This
prospectus is part of a registration statement that we filed with the Securities
and Exchange Commission (the “SEC”) using a “shelf” registration process. Under
this shelf registration process, we may offer from time to time securities
having an aggregate initial offering price of $1,500,000. Each time we offer
securities, we will provide you with a prospectus supplement that describes the
specific amounts, prices and terms of the securities we offer. The prospectus
supplement also may add, update or change information contained in this
prospectus. You should read carefully both this prospectus and any prospectus
supplement together with additional information described below under the
caption “Where You Can Find More Information.”
This
prospectus does not contain all the information provided in the registration
statement we filed with the SEC. For further information about us or our
securities offered hereby, you should refer to that registration statement,
which you can obtain from the SEC as described below under “Where You Can Find
More Information.”
You
should rely only on the information contained or incorporated by reference in
this prospectus or a prospectus supplement. We have not authorized any other
person to provide you with different information. If anyone provides you with
different or inconsistent information, you should not rely on it. This
prospectus is not an offer to sell securities, and it is not soliciting an offer
to buy securities in any jurisdiction where the offer or sale is not permitted.
You should assume that the information appearing in this prospectus or any
prospectus supplement, as well as information we have previously filed with the
SEC and incorporated by reference, is accurate as of the date on the front of
those documents only. Our business, financial condition, results of operations
and prospects may have changed since those dates.
We
may sell securities through underwriters or dealers, through agents, directly to
purchasers or through a combination of these methods. We and our agents reserve
the sole right to accept or reject in whole or in part any proposed purchase of
securities. The prospectus supplement, which we will provide to you each time we
offer securities, will set forth the names of any underwriters, agents or others
involved in the sale of securities, and any applicable fee, commission or
discount arrangements with them. See “Plan of Distribution.”
PROSPECTUS
SUMMARY
This
summary highlights only selected information contained elsewhere in this
prospectus. It does not contain all of the information that is important to you
before investing in our securities. To understand this offering fully, you
should read the entire prospectus carefully, including the risk factors and
financial statements included or incorporated by reference herein.
About
Reed’s Inc.
We
develop, manufacture, market and sell natural non-alcoholic and “New Age”
beverages, candies and ice creams. “New Age Beverages” is a category
that includes natural soda, fruit juices and fruit drinks, ready-to-drink teas,
sports drinks and water. We currently offer 16 beverages, including
diet beverages, three candies and three ice creams. We sell most of
our products in specialty gourmet and natural food stores, supermarket chains,
retail stores and restaurants in the United States and, to a lesser degree, in
Canada.
We
primarily sell our products through a network of natural, gourmet and
independent distributors. We also maintain an organization of
in-house sales managers who work mainly in the stores serviced by our natural,
gourmet and mainstream distributors and with our distributors. We
also work with regional, independent sales representatives who maintain store
and distributor relationships in a specified territory. In Southern
California, we have in the past maintained our own direct distribution in
addition to other local distributors and are presently in the process of
discontinuing our direct distribution and redirecting our customers to local
distributors.
Our
current business strategy is to maintain our marketing focus in the natural food
marketplace while expanding sales of our products in mainstream markets and
distribution channels.
We
produce certain of our soda products for the western half of the United States
at an 18,000 square foot warehouse facility owned by us in an unincorporated
area of Los Angeles County near downtown Los Angeles, known as The
Brewery.
We also
contract with The Lion Brewery, Inc., a packing, or co-pack, facility
in Pennsylvania, to supply us with soda products for the eastern half of the
United States and nationally for soda products that we do not produce at The
Brewery. Our ice creams are co-packed for us at Ronnybrooke
Dairy in upstate New York on a purchase order basis. We pack our
candy products at the Brewery.
We have
not been profitable during our last two fiscal years and there is no assurance
that we will develop profitable operations in the future. Our net
loss for the years ended December 31, 2008 and 2007 was $3,814,000 and
$5,551,000, respectively. We cannot assure you that we will have
profitable operations in the future.
Our
principal executive offices are at the Brewery, which is located at 13000 South
Spring Street, Los Angeles, California 90061. Our telephone number is
310-217-9400. Our Internet address is www.reedsgingerbrew.com .
Information contained on our website or that is accessible through our website
should not be considered to be part of this prospectus.
Investing
in our securities involves risk. The prospectus supplement applicable to
each type or series of securities we offer will contain a discussion of the
risks applicable to an investment in Reed’s, Inc. and to the particular
types of securities that we are offering under that prospectus supplement.
Before making an investment decision, you should carefully consider the risks
described under “Risk Factors” in the applicable prospectus supplement and in
our most recent Annual Report on Form 10-K, or any updates in our Quarterly
Reports on Form 10-Q, together with all of the other information appearing in
this prospectus or incorporated by reference into this prospectus and any
applicable prospectus supplement, in light of your particular investment
objectives and financial circumstances. Our business, financial condition or
results of operations could be materially adversely affected by any of these
risks. The trading price of our securities could decline due to any of these
risks, and you may lose all or part of your investment.
Risks
Relating to Our Business
We
have a history of operating losses. If we continue to incur operating losses, we
eventually may have insufficient working capital to maintain or expand
operations according to our business plan.
As of
March 31, 2009, we had an accumulated deficit of $15,417,000 and incurred losses
from operations of $415,000 during the three months ended March 31, 2009. For
the years ended December 31, 2008 and 2007, we incurred losses from
operations of $3,571,000 and $5,489,000, respectively.
As of
March 31, 2009, we had outstanding borrowings of $1,274,000 under our secured
line of credit agreement with First Capital Western Region LLC.
On June
16, 2009, we closed on a sale and leaseback transaction with regards to our real
property, plant and equipment located at 12930 South Spring Street and 13000
South Spring Street, Los Angeles, California 90061. In connection
with this transaction, we paid off the first trust deed secured by the property
in the amount of $1,756,000. Additionally, we amended our secured
line of credit agreement with First Capital Western Region LLC. The
credit facility was reduced to $2 million and reserves against available
collateral were increased by $350,000. Proceeds from the sale and leaseback
transaction were applied to reduce the outstanding loan under the credit
facility by $1,264,000.
We
recognize that operating losses negatively impact liquidity and we are working
on decreasing operating losses, while focusing on increasing net sales. We are
currently borrowing near the maximum on our line of credit. We
believe the operations of the Company are running at approximately breakeven,
after adjusting for non-cash expenses. We believe that our current cash position
and lines of credit will be sufficient to enable us to meet our cash needs
through at least December, 2009.
We may
not generate sufficient revenues from product sales in the future to achieve
profitable operations. If we are not able to achieve profitable operations at
some point in the future, we eventually may have insufficient working capital to
maintain our operations as we presently intend to conduct them or to fund our
expansion and marketing and product development plans. In addition, our losses
may increase in the future as we expand our manufacturing capabilities and fund
our marketing plans and product development. These losses, among other things,
have had and will continue to have an adverse effect on our working capital,
total assets and stockholders’ equity. If we are unable to achieve
profitability, the market value of our common stock will decline and there would
be a material adverse effect on our financial condition.
If we
continue to suffer losses from operations, the proceeds from our public offering
and private placement may be insufficient to support our ability to expand our
business operations as rapidly as we would deem necessary at any time, unless we
are able to obtain additional financing. There can be no assurance that we will
be able to obtain such financing on acceptable terms, or at all. If adequate
funds are not available or are not available on acceptable terms, we may not be
able to pursue our business objectives and would be required to reduce our level
of operations, including reducing infrastructure, promotions, personnel and
other operating expenses. These events could adversely affect our business,
results of operations and financial condition.
In
addition, some or all of the elements of our expansion plan may have to be
curtailed or delayed unless we are able to find alternative external sources of
working capital. We would need to raise additional funds to respond to business
contingencies, which may include the need to:
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fund
more rapid expansion,
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fund
additional marketing expenditures,
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enhance
our operating infrastructure,
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respond
to competitive pressures, and
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acquire
other businesses or engage in other strategic
initiatives.
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If we need to
raise additional financing to support our operations, we cannot assure you that
additional financing will be available on terms favorable to us, or at all. If
adequate funds are not available or if they are not available on acceptable
terms, our ability to fund the growth of our operations, take advantage of
opportunities, develop products or services or otherwise respond to competitive
pressures, could be significantly limited.
We
may not be able to develop successful new beverage products which are important
to our growth.
An
important part of our strategy is to increase our sales through the development
of new beverage products. We cannot assure you that we will be able to continue
to develop, market and distribute future beverage products that will enjoy
market acceptance. The failure to continue to develop new beverage products that
gain market acceptance could have an adverse impact on our growth and materially
adversely affect our financial condition. We may have higher obsolescent product
expense if new products fail to perform as expected due to the need to write off
excess inventory of the new products.
Our
results of operations may be impacted in various ways by the introduction of new
products, even if they are successful, including the following:
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Sales
of new products could adversely impact sales of existing
products,
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We
may incur higher cost of goods sold and selling, general and
administrative expenses in the periods when we introduce new products due
to increased costs associated with the introduction and marketing of new
products, most of which are expensed as incurred,
and
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When
we introduce new platforms and bottle sizes, we may experience increased
freight and logistics costs as our co-packers adjust their facilities for
the new products.
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The
beverage business is highly competitive.
The
premium beverage and carbonated soft drink industries are highly competitive.
Many of our competitors have substantially greater financial, marketing,
personnel and other resources than we do. Competitors in the soft drink industry
include bottlers and distributors of nationally advertised and marketed
products, as well as chain store and private label soft drinks. The principal
methods of competition include brand recognition, price and price promotion,
retail space management, service to the retail trade, new product introductions,
packaging changes, distribution methods, and advertising. We also compete for
distributors, shelf space and customers primarily with other premium beverage
companies. As additional competitors enter the field, our market share may fail
to increase or may decrease.
The
growth of our revenues is dependent on acceptance of our products by mainstream
consumers.
We have
dedicated significant resources to introduce our products to the mainstream
consumer. As such, we have increased our sales force and executed agreements
with distributors who, in turn, distribute to mainstream consumers at grocery
stores, club stores and other retailers. If our products are not accepted by the
mainstream consumer, our business could suffer.
Our
failure to accurately estimate demand for our products could adversely affect
our business and financial results.
We may
not correctly estimate demand for our products. Our ability to estimate demand
for our products is imprecise, particularly with new products, and may be less
precise during periods of rapid growth, particularly in new markets. If we
materially underestimate demand for our products or are unable to secure
sufficient ingredients or raw materials including, but not limited to, glass,
labels, flavors or packing arrangements, we might not be able to satisfy demand
on a short-term basis. Moreover, industry-wide shortages of certain juice
concentrates and sweeteners have been and could, from time to time in the
future, be experienced, which could interfere with and/or delay production of
certain of our products and could have a material adverse effect on our business
and financial results. We do not use hedging agreements or alternative
instruments to manage this risk.
The
loss of our largest customers would substantially reduce revenues.
Our
customers are material to our success. If we are unable to maintain good
relationships with our existing customers, our business could suffer. Unilateral
decisions could be taken by our distributors, and/or convenience chains, grocery
chains, specialty chain stores, club stores and other customers to discontinue
carrying all or any of our products that they are carrying at any time, which
could cause our business to suffer.
A natural
foods distributor accounted for approximately 32% of our sales for the year
ended December 31, 2008 and 35% of our sales in 2007. One customer
accounted for approximately 14% of our sales for the years ended December 31,
2008 and 2007. As a result of this customer concentration, the loss
of this distributor or this major customer as a retailer would substantially
reduce our revenues unless and until we replaced that source of
revenue.
The
loss of our third-party distributors could impair our operations and
substantially reduce our financial results.
We depend
in large part on distributors to distribute our beverages and other products.
Most of our outside distributors are not bound by written agreements with us and
may discontinue their relationship with us on short notice. Most distributors
handle a number of competitive products. In addition, our products are a small
part of our distributors’ businesses.
We
continually seek to expand distribution of our products by entering into
distribution arrangements with regional bottlers or other direct store delivery
distributors having established sales, marketing and distribution organizations.
