar, such
securities may be sold without any time, volume or manner limitation pursuant to
Rule 144(k) (or any similar provision then in effect) under the Securities Act.
(g) "Registration Expenses" means all expenses incident to the
Company's performance of or compliance with Section 2 of this Agreement,
including, without limitation, all registration, filing and applicable national
securities exchange fees, all fees and expenses of complying with all applicable
securities and blue sky laws (including reasonable fees and disbursements of
counsel in connection with all applicable securities registration and blue sky
qualifications of the Registrable Securities), rating agency fees, all printing
expenses, messenger and delivery expenses, internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the fees and disbursements of counsel for the
Company and of its independent public accountants for the Company, including the
expenses of any special audits and/or "cold comfort" letters required by or
incident to such performance and compliance, and the fees and expenses of
underwriters customarily paid by issuers of securities.
(h) "Securities Act" means the Securities Act of 1933, as amended, or
any similar Federal statute, and the rules and regulations of the Commission
thereunder, in effect from time to time. References to a particular section of
the Securities Act shall include a reference to the comparable section, if any,
of any such similar Federal statute.
2. Registration under Securities Act.
----------------------------------
2.1 "Piggyback" and Incidental Registration.
----------------------------------------
(a) Right to Include Registrable Securities. At any time prior
to the closing of an Initial Public Offering and so long thereafter as any
Registrable Securities are outstanding, if the Company at any time proposes to
register any of its securities under the Securities Act, whether or not for sale
for its own account (other than securities to be issued pursuant to an employee
compensation program or dividend reinvestment plan or securities issued in a
merger, recapitalization, consolidation, acquisition or similar transaction), in
a manner which would permit registration of the Registrable Securities for sale
to the public under the
352035-3 2
<PAGE>
Securities Act, it will each such time give written notice to Cliffstar, in
accordance with Section 4, of its intention to do so and, upon the written
request of Cliffstar within 15 days after the receipt of any such notice (which
request by Cliffstar must specify the Registrable Securities intended to be
disposed of by Cliffstar and the intended method of disposition thereof), the
Company will use its best efforts to effect the registration of the Registrable
Securities that it has been so requested to register by Cliffstar, to the extent
necessary to permit the disposition (in accordance with the intended methods
thereof as aforesaid) of the Registrable Securities so to be registered;
provided, however, that if, at any time after giving written notice of its
intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
determines for any reason not to register or to delay registration of such
securities, the Company will give written notice of such determination to
Cliffstar and, thereupon, the Company, (i) in the case of a determination not to
register, will be relieved of its obligation to register any Registrable
Securities in connection with only that withdrawn registration (but not from its
obligation to pay the Registration Expenses in connection therewith and its
obligation to register any Registrable Securities in a future registration) and
(ii) in the case of a determination to delay registration, will be permitted to
delay registering any Registrable Securities, for the same period as the delay
in registering the Company's other securities included in this registration. The
Company will pay all Registration Expenses in connection with each registration
of Registrable Securities requested pursuant to this Section 2. 1.
(b) Priority in Company Registrations. If the managing
underwriter of any underwritten offering pursuant to Section 2. 1 (a) shall
advise the Company in writing (with copies to Cliffstar) that, in its opinion,
the number of securities requested to be included in such registration exceeds
the number which can be sold in such offering within a price range acceptable to
the Company (or that inclusion of the securities requested to be included by
Cliffstar in such registration would otherwise adversely affect such offering),
the Company shall register (i) first, the securities the Company proposes to
sell solely on behalf of the Company, and (ii) second, pro rata, the Registrable
Securities requested to be included in such registration and other securities
requested to be included in such registration, on the basis of the number of
shares owned by Cliffstar.
2.2 Registration Procedures. If and whenever the Company is required
to effect the registration of any Registrable Securities under the Securities
Act as provided in Section 2.1 of this Agreement, the Company will as
expeditiously as possible:
(i) prepare and file with the Commission a registration
statement with respect to the Company's securities including the
Registrable Securities and use its best efforts to cause such
registration statement to become effective;
(ii) prepare and file with the Commission such amendments and
supplements to the registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and current and to comply with the provisions of
the Securities Act with respect to the disposition of all securities
covered by such registration, including the Registrable
3
<PAGE>
Securities, until such time as all of such securities have been
disposed of in accordance with the intended methods of disposition by
Cliffstar set forth in such registration statement, but in no event
for a period of more than two years after such registration statement
becomes effective;
(iii) furnish to Cliffstar and each underwriter, if any, of such
securities such number of conformed copies of such registration
statement and of each such amendment and supplement thereto (in each
case including all exhibits), such number of copies of the prospectus
contained in such registration statement (including each preliminary
prospectus and any summary prospectus) and any other prospectus filed
under Rule 424 under the Securities Act, in conformity with the
requirements of the Securities Act and the Trust Indenture Act (if
applicable), and such other documents, as Cliffstar or such
underwriter may reasonably request in order to facilitate the
disposition of the securities owned by Cliffstar, but only while the
Company is required under the provisions hereof to cause the
registration statement to remain current;
(iv) use its best efforts to register or qualify such
securities covered by such registration statement under such
securities or blue sky laws of such jurisdictions where an exemption
is not available and as Cliffstar shall reasonably request, and to
take any and all other action which may be necessary or advisable to
enable such sellers to consummate the disposition in such
jurisdictions of the securities owned by Cliffstar; provided, however,
that the Company shall not for any such purpose be required (A) to
qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this
clause (iv) be obligated to be so qualified, (B) to conform the
composition of its assets at the time to the securities or blue sky
laws of any jurisdiction, or (C) to subject itself to taxation in any
such jurisdiction;
(v) furnish to Cliffstar a signed counterpart of (x) an
opinion of counsel for the Company to the underwriters, if any, of
such offering, and (y) if a "comfort" letter is otherwise being
provided to any underwriter in connection with the registration, a
counterpart of such "comfort" letter signed by the independent public
accountants who have certified to the Company's financial statements
included or incorporated by reference in such registration statement,
covering substantially the same matters with respect to the
registration statement (and the prospectus included therein) and, in
the case of the accountants' letter, with respect to events subsequent
to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered
to the underwriters in underwritten public offerings of securities;
and
(vi) notify Cliffstar at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any
4
<PAGE>
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing (whereupon Cliffstar shall forthwith discontinue use of such
prospectus until receipt of notice from the Company that use of such
prospectus may be resumed or receipt of the prospectus supplement or
amendment hereinafter referred to), and promptly prepare and file with
the Commission and furnish to Cliffstar and each underwriter, if any,
a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered
to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing.
