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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 23, 1996
COMMISSION FILE NUMBER 0-19561
BPI PACKAGING TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 04-2997486
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(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
455 SOMERSET AVENUE, NORTH DIGHTON, MASSACHUSETTS 02764
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(Address of principal executive offices) (Zip code)
(508) 824-8636
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF CLASS
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Common Stock, $.01 par value
Series A Convertible Preferred Stock, $.01 par value
Class B Redeemable Common Stock Purchase Warrants
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 60 days. Yes X No .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
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The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the average of the bid and ask prices of the Common
Stock and Series A Convertible Preferred Stock as reported by NASDAQ/NMS on June
3, 1996 was approximately $37,080,816 for the Common Stock and $1,267,622 for
the Series A Convertible Preferred Stock. As of June 3, 1996,13,393,359 shares
of Common Stock, $.01 par value per share, were outstanding and 372,146 shares
of Series A Convertible Preferred Stock, $.01 par value per share, were
outstanding.
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PART I
ITEM 1. BUSINESS
GENERAL
BPI Packaging Technologies, Inc. (the "Company") is a specialty packaging
and in-store advertising and promotion company that develops, manufactures,
markets and sells plastic bags and advertising and promotion products to
grocery, convenience, retail and drug store chains. The Company manufactures
traditional plastic grocery carryout bags of "T-shirt sack" design commonly used
at the checkout counter and plastic T-shirt carryout bags in proprietary, value
added dispensing systems for use in the produce section of the supermarket and
the checkout counters in convenience, retail, and drug store chains. The
Company's T-shirt carryout bags are manufactured in a new, state-of-the-art
plant which utilizes some of the world's most advanced and highest quality
printing, extrusion and bag making equipment. The Company's investment in
state-of-the-art manufacturing equipment and computer controlled process
technology, allows it to be a lower cost and high quality producer in the
T-shirt bag market.
The Company's strategy is to (i) integrate its proprietary bag products and
proprietary in-store advertising and promotion products in grocery, convenience,
retail and drug store chains, and (ii) replace the lower margin traditional
plastic grocery carryout bag with higher margin proprietary bag and in-store
advertising and promotion products. Total sales for the year ended February 23,
1996 ("Fiscal 1996") were $28.8 million, of which $7.1 million was attributed to
sales of proprietary bag products, an increase of 29% over a year earlier.
Management believes, based on existing trends, that proprietary bag products
will show a substantially stronger performance in Fiscal 1997.
During the period June 1991 to May 1996, the Company acquired and brought
online approximately $36 million of new, state-of-the-art extrusion, printing
and bag making equipment in its Dighton, Massachusetts facility and developed
and acquired patented and proprietary bag and in-store advertising and promotion
products. The Company's proprietary bag and in-store advertising and promotion
products are uniquely positioned in the market which has limited direct
competition. The Company's present manufacturing capacity will support estimated
sales of $40 to $50 million annually. The Company currently has outstanding
commitments of $2.4 million that have been entered into to complete the planned
increase in capacity within the next six months to support estimated sales of
$50 to $60 million annually. All capacity estimates are based upon certain
assumptions regarding pricing, manufacturing efficiencies and product mix.
Management's goal is to have the capacity fully utilized by the end of Fiscal
1998 with higher margin proprietary bag products.
Potential sales for the Company's in-store advertising and promotion
products, Floor Focus Ad-Tile(TM) and Produce Profit Builder(TM) are directly
related to market penetration and are not constrained by manufacturing capacity.
Developing the capability to penetrate the in-store advertising and promotion
market requires an investment in sales and marketing infrastructure, but
management expects that this capital investment will be significantly less than
the investment required to support equivalent sales of bag products.
Management's goal of integrating proprietary
bag products and proprietary in-store advertising and promotion products is
expected to create in the future, new market opportunities and reduce the
capital requirements necessary to support growth.
The Company competes in the $731 million annual market (based on 1994
industry information) for traditional plastic grocery carryout T-shirt bags.
This market is highly competitive and margins have remained low for several
years. Management's goal is to substantially reduce sales from this market by
the end of Fiscal 1998 and concentrate on the markets for its higher margin
proprietary T-shirt bag products (estimated at $384 million annually in 1994)
and its in-store advertising and promotion products for the supermarket and
convenience store markets (which are currently estimated by management at
approximately $600 million annually).
The Company has recently entered the in-store advertising and promotion
market with two new products: (1) Product Profit Builder(TM), which incorporates
the Company's established proprietary FRESH-SAC(R) T-shirt produce bag, which is
used by approximately 3,000 supermarkets, into a new in-store advertising and
promotion vehicle for supermarkets, and (2) the new patented Floor Focus
Ad-Tile(TM) system, which is a semi-permanent floor tile which contains full
color advertising messages manufactured into it and is installed in the floor in
strategic locations throughout the store. Market Media, Inc., a wholly owned
subsidiary, has entered into a contract with Winn-Dixie Stores, Inc., of
Florida, the fifth largest grocery chain in the U.S., to install its patented
Floor Focus Ad-Tile(TM) advertising product in all of the 1,178 Winn-Dixie
supermarkets. The objective of the Produce Profit Builder program and Floor
Focus Ad-Tile(TM) is to increase sales in-store at the point of purchase. In the
first quarter of Fiscal 1997, the rollout began for the first Winn-Dixie
Division (109 stores of which 10 stores will be control stores) with national
brand advertisers which include Nestle, Campbell Soup, Hebrew National, and H.J.
Heinz.
HISTORY
The Company's predecessor, Beresford Packaging, Inc. ("Beresford-U.S."),
was organized as a wholly owned subsidiary of Beresford Packaging, Inc. a
Canadian corporation that was subsequently amalgamated into Beresford Box
Company Limited ("Beresford -Canada") in February 1988 to acquire certain assets
and assume certain liabilities of Surrey Industries, Inc., an unaffiliated
entity, which manufactured traditional high molecular weight, high density
polyethylene ("HMWPE") plastic bags. The Company was organized as a Delaware
corporation in May 1990 and in August 1990 Beresford-U.S. merged into the
Company. In February 1993, the stockholders and directors of the Company
approved the name change of the Company from BPI Environmental, Inc. to BPI
Packaging Technologies, Inc. The Company operates four wholly owned
subsidiaries: RC America, Inc., which purchases surplus inventory from
manufacturers of consumer products and markets and sells the products to mass
merchandise retailers and other retail chains; BPI Packaging (UK) Limited, which
markets and sells the Company's products in Europe; Market Media, Inc., which
sells and markets in-store advertising promotion programs; and BPI Packaging,
Inc., which was established to purchase, sell and market plastic bag products
manufactured by another bag manufacturer. Unless otherwise indicated, the term
"Company" includes BPI Packaging Technologies, Inc., its predecessor
Beresford-U.S., and its four subsidiaries.
-2-
PRODUCTS AND MARKETS
FRESH-SAC(R) T-shirt produce bag is a thin, high clarity, high molecular
weight, high density ("HMWPE") produce bag manufactured from a patent pending
plastic developed by the Company and sold in a patented dispensing mechanism.
The product is presently sold to approximately 3,000 supermarkets directly and
through distributors. In 1994, it was estimated that there were 32,500
supermarkets in the United States, which represents an annual market potential
for this product of an estimated $264 million. The Company has no direct
competition in this market, but has indirect competition from the traditional
produce bag on a roll. In this section, direct competition refers to competition
from identical products, and indirect competition refers to products which are
not identical, but which could be substituted for the Company's product.
HANDI-SAC(TM) is a T-shirt bag sold in a patented dispensing mechanism. The
system allows the retailer to effectively store and dispense T-shirt bags in a
limited space, which is important to drug, convenience and hardware stores. The
marketing program for this product began in Fiscal 1995 and at the end of the
first quarter of Fiscal 1997, the product is being sold to approximately 6,900
convenience, drug and hardware stores. The annual market potential for
HANDI-SAC(TM) in the 93,000 convenience store industry is estimated at
approximately $120 million. The sales and marketing program is accelerating for
this product. The Company has no direct competition in this market, but has
indirect competition from paper bags and the T-shirt bag on a roll manufactured
by Sonoco Products Company ("Sonoco"). The principal competition in this market
is paper bags, which have the largest share of the market and cost approximately
two to three times the price of HANDI-SAC(TM).
TRADITIONAL GROCERY T-SHIRT BAG is classified as a non-proprietary product
although the Company owns an issued patent on this product. The bags are
manufactured using HMWPE plastic resin and are sold to grocery, convenience,
drug and retail chains.
The $731 million annual market in 1994 for T-shirt bags has developed over
the past ten years primarily because the T-shirt bag has been approximately
one-half to one-quarter the price of kraft paper bags over the period and the
T-shirt bag has been a less expensive alternative to paper and plastic
merchandise bags. Plastic T-shirt bags have an estimated 75% marketshare of the
supermarket industry. This market is highly competitive. The Company's
competitors include divisions of large multinational companies (e.g., Tenneco,
Inc. ("Tenneco") and Sonoco) and, to a lesser extent, other specialty bag
manufacturers. The Company believes that Sonoco and Tenneco are, respectively,
the leading manufacturers of HMWPE and LLDPE T-shirt grocery bags. (Mobil Oil
Corporation ("Mobil") recently exited the grocery T-shirt sack market and sold
this business to Tenneco.) There are significant barriers to entry into the
market due to the significant capital requirements (management estimates that it
presently requires a capital investment of approximately $10 million for each
one billion bags of manufacturing capacity, exclusive of real estate costs,
start-up costs and working capital requirements).
-3-
IN-STORE ADVERTISING AND PROMOTION PRODUCTS are the Floor Focus
Ad-Tile(TM), an in-floor advertising system, and the Produce Profit Builder(TM),
which consists of the (i) Floor Focus Ad-Tile(TM), (ii) the FRESH-SAC(R) T-shirt
sack produce bag in a patented dispensing system, and (iii) the patent pending
Fresh Focus Cartridge Talker(TM), an attachment to the patented dispensing
system, which is utilized as an advertising and promotion vehicle and coupon
dispensing mechanism. The patented Floor Focus Ad-Tile(TM) system has full-color
advertising messages manufactured into a tile which is then installed in the
floor in strategic locations throughout the store with the objective of
increasing brand sales at the point of purchase. Floor Focus Ad-Tile(TM) is a
semi-permanent installation that withstands heavy traffic, yet is easily
replaced when the message changes.
Market Media, Inc. ("Market Media"), a wholly-owned subsidiary, was
organized in the first quarter of Fiscal 1996 to develop in-store advertising
and promotion products, which are to be marketed with the FRESH-SAC(R) produce
bag. Subsequently, the Floor Focus Ad-Tile(TM) product was acquired.
In the second quarter of Fiscal 1996, Market Media entered into a contract
with Winn-Dixie Stores, Inc. of Florida to install its Floor Focus Ad-Tile(TM)
advertising product in all of the 1,178 Winn-Dixie supermarkets. In the first
quarter of Fiscal 1997, the rollout began for the first Winn-Dixie Division (109
stores of which ten stores will be control stores) with national brand
advertisers which include Nestle, Campbell Soup, Hebrew National, and H.J.
Heinz. Initial advertising contracts total approximately $100,000 with
individual contracts from one to three advertising cycles (4 to 12 weeks).
Under the contract, Market Media is responsible for the sale of Floor Focus
Ad-Tile(TM) advertising to consumer package goods advertisers in the 1,178
Winn-Dixie supermarkets. Management estimates that the sale of Floor Focus
Ad-Tile(TM) at Winn-Dixie Stores, Inc. could result in annual sales of up to
$14.7 million when the rollout is complete in mid 1997, assuming all Floor Focus
Ad-Tile(TM) locations are fully utilized at current advertising rates.
Market Media's new Floor Focus Ad-Tile(TM), for the supermarket,
convenience store and non-food retail store industries, has the potential of
creating new in-store advertising and promotion markets, which management
estimates at approximately $600 million annually.
Market Media's Floor Focus Ad-Tile(TM), under the Winn-Dixie contract, is
located in the dry goods sections of the supermarket, and it is anticipated that
any competitive products will be directed at this market. While Market Media is
marketing the Floor Focus Ad-Tile(TM) to the dry goods section of the
supermarket, the Company plans to market Floor Focus Ad-Tile(TM) to the produce
department as an element of its Produce Profit Builder program.
The Company's Produce Profit Builder has three elements: FRESH-SAC(R)
T-shirt produce bag, Fresh Focus Cartridge Talker(TM), and Floor Focus
Ad-Tile(TM). All three products create a marketing program for the produce
department of the supermarket and have the objective of increasing produce
sales.
-4-
The Produce Profit Builder program provides a platform for the Company to
potentially reach its goal of capturing a 60% marketshare of the 1994 $264
million annual potential market for the FRESH-SAC(R) T-shirt produce bag by
replacing the produce bag on a roll with FRESH-SAC(R). FRESH-SAC(R) is now sold
to approximately 3,000 supermarkets. In the context of the Produce Profit
Builder program, FRESH-SAC(R) becomes an important component of a marketing
program that can increase store profits. This marketing program has been well
received, and in-store market tests have been successful in Canada and are
planned to begin at several leading U.S. grocery chains in the second quarter of
Fiscal 1997.
Floor Focus Ad-Tile(TM) marked the Company's entry into the in-store
advertising and promotion market. The Produce Profit Builder program is also the
platform to launch a second proprietary product, Fresh Focus Cartridge
Talker(TM), into this market.
3M has entered the floor tile advertising market with a "decal" that is
attached to the existing floor tile surface and is regarded as an indirect
competitor of Floor Focus Ad-Tile(TM). 3M is classified as an indirect
competitor because its decal advertising message is attached to the surface of
the floor tile rather than having the advertising message manufactured into the
floor tile similar to the Floor Focus Ad-Tile(TM).
Traditional in-store advertising and promotion markets are estimated at
approximately $500 million in 1995 and the major companies are Heritage Media
Corporation and Catalina Marketing Corporation, both of which offer in-store
advertising and promotional products which are not related to the floor tile or
the FRESH-SAC(R) produce bag dispensing systems.
RC AMERICA, INC.
The Company, through its RC America, Inc. subsidiary, purchases surplus
finished goods inventories from manufacturers of consumer products and markets
and sells the products to mass merchandise retailers and other retail chains and
distributors. RC America, Inc. purchases and sells these products both in the
United States and overseas.
COMPETITION
The plastic bag and the in-store advertising and promotion industries are
highly competitive. In the plastic bag industry, the Company's competitors
include divisions of large multinational companies (e.g. Tenneco and Sonoco) and
to a lesser extent, other specialty bag manufacturers. The Company believes that
Sonoco and Tenneco are, respectively, the leading manufacturers of HMWPE and
linear low density polyethylene ("LLDPE") T-shirt grocery bags. (Mobil recently
exited the grocery T-shirt sack market and sold this business to Tenneco.) There
are significant barriers to entry into the plastic bag market due to the
significant capital requirements (management estimates that it presently
requires a capital investment of approximately $10 million for each one billion
bags of manufacturing capacity, exclusive of real estate costs, start-up costs
and working capital requirements).
-5-
The Company's in-store advertising and promotion products compete in the
same markets that are dominated by Heritage Media Corporation and Catalina
Marketing Corporation, both of which offer in-store advertising and promotion
products which are not related to the floor tile or the FRESH-SAC(R) produce bag
dispensing systems. Consequently, the Company anticipates much of its
competition will come from larger, well-capitalized businesses which have
significantly greater financial and other resources than the Company.
Accordingly, no assurance can be given that the Company will be able to compete
successfully with any of these companies or achieve a greater market share than
it currently possesses. The Company competes in the plastic bag and in-store
advertising and promotion industries by (i) developing and marketing what it
believes are innovative plastic bags and in-store advertising and promotion
products, (ii) filing for patent protection in the United States and numerous
foreign countries for its proprietary products, (iii) using state-of-the-art
manufacturing equipment in an effort to increase productivity and lower costs,
and (iv) integrating its proprietary bag and in-store advertising and promotion
products to create barriers to market entry for manufacturers of plastic bags,
which do not have in-store advertising and promotion products, and to create
barriers to market entry for in-store advertising and promotion companies that
do not manufacture plastic bags.
PROPRIETARY PROCESSES, PATENTS AND OTHER RIGHTS
PATENT STRATEGY
The Company's strategy is to, first, be a low cost producer in each of its
markets, and second, to develop patentable, proprietary products in order to
differentiate its products in the marketplace.
The Company has developed a patent position in the T-shirt bag and in-store
advertising markets. The Company owns a patent issued in 1989 for its T-shirt
carryout bag and patents for its HANDI-SAC(TM) and FRESH-SAC(R) dispensing
systems and has patents pending on several other T-shirt bag and in-store
advertising products. The Company also has an exclusive worldwide license for
the patented Floor Focus Ad-Tile(TM) system.
In 1993, the Company was issued a United States patent for the dispensing
system used in conjunction with its FRESH-SAC(R) product and other T-shirt sack
products and has filed patent applications for the dispensing system in 20
foreign countries. The Company has filed patent applications in the United
States and approximately 14 foreign countries for the FRESH-SAC(R) HMWPE
material, and was notified that this patent has been issued in a foreign
country. The Company has also filed patent applications in the United States for
its RAPID-SACTM product and for its RACK 'N SACKTM product, a new dispensing
system for T-shirt sacks for non-food retail markets. The Company has filed a
United States patent application for its Fresh Focus Cartridge Talker(TM). For
Fiscal 1996, the Company spent approximately $61,000 for patent activities,
including applications, legal fees and related costs. No assurance can be given
that any of these patents will be granted or that the patents currently owned by
the Company and any patents that may be granted in the future will be
enforceable or provide the Company with meaningful protection from competitors.
Even if a competitor's products were to infringe patents owned by the Company,
it
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could be costly for the Company to enforce its rights in an infringement
action and would divert funds and resources otherwise used in the Company's
operations. Furthermore, no assurance can be given that the Company would be
successful in enforcing such rights. No assurance can be given that any of the
Company's patent applications will be allowed, or if allowed, will provide the
Company with any advantage against competitors selling similar products.
Similarly, no assurance can be given that the Company's products will not
infringe patents or rights of others. The Company has a registered trademark in
the United States for FRESH-SAC(R).
The Company has developed a number of proprietary manufacturing methods and
processes utilized in the manufacture of its products, including processes that
utilize greater percentages of recycled plastic materials in plastic bags, and
produce strong, thin, high clarity and traditional HMWPE bags using less
plastic. The Company relies on and employs various methods to protect the
concepts, ideas, and documentation for these manufacturing methods such as
patents and confidentiality agreements with its employees. However, such methods
may not afford sufficient protection and no assurance can be given that others
will not independently develop such know-how or obtain access to the Company's
know-how, concepts, ideas and documentation.
The Company owns patents in the United States and Canada relating to the
methods for making a pack of plastic T-shirt sacks which permits the individual
sacks to be mounted on a handle-supported dispensing rack system and to be
easily separated and dispensed from the pack utilizing a central "pull tab."
Sonoco also owns a patent relating to the methods for holding plastic bags in a
metal rack. In 1990, Sonoco indicated its intent to seek licenses under a
broadened reissue patent from all manufacturers of plastic bags which utilize a
particular method for holding plastic bags in a metal rack. Sonoco has commenced
litigation against several plastic bag manufacturers other than the Company. The
United States District Court for the Central District of California entered
summary judgment in February 1994 for the defendants in a suit relating to
alleged patent infringement by the defendants. The court declared Sonoco's three
reissue claims to be invalid. It is expected that Sonoco will appeal this
judgment. Subsequent to this decision, the Company filed suit against Sonoco
alleging infringement of the Company's patent by Sonoco. In the first quarter of
Fiscal 1997, the patent infringement suit against Sonoco and Sonoco
counterclaims against the Company were dismissed by mutual agreement of the
parties.
If Sonoco was to appeal the February 1994 judgment which declared Sonoco's
three reissue claims invalid, and have that judgment reversed, Sonoco could
institute a patent infringment suit against the Company. If Sonoco was to
institute and succeed in any infringement claim. If Sonoco was to institute and
succeed in any infringement claim against the Company, Sonoco might be able to
prevent the future use, sale and manufacture of certain of the Company's
products using certain racking systems, or alternatively, might require the
Company to pay Sonoco a license fee for the use of this technology. Either
outcome could have a material adverse effect on the Company's business.
Infringement of any patent may also render the Company liable to purchasers and
end-users of the infringing product. The Sonoco patent applies to the
traditional grocery T-shirt sack and does not apply to the Company's proprietary
HANDI-SAC(TM) and FRESH-SAC(R) bag products.
-7-
Mobil owns a reissue patent that relates to avoiding stress concentration
and preventing the tearing of plastic bags. This reissue patent originally was
to expire in 1996. Due to a change in U.S. patent law, the reissue patent is now
extended until 1998. On December 4, 1995, Mobil instituted an infringement claim
against the Company. The Company intends to vigorously defend this suit.