Many of our distributors are affiliated with and manufacture and/or distribute
other soda and non-carbonated brands and other beverage products. In many cases,
such products compete directly with our products.
The
marketing efforts of our distributors are important for our success. If our
brands prove to be less attractive to our existing distributors and/or if we
fail to attract additional distributors, and/or our distributors do not market
and promote our products above the products of our competitors, our business,
financial condition and results of operations could be adversely
affected.
One
distributor accounted for approximately 32% of our sales for the year ended
December 31, 2008 and 35% of our sales in 2007. The loss of this
distributor may adversely affect sales in the short term and alternative
distribution channels may not be found in a timely manner. The loss
of our third-party beverage distributors could impair our operations and
adversely affect our financial performance.
Price
fluctuations in, and unavailability of, raw materials and packaging that we use
could adversely affect us.
We do not
enter into hedging arrangements for raw materials. Although the prices of raw
materials that we use have not increased significantly in recent years, our
results of operations would be adversely affected if the price of these raw
materials were to rise and we were unable to pass these costs on to our
customers.
We depend
upon an uninterrupted supply of the ingredients for our products, a significant
portion of which we obtain overseas, principally from China and Brazil. We
obtain almost all of our crystallized ginger from Fiji and our Ginger Chews from
Indonesia. Any decrease in the supply of these ingredients or increase in the
prices of these ingredients as a result of any adverse weather conditions,
pests, crop disease, interruptions of shipment or political considerations,
among other reasons, could substantially increase our costs and adversely affect
our financial performance.
We also
depend upon an uninterrupted supply of packaging materials, such as glass for
our bottles and kegs for our 5 liter party kegs. We obtain our bottles
domestically and our kegs from Europe. Any decrease in supply of these materials
or increase in the prices of the materials, as a result of decreased supply or
increased demand, could substantially increase our costs and adversely affect
our financial performance.
The
loss of any of our co-packers could impair our operations and substantially
reduce our financial results.
We rely
on third parties, called co-packers in our industry, to produce some of our
beverages, to produce our glass bottles and to bottle some of our
beverages. Our co-packing agreement with our principal co-packer
expires on November 1, 2011 and grants Reed’s the option to extend the contract
for an additional one year period. Our co-packing arrangements with
other companies are on a short term basis and such co-packers may discontinue
their relationship with us on short notice. Our co-packing
arrangements expose us to various risks, including:
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Our
largest co-packer, Lion Brewery, accounted for approximately 75% of our
total case production for the year ended December 31, 2008 and 82% and 72%
of our total case production in 2007 and 2006, respectively .
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if
any of those co-packers were to terminate our co-packing arrangement or
have difficulties in producing beverages for us, our ability to produce
our beverages would be adversely affected until we were able to make
alternative arrangements, and
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Our
business reputation would be adversely affected if any of the co-packers
were to produce inferior quality
products.
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We
compete in an industry that is brand-conscious, so brand name recognition and
acceptance of our products are critical to our success.
Our
business is substantially dependent upon awareness and market acceptance of our
products and brands by our targeted consumers. In addition, our business depends
on acceptance by our independent distributors of our brands as beverage brands
that have the potential to provide incremental sales growth rather than reduce
distributors’ existing beverage sales. Although we believe that we have been
relatively successful towards establishing our brands as recognizable brands in
the New Age beverage industry, it may be too early in the product life cycle of
these brands to determine whether our products and brands will achieve and
maintain satisfactory levels of acceptance by independent distributors and
retail consumers. We believe that the success of our product name brands will
also be substantially dependent upon acceptance of our product name brands.
Accordingly, any failure of our brands to maintain or increase acceptance or
market penetration would likely have a material adverse affect on our revenues
and financial results.
We compete in an industry
characterized by rapid changes in consumer preferences and public perception, so
our ability to continue to market our existing products and develop new products
to satisfy our consumers’ changing preferences will determine our long-term
success .
Consumers
are seeking greater variety in their beverages. Our future success will depend,
in part, upon our continued ability to develop and introduce different and
innovative beverages. In order to retain and expand our market share, we must
continue to develop and introduce different and innovative beverages and be
competitive in the areas of quality and health, although there can be no
assurance of our ability to do so. There is no assurance that consumers will
continue to purchase our products in the future. Additionally, many of our
products are considered premium products and to maintain market share during
recessionary periods, we may have to reduce profit margins, which would
adversely affect our results of operations. In addition, there is increasing
awareness and concern for the health consequences of obesity. This may reduce
demand for our non-diet beverages, which could affect our profitability. Product
lifecycles for some beverage brands and/or products and/or packages may be
limited to a few years before consumers’ preferences change. The beverages we
currently market are in varying stages of their lifecycles and there can be no
assurance that such beverages will become or remain profitable for us. The
beverage industry is subject to changing consumer preferences and shifts in
consumer preferences may adversely affect us if we misjudge such preferences. We
may be unable to achieve volume growth through product and packaging
initiatives. We also may be unable to penetrate new markets. If our revenues
decline, our business, financial condition and results of operations will be
materially and adversely affected.
Our
quarterly operating results may fluctuate significantly because of the
seasonality of our business.
Our
highest revenues occur during the spring and summer, the second and third
quarters of each fiscal year. These seasonality issues may cause our financial
performance to fluctuate. In addition, beverage sales can be adversely affected
by sustained periods of bad weather.
Our business is subject to many
regulations and noncompliance is costly .
The
production, marketing and sale of our unique beverages, including contents,
labels, caps and containers, are subject to the rules and regulations of various
federal, provincial, state and local health agencies. If a regulatory authority
finds that a current or future product or production run is not in compliance
with any of these regulations, we may be fined, or production may be stopped,
thus adversely affecting our financial conditions and operations. Similarly, any
adverse publicity associated with any noncompliance may damage our reputation
and our ability to successfully market our products. Furthermore, the rules and
regulations are subject to change from time to time and while we closely monitor
developments in this area, we have no way of anticipating whether changes in
these rules and regulations will impact our business adversely. Additional or
revised regulatory requirements, whether labeling, environmental, tax or
otherwise, could have a material adverse effect on our financial condition and
results of operations.
Rising fuel and freight costs may
have an adverse impact on our sales and earnings .
The
recent volatility in the global oil markets has resulted in rising fuel and
freight prices, which many shipping companies are passing on to their customers.
Our shipping costs, and particularly our fuel expenses, have been increasing and
we expect these costs may continue to increase. Due to the price sensitivity of
our products, we do not anticipate that we will be able to pass all of these
increased costs on to our customers. The increase in fuel and freight costs
could have a material adverse impact on our financial condition.
Our
manufacturing process is not patented.
None of
the manufacturing processes used in producing our products are subject to a
patent or similar intellectual property protection. Our only protection against
a third party using our recipes and processes is confidentiality agreements with
the companies that produce our beverages and with our employees who have
knowledge of such processes. If our competitors develop substantially equivalent
proprietary information or otherwise obtain access to our knowledge, we will
have greater difficulty in competing with them for business, and our market
share could decline.
We
face risks associated with product liability claims and product
recalls.
Other
companies in the beverage industry have experienced product liability litigation
and product recalls arising primarily from defectively manufactured products or
packaging. We maintain product liability insurance insuring our operations from
any claims associated with product liability and we believe that the amount of
this insurance is sufficient to protect us. We do not maintain product recall
insurance. In the event we were to experience additional product liability or
product recall claim, our business operations and financial condition could be
materially and adversely affected.
Our intellectual property
rights are critical to our success, the loss of such rights could materially,
adversely affect our business .
We regard
the protection of our trademarks, trade dress and trade secrets as critical to
our future success. We have registered our trademarks in the United States that
are very important to our business. We also own the copyright in and to portions
of the content on the packaging of our products. We regard our trademarks,
copyrights and similar intellectual property as critical to our success and
attempt to protect such property with registered and common law trademarks and
copyrights, restrictions on disclosure and other actions to prevent
infringement. Product packages, mechanical designs and artwork are important to
our success and we would take action to protect against imitation of our
packaging and trade dress and to protect our trademarks and copyrights, as
necessary. We also rely on a combination of laws and contractual restrictions,
such as confidentiality agreements, to establish and protect our proprietary
rights, trade dress and trade secrets. However, laws and contractual
restrictions may not be sufficient to protect the exclusivity of our
intellectual property rights, trade dress or trade secrets. Furthermore,
enforcing our rights to our intellectual property could involve the expenditure
of significant management and financial resources. There can be no assurance
that other third parties will not infringe or misappropriate our trademarks and
similar proprietary rights. If we lose some or all of our intellectual property
rights, our business may be materially and adversely
affected.
If
we are not able to retain the full time services of our management team,
including Christopher J. Reed, it will be more difficult for us to manage our
operations and our operating performance could suffer.
Our
business is dependent, to a large extent, upon the services of our management
team, including Christopher J. Reed, our founder, President, Chief Executive
Officer and Chairman of the Board. We depend on our management team, but
especially on Mr. Reed’s creativity and leadership in running or supervising
virtually all aspects of our day-to-day operations. We do not have a written
employment agreement with any member of our management team or Mr. Reed. In
addition, we do not maintain key person life insurance on any of our management
team or Mr. Reed. Therefore, in the event of the loss or unavailability of any
member of the management team to us, there can be no assurance that we would be
able to locate in a timely manner or employ qualified personnel to replace him.
The loss of the services of any member of our management team or our failure to
attract and retain other key personnel over time would jeopardize our ability to
execute our business plan and could have a material adverse effect on our
business, results of operations and financial condition.
We
need to manage our growth and implement and maintain procedures and controls
during a time of rapid expansion in our business.
The cost
of manufacturing and packaging our products was approximately 78% and 85% of our
aggregate revenues in 2008 and 2007, respectively. This gross margin
places pressure upon our cash flow and cash reserves when our sales
increase. If we are to expand our operations, such expansion would
place a significant strain on our management, operational and financial
resources. Such expansion would also require improvements in our
operational, accounting and information systems, procedures and
controls. If we fail to manage this anticipated expansion properly,
it could divert our limited management, cash, personnel, and other resources
from other responsibilities and could adversely affect our financial
performance.
Our
business may be negatively impacted by a slowing economy or by unfavorable
economic conditions or developments in the United States and/or in other
countries in which we operate.
A general
slowdown in the economy in the United States or unfavorable economic conditions
or other developments may result in decreased consumer demand, business
disruption, supply constraints, foreign currency devaluation, inflation or
deflation. A slowdown in the economy or unstable economic conditions in the
United States or in the countries in which we operate could have an adverse
impact on our business results or financial condition. Our foreign sales (except
for Canada) accounted for less than 1.0% of our sales for the years ended
December 31, 2008 and 2007, respectively.
We
have operated without independent directors in the past.
While we
currently have three independent directors, for a large portion of our history,
we did not have at least two independent directors. As a result, certain
material agreements between related parties have not been negotiated with the
oversight of independent directors and were entered into at the absolute
discretion of the majority stockholder, Christopher J. Reed.
Risks
Relating to Our Securities
We
recently conducted a rescission offer for shares issued in our initial public
offering. Although we have completed the rescission offer, we may continue to be
subject to claims related to the circumstances related to the rescission
offer.
From
August 3, 2005 through April 7, 2006, we issued 333,156 shares of our common
stock in connection with our initial public offering. The shares issued in
connection with the initial public offering may have been issued in violation of
either federal or state securities laws, or both, and may be subject to
rescission. In order to address this issue, we made a rescission offer to the
holders of these shares.
Our
rescission covered an aggregate of 333,156 shares of common stock issued in
connection with our initial public offering. These securities represented all of
the shares issued in connection with the initial public offering prior to
October 11, 2006. We offered to rescind the shares of our common stock that were
subject to the rescission offer for an amount equal to the price paid for the
shares plus interest, calculated from the date of the purchase through the date
on which the rescission offer expires, at the applicable statutory interest rate
per year. If our rescission offer had been accepted by all offerees, we would
have been required to make an aggregate payment to the holders of these shares
of up to approximately $1,332,624, plus statutory interest.