(vii) engage a transfer agent for the Company's securities; and
(viii) obtain a CUSIP number for all Registrable Securities not
later than the effective date of the registration statement, and
provide the Company's transfer agent with printed certificates for
each registered security to be issued for each Registrable Security.
The Company may require Cliffstar to furnish the Company with such information
regarding Cliffstar and the intended method of distribution of such securities
as the Company may from time to time reasonably request and as shall be required
by law in connection therewith, including, without limitation, notice of sales
effected by such seller under such registration statement.
2.3 Underwritten Offerings. Subject to Section 2.1 of this Agreement,
if the Company proposes to register any of its securities under the Securities
Act for sale for its own account and such securities are to be distributed by or
through one or more underwriters, the Company will, subject to Sections 2.1(b)
of this Agreement, if requested by Cliffstar, use its best efforts to arrange
for such underwriters to, and Cliffstar will, if requested by the Company,
include the Registrable Securities to be offered and sold by Cliffstar among
those to be distributed by such underwriters. Cliffstar shall be a party to the
underwriting agreement between the Company and such underwriters and the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of Cliffstar and Cliffstar may, at its option, require that any
or all of the conditions precedent to the obligations of such underwriters under
such underwriting agreement be conditions precedent to the obligations of
Cliffstar. The Company must provide copies of the underwriting agreement to
Cliffstar a reasonable time prior to the filing of any registration statement
and the Company will use its best efforts to cause to be made any changes in the
underwriting agreement reasonably requested by Cliffstar or its counsel.
2.4 Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement registering Registrable
Securities under the Securities Act pursuant to this Agreement, the Company will
give Cliffstar, its underwriters, if any, and its
5
<PAGE>
counsel and accountants, the opportunity to participate in the preparation of
such registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give each
of them (provided such Person agrees not to use the information so obtained for
any purpose other than preparation of the registration statement) such access to
its books and records and such opportunities to discuss the business of the
Company with its officers and the independent public accountants who have
certified its financial statements as is determined to be necessary, in the
opinion of Cliffstar's and such underwriters' respective counsel, to conduct a
reasonable investigation within the meaning of the Securities Act.
2.5 Indemnification.
----------------
(a) Indemnification by the Company. In the event of any
registration of any Registrable Securities under the Securities Act pursuant to
Section 2.1 of this Agreement, the Company will, and hereby does, indemnify and
hold harmless Cliffstar, its directors, officers, partners, and agents and each
other Person who participates as an underwriter in the offering or sale of such
securities and each other Person, if any, who controls Cliffstar or any such
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which Cliffstar or any such
director, officer, partner, agent or Affiliate or participating or controlling
person may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such securities were registered under the Securities Act, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, including all documents
incorporated by therein by reference (in the case of a shelf registration
statement) or (ii) any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading; and the Company will reimburse Cliffstar and each such director,
officer, partner, agent, participating person and controlling person for any
legal or any other expenses reasonably incurred by them in connection with
investigating, preparing or defending against any such loss, claim, liability,
action or proceeding, whether commenced or threatened; provided, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage or liability (or action or proceeding in respect thereof) or
expense arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
any such preliminary prospectus, final prospectus, summary prospectus, amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by or on behalf of Cliffstar or such underwriter, as
the case may be; and provided, further, that the Company shall not be liable to
Cliffstar or any Person who participates as an underwriter in the offering or
sale of Registrable Securities or any other Person, if any, who controls
Cliffstar or underwriter within the meaning of the Securities Act, in any such
case to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of Cliffstar's or Person's
failure to send or give a copy of the final prospectus, as the same may be then
supplemented or amended, to the Person asserting an untrue statement or alleged
untrue statement or omission or alleged omission at or prior to the written
confirmation of the sale of
6
<PAGE>
Registrable Securities to such Person if such statement or omission was
corrected in such final prospectus.
(b) Indemnification by Cliffstar. The Company may require, as
a condition to including any Registrable Securities in any registration
statement, that the Company shall have received an undertaking satisfactory to
it from Cliffstar to indemnify and hold harmless (in the same manner and to the
same extent as set forth in Section 2.5(a)) the Company, each director of the
Company, each officer of the Company, each other Person, if any, who controls
the Company within the meaning of the Securities Act and any underwriter of the
Registrable Securities, with respect to any statement or alleged statement in or
omission or alleged omission from such registration statement, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, if such statement or alleged statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by or on behalf of Cliffstar or
such underwriter, as the case may be.
(c) Notices of Claims. etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in Section 2.5(a) or (b), such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party,
give written notice to the latter of the commencement of such action; provided,
however, that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under Section
2.5(a) or (b), except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any action is brought against
an indemnified party, the indemnifying party shall be entitled to participate in
and, unless in the reasonable judgment of such indemnified party, and in the
opinion of such indemnified party's counsel, a conflict of interest may exist
between such indemnified party and the indemnifying party with respect to such
claim, each indemnified party agrees to permit the indemnifying party to assume
the defense of such claim with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. If the
indemnifying party is not entitled to, or elects not to, assume the defense of a
claim, it will not be obligated to pay the fees and expenses of more than one
counsel for all indemnified parties with respect to such claim, unless in the
reasonable judgment of an indemnified party, and in the opinion of such
indemnified party's counsel, a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim, in which event the indemnifying party shall be obligated to pay the fees
and expenses of such additional counsel or counsels. No indemnifying party will
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect to such
claim or litigation. No indemnified party will enter into any settlement without
the written consent of the indemnifying party (which consent will not be
unreasonably withheld).
