SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended Commission File Number
August 23, 1996 1-10648
------------------ ------------------
BPI Packaging Technologies, Inc.
--------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 04-2997486
-------- ----------
(State of Other Jurisdiction (I.R.S. Employer
Incorporation of Organization) Identification Number)
455 Somerset Avenue, Dighton, Massachusetts 02764
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(508) 824-8636
--------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
As of August 23, 1996, there were issued and outstanding 13,445,359 shares of
Common Stock and 372,146 shares of Series A Preferred Stock.
BPI PACKAGING TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
- ------------------------------ --------
<S> <C> <C>
ITEM 1. Financial Statements (Unaudited)
Balance Sheets - August 23, 1996 and August 25, 1995............................. 1
Statements of Operations - Three Months Ended
August 23, 1996 and August 25, 1995............................................ 3
Statements of Operations - Six Months Ended
August 23, 1996 and August 25, 1995............................................ 4
Statements of Cash Flows - Six Months Ended
August 23, 1996 and August 25, 1995............................................ 5
Notes to Financial Statements - August 23, 1996.................................. 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................................. 10
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings................................................................ 17
ITEM 2. Changes in Securities............................................................ 17
ITEM 3. Default Upon Senior Securities................................................... 17
ITEM 4. Submission of Matters to a Vote of Security-Holders.............................. 17
ITEM 5. Other Information................................................................ 17
ITEM 6. Exhibits and Reports on Form 8-K................................................. 18
SIGNATURES..................................................................................... 19
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-i-
</TABLE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
AUGUST 23, FEBRUARY 23,
1996 1996
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
Current assets
Cash $ 115,904 $ 109,093
Accounts receivable, net 2,847,392 2,178,132
Inventories 3,944,975 3,927,597
Prepaid expenses and other assets 1,263,438 1,085,258
------------------ -----------------
Total current assets 8,171,709 7,300,080
------------------ -----------------
Property and equipment, net 24,215,193 24,314,649
------------------ -----------------
Patents, net 1,089,313 1,099,553
Deposits - leases and equipment purchases 759,366 802,383
Loans to officers 457,181 468,606
Other assets 1,322,767 1,292,704
------------------ -----------------
3,628,627 3,663,246
------------------ -----------------
$ 36,015,529 $ 35,277,975
================== =================
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
1
<TABLE>
<CAPTION>
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
AUGUST 23, FEBRUARY 23,
1996 1996
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
Current liabilities
Note payable - bank $ 3,266,990 $ 3,752,604
Capital lease obligations due within one year 2,030,170 1,832,847
Accounts payable 4,971,952 3,871,699
Other accrued expenses 330,513 427,428
Series C mandatorily redeemable preferred stock,
$.01 par value, at stated value 183,369 183,369
------------------ -----------------
Total current liabilities 10,782,994 10,067,947
------------------ -----------------
Capital lease obligations-long-term portion 4,889,581 5,441,057
Stockholders' Equity
Series B convertible preferred stock, $.01 par value 1,466,954 1,466,954
Series A convertible preferred stock, $.01 par value 1,313,584 1,215,784
Common stock, $.01 par value; shares authorized -
30,000,000; shares issued and outstanding - 13,445,359 at
August 23, 1996 and 11,800,909 at February 23, 1996 134,454 118,009
Capital in excess of par value 36,792,986 33,615,213
Accumulated deficit (19,365,024) (16,646,989)
------------------ -----------------
20,342,954 19,768,971
------------------ -----------------
Commitments and contingencies
$ 36,015,529 $ 35,277,975
================== =================
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
2
<TABLE>
<CAPTION>
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
--------- THREE MONTHS ENDED -----------
AUGUST 23, AUGUST 25,
1996 1995
------------------ -------------------
(UNAUDITED)
<S> <C> <C>
Net sales $ 9,315,341 $ 7,404,775
Cost of goods sold 8,732,170 6,048,460
------------------ -------------------
Gross profit 583,171 1,356,315
Operating expenses
Selling, general and administrative 2,049,715 1,406,183
------------------ -------------------
2,049,715 1,406,183
------------------ -------------------
Loss from operations (1,466,544) (49,868)
Other income (expense)
Interest expense (279,488) (168,824)
Interest income 967 9,773
------------------ -------------------
Net loss $ (1,745,065) $ (208,919)
================== ===================
Loss per share $ (0.14) $ (0.02)
Weighted average common shares outstanding 12,227,599 11,762,046
The accompanying notes are an integral part
of these consolidated financial statements
</TABLE>
3
<TABLE>
<CAPTION>
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
--------- SIX MONTHS ENDED -------------
AUGUST 23, AUGUST 25,
1996 1995
------------------ -------------------
(UNAUDITED)
<S> <C> <C>
Net sales $ 15,830,074 $ 13,868,988
Cost of goods sold 14,300,224 10,904,016
------------------ -------------------
Gross profit 1,529,850 2,964,972
Operating expenses
Selling, general and administrative 3,683,269 2,771,799
------------------ -------------------
3,683,269 2,771,799
------------------ -------------------
(Loss) income from operations (2,153,419) 193,173
Other income (expense)
Interest expense (567,967) (307,951)
Interest income 3,351 17,588
------------------ -------------------
Net loss $ (2,718,035) $ (97,190)
================== ===================
Loss per share $ (0.22) $ (0.01)
Weighted average common shares outstanding 12,210,271 11,728,045
The accompanying notes are an integral part
of these consolidated financial statements
</TABLE>
4
<TABLE>
<CAPTION>
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
----------- SIX MONTHS ENDED -----------
AUGUST 23, AUGUST 25,
1996 1995
------------------- --------------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,718,035) $ (97,190)
------------------- --------------------
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 1,646,860 1,201,493
Increase in accounts receivable - net (669,260) (229,443)
Increase in inventories (17,378) (903,231)
Increase in prepaid expenses and other current assets (178,180) (436,231)
Increase (decrease) in accounts payable 1,100,253 (668,590)
Decrease in other accrued expenses (96,916) (7,057)
------------------- --------------------
Total adjustments 1,785,379 (1,043,059)
------------------- --------------------
Net cash used by operating activities (932,656) (1,140,249)
------------------- --------------------
Cash flows from investing activities:
Additions to property and equipment (856,533) (1,862,903)
Cost of patents (33,360) (23,293)
Decrease in deposits, net 43,017 189,958
Decrease (increase) in advance to officers 11,425 (106,408)
Decrease in note receivable 0 612,776
Increase in other assets, net (82,165) (203,430)
------------------- --------------------
Net cash used by investing activities (917,616) (1,393,300)
------------------- --------------------
Cash flows from financing activities:
Net (payments) borrowings under note payable - bank (485,614) 1,985,080
Principal payments on capital lease obligations (944,222) (576,778)
Proceeds from equipment financings 0 330,808
Net proceeds from sales of stock and exercise of warrants 3,286,919 159,050
------------------- --------------------
Net cash provided by financing activities 1,857,083 1,898,160
------------------- --------------------
Net increase (decrease) in cash 6,811 (635,389)
Cash at beginning of period 109,093 1,350,450
------------------- --------------------
Cash at end of period $ 115,904 $ 715,061
=================== ====================
The accompanying notes are an integral part
of these consolidated financial statements
</TABLE>
5
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
consolidated financial statements.