On August
12, 2006, we made a rescission offer to all holders of the outstanding shares
that we believe are subject to rescission, pursuant to which we offered to
repurchase these shares then outstanding from the holders. At the expiration of
our rescission offer on September 18, 2006, the rescission offer was accepted by
32 of the offerees to the extent of 28,420 shares for an aggregate of
$118,711.57, including statutory interest. The shares that were tendered for
rescission were agreed to be purchased by others and not from our
funds.
Federal
securities laws do not provide that a rescission offer will terminate a
purchaser’s right to rescind a sale of stock that was not registered as required
or was not otherwise exempt from such registration requirements. Accordingly,
although the rescission offer may have been accepted or rejected by some of the
offerees, we may continue to be liable under federal and state securities laws
for up to an amount equal to the value of all shares of common stock issued in
connection with the initial public offering, plus any statutory interest we may
be required to pay. If it is determined that we offered securities without
properly registering them under federal or state law, or securing an exemption
from registration, regulators could impose monetary fines or other sanctions as
provided under these laws.
There
has been a very limited public trading market for our securities and the market
for our securities, may continue to be limited, and be sporadic and highly
volatile.
There is
currently a limited public market for our common stock. Our common stock was
previously listed for trading on the OTC Bulletin Board (the “OTCBB”) from
January 3, 2007 to November 26, 2007. Since November 27, 2007, our common stock
has been listed for trading on the NASDAQ Capital Market. We cannot assure you
that an active market for our shares will be established or maintained in the
future. Holders of our common stock may, therefore, have difficulty selling
their shares, should they decide to do so. In addition, there can be no
assurances that such markets will continue or that any shares, which may be
purchased, may be sold without incurring a loss. Any such market price of our
shares may not necessarily bear any relationship to our book value, assets, past
operating results, financial condition or any other established criteria of
value, and may not be indicative of the market price for the shares in the
future.
In
addition, the market price of our common stock may be volatile, which could
cause the value of our common stock to decline. Securities markets experience
significant price and volume fluctuations. This market volatility, as well as
general economic conditions, could cause the market price of our common stock to
fluctuate substantially. Many factors that are beyond our control may
significantly affect the market price of our shares. These factors
include:
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price
and volume fluctuations in the stock
markets,
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changes
in our revenues and earnings or other variations in operating
results,
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any
shortfall in revenue or increase in losses from levels expected by us or
securities analysts,
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changes
in regulatory policies or law,
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operating
performance of companies comparable to us,
and
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general
economic trends and other external
factors.
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Even if
an active market for our common stock is established, stockholders may have to
sell their shares at prices substantially lower than the price they paid for it
or might otherwise receive than if a broad public market existed.
Future
financings could adversely affect common stock ownership interest and rights in
comparison with those of other security holders.
Our board
of directors has the power to issue additional shares of common or preferred
stock without stockholder approval. If additional funds are raised through the
issuance of equity or convertible debt securities, the percentage ownership of
our existing stockholders will be reduced, and these newly issued securities may
have rights, preferences or privileges senior to those of existing
stockholders.
If we
issue any additional common stock or securities convertible into common stock,
such issuance will reduce the proportionate ownership and voting power of each
other stockholder. In addition, such stock issuances might result in a reduction
of the book value of our common stock.
Because
Christopher J. Reed controls a large portion of our stock, he can control the
outcome, or greatly influence the outcome, of all matters on which stockholders
vote.
Christopher
J. Reed, our President, Chief Executive Officer, acting Chief Financial Officer,
and Chairman of the Board owns approximately 35% of our common stock. Therefore,
Mr. Reed will be able to control the outcome, or greatly influence the outcome,
on all matters requiring stockholder approval, including the election of
directors, amendment of our certificate of incorporation, and any merger,
consolidation or sale of all or substantially all of our assets or other
transactions resulting in a change of control of our company. In addition, as
our Chairman and Chief Executive Officer, Mr. Reed has and will continue to have
significant influence over our strategy, technology and other matters. Mr.
Reed’s interests may not always coincide with the interests of other holders of
our common stock.
A
substantial number of our shares are available for sale in the public market and
sales of those shares could adversely affect our stock price.
Sales of
a substantial number of shares of common stock into the public market, or the
perception that such sales could occur, could substantially reduce our stock
price in the public market for our common stock, and could impair our ability to
obtain capital through a subsequent financing of our securities. We
have 9,107,177 shares of common stock outstanding as of March 31, 2009. Of
the shares of our common stock currently outstanding, 4,810,882 shares are
“restricted securities” under the Securities Act. Some of these “restricted
securities” will be subject to restrictions on the timing, manner, and volume of
sales of such shares.
In
addition, as of March 31, 2009, we had issued and outstanding options and
warrants that may be exercised into 2,660,736 shares of common stock and 47,121
shares of Series A preferred stock that may be converted into 188,484 shares of
common stock. In addition, our outstanding shares of Series A preferred stock
bear a dividend of 5% per year, or approximately $24,000 per year. We have the
option to pay the dividend in shares of our common stock. In 2008 and 2007, we
paid the dividend in an aggregate of 10,910 and 3,820 shares of common stock in
each such year, respectively, and anticipate that we will be obligated to issue
at least this many shares annually to the holders of the Series A preferred
stock so long as such shares are issued and outstanding.
We identified
material weaknesses in our internal control over financial reporting for the
fiscal year ended December 31, 2008, resulting in our conclusion that our
internal control over financial reporting and disclosure controls and procedures
were ineffective.
We believe we
have remedied as of the date of this prospectus. If we fail to maintain
effective internal control over financial reporting and effective disclosure
controls and procedures, we may not be able to accurately report our financial
results or prevent fraud.
We are
subject to reporting obligations under the U.S. securities laws. The SEC, as
required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules
requiring every public company to include a management report of such company’s
internal control over financial reporting in its annual report, which contains
management’s assessment of the effectiveness of the Company’s internal control
over financial reporting. This requirement began to apply to us beginning with
our annual report on Form 10-KSB for the year ended December 31,
2007.
Christopher
J. Reed, our Chief Executive Officer and James Linesch, our Chief Financial
Officer, conducted an evaluation of the effectiveness of our internal control
over financial reporting based on the framework in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, our management concluded that
our internal control over financial reporting was ineffective as of December 31,
2008 and 2007. A material weakness, as defined in standards
established by the Public Company Accounting Oversight Board (United States) is
a deficiency or combination of deficiencies in internal control over financial
reporting such that there is a reasonable possibility that a
material misstatement of the annual or interim financial statements will not be
prevented or detected on a timely basis.
Based
upon management’s assessment, we identified the following material weaknesses as
of December 31, 2008:
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Insufficient
disaster recovery or backup of core business
functions,
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Lack
of segregation of duties, and
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Lack
of documented and reviewed system of internal
control
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Based on
these identified material weaknesses in our internal control over financial
reporting, our Chief Executive Officer and Chief Financial Officer concluded
that, as of December 31, 2008, our disclosure controls and procedures were not
effective to ensure that information required to be disclosed by us in the
reports we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the SEC, and accumulated and communicated to our management, including our
Chief Executive Officer and former Chief Financial Officer, as appropriate to
allow timely decisions regarding required disclosure. In light of the material
weaknesses and conclusions described above, we performed additional analysis and
other postclosing procedures to ensure that our financial statements were
prepared in accordance with generally accepted accounting principles.
Accordingly, we believe that the financial statements included in our Annual
Report on Form 10K for the period ended December 31, 2008 fairly presented, in
all material respects, our financial condition, results of operations, changes
in shareholder’s equity and cash flows for the periods presented. We did not
restate any financial results for any prior periods and believe that the
identified material weaknesses did not have any material effect on the accuracy
of our financial statements prepared with respect to any prior fiscal
period.
We are
implementing remediation steps to eliminate identified material weaknesses in
our internal controls over financial reporting, including the
following:
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Insufficient disaster recovery
or backup of core business functions . Inadequate
backup or critical data and software used by our business could cause loss
of financial data and business interruptions, should a disaster occur. We
have implemented regular backup procedures for our data relating to our
financial reporting, which include off-site storage. We are
planning to also install a remote server running the software programs
used for our financial reporting processes, so that we can quickly recover
our backup data and use it at a remote location, in the event of a
disaster. We anticipate this additional measure to be completed
in the next quarter.
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Lack of segregation of
duties. We have limited staff in our corporate offices
and, as such, there is a lack of segregation of duties. With
the resignation of our Chief Financial Officer in April 2008, our Chief
Executive Officer assumed the duties of both President and Chief Financial
Officer. Many functions, including purchasing, accounts
payable, bank reconciliations and month end closings, have not been
adequately segregated. In January 2009, we hired a Chief
Financial Officer, adding to the management oversight of financial
accounting processes. We now have separate individuals
performing purchasing, accounts payable processing, and bank
reconciliations. Our Chief Financial Officer supervises and
reviews the month end closing process. Our Chief Operating
Officer oversees the cash disbursements. Checks are signed by
the Chief Executive Officer. At this time, we believe that we
have established adequate segregation of duties to the extent possible
with our small staff size. The close supervision and oversight
by management also mitigates the remaining weakness in internal controls
resulting from a lack of segregation of duties.
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Lack of documented and
reviewed system of internal control. We have a
material weakness due to the lack of a documented and reviewed system of
internal controls. We have determined that to perform the
processes and remediate this internal control weakness, we will either
need to engage an internal control consultant or reassign existing
personnel. We have started to enhance some of our key internal
control systems surrounding inventory purchasing and control, and to
document those changes; however, this process is on-going and the
implementation of policies and procedures may take several
quarters.
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In the
future, an independent registered public accounting firm will be required to
attest to and report on management’s assessment of the effectiveness of our
internal control over financial reporting. Despite our remediation
efforts, our management may conclude that our internal control over our
financial reporting is not effective. Moreover, even if our
management concludes that our system of internal control over financial
reporting is effective, our independent registered public accounting firm may
still decline to attest to our management’s assessment or may issue a report
that is qualified if it is not satisfied with our controls or the level at which
our controls are documented, designed, operated, or reviewed, or if it
interprets the relevant requirements differently from us.
Our
reporting obligations as a public company will place a significant strain on our
management, operational, and financial resources and systems for the foreseeable
future. An effective system of internal control, particularly as it relates to
revenue recognition, is necessary for us to produce reliable financial reports
and is important to help prevent fraud. As a result, our failure to achieve and
maintain effective system of internal control over financial reporting and
effective disclosure controls and procedures could result in the loss of
investor confidence in the reliability of our financial statements, which in
turn could harm our business and negatively impact the trading price of our
stock. Furthermore, we anticipate that we will incur considerable
costs and use significant management time and other resources in an effort to
comply with Section 404 and other requirements of the Sarbanes-Oxley
Act.
Our certificate of
incorporation and by-laws contain provisions that may discourage, delay or
prevent a change in our management team that stockholders may consider
favorable.
Our
certificate of incorporation, our bylaws and Delaware law contain provisions
that may have the effect of preserving our current management, such
as:
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authorizing
the issuance of “blank check” preferred stock without any need for action
by stockholders; and
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permitting
stockholder action by written
consent.
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These
provisions could allow our board of directors to affect your rights as a
stockholder since our board of directors can make it more difficult for common
stockholders to replace members of the board. Because our board of
directors is responsible for appointing the members of our management team,
these provisions could in turn affect any attempt to replace our current
management team.
DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus and any accompanying prospectus supplement, including the documents
that we incorporate by reference may contain forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934, as amended, which we refer to as the Exchange
Act. Forward-looking statements relate to expectations, beliefs, estimates,
projections, future plans and strategies, anticipated events or trends and
similar expressions concerning matters that are not historical facts. In some
cases, you can identify forward-looking statements by terms such as
“anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,”
“goal,” “objective,” “potential,” “project,” “should,” “will” and “would” or the
negative of these terms or other comparable terminology.