7
<PAGE>
(d) Contribution. If the indemnification provided for in this
Section 2.5 from the indemnifying party is unavailable to an indemnified party
hereunder in respect of any losses, claims, damages or liabilities referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities in such proportion as
is appropriate to reflect the relative fault of such indemnifying party and
indemnified parties in connection with the actions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations or, if the allocation provided above is not permitted by
applicable law, in such proportion as shall be appropriate to reflect the
relative benefits received by the indemnifying party and the indemnified parties
from the offering of the securities covered by the registration statement that
gave rise to the indemnification claim. The relative fault of such indemnifying
party and indemnified parties shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact, has been made by, or relates to information supplied by, such indemnifying
party or indemnified parties and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such action. The amount
paid or payable by a party as a result of the losses, claims, damages and
liabilities referred to above shall be deemed to include, subject to the
limitations set forth in Section 2.5, any legal or other fees or expenses
reasonably incurred by such party in connection with any investigation or
proceeding. The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 2.5(d) were determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to in this Section 2.5(d). No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11 (f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation. In addition, no Person shall be
obligated to contribute hereunder any amounts in payment for any settlement of
any action or claim effected without such Person's consent, which consent shall
not be unreasonably withheld.
(e) Other Indemnification. Indemnification similar to that
specified in the preceding paragraphs of this Section 2.5 (with appropriate
modifications) shall be given by the Company and Cliffstar with respect to any
required registration or other qualification of Registrable Securities under any
Federal or state law or regulation of any governmental authority other than the
Securities Act.
(f) Indemnification Payments. The indemnification and
contribution required by this Section 2.5 shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as and
when bills are received or expense, loss, damage or liability is incurred.
(g) Additional Rights. Any indemnification agreements
contained herein shall be in addition to any other rights to indemnification or
contribution which any indemnified party may have pursuant to law or contract
and shall remain operative and in full force and effect regardless of any
investigation made or omitted by or on behalf of any indemnified party.
8
<PAGE>
3. Rule 144 and Rule 144A Information. If the Company becomes subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act, the
Company will not deregister its securities under the Exchange Act and it will
file the reports required to be filed by it under the Securities Act and Section
13(a) or 15(d) of the Exchange Act and the rules and regulations adopted by the
Commission thereunder. If the Company is not subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company will
provide the information required pursuant to Rule 144(c)(2) under the Securities
Act upon the request of Cliffstar and any prospective purchaser designated by
Cliffstar. The Company will take such further action as Cliffstar and any
prospective purchaser designated by Cliffstar of such Registrable Securities may
reasonably request, all to the extent required from time to time to enable
Cliffstar to sell its Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
under the Securities Act, as such rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission.
4. Notices. All notices or communications provided for hereunder shall be
in writing (including facsimile transmission) and shall be addressed as follows:
(a) If to the Company:
The Children's Beverage Group, Inc.
330 Melvin Drive
Suite 1
Northbrook, Illinois 60062
Attention: Jon A. Darmstadter, President
(b) If to Cliffstar:
Cliffstar Corporation
1 Cliffstar Avenue
Dunkirk, New York 14048
Attention: Dwight Demchik
Notices given by mail shall be deemed to have been given no later than five
Business Days after the date sent, and must be sent by registered or certified
mail, postage prepaid, and addressed to the applicable party at the address
shown above (or such other address designated by such party subsequent to the
date hereof). Any party may, by notice to the other party given in accordance
with this Section 4, designate another address or Person for receipt of notices
or communications hereunder.
5. Entire Agreement. This Agreement constitutes the entire agreement and
understanding between the parties with respect to the matters described herein,
and supersedes all prior discussions, agreements and undertakings, written or
oral, of any and every nature with respect thereto.
9
<PAGE>
6. Waivers and Amendments. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may be waived, only in
writing signed by authorized representatives of the Company and Cliffstar or, in
the case of a waiver, by an authorized representative of the party waiving
compliance. No such writing shall be effective unless it expressly recites that
it is intended to amend, supersede, cancel, renew or extend this Agreement or to
waive compliance with one or more of the terms hereof, as the case may be. No
delay on the part of any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the part of
any party of any such right, power or privilege, or any single or partial
exercise of any such right, power or privilege, preclude any further exercise
thereof or the exercise of any other such right, power or privilege.
7. Governing Law. This Agreement shall be governed in all respects,
including validity, construction, interpretation and effect, by the laws of the
State of Delaware without giving effect to the conflict of laws provisions
thereof
8. Binding Effect; Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including, without limitation, and without the need for an express assignment,
Cliffstar.
9. Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts which together shall constitute one and the same
instrument.
10. Further Assurances. Each party shall, at the request of any other
party hereto, at any time and from time to time following the date of this
Agreement promptly execute and deliver, or cause to be executed and delivered,
to such requesting party all such further instruments and take all such further
action as may be reasonably necessary or appropriate to confirm or carry out the
provisions and intents of this Agreement.
11. Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
12. Captions. All section titles or captions contained in this Agreement
are for convenience only, shall not be deemed a part of this Agreement and shall
not affect the meaning or interpretation of this Agreement. All references
herein to sections shall be deemed references to such parts of this Agreement,
unless the context shall otherwise require.
[SIGNATURES ON FOLLOWING PAGE]
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the undersigned, thereunto duly authorized, as of the date first set
forth above.
THE CHILDREN'S BEVERAGE GROUP,
INC.
By : /s/
--------------------------
Name:
--------------------------
Title: President
-------------------------
CLIFFSTAR CORPORATION
By: /s/
----------------------------
Name:
--------------------------
Title: Vice President
-------------------------
11
<PAGE>
DEBT CONVERSION AGREEMENT
THIS DEBT CONVERSION AGREEMENT is entered into as of the 1Oth day of May,
1999, between THE CHILDREN'S BEVERAGE GROUP, INC., a Delaware corporation (the
"Company") and RANGER ENTERPRISES, INC., a corporation organized under the laws
of the Turks and Caicos Islands ("Investor").
RECITALS:
A. The Company is indebted to Investor in the aggregate principal amount
of $565,000, plus all interest accrued through the date hereof (the "Investor
Debt"), pursuant to unsecured promissory notes dated November 10, 1998 (in the
principal amount of $150,000), December 20, 1998 (in the principal amount of
$165,000) and February 2, 1999 (in the principal amount of $200,000)
(collectively, the "Notes").