However, if Mobil was to succeed in this or any infringement claim against the
Company, Mobil might be able to prevent the future use, sale and manufacture of
the Company's grocery T-shirt sacks and similar products which might be found to
infringe the patent, or alternatively, might require the Company to pay Mobil a
license fee for the prior and future use of this technology. Either outcome
could have a material adverse effect on the Company's business. The Mobil patent
applies to the traditional grocery T-shirt sack and does not apply to the
Company's proprietary HANDI-SAC(TM) and FRESH-SAC(R) bag products. See "LEGAL
PROCEEDINGS."
No assurance can be given that the Company's products will not infringe
patents or rights of others. The Company could incur substantial costs in
defending itself in any patent litigation.
MANUFACTURING
All of the Company's plastics products are manufactured in its Dighton,
Massachusetts facility. The HMWPE resin is delivered to the Company by rail car,
where it is brought into the facility to be heated and blown into a thin film on
blown film extrusion lines. The film is cooled and wound on large rolls and
printed with the customer's information using non-toxic inks. The film is then
cut into bags, reviewed by quality control inspectors, boxed, and shipped to
customers. The Company retains customer design ink plates for future use and has
an art department which assists in graphic design for the bags.
The Company's manufacturing equipment consists of blown film extrusion
lines, printing presses and bag making machines. The Company anticipates further
increases in manufacturing capacity in the Dighton facility during the next six
(6) months from its present manufacturing capacity of approximately 2.5 to 3.3
billion bags to manufacturing capacity of approximately 4.0 to 4.8 billion bags.
All capacity estimates are based upon certain assumptions regarding pricing,
manufacturing efficiencies and product mix.
RAW MATERIALS
HMWPE resin comprises the principal raw material in the Company's products,
the principal component of which is ethylene, a derivative of natural gas. HMWPE
resin is currently available from several sources, but is being produced at over
90% of industry capacity utilization. During the past fiscal year, as in some
prior fiscal years, resin prices fluctuated significantly, which trend the
Company expects will continue. Although the Company currently purchases the
additives used in the production of its FRESH-SAC(R) products from a single
source, it believes that alternate sources would be available, if the current
manufacturer were to cease production. In such event, however, the Company may
experience delays in obtaining the additives, which could result in temporary
-8-
delays in FRESH-SAC(R) production. To date, the Company has not experienced
any shortages of raw materials.
BACKLOG
The Company's backlog of firm orders at May 31, 1996, was $ 912,265 as
compared to $743,727 at May 22, 1995. The Company generally sells products on an
individual purchase order to regular customers rather than under annual
contracts on a scheduled delivery basis. Accordingly, backlog may fluctuate
significantly and may not be an accurate indicator of general business trends.
SEASONALITY
Management of the Company does not believe that the Company's business is
seasonal. However, general demand for the traditional T-shirt sack decreases in
the first calendar quarter of each year because demand for non-food retail bags
is significantly less in this period.
MAJOR CUSTOMERS
For the fiscal year ended February 23, 1996, Shaw's Supermarkets, Inc. and
Duro Bag Manufacturing Company accounted for 15% and 10% of the Company's sales,
respectively. The loss of either of these customers could have a material
adverse effect on the Company's business. Although Shaw's Supermarkets, Inc.
continues to purchase certain proprietary products from the Company, the Company
is currently not the sole supplier to Shaw's of the traditional grocery T-shirt
sack. As a result, the Company currently does not expect that Shaw's will be a
more than 10% customer for Fiscal 1997.
EMPLOYEES
As of May 31, 1996, the Company had 196 full-time employees, including its
five executive officers, of whom nine are employed in general and administrative
activities, 17 are involved in sales and marketing, and 170 are involved in
production. None of the Company's employees are represented by a union. At May
15, 1995, the Company had approximately 186 full-time employees. Management
considers its relations with employees to be satisfactory.
ITEM 2. FACILITIES
The Company maintains its principal executive offices and manufacturing
operations in a 124,000 square foot facility in Dighton, Massachusetts. The
premises are leased from an unaffiliated landlord under a lease which expires on
December 31, 2007 at a monthly rent of $30,636 and effective August 1, 1997, and
thereafter to be adjusted based on certain indices. The Company is responsible
for payment of real estate taxes, which are approximately $42,000 per year, and
maintenance. The Company has an option to extend the lease for a seven year
period at the expiration of the lease.
-9-
ITEM 3. LEGAL PROCEEDINGS
On December 4, 1995, Mobil Oil Corporation ("Mobil") filed suit against the
Company in the U.S. District Court for the District of Delaware, Civil Action
No. 95-737. Mobil also named Inteplast Corporation and Integrated Bagging
Systems Corporation as defendants in this matter. Mobil has alleged that the
Company has infringed on Mobil's rights under U.S. Patent No. Re. 34,019 (the
"Patent"), regarding the manufacture of plastic carrying bags known as "T-shirt
bags." Mobil is seeking injunctive relief prohibiting the Company from selling
products which allegedly infringe on the Patent, money damages to compensate
Mobil for the Company's alleged infringement, interest, attorney's fees and
costs. The Company intends to vigorously defend this lawsuit. The Mobil patent
applies to the traditional grocery t-shirt sack and does not apply to the
Company's proprietary HANDI-SAC(TM) and FRESH-SAC(R) bag products.
In May 1994, the Company and IBS filed a patent infringement suit against
Sonoco Products Company and Demoulas Supermarkets, Inc. of Massachusetts in the
United States District Court of Massachusetts. The suit and all counterclaims
were dismissed by mutual agreement of the parties in the first quarter of Fiscal
1997.
The Company is involved in several other pending legal proceedings which
the Company does not consider to be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended February 23, 1996, through the solicitation of
proxies or otherwise.
-10-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been traded on the National Association of
Securities Dealers Automated Quotation National Market System ("NASDAQ/NMS")
since October 12, 1992. Prior to October 12, 1992, the Company's Common Stock
was traded on the over-the-counter market through the National Association of
Securities Dealers Automated Quotation System ("NASDAQ").
As of June 3, 1996, the Company had 245 holders of record of its Common
Stock and 43 stockholders of record for its Series A Convertible Preferred
Stock. Management believes that there are approximately 4,500 to 5,000
beneficial owners of the Company's Common Stock and Series A Convertible
Preferred Stock.
For the fiscal quarters reported below, the following table sets forth the
range of high and low sale quotations for the Common Stock for the relevant
periods as reported by NASDAQ/NMS. Such quotations represent inter-dealer
quotations without adjustment for retail markups, markdowns or commissions and
may not represent actual transactions.
<TABLE>
<CAPTION>
High Sale Low Sale
--------- --------
COMMON STOCK
<S> <C> <C>
Fiscal Year 1995
First Quarter ....................................... $ 6.125 $ 4.625
Second Quarter ...................................... $ 5.125 $ 3.50
Third Quarter ....................................... $ 4.875 $ 3.875
Fourth Quarter ...................................... $ 4.5625 $ 2.563
Fiscal Year 1996
First Quarter ........................................ $ 4.875 $ 3.50
Second Quarter........................................ $ 4.00 $ 2.875
Third Quarter ........................................ $ 3.00 $ 1.875
Fourth Quarter........................................ $ 2.50 $ 1.25
Fiscal Year 1997
First Quarter ....................................... $4.25 $1.375
Second Quarter (through June 3, 1996)................ $4.00 $2.75
</TABLE>
- - ----------
(1) The Company's Common Stock traded on NASDAQ through October 9, 1992 and
commenced trading on NASDAQ's National Market System ("NMS") on October
12, 1992. In addition, the Company's Class B Common Stock Purchase
Warrants also trade on NASDAQ's NMS and the Series A Preferred Stock
trades on NASDAQ.
-11-
DIVIDENDS
The Company has not paid any cash dividends on its Common Stock since
inception and does not anticipate the payment of cash dividends on its Common
Stock in the foreseeable future. It is expected that any earnings which may be
generated from operations, after payment of dividends on the Company's Series A,
B and C classes of Preferred Stock, will be used to finance the growth of the
Company. Dividends on each of these classes of Preferred Stock are
non-cumulative.
ITEM 6. SELECTED FINANCIAL DATA
The data should be read in conjunction with the consolidated financial
statements, related notes and other financial information included herein. See
"SALE OF SECURITIES" for $3.3 million equity funding in first quarter of Fiscal
1997 (ended May 24, 1996).
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------------------------------------------------
February 23, February 24, February 25, February 26, February 28,
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales ..................................... $28,839,954 $25,254,645 $16,754,056 $16,734,796 $13,843,870
Cost of goods sold ............................ 26,161,723 19,879,041 12,831,497 14,271,717 12,933,659
----------- ----------- ------------ ----------- -----------
Gross profit .................................. 2,678,231 5,375,604 3,922,559 2,463,079 910,211
Selling, general and administrative expense ... 6,370,956 5,029,832 3,746,227 3,837,148 2,951,384
Restructuring charge........................... -- -- -- 5,059,618 --
Income (loss) from operations ................ (3,692,725) 345,772 176,332 (6,433,687) (2,041,173)
Interest and other expense .................... 817,420 280,445 166,843 260,085 458,399
Other income .................................. -- 77,104 -- -- --
Non-recurring charge .......................... -- (989,917) -- -- --
Income (loss) before minority interest and
extraordinary items ......................... (4,510,145) (847,486) 9,489 (6,693,772) (2,499,572)
Minority interest in net (income) loss of
consol. subsidiaries......................... -- -- (10,092) 12,100 --
Net loss ...................................... (4,510,145) (847,486) (603) (6,681,672) (2,499,572)
Loss per share................................. (.38) (.08) 0.00 (1.04) (.57)
Weighted average shares outstanding............ 11,756,532 10,670,040 8,523,580 6,414,020 4,385,901
- - -------------------
At At At At At
February 23, February 24, February 25, February 26, February 28,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
BALANCE SHEET DATA:
Total assets .......................... $ 35,277,975 $ 35,341,925 $ 25,222,929 $ 19,782,729 $ 19,381,404
Long term obligations ................. $ 5,441,057 $ 4,495,692 $ 2,183,939 $ 961,719 $ 1,840,680
Redeemable preferred
stock ............................... $ 183,369 $ 183,369 $ 183,369 $ 183,369 $ 366,738
Working capital (deficit) ............. $ (2,767,867) $ 3,909,634 $ 2,048,842 $ (3,091,420) $ (4,189,130)
Stockholders' equity .................. $ 19,768,971 $ 24,048,204 $ 17,618,729 $ 11,168,156 $ 8,390,185
</TABLE>
-12-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
For the year ended February 23, 1996 ("Fiscal 1996"), the Company had
sales of $28,839,954 as compared to sales of $25,254,645 for the year ended
February 24, 1995 ("Fiscal 1995"), an increase of 14.2%.
The Company's core bag and film business (manufacture, sale and
marketing of traditional plastic grocery carryout bags and proprietary plastic
carryout bags of "T-shirt sack" design and plastic film products) increased
significantly during Fiscal 1996. Sales of the Company's core products of bags
and film were $26,439,203 in Fiscal 1996 compared to $18,894,246 in Fiscal 1995,
an increase of 40%.
Sales of the Company's proprietary bag products (FRESH-SAC(R) T-shirt
sack produce bag, HANDI-SACTM and MAXI-SACTM ) were $7,126,576 in Fiscal 1996
compared to sales of $5,545,054 in Fiscal 1995, an increase of 28.5%. Sales of
traditional products increased to $17,026,788 in Fiscal 1996 from $11,485,949 in
Fiscal 1995, an increase of 48.2%. Sales of plastic film products were
$2,285,839 in Fiscal 1996 compared to $1,863,243 in Fiscal 1995, an increase of
22.7%. BPI Packaging, Inc.'s sales of products purchased from Integrated Bagging
Systems Corporation were $416,255 in Fiscal 1996 compared to sales of $2,148,539
in Fiscal 1995, a decrease of 80.6%. Due to the pricing structure and poor
margins on these products, the Company did not allocate sales and marketing
resources to BPI Packaging, Inc. RC America, Inc.'s sales were $1,984,496 in
Fiscal 1996 compared to $4,211,860 in Fiscal 1995, a decrease of 52.9%. RC
America, Inc's. sales may fluctuate significantly from year to year due to the
nature of its business and the timing of transactions.
In Fiscal 1996, cost of goods sold was $26,161,723 or 90.7% of sales, as
compared to cost of goods sold in Fiscal 1995 of $19,879,041, or 78.8% of sales.
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. Several factors contributed to this result: (i) 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 cancelled by a major retail
chain. 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; (ii) the material cost component of inventory was revalued
downward because of declining raw material prices. Inventories increased during
a time of rising raw material prices and were at relatively high levels at the
end of the fiscal year resulting in a significant revaluation caused primarily
by a decline in raw material prices; and (iii) in Fiscal 1996, sales of
traditional products increased by 48.2% compared to an increase in sales of
proprietary products of 28.5% resulting in an unfavorable product mix which had
higher material costs relative to selling prices.
-13-
Selling, general and administrative expense for Fiscal 1996 was $6,370,956
or 22.1% of sales as compared to selling, general and administrative expense of
$5,029,832 in Fiscal 1995, or 19.9% of sales. The increase in expense and
increase as a percentage of sales relates to sales and marketing personnel hired
in late Fiscal 1995 and in Fiscal 1996 to expand the Company's sales and
marketing activities into bag and film markets not previously serviced by the
Company. Sales and marketing costs related to the start up of Market Media, Inc.
of $585,687 and an additional loss on the disposition of the Taunton plant
assets of $140,504 both contributed to the increase in expense.
The operating loss of $3,692,725 in 1996 as compared to a profit of
$345,772 in 1995 was caused primarily by the increase of cost of goods sold as a
percentage of sales due primarily to an increase in material costs relative to
the selling prices of the Company's products and an increase in selling, general
and administrative expense.
Fiscal 1996 interest expense increased to $865,206 or 3.0% of net sales
as compared to $316,813 in Fiscal 1995, or 1.3% of net sales. The increase in
interest expense was due to increased borrowing activity related to purchases of
equipment and increased credit line activity.
In Fiscal 1996, the Company realized interest income of $47,786 as
compared to interest income of $36,368 in Fiscal 1995. In Fiscal 1995, the
Company also recognized other income of $77,104 in connection with a favorable
settlement of a vendor liability.
The net loss of $4,510,145 in 1996 as compared to a loss of $847,486 in
1995 was caused primarily by an increase in cost of goods sold, an increase in
selling, general and administrative expense and an increase in interest expense.
The loss in 1995 included a non-recurring charge of $989,917 from the sale of
assets associated with its former Taunton manufacturing plant.
The Company incurred a loss of $.38 per share in Fiscal 1996 as
compared to a loss of $.08 per share in Fiscal 1995.
-14-
Operating profits (loss) for the various business segments are as
follows:
Fiscal 1996 Fiscal 1995
----------- -----------
Proprietary, traditional and film products ..... ($1,695,855) $ 1,436,178
RC America, Inc. ............................... 51,328 342,725
BPI Packaging, Inc. ............................ 54,505 725
Market Media, Inc. ............................. (585,687) 0
Unallocated corporate overhead ................. (1,517,016) (1,433,856)
---------- ----------
Operating profit (loss) ........................ ($3,692,725) $ 345,772
Interest expense, net .......................... (817,420) (280,445)
Other income ................................... 0 77,104
Non-recurring charge ........................... 0 (989,917)
--------- --------
Net loss ....................................... ($4,510,145) ($ 847,486)
=========== ===========
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
For the year ended February 24, 1995 ("Fiscal 1995"), the Company had
sales of $25,254,645 as compared to sales of $16,754,056 for the year ended
February 25, 1994 ("Fiscal 1994"), an increase of 50.7%.
Sales of the Company's proprietary bag products (FRESH-SAC(R) T-shirt
sack produce bag, HANDI-SACTM and MAXI-SACTM ) were $5,545,054 in Fiscal 1995
compared to sales of $4,914,123 in Fiscal 1994, an increase of 12.8%. Sales of
traditional products increased to $11,485,949 in Fiscal 1995 from $9,067,634 in
Fiscal 1994, an increase of 26.7%. Sales of FRESH-SAC(R) and other plastic film
products were $1,863,243 in Fiscal 1995 compared to $415,613 in Fiscal 1994, an
increase of 348.3%. BPI Packaging, Inc.'s sales of products purchased from
Integrated Bagging Systems Corporation was $2,148,539 in Fiscal 1995 compared to
sales of $1,189,923 in Fiscal 1994, an increase of 80.6%. RC America, Inc.'s
sales were $4,211,860 in Fiscal 1995 compared to $1,166,763 in Fiscal 1994, an
increase of 261%.
-15-
In Fiscal 1995, cost of goods sold was $19,879,041 or 78.7% of sales,
as compared to cost of goods sold in Fiscal 1994 of $12,831,497, or 76.6% of
sales. The increase in cost of goods sold as a percentage of net sales was due
in part to increasing resin costs, which increased dramatically during the last
six months of calendar year 1994 due to increased demand, temporary shortages
due to flooding and other natural disasters, and other factors. In addition,
competitive price pressures drove down the sale price of certain of the
Company's products, particularly during the first three quarters of Fiscal 1995.
Raw material prices have remained relatively stable since early 1995 and selling
prices for bag products have continued to increase. In the third quarter of
Fiscal 1995, the Company installed new bag manufacturing equipment which
increased its bag manufacturing capacity approximately 43% to approximately 2.5
billion bags annually. In the fourth quarter of Fiscal 1995, bag production
increased approximately 37% over the third quarter, as the additional bag
manufacturing capacity began to be utilized. This increased bag production in
the fourth quarter offset the negative impact of increased raw materials costs
and caused the gross margins to improve from the first nine months of Fiscal
1995. The gross margins increased from 19% for the first nine months of Fiscal
1995 to 27% in the last quarter of Fiscal 1995. Based on selling price trends
and raw material trends experienced in the first quarter of Fiscal 1996,
management expects that the trends realized in the fourth quarter of Fiscal 1995
will continue into Fiscal 1996.
Selling, general and administrative expense for Fiscal 1995 was
$5,029,832 or 19.9% of sales as compared to selling, general and administrative
expense of $3,746,227 in Fiscal 1994, or 22.3% of sales. During Fiscal 1995, the
Company hired several senior sales and marketing personnel to expand the
Company's sales and marketing activities in Canada, Europe and in new plastic
bag and film markets not previously serviced by the Company. In addition, the
variable expense of freight increased as sales increased, and the variable
expense of depreciation for in-store assets increased as the customer base
expanded.
Income from operations was $345,772 in Fiscal 1995 compared to $176,332
in Fiscal 1994, an increase of $169,440 or 96%. The increase in income from
operations was primarily the result of increased revenues and decreased selling,
general and administrative costs as a percentage of sales.
Fiscal 1995 interest expense increased to $316,813 or 1.25% of net
sales as compared to $252,244 in Fiscal 1994, or 1.5% of net sales. This
increase in interest expense in absolute dollars was due to increased lending
activities as the Company's bank and equipment leasing lines expanded as well as
increases in the prime rate of lending.
In Fiscal 1995, the Company realized interest income of $36,368 as
compared to interest income of $85,401 in Fiscal 1994. This decrease in interest
income was due to a default under a note receivable from the sale of the Taunton
plant in January 1993. In Fiscal 1995, the Company also recognized other income
of $77,104 in connection with a favorable settlement of a vendor liability.
-16-
In Fiscal 1993, the Company sold its Taunton plant to another plastic
bag manufacturer. In connection with the sale, the Company took back a note and
assumed certain other liabilities. In April 1995, certain assets securing the
Taunton plant note receivable were sold at public auction and the proceeds were
used to reduce the balance of the note. As a result of the auction, the Company
incurred a non-recurring charge of $989,917 resulting from the establishment of
a reserve against the remaining balance of the note of $1,174,917.
As a result of this non-recurring charge, the Company incurred a loss
of $847,486 in Fiscal 1995, compared to a loss of $603 in Fiscal 1994. Due to
the non-recurring charge, the Company incurred a loss per share of $.08 per
share in Fiscal 1995 as compared to $.00 in Fiscal 1994.
In Fiscal 1995, proprietary, traditional and film products had an
operating profit of $1,436,178; RC America, Inc.'s operating profit was $342,725
and BPI Packaging, Inc. had an operating profit of $725. The segmented operating
results are before unallocated corporate overhead of $1,433,856, interest
expense net of $280,445, other income of $77,104 and a non-recurring charge of
$989,917. Segmented operating profit was not reported in Fiscal 1994, and
therefore, comparative results are not available.
LIQUIDITY AND CAPITAL RESOURCES
Since its initial public offering in October 1990, the Company has
generated funds to finance its activities through both public sales and private
placements of its securities, as well as bank loans, equipment lease financing
and cash from operations.