The
forward-looking statements are based on our beliefs, assumptions and
expectations of our future performance, taking into account all information
currently available to us. These beliefs, assumptions and expectations can
change as a result of many possible events or factors, not all of which are
known to us or are within our control. If a change occurs, the performance of
our portfolio and our business, financial condition, liquidity and results of
operations may vary materially from those expressed, anticipated or contemplated
in our forward-looking statements. You should carefully consider these risks
before you invest in our securities, along with the following factors that could
cause actual results to vary from our forward-looking statements:
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Our
ability to generate sufficient cash flow to support capital expansion
plans and general operating
activities,
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Decreased
demand for our products resulting from changes in consumer
preferences,
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Competitive
products and pricing pressures and our ability to gain or maintain our
share of sales in the marketplace,
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The
introduction of new products,
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Our
being subject to a broad range of evolving federal, state and local laws
and regulations including those regarding the labeling and safety of food
products, establishing ingredient designations and standards of identity
for certain foods, environmental protections, as well as worker health and
safety. Changes in these laws and regulations could have a
material effect on the way in which we produce and market our products and
could result in increased costs,
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Changes
in the cost and availability of raw materials and the ability to maintain
our supply arrangements and relationships and procure timely and/or
adequate production of all or any of our
products,
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Our
ability to penetrate new markets and maintain or expand existing
markets,
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Maintaining
existing relationships and expanding the distributor network of our
products,
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The
marketing efforts of distributors of our products, most of whom also
distribute products that are competitive with our
products,
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Decisions
by distributors, grocery chains, specialty chain stores, club stores and
other customers to discontinue carrying all or any of our products that
they are carrying at any time,
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The
availability and cost of capital to finance our working capital needs and
growth plans,
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The
effectiveness of our advertising, marketing and promotional
programs,
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Changes
in product category consumption,
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Economic
and political changes,
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Consumer
acceptance of new products, including taste test
comparisons,
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Possible
recalls of our products, and
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Our
ability to make suitable arrangements for the co-packing of any of our
products.
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Except as
required by law, we undertake no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
events described by our forward-looking statements might not occur. We qualify
any and all of our forward-looking statements by these cautionary factors.
Please keep this cautionary note in mind as you read this prospectus and the
documents incorporated and deemed to be incorporated by reference
herein.
Except as
described in any prospectus supplement, we currently intend to use the net
proceeds from this offering for general corporate purposes, including production
of inventory and marketing.
Each time
we issue securities, we will provide a prospectus supplement that will contain
information about how we intend to use the proceeds from each such
offering.
Until we
use the net proceeds of this offering for the above purposes, we intend to
invest the funds in short-term, investment grade, interest-bearing securities.
We cannot predict whether the proceeds invested will yield a favorable return.
We have not yet determined the amount or timing of the expenditures for the
categories listed above, and these expenditures may vary significantly depending
on a variety of factors. As a result, we will retain broad discretion over the
use of the net proceeds from this offering.
We cannot
guarantee that we will receive any proceeds in connection with any offering
hereunder because we may choose not to issue any of the securities covered by
this prospectus.
THE
SECURITIES WE MAY OFFER
The
descriptions of the securities contained in this prospectus, together with the
applicable prospectus supplements, summarize all the material terms and
provisions of the various types of securities that we may offer. We will
describe in the applicable prospectus supplement relating to any securities the
particular terms of the securities offered by that prospectus supplement. If we
indicate in the applicable prospectus supplement, the terms of the securities
may differ from the terms we have summarized below. We will also include in the
prospectus supplement information, where applicable, about material United
States federal income tax considerations relating to the securities, and the
securities exchange, if any, on which the securities will be
listed.
We may
sell from time to time, in one or more offerings:
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shares of our common stock;
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shares of our preferred stock;
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debt securities, in one or more
series;
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warrants to purchase any of the securities listed above;
and/or
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units consisting of one or more of the
foregoing.
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This
prospectus may not be used to consummate a sale of securities unless it is
accompanied by a prospectus supplement.
DESCRIPTION
OF CAPITAL STOCK
General
The
following description of common stock and preferred stock, together with the
additional information we include in any applicable prospectus supplements,
summarizes the material terms and provisions of the common stock and preferred
stock that we may offer under this prospectus but is not complete. For the
complete terms of our common stock and preferred stock, please refer to our
amended and restated certificate of incorporation, as amended by a certificate
of amendment and which may be further amended from time to time, any
certificates of designation for our preferred stock, and our amended and
restated bylaws, as amended from time to time. The Delaware General Corporation
Law may also affect the terms of these securities. While the terms we have
summarized below will apply generally to any future common stock or preferred
stock that we may offer, we will describe the particular terms of any series of
these securities in more detail in the applicable prospectus supplement. If we
so indicate in a prospectus supplement, the terms of any common stock or
preferred stock we offer under that prospectus supplement may differ from the
terms we describe below.
We have
the authority to issue 20,000,000 shares of capital stock, consisting of
19,500,000 shares of common stock, $0.0001 par value per share, and 500,000 of
preferred stock, $10.00 par value per share, which can be issued from time to
time by our board of directors on such terms and conditions as they may
determine.
As of the
date of this prospectus, there were approximately 9,215,693 shares of common
stock outstanding, and 46,621 shares of Series A preferred stock issued and
outstanding.
The
following description of our common stock does not purport to be complete and is
subject to, and is qualified by, our certificate of incorporation and by-laws,
which are filed as exhibits to the registration statement of which this
prospectus is a part, and by the applicable provisions of Delaware
law.
Common
Stock
Holders
of our common stock are entitled to one vote per share on all matters requiring
a vote of stockholders, including the election of directors.
We are a
Delaware corporation and our certificate of incorporation does not provide for
cumulative voting. However, we may be subject to section 2115 of the
California Corporations Code. Section 2115 provides that, regardless
of a company’s legal domicile, specified provisions of California corporations
law will apply to that company if the company meets requirements relating to its
property, payroll and sales in California and if more than one-half of its
outstanding voting securities are held of record by persons having addresses in
California, and such company is not listed on certain national securities
exchanges or on the NASDAQ National Market. Among other things,
section 2115 may limit our ability to elect a classified board of directors and
requires cumulative voting in the election of directors. Cumulative
voting is a voting scheme which allows minority stockholders a greater
opportunity to have board representation by allowing those stockholders to have
a number of votes equal to the number of directors to be elected multiplied by
the number of votes to which the stockholder’s shares are entitled and to
“cumulate” those votes for one or more director nominees. Generally, cumulative
voting allows minority stockholders the possibility of board representation on a
percentage basis equal to their stock holding, where under straight voting those
stockholders may receive less or no board representation. The Supreme Court of
Delaware has recently ruled, on an issue unrelated to voting for directors, that
section 2115 is an unconstitutional exception to the “internal affairs doctrine”
that requires the law of the incorporating state to govern disputes involving a
corporation’s internal affairs, and is therefore inapplicable to Delaware
corporations. The California Supreme Court has not definitively ruled
on section 2115, although certain lower courts of appeal have upheld section
2115. As a result, there is a conflict as to whether section 2115
applies to Delaware corporations. Pending the resolution of these
conflicts, in the event our shares are not listed on a national exchange, we
will not elect directors by cumulative voting.
Christopher
J. Reed, our President, Chief Executive Officer and Chairman of the board of
directors, holds approximately 35% of our outstanding common stock.
Consequently, Mr. Reed, as our principal stockholder, has the power, and may
continue to have the power, to have significant control over the outcome of any
matter on which the stockholders may vote.
Holders
of our common stock are entitled to receive dividends only if we have funds
legally available and the board of directors declares a
dividend.
Holders
of our common stock do not have any rights to purchase additional shares. This
right is sometimes referred to as a preemptive right.
Upon a
liquidation or dissolution, whether in bankruptcy or otherwise, holders of
common stock rank behind our secured and unsecured debt holders, and behind any
holder of any series of our preferred stock.
There is
a limited public market for our common stock.
Our
common stock is quoted on the Nasdaq Capital Market under the symbol “REED.”
Transfer On-Line, Inc., 317 SW Alder Street, 2nd Floor, Portland, Oregon, 92704
is our registrar and transfer agent for our common stock.
Preferred
Stock
Our
amended certificate of incorporation, as amended, authorizes our board of
directors, within the limitations and restrictions prescribed by law or stated
in our certificate of incorporation as amended, and by filing a certificate
pursuant to applicable law of the state of Delaware, to provide for the issuance
of our Preferred stock in series and (i) to establish from time to time the
number of shares to be include in each such series; (ii) to fix the voting
powers, designations, powers, preferences and relative, participating, option or
other rights of the shares of each such series and the qualifications,
limitations or restrictions thereof, including, but not limit to, the fixing or
alteration of the dividend rights, dividend rate, conversion rights, conversion
rate, voting rights, rights and terms of redemptions (including sinking fund
provisions), the redemption price or prices and the liquidation preferences of
any wholly unissued series of shares of preferred stock; and (iii) to increase
or decrease the number of shares of any series subsequent to the issue of shares
of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
To date,
our board of directors has designated Series A and Series B Preferred Stock as
described below. There is no public market for our Series A or Series B
preferred stock and we do not intend to re g ister such stock
with the SEC or seek to establish a public market for the Series A and Series B
preferred stock.
Series
A Preferred Stock
Holders
of our Series A preferred stock are entitled to receive out of assets legally
available, a 5% pro-rata annual non-cumulative dividend, payable in cash or
shares, on June 30th of each year commencing on June 30, 2005. The dividend can
be paid in cash or, in the sole and absolute discretion of our board of
directors, in shares of our common stock based on their then fair market value.
We cannot declare or pay any dividend on shares of our securities ranking junior
to the preferred stock until the holders of our preferred stock have received
the full non-cumulative dividend to which they are entitled. In addition, the
holders of our preferred stock are entitled to receive pro rata distributions of
dividends on an “as converted” basis with the holders of our common
stock.
As of
each of June 30, 2005, 2006, 2007 and 2008, we issued 7,362, 7,373, 3,820 and
10,910 shares of our common stock in each such year, respectively, as a dividend
to the holders of our Series A preferred stock based on a $29,470 accrued annual
dividend payable for each of June 30, 2005 and 2006, $27,770 for June 30, 2007
and $23,561 for June 30, 2008.
In the
event of any liquidation, dissolution or winding up of our operations, or if
there is a change of control event, then, subject to the rights of the holders
of our more senior securities, if any, the holders of our Series A preferred
stock are entitled to receive, prior to the holders of any of our junior
securities, $10.00 per share plus all accrued and unpaid dividends. Thereafter,
all remaining assets will be distributed pro rata among all of our security
holders.
At any
time after June 30, 2007, we have the right, but not the obligation, to redeem
all or any portion of the Series A preferred stock by paying the holders thereof
the sum of the original purchase price per share, which was $10.00, plus all
accrued and unpaid dividends.
The
Series A preferred stock may be converted, at the option of the holder, at any
time after issuance and prior to the date upon which such stock is redeemed,
into four shares of common stock, subject to adjustment in the event of stock
splits, reverse stock splits, stock dividends, recapitalization,
reclassification, and similar transactions.
We are
obligated to reserve out of our authorized but unissued shares of common stock a
sufficient number of such shares to effect the conversion of all outstanding
shares of Series A preferred stock.
Except as
provided by law, the holders of our Series A preferred stock do not have the
right to vote on any matters, including, without limitation, the election of
directors. However, so long as any shares of Series A preferred stock are
outstanding, we will not, without first obtaining the approval of at least a
majority of the holders of the Series A preferred stock:
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amend
our certificate of incorporation or bylaws in any manner which adversely
affects the rights of the Series A preferred stock,
or
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authorize
or issue, or obligate ourselves to issue, any other equity security having
a preference over, or being on a parity with, the Series A preferred stock
with respect to dividends, liquidation, redemption or voting, including
any other security convertible into or exercisable for any equity security
other than shares of any senior class of preferred
stock.
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Series
B Preferred Stock
Effective
April 28, 2009, we filed a Certificate of Designation of Series B Convertible
Preferred Stock with the Delaware Secretary of State, designating one hundred
fifty thousand (150,000) of its authorized shares of Preferred Stock of the
company as Series B Convertible Preferred Stock (the “Series B
Preferred”). Our Board of Directors expects that it will amend this document to
revise the conversion rate as well as the trading price that will trigger a
mandatory conversion prior to the issuance of any shares of Series B Preferred
based on the prevailing market conditions at the time of sale. The
Series B Preferred is subject to the following rights and
preferences:
Ranking .