B. The Company and Investor desire, upon the terms and subject to the
conditions set forth in this Agreement, that the Investor Debt be converted into
shares of the Company's common stock, par value $.0001 per share (the "Common
Stock"), at the conversion price of $.60 per share.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Cancellation of Investor Debt; Issuance of Conversion Shares. The
Company hereby agrees to issue to Investor that number of shares of Common Stock
determined by dividing (a) the aggregate Investor Debt as of the date hereof by
(b) $.60 (the "Conversion Shares") in consideration for the cancellation by
Investor of all Investor Debt. Investor hereby agrees, against delivery of
certificates representing the Conversion Shares, to cancel the Investor Debt and
to forever release and discharge the Company and all of its officers, directors,
agents, attorneys, employees, representatives, successors and assigns, from the
Investor Debt and any and all causes of action, judgments, liens, damages,
losses, claims, liabilities and demands related thereto. Certificates
representing the Conversion Shares shall promptly be delivered to Investor
following execution of this Agreement.
2. Piggyback Registration Rights. At any time that the Company shall
propose to register any of its securities under the Securities Act of 1933, as
amended (the "Securities Act"), for sale to the public, whether for its own
account or for the account of other security holders or both (except with
respect to registration statements on Forms S-4, S-8 or another form not
available for the registering the Conversions Shares to the public), it will
give written notice to such effect to Investor at least 30 days prior to such
filing. Upon the written request (the "Registration Request") of Investor
received by the Company within 20 days after the giving of such notice by the
Company to register any or all of the issued and outstanding Conversion Shares,
the Company will cause the Conversion Shares as to which registration shall have
been so requested to be included in
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the securities to be covered by the registration statement proposed to be filed
by the Company.
Notwithstanding the foregoing, in the event that any registration pursuant
to this Section 2 shall be, in whole or in part, an underwritten public offering
of Common Stock, the number of Conversion Shares to be included in such an
underwriting may be reduced if and to the extent that such inclusion would
reduce the number of shares to be offered by the Company.
3. Investor Representations and Warranties. Investor hereby represents
and warrants to the Company as follows:
(a) Investor is acquiring the Conversion Shares for its own account,
for investment purposes only and not with a view towards the distribution
thereof, provided, however, that by making such representation, Investor
does not agree to hold the Conversion Shares for any minimum or other
specific term and reserves the right to dispose of the Conversion Shares at
any time in accordance with federal and state securities laws applicable to
such disposition;
(b) Investor has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of its
acquisition of Conversion Shares and Investor can afford to lose the entire
value of such investment;
(c) all documents, books and records pertaining to any investment of
the Company have been made available for inspection by Investor; and
(d) Investor has had both the opportunity to ask questions of and
receive answers from the officers and directors of the company and all
persons acting on its behalf concerning the terms and conditions of the
issuance of the Conversion Shares hereunder and to obtain any additional
information with respect thereto.
4. Company Representations and Warranties. The Company hereby represents
and warrants to Investor as follows:
(a) the execution, delivery and performance by the Company of this
Agreement and the transactions contemplated hereby have been duly
authorized by all necessary corporate action; this Agreement has been duly
executed and delivered by the Company and constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms; and
(b) the Conversion Shares, when delivered by the Company to Investor
in accordance with the terms and conditions of this Agreement, will be duly
and validly issued and fully paid and nonassessable,
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5. Restriction on Transfer. Investor acknowledges that the Conversion
Shares have not been registered under the Securities Act and that, subject to
Section 2 hereof, the Company is not obligated to register any of the Conversion
Shares under the Securities Act. Anything in this Agreement to the contrary
notwithstanding, Investor hereby agrees that he shall not sell, transfer by any
means or otherwise dispose of the Conversion Shares acquired by him without
registration under the Securities Act, or in the event that they are not so
registered, unless (i) an exemption from registration under the Securities Act
is available thereunder and (ii) Investor has furnished the Company with notice
of such proposed transfer and the Company's legal counsel, in its reasonable
opinion, shall deem such proposed transfer to be so exempt. Investor further
acknowledges that in the event the Conversion Shares are not registered under
the Securities Act, the certificates evidencing such Shares shall bear the
following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR UNDER ANY STATE SECURITIES OR BLUE SKY LAWS. THE SHARES MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR ANY
APPLICABLE EXEMPTION THEREFROM UNDER SAID ACT OR LAWS.
6. Miscellaneous.
(a) Notices. All notices, requests, deliveries, demands and
other communications which are required or permitted to be given under this
Agreement shall be in writing and shall be either delivered personally or
by private courier, or sent by registered or certified mail, return receipt
requested, postage prepaid, properly addressed to the parties at the
following addresses:
If to the Investor: Ranger Enterprises, Inc.
c/o Temple Trust Company Ltd.
Tropicana Plaza
Leeward Highway
Providenciales, Turks and Caicos Islands
Attention: Ms. Zennie Morris
If to the Company: The Children's Beverage Group, Inc.
330 Melvin Drive, Suite I
Northbrook, Illinois 60062
Attention: President
or to such other address as any party shall have specified by notice in
writing to the other parties. Notice shall be deemed duly given when
delivered or three days after the date sent if mailed as provided herein.
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(b) Waiver. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver
of any other or subsequent breach.
(c) Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter
hereof. This Agreement may not be amended or modified except by a writing
executed by each of the parties hereto.
(d) Binding Effect; Successors. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their heirs,
successors and permitted assigns. Nothing in this Agreement, expressed or
implied, is intended to confer on any other person any rights, remedies,
obligations or liabilities.
(e) Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Illinois without
regard to conflict of law principles.
(f) Headings. The headings contained in this Agreement are for the
sole purpose of convenience of reference, and shall not in any way limit
or affect the meaning or interpretation of any of the terms or provisions
of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
RANGER ENTERPRISES, INC.
BY: /s/ ZENNIE MORRIS AUTHORIZED SIGNATORY
--------------------------------------
Its: DIRECTOR - TEMPLE DIRECTORS LTD.
-------------------------------------
THE CHILDREN'S BEVERAGE GROUP, INC.
BY: /s/ JON DARMSTADTER
--------------------------------------
Its: President
-------------------------------------
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Exhibit 10.2
AGREEMENT
---------
THIS AGREEMENT ("Agreement") is made by and between Jon D. Darmstadter,
736 Sycamore Lane, Glencoe, Illinois 60022 ("Licensor") and Children's Beverage
Group, Inc., a Delaware corporation, having a business address at 330 Melvin
Drive, Suite No. 1, Northbrook, Illinois 60062 ("Licensee") (also identified
individually "Party" or collectively as "Parties" hereinbelow).