In the opinion of management, all adjustments (consisting solely of
normal recurring adjustments) considered necessary for a fair statement of the
interim financial data have been included. Results from operations for the three
and six month periods ended August 23, 1996 are not necessarily indicative of
the results that may be expected for the fiscal year ending February 28, 1997.
For further information, refer to the consolidated financial statements
and the footnotes included in the annual report on Form 10-K for BPI Packaging
Technologies, Inc. (the "Company") for the year ended February 23, 1996.
NOTE 2: EARNINGS PER SHARE
Earnings per share is calculated based upon the weighted average common
shares outstanding during the period including dilutive employee stock options,
underwriter warrants, Class A and B warrants, using the treasury stock method as
applicable, and Series A and B Preferred Stock. Common stock equivalents are not
reflected in the calculation in periods in which they would have an
anti-dilutive effect.
NOTE 3: ACCOUNTS RECEIVABLE
Accounts receivable, net consists of the following:
<TABLE>
<CAPTION>
AUGUST 23, FEBRUARY 23,
1996 1996
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<S> <C> <C>
Accounts receivable $2,925,819 $2,273,132
Allowance for doubtful accounts ( 78,427) ( 95,000)
---------- ----------
$2,847,392 $2,178,132
========== ==========
</TABLE>
NOTE 4: INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
AUGUST 23, February 23,
1996 1996
---- ----
<S> <C> <C>
Raw materials $1,802,442 $1,480,667
Finished goods 2,142,533 2,446,930
- -------------- ---------- ----------
$3,944,975 $3,927,597
========== ==========
</TABLE>
6
NOTE 5: NOTE PAYABLE - BANK
The Company has a $4,000,000 revolving line of credit from a commercial
bank that is secured by accounts receivable and inventory. Borrowings under the
line of credit are subject to 80% of qualifying accounts receivable and 40% of
qualifying inventories (up to a maximum inventory loan of $2,000,000), less the
aggregate amount utilized under all commercial and standby letters of credit and
bank acceptances. The line of credit bears interest at the bank's prime rate
plus 2.5% (10.75% at August 23, 1996), and provides for a 1/8th of 1% unused
line fee and is subject to renewal annually. At August 23, 1996, availability
under the line of credit was fully utilized and the balance under the line of
credit was $3,266,990.
Under the terms of an amendment dated March 1, 1996, borrowings under
the line of credit secured by qualifying inventories were reduced to 35% and a
maximum of $1,500,000 effective August 1, 1996 and thereafter. The amendment
also includes certain financial covenants that the Company must maintain,
including debt service coverage, capital base and debt to equity covenants. The
Company is in violation of the covenants as of August 23, 1996.
NOTE 6: CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR
THE SIX MONTHS ENDED AUGUST 23, 1996
SCHEDULE FOLLOWING
NOTE 7: RC AMERICA, INC.
On May 15, 1996, the Company issued 2,550 shares to Ronald Caulfield as
part of the February 26, 1994 agreement providing for the issuance of up to an
additional 100,000 shares of the Company's Common Stock over a five year period
based on RC America, Inc. attaining certain levels of pre-tax earnings. The
Agreement also contains demand and piggy-back registration rights for the
shares.
7
NOTE 8: SUBSEQUENT EVENT
On October 7, 1996, four hundred and fifty six thousand nine hundred
and thirty one (456,931) Class B warrants from the Company's third public
offering were exercised, Gross proceeds from the exercise of the warrants were
$1,279,407 and common stock issued was 511,763 shares. Net proceeds from the
exercise were approximately, $1,225,000.
8
<TABLE>
<CAPTION>
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED AUGUST 23, 1996
SERIES A CONVERTIBLE SERIES B CONVERTIIBLE
COMMON STOCK PREFERRED STOCK PREFERRED STOCK
------------------------------------------------------------ ---------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
-------------- -------------- --------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at February 23, 1996 11,800,909 $118,009 303,946 $1,215,784 146,695 $1,466,954
Sale of common stock pursuant to
Regulation S and Regulation D
private placement offerings, net of
issuance costs 1,207,500 12,075
Sale of common and preferred stock
pursuant to partial exercise of
underwriter's warrants from prior
public offerings, net of issuance costs 402,600 4,026 100,000 225,000
Conversion of Series A convertible
preferred stock to common stock 31,800 318 (31,800) (127,200)
Issuance of common stock based on
RC America's FY96 results 2,550 26
Net loss for the six months ended
August 23, 1996
-------------- -------------- --------------- -------------- -------------- ------------
Balance at August 23, 1996 13,445,359 $134,454 372,146 $1,313,584 146,695 $1,466,954
============== ============== =============== ============== ============== ============
</TABLE>
<TABLE>
<CAPTION>
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED AUGUST 23, 1996
(CONTINUED)
CAPITAL IN
EXCESS OF ACCUMULATED
PAR VALUE DEFICIT TOTAL
--------- ------- -----
--------------- ---------------- -----------------
<S> <C> <C> <C>
Balance at February 23, 1996 $33,615,213 ($16,646,989) $19,768,971
Sale of common stock pursuant to
Regulation S and Regulation D
private placement offerings, net of
issuance costs 2,194,793 2,206,868
Sale of common and preferred stock
pursuant to partial exercise of
underwriter's warrants from prior
public offerings, net of issuance costs 851,024 1,080,050
Conversion of Series A convertible
preferred stock to common stock 126,882 --
Issuance of common stock based on
RC America's FY96 results 5,074 5,100
Net loss for the six months ended
August 23, 1996 (2,718,035) (2,718,035)
--------------- ---------------- -----------------
Balance at August 23, 1996 $36,792,986 ($19,365,024) $20,342,954
=============== ================ =================
</TABLE>
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS OR INFORMATION
Certain statements contained in this Form 10-Q are not based on
historical facts, but are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, that are based upon a number
of assumptions concerning future conditions that may ultimately prove to be
inaccurate. Actual events and results may materially differ from anticipated
results described in such statements. The Company's ability to achieve the
results anticipated in any forward-looking statements is subject to certain
risks and uncertainties, including, but not limited to, the general economy,
product demand, market acceptance of products, fluctuations in operating
results, competition, continued availability of capital and financing, and other
factors affecting the Company's business beyond the Company's control.