BANK LOANS
The Company has a $5,000,000 revolving line of credit with its
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 50% of qualifying inventories (up to a maximum inventory loan of
$2,500,000), 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 rate plus 1% (9.25% at February 23, 1996), and provides for a 1/8th of 1%
unused line fee and is subject to renewal annually. At February 23, 1996, the
balance under the Line of Credit was $3,752,604, which was the maximum
availability under the Line of Credit.
The terms of the Line of Credit were modified by an amendment dated
March 1, 1996, which reduced the line to $4,000,000 and increased the interest
rate to the bank's prime rate plus 2.5%. Borrowings under the Line of Credit
secured by qualifying inventories are to be reduced in monthly decrements
between March 1996 and August 1996, from 50% and a maximum of $2,500,000 to 35%
and a maximum of $1,500,000. The amendment includes certain financial covenants
that the Company must maintain, including debt service coverage, capital base
and debt to equity covenants. See "SALE OF SECURITIES" for $3.3 million equity
funding in first quarter of Fiscal 1997 (ended May 24, 1996).
Management believes that its current bank line of credit together with
anticipated cash from operations will be sufficient to fund the Company's
current operations. However, the Company intends 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.
-17-
SALES OF SECURITIES
From March 1994 through August 1994, the Company completed Regulation S
offerings and Regulation D offerings to accredited investors under Rule 506 of
the Securities Act of 1933, as amended, in which it sold an aggregate of 626,470
shares of Common Stock and received net proceeds of $2,134,755. As of May 1,
1996, 1,214,110 Class A Warrants have been exercised and the Company has
received net proceeds of $4.5 million. The Class A Warrants expired on June 16,
1995. The Company may raise additional financing through the sale of equity or
debt securities to pay for all or part of the planned 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 on terms favorable to the Company, if
at all.
During the first quarter 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 $3,297,113 from the sale of an aggregate of
1,558,100 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.
EQUIPMENT AND LEASE FINANCING
From March 1994 through February 1996, the Company acquired through
purchase or lease approximately $16 million in additional equipment to increase
manufacturing capacity and efficiency and to expand the Company's product line.
This equipment was financed from the sale of equity securities and from
equipment lease financing and bank loans.
The Company currently has outstanding commitments to purchase an
additional $2.4 million in state-of-the-art extrusion, printing and bag making
equipment all of which the Company expects to purchase and install in Fiscal
1997. Management intends to finance the purchase of the new 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.
DISPOSITION OF TAUNTON ASSETS
At February 24, 1995, Plasco East Partnership, a Massachusetts general
partnership of corporations ("Plasco") owed the Company $1,824,917 for
manufacturing equipment it sold or subleased to Plasco. A reserve of $989,917
was established in Fiscal 1995 resulting in a non-
-19-
recurring charge for $989,917 and a net note receivable balance of $835,000. In
April 1995, the Company, through an independent auctioneer, conducted an auction
of the equipment originally sold to Plasco and received proceeds of $650,000. An
additional $65,000 was received in December 1995 from a third party guarantor.
The remaining loan balance, plus additional costs incurred during Fiscal 1996,
were offset against the reserve resulting in an additional loss of $140,504 for
Fiscal 1996, which is included in selling, general and administrative expenses.
CASH FLOW
During Fiscal 1996, the Company generated $2,643,138 from depreciation
and amortization, $362,654 from the return of lease deposits net, and $159,050
from the sale of Common Stock. The Company also raised $302,418 through
equipment lease obligations, $513,979 from an increase in accounts payable,
$1,396,496 from an inventory decrease, and $339,333 from a reduction in accounts
receivable. The Company used $3,018,810 to purchase equipment and for plant
improvements, and $1,565,613 was used to make principal payments on capital
lease obligations. At February 23, 1996, stockholders' equity was $19,768,971 as
compared to $24,048,204 at February 24, 1995. The Company's current ratio
deteriorated from 1.58:1 at February 24, 1995 to 0.73:1 at February 23, 1996.
The net book value of property and equipment increased from $20,544,868 at
February 24, 1995 to $24,314,649 at February 23, 1996. See "SALE OF SECURITIES"
for $3.3 million equity funding in first quarter of Fiscal 1997 (ended May 24,
1996).
To date, the Company has generated cash flows from income, including
depreciation, financing activities, including sales of equity securities, bank
lines of credit, term loan facilities, equipment leasing arrangements and loans
from raw material suppliers. Management believes that fixed asset or lease
financing is now available at competitive rates from banks and leasing companies
to finance a substantial part of the planned $2.4 million increase in capacity
at the Dighton facility during the next six months, and that its current bank
line of credit together with anticipated cash from operations will be sufficient
to fund the Company's current operations. The Company may raise additional
financing through the sale of equity or debt to fund all or part of the planned
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.
Effective February 26, 1994, Ronald Caulfield exchanged his 49,500
shares of Common Stock of RC America, Inc. for 200,000 shares of the Company's
Common Stock, pursuant to the terms of a Stock Exchange Agreement by and between
the Company and Ronald Caulfield (the "RC
-19-
Agreement"). As a result, RC America, Inc. is now a wholly owned subsidiary of
the Company. The RC Agreement also provides for the issuance to Ronald Caulfield
of up to an additional 100,000 shares of the Company's Common Stock over a five
(5) year period based on RC America, Inc. attaining certain levels of pre-tax
earnings. Based on the operating results of RC America, Inc. for Fiscal Year
1996, a total of 2,550 shares of Common Stock were earned and issued to Mr.
Ronald Caulfield in May 1996. For Fiscal 1995, 17,400 shares of the 100,000
shares of Common Stock were issued to Mr. Ronald Caulfield in May 1995. The RC
Agreement contains certain demand and piggy-back registration rights for the
shares.
The value of the stock issued pursuant to the RC Agreement exceeded the
book value of the assets acquired and the Company has recognized goodwill of
$800,000 which is being amortized over a ten year period. Issuance of the 17,400
shares of Common Stock resulted in an additional $71,862 of goodwill.
IMPACT OF INFLATION
Inflation during the last three fiscal years has not had a significant
effect on the Company's activities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 below and the Index therein for a listing of the financial
statements and supplementary data filed as part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
No change in the Company's independent accountants occurred during the
Company's two most recent fiscal years, nor did any disagreements occur on any
matter of accounting principles or practices or financial statement disclosure
that would be required to be reported on a Form 8-K.
-20-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company, their positions
held in the Company, and their ages are as follows:
Name Age Position
---- --- --------
Dennis N. Caulfield 57 Chairman of the Board of
Directors, President and Chief
Executive Officer
C. Jill Beresford 42 Vice President of Marketing,
Treasurer and Director
James F. Koehlinger 59 Chief Financial Officer
Alex Vaicunas 68 Vice President of Sales
Gregory M. Davall 40 Vice President of Manufacturing
and Director
Ronald V. Caulfield 54 Chief Executive Officer and
President of RC America, Inc.
and Director
David N. Laux 68 Director
Ivan J. Hughes 67 Director
C. Jill Beresford, the Company's Vice President of Marketing and
Gregory M. Davall, the Company's Vice President of Manufacturing, are spouses.
Dennis N. Caulfield, the Company's President, and Ronald V. Caulfield, President
of RC America, Inc., are brothers. Except for such relationships, no director or
executive officer is related by blood, marriage or adoption to any other
director or executive officer.
The Company's Certificate of Incorporation and Bylaws, each as amended,
provide that the members of the Board of Directors (the "Board") shall be
classified as nearly as possible into three classes, each with, as nearly as
possible, one-third of the members of the Board. A classified board is designed
to assure continuity and stability in the Board's leadership and policies.
Dennis N. Caulfield and Ivan J. Hughes are classified as Class I directors and
serve until the 1998 Annual Meeting; David N. Laux and C. Jill Beresford are
classified as Class II directors and serve until the
-21-
1997 Annual Meeting; and Ronald V. Caulfield and Gregory M. Davall are
classified as Class III directors and serve until the 1996 Annual Meeting. The
successors to the class of directors whose terms expire at an annual meeting
would be elected for a term of office to expire at the third succeeding annual
meeting after their election and until their successors have been duly elected
by the stockholders. Directors chosen to fill vacancies on a classified board
shall hold office until the next election of the class for which directors shall
have been chosen, and until their successors are duly elected by the
stockholders. Officers are elected by and serve at the discretion of the Board
of Directors, subject to their employment contracts.
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires executive officers and Directors, and persons who beneficially own more
than ten percent (10%) of the Company's stock, to file initial reports on Form
3, reports of changes in ownership on Form 4 and annual statements of changes in
beneficial ownership on Form 5 with the Securities and Exchange Commission
("SEC") and any national securities exchange on which the Company's securities
are registered. Executive officers, Directors and greater than ten percent (10%)
beneficial owners are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the executive officers and Directors,
the Company believes that all Section 16(a) filing requirements applicable to
its executive officers, Directors and greater than ten percent (10%) beneficial
owners were complied with for Fiscal 1996.
The following is a brief account of the business experience of each
officer and director of the Company:
DENNIS N. CAULFIELD. Mr. Caulfield has been Chairman of the Board of
Directors and Chief Executive Officer of the Company since May 1990 and a
Director of the Company since March 1989. From March 1989 to March 1990, Mr.
Caulfield provided consulting services to the Company. From 1984 to 1988 he was
Chairman of the Board of Directors and Chief Executive Officer of Northeast
Precision Feed Screw, Inc., a manufacturer of plastics processing equipment. Mr.
Caulfield was Chairman and Chief Executive Officer of Synthetic Materials
Corporation, a processor of thermoplastics, from 1979 to 1984. Mr. Caulfield
received a Bachelor of Arts degree in Political Science and a Master of Arts
degree in Economics from the University of Connecticut. Mr. Caulfield is the
brother of Ronald V. Caulfield, the Chief Executive Officer and President of RC
America, Inc. and a Director of the Company
C. JILL BERESFORD. Ms. Beresford has been Vice President of Marketing
and Treasurer of the Company since May 1990 and a Director of the Company since
March 1989. From 1987 to 1989, Ms. Beresford was President of CJB
Communications, a communications consulting firm involved in marketing,
advertising and public relations. From 1982 to 1987, Ms. Beresford was a Vice
President of Grey Canada, a marketing and communications firm, with
responsibility for marketing, advertising, and public relations programs for
Grey Canada's clients. Since 1984, Ms. Beresford has been a director of
Beresford-Canada. Ms. Beresford attended the University of Guelph, Ontario,
-22-
Canada and received a Masters degree in Business Administration from Boston
University. Ms. Beresford is a 100% shareholder of Beresford-Canada. Ms.
Beresford is the wife of Gregory M. Davall, the Company's Vice President of
Manufacturing and a Director of the Company.
JAMES F. KOEHLINGER. Mr. Koehlinger is a certified public accountant
and has been Chief Financial Officer of the Company since February 1988.
Commencing May 1993, Mr. Koehlinger began working on a part time basis as the
Company's Chief Financial Officer. From 1983 to 1988, Mr. Koehlinger was a
principal in Boston Financial Resources, a financial management consulting firm,
and a part-time Chief Financial Officer for several small companies. From 1976
to 1983, Mr. Koehlinger was a Group Controller for Digital Equipment Corp., and
from 1973 to 1976 he was controller for Rust Craft Greeting Cards. From 1965 to
1973 he was General Manager of Greg Press and was involved in the merger of that
company with ITT. From 1959 to 1965 he was a manager and senior accountant with
Main Hurdman & Company and Price Waterhouse. Mr. Koehlinger received a Bachelor
of Science degree from Indiana University and a Master of Business
Administration degree from Clark University.
ALEX F. VAICUNAS. Mr. Vaicunas has been the Company's Vice President of
Sales since 1988. From 1985 to 1987, he was Vice President of Sales and a
consultant to Surrey Industries, Inc., the manufacturer whose business was
acquired by the Company in 1988. From 1973 to 1985, Mr. Vaicunas was Sales
Manager in the flexible film packaging markets for the Plastic Products Group of
Union Camp Corporation. Mr. Vaicunas previously held senior sales management
positions at Northern Petro Chemical and Philips Petroleum Corporation and has
over 30 years of experience in the marketing and sales of flexible film
packaging.
GREGORY M. DAVALL. Mr. Davall has been the Company's Vice President of
Manufacturing since May 1992, and has been a director of the Company since
February 1994. Mr. Davall has 14 years experience in manufacturing and process
engineering. From 1986 through April 1992, Mr. Davall was employed in various
capacities at Pacific Scientific, Inc., a manufacturer of factory and office
automation equipment, including Vice President of Manufacturing and Director of
Operations. From 1978 to 1986, Mr. Davall served in various engineering
capacities at Martin Marietta Energy Systems. Mr. Davall received a Bachelor of
Science degree in Mechanical Engineering from Bucknell University, where he also
engaged in postgraduate studies in mechanical engineering and received a Masters
in Business Administration from Boston University. Mr. Davall is the husband of
C. Jill Beresford, the Company's Vice President of Marketing, Treasurer and a
Director of the Company.
RONALD V. CAULFIELD. Mr. Caulfield has served as a Director of the
Company since June 1994. Mr. Caulfield has been the Chief Executive Officer and
President of RC America, Inc. since November 1992. From March 1989 to October
1992, Mr. Caulfield was the Vice President of Purchasing for F&F Merchandising
Company, a privately owned wholesale company, where he was principally
responsible for negotiating the purchase of nationally advertised brand name
close outs direct from the manufacturer. From February 1988 to March 1989, he
was the Executive Vice President of Mars Stores, Inc., a publicly held retail
discount store company. In this capacity, Mr.
-23-
Caulfield was responsible for establishing and achieving business plans for all
buying, marketing and store operations activities. From 1971 to 1988, Mr.
Caulfield was employed in various capacities at Caldor, Inc., a publicly owned
discount store company, serving lastly as the Vice President, Divisional
Merchandise Manager and as a member of the Operating Committee. Mr. Caulfield
attended the University of Connecticut. Mr. Caulfield is the brother of Dennis
N. Caulfield, the Company's Chief Executive Officer and President, and Chairman
of the Board of Directors.
DAVID N. LAUX. Mr. Laux has served as a Director of the Company since January
1993. Since 1990, Mr. Laux has been President of the USA-ROC Economic Council, a
private non-profit association which promotes business relations between the
United States and Taiwan. From 1986 to 1990, Mr. Laux was Chairman and Managing
Director of the American Institute of Taiwan, a non-profit corporation under
contract to the United States Department of State to manage commercial, cultural
and other relations between the United States and Taiwan. From 1982 to 1986, Mr.
Laux was Director of Asian Affairs for the National Security Council in the
White House and prior to that held appointments at the Department of Commerce,
the Department of Treasury and other United States Government agencies,
primarily in Asian affairs. Mr. Laux is a Trustee of the ROC Taiwan Fund. Mr.
Laux received his Bachelor of Arts from Amherst College and his Master of
Business Administration from The American University in Washington, D.C. and he
has done graduate work at the University of California (Berkeley) and Georgetown
University. Mr. Laux is also a graduate of the Advanced Management Program at
Harvard Business School.
IVAN J. HUGHES. Mr. Hughes has served as a Director of the Company since March
1996. Since 1991, Mr. Hughes has been the President of the Plastic Division of
Duro Bag Manufacturing Company, a privately held company which manufactures
grocery bags, shopping and specialty bags as well as plastic bags for the food
and retail industry. Mr. Hughes has been employed by Duro Bag in various
positions for the past 32 years. Mr. Hughes received a Bachelor of Science in
Mechanical Engineering at Lafayette College and completed his graduate studies
at Columbia University.
-24-
SIGNIFICANT EMPLOYEES
The Company also employs the following significant employees:
Name Age Position
- - ---- --- --------
Jeffrey C. Bekos 36 Business Development Manager of
Market Media, Inc.
Peter J. Bertolami 53 National Accounts Manager
Steven Fabrizio 48 General Sales Manager
Richard H. Nurse, Ph.D. 51 Vice President of Technical
Development
Tracy L. McGrath 31 Marketing Manager
Edward Rossi 46 Controller
Paul A. Wallace, III 54 National Sales Manager
Richard M. Wile 53 Field Service Manager
JEFFREY C. BEKOS. Mr. Bekos has been Market Media's Business
Development Manager since November 1995. Prior to joining Market Media, Mr.
Bekos was Vice President of Country Breads, Inc., a European bread baking
company. From 1990 to 1994, Mr. Bekos was Project Manager for Johanna Dairies, a
division of John Labatt, Ltd. dairy group, a publicly held Canadian corporation.
From 1985 to 1990, Mr. Bekos was National Sales Manager for Bollinger Champagne,
a unit of WhitBread North America, a privately held British corporation. Mr.
Bekos received a Bachelor's of Science degree in Business Administration and
Industrial Engineering at the University of Wisconsin.
PETER J. BERTOLAMI. Mr. Bertolami has been the Company's National
Accounts Manager since June 1990. From 1985 to 1990, Mr. Bertolami was a Vice
President of McPherson Corporation, a commercial real estate brokerage company.
From 1984 to 1985, Mr. Bertolami was a principal for Surge, Inc., a distributor
of the Biomed total knee and total hip replacement products. Mr. Bertolami has a
Bachelor of Science degree in Marketing from Boston College.
-25-
STEVEN J. FABRIZIO. Mr. Fabrizio has been the Company's General Sales
Manager since November 1995. From 1994 to 1995, Mr. Fabrizio was a
broker/consultant in the flexible film industry. From 1990 to 1994, Mr. Fabrizio
was the General Sales Manager, Eastern Region, for Gaylord Bag, a publicly held
company that manufactures kraft paper and paper packaging. From 1986 to 1990,
Mr. Fabrizio was Regional Sales Manager for the southwest region for Stone
Container Corporation, a vertically integrated manufacturer of paper packaging.
From 1972 to 1986, Mr. Fabrizio was base Training Instructor for Eastern
Airlines, Inc. Mr. Fabrizio graduated from Hawthorne College, where he majored
in psychology.
RICHARD H. NURSE, PH.D. Dr. Nurse has been the Company's Vice President
of Technical Development since January 1995. Since 1989, Dr. Nurse has been an
independent consultant to the plastics industry. From 1987 to 1988, Dr. Nurse
was the Director of Research and Development for Cookson Performance Plastics, a
plastics additive manufacturer. From 1985 to 1987, Dr. Nurse was a Technical
Manager for Nortech Company, a plastics additive manufacturer. From 1979 to
1985, Dr. Nurse was the Manager of Technical Service and Applications
Development for American Hoechst Corp., a plastics resin manufacturer. Dr. Nurse
received a Ph.D. degree in Polymer Technology from the University of Manchester
Institute of Science and Technology in England and a Bachelor of Science degree
in Chemical and Plastics Technology from the Polytechnic of South Bank in
England.
TRACY L. MCGRATH. Ms. McGrath has been the Company's Marketing Manager
since November 1993. From 1988 to 1993, Ms. McGrath was employed at WFSB TV3 in
Hartford, Connecticut, first as Promotion Coordinator, then as Sales Service
Coordinator, and then as a Research Assistant. Ms. McGrath has a Bachelor of
Science degree in Communications from Eastern Connecticut State University.
EDWARD ROSSI. Mr. Rossi is a certified public accountant and has been
the Controller of the Company since January 1995. From 1988 to 1994, Mr. Rossi
was the Corporate Controller for Sentinel Products Corp., a private corporation
that manufactures crosslinked polyethylene foam and rubber products. From 1981
to 1988, Mr. Rossi was Controller for Seltel, Inc., a television advertising
representative firm. Mr. Rossi worked for Gulf & Western Industries, Inc. (now
Paramount Communications) from 1977 to 1981, first as an Internal Audit
Supervisor and then as Division Controller for an export sales division. From
1972 to 1976, Mr. Rossi worked for Coopers & Lybrand as a supervisor and senior
accountant. Mr. Rossi received a Bachelor of Science degree from Rider
University.
PAUL A. WALLACE, III. Mr. Wallace has been the Company's National Sales
Representative since June 1995. From 1990 to 1995, Mr. Wallace was a Senior
Account Representative, High Density Film Products Division, Convenience Store
Group for Sonoco Products Company and from 1985 to 1990, Mr. Wallace held other
sales positions in the Sonoco Products Company Convenience Store Group. From
1984 to 1985, Mr. Wallace worked as a Detail Sales Representative for E.R.
Squibb & Sons, where he was responsible for selling pharmaceutical products to
doctors and hospitals. From 1982 to 1983, Mr. Wallace was employed by Geer Drug
Company as a Sales Representative, where he was responsible for selling
pharmaceutical and over-the-counter products to pharmacy chains and independent
drugstores. Mr. Wallace received a Bachelor of Arts degree from the University
of South Carolina.