Licensor is the inventor of a "Self-Contained Fluid Dispensing System"
("Invention"). Pursuant to a confidential relationship between Licensor and
Licensee, Licensor has disclosed to and permitted Licensee to use certain
confidential and proprietary information involving and including Trade Secrets
with respect to the Invention ("Confidential Information"). Licensor is the
owner of U.S. Patent No. 5,941,642 issued on August 24, 1999 and pending
application number 09/378,194 for the Invention (the "Patent"). Licensee desires
to confirm rights previously granted to it with respect to the Confidential
Information and obtain exclusive rights to the Patent for commercialization
purposes.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions contained herein, the Parties agree as follows.
SECTION 1
ADDITIONAL DEFINITIONS
The following capitalized terms used in this Agreement shall mean:
A. "Affiliate" means, as to any person or entity, any other person or
entity which directly or indirectly controls, is controlled by or is under
common control with such person or entity. Control shall mean the right to
control, or actual control of, management of such other entity, whether by
ownership of voting securities, by agreement, or otherwise.
B. " Field" means all commercial uses.
C. "Licensed Products" means any product covered by the scope of any Valid
Claim contained in the Patent or a product made by a process, method or
technique covered by the scope of any Valid Claim in the Patent or methods of
using any product covered by the scope of any Valid Claim contained in the
Patent or was produced based upon Confidential Information disclosed by Licensor
to Licensee.
D. "Sublicensee" means any person, company or other entity granted a
sublicense by Licensee under Paragraph 2. B. below, including Affiliates of the
Sublicensee.
<PAGE>
E. "Sublicense" means the license agreement entered into by Licensee with
a Sublicensee under Paragraph 2. B. below.
F. "Territory" means worldwide.
G. "Valid Claim" means an issued claim of the Patent which has not been
held unenforceable, unpatentable or invalid by a decision of a court or
governmental body of competent jurisdiction, in a ruling that is unappealable or
unappealed within the time allowed for appeal, which has not been rendered
unenforceable through disclaimer or otherwise; and which has not been lost
through an interference proceeding.
SECTION 2
GRANT OF LICENSE AND RESERVATION OF RIGHTS
A. Grant Licensor hereby grants to Licensee and its Affiliates an
exclusive license to make, have made, use, import, offer to sell and sell
Licensed Products Within the Field and within the Territory.
B. Sublicense. Licensee shall have the exclusive right to grant
sublicenses to third parties to the rights granted Licensee under Paragraph 2. A
on terms consistent with the terms of this Agreement. Prior to entering into any
Sublicense, Licensee shall obtain the written approval of Licensor to the terms
of the Sublicense, which approval shall not be unreasonably withheld. All
Sublicenses shall provide that the Sublicensee may not grant further Sublicenses
to third parties, except for Affiliates of the Sublicensee. Each Sublicense
shall state that if this Agreement terminates for any reason, except expiration
pursuant to Paragraph 8. A., the Sublicense shall automatically terminate
effective the same date without the necessity of any notice from Licensor to the
Sublicensee. In each case, Licensor agrees to negotiate in good faith for a
period of ninety (90) days following the termination of this Agreement with each
Sublicensee for a license directly from Licensor granting die Sublicensee
substantially the same rights as those contained in the Sublicense with
Licensee. If no agreement is reached within the ninety (90) days, Licensor shall
have no further obligation to the Sublicensee.
C. Reservation of Rights. Licensor reserves for himself the worldwide
right to practice the inventions claimed in the Licensed Patent and disclosed as
Confidential Information to Licensee for any additional invention development
and research purposes he may choose in his own discretion and without any
payment therefore.
SECTION 3
ROYALTIES AND PATENT MAINTENANCE PAYMENTS
Darmstadter/CBG Agreement
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A. License Payment. For the license granted in Paragraph 2. of this
Agreement, and within ninety (90) days of the Effective Date, Licensee shall
transfer to Licensor an amount of common stock equal to the value of the License
granted hereunder in lieu of cash or other compensation as determined by an
independent valuation specialist chosen by agreement between Licensor and
Licensee. The License value shall be reevaluated periodically but no less
contemporaneous with the payment of the patent maintenance fees and, if the
value of the License has increased, additional common stock shall be transferred
to Licensor. If at any time the value of the License has decreased, Licensor has
no obligation to return stock transferred to him or reimburse other amounts paid
or transferred to him by Licensee.
B. Records. Licensee shall, and shall cause its Sublicensees and
Affiliates of either, to keep full and accurate books and records in sufficient
detail so that the compensation due Licensor hereunder can be properly
calculated. Such books and records shall be maintained for at least five (5)
years after the Term of this License. During the Term hereof and for three (3)
calendar year thereafter, Licensee shall permit, and shall cause its
Sublicensees and Affiliates of either to permit, accountants designated by
Licensor, to whom Licensee has no reasonable objection, to examine its books and
records for the purpose of verifying the accuracy of amounts paid or payable to
Licensor. Licensor may conduct such examination no more than once in any
calendar year. After completion of any such examination, Licensor shall promptly
notify Licensee in writing of any proposed additional transfers to be made to
Licensor by Licensee in order to cover a shortfall. Licensee shall promptly
transfer the stated amounts within thirty (30) days of the written notice. Such
examination shall be made at the expense of Licensor, except that if such
examination discloses a discrepancy of five percent (5%) or more in the amount
of transfers due to Licensor, then Licensee shall reimburse Licensor for the
cost of such examination.
C. Maintenance of Patent. Licensor shall be solely responsible for
the maintenance of the Patent. Licensee agrees to reimburse Licensor for all
fees and costs associated therewith within thirty (30) days of written notice
from Licensor identifying such fees and costs.
SECTION 4
DUE DILIGENCE
If Licensee, prior to the second anniversary of the date of this Agreement,
either fails to (1) begin commercial sale of a Licensed Product or (2) provides
information to Licensor that Licensor in his sole discretion provides a full,
complete, and reasonable explanation for the lack of such commercial sales,
Licensor may terminate this Agreement at any time thereafter on written notice
to Licensee. Such termination shall be effective on the date of receipt by
Licensee.