RESULTS OF OPERATIONS
SECOND QUARTER OF FISCAL YEAR 1997 COMPARED TO SECOND QUARTER
OF FISCAL YEAR 1996
For the second quarter of Fiscal 1997, ended August 23,1996, the
Company had sales totaling $9,315,341 as compared to sales of $7,404,775 for the
second quarter of Fiscal 1996, ended August 25, 1995, an increase of 26%.
The Company's core bag and film business (traditional plastic grocery
carryout bags and proprietary plastic carryout bags of "T-shirt sack" design and
plastic film products) had sales of $7,821,906 in the second quarter of Fiscal
1997 compared to $7,270,147 in the second quarter of Fiscal 1996, an increase of
8%. Bags sold increased 13.2% and bag selling prices decreased an average of 5%
compared to the previous year.
Sales of the Company's proprietary bag products (FRESH-SAC(R) T-shirt
sack produce bag, HANDI-SACTM and MAXI-SACTM) were $2,458,345 in the second
quarter of Fiscal 1997 compared to sales of $1,930,301 in the second quarter of
Fiscal 1996, an increase of 27%. Management expects that sales of proprietary
bag products will continue to increase in the second half of Fiscal 1997. Sales
of traditional products were $4,576,389 in the second quarter of Fiscal 1997
compared to sales of $4,631,671 in the second quarter of Fiscal 1996, a decrease
of 1%. Sales of film products were $787,172 in the second quarter of Fiscal 1997
compared to sales of $708,175 in the second quarter of Fiscal 1996, an increase
of 11%. Sales from RC America, Inc. were $1,434,916 in the second quarter of
Fiscal 1997 compared to sales of $84,391 in the second quarter of Fiscal 1996.
RC America, Inc's. sales may fluctuate significantly from quarter to quarter due
to the nature of its business and the timing of transactions. BPI Packaging,
Inc. did not have any sales of products purchased from Integrated Bagging
Systems Corporation in the second quarter of Fiscal 1997 compared to sales of
$50,237 in the second quarter of Fiscal 1996 because resources were not
allocated to this subsidiary. Market Media, Inc. recorded its first revenue of
$58,519 during the second quarter of Fiscal 1997.
Cost of goods sold for the second quarter of Fiscal 1997 was $8,732,170
compared to $6,048,460 in the second quarter of Fiscal 1996. Cost of goods sold
as a percentage of sales was
10
94% for the second quarter of Fiscal 1997 compared to 82% for the second quarter
of Fiscal 1996. The increase in cost of goods sold as a percentage of sales was
due primarily to an increase in material costs relative to the selling prices of
the Company's products and production less sales.
A material factor that contributed to lower margins was the impact of a
major program cancellation in Fiscal 1996. In the third quarter of Fiscal 1996,
a proprietary bag program to which the Company had allocated more than 25% of
its manufacturing capacity was canceled by a major retail chain, and the
negative impact of this cancellation continued through the second quarter of
Fiscal 1997. The manufacturing capacity released by the program cancellation was
partially replaced with lower margin traditional grocery T-shirt sacks which
have higher material costs compared to proprietary products as a percentage of
the selling price. In the second quater of Fiscal 1997, the traditional grocery
T-shirt sack was 58% of the core bag and film business. A decline in margin for
the traditional grocery T-shirt sack, caused primarily by market conditions and
competition for new accounts, in the second quarter of Fiscal 1997 compared to
the second quarter of Fiscal 1996 reduced the gross margin approximately
$500,000 and caused the cost of goods as a percentage of sales to increase.
Manufacturing productivity declined in the second quarter of Fiscal
1997 and materially contributed to the increase in cost of goods sold as a
percentage of sales. In the second quarter of Fiscal 1997, unit production was
less than unit sales resulting in lost value added of approximately $600,000.
The negative impact of under-production resulted in manufacturing cost that
would otherwise have been abscrbed in inventory or additional sales being
expensed in the second quarter. Manufacturing productivity was negatively
impacted by several factors: Low backlog at the beginning of the quarter,
unfavorable product mix with traditional bag products at 58% and proprietary bag
products at 31% of the core bag and film business, disruption to routine
production caused by the installation of a new advanced technology printing
press and a successfull crash research and development effort to manufacture a
proprietary film product for the building products industry.
In the second half of Fiscal 1997, manufacturing productivity is
expected to increase and it is expected that proprietary sales will increase as
a percentage of sales. The impact of both of these expected trends will be to
reduce the cost of goods sold as a percentage of sales and increase gross and
net profits.
Selling, general and administrative expense for the second quarter of
Fiscal 1997 was $2,049,715 compared to $1,406,183 in the second quarter of
Fiscal 1996. The increase is primarily related to increased shipments (freight
and related expenses are included in SG&A), sales and marketing activity for
proprietary bag and film products and in-store advertising and promotion
products as well as start-up costs for Market Media, Inc.
Interest expense for the second quarter of Fiscal 1997 was $279,488
compared to $168,824 for the second quarter of Fiscal 1996. The increase is
related to debt incurred for purchases of equipment in the second half of Fiscal
1996 and higher rates of interest on the credit line in Fiscal 1997 compared to
Fiscal 1996.
Net loss was $1,745,065 for the second quarter of Fiscal 1997 compared
to net loss of $208,919 for the second quarter of Fiscal 1996. The net loss was
due primarily to increased cost of goods sold and increased selling, general and
administrative expenses. (The non-cash expense of depreciation and amortization
was $823,480 in the second quarter of Fiscal 1997 compared to $623,841 in the
second quarter of Fiscal 1996.)
11
Operating profits (loss) for the various business segments are as
follows:
<TABLE>
<CAPTION>
Second Quarter
Fiscal 1997 Fiscal 1996
----------- -----------
<S> <C> <C>
Proprietary, traditional and film products ($ 979,175) $ 431,601
RC America, Inc. 162,290 ( 94,201)
BPI Packaging, Inc. 0 ( 4,132)
Market Media, Inc. (171,482) 0
Unallocated corporate overhead ( 478,177) ( 383,136)
----------- -----------
Operating loss ( 1,466,544) ( 49,868)
Interest expense, net (278,521) (159,051)
----------- ---------
Net loss ( $1,745,065) ($208,919)
============= ==========
</TABLE>
FIRST SIX MONTHS OF FISCAL YEAR 1997 COMPARED TO FIRST SIX MONTHS OF
FISCAL YEAR 1996
For the first six months of Fiscal 1997, ended August 23, 1996, the
Company had sales totaling $15,830,074 as compared to sales of $13,868,988 for
the first six months ended August 25, 1995, an increase of 14%.
The Company's core bag and film business (traditional plastic grocery
carryout bags of "T-shirt sack" design and plastic film products) had sales of
$13,968,932 for the first six months of Fiscal 1997 compared to sales of
$12,798,450 for the first six months of Fiscal 1996, an increase of 9%.