With respect to the payment of dividends and amounts upon liquidation, the
Series B Preferred will rank equally with any other class or series
of our stock that ranks on a par with the Series B Preferred in the payment of
dividends and in the distribution of assets on any dissolution, winding-up and
liquidation of Reed’s, if any, which we refer to as “ Parity Stock ,” will rank
senior to our common stock and any other class or series of our stock over which
the Series B Preferred has preference or priority in the payment of dividends or
in the distribution of assets on any dissolution, winding-up and liquidation of
Reed’s, which we refer to as “ Junior Stock ,” and will rank
junior, in all matters expressly provided, to our preferred stock designated as
Series A Convertible Preferred stock and any class or series of capital stock of
Reed’s specifically ranking by its terms senior to the Series B Preferred “
Senior Stock
”.
Dividends.
Subject to the prior payment in full of any dividends to which any Senior Stock
is entitled pursuant to the Certificate of Incorporation, the holders of the
Series B Preferred shall be entitled to receive dividends payable in
kind, in common stock or in cash, in our sole
discretion. Such dividends shall be cumulative and non-compounding
and accrue on a daily basis for a period of three (3) years from the date of
issuance of the Series B Preferred, at an annual rate equal to eight percent
(8%) of the original purchase price of $10.00. If we elect to pay any Series B
Dividend due in common stock (“Interest
Shares”), the issuance price of the Interest Shares will be equal to the
10-day volume-weighted average price of the common stock on the principal
national securities exchange on which such common stock is traded.
Conversion
Rights. Each share of the Series B Preferred will be
convertible at the election of the holder into shares of our common stock by
dividing the $10.00 stated value of the Series B Preferred by a conversion
price, which will initially be $2.00. The conversion rate will ultimately be
decided at the time of sale based on prevailing market conditions. Our Board of
Directors at that time expects to amend this document to revise the conversion
price. The conversion price will be adjusted to reflect subdivisions or
combinations of our common stock such as stock splits, stock dividends,
recapitalizations or reverse splits.
Mandatory
Conversion at Our Option. At any time after the original purchase date,
if the closing price of our common stock as reported by the principal exchange
or quotation system on which such common stock is traded or reported equals or
exceeds $3.00 per share (Or whatever trigger price is ultimately set at the time
of sale of these Series B Preferred Stock.) of common stock, then we shall have
the right to cause all (but not less than all) outstanding shares of Series B
Preferred Stock to be automatically converted into shares of common
stock.
Mandatory
Redemption . At any time after the second anniversary of the
original purchase date, we may redeem all, but not less than
all, of the outstanding shares of Series B Preferred at
our sole discretion, at a price equal to the greater of (i) one hundred ten
percent (110%) of the original purchase price, plus an amount equal to any
unpaid and accrued dividends and (ii) the Fair Market Value of such number of
shares of common stock which the holder of the redeemed Series B Preferred would
be entitled to receive had the redeemed Series B Preferred been converted
immediately prior to the redemption.
Voting .
Holders of the Series B Preferred will have no voting rights, except as required
by law.
Liquidation
. In the
event of any liquidation, dissolution or winding up of Reed’s, whether voluntary
or involuntary, after payment or provision for payment of debts and other
liabilities of Reed’s and all amounts due and owing to the holders of
outstanding shares of Senior Stock, if any, each holder of Series B Preferred,
before any distribution or payment is made upon any Junior Stock, shall be
entitled to receive, out of our assets legally available for distribution to
stockholders, an amount equal to the sum of (A) the original purchase price of
such shares of Series B Preferred plus (B) an amount equal to any unpaid and
accrued dividends thereon up to and including the date of the liquidation event
and (ii) if such share of Series B Preferred were then convertible into common
stock, such amount which the holder of Series B Preferred would be entitled to
receive in connection with a liquidation event if such holder had converted his,
her or its Series B Preferred immediately prior to the occurrence of the
liquidation event.
Anti-Dilution
Rate Adjustment. The conversion rate will be adjusted, without
duplication, if certain events occur:
Adjustments for Subdivisions or
Combinations of Common Stock . In the event the outstanding
shares of common stock shall be subdivided by stock split, stock dividend or
otherwise, into a greater number of shares of common stock, the conversion price
of the Series B Preferred then in effect shall, concurrently with the
effectiveness of such subdivision, be proportionately decreased. In
the event the outstanding shares of common stock shall be combined or
consolidated into a lesser number of shares of common stock, the conversion
price of the Series B Preferred then in effect shall, concurrently with the
effectiveness of such combination or consolidation, be proportionately
increased.
Adjustments for Non-Cash Dividends
and Other Distributions . In the event Reed’s makes, or fixes
a record date for the determination of holders of common stock entitled to
receive, any distribution (excluding repurchases of securities by the
corporation not made on a pro rata basis) payable in property or in securities
of Reed’s other than shares of common stock, then and in each such event the
holders of Series B Preferred shall receive, at the time of such distribution,
the amount of property or the number of securities of Reed’s that they would
have received had their Series B Preferred been converted into common stock on
the date of such event.
Adjustments for Reorganizations,
Reclassifications or Similar Events . If the common stock
shall be changed into the same or a different number of shares of any other
class or classes of stock or other securities or property, whether by capital
reorganization, reclassification or otherwise, then each share of Series B
Preferred shall thereafter be convertible into the number of shares of stock or
other securities or property to which a holder of the number of shares of common
stock of Reed’s deliverable upon conversion of such shares of Series B Preferred
shall have been entitled upon such reorganization, reclassification or other
event.
Anti-Takeover
Effects of Delaware Law and Our Certificate of Incorporation
Certain
provisions of Delaware law and our certificate of incorporation could make more
difficult the acquisition of us by means of a tender offer or otherwise, and the
removal of incumbent officers and directors. These provisions are expected to
discourage certain types of coercive takeover practices and inadequate takeover
bids and to encourage persons seeking to acquire control of us.
Our
Certificate of Incorporation and Bylaws include provisions that allow the board
of directors to issue, without further action by the stockholders, up to 500,000
shares of undesignated preferred stock.
We are
subject to the provisions of Section 203 of the Delaware General Corporation Law
regulating corporate takeovers. In general, Section 203 prohibits a
publicly-held Delaware corporation from engaging under certain circumstances, in
a business combination with an interested stockholder for a period of three
years following the date the person became an interested stockholder
unless:
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prior
to the date of the transaction, the board of directors of the corporation
approved either the business combination or the transaction which resulted
in the stockholder becoming an interested
stockholder.
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upon
completion of the transaction that resulted in the stockholder becoming an
interested stockholder, the 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 (1) shares owned by persons who are directors and also
officers and (2) shares owned by employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer.
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on
or subsequent to the date of the transaction, the business combination is
approved by the board 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.
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Generally,
a business combination includes a merger, asset or stock sale, or other
transaction resulting in a financial benefit to the interested stockholder. An
interested stockholder is a person who, together with affiliates and associates,
owns or, within three years prior to the determination of interested stockholder
status, did own 15% or more of a corporation’s outstanding voting securities.
The existence of this provision may have an anti-takeover effect with respect to
transactions our board of directors does not approve in advance. Section 203 may
also discourage attempts that might result in a premium over the market price
for the shares of common stock held by stockholders.
These
provisions of Delaware law and our certificate of incorporation could have the
effect of discouraging others from attempting hostile takeovers and, as a
consequence, they may also inhibit temporary fluctuations in the market price of
our common stock that often result from actual or rumored hostile takeover
attempts. These provisions may also have the effect of preventing changes in our
management. It is possible that these provisions could make it more difficult to
accomplish transactions that stockholders may otherwise deem to be in their best
interests.
Liability and
Indemnification of Directors and Officers
Our
amended certificate of incorporation provides that, to the fullest extent
permitted by Delaware law, as it may be amended from time to time, none of our
directors will be personally liable to us or our stockholders for monetary
damages resulting from a breach of fiduciary duty as a director. Our amended
certificate of incorporation also provides discretionary indemnification for the
benefit of our directors, officers, and employees, to the fullest extent
permitted by Delaware law, as it may be amended from time to time. Pursuant to
our bylaws, we are required to indemnify our directors, officers, employees and
agents, and we have the discretion to advance his or her related expenses, to
the fullest extent permitted by law.
We do
currently provide liability insurance coverage for our directors and officers
.
These
indemnification provisions may be sufficiently broad to permit indemnification
of our officers and directors for liabilities (including reimbursement of
expenses incurred) arising under the Securities Act. Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to our
directors or officers, or persons controlling us, pursuant to the foregoing
provisions, we have been informed that in the opinion of the SEC, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment of expenses incurred or paid by
a director, officer or controlling person in a successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, we will, unless in the
opinion of our counsel the matter has been settled by controlling precedent,
submit to the court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
DESCRIPTION
OF DEBT SECURITIES
As used
in this prospectus, debt securities means the debentures, notes, bonds and other
evidences of indebtedness that we may issue from time to time. The debt
securities will either be senior debt securities or subordinated debt
securities. The senior debt securities will be issued under a senior indenture
between us and the senior trustee named in the applicable prospectus supplement
and the subordinated debt securities will be issued under a subordinated
indenture between us and the subordinated trustee named in the applicable
prospectus supplement. This prospectus sometimes refers to the senior indenture
and the subordinated indenture collectively as the “Indentures.”
The
statements and descriptions in this prospectus or in any prospectus supplement
regarding provisions of the Indentures and debt securities are summaries
thereof, do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, all of the provisions of the Indentures (and any
amendments or supplements we may enter into from time to time which are
permitted under each Indenture) and the debt securities, including the
definitions therein of certain terms.
General
Unless
otherwise specified in a prospectus supplement, the debt securities will be
direct unsecured obligations of Reed’s, Inc. The senior debt
securities will rank equally with any of our other senior and unsubordinated
debt. The subordinated debt securities will be subordinate and junior in right
of payment to any senior indebtedness.
The
Indentures do not limit the aggregate principal amount of debt securities that
we may issue and provide that we may issue debt securities from time to time in
one or more series, in each case with the same or various maturities, at par or
at a discount. Unless indicated in a prospectus supplement, we may “reopen,” or
issue additional debt securities of, a particular series without the consent of
the holders of the debt securities of such series outstanding at the time of the
issuance. Any such additional debt securities, together with all other
outstanding debt securities of that series, will constitute a single series of
debt securities under the applicable Indenture.