Darmstadter/CBG Agreement
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<PAGE>
SECTION 5
NO WARRANTIES; INDEMNIFICATION; INSURANCE
A. Disclaimer of Warranties. Licensor makes no representations or
warranties of any kind, express or implied, with respect to the invention(s)
claimed in the Patent or with respect to the Patent itself, including but not
limited to, any representations or warranties about (i) the validity, scope or
enforceability of Patent; (ii) the accuracy, safety or usefulness for any
purpose of any information provided by Licensor to Licensee, its Sublicensees or
Affiliates of either, with respect to the invention(s) claimed in the Patent or
with respect to the Patent itself and any products developed from or covered by
it; (iii) whether the practice of any claim contained in any of the Patent will
or might infringe a patent or other intellectual property right owned or
licensed by a third party; (iv) the patentability of any invention claimed in
the Patent or (v) the accuracy, safety, or usefulness for any purpose of any
product or process Made or carried out in accordance with or through the use of
the Patent.
B. Indemnification. Licensee agrees, and agrees to cause its Sublicensees
and Affiliates of either, to indemnify, defend and hold harmless Licensor, his
Affiliates and all trustees, directors, officers, employees, fellows and agents
of any of the foregoing (including Licensor and its Affiliates, each an
"Indemnified Person") from and against any and all claims, demands, loss,
damage, penalty, cost or expense (including attorneys' and witnesses' fees and
costs) of any kind or nature, arising from the development, production, use,
sale or other disposition of Licensed Products and all activities associated
therewith by Licensee, its Sublicensees or Affiliates of either, or any use of
information provided by Licensor to Licensee, its Sublicensees or Affiliates of
either. Licensee agrees and agrees to cause each of its Sublicensees and
Affiliates of either to agree not to sue any Indemnified Person in connection
with the development, production, use, sale or other disposition of Licensed
Products and all activities associated therewith. Licensor shall be entitled to
participate at their option and expense through counsel of their own selection,
and may join in any legal actions related to any such claims, demands, losses,
damages, costs, expenses and penalties. Licensee, its Sublicensees and
Affiliates of either, shall not enter into any settlement affecting any rights
or obligations of any Indemnified Person or which includes an express or implied
admission of liability, negligence or wrongdoing by any Indemnified Person,
without the prior written consent of such Indemnified Person.
C. Assumption of Risk. The entire risk as to the performance, safety and
efficacy of any invention claimed in the Patent or of any Licensed Products is
assumed by Licensee, its Sublicensees and Affiliates of either, provided that
such assumption of the risk shall not apply to the intentional misconduct or
gross negligence by Indemnified Persons. Indemnified Persons shall not, except
for their intentional misconduct or gross negligence, be responsible or liable
for any injury, loss, or damage of any kind, including
Darmstadter/CBG Agreement
Page 4
<PAGE>
but not limited to direct, indirect, special, incidental or consequential
damages or lost profits to Licensee, any Sublicensee, Affiliates of either or
customers or any of the foregoing, or for any such injury, loss or damage to any
other individual or entity, regardless of legal theory based on the development,
manufacture, use, sale or other disposition of Licensed Products and all
activities associated therewith. The above limitations on liability apply even
though the Indemnified Person may have been advised of the possibility of such
injury, loss or damage, Licensee shall not, and shall require all Sublicensees
and Affiliates of either to not, make any agreements, statements,
representations or warranties or accept any liabilities or responsibilities
whatsoever with regard to any person or entity which are inconsistent with this
Paragraph.
D. Insurance. Licensee agrees and agrees to cause its Sublicensees and
Affiliates of either to list Licensor and its Affiliates, at Licensee's, its
Sublicensees' or Affiliates' of either of them, expense, whichever is relevant,
as additional named insureds under each liability insurance policy that
Licensee, its Sublicensees and Affiliates of either shall have or shall obtain
that includes any coverage of claims relating to the inventions in the Licensed
Products, the Patent or Licensed Products. At Licensor's request Licensee will
supply Licensor from time to time with copies of each such policy, and will
notify Licensor in writing at least thirty (30) days prior to any termination of
or change in coverage under any such policies.
SECTION 6
CONFIDENTIALITY
A. Confidentiality. All information submitted by the Licensor to Licensee
concerning the Invention(s) claimed in the Patent, the Patent and Licensed
Products shall be considered as confidential ("Confidential Information") and
shall be utilized only pursuant to the licenses granted hereunder. During the
Term of this Agreement and for a period of ten (10) years thereafter, Licensee
shall not disclose to any third party any Confidential Information received from
the Licensor without his specific written consent; provided, however, that,
Licensee may disclose Confidential Information belonging to Licensor to
potential sublicensees for the purpose of evaluating their interest in entering
into a Sublicense but only after entering into a confidentiality and non-use
agreement on the same terms as those contained in this Paragraph. The foregoing
shall not apply where such information a) was or becomes public through no fault
of the receiving party, b) was, at the time of receipt, already in the
possession of receiving party as evidenced by its written records, c) was
obtained from a third party legally entitled to use and disclose the same, or d)
is required by law to be disclosed to a governmental agency.
B. Publications. Licensee shall provide to Licensor copies of any proposed
written publication by Licensee containing any Confidential Information at least
ninety (90) days in advance of the proposed publication. Licensor may object to
such proposed publication
Darmstadter/CBG Agreement
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<PAGE>
or disclosure on the grounds that the publication contains Confidential
Information of the Licensor. At the request of the Licensor, Licensee agrees to
delete the Confidential Information from the publication.
SECTION 7
INFRINGEMENT
In the event of an infringement of the Patent, the following shall apply:
A. Notice. Each party shall give the other written notice if one of them
becomes aware of any infringement by a third party of the Patent. Upon notice of
any such infringement, the parties shall promptly consult with one another with
a view toward reaching agreement on a course of action to be pursued.
B. Licensee's Right to Bring Infringement Action.
(1) If a third party infringes the Patent, Licensee shall have the right to
institute and prosecute an action or proceeding to abate such infringement and
to resolve such matter by settlement or otherwise. Licensee agrees to notify
Licensor of its intention to bring an action or proceeding prior to filing the
same and in sufficient time to allow Licensor the opportunity to discuss with
Licensee the choice of counsel for such matter. Licensee agrees to hire counsel
reasonably acceptable to Licensor. Licensee shall keep Licensor timely informed
of material developments in the prosecution or settlement of such action or
proceeding. Licensee shall be responsible for all costs and expenses of any
action or proceeding against infringers which Licensee initiates. Licensor shall
cooperate fully by joining as a party plaintiff if required to do so by law to
maintain such action or proceeding and by executing and making available such
documents as Licensee may reasonably request. Licensee agrees to promptly
reimburse Licensor for its reasonable third party out-of-pocket fees and
expenses incurred in joining an action or proceeding or cooperating with
Licensee. Licensor may be represented by counsel in any such legal proceedings,
at Licensor's own expense, subject to reimbursement under Paragraph 7.B(2).,
acting in an advisory but not controlling capacity.