Sales of the Company's proprietary carryout T-shirt bag products
(FRESH-SAC(R) T-shirt produce bag, HANDI-SAC(TM) and MAXI-SAC(TM)) were
$3,915,628 in the first six months of Fiscal 1997 compared to sales of
$3,482,601 in the first six months of Fiscal 1996, an increase of 12%. Sales of
traditional grocery carryout T-shirt bags increased from $8,108,947 in the first
six months of Fiscal 1996 to $8,434,944 in the first six months of Fiscal 1997,
an increase of 4%. Sales of proprietary and other plastic film products for the
first six months of Fiscal 1997 were $1,618,360 compared to sales of $1,206,902
in the first six months of Fiscal 1996, an increase of 34%. RC America, Inc.
sales for the first six months of Fiscal 1997 were $1,802,623 compared to
$695,160 in the first six months of Fiscal 1996. RC America, Inc's. sales may
fluctuate significantly from quarter to quarter due to the nature of its
business. BPI Packaging, Inc. did not have any sales of product purchased from
Integrated Bagging Systems Corporation in the first six months of Fiscal 1997
compared to sales of $375,378 in the first six months of Fiscal 1996 because
resources were not allocated to this subsidiary. Market Media, Inc. recorded
revenue of $58,519 during the first six months of Fiscal 1997.
12
Cost of goods sold for the first six months of Fiscal 1997 was
$14,300,224 compared to $10,904,016 in the previous year. Cost of goods sold as
a percentage of sales was 90% for the first six months of Fiscal 1997, compared
to 79% for the first six months of Fiscal 1996. The increase in cost of goods
sold as a percentage of sales was due primarily to an increase in material costs
relative to the selling prices of the Company's products and production being
less than sales.
A material factor that contributed to lower margins was the impact of a
major program cancellation in Fiscal 1996. In the third quarter of Fiscal 1996,
a proprietary bag program to which the Company had allocated more than 25% of
its manufacturing capacity was canceled by a major retail chain, and the
negative impact of this cancellation continued through the second quarter of
Fiscal 1997. The manufacturing capacity released by the program cancellation was
partially replaced with lower margin traditional grocery T-shirt sacks which
have higher material costs compared to proprietary products as a percentage of
the selling price. A decline in margin for the traditional grocery T-shirt sack,
caused primarily by market conditions and competition for new accounts, in the
first six months of Fiscal 1997 compared to the first six months of Fiscal 1996
reduced the gross margin approximately $800,000 and caused the cost of goods
sold as a percentage of sales to increase.
Manufacturing productivity declined in the first six months of Fiscal
1997 and materially contributed to the increase in cost of goods sold as a
percentage of sales. In the first six months of Fiscal 1997, unit production was
less than unit sales resulting in lost value added of approximately $300,000.
The negative impact of under-production resulted in manufacturing cost that
would otherwise have been absorbed in inventory or additional sales being
expensed in the first six months. Manufacturing productivity was negatively
impacted by several factors: Low backlog at the beginning of the fiscal year,
unfavorable product mix with traditional bag products at 60% and proprietary bag
products at 28% of the core bag and film business, disruption to routine
production caused by the installation of a new advanced technology printing
press and bag manufacturing machines, and a successful crash research and
development effort to manufacture a proprietary film product for the building
products industry.
In the first six months of Fiscal 1997, production was 1.029 billion
bags and management estimates that manufacturing capacity utilization was
approximately 82% of annual capacity based on a product mix of approximately 2.5
billion bags. Product mix materially impacts actual capacity, capacity
utilization and potential revenues from the facility. Management believes that
actual plant capacity and potential revenues from the facility will expand
significantly if management is successful in its plans to shift product mix
entirely to proprietary bags and films from lower margin traditional standard
T-shirt sack bags. In particular, most of the capital equiptment needed for
these proprietary bag and film sales is in place and only relatively minor
additions are needed to meet anticipated demand over the near term for these
non-traditional bag and film products. Management's goal is to seek to
significantly increase revenues from the existing facility through the sale of
these non-traditional bag and film products, which typically command greater
revenues and anticipated improved margins than if the Company dedicated this
same production capabiltiy to traditional T-shirt bags.
In the second half of Fiscal 1997, manufacturing bag and film
productivity is expected to increase and it is expected that proprietary bag and
film sales will increase as a percentage of sales. The impact of both of these
expected trends will be to reduce the cost of goods sold as a percentage of
sales and increase gross profit.
Selling, general and administrative expense for the first six months of
Fiscal 1997 was $3,683,269, or 23% of sales, compared to $2,771,799, or 20% of
sales for the first six months of Fiscal 1996. The increase is primarily related
to increased shipments (freight and related expenses are included in SG&A),
sales and marketing activity for proprietary bag and film products and in-store
advertising and promotion products, as well as start-up costs for Market Media,
Inc.
Interest expense for the first six months of Fiscal 1997 was $567,967
compared to $307,951 for the first six months of the previous year. The increase
is related to debt incurred for purchases of equipment in the second half of
Fiscal 1996 and higher rates of interest on the credit line in Fiscal 1997
compared to Fiscal 1996.
A net loss of $2,718,035 for the first six months of Fiscal 1997
compared to a net loss of $97,190 for the first six months of Fiscal 1995. The
increase in net loss was caused primarily by increased cost of goods sold and
increased selling , general and administrative expenses. (The non-cash expense
of depreciation and amortization was $1,646,860 in the first six months of
Fiscal 1997 compared to $1,201,493 in the first six months of Fiscal 1996.)
Operating profits (loss) for the various business segments are as
follows:
<TABLE>
<CAPTION>
Six Months
Fiscal 1997 Fiscal 1996
----------- -----------
<S> <C> <C>
Proprietary, traditional and film products ($1,145,592) $ 969,087
RC America, Inc. 140,888 ( 55,170)
BPI Packaging, Inc. 0 28,300
Market Media, Inc. ( 313,224) 0
Unallocated corporate overhead ( 835,491) ( 749,044)
----------- -----------
13
Operating (loss) profit ( 2,153,419) 193,173
Interest expense, net ( 564,616) ( 290,363)
----------- -----------
Net loss ($2,718,035) ($ 97,190)
=========== ===========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
BANK LOANS
The Company has a $4,000,000 revolving line of credit secured by
accounts receivable and inventory. Borrowings under the line of credit are
subject to 80% of qualifying accounts receivable and 40% of qualifying
inventories up to a maximum inventory loan of $2,000,000, less the aggregate
amount utilized under all commercial and standby letters of credit and bank
acceptances. The line of credit bears interest at the bank's prime rate plus
2.5% (10.75% at August 23, 1996), and provides for a 1/8th of 1% unused line fee
and is subject to renewal annually. At August 23, 1996, availability under the
line of credit was fully utilized and the balance under the line of credit was
$3,266,990.