Each prospectus
supplement will describe the terms relating to the specific series of debt
securities being offered. These terms will include some or all of the
following:
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the
title of debt securities and whether they are subordinated debt securities
or senior debt securities;
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any
limit on the aggregate principal amount of the debt
securities;
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the
ability to issue additional debt securities of the same
series;
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the
price or prices at which we will sell the debt
securities;
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the
maturity date or dates of the debt
securities;
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the
rate or rates of interest, if any, which may be fixed or variable, at
which the debt securities will bear interest, or the method of determining
such rate or rates, if any;
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the
date or dates from which any interest will accrue or the method by which
such date or dates will be
determined;
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the
right, if any, to extend the interest payment periods and the duration of
any such deferral period, including the maximum consecutive period during
which interest payment periods may be
extended;
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whether
the amount of payments of principal of (and premium, if any) or interest
on the debt securities may be determined with reference to any index,
formula or other method, such as one or more currencies, commodities,
equity indices or other indices, and the manner of determining the amount
of such payments;
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the
dates on which we will pay interest on the debt securities and the regular
record date for determining who is entitled to the interest payable on any
interest payment date;
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the
place or places where the principal of (and premium, if any) and interest
on the debt securities will be payable, where any securities may be
surrendered for registration of transfer, exchange or conversion, as
applicable, and notices and demands may be delivered to or upon us
pursuant to the Indenture;
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if
we possess the option to do so, the periods within which and the prices at
which we may redeem the debt securities, in whole or in part, pursuant to
optional redemption provisions, and the other terms and conditions of any
such provisions;
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our
obligation, if any, to redeem, repay or purchase debt securities by making
periodic payments to a sinking fund or through an analogous provision or
at the option of holders of the debt securities, and the period or periods
within which and the price or prices at which we will redeem, repay or
purchase the debt securities, in whole or in part, pursuant to such
obligation, and the other terms and conditions of such
obligation;
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the
denominations in which the debt securities will be issued, if other than
denominations of $1,000 and integral multiples of
$1,000;
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the
portion, or methods of determining the portion, of the principal amount of
the debt securities which we must pay upon the acceleration of the
maturity of the debt securities in connection with an Event of Default (as
described below), if other than the full principal
amount;
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the
currency, currencies or currency unit in which we will pay the principal
of (and premium, if any) or interest, if any, on the debt securities, if
not United States dollars;
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provisions,
if any, granting special rights to holders of the debt securities upon the
occurrence of specified events;
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any
deletions from, modifications of or additions to the Events of Default or
our covenants with respect to the applicable series of debt securities,
and whether or not such Events of Default or covenants are consistent with
those contained in the applicable
Indenture;
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any
limitation on our ability to incur debt, redeem stock, sell our assets or
other restrictions;
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the
application, if any, of the terms of the Indenture relating to defeasance
and covenant defeasance (which terms are described below) to the debt
securities;
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whether
the subordination provisions summarized below or different subordination
provisions will apply to the debt
securities;
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the
terms, if any, upon which the holders may convert or exchange the debt
securities into or for our common stock, preferred stock or other
securities or property;
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whether
any of the debt securities will be issued in global form and, if so, the
terms and conditions upon which global debt securities may be exchanged
for certificated debt securities;
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any
change in the right of the trustee or the requisite holders of debt
securities to declare the principal amount thereof due and payable because
of an Event of Default;
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the
depositary for global or certificated debt
securities;
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any
special tax implications of the debt
securities;
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any
trustees, authenticating or paying agents, transfer agents or registrars,
or other agents with respect to the debt
securities;
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any
other terms of the debt securities not inconsistent with the provisions of
the Indentures, as amended or
supplemented;
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to
whom any interest on any debt security shall be payable, if other than the
person in whose name the security is registered, on the record date for
such interest, the extent to which, or the manner in which, any interest
payable on a temporary global debt security will be paid if other than in
the manner provided in the applicable
Indenture;
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if
the principal of or any premium or interest on any debt securities of the
series is to be payable in one or more currencies or currency units other
than as stated, the currency, currencies or currency units in which it
shall be paid and the periods within and terms and conditions upon which
such election is to be made and the amounts payable (or the manner in
which such amount shall be
determined);
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the
portion of the principal amount of any securities of the series which
shall be payable upon declaration of acceleration of the maturity of the
debt securities pursuant to the applicable Indenture if other than the
entire principal amount; and
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if
the principal amount payable at the stated maturity of any debt security
of the series will not be determinable as of any one or more dates prior
to the stated maturity, the amount which shall be deemed to be the
principal amount of such securities as of any such date for any purpose,
including the principal amount thereof which shall be due and payable upon
any maturity other than the stated maturity or which shall be deemed to be
outstanding as of any date prior to the stated maturity (or, in any such
case, the manner in which such amount deemed to be the principal amount
shall be determined).
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Unless
otherwise specified in the applicable prospectus supplement, the debt securities
will not be listed on any securities exchange.
Unless
otherwise specified in the applicable prospectus supplement, debt securities
will be issued in fully-registered form without coupons.
Debt
securities may be sold at a substantial discount below their stated principal
amount, bearing no interest or interest at a rate which at the time of issuance
is below market rates. The applicable prospectus supplement will describe the
federal income tax consequences and special considerations applicable to any
such debt securities. The debt securities may also be issued as indexed
securities or securities denominated in foreign currencies, currency units or
composite currencies, as described in more detail in the prospectus supplement
relating to any of the particular debt securities. The prospectus supplement
relating to specific debt securities will also describe any special
considerations and certain additional tax considerations applicable to such debt
securities.
The
prospectus supplement relating to any offering of subordinated debt securities
will describe the specific subordination provisions. However, unless otherwise
noted in the prospectus supplement, subordinated debt securities will be
subordinate and junior in right of payment to any existing Senior Indebtedness.
Under the subordinated indenture, “Senior Indebtedness” may mean all amounts due
on obligations in connection with any of the following, whether outstanding at
the date of execution of the subordinated indenture, or thereafter incurred or
created:
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the
principal of (and premium, if any) and interest due on our indebtedness
for borrowed money and indebtedness evidenced by securities, debentures,
bonds or other similar instruments issued by
us;
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all
of our capital lease obligations;
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any
of our obligations as lessee under leases required to be capitalized on
the balance sheet of the lessee under generally accepted accounting
principles;
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all
of our obligations for the reimbursement on any letter of credit, banker’s
acceptance, security purchase facility or similar credit
transaction;
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all
of our obligations in respect of interest rate swap, cap or other
agreements, interest rate future or options contracts, currency swap
agreements, currency future or option contracts and other similar
agreements;
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all
obligations of the types referred to above of other persons for the
payment of which we are responsible or liable as obligor, guarantor or
otherwise; and
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all
obligations of the types referred to above of other persons secured by any
lien on any property or asset of ours (whether or not such obligation is
assumed by us).
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However,
Senior Indebtedness will not include:
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any
indebtedness which expressly provides that such indebtedness shall not be
senior in right of payment to the subordinated debt securities, or that
such indebtedness shall be subordinated to any other of our indebtedness,
unless such indebtedness expressly provides that such indebtedness shall
be senior in right of payment to the subordinated debt
securities;
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any
of our indebtedness in respect of the subordinated debt
securities;
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any
indebtedness or liability for compensation to employees, for goods or
materials purchased in the ordinary course of business or for
services;
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any
of our indebtedness to any subsidiary;
and
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any
liability for federal, state, local or other taxes owed or owing by
us.
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Senior
Indebtedness shall continue to be Senior Indebtedness and be entitled to the
benefits of the subordination provisions irrespective of any amendment,
modification or waiver of any term of such Senior Indebtedness.
Unless
otherwise noted in the prospectus supplement, if we default in the payment of
any principal of (or premium, if any) or interest on any Senior Indebtedness
when it becomes due and payable, whether at maturity or at a date fixed for
prepayment or by declaration or otherwise, then, unless and until such default
is cured or waived or ceases to exist, we will make no direct or indirect
payment (in cash, property, securities, by set-off or otherwise) in respect of
the principal of or interest on the subordinated debt securities or in respect
of any redemption, retirement, purchase or other requisition of any of the
subordinated debt securities.
In the
event of the acceleration of the maturity of any subordinated debt securities,
the holders of all senior debt securities outstanding at the time of such
acceleration, subject to any security interest, will first be entitled to
receive payment in full of all amounts due on the senior debt securities before
the holders of the subordinated debt securities will be entitled to receive any
payment of principal (and premium, if any) or interest on the subordinated debt
securities.
If any of
the following events occurs, we will pay in full all Senior Indebtedness before
we make any payment or distribution under the subordinated debt securities,
whether in cash, securities or other property, to any holder of subordinated
debt securities:
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any
dissolution or winding-up or liquidation or reorganization of Reed’s, Inc.
, whether voluntary or involuntary or in bankruptcy, insolvency or
receivership;
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any
general assignment by us for the benefit of creditors;
or
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any
other marshaling of our assets or
liabilities.
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In such
event, any payment or distribution under the subordinated debt securities,
whether in cash, securities or other property, which would otherwise (but for
the subordination provisions) be payable or deliverable in respect of the
subordinated debt securities, will be paid or delivered directly to the holders
of Senior Indebtedness in accordance with the priorities then existing among
such holders until all Senior Indebtedness has been paid in full. If any payment
or distribution under the subordinated debt securities is received by the
trustee of any subordinated debt securities in contravention of any of the terms
of the subordinated indenture and before all the Senior Indebtedness has been
paid in full, such payment or distribution or security will be received in trust
for the benefit of, and paid over or delivered and transferred to, the holders
of the Senior Indebtedness at the time outstanding in accordance with the
priorities then existing among such holders for application to the payment of
all Senior Indebtedness remaining unpaid to the extent necessary to pay all such
Senior Indebtedness in full.
The
subordinated indenture does not limit the issuance of additional Senior
Indebtedness.
Consolidation,
Merger, Sale of Assets and Other Transactions
We may
not merge with or into or consolidate with another corporation or sell, assign,
transfer, lease or convey all or substantially all of our properties and assets
to, any other corporation other than a direct or indirect wholly-owned
subsidiary of ours, and no corporation may merge with or into or consolidate
with us or, except for any direct or indirect wholly-owned subsidiary of ours,
sell, assign, transfer, lease or convey all or substantially all of its
properties and assets to us, unless:
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we
are the surviving corporation or the corporation formed by or surviving
such merger or consolidation or to which such sale, assignment, transfer,
lease or conveyance has been made, if other than us, has expressly assumed
by supplemental indenture all of our obligations under the debt securities
and the Indentures;
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immediately
after giving effect to such transaction, no default or Event of Default
has occurred and is continuing; and we deliver to the trustee an officers’
certificate and an opinion of counsel, each stating that the supplemental
indenture complies with the applicable Indenture.
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Events
of Default, Notice and Waiver
Unless an
accompanying prospectus supplement states otherwise, the following shall
constitute “Events of Default” under the Indentures with respect to each series
of debt securities:
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our
failure to pay any interest on any debt security of such series when due
and payable, continued for 30 days;
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our
failure to pay principal (or premium, if any) on any debt security of such
series when due, regardless of whether such payment became due because of
maturity, redemption, acceleration or otherwise, or is required by any
sinking fund established with respect to such
series;
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our
failure to observe or perform any other of its covenants or agreements
with respect to such debt securities for 90 days after we receive notice
of such failure;
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certain
events of bankruptcy, insolvency or reorganization of Reed’s, Inc. ;
or
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any
other Event of Default provided with respect to securities of that
series.
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If an
Event of Default with respect to any debt securities of any series outstanding
under either of the Indentures shall occur and be continuing, the trustee under
such Indenture or the holders of at least 25% in aggregate principal amount of
the debt securities of that series outstanding may declare, by notice as
provided in the applicable Indenture, the principal amount (or such lesser
amount as may be provided for in the debt securities of that series) of all the
debt securities of that series outstanding to be due and payable immediately;
provided that, in the case of an Event of Default involving certain events in
bankruptcy, insolvency or reorganization, acceleration is automatic; and,
provided further, that after such acceleration, but before a judgment or decree
based on acceleration, the holders of a majority in aggregate principal amount
of the outstanding debt securities of that series may, under certain
circumstances, rescind and annul such acceleration if all Events of Default,
other than the nonpayment of accelerated principal, have been cured or waived.
Upon the acceleration of the maturity of original issue discount securities, an
amount less than the principal amount thereof will become due and payable.
Reference is made to the prospectus supplement relating to any original issue
discount securities for the particular provisions relating to acceleration of
maturity thereof.
Any past
default under either Indenture with respect to debt securities of any series,
and any Event of Default arising therefrom, may be waived by the holders of a
majority in principal amount of all debt securities of such series outstanding
under such Indenture, except in the case of (i) default in the payment of the
principal of (or premium, if any) or interest on any debt securities of such
series or (ii) default in respect of a covenant or provision which may not be
amended or modified without the consent of the holder of each outstanding debt
security of such series affected.
The
trustee is required within 90 days after the occurrence of an Event of Default
(which is known to the trustee and is continuing), with respect to the debt
securities of any series (without regard to any grace period or notice
requirements), to give to the holders of the debt securities of such series
notice of such default.