(2) The prosecution, settlement, or abandonment of any action or proceeding
under Paragraph 7.B.(1) shall be at Licensee's reasonable discretion provided
that Licensee shall not have any right to surrender any of Licensor's rights to
the Patent or to grant any infringer any rights to the Patent.
(3) Except as provided herein, all amounts of every kind and nature
recovered from an action or proceeding of infringement by Licensee shall belong
to Licensee. If the amounts recovered by Licensee exceed Licensee's reasonable
third party out-of-pocket fees and expenses, Licensee shall reimburse Licensor
for Licensor's reasonable
Darmstadter/CBG Agreement
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<PAGE>
out-of-pocket fees and expenses incurred in hiring its own counsel.
C. Licensor's Right to Bring Infringement Action. If a third party
infringes the Patent within the Field which Licensor wishes to prosecute,
Licensor shall first notify Licensee in writing and request that Licensee bring
an action or proceeding against the infringing third party. If Licensee declines
or fails to bring such an action or proceeding within thirty (30) of receipt of
the notice, Licensor shall have the right, at its discretion, to institute and
prosecute an action or proceeding to abate such infringement and to resolve such
matter by settlement or otherwise. Licensee shall cooperate fully by joining as
a party plaintiff if required to do so by law to maintain such action and by
executing and making available such documents as Licensor may reasonably
request. If the amounts recovered by Licensor exceed its reasonable third party
out-of-pocket fees and expenses, Licensor agrees to pay Licensee for its
reasonable out-of-pocket third party expenses incurred by it in cooperating in
the action or proceeding. Except as specifically provided in this Paragraph,
Licensor shall have the right to retain all amounts recovered of every kind and
nature.
SECTION 8
TERM AND TERMINATION
A. Term. Unless terminated earlier, this Agreement shall begin on the
Effective Date of this Agreement and expire on the expiration date of the Patent
("Term").
B. Licensor's Right to Terminate. Licensor shall have the right to
terminate this Agreement as follows, in addition to all other available
remedies:
(1). If Licensee fails to make any payment or reimbursement when due, this
Agreement shall terminate effective ten (10) days after Licensor's written
notice to Licensee to such effect, unless Licensee cures such failure within ten
(10) days of the notice.
(2). If Licensee fails to observe any other material obligation of this
Agreement, this Agreement shall terminate effective thirty (30) days after
Licensor's written notice to Licensee describing such failure, unless Licensee
cures such failure within the thirty (30) days.
(3). If Licensee shall have filed by or against it a petition under any
bankruptcy or insolvency law and such petition is not dismissed within sixty
(60) days of its filing, or if Licensee makes an assignment of all or
substantially all of its assets for the benefit of its creditors Licensor may
terminate this Agreement by written notice effective as of the (i) date of
filing by Licensee of any such petition, (ii) date of any such assignment to
creditors, or (iii) end of the sixty (60) days if a petition is filed against it
and not dismissed by such
Darmstadter/CBG Agreement
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time, whichever is applicable.
(4). If Licensee shall be dissolved, liquidated or otherwise ceases to
exist, other than for reasons specified in Paragraph 8. B. (3). above, this
Agreement shall automatically terminate as of (i) the date articles of
dissolution or a similar document is filed on behalf of Licensee with the
appropriate government authority or (ii) the date of establishment of a
liquidating trust or other arrangement for the winding up of the affairs of
Licensee.
C. Licensee's Right to Terminate. Licensee may terminate this Agreement at
any time by giving Licensor ninety (90) days prior written notice.
D. Survival. All causes of action accruing to either party under this
Agreement shall survive termination for any reason, as well as (1) Licensee's
obligation to make the required payments and reimbursements accrued prior to the
date of termination and which were not paid or payable before termination.
SECTION 9
ARBITRATION
If the parties cannot satisfactorily settle any claim, disagreement or
controversy arising out of or related to this Agreement or its interpretation,
performance, nonperformance, breach or their respective rights and obligations
hereunder, such disagreement shall, at the request of either party, be settled
by arbitration as follows:
A. Panel. All such disputes shall be referred to an arbitration panel
comprised of three persons, one to be selected by each party hereto and the
third selected by the first two. The arbitrators shall be persons involved in
and familiar with the licensing and technology transfer field. Each party shall
select an arbitrator within twenty (20) days of request for arbitration by
either party. The first two arbitrators shall select the third member of the
panel within fifteen (15) days after their selection. The arbitration shall be
held as soon as is reasonably possible after selection of the arbitration panel.
The proceedings shall be held in an informal manner as reasonably determined by
the arbitrators. Except for the right of appeal as set forth in subparagraph b.
below, the parties shall be bound by a decision of the arbitration panel with
respect to the matter in dispute. All proceedings of the arbitration panel shall
be held in Chicago, Illinois. The panel's costs and fees shall be borne by the
losing party. The arbitrators shall presume that all claims of the Patent are
valid and enforceable, and shall not have the power to access validity.
B. Appeals. There shall be no appeal from an arbitration panel's unanimous
decision. In the event of a majority decision by the arbitration panel, a
dissatisfied party may appeal the panel's decision to the American Arbitration
Association (AAA) for an
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independent binding decision. All appeals shall be heard in Chicago, Illinois.
The dissatisfied party must make such an appeal within thirty (30) days after
receipt of the arbitration panel's decision and if it loses the appeal must bear
the parties' expenses and costs for such appeal. The AAA is hereby authorized to
make arrangements for such arbitration, to be held under the procedures provided
by its arbitration rules. Judgment upon any award rendered by all or a majority
of the appeal arbitrators or a unanimous judgment of the initial panel may be
entered in any court in any county having jurisdiction, after any and all
applicable appeal periods have passed.
SECTION 10
MISCELLANEOUS
A. Marking. Licensee shall and agrees to cause its Sublicensees and
Affiliates of either, to place in a conspicuous location on Licensed Products
(or its packaging where marking the Product is physically impossible) sold to
third parties, a patent notice in accordance with the laws concerning the
marking of patented articles in the country in which such articles are sold.