Under the terms of an amendment dated March 1, 1996, borrowings under
the line of credit secured by qualifying inventories are to be reduced to 35%
and a maximum of $1,500,000 effective August 1, 1996 and thereafter. The
amendment includes certain financial covenants that the Company must maintain,
including debt service coverage, capital base, and debt to equity covenants. The
Company is in violation of the covenants as of August 23, 1996, although the
recent equity financing (See Note 8) has mitigated the extent of several of
these covenant violations.
The Company is currently negotiating to refinance its current bank
lines of credit secured by accounts receivable and inventory and obtain new
secured lines of credit with higher lending limits to support anticipated
growth. No assurance can be given that such refinancing will be successful.
SALES OF SECURITIES
During the first six months of Fiscal 1997, the Company received
additional equity funding through the sale of Common Stock from a Regulation S
and a Regulation D offering, and the exercise of underwriters warrants. The
Company received net proceeds of $3,286,918 from the sale of an aggregate of
1,610,100 shares of Common Stock and 100,000 shares of Series A Preferred Stock.
The proceeds were used for general corporate purposes and the reduction of bank
debt. The Company may raise additional financing through the sale of equity or
debt securities to pay for all or part of the planned $2.0 million increase in
capacity at the Dighton facility during the next six months as well as to
increase general working capital. The Company has no commitments for such
financing, and no assurance can be given that additional financings will be
successfully completed or that such financing will be available or, if
available, will be on terms favorable to the Company.
On October 7, 1996, four hundred and fifty six thousand, nine hundred
and thirty one (456,931) Class B warrants from the Company's third public
offering were exercised. Gross proceeds from the exercise of the warrants were
14
$1,279,407 and common stock issued was 511,763 shares. Net proceeds from the
exercise were approximately $1,225,000.
EQUIPMENT AND LEASE FINANCING
From March 1994 through August 1996, the Company acquired through
purchase or lease approximately $19.4 million in additional equipment to
increase manufacturing capacity and efficiency and to expand the Company's
product line. The equipment was financed from the sale of equity securities and
from equipment lease financing and bank loans.
The Company currently has no outstanding commitments to purchase
additional equipment. Management intends to finance any new purchases of
equipment primarily through equipment lease financing. No assurance can be given
that the Company will be able to obtain new equipment financing through banks or
equipment lessors.
CASH FLOW
During the first six months of Fiscal 1997, the Company generated
$1,646,860 from depreciation and amortization and $1,100,253 from an increase in
accounts payable. The Company also received net proceeds of $3,286,919 from the
sale of an aggregate of 1,610,100 shares of Common Stock and 100,000 shares of
Series A Preferred Stock. $856,533 was used to purchase equipment and for plant
improvements and $669,260 was used to finance an increase in accounts
receivable. An additional $944,222 was used to make principal payments on
capital lease obligations and $485,614 to reduce the bank note. At August 23,
1996, stockholders' equity was $20,342,954 as compared to $24,181,926 at August
25, 1995. The Company's current ratio decreased from 1.32:1 at August 25, 1995
to 0.76:1 at August 23, 1996. The net book value of property and equipment
increased from $22,190,091 at August 25, 1995 to $24,215,193 at August 23, 1996.
(See Note 8 to the financial statements: On October 7, 1996 five hundred and
eleven thousand , seven hundred and sixty three (511,763) shares of Common Stock
were sold and net proceeds of approximately $1,225,000 recieved.)
To date, the Company has generated cash flows from financing
activities, including sales of equity securities and bank lines of credit.
Management believes that fixed asset or lease financing is now available at
competitive rates from institutional lenders and leasing companies. The Company
may raise additional financing through the sale of equity or debt to fund all or
part of the planned $ 2.0 million increase in capacity at the Dighton facility
during the next six months as well as to increase general working capital. The
Company has no commitments for such financing, and no assurance can be given
that additional financings will be successfully completed or that such financing
will be available or, if available, will be on terms favorable to the Company.
RC AMERICA, INC.
On May 15, 1996, the Company issued 2,550 shares of Common Stock to
Ronald Caulfield as a part of the February 26, 1994 purchase agreement providing
for the issuance of up to an additional 100,000 shares of the Company's Common
Stock over a five year period based on RC America, Inc. attaining certain levels
of pre-tax earnings. The Agreement also contains demand and piggy-back
registration rights for the shares.
15
IMPACT OF INFLATION
Inflation during the last three fiscal years has not had a significant
effect on the Company's activities.
16
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. None.
ITEM 2. CHANGES IN SECURITIES. None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS. None.
ITEM 5. OTHER INFORMATION. None.
17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
The following exhibits are filed herewith:
Exhibit
Number Title
------ -----
10 1996 Stock Option Plan.
27 Financial Data Schedule.
(b) Reports on Form 8-K. None.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BPI PACKAGING TECHNOLOGIES, INC.
Date: October __, 1996 By:/s/ Dennis N. Caulfield
-----------------------
Dennis N. Caulfield,
Chief Executive Officer,
and Chief Accounting
Officer
19
BPI PACKAGING TECHNOLOGIES, INC.
1996 STOCK OPTION PLAN
ARTICLE I
PURPOSE OF THE PLAN
The purpose of this Plan is to encourage and enable employees,
consultants, directors and others who are in a position to make significant
contributions to the success of BPI PACKAGING TECHNOLOGIES, INC. and of its
affiliated corporations upon whose judgment, initiative and efforts the
Corporation depends for the successful conduct of its business, to acquire a
closer identification of their interests with those of the Corporation by
providing them with opportunities to purchase stock in the Corporation pursuant
to options granted hereunder, thereby stimulating their efforts on behalf of the
Corporation and strengthening their desire to remain involved with the
Corporation. Any employee, consultant or advisor designated to participate in
the Plan is referred to as a "Participant."
ARTICLE II
DEFINITIONS
2.1 "Affiliated Corporation" means any stock corporation of which a
majority of the voting common or capital stock is owned directly or indirectly
by the Corporation.
2.2 "Award" means an Option granted under Article V.
2.3 "Board" means the Board of Directors of the Corporation or, if one
or more has been appointed, a Committee of the Board of Directors of the
Corporation.
2.4 "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
-1-
2.5 "Committee" means a Committee of not less than two members of the
Board appointed by the Board to administer the Plan.
2.6 "Corporation" means BPI PACKAGING TECHNOLOGIES, INC., a Delaware
corporation, or its successor.
2.7 "Employee" means any person who is a regular full-time or part-time
employee of the Corporation or an Affiliated Corporation on or after August 16,
1996.
2.8 "Incentive Stock Option" ("ISO") means an option which qualifies as
an incentive stock option as defined in Section 422 of the Code, as amended.
2.9 "Non-Qualified Option" means any option not intended to qualify as
an Incentive Stock Option.