-26-
RICHARD M. WILE. Mr. Wile has been the Company's field service manager
since June 1991. From 1989 to 1991, Mr. Wile was the Company's logistics and
special products manager. From 1984 to 1989, Mr. Wile was a Distribution Center
Manager for Honeywell Bull's national distribution operation. Mr. Wile received
a Bachelor of Science degree in Transportation from Syracuse University.
ITEM 11. EXECUTIVE COMPENSATION
The following tables set forth the compensation paid to the Company's
executive officers with respect to services rendered to the Company during the
Fiscal Years ended February 23, 1996, February 24, 1995 and February 25, 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
------------------- ------
(a) (b) (c) (d) (g) (i)
--- --- --- --- --- ---
Securities
Fiscal Underlying All Other
Name and Principal Position Year Salary(1) Bonus(2) Options(#) Compensation
--------------------------- ---- --------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Dennis N. Caulfield .............................. 1996 $320,000 $ 0 265,320 $ 36,174(3)
Chairman of the Board, 1995 $320,000 $ 0 265,320 $ 35,472(3)
President and Chief 1994 $275,000 $ 0 265,230 $ 3,316(3)
Executive Officer
C. Jill Beresford ................................ 1996 $180,000 $ 0 163,224 $ 13,989(4)
Vice President of 1995 $180,000 $ 0 163,224 $ 3,108(4)
Marketing, Treasurer 1994 $167,423 $ 0 163,224 $ 200(4)
Alex F. Vaicunas ................................. 1996 $125,000 $ 0 86,713 $ 780(5)
Vice President of 1995 $125,000 $ 0 86,713 $ 780(5)
Sales 1994 $108,673 $ 0 86,713 $ 0
James F. Koehlinger .............................. 1996 $135,300 $ 0 12,500 $ 0
Chief Financial Officer 1995 $136,530 $ 0 12,500 $ 0
1994 $138,100 $ 0 12,500 $ 0
Gregory M. Davall ................................ 1996 $125,000 $ 0 86,713 $ 9,582(6)
Vice President of Manufacturing 1995 $125,000 $ 0 86,713 $ 1,140(6)
1994 $108,942 $ 25,000 86,713 $ 124(6)
</TABLE>
- - ---------
(1) Amounts shown indicate cash compensation earned and received by
executive officers; no amounts were earned but deferred at the election
of those officers. Executive officers participate in Company group life
and health insurance. In Fiscal Years 1994-1996, the Company made no
awards of Restricted Stock.
-27-
(2) Until June 30, 1993, Mr. Caulfield, Ms. Beresford and Mr. Vaicunas
participated in an executive compensation program which provided them
with an aggregate bonus equal to 5% of the Company's pre-tax profit for
the first $1,000,000 in pre-tax profits in any fiscal year and 10% of
pre-tax profits in excess of $1,000,000 in any fiscal year, except that
the bonus would not exceed $500,000 in the aggregate in any fiscal
year. The pre-tax profit is determined by the Company's independent
accounting firm in accordance with generally accepted accounting
principles applied on a consistent basis. Effective July 1, 1993, Mr.
Caulfield, Ms. Beresford, Mr. Vaicunas and Mr. Davall participate in an
executive compensation program which provides them with an aggregate
bonus equal to six percent of the Company's pre-tax profit for the
first $1,000,000 in pre-tax profits in any fiscal year, and 12% of
pre-tax profits in excess of $1,000,000 in any fiscal year except that
in the discretion of the Board of Directors the bonus will not exceed
$750,000 in the aggregate in any fiscal year beginning with Fiscal
1995. Except for a bonus of $25,000 paid to Mr. Davall under his old
compensation program, described below, no bonuses were paid for Fiscal
1994, 1995 or 1996 under the new program. In addition, until June 30,
1993, Mr. Vaicunas was entitled to receive a bonus of up to $50,000 per
fiscal year if the Company attained revenue and gross margins meeting
stated Company goals, and Mr. Davall was entitled to receive a bonus of
up to $50,000 per Fiscal year if the Company's manufacturing operations
met certain performance goals. Effective July 1, 1993, the individual
bonuses to Messrs. Vaicunas and Davall were eliminated. See "MANAGEMENT
- Employment Contracts, Termination of Employment and Change In Control
Arrangements."
(3) Effective December 15, 1993, the Company pays approximately $335 and
$990 per month, respectively for two (2) personal term life insurance
policies for Mr. Caulfield and $700 per month for a disability policy
effective February 7, 1994. The Company also makes monthly automobile
and insurance payments of approximately $980 and $930 for Fiscal 1996
and 1995, respectively, for an automobile for Mr. Caulfield. Excludes
eight (8) weeks of prior years' vacation pay. Pursuant to Mr.
Caulfield's employment agreement, he can elect to carry forward this
vacation time or receive a cash payment therefor.
(4) Effective December 15, 1993, the Company pays approximately $80 per
month for a personal term life insurance policy for Ms. Beresford and
approximately $190 per month in Fiscal 1996 and $180 per month for
Fiscal 1995 for a disability policy that became effective February 7,
1994. Effective November 1, 1995, the Company also makes automobile and
insurance payments of approximately $790 for an automobile for Ms.
Beresford. The amount includes $7,616 of unused vacation pay that was
paid in Fiscal 1996.
(5) Effective February 7, 1994, the Company pays approximately $65 per
month for a disability policy. Excludes monthly automobile and
insurance payments from the Company on behalf of Mr. Vaicunas of
approximately $760 for an automobile for Mr. Vaicunas. Mr. Vaicunas
reimburses the Company for any personal use of the automobile.
-28-
(6) Effective December 15, 1993, the Company pays approximately $50 per
month for a personal term life insurance policy for Mr. Davall and $45
per month for a disability policy effective February 7, 1994. Effective
November 1, 1995, the company also makes monthly automobile and
insurance payments of approximately $790 for an automobile for Mr.
Davall. The amount includes $5,288 of unused vacation pay that was paid
in Fiscal 1996.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1996
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
--- --- --- --- ---
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options Options
Value at FY-End Exercisable/
Shares Acquired Realized Exercisable/ Unexercisable
Name on Exercise ($) Unexercisable ($)(1)
- - -------------------------- ------------------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Dennis N. Caulfield ................................ 0 0 132,615/132,615 0/0
C. Jill Beresford .................................. 0 0 81,612/81,612 0/0
Alex F. Vaicunas ................................... 0 0 73,356/43,357 0/0
James F. Koehlinger ................................ 0 0 12,500/0 0/0
Gregory M. Davall .................................. 0 0 55,356/43,357 0/0
</TABLE>
- - ---------
(1) In-the-Money options are those options for which the fair market value
of the underlying Common Stock is greater than the exercise price of
the option. On February 23, 1996, the last day of Fiscal 1996, the fair
market value of the Company's Common Stock underlying the options (as
determined by the last sale price quoted on NASDAQ/NMS) was $2.00.
Since the exercise price of all of the options reflected in this table
is greater than $2.00, the options held by these individuals are not
In-the-Money and are therefore not included in this calculation.
AUDIT COMMITTEE
The Board of Directors established an Audit Committee on December 31,
1992. The members of the Audit Committee are David N. Laux and Ivan J. Hughes.
The purpose of the Audit Committee is to: (i) review the Company's financial
results and recommend the selection of the Company's independent auditors; (ii)
review the effectiveness of the Company's accounting policies and practices,
financial reporting and internal controls; and (iii) review the scope of
independent audit coverages, the fees charged by the independent auditors, any
transactions which may involve a potential conflict of interest, and internal
control systems.
COMPENSATION OF DIRECTORS
Messrs. Laux and Hughes are paid $1,875 each per calendar quarter. No
other directors receive any compensation. In June 1992 and March 1996, David N.
Laux and Ivan J. Hughes each
-29-
received options to purchase 7,500 shares of Common Stock at a purchase price of
$6.25 and $2.38 per share through June 9, 2002 and March 24, 2006, respectively.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Company has entered into employment, non-competition, and
confidentiality agreements with each of Mr. Caulfield, Ms. Beresford, Mr.
Vaicunas and Mr. Davall. Base salaries for Mr. Caulfield, Ms. Beresford, Mr.
Vaicunas and Mr. Davall are $320,000, $180,000, $125,000 and $125,000 per annum,
respectively, subject to periodic review by the Board of Directors. Each of
these agreements expires on June 30, 1998. These agreements provide for
severance payments of 24 months' base salary in the event employment is
terminated without cause and prohibit the individual from competing with the
Company for a period of 24 months following termination of employment with the
Company. In the event of a change of control in the Company, the individuals
have the option to terminate their employment and to receive additional
severance compensation subject to the provisions of their employment agreement.
The Company is the owner and the beneficiary of key-person life insurance on Mr.
Caulfield and Ms. Beresford in the amount of at least $1,000,000 per individual.
Mr. Koehlinger is paid on a per-diem basis at a rate of $600 and he participates
in health benefits that are generally available to the Company's employees. The
Company has also entered into non-competition and confidentiality agreements
with Mr. Koehlinger and certain other employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors established a Compensation Committee on December
31, 1992. Members of the Compensation Committee are David N. Laux and Ivan J.
Hughes, the two outside Directors of the Company. None of the executive officers
of the Company have served on the Board of Directors of any other entity that
has had any of such entity's officers serve either on the Company's Board of
Directors or Compensation Committee.
-30-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
BENEFICIAL OWNERSHIP OF VOTING SECURITIES
The following table sets forth, as of June 3, 1996, certain information
concerning stock ownership of the Company by (i) each person who is known by the
Company to own beneficially 5% or more of the Company's Common Stock or Series A
Convertible Preferred Stock, (ii) each of the Company's directors, and (iii) all
directors and officers as a group. Except as otherwise indicated, the
stockholders listed in the table have sole voting and investment powers with
respect to the shares indicated.
Name and Address Number of Shares Percentage of
of Beneficial Owner Beneficially Owned Class(1)(2)
- - ------------------- ------------------ -----------
Dennis N. Caulfield(3)(4)(5) ........... 1,258,198 9.0%
C. Jill Beresford(3)(6)(7)(8) .......... 1,494,135 10.6%
Gregory M. Davall(3)(7)(9) ............. 80,234 *
Ronald V. Caulfield(10) ................ 219,950 1.6%
741 Boston Post Road, Suite 101
Guilford, Connecticu 06437
David N. Laux(11) ...................... 10,500 *
1726 M Street, N.W., Suite 601
Washington, DC 20036
Ivan J. Hughes(13) ..................... 7,500 *
All Officers and Directors
as a Group (8 persons)(2)(4)(5)(6)
(7)(8)(9)(10)(11)(12)(13)(14) ......... 3,222,762 22.3%
- - ------------
* Less than one percent.
(1) Pursuant to the rules of the Securities and Exchange Commission, shares
of Common Stock which an individual or group has a right to acquire
within 60 days pursuant to the exercise of options or warrants are
deemed to be outstanding for the purpose of computing the percentage
ownership of such individual or group, but are not deemed to be
outstanding for the purpose of computing the percentage ownership of
any other person shown in the table. This table reflects the ownership
of all shares of Common Stock and the Series A Convertible Preferred
Stock voting as a single class, since each is entitled to one vote per
share.
(2) Except as otherwise noted, does not give effect to the issuance of an
aggregate of 2,768,535 shares of Common Stock issuable upon the
exercise, conversion or issuance of (i) Series B Convertible Preferred
Stock for an aggregate of 146,695 shares of Common Stock; (ii)
-31-
exercise of warrants issued to an individual and principals of the
placement agent in the Company's Regulation S offerings for an
aggregate of 21,000 shares of Common Stock; (iii) 933,750 options
granted or available for grant under the Company's 1990 and 1993 Stock
Option Plans; (iv) up to 80,050 additional shares issuable in
connection with the acquisition of the interest of a minority
shareholder of RC America, Inc. (the "RC America Stock"); and (v)
1,587,040 shares of Common Stock issuable upon the exercise of the
Class B Redeemable Common Stock Purchase Warrants issued in the
Company's third public offering in October 1992 (the "Warrants"),
subject to antidilution adjustments.
(3) These individuals may be reached at the Company's headquarters located
at 455 Somerset Avenue, North Dighton, Massachusetts 02764.
(4) Consists of all shares of the Company held by Kingsley Associates, Ltd.
("Kingsley"). Mr. Caulfield owns 50% of the shares of Kingsley and the
remaining 50% interest in Kingsley is held by trusts for the benefit of
Mr. Caulfield's children, in which Mr. Caulfield disclaims any
beneficial interest. Mr. Caulfield may be deemed to be a "parent" and
"promoter" of the Company within the meaning of the rules and
regulations of the Securities and Exchange Commission.
(5) Includes 198,922 vested shares of Common Stock issuable upon the
exercise of an option to purchase 265,230 shares of Common Stock at a
price of $4.00 per share at any time prior to the expiration date which
is June 30, 2003. Effective March 1, 1996, the exercise price of this
option was repriced from $6.625 to $4.00
(6) Includes 1,221,822 shares of Common Stock and 146,695 shares of Series
B Convertible Preferred Stock but excludes 18,337 shares of Series C
Redeemable Preferred Stock owned by Beresford-Canada. C. Jill Beresford
owns 100% of the outstanding voting stock of Beresford-Canada. Ms.
Beresford may be deemed to be a "parent" and "promoter" of the Company
within the meaning of the rules and regulations of the Securities and
Exchange Commission.
(7) Includes 3,200 shares of Common Stock held jointly by Ms. Beresford and
Mr. Davall.
(8) Includes 122,418 shares of Common Stock issuable upon the exercise of
an option to purchase 163,224 shares of Common Stock at a price of
$4.00 per share at any time prior to the expiration date which is June
30, 2003. Effective March 1, 1996, the exercise price of this option
was repriced from $6.625 to $4.00.
(9) Includes: (i) 12,000 shares issuable upon the exercise of an option at
a price of $4.00 per share at any time prior to the expiration date
which is June 15, 2002; and (ii) 65,034 vested shares of Common Stock
issuable upon the exercise of an option to purchase 86,713 shares of
Common Stock at a price of $4.00 per share at any time prior to the
expiration date which
-32-
is June 30, 2003. Effective March 1, 1996, the exercise price of these
options were repriced from $6.25 and $6.625, respectively, to $4.00.
(10) Excludes up to 80,050 shares of Common Stock that may be issued to
Ronald V. Caulfield pursuant to the terms of a Stock Exchange Agreement
between him and the Company. See "Certain Transactions."
(11) Includes 7,500 shares of Common Stock issuable upon exercise of an
option at a purchase price of $4.00 per share through June 9, 2002.
(12) Includes 7,500 shares of Common Stock issuable upon exercise of an
option at a purchase price of $2.38 per share through March 24, 2006.
(13) Includes the following holdings of Mr. Vaicunas: (i) 47,911 shares of
Common Stock; (ii) 8,000 shares of Common Stock issuable upon exercise
of an option at a price of $3.00 per share any time prior to the
expiration date which is August 2, 2000; (iii) 12,000 shares issuable
upon the exercise of an option at a price of $3.88 per share at any
time prior to the expiration date which is July 8, 2001; (iv) 10,000
shares issuable upon the exercise of an option at a price of $4.00 per
share at any time prior to the expiration date which is June 15, 2002;
and (v) 65,034 vested shares issuable upon the exercise of an option to
purchase 86,713 shares of Common Stock at a price of $4.00 per share at
any time prior to the expiration date which is June 30, 2003. Effective
March 1, 1996, the exercise prices of the options listed in (iv) and
(v) were repriced from $6.25 and $6.625, respectively, to $4.00.
(14) Includes the following holdings of Mr. Koehlinger: (i) 5,000 shares
issuable upon the exercise of an option at a price of $3.88 per share
at any time prior to the expiration date which is July 8, 2001; (ii)
and 7,500 shares issuable upon the exercise of an option at a price of
$4.00 per share at any time prior to the expiration date which is June
15, 2002. Effective March 1, 1996, the exercise price of the option
listed in (ii) was repriced from $6.625 to $4.00.
-33-
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In November 1990, the Company loaned $132,197 to Dennis N. Caulfield,
its Chairman. The note was amended in June 1996 and is now payable on or before
the fiscal year ending February 28, 1997 and effective at the beginning of
Fiscal 1996, accrues interest at the rate equal to the interest rate charged on
the Company's revolving line of credit with Citizens Savings Bank. The balance
of the loan as of February 23, 1996 was approximately $362,649, which included
interest on the loan and additional advances of $27,096 received by Mr.
Caulfield in the past year. Mr. Caulfield has agreed to apply any bonus payments
received under the Company's executive bonus plan (the "Bonus Plan") to reduce
the amounts outstanding under the loan.
Ivan J. Hughes, a director of the Company, is the President of the
Plastics Division Duro Bag Manufacturing Company ("Duro"). For Fiscal 1996, Duro
accounted for approximately 10% of the Company's sales.
Effective February 26, 1994, Ronald Caulfield exchanged his 49,500
shares of Common Stock of RC America for 200,000 shares of the Company's Common
Stock, pursuant to the terms of a Stock Exchange Agreement by and between the
Company and Ronald Caulfield (the "Exchange Agreement"). The Exchange Agreement
also provides for the issuance to Ronald Caulfield of up to an additional
100,000 shares of the Company's Common Stock over a five (5) year period based
on RC America attaining certain levels of pre-tax earnings. As a result of RC
America's earnings for Fiscal 1995 and Fiscal 1996, 17,400 and 2,550 shares,
respectively, of the 100,000 shares of Common Stock were issued to Mr. Ronald
Caulfield. The Exchange Agreement contains demand and piggy-back registration
rights for the shares.
-34-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. The financial statements required to be
filed by Item 8 herewith are as follows:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants - Price Waterhouse LLP F-1
Consolidated Balance Sheets as of February 23, 1996 and February 24, 1995 F-2
Consolidated Statements of Operations for the years ended February 23,
1996, February 24, 1995 and February 25, 1994 F-4
Consolidated Statements of Stockholders' Equity for the years ended February 23,
1996, February 24, 1995 and February 25, 1994 F-5
Consolidated Statements of Cash Flows for the years ended February 23,
1996, February 24, 1995 and February 25, 1994 F-6
Notes to Financial Statements F-7
</TABLE>
(a)(2) Financial Statement Schedules. The following financial statement
schedules are filed herewith:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Schedule II Valuation and Qualifying Accounts S-1
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
(a)(3) Exhibits.
(a) The following exhibits, required by Item 601 of Regulation
S-K, are filed herewith:
-35-
Exhibit
No. Title
--- -----
10a Amendment No. 1 to Loan and Security Agreement by and between the
Company and Citizens Savings Bank.
10b Amendment No. 2 to Loan and Security Agreement by and between the
Company and Citizens Savings Bank.
10c Amendment to Promissory Note of Dennis N. Caulfield.
10d Lease for premises at 455-473 Somerset Avenue, North Dighton,
Massachusetts.
23 Consent of Price Waterhouse LLP.
27 Financial Data Schedule.
(b) The following exhibits were filed as part of the Company's
Quarterly Report on Form 10-Q for the quarter ended November 24, 1995 and filed
with the Commission on January 8, 1996 and are incorporated herein by reference:
Exhibit
No. Title
--- -----
3a Certificate of Incorporation of the Company, as amended.
3b Bylaws of the Company, as amended.
(c) The following exhibits were filed as part of the Company's
Quarterly Report on Form 10-Q for the quarter ended August 25, 1995 and filed
with the Commission on October 6, 1995 and are incorporated herein by reference:
Exhibit
No. Title
--- -----
10a Agreement for Purchase and Sale of Assets, dated June 23, 1995, by and
among Market Media, Inc., Floor Focus Media, Inc. and Carmen N.
Fasula.
10b Guaranty, dated June 23, 1995, to Floor Focus Media, Inc. from the
Company.
10c Consulting Agreement, dated June 23, 1995, by and between Market
Media, Inc. and Carmen N. Fasula.
-36-
(d) The following exhibits were filed as part of the Company's
Form S-1 Registration Statement (33-87562) declared effective by the Securities
and Exchange Commission on January 5, 1995 and are incorporated herein by
reference:
Exhibit
No. Title
--- -----
10a Loan and Security Agreement by and between the Company and Citizens
Savings Bank.
10b Guaranty Agreement by and between RC America, Inc. and Citizens
Savings Bank.
10c Security Agreement by and between RC America, Inc. and Citizens
Savings Bank.
(e) The following exhibits were filed as part of the Company's
Annual Report on Form 10-K and amendment thereto initially filed with the
Commission on June 10, 1994 and are incorporated herein by reference:
Exhibit
No. Title
--- -----
10a Stock Exchange Agreement by and between the Company and Ronald V.
Caulfield.
10b** Employment Agreement of Ronald V. Caulfield.
10c Installment Promissory Note from the Company to Wentworth Capital
Corporation.
10d Security Agreement by and between the Company and Wentworth Capital
Corporation.