B. Entire Agreement, Amendment, Waiver. This Agreement constitutes the
entire agreement between the parties regarding the subject matter hereof, and
supersedes all prior written or oral agreements or understandings (express or
implied) between them concerning the same subject matter. This Agreement may not
be amended or modified except in a writing signed by duly authorized
representatives of each party. No waiver of any default hereunder by either
party or any failure to enforce any rights hereunder shall be deemed to
constitute a waiver of any subsequent default with respect to the same or any
other provision hereof.
C. Notice. Any notice required or otherwise made pursuant to this Agreement
shall be in writing, sent by registered or certified mail properly addressed, or
by facsimile with confirmed answer-back, to the other party at the address set
forth above or at such other address as may be designated by written notice to
the other party. Notice shall be deemed effective three (3) business days
following the date of sending such notice if by mail, on the day following
deposit with an overnight courier, if sent by overnight courier, or upon
confirmed answer-back if by facsimile.
D. Assignment. This Agreement shall be binding on the parties hereto
and upon their respective successors and assigns. Either party may at any time,
upon written notice to the other party, assign or delegate to a successor to all
or substantially all of its business any of its rights and obligations
hereunder, provided that, any such assignment or delegation shall in no event
relieve either party of its primary responsibility for the same. Except as
provided in the preceding sentence, Licensee may not assign or delegate any
right or obligation hereunder without the prior written consent of Licensor,
which consent
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Page 9
<PAGE>
shall not be unreasonably withheld, and any attempted assignment or delation in
violation thereof shall be void. Licensor may assign this Agreement at any time
to any third party on written notice to Licensee. In such event, the assignee
shall be substituted for Licensor as a party hereto, and Licensor shall no
longer be bound hereby.
E. Governing Law. The interpretation and performance of this Agreement
shall be governed by the laws of the State of Illinois applicable to contracts
made and to be fully performed in that state.
F. Severability. In the event that any term or provision of this Agreement
shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality, or unenforceablility shall not affect any
other term or provision and this Agreement shall be interpreted and construed as
if such term or provision, to the extent the same shall have been held to be
invalid, illegal or unenforceable, has never been contained herein.
G. Advertising. Except with the prior written request or consent of the
Licensor, Licensee agrees not to use, and shall prohibit its Sublicensees and
the Affiliates of either from using, the name of the Licensor in any commercial
activity, marketing, advertising or sales brochures.
Darmstadter/CBG Agreement
Page 10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers or representatives
effective as the date last executed below.
Date: September 17, 1999 By: /s/ Jon D. Darmstadter
-------------------------------------
JON D. DARMSTADTER
CHILDREN'S BEVERAGE GROUP, INC.
Date: September __, 1999 By: /s/ Edward R. Ferry
-------------------------------------
Print Name: Edward R. Ferry
-----------------------------
Its: Secretary
------------------------------------
Darmstadter/CBG Agreement
Page 11
<PAGE>
Exhibit 4.3
ASSIGNMENT AND ASSUMPTION AGREEMENT
-----------------------------------
WHEREAS, on or about March 25, 1997, JON A. DARMSTADTER, a sole proprietor
doing business as WATER POUCH ("Assignor"), assigned, transferred and conveyed
to THE CHILDREN'S BEVERAGE GROUP, INC., a Delaware corporation ("Assignee"), all
of his right, title and interest in and to all of the operating assets used in
the conduct of the business of WATER POUCH (the "Transferred Assets"), subject
to all of his obligations and liabilities relating thereto, in consideration of
the issuance to the Assignor of 9,000,000 shares of the Common Stock, $0.0001
par value per share, of the Assignee; and
WHEREAS, the assignment of the Transferred Assets was not documented with a
written agreement at the time of the assignment, and the parties to the
assignment wish to document said assignment in writing at this time;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, the Assignor hereby confirms the
assignment, transfer and conveyance to the Assignee of all of the Assignor's
right, title and interest in and to the Transferred Assets, effective as of
March 25, 1997.
The Assignee hereby confirms its acceptance of the foregoing assignment of
the Transferred Assets and its assumption of all of Assignor's obligations and
liabilities relating thereto, without exception.
Assignor confirms that at the time of the assignment, he was the lawful
owner of the Transferred Assets and that he had the right to transfer and assign
them to the Assignee.
The Assignor covenants and agrees that he will execute and deliver all
further documents and take all other actions that may be reasonably necessary or
appropriate in order to fully document the assignment, transfer and conveyance
of the Transferred Assets to the Assignee.
IN WITNESS WHEREOF, the undersigned have executed this Assignment and
Assumption Agreement as of January 11, 1999.
ASSIGNOR: ASSIGNEE:
THE CHILDREN'S BEVERAGE GROUP, INC.,
a Delaware corporation
/s/ Jon A. Darmstadter By: /s/ Jon A. Darmstadter, President
- ------------------------------------- ---------------------------------
Jon A. Darmstadter, a sole proprietor Jon A. Darmstadter, President
doing business as WATER POUCH
<PAGE>
Exhibit 21.1
Subsidiaries
None
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> JUN-30-1999 JUN-30-1998
<CASH> 177,451 495,815
<SECURITIES> 0 0
<RECEIVABLES> 475,178 103,602
<ALLOWANCES> 0 0
<INVENTORY> 557,317 151,255
<CURRENT-ASSETS> 2,334,946 750,672
<PP&E> 2,437,618 1,742,789
<DEPRECIATION> 111,100 25,075
<TOTAL-ASSETS> 4,698,982 2,495,369
<CURRENT-LIABILITIES> 3,034,170 1,949,445
<BONDS> 0 0
0 0
1,000 1,000
<COMMON> 2,905 2,576
<OTHER-SE> 1,660,907 488,562
<TOTAL-LIABILITY-AND-EQUITY> 4,698,982 2,495,369
<SALES> 1,787,266 145,954
<TOTAL-REVENUES> 1,797,189 145,954
<CGS> 1,984,823 0
<TOTAL-COSTS> 3,879,114 2,114,714
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 496,568 16,660
<INCOME-PRETAX> (2,578,493) (1,985,420)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,578,493) (1,985,420)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,578,493) (1,985,420)
<EPS-BASIC> (0.09) (0.08)
<EPS-DILUTED> (0.09) (0.08)
</TABLE>
