Jolt goes flat with Chap. 11

The Jolt Co. Inc., the locally based high-energy soft drink company, has asked for court protection from creditors.

Jolt, which does business as Wet Planet Beverages Inc., filed a Chapter 11 petition in the U.S. Bankruptcy Court in Rochester on Monday. Founder and CEO C.J. Rapp has been replaced as the company’s chief executive, and ultimately the company plans to offer itself to the highest bidder in a bankruptcy auction, court papers state.

Bankruptcy papers identify Robert Clamp as the new CEO. In court papers filed this week, Clamp says he is a former executive of Nestle Waters North America Inc., Coca-Cola Co. and Procter and Gamble Inc. and ex-CEO of the Really Cool Food Co. and has been with Jolt since February. In a September 28 letter to Jolt customers, he states that at least one interested party has approached the beverage company with a purchase offer and that the company believes others are likely to come forward soon.

He also is employed by the Boylan Bottling Co. and working for Jolt under a cost-sharing agreement, Clamp states. Rapp remains with the company; Clamp’s affidavit does not detail Rapp’s current title.

Jolt’s bankruptcy petition identifies Emigrant Capital Corp. of New York City, a private equity firm that bought into Jolt in 2006, as a $2.3 million secured creditor. Emigrant Capital owns Jolt preferred shares giving it a 40 percent stake in the company and voting control of the company, the petition states. Also listed as a secured creditor, owed $186,000 on a working-capital line of credit, is Emigrant Business Credit Corp., an Emigrant Capital affiliate in Elmsford, Westchester County.

Rapp responded to a request for comment with an e-mail detailing Emigrant Capital’s 2006 buy-in and adding that Emigrant or affiliates of the private equity firm acquired a majority interest in the company this year.

"Until matters related to Jolt are resolved in court, I am unable to make any statements about the company or the proceedings in the court," Rapp wrote in the e-mail.

Emigrant Capital executive partner Val Stalowir, a onetime Coca-Cola executive who joined Jolt’s board in 2006, signed Jolt’s bankruptcy petition with Clamp. Stalowir is chairman of Boylan Bottling, the other firm Clamp heads, which Emigrant Capital lists as one of its portfolio companies.

Founded by Rapp in 1985, Jolt anticipated the current trend in what has now become a crowded energy drink market by more than a decade. In a paean to Rapp’s early promotion of the Jolt brand, Clamp’s affidavit describes Jolt as "a pioneer of the energized beverage category," calling the high-caffeine cola the longest-lived beverage among midsize privately held energy drink brands.

In 1985, beverage giants such as Coca-Cola and Pepsico Inc. downplayed their products’ caffeine content and more heavily promoted caffeine-free versions of their cola drinks. Jolt found a market niche by boasting of its cola’s high caffeine content. Initially a beverage of choice for computer-savvy techies, Jolt got an early 1990s boost through product placement in "Jurassic Park," which showed Wayne Knight as the movie’s turncoat computer programmer, chugging a can of Jolt as he plotted to steal and sell the island’s secrets.

Coke and Pepsi are among a host of other international beverage sellers, such as Red Bull PLC, that now offer energy drinks. The market has grown in size, Clamp’s affidavit states, to reach $4.9 billion.

Jolt’s bankruptcy papers indicate that the company saw a sharp drop in revenues in 2009. The filing states revenues for 2007 and 2008 at $12.8 million and $14.4 million respectively. Jolt revenues through the first seven months of this year were $4.4 million. Jolt has paid the Cleveland law firm handling its bankruptcy, Benesch, Friedlander, Coplan & Aronoff LLP, a $130,000 retainer, the filing states.

The biggest single creditor the soft drink firm lists in the filing is the Rexam Beverage Can Co., a Chicago-based unit of Rexam PLC. In 2005, Jolt inked a deal to have Rexam supply the so-called battery bottle, a 23.5-ounce resealable container that Jolt heavily promoted as a combination of a bottle and a can that looks like a battery.

The petition separately lists four debts owed to Rexam totaling more than $4.8 million, $550,000 of which is secured. Jolt states in the filing that it disputes two of the largest Rexam debts, a $2.1 million capital reimbursement fee and a $2 million amount listed as a bill for inventory.

Clamp’s affidavit describes the Rexam deal as a chief factor that pushed Jolt into bankruptcy.

Projecting sales of 48 million battery cans a year, Rapp inked a deal with Rexam obligating Jolt to buy 90 million of the resealable cans over a two-year period beginning in January 2007, Clamp states. The deal required Jolt to pay a capital reimbursement expense to Rexam if Jolt failed to buy cans at the agreed level.

But Jolt’s board was not aware of the agreement until it learned of a dispute between Rexam and Jolt this year. The recession and growing competition cut into Jolt’s sales, Clamp adds. Slow sales coupled with the high price of the battery bottles put Jolt in financial jeopardy. The company needs to put its drinks into cheaper non-resealable containers. Emigrant Capital proposes to finance Jolt through the Chapter 11 process and sale.

Jolt and its Canadian distributors in addition currently face a $20 million class action in Canada, Jolt’s bankruptcy papers state. A complaint filed in the Ontario Superior Court of Justice in May alleges that Jolt and other energy drink sellers violate Canadian consumer protection, truth-in-advertising and food and drug laws by failing to reveal their products’ alleged harmful side effects, such as blood pressure and heart rate increases. 

The sellers and distributors of Red Bull, Full Throttle, Monster, Amp and Rockstar energy drinks are also targeted.
 

10/02/09 (c) 2009 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303.