21 Subsidiaries of the Company.
(f) The following exhibits were filed as part of the Company's
Form S-1 Registration Statement (33-73780) declared effective by the Commission
on April 7, 1994 and are incorporated herein by reference.
Exhibit
No. Title
--- -----
10a** Form of Employment Agreement of Dennis N. Caulfield.
10b** Form of Employment Agreement of C. Jill Beresford.
-37-
Exhibit
No. Title
--- -----
10c** Form of Employment Agreement of Alex F. Vaicunas.
10d** Form of Employment Agreement of Gregory M. Davall.
10e** 1993 Stock Option Plan.
(g) The following exhibits were filed as part of the Company's
Form 10-K for the fiscal year ended February 26, 1993 as filed with the
Securities and Exchange Commission on June 10, 1993 and are incorporated herein
by reference:
Exhibit
No. Title
--- -----
10b Amendments, dated January 21, 1993 and April 14, 1993, to the lease
for the premises at #3, 455-473 Somerset Avenue, Dighton,
Massachusetts.
(h) The following exhibits were filed as part of the Company's
Form S-1 Registration Statement (33-48766) declared effective by the Commission
on October 7, 1992 and are incorporated herein by reference:
Exhibit
No. Title
--- -----
4b Specimen Class B Warrant Certificate (Form attached as Exhibit B to
Warrant Agreement - Exhibit 4c filed herewith).
4c Revised Form of Warrant Agreement between the Company and the Warrant
Agent.
11 Statement Regarding Computation of Per Share Earnings.
(i) The following exhibits were filed as part of the Company's
Form S-1 Registration Statement (No. 33-39463) declared effective by the
Commission on June 13, 1991 and are incorporated herein by reference:
Exhibit
No. Title
--- -----
3b Form of Certificate of Designation of Series A Convertible Preferred
Stock, as amended.
-38-
Exhibit
No. Title
--- -----
3c Form of Amended Certificate of Designation for Series B Convertible
Preferred Stock and Series C Redeemable Preferred Stock.
4a Specimen Series A Convertible Preferred Stock Certificate.
(j) The following exhibit was filed as part of the Company's
Form S-18 Registration Statement (No. 33-36142-B) declared effective by the
Commission on October 3, 1990 and is incorporated herein by reference:
Exhibit
No. Title
--- -----
10i** 1990 Stock Option Plan.
- - ---------
**These exhibits relate to executive compensation plans and arrangements.
(k) The following Financial Statement Schedules were filed as
part of the Company's Form 10-K for the fiscal years ended February 24, 1995,
February 25, 1994 and February 26, 1993 as filed with the Securities and
Exchange Commission on May 26, 1995, June 10, 1994 and June 10, 1993,
respectively and are incorporated herein by reference:
Schedule II: Valuation of Qualifying Accounts (formerly Schedule VIII)
(b) Reports on Form 8-K. On January 18, 1996, the Company filed a
Current Report on Form 8-K, dated December 30, 1995, relating to (i) the
acquisition (the "Acquisition") by C. Jill Beresford, the Vice President of
Marketing, Treasurer and Director of the Company, of Beresford Box Company Ltd.,
which now holds 1,221,822 shares of the Company's Common Stock, 146,695 shares
of the Company's Series B Convertible Preferred Stock, and 18,337 shares of the
Company's Series C Redeemable Preferred Stock; and (ii) the operating results
for the three and nine months ended November 24, 1995.
On February 7, 1996, the Company filed a Current Report on Form 8-K,
dated January 26, 1996, relating to a report issued to the Company's
stockholders which discussed the Acquisition and the operating results for the
three and nine months ended November 24, 1995.
-39-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: June 7, 1996
By:/s/ Dennis N. Caulfield
---------------------------
Dennis N. Caulfield, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Name Capacity Date
- - ---- -------- ----
<S> <C> <C>
/s/ Dennis N. Caulfield President, Chief Executive June 7 , 1996
- - ------------------------- Officer and Chairman of
Dennis N. Caulfield the Board of Directors
Principal Executive Officer
/s/ James F. Koehlinger Chief Financial Officer June 7, 1996
- - ------------------------- (Principal Financial and
James F. Koehlinger Accounting Officer)
/s/ C. Jill Beresford Vice President of Marketing, June 7, 1996
- - ------------------------- Treasurer and Director
C. Jill Beresford
/s/ Gregory M. Davall Vice President of Manufacturing June 7, 1996
- - ------------------------- and Director
Gregory M. Davall
/s/ Ronald V. Caulfield Director June 7, 1996
- - -------------------------
Ronald V. Caulfield
/s/ Ivan J. Hughes Director June 7, 1996
- - -------------------------
Ivan J. Hughes
/s/ David N. Laux Director June 7, 1996
- - -------------------------
David N. Laux
</TABLE>
-40-
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
June 7, 1996
To the Board of Directors and
Stockholders of BPI Packaging Technologies, Inc.
In our opinion, the financial statements listed in the index appearing under
Item 14(a)(1) and (2) on page 36 present fairly, in all material respects, the
financial position of BPI Packaging Technologies, Inc. and its subsidiaries at
February 23, 1996 and February 24, 1995, and the results of their operations,
their changes in stockholders' equity, and their cash flows for each of the
three years in the period ended February 23, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
F-1
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
FEBRUARY 23, FEBRUARY 24,
1996 1995
------------------ -----------------
<S> <C> <C>
Current assets
Cash $ 109,093 $ 1,350,450
Accounts receivable, net 2,178,132 2,517,465
Note receivable - current --- 835,000
Inventories 3,927,597 5,324,093
Prepaid expenses and other assets 1,085,258 680,655
------------------ -----------------
Total current assets 7,300,080 10,707,663
------------------ -----------------
Property and equipment, net 24,314,649 20,544,868
------------------ -----------------
Patents, net 1,099,553 1,122,915
Deposits - leases and equipment purchases 802,383 1,450,037
Loans to officers 468,606 294,366
Other assets 1,292,704 1,222,076
------------------ -----------------
3,663,246 4,089,394
------------------ -----------------
$ 35,277,975 $ 35,341,925
================== =================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
FEBRUARY 23, FEBRUARY 24,
1996 1995
------------------ -----------------
<S> <C> <C>
Current liabilities
Note payable - bank $ 3,752,604 $ 1,792,086
Capital lease obligations due within one year 1,832,847 1,104,985
Accounts payable 3,871,699 3,357,720
Other accrued expenses 427,428 359,869
Series C mandatorily redeemable preferred stock,
$.01 par value, at stated value 183,369 183,369
------------------ -----------------
Total current liabilities 10,067,947 6,798,029
------------------ -----------------
Capital lease obligations-long-term portion 5,441,057 4,495,692
------------------ -----------------
Stockholders' Equity
Series B convertible preferred stock, $.01 par value 1,466,954 1,466,954
Series A convertible preferred stock, $.01 par value 1,215,784 1,521,484
Common stock, $.01 par value; shares authorized - 30,000,000;
shares issued and outstanding - 11,800,909 at
February 23, 1996 and 11,658,359 at February 24, 1995 118,009 116,584
Capital in excess of par value 33,615,213 33,080,026
Accumulated deficit (16,646,989) (12,136,844)
------------------ -----------------
19,768,971 24,048,204
------------------ -----------------
Commitments and contingencies (Notes 4,13,16,17)
$ 35,277,975 $ 35,341,925
================== =================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
------------------FISCAL YEAR ------------------
FEBRUARY 23, FEBRUARY 24, FEBRUARY 25,
1996 1995 1994
------------------ ----------------- -----------------
<S> <C> <C> <C>
Net sales $ 28,839,954 $ 25,254,645 $ 16,754,056
Cost of goods sold 26,161,723 19,879,041 12,831,497
------------------ ----------------- -----------------
Gross profit 2,678,231 5,375,604 3,922,559
Operating expenses
Selling, general and administrative 6,370,956 5,029,832 3,746,227
------------------ ----------------- -----------------
Income (loss) from operations (3,692,725) 345,772 176,332
Other income (expense)
Interest expense (865,206) (316,813) (252,244)
Interest income 47,786 36,368 85,401
Other income --- 77,104 ---
Non-recurring charge --- (989,917) ---
------------------ ----------------- -----------------
Income (loss) before minority interest (4,510,145) (847,486) 9,489
Minority interest in net (income) of subsidiary --- --- (10,092)
------------------ ----------------- -----------------
Net loss $ (4,510,145) $ (847,486) $ (603)
================== ================= =================
Loss per share $ (0.38) $ (0.08) $ 0.00
Weighted average common shares outstanding 11,756,532 10,670,040 8,523,580
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED FEBRUARY 23, 1996, FEBRUARY 24, 1995
AND FEBRUARY 25, 1994
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE SERIES B CONVERTIBLE
COMMON STOCK PREFERRED STOCK PREFERRED STOCK
--------------------------- -------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- ------------ --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at February 26, 1993 .......... 7,918,027 $79,180 727,598 $2,910,392 146,695 $1,466,954
Sale of common stock pursuant to
Regulation S and Regulation D
private placement offerings, net of
issuance costs........................ 1,342,000 13,420
Sale of common stock upon exercise
of stock options ..................... 16,250 162
Conversion of Series A convertible
preferred stock to common
stock................................. 145,355 1,454 (145,355) (581,420)
Sale of common stock pursuant to
partial exercise of underwriter's
warrants from the initial public
offering, net of issuance costs ....... 43,000 430
Sale of common stock pursuant to
partial exercise of Class A warrants
from the third public offering ........ 40,950 410
Net loss for the year
ended February 25, 1994 ...............
------------- ------------- ------------- ------------- ------------- -------------
Balance at February 25, 1994 .......... 9,505,582 95,056 582,243 2,328,972 146,695 1,466,954
Sale of common stock pursuant to
Regulation S and Regulation D
private placement offerings, net of
issuance costs ........................ 626,470 6,265
Issuance of common stock for
minority interest in RC America.... 200,000 2,000
Conversion of Series A convertible
preferred stock to common stock.... 201,872 2,019 (201,872) (807,488)
Conversion of Class A Warrants...... 1,124,435 11,244
Net loss for the year ended
February 24, 1995....................
------------- ------------- ------------- -------------- ------------- -------------
Balance at February 24, 1995 11,658,359 116,584 380,371 1,521,484 146,695 1,466,954
Issuance of shares based
on RC America's FY95 results 17,400 174
Conversion of Series A convertible
preferred stock to common stock...... 76,425 764 (76,425) (305,700)
Sale of common stock pursuant to
partial exercise of Class A warrants,
net of issuance costs 48,725 487
Net loss for the year ended
February 23, 1996 .....................
============= ============= ============= ============= ============= =============
Balance at February 23, 1996 11,800,909 $118,009 303,946 $1,215,784 146,695 $1,466,954
============= ============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
CAPITAL IN
EXCESS OF ACCUMULATED
PAR VALUE DEFICIT TOTAL
------------- ------------- --------------
<S> <C> <C> <C>
Balance at February 26, 1993 .......... $18,000,385 ($11,288,755) $11,168,156
Sale of common stock pursuant to
Regulation S and Regulation D
private placement offerings, net of
issuance costs........................ 5,977,785 5,991,205
Sale of common stock upon exercise
of stock options ..................... 58,271 58,433
Conversion of Series A convertible
preferred stock to common
stock................................. 579,966 ---
Sale of common stock pursuant to
partial exercise of underwriter's
warrants from the initial public
offering, net of issuance costs ....... 196,358 196,788
Sale of common stock pursuant to
partial exercise of Class A warrants
from the third public offering ........ 204,340 204,750
Net loss for the year
ended February 25, 1994 ............... (603) (603)
------------- -------------- -------------
Balance at February 25, 1994 .......... 25,017,105 (11,289,358) 17,618,729
Sale of common stock pursuant to
Regulation S and Regulation D
private placement offerings, net of
issuance costs ........................ 2,128,490 2,134,755
Issuance of common stock for
minority interest in RC America.... 918,517 920,517
Conversion of Series A convertible
preferred stock to common stock.... 805,469 ---
Conversion of Class A Warrants...... 4,210,445 4,221,689
Net loss for the year ended
February 24, 1995.................... (847,486) (847,486)
------------- -------------- -------------
Balance at February 24, 1995 33,080,026 (12,136,844) 24,048,204
Issuance of shares based
on RC America's FY95 results 71,688 71,862
Conversion of Series A convertible
preferred stock to common stock...... 304,936 ---
Sale of common stock pursuant to
partial exercise of Class A warrants,
net of issuance costs 158,563 159,050
Net loss for the year ended
February 23, 1996 ..................... (4,510,145) (4,510,145)
============= ============== =============
Balance at February 23, 1996 $33,615,213 ($16,646,989) $19,768,971
============= ============== =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
--------------------- FISCAL YEAR ENDED ----------------------
FEBRUARY 23, FEBRUARY 24, FEBRUARY 25,
1996 1995 1994
---------------- ------------------- ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Loss $ (4,510,145) $ (847,486) $ (603)
---------------- ----------------- -----------------
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Non-recurring charge --- 989,917 ---
Minority interest in net income of consolidated subsidiary --- --- 10,092
Depreciation and amortization 2,643,138 1,871,357 1,488,984
Interest receivable included in long-term cash investments, net --- --- (53,518)
Decrease (increase) in accounts receivable - trade 339,333 (979,073) 200,274
Decrease (increase) in inventories 1,396,496 (1,724,123) (1,708,488)
(Increase) decrease in prepaid expenses and other current assets (404,603) 709,144 (134,494)
Increase (decrease) in accounts payable 513,979 579,766 (1,593,439)
Increase (decrease) in other accrued expenses 108,899 66,457 (112,389)
---------------- ----------------- -----------------
Total adjustments 4,597,242 1,513,445 (1,902,978)
---------------- ----------------- -----------------
Net cash provided (used) by operating activities 87,097 665,959 (1,903,581)
---------------- ----------------- -----------------
Cash flows from investing activities:
Additions to property and equipment (3,018,810) (4,535,268) (2,830,127)
Cost of patents (61,410) (71,069) (97,725)
Decrease (increase) in deposits, net 362,654 (101,744) (160,974)
Advance to officer (174,240) (63,201) (6,010)
Decrease (increase) in note receivable, net 811,980 (1,136,345) ---
Increase in other assets, net (105,001) (35,038) (316,081)
---------------- ----------------- -----------------
Net cash used by investing activities (2,184,827) (5,942,665) (3,410,917)
---------------- ----------------- -----------------
Cash flows from financing activities:
Principal receipts on note receivable --- --- 120,282
Net borrowings under note payable - bank 1,960,518 444,781 688,219
Principal payments on long-term debt
and capital lease obligations (1,565,613) (2,262,051) (2,336,200)
Proceeds from equipment financings 302,418 --- ---
Proceeds from long-term borrowings --- 1,341,004 1,000,000
Net proceeds from sales of stock 159,050 6,356,444 6,451,176
---------------- ----------------- -----------------
Net cash provided by financing activities 856,373 5,880,178 5,923,477
---------------- ----------------- -----------------
Net (decrease) increase in cash (1,241,357) 603,472 608,979
Cash at beginning of period 1,350,450 746,978 137,999
---------------- ----------------- -----------------
Cash at end of period 109,093 $ 1,350,450 $ 746,978
================ ================= =================
Cash paid for interest $ 965,251 $ 563,991 $ 311,145
================ ================= =================
</TABLE>
Non-cash investing and financing activities:
On February 26, 1994, the Company entered into a stock exchange agreement to
exchange 200,000 shares at $4.60 per share of its common stock, and up to
100,000 additional shares issuable contingent on earnings over the next five
years, for the 49.5% remaining minority interest in RC America, Inc. as
disclosed in Note 14. The minority interest in the net assets of RC America,
Inc. totalled $120,517 resulting in the recognition of $800,000 in goodwill.
Capital lease obligations of $3,238,840, $3,640,085 and$1,333,344 were incurred
in Fiscal 1996, Fiscal 1995 and Fiscal 1994, respectively, when the Company
entered into capital lease agreements to purchase machinery and equipment.
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
BPI Packaging Technologies, Inc. (The "Company") develops,
manufactures, markets and sells plastic bags known as "T-shirt sacks," to
grocery, convenience, retail and drug store chains and plastic film to food
service, commercial and industrial users. The Company operates four wholly-owned
subsidiaries: BPI Packaging, Inc., which purchases, sells and markets plastic
bags manufactured by another company; RC America, Inc., which purchases surplus
inventory from manufacturers of consumer products, and markets and sells the
products to mass merchandise retailers and other retail chains; BPI Packaging
(UK) Limited, which markets and sells the Company's products in Europe; and
Market Media, Inc., which was organized in Fiscal 1996 and sells and markets
in-store advertising programs and promotions.
SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company utilizes a 52-53 week Fiscal year. Fiscal years ended
February 23, 1996, February 24, 1995, and February 25, 1994, consisted of 52
weeks.
Cash
The Company's cash accounts are maintained substantially with two
financial institutions. The concentration of credit risk with respect to cash is
all amounts on hand at the financial institution in excess of the federally
insured limits.
Inventories
The Company values its inventories at the lower-of-cost, determined
using the first-in, first-out (FIFO) method, or market. Cost includes material
and conversion costs.
Property and Equipment
Property and equipment are recorded at cost which includes costs of
assets constructed or purchased, related delivery and installation costs and
interest incurred on significant capital projects during their construction and
installation periods. Property under capital leases is recorded at the lower of
the present value of future minimum rental payments or the fair value of the
property at the beginning of the lease term. Maintenance and repairs that do not
extend the
F-7
useful life of the asset or improve capacity are charged to expense when
incurred. Machinery and equipment are depreciated using the straight-line method
over a period of eleven years. Leasehold improvements consist of costs relating
to buildings and equipment under lease and are amortized using the straight-line
method over the remaining life of the lease.
Property and equipment recorded at cost includes interest on funds
borrowed to finance the acquisition, construction and installation of major
capital additions. Such interest amounted to $100,045, $247,178 and $58,901 in
Fiscal 1996, 1995 and 1994, respectively.
Patents
Costs associated with obtaining patents are capitalized as incurred and
amortized on a straight-line basis over the shorter of the legal term of 17
years or the estimated economic life of the patent.
Other Assets
Other assets consist primarily of goodwill and long-term prepaid rent.
Goodwill representing the excess of cost over the fair value of net assets
acquired, is amortized on a straight line basis over a period of 10 years.
Long-term prepaid rent, representing the excess of cash paid over the expense
accrued for certain operating leases, is amortized on a straight line basis over
the life of the respective lease.
Income Taxes
The Company utilizes the asset and liability method of accounting for
income taxes. This method requires the recognition of deferred tax assets and
liabilities for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. In addition, it requires the recognition of future
tax benefits, such as net operating loss carryforwards, to the extent that
realization of such benefits is more likely than not to occur.
Revenue Recognition and Concentration of Credit Risk
The Company recognizes revenues on an accrual basis when the products
are shipped. Concentration of credit risk with respect to accounts receivable is
limited due to the number and diversity of customers comprising the Company's
customer base. The Company maintains reserves for potential credit losses and
such losses, in the aggregate, have not exceeded management's expectations.
Basis of Consolidation
The consolidated financial statements include the results of the
Company's wholly-owned subsidiaries, BPI Packaging, Inc., RC America, Inc., BPI
Packaging (UK) Limited and Market Media, Inc.
F-8
(Loss) Earnings Per Share
(Loss) 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, 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.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Approximately $330,000 in costs incurred during the second and third
quarters of Fiscal 1996, related to start-up activities of Market Media, Inc.,
were expensed in the fourth quarter as revenues had not been realized by
year-end. In addition, approximately $310,000 of costs incurred in the first two
quarters of Fiscal 1996, related to the installation of certain equipment, were
expensed in the fourth quarter due to a refinement of the installation period
which was determined to have ended during the first quarter.
Fair Value of Financial Instruments
The Company's financial instruments are shown at fair value. The
carrying amounts of cash, accounts receivable, note receivable, deposits,
accounts payable and bank borrowings approximate fair value because of the short
maturity of those instruments.
Recent Accounting Pronouncements
In 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of", and Statement No. 123, "Accounting for Stock-Based
Compensation". The Company is required to adopt these Statements during the
fiscal year ending February 28, 1997 and is currently in the process of
determining the impact of the adoption of these Statements on its financial
statements.
NOTE 2: ACCOUNTS RECEIVABLE
Accounts receivable, net consists of the following:
February 23, February 24,
1996 1995
---- ----
Accounts receivable $2,273,132 $2,547,465
Allowance for doubtful accounts (95,000) (30,000)
---------- ----------
$2,178,132 $2,517,465
========== ==========
F-9
NOTE 3: INVENTORIES
Inventories consist of the following:
February 23, February 24,
1996 1995
---- ----
Raw material $1,480,667 $3,905,093
Finished goods 2,446,930 1,419,000
----------- ----------
$3,927,597 $5,324,093
========== ==========
Raw material includes virgin high density, high molecular weight
polyethylene ("HMWPE") resin, re-processed HMWPE material, color inks and
additives, and post-industrial scrap generated during the manufacturing process.