The
trustee, subject to its duties during default to act with the required standard
of care, may require indemnification by the holders of the debt securities of
any series with respect to which a default has occurred before proceeding to
exercise any right or power under the Indentures at the request of the holders
of the debt securities of such series. Subject to such right of indemnification
and to certain other limitations, the holders of a majority in principal amount
of the outstanding debt securities of any series under either Indenture may
direct the time, method and place of conducting any proceeding for any remedy
available to the trustee, or exercising any trust or power conferred on the
trustee with respect to the debt securities of such series, provided that such
direction shall not be in conflict with any rule of law or with the applicable
Indenture and the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
No holder
of a debt security of any series may institute any action against us under
either of the Indentures (except actions for payment of overdue principal of
(and premium, if any) or interest on such debt security or for the conversion or
exchange of such debt security in accordance with its terms) unless (i) the
holder has given to the trustee written notice of an Event of Default and of the
continuance thereof with respect to the debt securities of such series
specifying an Event of Default, as required under the applicable Indenture; (ii)
the holders of at least 25% in aggregate principal amount of the debt securities
of that series then outstanding under such Indenture shall have requested the
trustee to institute such action and offered to the trustee indemnity reasonably
satisfactory to it against the costs, expenses and liabilities to be incurred in
compliance with such request; (iii) the trustee shall not have instituted such
action within 60 days of such request and (iv) no direction inconsistent with
such written request has been given to the Trustee during such 60-day period by
the holders of a majority in principal amount of the debt securities of that
series.
We are
required to furnish annually to the trustee statements as to our compliance with
all conditions and covenants under each Indenture.
Discharge,
Defeasance and Covenant Defeasance
We may
discharge or defease our obligations under the Indentures as set forth below,
unless otherwise indicated in the applicable prospectus supplement.
We may
discharge certain obligations to holders of any series of debt securities issued
under either the Indentures which have not already been delivered to the trustee
for cancellation and which have either become due and payable or are by their
terms due and payable within one year (or scheduled for redemption within one
year) by irrevocably depositing with the trustee money in an amount sufficient
to pay and discharge the entire indebtedness on such debt securities not
previously delivered to the Trustee for cancellation, for principal and any
premium and interest to the date of such deposit (in the case of debt securities
which have become due and payable) or to the stated maturity or redemption date,
as the case may be and we have paid all other sums payable under the applicable
indenture.
If
indicated in the applicable prospectus supplement, we may elect either to (i)
defease and be discharged from any and all obligations with respect to the debt
securities of or within any series (except as otherwise provided in the relevant
Indenture) (“defeasance”) or (ii) be released from our obligations with respect
to certain covenants applicable to the debt securities of or within any series
(“covenant defeasance”), upon the deposit with the relevant Indenture trustee,
in trust for such purpose, of money and/or government obligations which through
the payment of principal and interest in accordance with their terms will
provide money in an amount sufficient to pay the principal of (and premium, if
any) or interest on such debt securities to maturity or redemption, as the case
may be, and any mandatory sinking fund or analogous payments thereon. As a
condition to defeasance or covenant defeasance, we must deliver to the trustee
an opinion of counsel to the effect that the holders of such debt securities
will not recognize income, gain or loss for federal income tax purposes as a
result of such defeasance or covenant defeasance and will be subject to federal
income tax on the same amounts and in the same manner and at the same times as
would have been the case if such defeasance or covenant defeasance had not
occurred. Such opinion of counsel, in the case of defeasance under clause (i)
above, must refer to and be based upon a ruling of the Internal Revenue Service
or a change in applicable federal income tax law occurring after the date of the
relevant Indenture. In addition, in the case of either defeasance or covenant
defeasance, we shall have delivered to the trustee (i) an officers’ certificate
to the effect that the relevant debt securities exchange(s) have informed us
that neither such debt securities nor any other debt securities of the same
series, if then listed on any securities exchange, will be delisted as a result
of such deposit and (ii) an officers’ certificate and an opinion of counsel,
each stating that all conditions precedent, including without limitation the
absence of a continuing Event of Default, have been complied with regarding such
defeasance or covenant defeasance.
We may
exercise our defeasance option with respect to such debt securities
notwithstanding our prior exercise of our covenant defeasance
option.
Modification
and Waiver
Under the
Indentures, we and the applicable trustee may supplement the Indentures for
certain purposes which would not materially adversely affect the interests or
rights of the holders of debt securities of a series without the consent of
those holders. We and the applicable trustee may also modify the Indentures or
any supplemental indenture in a manner that affects the interests or rights of
the holders of debt securities with the consent of the holders of at least a
majority in aggregate principal amount of the outstanding debt securities of
each affected series issued under the Indenture. However, the Indentures require
the consent of each holder of debt securities that would be affected by any
modification which would:
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change
the fixed maturity of any debt securities of any series, or reduce the
principal amount thereof, or reduce the rate or extend the time of payment
of interest thereon, or reduce any premium payable upon the redemption
thereof;
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reduce
the amount of principal of an original issue discount debt security or any
other debt security payable upon acceleration of the maturity
thereof;
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change
the currency in which any debt security or any premium or interest is
payable;
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impair
the right to enforce any payment on or with respect to any debt
security;
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adversely
change the right to convert or exchange, including decreasing the
conversion rate or increasing the conversion price of, any debt security
(if applicable);
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reduce
the percentage in principal amount of outstanding debt securities of any
series, the consent of whose holders is required for modification or
amendment of the Indentures or for waiver of compliance with certain
provisions of the Indentures or for waiver of certain defaults;
or
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modify
any of the above provisions.
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The
Indentures permit the holders of at least a majority in aggregate principal
amount of the outstanding debt securities of any series issued under the
Indenture which is affected by the modification or amendment to waive our
compliance with certain covenants contained in the Indentures.
Payment
and Paying Agents
Unless
otherwise indicated in the applicable prospectus supplement, payment of interest
on a debt security on any interest payment date will be made to the person in
whose name a debt security is registered at the close of business on the record
date for the interest. Book-entry and other indirect holders should
consult their banks, brokers or other financial institutions for information on
how they will receive payments.
Unless
otherwise indicated in the applicable prospectus supplement, principal, interest
and premium on the debt securities of a particular series will be payable at the
office of such paying agent or paying agents as we may designate for such
purpose from time to time. Notwithstanding the foregoing, at our option, payment
of any interest may be made by check mailed to the address of the person
entitled thereto as such address appears in the security register.
Unless
otherwise indicated in the applicable prospectus supplement, a paying agent
designated by us will act as paying agent for payments with respect to debt
securities of each series. All paying agents initially designated by us for the
debt securities of a particular series will be named in the applicable
prospectus supplement. We may at any time designate additional paying agents or
rescind the designation of any paying agent or approve a change in the office
through which any paying agent acts, except that we will be required to maintain
a paying agent in each place of payment for the debt securities of a particular
series.
All
moneys paid by us to a paying agent for the payment of the principal, interest
or premium on any debt security which remain unclaimed at the end of two years
after such principal, interest or premium has become due and payable will be
repaid to us upon request, and the holder of such debt security thereafter may
look only to us for payment thereof.
Denominations,
Registrations and Transfer
Unless an
accompanying prospectus supplement states otherwise, debt securities will be
represented by one or more global certificates registered in the name of a
nominee for The Depository Trust Company, or DTC. In such case, each holder’s
beneficial interest in the global securities will be shown on the records of DTC
and transfers of beneficial interests will only be effected through DTC’s
records.
A holder
of debt securities may only exchange a beneficial interest in a global security
for certificated securities registered in the holder’s name if:
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DTC
notifies us that it is unwilling or unable to continue serving as the
depositary for the relevant global securities or DTC ceases to maintain
certain qualifications under the Securities Exchange Act of 1934 and no
successor depositary has been appointed for 90 days;
or
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we
determine, in our sole discretion, that the global security shall be
exchangeable.
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If debt
securities are issued in certificated form, they will only be issued in the
minimum denomination specified in the accompanying prospectus supplement and
integral multiples of such denomination. Transfers and exchanges of such debt
securities will only be permitted in such minimum denomination. Transfers of
debt securities in certificated form may be registered at the trustee’s
corporate office or at the offices of any paying agent or trustee appointed by
us under the Indentures. Exchanges of debt securities for an equal aggregate
principal amount of debt securities in different denominations may also be made
at such locations. Holders will not be required to pay a service charge to
transfer or exchange debt securities, but holders may be required to pay for any
tax or other governmental charge associated with the exchange or transfer.
The transfer or exchange will only be made if the security registrar is
satisfied with the holder’s proof of ownership.
Conversion
or Exchange Rights
The
prospectus supplement will describe the terms, if any, on which a series of debt
securities may be convertible into or exchangeable for our common stock,
preferred stock or other debt securities. These terms will include provisions as
to whether conversion or exchange is mandatory, at the option of the holder or
at our option. These provisions may allow or require the number of shares of our
common stock or other securities to be received by the holders of such series of
debt securities to be adjusted.
DESCRIPTION
OF WARRANTS
The
following description, together with the additional information we may include
in any applicable prospectus supplements, summarizes the material terms and
provisions of the warrants that we may offer under this prospectus and the
related warrant agreements and warrant certificates. While the terms summarized
below will apply generally to any warrants that we may offer, we will describe
the particular terms of any series of warrants in more detail in the applicable
prospectus supplement. If we indicate in the prospectus supplement, the terms of
any warrants offered under that prospectus supplement may differ from the terms
described below. If there are differences between that prospectus
supplement and this prospectus, the prospectus supplement will
control. Thus, the statements we make in this section may not apply
to a particular series of warrants. Specific warrant agreements will
contain additional important terms and provisions and will be incorporated by
reference as an exhibit to the registration statement which includes this
prospectus.
General
We may
issue warrants for the purchase of common stock, preferred stock and/or debt
securities in one or more series. We may issue warrants independently or
together with common stock, preferred stock and/or debt securities, and the
warrants may be attached to or separate from these securities.
We will
evidence each series of warrants by warrant certificates that we may issue under
a separate agreement. We may enter into the warrant agreement with a warrant
agent. Each warrant agent may be a bank that we select which has its principal
office in the United States and a combined capital and surplus of at least
$50,000,000. We may also choose to act as out own warrant
agent. We will indicate the name and address of any such warrant
agent in the applicable prospectus supplement relating to a particular series of
warrants.
We will
describe in the applicable prospectus supplement the terms of the series of
warrants, including:
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the
offering price and aggregate number of warrants
offered;
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the
currency for which the warrants may be
purchased;
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if
applicable, the designation and terms of the securities with which the
warrants are issued and the number of warrants issued with each such
security or each principal amount of such
security;
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if
applicable, the date on and after which the warrants and the related
securities will be separately
transferable;
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in
the case of warrants to purchase debt securities, the principal amount of
debt securities purchasable upon exercise of one warrant and the price at,
and currency in which, this principal amount of debt securities may be
purchased upon such exercise;
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in
the case of warrants to purchase common stock or preferred stock, the
number of shares of common stock or preferred stock, as the case may be,
purchasable upon the exercise of one warrant and the price at which these
shares may be purchased upon such
exercise;
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the
warrant agreement under which the warrants will be
issued;
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the
effect of any merger, consolidation, sale or other disposition of our
business on the warrant agreement and the
warrants;
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anti-dilution
provisions of the warrants, if any;
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the
terms of any rights to redeem or call the
warrants;
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any
provisions for changes to or adjustments in the exercise price or number
of securities issuable upon exercise of the
warrants;
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the
dates on which the right to exercise the warrants will commence and expire
or, if the warrants are not continuously exercisable during that period,
the specific date or dates on which the warrants will be
exercisable;
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the
manner in which the warrant agreement and warrants may be
modified;
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the
identities of the warrant agent and any calculation or other agent for the
warrants;
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federal
income tax consequences of holding or exercising the
warrants;
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the
terms of the securities issuable upon exercise of the
warrants;
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any
securities exchange or quotation system on which the warrants or any
securities deliverable upon exercise of the warrants may be listed;
and
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any
other specific terms, preferences, rights or limitations of or
restrictions on the warrants.
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Before
exercising their warrants, holders of warrants will not have any of the rights
of holders of the securities purchasable upon such exercise,
including:
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in
the case of warrants to purchase debt securities, the right to receive
payments of principal of, or premium, if any, or interest on, the debt
securities purchasable upon exercise or to enforce covenants in the
applicable indenture; or
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in
the case of warrants to purchase common stock or preferred stock, the
right to receive dividends, if any, or, payments upon our liquidation,
dissolution or winding up or to exercise voting rights, if
any.