2.10 "Option" means an Incentive Stock Option or Non-Qualified Option
granted by the Board under Article V of this Plan in the form of a right to
purchase Stock evidenced by an instrument containing such provisions as the
Board may establish. Except as otherwise expressly provided with respect to an
Option grant, no Option granted pursuant to the Plan shall be an Incentive Stock
Option.
2.11 "Participant" means a person selected by the Committee to receive
an award under the Plan.
2.12 "Plan" means this 1996 Stock Option Plan.
2.13 "Reporting Person" means a person subject to Section 16 of the
Securities Exchange Act of 1934 or any successor provision.
2.14 "Restricted Period" means the period of time selected by the
Committee during which an award may be forfeited by the person.
-2-
2.15 "Stock" means the Common Stock, $.01 par value, of the Corporation
or any successor, including any adjustments in the event of changes in capital
structure of the type described in Article IX.
ARTICLE III
ADMINISTRATION OF THE PLAN
3.1 Administration by Board. This Plan shall be administered by the
Board of Directors of the Corporation. The Board may, from time to time,
delegate any of its functions under this plan to one or more Committees. All
references in this Plan to the Board shall also include the Committee or
Committees, if one or more have been appointed by the Board. From time to time
the Board may increase the size of the Committee or committees and appoint
additional members thereto, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies however caused, or remove
all members of the Committee or committees and thereafter directly administer
the Plan. No member of the Board or a committee shall be liable for any action
or determination made in good faith with respect to the Plan or any options
granted hereunder.
If a Committee is appointed by the Board, a majority of the members of
the Committee shall constitute a quorum, and all determinations of the Committee
under the Plan may be made without notice or meeting of the Committee by a
writing signed by a majority of Committee members. On or after registration of
the Stock under the Securities Exchange Act of 1934, the Board shall delegate
the power to select directors and officers to receive Awards under the Plan, and
the timing, pricing and amount of such Awards to a Committee, all members of
which shall be "disinterested persons" within the meaning of Rule 16b-3 under
that Act.
-3-
3.2 Powers. The Board of Directors and/or any committee appointed by
the Board shall have full and final authority to operate, manage and administer
the Plan on behalf of the Corporation.
This authority includes, but is not limited to:
(a) The power to grant Awards conditionally or unconditionally,
(b) The power to prescribe the form or forms of any instruments
evidencing Awards granted under this Plan,
(c) The power to interpret the Plan,
(d) The power to provide regulations for the operation of the
incentive features of the Plan, and otherwise to prescribe and
rescind regulations for interpretation, management and
administration of the Plan,
(e) The power to delegate responsibility for Plan operation,
management and administration on such terms, consistent with
the Plan, as the Board may establish,
(f) The power to delegate to other persons the responsibility of
performing ministerial acts in furtherance of the Plan's
purpose, and
(g) The power to engage the services of persons, companies, or
organizations in furtherance of the Plan's purpose, including
but not limited to, banks, insurance companies, brokerage
firms and consultants.
3.3 Additional Powers. In addition, as to each Option to buy Stock of
the Corporation, the Board shall have full and final authority in its
discretion: (a) to determine the number of shares of Stock subject to each
Option; (b) to determine the time or times at which Options will be granted; (c)
to determine the option price of the shares of Stock subject to each Option,
which price shall be not less than the minimum price specified in Article V of
this Plan; (d) to determine the time or times
-4-
when each Option shall become exercisable and the duration of the exercise
period (including the acceleration of any exercise period), which shall not
exceed the maximum period specified in Article V; (e) to determine whether each
Option granted shall be an Incentive Stock Option or a Non- qualified Option;
and (f) to waive compliance by a Participant with any obligation to be performed
by him under an Option, to waive any condition or provision of an Option, and to
amend or cancel any Option (and if an Option is cancelled, to grant a new Option
on such terms as the Board may specify), except that the Board may not take any
action with respect to an outstanding option that would adversely affect the
rights of the Participant under such Option without such Participant's consent.
Nothing in the preceding sentence shall be construed as limiting the power of
the Board to make adjustments required by Article XI.
In no event may the Company grant an Employee any Incentive Stock
Option that is first exercisable during any one calendar year to the extent the
aggregate fair market value of the Stock (determined at the time the options are
granted) exceeds $100,000 (under all stock option plans of the Corporation and
any Affiliated Corporation); provided, however, that this paragraph shall have
no force and effect if its inclusion in the Plan is not necessary for Incentive
Stock Options issued under the Plan to qualify as such pursuant to Section
422(d)(1) of the Code.
ARTICLE IV
ELIGIBILITY
4.1 Eligible Employees. All Employees (including Directors who are
Employees) are eligible to be granted Incentive Stock Option and Non-Qualified
Option Awards under this Plan.
-5-
4.2 Consultants, Directors and other Non-Employees. Any Consultant,
Director (whether or not an Employee) and any other Non-Employee is eligible to
be granted Non-Qualified Option Awards under the Plan, provided the person has
not irrevocably elected to be ineligible to participate in the Plan.
4.3 Relevant Factors. In selecting individual Employees, Consultants,
Directors and other Non-Employees to whom Awards shall be granted, the Board
shall weigh such factors as are relevant to accomplish the purpose of the Plan
as stated in Article I. An individual who has been granted an Award may be
granted one or more additional Awards, if the Board so determines. The granting
of an Award to any individual shall neither entitle that individual to, nor
disqualify him from, participation in any other grant of Awards.
ARTICLE V
STOCK OPTION AWARDS
5.1 Number of Shares. Subject to the provisions of Article IX of this
Plan, the aggregate number of shares of Stock for which Options may be granted
under this Plan shall not exceed 1,000,000 shares. The shares to be delivered
upon exercise of Options under this Plan shall be made available, at the
discretion of the Board, either from authorized but unissued shares or from
previously issued and reacquired shares of Stock held by the Corporation as
treasury shares, including shares purchased in the open market.
-6-
Stock issuable upon exercise of an option granted under the Plan may be
subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Board of Directors.
5.2 Effect of Expiration, Termination or Surrender. If an Option under
this Plan shall expire or terminate unexercised as to any shares covered
thereby, or shall cease for any reason to be exercisable in whole or in part, or
if the Company shall reacquire any unvested shares issued pursuant to Options
under the Plan, such shares shall thereafter be available for the granting of
other Options under this Plan.
5.3 Term of Options. The full term of each Option granted hereunder
shall be for such period as the Board shall determine. In the case of Incentive
Stock Options granted hereunder, the term shall not exceed ten (10) years from
the date of granting thereof. Each Option shall be subject to earlier
termination as provided in Sections 6.3 and 6.4. Notwithstanding the foregoing,
the term of options intended to qualify as "Incentive Stock Options" shall not
exceed five (5) years from the date of granting hereof if such option is granted
to any employee who at the time such option is granted owns more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company.