NOTE 4: PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following:
February 23, February 24,
1996 1995
---- ----
Machinery and equipment $26,671,579 $20,697,099
Leasehold improvements 3,236,803 3,040,530
Office furniture and fixtures 253,805 215,039
Motor vehicles 19,900 36,328
----------- -----------
30,182,087 23,988,996
Less accumulated depreciation
and amortization 5,867,438 3,444,128
----------- -----------
$24,314,649 $20,544,868
=========== ===========
The Company leases certain property and equipment under capital leases.
Most equipment leases contain bargain purchase options exercisable at the end of
the original lease. The following is a schedule of the future minimum payments
under these leases, together with the present value of the net minimum payments
as of February 23, 1996:
Fiscal Year
-----------
1997.............................. $2,448,612
1998.............................. 2,448,612
1999.............................. 2,175,497
2000.............................. 1,410,103
2001.............................. 169,464
-----------
Total minimum lease payments 8,652,288
Less amount representing interest 1,378,384
----------
Total future principal payments of lease
obligations $7,273,904
==========
F-10
Assets recorded under capital leases, exclusive of installation costs
and leasehold improvements, were as follows:
February 23, February 24,
1996 1995
---- ----
Machinery and equipment $12,451,201 $8,740,053
Less accumulated depreciation 1,711,654 817,747
----------- ----------
$10,739,547 $7,922,306
=========== ==========
Depreciation and amortization expense relating to fixed assets was
$2,452,131, $1,703,608, and $1,419,432 for the years ended February 23, 1996,
February 24, 1995 and February 25, 1994, respectively, of which $893,908,
$443,051 and $121,890, respectively, related to amortization of equipment held
under capital leases.
NOTE 5: NOTE RECEIVABLE AND NON -RECURRING CHARGE
At February 24, 1995, Plasco East Partnership, a Massachusetts general
partnership of corporations ("Plasco"), owed the Company $1,824,917 for
manufacturing equipment it sold or subleased to Plasco. A reserve of $989,917
was established in Fiscal Year 1995 resulting in a non-recurring charge for
$989,917 and a net note receivable balance of $835,000. In April 1995, the
Company, through an independent auctioneer, conducted an auction of the
equipment originally sold to Plasco and received proceeds of $650,000. An
additional $65,000 was received in December 1995, from a third party guarantor.
The remaining loan balance, plus additional costs incurred during Fiscal 1996,
were offset against the reserve resulting in an additional loss of $140,504 for
Fiscal 1996, which is included in selling, general and administrative expenses.
NOTE 6: PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets are comprised of the following:
February 23, February 24,
1996 1995
---- ----
Spare parts and supplies $ 879,854 $ 535,852
Prepaid insurance and
other expenses 205,404 144,803
---------- -----------
$1,085,258 $ 680,655
========== ===========
F-11
NOTE 7: PATENTS
The Company owns two patents and has applied for two other
U.S. patents and certain foreign patents. A total of approximately $61,000,
$71,000 and $98,000 of costs have been capitalized relating to these patent
applications during Fiscal 1996, 1995, and 1994, respectively. Amortization
expense of approximately $85,000, $76,000 and $70,000 has been recorded in
Fiscal 1996, 1995 and 1994, respectively, with a total accumulated amortization
balance of $313,000 and $229,000 at February 23, 1996 and February 24, 1995,
respectively.
NOTE 8: NOTE PAYABLE -BANK
The Company has a $5,000,000 revolving line of credit with its
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 50% of qualifying inventories (up to a maximum inventory loan of
$2,500,000), 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 1% (9.25% at February 23, 1996), and provides for a 1/8th
of 1% unused line fee and is subject to renewal annually. At February 23, 1996,
the balance under the Line of Credit was $3,752,604 which is the maximum
availability under the Line of Credit. At February 24, 1995, the availability
under the line of credit was approximately $2,236,000 and the outstanding
balance totaled $1,792,086.
Terms of the revolving line of credit were modified by an amendment
dated March 1, 1996, which reduced the line to $4,000,000 and increased the
interest rate to the bank's prime rate plus 2.5%. Borrowings under the credit
line secured by qualifying inventories are to be reduced in monthly decrements
between March 1996 and August 1996, from 50% and a maximum of $2,500,000 to 35%
and a maximum of $1,500,000. The amendment includes certain financial covenants
that the Company must maintain, including debt services coverage, capital base
and debt to equity covenants.
NOTE 9: CAPITAL LEASE OBLIGATIONS
The Company's capital lease obligations at February 23, 1996 and
February 24, 1995 consisted of the following:
February 23, February 24,
1996 1995
---- ----
Obligations under capital leases (Note 4) $7,273,904 $5,600,677
Less amounts due within one year 1,832,847 1,104,985
---------- -----------
Long-term portion $5,441,057 $ 4,495,692
========== ===========
F-12
The following is a schedule by years of the combined aggregate amount
of maturities for all capital lease obligations:
February 23,
Fiscal year 1996
----------- ----
1997............................... $ 1,832,847
1998............................... 1,997,302
1999............................... 1,947,479
2000............................... 1,331,487
2001............................... 164,789
------------
$ 7,273,904
============
NOTE 10: MANDATORILY REDEEMABLE PREFERRED STOCK
The Company is authorized to issue up to an aggregate of 2,000,000
shares of $.01 par value preferred stock. In October 1990, the Company issued
36,674 shares of Series C Mandatorily Redeemable Preferred stock. The stock is
6% non-cumulative, non-voting and redeemable in two equal amounts of $183,369 on
March 1, 1991 and March 1, 1992. The first payment of $183,369, for the
redemption of 18,337 shares, was made in October 1992. The second payment of
$183,369, for redemption of 18,337 shares, has been extended to February 28,
1997. The Series C Mandatorily Redeemable Preferred Stock retains a liquidation
preference over the Series A Preferred Stock at a rate of $10.00 per share plus
any declared but unpaid dividends (Note 11). At February 23, 1996, and February
24, 1995, there were 18,337 shares of Series C Mandatorily Redeemable Preferred
Stock issued and outstanding.
NOTE 11: STOCKHOLDERS' EQUITY
The Board of Directors has designated two classes of preferred stock
included within stockholders' equity as follows:
Series A, 8.5% Non-Cumulative, Redeemable, Convertible Preferred Stock
("Series A Preferred Stock"), convertible at the holder's option into
one share of common stock of the Company at any time prior to
redemption. At the Company's option, the stock is redeemable at $4.00
per share after not less than 30 nor more than 60 days written notice
at any time beginning June 13, 1992 provided the closing bid price of
the Company's common stock averages in excess of $9.00 per share for 30
consecutive trading days ending within five days of the notice of
redemption. The Series A Preferred Stock votes with the common stock as
a single class. At February 23, 1996, and February 24, 1995, there were
303,946 and 380,371 shares issued and outstanding, respectively.
Series B, 6% Non-Cumulative, Non-Voting Convertible Preferred Stock
("Series B Preferred Stock"), redeemable and convertible at any time at
$10 per share. Such stock retains a liquidation preference over the
Series A Preferred Stock at a rate of $10 per
F-13
share plus any declared but unpaid dividends. At February 23, 1996, and
February 24, 1995, there were 146,695 shares of Series B Preferred
Stock issued and outstanding.
The Company issued to the underwriter of its second public offering, a
warrant to purchase up to 50,000 units with each unit consisting of two shares
of Series A Preferred Stock, one share of Common Stock and one Class A
Redeemable Common Stock Purchase warrant ("Class A warrant"). The units subject
to the underwriter's warrant are identical to the units sold to the public,
except that the Series A Preferred Stock and the Class A warrant are not subject
to redemption by the Company and the exercise price of the unit is $13.75 per
unit and the exercise price for the Class A warrant underlying this
underwriter's warrant is $6.50. The underwriter's warrants are exercisable for
1.06 shares of Common Stock from June 13, 1992 through June 13, 1996.
On October 7, 1992, the Company completed a third public offering of
1,400,000 units (plus an additional 126,000 units subsequently purchased as a
partial exercise of the underwriter's over-allotment option) at $5.00 per unit.
Each unit consisted of one share of Common Stock, one Class A Redeemable Warrant
and one Class B Redeemable Warrant. Each Class A Redeemable Warrant initially
entitled the registered holder thereof to purchase one share of Common Stock at
$5.00 per share at any time through October 6, 1994. In September 1994, the
terms of the Class A Redeemable Warrants were modified. As modified, each Class
A Warrant entitled the registered holder thereof to purchase one share of Common
Stock at a reduced price of $4.00 per share through October 28, 1994. The period
of time to exercise the Class A Warrants was extended from October 6, 1994 to
5:00 p.m. (EST) on October 28, 1994. For each Class A Warrant exercised on or
before October 28, 1994 at the reduced exercise price of $4.00, the
warrantholder was entitled to extend the period of exercise for a second class A
Warrant held by the warrantholder for a period through March 31, 1995, at the
original exercise price of $5.00 (the "50% Option"). The expiration date of
March 31, 1995, was subsequently extended to June 15, 1995. An aggregate of
40,950 Class A Redeemable Warrants were exercised at the original price of
$5.00. An aggregate of 1,124,435 Class A Redeemable Warrants were exercised at
the reduced price of $4.00, of which 272,100 were exercised pursuant to the 50%
Option. Of the 272,100 Class A Redeemable Warrants exercised pursuant to the 50%
Option, an aggregate of 48,725 warrants were exercised at the reduced price of
$3.75 on or before June 16, 1995.
Each Class B Redeemable Warrant from the third public offering entitles
the holder thereof to purchase one share of common stock at $9.00 per share at
any time through October 7, 1996. In connection with certain private placements
by the Company to overseas investors and accredited investors, the exercise
price and shares purchasable upon the exercise of the Class B warrants were
adjusted. As a result of such adjustment, each Class B Warrant entitles the
holder to purchase 1.04 shares of Common Stock at $8.65 per share at any time
through October 6, 1996. The warrants are subject to redemption at $.05 per
warrant, on 30 days written notice, provided the last sale price of the common
stock as reported on the NASDAQ National Market System for 10 consecutive
trading days ending within 25 days of the notice of redemption, averages at
least $14.00 per share for redemption of the Class B Redeemable Warrants.
F-14
In addition, the Company issued to the underwriter in the third public
offering, a warrant to purchase up to 140,000 units. The units subject to the
underwriter's warrant are identical to the units sold to the public, except that
the exercise price of the units will be $5.78 per unit, each unit consisting of
one share of Common Stock, one Class A Warrant and one Class B Warrant. The
Class A Warrants underlying the underwriter's Warrant II expired in October
1994. The exercise price of the underlying Class B Warrants is $11.25 per share.
The underwriter's warrants are exercisable from October 7, 1993 through October
7, 1997.
The Company has reserved 3,422,536 shares of Common Stock for issuance
upon exercise of outstanding warrants and employee stock options granted or
available for grant (Note 18), upon the conversion of preferred stock and in
connection with the agreement with RC America, Inc. On February 26, 1994, the
Company issued 200,000 shares of its Common Stock in exchange for the 49.5%
minority interest in RC America, Inc., a consolidated subsidiary, as discussed
in Note 15. On May 23, 1995, an additional 17,400 shares of Common Stock were
issued based on the operating results of RC America, Inc. for Fiscal 1995. Based
on the operating results of RC America, Inc. for Fiscal 1996, an additional
2,550 shares were issued in May 1996.
Holders of the Series A Preferred Stock are entitled to receive, in
each fiscal year in which the Company attains net earnings after tax, as
defined, non-cumulative dividends at the annual rate of $0.34 per share. Such
dividends will be payable in cash if net earnings after tax exceed 150% of the
amount necessary to pay the dividends and in cash, common stock, or any
combination thereof if such net earnings are less than such amount. Dividends on
the Series B Preferred Stock and Series C Mandatorily Redeemable Preferred Stock
are payable before any dividends are paid or declared for the Series A Preferred
Stock and the common stock. The holders of the Series B Preferred Stock and the
Series C Mandatorily Redeemable Preferred Stock are entitled to receive
non-cumulative dividends at an annual rate of $.60 per share payable in cash.
From February 27, 1993 through February 25, 1994, a total of 1,342,000
shares were issued in a private placement with net proceeds of $5,991,239.
During the period February 26, 1994, through February 24, 1995, a total of
626,470 shares were issued in a private placement with net proceeds of
$2,134,755. There were no private placements during Fiscal 1996.
F-15
NOTE 12: INCOME TAXES
Due to the taxable loss incurred and the availability of net operating
losses, there was no tax provision or benefit recorded in Fiscal 1996.
Accordingly, the effective tax rate is zero percent as compared to the Federal
statutory rate of 34%.
Cumulative temporary differences are as follows:
February 23, February 24,
1996 1995
---- ----
Deferred tax assets:
Reserves $ 44,264 $ 430,179
Inventory accounts 61,969 88,014
Investment tax credit 398,276 397,335
Net operating loss 7,021,155 4,998,187
------------- -----------
Total deferred tax assets 7,525,664 5,913,715
============= ============
Deferred tax liabilities:
Excess depreciation 182,911 362,355
Accrued rent 71,903 92,519
Patent costs 442,790 452,198
------------ -------------
Total deferred tax liabilities 697,604 907,072
============ =============
Net deferred tax asset before valuation
allowance 6,828,060 5,006,643
Less: valuation allowance 6,828,060 5,006,643
------------ ------------
Net deferred tax asset $ 0 $ 0
============ ============
A valuation allowance is required to be established for deferred tax
assets if, based on the weight of available evidence, it is more likely than not
that some portion or all of the deferred tax asset will not be realized. The
Company has determined that a valuation allowance is required since it is not
certain that the results of future operations will generate sufficient taxable
income to realize the deferred tax asset. The deferred tax asset and related
valuation reserves will be reviewed as management's actions, such as increasing
manufacturing capacity, take effect and produce favorable results.
At February 23, 1996, the Company had available for federal and state
income tax purposes unused net operating loss (NOL) carryforwards approximating
$17,848,000 and $15,196,000, respectively. The federal carryforwards expire in
various amounts beginning in the year 2003, and the state carryforwards expire
in various amounts from 1997 through 2002. The Company has available state
investment tax credit carryforwards of approximately $284,000
F-16
expiring in various amounts from 1998 to 2002, and approximately $114,000 in
carryforwards with unlimited expirations.
A substantial change in the Company's ownership, as defined in section
382 of the Internal Revenue Code, may significantly limit the future utilization
of the federal NOL carryforwards incurred prior to an ownership change. In
Fiscal 1994 and Fiscal 1991, a substantial change in ownership did occur;
however, management believes that such limitations will not significantly
restrict future utilization of the Company's federal NOL carryforwards.
NOTE 13: OPERATING LEASES AND COMMITMENTS
The Company's lease agreement for its Dighton facilities was
renegotiated effective January 1, 1996 and runs for a period of twelve years.
The Company has entered into operating leases for certain manufacturing
equipment expiring on various dates through 2007.
The future minimum rental commitments under noncancelable operating
leases as of February 23, 1996 are as follows:
Fiscal Year
-----------
1997......................... $1,275,000
1998......................... 1,081,000
1999......................... 1,054,000
2000......................... 936,000
2001......................... 630,000
Thereafter .................. 2,621,000
-----------
$7,597,000
==========
Rent expense under operating leases was $1,583,000, $1,404,000 and
$1,235,000 for the years ended February 23, 1996, February 24, 1995, and
February 25, 1994, respectively.
NOTE 14: MAJOR CUSTOMERS
For Fiscal 1996, sales to two customers represented approximately 15%
and 10% of total sales, respectively. Sales to two customers in Fiscal 1995,
represented approximately 12% and 13% of total sales, respectively. There were
no sales in excess of 10% of total sales for any individual customer in Fiscal
1994.
F-17
NOTE 15: RELATED PARTY TRANSACTIONS
Loans made to an officer totaled $362,649 at February 23, 1996, and
$294,366 at February 24, 1995, and bear interest at the rate the Company is
charged by its bank. The loans were due and payable February 23, 1996, and
payment terms have subsequently been extended through February 28, 1997.
Loans made to an officer during Fiscal 1996 totaled $105,957 at
February 23, 1996, including interest at the rate the Company is charged by its
bank.
The Company acquired in Fiscal 1993 a 50.5% interest, in exchange for
$125,000, in a company (RC America, Inc.) founded and managed by the 49.5%
minority shareholder, Ronald Caulfield, a brother of the Company's president.
The accounts of RC America, Inc. are included in the Company's consolidated
financial statements. On February 26, 1994, the Company entered into a stock
exchange agreement (the Agreement) to exchange 200,000 shares of its common
stock at their estimated fair market value for Ronald Caulfield's 49.5% minority
interest in RC America, Inc. Effective February 26, 1994 Ronald Caulfield
exchanged his shares in accordance with the Agreement. As a result, RC America,
Inc. is now a wholly owned subsidiary of the Company. The Agreement also
contains demand and piggy-back registration rights and provides for the issuance
to Ronald Caulfield 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. Based on the operating results of RC America, Inc.
for Fiscal 1996, a total of 2550 shares of Common Stock were earned and were
issued to Mr. Ronald Caulfield in May 1996. In Fiscal 1995, a total of 17,400
shares of common stock were earned and were issued on May 23,1995. In addition,
Ronald Caulfield entered into a five year employment agreement with RC America,
Inc. which provides for certain bonus, severance and non-compete arrangements.
The value of the stock issued pursuant to the Agreement exceeded the
book value of the assets acquired and the Company has recognized goodwill of
$800,000 which is being amortized over ten years. Issuance of the 17,400 shares
of common stock resulted in $71,862 of additional goodwill. At February 23,
1996, $789,402 of unamortized goodwill related to these transactions is included
in Other Assets, which includes $85,525 of unamortized goodwill from the initial
acquisition cost of $125,000. Accumulated amortization totaled $207,460 and
$106,975 at February 23, 1996 and February 24, 1995, respectively.
NOTE 16: EMPLOYMENT AGREEMENTS
In October 1993, the Company entered into employment agreements with
certain officers. Among other things, these agreements provide for minimum base
compensation of $750,000 in the aggregate plus incentive compensation based on
pre-tax profits and for severance payments which approximate two years of base
compensation. Each of these agreements will expire on June 30, 1998.
Ivan J. Hughes, a director of the Company, is the President of the
Plastics Division Duro Bag Manufacturing Company ("Duro"). For Fiscal 1996, Duro
accounted for approximately 10% of the Company's sales.
F-18
NOTE 17: COMMITMENTS AND CONTINGENCIES
From time to time, the Company is involved in litigation arising from
the normal course of business. The outcome of such litigation is not expected to
have a material impact on the financial statements.
The Company entered into an operating lease in December 1994, that
required a letter of credit in the amount of $317,000. The letter of credit
expires in October 1996.
At February 23, 1996, the Company had commitments to purchase
approximately $2,400,000 of machinery and equipment.
NOTE 18: STOCK OPTION PLAN
In May 1990, the Company adopted a stock option plan and on October 25,
1993, the Board of Directors approved a stock option plan that provides certain
individuals the right to purchase up to 200,000 shares and 750,000 shares,
respectively, of common stock. The Board of Directors determines those
individuals who shall receive options, the time period during which the options
may be exercised, and the number of shares of common stock that may be purchased
and the exercise price (which cannot be less than the fair market value of the
common stock on the date of grant).
Transactions under the stock option plans for each of the
three years in the period ended February 23, 1996, are summarized as follows:
Number of Price range
shares per share
------ ---------
Outstanding at February 26, 1993 138,250 $3.00-$6.25
Granted 642,880 $4.00-$5.375
Exercised (16,250) $3.00-$3.88
Canceled (6,250) $3.00-$3.88
-------
Outstanding at February 25, 1994 758,630 $3.00-$6.25
Granted 32,000 $4.44
Canceled (11,675) $5.75-$5.88
-------
Outstanding at February 24,1995 778,955 $3.00-$6.25
Granted 47,000 $4.00-$5.50
Canceled (30,325) $5.375-$6.25
-------
Outstanding at February 23, 1996 795,630 $3.00-$6.25
=======
F-19
Of the total options outstanding, 466,025 were exercisable at
February 23, 1996. There were 138,120 options available for future grant at
February 23, 1996. No compensation expense has been recognized in connection
with the granting of stock options because the exercise price has exceeded the
market price of the Company's common stock at the measurement date.
NOTE 19: SUBSEQUENT EVENT
During the first quarter of Fiscal 1997 the Company raised additional
financing through the sale of common stock to investors which was exempt from
registration under the Securities Act of 1933, as amended. The Company received
net proceeds of $3,297,113 from the sale of an aggregate 1,558,100 shares of
Common Stock and 100,000 shares of Series A Preferred Stock through private
placements and the exercise of underwriters warrants. The proceeds were used for
general corporate purposes and the paydown of bank debt.