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Exercise
of Warrants
Each
warrant will entitle the holder to purchase the securities that we specify in
the applicable prospectus supplement at the exercise price that we describe in
the applicable prospectus supplement. Unless we otherwise specify in the
applicable prospectus supplement, holders of the warrants may exercise the
warrants at any time up to 5:00 P.M. eastern time on the expiration date that we
set forth in the applicable prospectus supplement. After the close of business
on the expiration date, unexercised warrants will become void.
Holders
of the warrants may exercise the warrants by delivering the warrant certificate
representing the warrants to be exercised together with specified information,
and paying the required amount to the warrant agent in immediately available
funds, as provided in the applicable prospectus supplement. We will set forth on
the reverse side of the warrant certificate, and in the applicable prospectus
supplement, the information that the holder of the warrant will be required to
deliver to the warrant agent.
Until the
warrant is properly exercised, no holder of any warrant will be entitled to any
rights of a holder of the securities purchasable upon exercise of the
warrant.
Upon
receipt of the required payment and the warrant certificate properly completed
and duly executed at the corporate trust office of the warrant agent or any
other office indicated in the applicable prospectus supplement, we will issue
and deliver the securities purchasable upon such exercise. If fewer than all of
the warrants represented by the warrant certificate are exercised, then we will
issue a new warrant certificate for the remaining amount of warrants. If we so
indicate in the applicable prospectus supplement, holders of the warrants may
surrender securities as all or part of the exercise price for
warrants.
Enforceability
of Rights By Holders of Warrants
Any
warrant agent will act solely as our agent under the applicable warrant
agreement and will not assume any obligation or relationship of agency or trust
with any holder of any warrant. A single bank or trust company may act as
warrant agent for more than one issue of warrants. A warrant agent will have no
duty or responsibility in case of any default by us under the applicable warrant
agreement or warrant, including any duty or responsibility to initiate any
proceedings at law or otherwise, or to make any demand upon us. Any holder of a
warrant may, without the consent of the related warrant agent or the holder of
any other warrant, enforce by appropriate legal action its right to exercise,
and receive the securities purchasable upon exercise of, its warrants in
accordance with their terms.
Warrant
Agreement Will Not Be Qualified Under Trust Indenture Act
No
warrant agreement will be qualified as an indenture, and no warrant agent will
be required to qualify as a trustee, under the Trust Indenture Act. Therefore,
holders of warrants issued under a warrant agreement will not have the
protection of the Trust Indenture Act with respect to their
warrants.
We may
issue units comprised of one or more of the other securities described in this
prospectus in any combination. Each unit will be issued so that the holder of
the unit is also the holder of each security included in the unit. Thus, the
holder of a unit will have the rights and obligations of a holder of each
included security. The unit agreement under which a unit is issued may provide
that the securities included in the unit may not be held or transferred
separately, at any time or at any time before a specified date.
The
applicable prospectus supplement will describe:
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the
designation and terms of the units and of the securities comprising the
units, including whether and under what circumstances those securities may
be held or transferred separately;
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any
unit agreement under which the units will be
issued;
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any
provisions for the issuance, payment, settlement, transfer or exchange of
the units or of the securities comprising the units;
and
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whether
the units will be issued in fully registered or global
form.
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The
applicable prospectus supplement will describe the terms of any units. The
preceding description and any description of units in the applicable prospectus
supplement does not purport to be complete and is subject to and is qualified in
its entirety by reference to the unit agreement and, if applicable, collateral
arrangements and depositary arrangements relating to such units.
We may
sell the securities being offered pursuant to this prospectus through
underwriters or dealers, through agents, or directly to one or more purchasers
or through a combination of these methods. The applicable prospectus
supplement will describe the terms of the offering of the securities,
including:
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the
name or names of any underwriters, if any, and if required, any dealers or
agents;
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the
purchase price of the securities and the proceeds we will receive from the
sale;
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any
underwriting discounts and other items constituting underwriters’
compensation;
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any
discounts or concessions allowed or reallowed or paid to dealers;
and
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any
securities exchange or market on which the securities may be
listed.
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We may
distribute the securities from time to time in one or more transactions at:
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a
fixed price or prices, which may be
changed;
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market
prices prevailing at the time of
sale;
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prices
related to such prevailing market prices;
or
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Only
underwriters named in the prospectus supplement are underwriters of the
securities offered by the prospectus supplement.
If
underwriters are used in an offering, we will execute an underwriting agreement
with such underwriters and will specify the name of each underwriter and the
terms of the transaction (including any underwriting discounts and other terms
constituting compensation of the underwriters and any dealers) in a prospectus
supplement. The securities may be offered to the public either through
underwriting syndicates represented by managing underwriters or directly by one
or more investment banking firms or others, as designated. If an underwriting
syndicate is used, the managing underwriter(s) will be specified on the cover of
the prospectus supplement. If underwriters are used in the sale, the offered
securities will be acquired by the underwriters for their own accounts and may
be resold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. Any public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time to time. Unless
otherwise set forth in the prospectus supplement, the obligations of the
underwriters to purchase the offered securities will be subject to conditions
precedent and the underwriters will be obligated to purchase all of the offered
securities if any are purchased.
We may
grant to the underwriters options to purchase additional securities to cover
over-allotments, if any, at the public offering price, with additional
underwriting commissions or discounts, as may be set forth in a related
prospectus supplement. The terms of any over-allotment option will be set forth
in the prospectus supplement for those securities.
If we use
a dealer in the sale of the securities being offered pursuant to this prospectus
or any prospectus supplement, we will sell the securities to the dealer, as
principal. The dealer may then resell the securities to the public at
varying prices to be determined by the dealer at the time of resale.
The names of the dealers and the terms of the transaction will be
specified in a prospectus supplement.
We may
sell the securities directly or through agents we designate from time to
time. We will name any agent involved in the offering and sale of
securities and we will describe any commissions we will pay the agent in the
prospectus supplement. Unless the prospectus supplement states otherwise, any
agent will act on a best-efforts basis for the period of its
appointment.
We may
authorize agents or underwriters to solicit offers by institutional investors to
purchase securities from us at the public offering price set forth in the
prospectus supplement pursuant to delayed delivery contracts providing for
payment and delivery on a specified date in the future. We will describe the
conditions to these contracts and the commissions we must pay for solicitation
of these contracts in the prospectus supplement.
In
connection with the sale of the securities, underwriters, dealers or agents may
receive compensation from us or from purchasers of the common stock for whom
they act as agents in the form of discounts, concessions or commissions.
Underwriters may sell the securities to or through dealers, and those dealers
may receive compensation in the form of discounts, concessions or commissions
from the underwriters or commissions from the purchasers for whom they may act
as agents. Underwriters, dealers and agents that participate in the distribution
of the securities, and any institutional investors or others that purchase
common stock directly and then resell the securities, may be deemed to be
underwriters, and any discounts or commissions received by them from us and any
profit on the resale of the common stock by them may be deemed to be
underwriting discounts and commissions under the Securities Act.
We may
provide agents and underwriters with indemnification against particular civil
liabilities, including liabilities under the Securities Act, or contribution
with respect to payments that the agents or underwriters may make with respect
to such liabilities. Agents and underwriters may engage in transactions with, or
perform services for, us in the ordinary course of business.
In
addition, we may enter into derivative transactions with third parties
(including the writing of options), or sell securities not covered by this
prospectus to third parties in privately negotiated transactions. If the
applicable prospectus supplement indicates, in connection with such a
transaction, the third parties may, pursuant to this prospectus and the
applicable prospectus supplement, sell securities covered by this prospectus and
the applicable prospectus supplement. If so, the third party may use securities
borrowed from us or others to settle such sales and may use securities received
from us to close out any related short positions. We may also loan or pledge
securities covered by this prospectus and the applicable prospectus supplement
to third parties, who may sell the loaned securities or, in an event of default
in the case of a pledge, sell the pledged securities pursuant to this prospectus
and the applicable prospectus supplement. The third party in such sale
transactions will be an underwriter and will be identified in the applicable
prospectus supplement or in a post-effective amendment.
To
facilitate an offering of a series of securities, persons participating in the
offering may engage in transactions that stabilize, maintain, or otherwise
affect the market price of the securities. This may include over-allotments or
short sales of the securities, which involves the sale by persons participating
in the offering of more securities than have been sold to them by us. In those
circumstances, such persons would cover such over-allotments or short positions
by purchasing in the open market or by exercising the over-allotment option
granted to those persons. In addition, those persons may stabilize or maintain
the price of the securities by bidding for or purchasing securities in the open
market or by imposing penalty bids, whereby selling concessions allowed to
underwriters or dealers participating in any such offering may be reclaimed if
securities sold by them are repurchased in connection with stabilization
transactions. The effect of these transactions may be to stabilize or maintain
the market price of the securities at a level above that which might otherwise
prevail in the open market. Such transactions, if commenced, may be discontinued
at any time. We make no representation or prediction as to the direction or
magnitude of any effect that the transactions described above, if implemented,
may have on the price of our securities.
Any
common stock sold pursuant to a prospectus supplement will be eligible for
quotation and trading on the Nasdaq Capital Market, subject to official notice
of issuance. Any underwriters to whom securities are sold by us for public
offering and sale may make a market in the securities, but such underwriters
will not be obligated to do so and may discontinue any market making at any time
without notice.
In order
to comply with the securities laws of some states, if applicable, the securities
offered pursuant to this prospectus will be sold in those states only through
registered or licensed brokers or dealers. In addition, in some states
securities may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the registration or
qualification requirement is available and complied with.
The
validity of the issuance of the securities offered hereby will be passed upon
for us by Sichenzia Ross Friedman Ference LLP, New York, New York.
Weinberg
& Company, P.A., independent registered public accounting firm, has audited
our financial statements included in our Annual Report on Form 10-K
for the year ended December 31, 2008, as set forth in their report, which
is incorporated by reference in the prospectus and elsewhere in this
registration statement. Our financial statements are incorporated by reference
in reliance on Weinberg & Company, P.A.’s report, given on their authority
as experts in accounting and auditing.
WHERE
YOU CAN FIND MORE INFORMATION
This
prospectus constitutes a part of a registration statement on Form S-3 filed
under the Securities Act. As permitted by the SEC’s rules, this prospectus
and any prospectus supplement, which form a part of the registration statement,
do not contain all the information that is included in the registration
statement. You will find additional information about us in the
registration statement. Any statements made in this prospectus or any
prospectus supplement concerning legal documents are not necessarily complete
and you should read the documents that are filed as exhibits to the registration
statement or otherwise filed with the SEC for a more complete understanding of
the document or matter.
We file
annual, quarterly and current reports, proxy statements and other information
with the SEC. You may read, without charge, and copy the documents we file
at the SEC’s public reference rooms in Washington, D.C. at 100 F Street, NE,
Room 1580, Washington, DC 20549, or in New York, New York and Chicago,
Illinois. You can request copies of these documents by writing to the SEC
and paying a fee for the copying cost. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our
SEC filings are also available to the public at no cost from the SEC’s website
at http://www.sec.gov.
INCORPORATION
OF DOCUMENTS BY REFERENCE
We
incorporate by reference the filed documents listed below, except as superseded,
supplemented or modified by this prospectus, and any future filings we will make
with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act of 1934 (the “Exchange Act”):
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Our
Annual Report on Form 10-K for the fiscal year ended December 31,
2008, as filed March 27, 2009;
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Our
Annual Report on Form 10-K for the fiscal year ended December 31,
2007, as filed April 15, 2008, as amended on October 6,
2008;
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Our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, as
filed May 13, 2009;
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Our
Current Reports on Form 8-K filed with the SEC January 6, 2009, January
26, 2009, May 5, 2009, and June 22, 2009;
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All
other reports filed pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), since the end of
the fiscal year covered by the annual report referred to in paragraph (a)
above; and
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The
description of our capital stock that is contained in our Registration
Statement on Form S-1 (File No. 333-156908), as filed January
23, 2009.
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The
reports and other documents that we file after the date of this prospectus
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act will update,
supplement and supersede the information in this prospectus. You may
request and obtain a copy of any of the filings incorporated herein by
reference, at no cost, by writing or telephoning us at the following address or
phone number:
REED’S,
INC.
13000
South Spring Street
Los
Angeles, California 90061
(310) 217-9400