5.4 Option Price. The Option price shall be determined by the Board at
the time any Option is granted. In the case of Incentive Stock Options, the
exercise price shall not be less than 100% of the fair market value of the
shares covered thereby at the time the Incentive Stock Option is granted (but in
no event less than par value), provided that no Incentive Stock Option shall be
granted hereunder to any Employee if at the time of grant the Employee, directly
or indirectly, owns Stock possessing more than 10% of the combined voting power
of all classes of stock of the
-7-
Corporation and its Affiliated Corporations unless the Incentive Stock Option
price equals not less than 110% of the fair market value of the shares covered
thereby at the time the Incentive Stock Option is granted.
5.5 Fair Market Value. If, at the time an Option is granted under the
Plan, the Corporation's Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the date such Option is granted and
shall mean (i) the average (on that date) of the high and low prices of the
Stock on the principal national securities exchange on which the Stock is
traded, if the Stock is then traded on a national securities exchange; or (ii)
the last reported sale price (on that date) of the Stock on the NASDAQ National
Market List, if the Stock is not then traded on a national securities exchange;
or (iii) the closing bid price (or average of bid prices) last quoted (on that
date) by an established quotation service for over-the-counter securities, if
the Stock is not reported on the NASDAQ National Market List. However, if the
Stock is not publicly traded at the time an Option is granted under the Plan,
"fair market value" shall be deemed to be the fair value of the Stock as
determined by the Board after taking into consideration all factors which it
deems appropriate, including, without limitation, recent sale and offer prices
of the Stock in private transactions negotiated at arm's length.
5.6 Non-Transferability of Options. No Option granted under this Plan
shall be transferable by the grantee otherwise than by will or the laws of
descent and distribution, and such Option may be exercised during the grantee's
lifetime only by the grantee.
-8-
5.7 Foreign Nationals. Awards may be granted to Participants who are
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Committee considers
necessary or advisable to achieve the purposes of the Plan or comply with
applicable laws.
ARTICLE VI
EXERCISE OF OPTION
6.1 Exercise. Each Option granted under this Plan shall be exercisable
on such date or dates and during such period and for such number of shares as
shall be determined pursuant to the provisions of the instrument evidencing such
Option. The Board shall have the right to accelerate the date of exercise of any
option, provided that, the Board shall not accelerate the exercise date of any
Incentive Stock Option granted if such acceleration would violate the annual
vesting limitation contained in Section 422(d)(1) of the Code.
6.2 Notice of Exercise. A person electing to exercise an Option shall
give written notice to the Corporation of such election and of the number of
shares he or she has elected to purchase and shall at the time of exercise
tender the full purchase price of the shares he or she has elected to purchase.
The purchase price can be paid partly or completely in shares of the
Corporation's stock valued at Fair Market Value as defined in Section 5.5
hereof, or by any such other lawful consideration as the Board may determine.
Until such person has been issued a certificate or certificates for the shares
so purchased and has fully paid the purchase price for such shares, he or she
shall possess no rights of a record holder with respect to any of such shares.
In the event that the Corporation elects to receive payment for such shares by
means of a promissory note, such note, if issued to an officer, director or
holder of 5% or more of the Company's outstanding Common
-9-
Stock, shall provide for payment of interest at a rate no less than the interest
rate then payable by the Company to its principal commercial lender, or if the
Company has no loan outstanding to a commercial lender, then the interest rate
payable shall equal the prevailing prime rate of interest then charged by
commercial banks headquartered in Massachusetts (as determined by the Board of
Directors in its reasonable discretion) plus two percent.
6.3 Option Unaffected by Change in Duties. No Incentive Stock Option
(and, unless otherwise determined by the Board of Directors, no Non-Qualified
Option granted to a person who is, on the date of the grant, an Employee of the
Corporation or an Affiliated Corporation) shall be affected by any change of
duties or position of the optionee (including transfer to or from an Affiliated
Corporation), so long as he or she continues to be an Employee. Employment shall
be considered as continuing uninterrupted during any bona fide leave of absence
(such as those attributable to illness, military obligations or governmental
service) provided that the period of such leave does not exceed 90 days or, if
longer, any period during which such optionee's right to reemployment is
guaranteed by statute. A bona fide leave of absence with the written approval of
the Board shall not be considered an interruption of employment under the Plan,
provided that such written approval contractually obligates the Corporation or
any Affiliated Corporation to continue the employment of the optionee after the
approved period of absence.
If the optionee shall cease to be an Employee for any reason other than
death, such Option shall thereafter be exercisable only to the extent of the
purchase rights, if any, which have accrued as of the date of such cessation;
provided that (i) the Board may provide in the instrument evidencing any Option
that the Board may in its absolute discretion, upon any such cessation of
employment, determine (but be under no obligation to determine) that such
accrued purchase rights shall be
-10-
deemed to include additional shares covered by such Option; and (ii) unless the
Board shall otherwise provide in the instrument evidencing any Option, upon any
such cessation of employment, such remaining rights to purchase shall in any
event terminate upon the earlier of (A) the expiration of the original term of
the Option; or (B) where such cessation of employment is on account of
disability, the expiration of one year from the date of such cessation of
employment and, otherwise, the expiration of three months from such date. For
purposes of the Plan, the term "disability" shall mean "permanent and total
disability" as defined in Section 22(e)(3) of the Code.
In the case of a Participant who is not an employee, provisions
relating to the exercisability of an Option following termination of service
shall be specified in the award. If not so specified, all Options held by such
Participant shall terminate on termination of service to the Corporation.
6.4 Death of Optionee. Should an optionee die while in possession of
the legal right to exercise an Option or Options under this Plan, such persons
as shall have acquired, by will or by the laws of descent and distribution, the
right to exercise any Options theretofore granted, may, unless otherwise
provided by the Board in any instrument evidencing any Option, exercise such
Options at any time prior to one year from the date of death; provided, that
such Option or Options shall expire in all events no later than the last day of
the original term of such Option; provided, further, that any such exercise
shall be limited to the purchase rights which have accrued as of the date when
the optionee ceased to be an Employee, whether by death or otherwise, unless the
Board provides in the instrument evidencing such Option that, in the discretion
of the Board, additional shares covered by such Option may become subject to
purchase immediately upon the death of the optionee.
-11-
ARTICLE VII
REPORTING PERSON LIMITATIONS
To the extent required to qualify for the exemption provided by Rule
16b-3 under the Securities Exchange Act of 1934, and any successor provision, at
least six months must elapse from the date of acquisition of an Option by a
Reporting Person to the date of disposition of such Option (other than upon
exercise) or its underlying Common Stock.
ARTICLE VIII
TERMS AND CONDITIONS OF OPTIONS
Options shall be evidenced by instruments (which need not be identical)
in such forms as the Board may from time to time approve. Such instruments shall
conform to the terms and conditions set forth in Articles V and VI hereof and
may contain such other provisions as the Board deems advisable which are not
inconsistent with the Plan, including restrictions applicable to shares of Stock
issuable upon exercise of Options. In granting any Non-Qualified Option, the
Board may specify that such Non-Qualified Option shall be subject to the
restrictions set forth herein with respect to Incentive Stock Options, or to
such other termination and cancellation provisions as the Board may determine.