F-20
Schedule II
Rule 12-09 Valuation and Qualifing Accounts and Reserves
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Description Balance at Additions Deductions Balance at end
beginning of Charged to costs Accounts of period
period and expenses written off
<S> <C> <C> <C> <C> <C> <C>
Doubtful 2/27/93 34,083 37,568 51,651 20,000 2/25/94
Accounts 2/26/94 20,000 36,075 26,075 30,000 2/24/95
& Credits 2/25/95 30,000 93,606 28,606 95,000 2/23/96
</TABLE>
S-1
BPI PACKAGING TECHNOLOGIES, INC.
EXHIBIT INDEX
Exhibit
No. Title
--- -----
10a Amendment No. 1 to Loan and Security Agreement by and between
the Company and Citizens Savings Bank.
10b Amendment No. 2 to Loan and Security Agreement by and between
the Company and Citizens Savings Bank.
10c Amendment to Promissory Note of Dennis N. Caulfield.
10d Lease for premises at 455-473 Somerset Avenue, North Dighton,
Massachusetts.
23 Consent of Price Waterhouse LLP
27 Financial Data Schedule
LOAN AND SECURITY AGREEMENT
AMENDMENT NO. 1
AMENDMENT made as of March 1, 1996, to the LOAN AND SECURITY AGREEMENT,
dated December 13, 1994 (the "Loan Agreement"), by and between BPI PACKAGING
TECHNOLOGIES, INC., a Delaware corporation having its principal place of
business at 455 Somerset Avenue, North Dighton, Massachusetts 02764
("Borrower"); and CITIZENS SAVINGS BANK, a Rhode Island banking corporation
having its principal office at One Citizens Plaza, Providence, Rhode Island
02903-1339 ("Bank").
WITNESSETH:
Background. Pursuant to the Loan Agreement, the Bank has extended to
the Borrower a secured revolving line of credit up to the principal sum of Five
Million Dollars ($5,000,000.00). Based upon Borrower's results of operations for
the three fiscal quarters ended November 1995 and the projections furnished by
Borrower to Bank for Borrower's operations through the fiscal year ending
February 1997, borrower and Bank have agreed to decrease the line of credit and
to make certain other modifications to the Loan Agreement as hereinafter set
forth.
NOW, THEREFORE, in consideration of the promises herein contained, and
each party intending to be legally bound hereby, the parties agree as follows:
1. Definitions. Capitalized terms used herein without definition shall
have the meanings assigned by the Loan Agreement. Section 1 of the Loan
Agreement is hereby amended by adding the following additional definitions:
1.29. "Balance Sheet Debt" means all indebtedness of Borrower
which is or should in accordance with generally accepted accounting
principles be included as liabilities on Borrower's balance sheet,
excluding Subordinated Debt.
1.30. "Capital Base" means the tangible assets of Borrower,
excluding intangible assets and deferred charges (such as goodwill,
debt discount, organizational expenses, trademarks, tradenames and
patents), less Balance Sheet Debt.
1.31. "Subordinated Debt" means indebtedness of Borrower that
is subordinated to the Obligations in form and on terms satisfactory to
Bank.
2. Representations. borrower represents and warrants to Bank that:
(a) All of the representations and warranties set forth in
Section 2 of the Loan Agreement are true and correct as of the date hereof;
(b) No event has occurred and is continuing which constitutes or,
with the passage of time or the giving of notice or both, would constitute an
Event of Default under the Loan Agreement as amended hereby;
(c) The financial statements furnished to Bank by Borrower,
including the balance sheets of Borrower and the related statements of income
and cash flow for the three fiscal quarters ended November 1995 and notes and
schedules included therewith, were prepared in accordance with generally
accepted accounting principles consistently applied, and fully and fairly
present the financial condition of Borrower as of the dates thereof and the
results of operations for the periods then ended, and since the date of such
most recent financial statements (November 1995) there has been no material
adverse change in the financial condition or business of Borrower and there has
been no transaction other than in the ordinary course of business of Borrower;
and
(d) The financial projections furnished to Bank by Borrower for
the fiscal year ending February 1997 have been prepared in good faith, on the
basis of assumptions that Borrower believes are reasonable and in accordance
with generally accepted accounting practices for the preparation of accounting
projections in the normal course of an on-going business, and Borrower has no
reason to believe that such projections fail to take into account material or
prospective circumstances or developments that should reasonably be taken into
account in the preparation of such financial projections.
3. Interest Rate. Section 1.4 of the Loan Agreement is hereby amended
in its entirety effective as of the date hereof to read as follows:
1.4. "Borrower's Rate" means the rate of interest equal to
Citizens Prime Rate plus Two and One-Half (2.50%) percent per annum.
4. Borrowing Limit. The following subsections of Section 1.5 of the
Loan Agreement are hereby amended effective as of the date hereof as follows:
1.5.1. "Maximum Borrowing Limit" means Four Million Dollars
($4,000,000.00).
1.5.4. "Inventory Base" means an amount equal to the lesser of
(a) a percentage, equal to the Inventory Advance Rate of Eligible
Inventory or (b) the
-2-
Inventory Borrowing Cap, where the Inventory Advance Rate and the
Inventory Borrowing Cap shall change as indicated in the following
table:
PERIOD INVENTORY ADVANCE INVENTORY
(1996) RATE BORROWING CAP
March 50% $2,500,000
April 45% 2,250,000
May and June 40% 2,000,000
July 35% 2,000,000
August and 35% 1,500,000
thereafter
5. Financial Covenants. Section 7 of the Loan Agreement is hereby
amended by adding the following new sections as affirmative covenants:
7.15. Capital Base. Maintain at all times a Capital Base in an
amount not less than $19,500,000 at February 23, 1996 plus 50% of
Borrower's net income after taxes for each fiscal year commencing after
February 23, 1996.
7.16. Debt:Equity Ratio. Maintain at all times a ratio of
Balance Sheet Debt to Capital Base of not greater then 0.75:1.0.
7.17. Debt Service Coverage. Maintain, at all times on and
after May 31, 1996, on a fiscal year-to-date basis, Adjusted EBITDA in
an amount not less than the sum of Interest and Tax Expense, current
maturities of long-term debt (including payments becoming due in the
next twelve months under capital leases) and unfinanced capital
expenses during the fiscal period, where:
(a) "Adjusted EBITDA" means the Borrower's earnings
before Interest and Tax Expense and depreciation and
amortization expenses accrued during the fiscal period; and
(b) "Interest and Tax Expense" means the interest and
income taxes paid or otherwise accruable by Borrower during
the period.
6. General. (a) This Amendment may be executed in any number of
counterparts which together shall constitute one instrument, and shall be
governed by and construed in accordance with the laws of the State of Rhode
Island.
(b) The captions in this Amendment are for convenience of
reference only and shall not alter or otherwise affect the meaning hereof.
-3-
(c) Except as amended hereby, the terms of the Loan Agreement continue
in full force and effect.
IN WITNESS WHEREOF, Borrower and Bank have executed this Amendment No.
1 to the Loan Agreement on the date first above written.
BPI PACKAGING TECHNOLOGIES, INC.
By: /s/ Dennis N. Caulfield
-----------------------------------
Dennis N. Caulfield, President
CITIZENS SAVINGS BANK
By: /s/ Jonathan C. Neuner
-----------------------------------
Jonathan C. Neuner, Vice President
CONSENT OF GUARANTOR
The undersigned, RC AMERICA, INC., a Delaware Corporation, hereby
acknowledges and consents to the terms of the foregoing Amendment, confirms that
the undersigned's Guaranty Agreement dated December 13, 1994 (the "RC Guaranty")
of the obligations of BPI Packaging Technologies, Inc. to Citizens Savings Bank
("Bank"), and the Security Agreement of even date therewith (the "RC Security
Agreement") securing the RC Guaranty, remain in full force and effect, and
confirms that the undersigned has no defenses, offsets or counterclaims in
respect of the rights of Bank under the RC Guaranty or the RC Security
Agreement.
RC AMERICA, INC.
By: /s/ Dennis N. Caulfield
-----------------------------------
Dennis N. Caulfield, President
-4-
LOAN AND SECURITY AGREEMENT
AMENDMENT NO.2
AMENDMENT made June 5, 1996, to the LOAN AND SECURITY AGREEMENT, dated
December 13, 1994 and amended as of March 1, 1996 (the "Loan Agreement"), by and
between BPI PACKAGING TECHNOLOGIES, INC., a Delaware corporation having its
principal place of business at 455 Somerset Avenue, North Dighton, Massachusetts
02764 ("Borrower"); and CITIZENS SAVINGS BANK, a Rhode Island banking
corporation having its principal office at One Citizens Plaza, Rhode Island
02903-1339 ("Bank").
WITNESSETH:
Background. Pursuant to the Loan Agreement, the Bank has extended to
the Borrower a secured revolving line of credit up to the principal sum of Four
Million Dollars ($4,000,000.00). Based upon Borrower's results of operations for
the fiscal year ended February 1996, Borrower has requested Bank to waive
certain requirements of the Loan Agreement, which Bank agrees to do on the terms
hereinafter set forth.
NOW, THEREFORE, in consideration of the promises herein contained, and
each party intending to be legally bound hereby, the parties agree as follows:
1. Definitions. Capitalized terms used herein without definition shall
have the meanings assigned by the Loan Agreement.
2. Representations. Borrower represents and warrants to Bank that:
(a) All of the representations and warranties set forth in
Section 2 of the Loan Agreement are true and correct as of the date hereof.
(b) No event has occurred and is continuing which constitutes or,
with the passage of time or the giving of notice or both, would constitute an
Event of Default under the Loan Agreement as amended hereby.
3. Advances and Letters of Credit. Section 3.1 of the Loan Agreement is
hereby amended in its entirety to read as follows:
"Pursuant to the Terms of this Agreement and upon satisfaction
of the conditions precedent referred to in Section 4 hereof, Bank may
make Advances to Borrower, and Borrower may borrow, prepay and reborrow
under this Section, provided that the aggregate principal amount of
Advances outstanding hereunder shall not exceed the Borrowing Limit and
provided, further, that the aggregate principal amount of Advances
outstanding hereunder together with Bank's contingent liability under
outstanding letters of credit issued by Bank on Borrower's application
shall not exceed the Formula Limit."
4. Financial Covenant Waivers. Bank hereby waives compliance by the
Borrower with the requirements of Sections 7.15 ("Capital Base") and 7.16
("Debt:Equity Ratio") as of all dates before the date of this Agreement,
provided that the Borrower shall be in compliance with the requirements of those
Sections on and after the date of this Agreement. In consideration of the
foregoing waiver, concurrently with the execution of this Agreement, Borrower
has paid Bank a waiver fee in the amount of $25,000.00.
5. General. (a) This Amendment may be executed in any number of
counterparts which together shall constitute one instrument, and shall be
governed by and construed in accordance with the laws of the State of Rhode
Island.
(b) The captions in this Amendment are for convenience of
reference only and shall not alter or otherwise affect the meaning hereof.
(c) Except as amended hereby, the terms of the Loan Agreement
continue in full force and effect.
In witness whereof, Borrower and Bank have executed this Amendment No.2 to
the Loan Agreement on the date first above written.
BPI PACKAGING TECHNOLOGIES, INC.
By: /s/ Dennis N. Caulfield
-----------------------------------
Dennis N. Caulfield, President
CITIZENS SAVINGS BANK
By:/s/ Jonathan C. Neuner, V.P.
-----------------------------------
Jonathan C. Neuner, Vice President
-2-
CONSENT OF GUARANTOR
The undersigned, RC AMERICA, INC., a Delaware Corporation, hereby
acknowledges and consents to the terms of the foregoing Amendment, confirms that
the undersigned's Guaranty Agreement dated December 13, 1994 (the "RC Guaranty")
of the obligations of BPI Packaging Technologies, Inc. to Citizens Savings Bank
("Bank"), and the Security Agreement of even date therewith (the "RC Security
Agreement") securing the RC Guaranty, remain in full force and effect, and
confirms that the undersigned has no defenses, offsets or counterclaims in
respect of the rights of Bank under the RC Guaranty or the RC Security
Agreement.
RC AMERICA, INC.
By: /s/ Dennis N. Caulfield
-----------------------------------
Dennis N. Caulfield, President
BPI PACKAGING TECHNOLOGIES, INC.
455 SOMERSET AVENUE
NORTH DIGHTON, MASSACHUSETTS 02764
June 4, 1996
Mr. Dennis N. Caulfield
President
BPI Packaging Technologies, Inc.
455 Somerset Avenue
North Dighton, Massachusetts 02764
Re: Promissory Note
Dear Dennis:
In connection with the recent resolutions adopted by BPI Packaging
Technologies, Inc.'s ("BPI") Board of Directors on Monday, June 3, 1996, payment
of amounts due pursuant to your amended and restated promissory noted dated as
of February 24, 1995 (the "Note") has been extended until February 28, 1997. In
addition, effective February 25, 1995, the interest rate on your Note will be
equal to the interest rate charged on BPI's revolving line of credit with
Citizens Savings Bank ("Citizens") or other primary lender in the event that
Citizens is replaced.
Except as set forth above, the terms of your Note continue in full force
and effect.
Please acknowledge your acceptance and agreement to the above-noted
modifications to your Note by signing this letter where indicated and returning
it to me.
Sincerely,
BPI PACKAGING TECHNOLOGIES, INC.
By: /s/ James F. Koehlinger
-----------------------------------
James F. Koehlinger
ACCEPTED AND AGREED TO: Chief Financial Officer
/s/ Dennis N. Caulfield
- - -----------------------------
Dennis N. Caulfield,
Individually
ARTICLE PA1
Section PA1.01
Preamble attached to and forming part of the Lease dated October 1, 1995
between BPI PACKAGING TECHNOLOGIES, INC. (a Delaware Corporation), (Tenant), and
MAXALDAN REALTY, L.P., (a New Jersey Limited Partnership), (Landlord).
Landlord: Maxaldan Realty L.P.
39 Avenue C
P.O. Box 8
Bayonne, New Jersey 07002
Tenant: BPI Packaging Technologies, Inc.
455 Somerset Avenue
North Dighton, MA 02764
Rental Space: All of Building No. 3 and 82,780 square feet of manufacturing
space plus second story office space and loading docks in Building No. 1 at
455-473 Somerset Avenue North Dighton, Mass. The Rental Space shall also include
the improvements to be constructed on the Demised Premises by the Tenant in
accordance with Section PA.07 below. The Rental Space in Building No. 1 is Shown
on Exhibit A.
Use: For the manufacture, storage, warehousing, and distribution of plastic
bags, or other lawful uses related to the Tenant's Business or any use
reasonably consistent with other uses in the Facility which comply with all
Legal Requirements.
Section PA1.02
TERM OF LEASE
Term of Lease: 12 years
Commencing: January 1, 1996
Ending: December 31, 2007
Section PA1.03
RENT
For the period from January 1, 1996 through July 31, 1997 Tenant shall pay
Base Rent in the amount of $532,167.20, payable at the rate of $28,008.80 per
month. Also, Tenant shall pay Additional Rent in the amount of $378,265 for the
initial twelve year term of this Lease, payable at the rate of $2,626.84 per
month in order to repay the sums to be advanced to Tenant in accordance with
PA.07. If the amounts advanced to the Tenant
B.P.I. PACKAGING TECHNOLOGIES, INC. AND MAXALDAN REALTY L.P.
OCTOBER 1, 1995
under PA.07 are other than $200,000, such amount shall be repaid as Additional
Rent in equal monthly installments of principal and interest over the said term
with interest thereon at the rate of twelve percent (12%) per annum.
Effective on August 1, 1997, and then through expiration of the end of
the Lease (and any extensions thereof) the annual Base Rent shall be adjusted at
each anniversary of the Lease commencement date and at each anniversary
thereafter as follows:
a) The index used for calculation of any adjustment shall be the official
Consumer's Price Index, Boston Area, all items, (1982-1984 = 100)
published by the Bureau of Labor Statistics, U.S. Department of Labor,
or its successor index should the Department of Labor cease publishing
the CPI.
b) The new annual Base Rent at each anniversary shall be the annual Base
Rent for the preceding year plus an additional amount as determined in
paragraph (c) or an additional amount equal to three (3%) percent of
annual Base Rent for the preceding year; whichever is less.
c) The index for the month of April immediately preceding the anniversary
month shall be compared to the index for April of the previous year.
The numerator shall be the index for the April immediately preceding
the anniversary month and the denominator shall be the index for the
April of the previous year. The result shall be multiplied by the
current annual Base Rent to determine the new annual Base Rent.
d) The annual Base Rent shall be divided and paid in twelve (12) equal
monthly installments during the anniversary period.
e) Rent is payable as per Section 3.01. Base Rent and the items of
Additional Rent described in Section PA1.03, Section PA1.04 and
Article 30 are due and payable in advance on or before the first day
of the month.
Section PA1.04
REAL ESTATE TAX
The Landlord shall pay the yearly municipal real estate taxes on the
building. The Tenant shall pay the Landlord, as Additional Rent, a sum
equivalent to 100% of all taxes and
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B.P.I. PACKAGING TECHNOLOGIES, INC. AND MAXALDAN REALTY L.P.
OCTOBER 1, 1995
assessments against Map 5 Lot 1 (the Tax Parcel), plus 24.8% of all the taxes
and assessments on the tax parcels known as Tax Map 5 Lots 3, 10, 99, and 2,
said percentage of taxes being the proportionate share applicable to the Rental
Space and building improvements thereon. In addition, Tenant shall be
responsible for 100% of any real estate taxes or assessments imposed on new
improvements made by or on behalf of the Tenant, including but not limited to
building additions, interconnects and loading facilities.
The Landlord shall estimate on an annual basis the Tenant's
proportionate share and bill the same in 12 monthly installments corresponding
with the taxing entity's fiscal year. When the final real estate tax bill is
received by the Landlord, the Landlord will calculate the Tenant's actual tax
and bill or refund the under or over payment and advise the Tenant of the
following year's estimated tax. The Tenant will pay to the Landlord any taxes
due hereunder within 30 days after demand therefor.
Additional Rent under this section shall be prorated for any partial
tax year at the beginning or end of the term of this Lease.
Section PA.05
SUPERSEDES PRIOR LEASE
This Lease will replace and supersede the Lease dated February 1, 1992
between BPI Environmental, Inc. and Maxaldan Realty L.P. as amended, effective
at the commencement of this Lease.
Section PA.06
SECURITY
$25,000.00 has been deposited on account with the Landlord by the
Tenant.
Section PA.07
UTILITIES AND SERVICES
The Tenant shall arrange and pay for all utilities and services
required for the Rental Space, including (but not limited to) the following:
a). Heat
3
B.P.I. PACKAGING TECHNOLOGIES, INC. AND MAXALDAN REALTY L.P.
OCTOBER 1, 1995
b). Hot and Cold water
c). Electric
d). Gas
e). Maintenance Contracts
The Landlord shall not make any change to the utilities and services,
expressly including water service to the Demised Premises, which would cause a
reduction in service below the availability as of February 1, 1992.
Tenant shall have the right to make arrangements for increased
utilities and services at its own expense, including but not limited to the
construction of a water tower on the Facility, subject to Landlord's approval of
the manner in which such services are to be provided and the plans therefor
which approval will not be unreasonably withheld or delayed.
The Landlord shall not be held liable for any inconvenience, damages,
or harm caused by the stoppage, interruption, or reduction of any utilities or
services beyond the control of the Landlord. Such stoppage, interruption, or
reduction does not entitle the Tenant to any rent abatement, nor does it excuse
the Tenant from the timely payment of Rent,
As to those utilities used by the Tenant which have a central meter and
service more than one tenant, the Landlord shall estimate on a monthly basis
that portion of said utilities attributable to the Rental Space and Tenant shall
pay said estimate to Landlord within thirty (30) days of demand thereof.
To avoid the risk of possible damage to the Rental Space, and the pipes
and fixtures in it (and adjacent spaces) from freezing, the Tenant agrees and
covenants to at all times, in all parts of the premises maintain a minimum of 40
degrees Fahrenheit (40). Should damage to any part of the Rental Space,
including water pipes, steam lines, sprinkler systems, boilers, waterheaters
etc. result from the Tenant's failure to maintain the minimum temperature as
herein provided by reason of the fault or failure of the Tenant, its agents,
servants, employees, or visitors then the cost of making repairs necessary to
restore the premises shall be borne by the Tenant, and if any such repairs are
made by or at the expense of the Landlord, then the costs of such repairs to the
Landlord shall be collected as Additional Rent. Anything to the contrary herein
contained notwithstanding, the Tenant shall not be liable under any of the
provisions of this paragraph if the Tenant cannot maintain a minimum
4
B.P.I. PACKAGING TECHNOLOGIES, INC. AND MAXALDAN REALTY L.P.