The Board may from time to time confer authority and responsibility on one or
more of its own members and/or one or more officers of the Corporation to
execute and deliver such instruments. The proper officers of the Corporation are
authorized and directed to take any and all action necessary or advisable from
time to time to carry out the terms of such instruments.
-12-
ARTICLE IX
BENEFIT PLANS
Awards under the Plan are discretionary and are not a part of regular
salary. Awards may not be used in determining the amount of compensation for any
purpose under the benefit plans of the Corporation, or an Affiliated
Corporation, except as the Board may from time to time expressly provide.
Neither the Plan, an Option or any instrument evidencing an Option confers upon
any Participant any right to continue as an employee of, or consultant or
advisor to, the Company or an Affiliated Corporation or affect the right of the
Corporation or any Affiliated Corporation to terminate them at any time. Except
as specifically provided by the Board in any particular case, the loss of
existing or potential profits granted under this Plan shall not constitute an
element of damages in the event of termination of the relationship of a
Participant even if the termination is in violation of an obligation of the
Corporation to the Participant by contract or otherwise.
ARTICLE X
AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN
The Board may suspend the Plan or any part thereof at any time or may
terminate the Plan in its entirety. Awards shall not be granted after Plan
termination. The Board may also amend the Plan from time to time, except that
amendments which affect the following subjects must be approved by stockholders
of the Corporation:
(a) Except as provided in Article XI relative to capital changes,
the number of shares as to which Options may be granted
pursuant to Article V;
(b) The maximum term of Options granted;
(c) The minimum price at which Options may be granted;
-13-
(d) The term of the Plan; and
(e) The requirements as to eligibility for participation in the
Plan.
Awards granted prior to suspension or termination of the Plan may not
be cancelled solely because of such suspension or termination, except with the
consent of the grantee of the Award.
ARTICLE XI
CHANGES IN CAPITAL STRUCTURE
The instruments evidencing Options granted hereunder shall be subject
to adjustment in the event of changes in the outstanding Stock of the
Corporation by reason of Stock dividends, Stock splits, recapitalizations,
reorganizations, mergers, consolidations, combinations, exchanges or other
relevant changes in capitalization occurring after the date of an Award to the
same extent as would affect an actual share of Stock issued and outstanding on
the effective date of such change. Such adjustment to outstanding Options shall
be made without change in the total price applicable to the unexercised portion
of such options, and a corresponding adjustment in the applicable option price
per share shall be made. In the event of any such change, the aggregate number
and classes of shares for which Options may thereafter be granted under Section
5.1 of this Plan may be appropriately adjusted as determined by the Board so as
to reflect such change.
Notwithstanding the foregoing, any adjustments made pursuant to this
Article XI with respect to Incentive Stock Options shall be made only after the
Board, after consulting with counsel for the Corporation, determines whether
such adjustments would constitute a "modification" of such Incentive Stock
Options (as that term is defined in Section 424 of the Code) or would cause any
-14-
adverse tax consequences for the holders of such Incentive Stock Options. If the
Board determines that such adjustments made with respect to Incentive Stock
Options would constitute a modification of such Incentive Stock Options, it may
refrain from making such adjustments.
In the event of the proposed dissolution or liquidation of the
Corporation, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as the Board shall determine.
Except as expressly provided herein, no issuance by the Corporation of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Options. No adjustments
shall be made for dividends paid in cash or in property other than securities of
the Corporation.
No fractional shares shall be issued under the Plan and the optionee
shall receive from the Corporation cash in lieu of such fractional shares.
ARTICLE XII
EFFECTIVE DATE AND TERM OF THE PLAN
The Plan shall become effective on August 16, 1996. The Plan shall
continue until such time as it may be terminated by action of the Board or the
Committee; provided, however, that no Options may be granted under this Plan on
or after the tenth anniversary of the effective date hereof.
-15-
ARTICLE XIII
CONVERSION OF ISOS INTO NON-QUALIFIED
OPTIONS; TERMINATION OF ISOS
The Board, at the written request of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's
Incentive Stock Options, that have not been exercised on the date of conversion,
into Non-Qualified Options at any time prior to the expiration of such Incentive
Stock Options, regardless of whether the optionee is an employee of the
Corporation or an Affiliated Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of such Options. At the time of such conversion, the
Board or the Committee (with the consent of the optionee) may impose such
conditions on the exercise of the resulting Non-Qualified Options as the Board
or the Committee in its discretion may determine, provided that such conditions
shall not be inconsistent with the Plan. Nothing in the Plan shall be deemed to
give any optionee the right to have such optionee's Incentive Stock Options
converted into Non-Qualified Options, and no such conversion shall occur until
and unless the Board or the Committee takes appropriate action. The Board, with
the optionee's consent, may also terminate any portion of any Incentive Stock
Option that has not been exercised at the time of such termination.
ARTICLE XIV
APPLICATION OF FUNDS
The proceeds received by the Corporation from the sale of shares
pursuant to Options granted under the Plan shall be used for general corporate
purposes.
-16-
ARTICLE XV
GOVERNMENTAL REGULATION
The Corporation's obligation to sell and deliver shares of Stock under
this Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.
ARTICLE XVI
WITHHOLDING OF ADDITIONAL INCOME TAXES
Upon the exercise of a Non-Qualified Option or the making of a
Disqualifying Disposition (as defined in Article XVI) the Corporation, in
accordance with Section 3402(a) of the Code, may require the optionee to pay
additional withholding taxes in respect of the amount that is considered
compensation includible in such person's gross income. The Board in its
discretion may condition the exercise of an Option on the payment of such
additional withholding taxes.
ARTICLE XVII
NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION
Each employee who receives an Incentive Stock Option must agree to
notify the Corporation in writing immediately after the employee makes a
Disqualifying Disposition of any Stock acquired pursuant to the exercise of an
Incentive Stock Option. A Disqualifying Disposition is any disposition
(including any sale) of such Stock before the later of (a) two years after the
date the employee was granted the Incentive Stock Option or (b) one year after
the date the employee acquired Stock by exercising the Incentive Stock Option.
If the employee has died before such stock is sold, these holding period
requirements do not apply and no Disqualifying Disposition can occur thereafter.
-17-
ARTICLE XVIII
GOVERNING LAW; CONSTRUCTION
The validity and construction of the Plan and the instruments
evidencing Options shall be governed by the laws of the Commonwealth of
Massachusetts (without regard to the conflict of law principles thereof). In
construing this Plan, the singular shall include the plural and the masculine
gender shall include the feminine and neuter, unless the context otherwise
requires.
-18-
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