OCTOBER 1, 1995
temperature of 40 degrees Fahrenheit for reasons not based upon the fault or
failure of the Tenant.
BROKERAGE
Tenant and Landlord represent to each other that they have dealt with only
Nordblom Company Real Estate, with cooperation from R.W. Holmes Real Estate in
the leasing of these premises. Landlord and Tenant each agree to indemnify and
hold harmless the other party on account of a breach of this representation. The
Landlord will pay the brokerage commission to Nordblom Company who will
negotiate a split of the commission between itself and R.W. Holmes Real Estate.
OPTION TO EXTEND
The Tenant shall have the right to renew this Lease on the same terms
and conditions, except for the Rent to be paid, for one additional term of seven
years at the expiration of the initial term, at the office of the Landlord, as
above, by certified mail return receipt requested, or by a nationally recognized
overnight carrier such as Federal Express, at least 90 (ninety) days before
expiration of the term of this Lease. Base Rent for the extension term shall be
adjusted as of the commencement date to the fair rental value for the Demised
Premises and adjusted annually thereafter during such extension term as set
forth in PA 1.03; provided that Base Rent for the first year of the extension
term shall not be less than the Base Rent due and payable during the final year
of the initial term.
INSURANCE
Landlord shall take out and maintain in force throughout the term of
this Lease in a company or companies authorized to do business in Massachusetts,
casualty insurance on the buildings, fixtures and other improvements on the
Facility, including the Demised Premises (other than Tenant's Property), in an
amount equal to the full replacement value thereof, covering all risks of direct
physical loss or damage and so-called "extended coverage" risks. This insurance
may be maintained in the form of a blanket policy covering the Facility as well
as other properties owned by Landlord.
Tenant covenants and agrees to pay the Landlord its proportionate
share of the Landlord's property liability and casualty insurance. The Tenant's
proportionate share is 33.5%. The Tenant shall pay this amount annually in one
sum within
5
B.P.I. PACKAGING TECHNOLOGIES, INC. AND MAXALDEN REALTY L.P.
OCTOBER 1, 1995
thirty (30) days of the Landlord's written request accompanied by the
calculations for such share. The Tenant is still required to carry its own
liability and content insurance. The payment required hereunder shall be
prorated for any partial year at the beginning or end of the term of this Lease.
LANDLORD'S WAIVER
Landlord hereby waives any claim or lien against Tenant's property
located on the Demised Premises, whether arising under common law, by statute,
contract or otherwise. Landlord agrees that it will allow any bank or other
financial institution that is providing, or at any time in the future does
provide, financing to Tenant (collectively, a "Lender"), and its auditors or
other designees, reasonable access to the Demised Premises in order to inspect
the Tenant's inventory and verify the amount thereof. In addition, if such
Lender elects to remove the Tenant's property from the Demised Premises,
Landlord will grant such Lender access to the Subject Premises at reasonable
times to do so, provided that the Lender agrees to reimburse the Landlord for
any damage to the Demised Premises resulting from such removal. In the event
that the Tenant defaults in its obligations under this Lease and/or Landlord
terminates this Lease for any reason, including a default by the Tenant,
Landlord will allow Lender to (i) undertake to cure any and all defaults under
the Lease and/or (ii) enter the Demised Premises in order to remove the Tenant's
property, provided that Lender pays Landlord monthly rent in the amounts due
hereunder for storage of the property at the Demised Premises for the period
from when Lender enters the Demised Premises until Lender removes the Tenant's
property from the Demised Premises. A form of Landlord's Waiver and Consent
which is acceptable to Landlord is attached hereto as Exhibit B.
TENANT ALTERATIONS
Landlord hereby approves the following alterations to the Demised
Premises to be constructed by the Tenant:
Project Number 1. A 26'-6' x 142'-0" x 22'-0" (low side) single slope
addition to the west side of building #3 to house a new press. Expected
completion date November 15, 1995.
Product Number 2. New shipping/receiving area in building #1, 20'-0" x
67'-6" area will be added to the existing shipping/receiving area to fit five
(5) new loading docks. An area adjacent to this area shall be excavated and
paved to allow
6
B.P.I. PACKAGING TECHNOLOGIES, INC. AND MAXALDAN REALTY L.P.
OCTOBER 1, 1995
complex traffic to safely pass parked trucks which are loading and unloading.
Expected completion date February 1, 1996.
The Landlord agrees to reimburse the Tenant for the cost of the two
projects described above in the amount of $120,000.00 for project number one and
$80,000.00 for project number two. It is understood that the Landlord reserves
the right to approve final construction drawings prior to the start of
construction, such approval shall not be unreasonably withheld or delayed.
Landlord acknowledges that it has reviewed and approved plans for each project.
The Tenant shall reimburse the Landlord by payment of Additional Rent as
described in Section PA1.03 above. Funds will be paid to the Tenant upon
completion of each of project 1 and 2 respectively. Projects 1 and 2 will be
deemed to be completed after final inspection is made by appropriate municipal
inspectors and their approval is granted, and after a final inspection made by a
representative of the Landlord verifying that the construction is as per the
approved plans of the Landlord, and all associated work has been completed (such
as rubbish removal, repair to landscaping and site damage caused by
construction). Payment for each project will be made by Landlord to Tenant
within 10 business days after all approvals for such project.
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B.P.I. PACKAGING TECHNOLOGIES, INC. AND MAXALDAN REALTY L.P.
OCTOBER 1, 1995
TABLE OF CONTENTS
ARTICLE 1 ................................................................. 12
Lease of Property - Term of Lease ......................................... 12
Section 1.01 ......................................................... 12
ARTICLE 2 ................................................................. 12
Definitions ............................................................. 12
Section 2.01 ......................................................... 12
Section 2.02 ......................................................... 14
Section 2.03 ......................................................... 14
Section 2.04 ......................................................... 15
ARTICLE 3 ................................................................. 15
Rent .................................................................... 15
Section 3.01 ......................................................... 15
ARTICLE 4 ................................................................. 16
Security ................................................................ 16
ARTICLE 5 ................................................................. 16
Section 5.01 ............................................................ 16
Liability of Landlord and Tenant ..................................... 16
Section 5.02 ............................................................ 17
Water Damage ......................................................... 17
ARTICLE 6 ................................................................. 17
Use, Maintenance, Alterations, Repairs, Services, Etc. .................. 17
Section 6.01 ......................................................... 17
Section 6.02. Use .................................................... 17
Section 6.03. Repairs ................................................ 17
Section 6.04. Alterations ............................................ 19
Section 6.05. No harm or damage ...................................... 19
Section 6.06. (Intentionally Omitted) ................................ 20
Section 6.07. Access ................................................. 20
Section 6.08. No Liens ............................................... 20
Section 6.09. No Dumping ............................................. 20
Section 6.10. Sewerage ............................................... 20
Section 6.11. Tenant's Access ........................................ 20
ARTICLE 7 ................................................................. 21
Insurance ............................................................... 21
Section 7.01 ......................................................... 21
Section 7.02 ......................................................... 21
Section 7.03 ......................................................... 21
Section 7.04 ......................................................... 21
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B.P.I. PACKAGING TECHNOLOGIES, INC. AND MAXALDAN REALTY L.P.
OCTOBER 1, 1995
Section 7.05. (Intentionally Omitted) ................................ 22
Section 7.06 ......................................................... 22
Section 7.07 (Intentionally Omitted) ................................. 22
Section 7.08 ......................................................... 22
Section 7.09 ......................................................... 22
ARTICLE 8 ................................................................. 22
Damage or Destruction ................................................... 22
Section 8.01 ......................................................... 22
Section 8.02 ......................................................... 23
Section 8.03 ......................................................... 23
ARTICLE 9 ................................................................. 24
Condemnation ............................................................ 24
Section 9.01 ......................................................... 24
Section 9.02 ......................................................... 24
Section 9.03 ......................................................... 25
ARTICLE 10 ................................................................ 25
Assignment, Subletting, Etc ............................................. 25
Section 10.01 ........................................................ 25
ARTICLE 11 ................................................................ 26
Payment of Rent ......................................................... 26
ARTICLE 12 ................................................................ 26
Default Provisions ...................................................... 26
Section 12.01 ........................................................ 26
Section 12.02. REENTRY ............................................... 27
Section 12.03 ........................................................ 29
Section 12.04 ........................................................ 29
Section 12.05 ........................................................ 29
ARTICLE 13 ................................................................ 30
Cumulative Remedies: Waivers ............................................ 30
Section 13.01 ........................................................ 30
ARTICLE 14 ................................................................ 31
Quiet Enjoyment ......................................................... 31
Section 18.01 ........................................................ 31
ARTICLE 15 ................................................................ 31
Waiver of Jury Trial .................................................... 31
Section 19.01 ........................................................ 31
ARTICLE 16 ................................................................ 31
Subordination of Mortgage ............................................... 31
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B.P.I. PACKAGING TECHNOLOGIES, INC. AND MAXALDAN REALTY L.P.
OCTOBER 1, 1995
ARTICLE 17 ................................................................ 32
Intentionally omitted ................................................... 32
ARTICLE 18 ................................................................ 32
Nuisance ................................................................ 32
ARTICLE 19 ................................................................ 32
Indemnification ......................................................... 32
ARTICLE 20 ................................................................ 33
Notices ................................................................. 33
Section 20.01 ........................................................ 33
Section 20.02 ........................................................ 34
ARTICLE 21 ................................................................ 34
Estoppel Certificate .................................................... 34
Section 21.01 ........................................................ 34
ARTICLE 22 ................................................................ 35
Survival ................................................................ 35
Section 22.01 ........................................................ 35
ARTICLE 23 ................................................................ 35
Miscellaneous ........................................................... 35
Section 23.01 ....................................................... 35
Section 23.02 ....................................................... 35
ARTICLE 24 ................................................................ 36
End of Term; Tenant's Property .......................................... 36
Section 24.01 ........................................................ 36
Section 24.02 ........................................................ 36
ARTICLE 25 ................................................................ 37
Covenants Binding ....................................................... 37
Section 25.01 ........................................................ 37
ARTICLE 26 ................................................................ 37
Environmental Matters ................................................... 37
Section 26.01 ........................................................ 37
ARTICLE 27 ................................................................ 37
Intentionally Omitted ................................................... 37
ARTICLE 28 ................................................................ 37
Recording of Lease ........................................................ 37
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B.P.I. PACKAGING TECHNOLOGIES, INC. AND MAXALDAN REALTY L.P.
OCTOBER 1, 1995
ARTICLE 29 ................................................................ 38
Rules and Regulations ................................................... 38
ARTICLE 30 ................................................................ 38
Common Area Maintenance ................................................. 38
EXHIBIT A -- Sketch of the Part of the Demised Premises Located in Building
No. 1.
EXHIBIT B -- Form of Landlord's Waiver.
11
B.P.I. PACKAGING TECHNOLOGIES, INC. AND MAXALDAN REALTY L.P.
OCTOBER 1, 1995
A G R E E M E N T O F L E A S E
October 1, 1995
AGREEMENT OF LEASE, made as of the date referenced above, between
MAXALDAN REALTY L.P., (Landlord), and BPI PACKAGING TECHNOLOGIES, INC.,
(Tenant).
WITNESSETH:
ARTICLE 1
Lease of Property - Term of Lease
Section 1.01. Landlord, for and in consideration of the rents to be
paid and of the covenants and agreements hereinafter contained to be kept and
performed by Tenant, hereby leases to Tenant, and Tenant hereby hires from
Landlord, those certain premises (the "Demised Premises") as described in the
preamble Section PA1.01.
TO HAVE AND TO HOLD the same, for the term of this Lease, including
any extension term, upon and subject to the covenants, agreements, terms,
provisions and limitations hereinafter set forth, all of which Tenant covenants
and agrees to Perform and observe.
ARTICLE 2
Definitions
Section 2.01. The terms defined in this Section shall, for all
purposes of this Lease, and all agreements supplemental hereto, have the
meanings herein specified, unless the context otherwise requires.
(a) The term "Additional Rent" shall mean all items payable hereunder
by Tenant to Landlord other than Base Rent.
(b) The term "Base Rent" shall mean the Rent described in the first
sentence of PA1.03 as the same may be adjusted during the term or any
extension term.
(c) The term "Claims" shall mean all liabilities (statutory or
otherwise), obligations, claims, demands, damages,
12
B.P.I. PACKAGING TECHNOLOGIES, INC. AND MAXALDEN REALTY L.P.
OCTOBER 1, 1995
penalties, causes of action, costs, expenses (including attorneys'
fees and expenses), losses and injuries in any manner relating to or
arising with respect to the subject matter of any indemnity granted
herein, including any enforcement of any such indemnity by the
indemnified party.
(d) The term "common areas" shall mean those portions of the Facility
available for use by more than one tenant or visitors of more than one
tenant, including, without limitation, parking areas, approaches,
entrances, sidewalks, roadways, service roads, and exits (except as
otherwise herein made the responsibility of the tenant, [for example
loading docks and entrance doors used by Tenant]).
(e) The term "Control" shall mean ownership of more than a fifty
percent beneficial interest, direct or indirect, of one entity by
another entity.
(f) The term "Facility" shall mean the complex of buildings and land
known as 455-473 Somerset Avenue North Dighton, Massachusetts.
(g) The term "fixtures" shall mean all items which are located in, or
as part of the building or any part of the buildings systems that are
not of a structural nature such as electrical equipment, sprinkler
systems, electrical panels, motors, light fixtures, toilets, sinks,
flush valves, faucets, toilet partitions, entrance and exit doors,
interior doors, fire doors, exit and emergency lighting, heating and
cooling equipment (if not part of a central system for which the
Landlord pays cost of operation) and excluding Tenant's Property.
(h) The term "Legal Requirements" shall mean all Federal, state,
county, municipal and other governmental statutes, laws, rules,
orders, permits, licenses, regulations, ordinances, judgments,
decrees, directions and injunctions affecting the Facility or the use
or occupancy thereof, whether now or hereafter enacted or in force,
ordinary or extraordinary, foreseen or unforeseen, and all covenants,
agreements, restrictions and encumbrances contained in any instrument
affecting the Facility.
(i) The term "Obligations" of this Lease, and words of like import,
shall mean the covenants to pay Rent and other sums payable hereunder
and all of the other covenants, agreements, terms, conditions,
limitations, exceptions and
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reservations contained in this Lease. The terms "Tenant's Obligations"
and "Landlord's Obligations", and words of like import, shall mean the
Obligations of this Lease which are imposed upon and are to be
performed, observed or kept by Tenant or by Landlord, as the case may
be,
(j) The term "rent" shall include all sums payable hereunder by Tenant
to Landlord.
(k) The term "taking shall mean a taking, or voluntary conveyance, of
title to, or any interest in, the Demised Premises or the Facility, or
any part thereof, or of the right to use all or any part thereof
pursuant to, as a result of, or in anticipation of the exercise of the
right of condemnation, expropriation or eminent domain, and upon such
a Taking the Demised Premises or the Facility, or such part thereof,
shall be deemed to have been "taken".
(l) The term "Tenant's Business" or "use" shall mean the business
heretofore conducted by Tenant and any other business which may be
lawfully conducted in the Demised Premises as provided for herein.
(m) The term "Tenant's Property" shall mean those items of personal
property or fixtures now or hereafter located in the Demised Premises
that are owned and used by Tenant in the conduct of Tenant's Business,
including all railings, movable partitions, special lighting fixtures,
special cabinet work, other business and trade fixtures, machinery and
equipment, communications equipment and computers, whether or not
attached to or built into the Demised Premises, which are installed in
the Demised Premises by or for the account of Tenant, and all
furniture, furnishings and other articles of movable personal property
owned by Tenant and now or hereafter located in the Demised Premises.
(n) The phrase "term of this Lease" shall mean the original term
described in Article l and any extension term which has become
effective pursuant to and in compliance with any option to extend
which may or may not be contained herein.
Section 2.02. (Intentionally Omitted)
Section 2.03. The following rules of construction shall be applicable
for all purposes of this Lease and all agreements supplemental hereto, unless
the context otherwise requires:
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(a) The-terms "hereby", "hereof", "hereto", "herein" , "hereunder" and
any similar terms shall refer to this Lease and the term "hereafter"
shall mean after, and the term "heretofore" shall mean before, the
date of this Lease.
(b) Words of the masculine, feminine or neuter gender shall mean and
include the correlative words of the other genders and words importing
the singular number shall mean and include the plural number and vice
versa.
(c) The term "person" shall include firms, associations, partnerships
(including limited partnerships), trusts, corporations and other legal
entities, including public bodies, as well as natural persons,
(d) The terms "include", "including" and similar terms shall be
construed as if followed by the phrase "without being limited to".
(e) All references in this Lease to numbered Articles and Sections and
to Lettered Exhibits are references to the Articles and Sections of
this Lease and the Exhibits annexed to this Lease, unless expressly
otherwise designated in context.
(f) This Lease shall be governed by, and construed in accordance with,
the laws of the State or Commonwealth in which the Facility is
located.
Section 2.04. The captions under the Article numbers of this Lease are
for convenience and reference only and in no way define, limit or describe the
scope or intent of this Lease nor in any way affect this Lease.
ARTICLE 3
Rent
Section 3.01. Tenant covenants and agrees to pay as Rent to Landlord
during the term of this Lease those amounts as listed in the preamble Section
PA1.03. If the Tenant fails to comply with any of the provisions of this Lease,
the Landlord may do so on behalf of the Tenant and charge all costs of
compliance, including attorney fees, to the Tenant as Additional Rent in
accordance with Section 12.05. The Landlord shall have the same rights against
the Tenant for non payment of Additional Rent as
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if it were Base Rent. The tenant is to pay the entire amount of Rent as above
without offset (unless previously approved by the Landlord in writing). Any
deductions which are offset against Rent without the Landlord's prior written
consent will invalidate the rent payment, and will give the Landlord the same
rights against the Tenant as if the Tenant had not paid Rent.
ARTICLE 4
Security
A security deposit in the amount as listed in preamble Section PA.06
has been deposited on account with the Landlord. The security deposit shall be
used to cure any default of the Tenant in connection with the Tenant's violation
of any of the agreements of this Lease, (including but not limited to
restoration of any damage done by Tenant at the end of the term of this Lease).
If the violation should cost more to remedy than the amount of the security,
then the Tenant shall immediately reimburse the Landlord for the amount of
excess damages. If any part of the security is used for any reason, then the
Tenant shall immediately replenish the security to the amount as shown above.
The security deposit shall not be used for the payment of Rent, and shall not be
entitled to any interest. Except as spent hereunder the security deposit shall
be promptly returned to Tenant at the end of the term of this Lease.
If the Landlord's interest in the property is transferred, the
Landlord will turn over the security deposit to the new Landlord. The Landlord
will notify the Tenant of the name and address of the new Landlord, by certified
mail return receipt requested, within 5 days of the transfer. The new Landlord
will then be responsible for the return of the security at the end of the term
of this Lease.
ARTICLE 5
Section 5.01
Liability of Landlord and Tenant
The Landlord shall not be liable for injury or damage to any person or
property unless it is caused by or due to the Landlord's (or its employees',
agents' or visitors') act or neglect. The Tenant is liable for any loss, injury,
damage any person or property caused by the act or neglect of the Tenant,
Tenant's employees, agents, or visitors. The Tenant
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shall defend the Landlord from and reimburse the Landlord for all liability and
costs resulting from any injury or damage due to the act or neglect of the
Tenant, its employees, agents, or visitors.
Section 5.02
Water Damage
The Landlord shall not be held liable for the leak or flow of water
into the Rental Space unless caused by the Landlord's negligence.
ARTICLE 6
Use, Maintenance, Alterations, Repairs, Services, Etc.
Section 6.01. Tenant has leased the Demised Premises after a full and
complete examination thereof, and the Tenant accepts the same without any
representation or warranty, express or implied in fact or by law, by Landlord on
the nature, condition or usability thereof or the use or uses to which the
Demised Premises or any part thereof may be put, and accepts the Premises in an
"as is" condition except as otherwise provided hereunder.
Section 6.02 Use.
The Demised Premises shall be used and occupied only for the conduct
of Tenant's Business, as defined in Section PA1.01, and for uses incidental
thereto, and for no other purpose.
Section 6.03. Repairs.
Landlord shall maintain the exterior of the Facility, make all
structural repairs thereto including the roof, exterior and load bearing walls
(but not including interior maintenance of such items as paint), foundations,
all exterior systems (unless used for the exclusive use of the Tenant), repair
the sanitary or water pipes leading to or from the Demised Premises due to
failure from age (except as caused by Tenant's use and excluding normal wear and
tear items such as flushing systems, faucets, and washers), ordinary and
extraordinary, foreseen and unforeseen, to the extent same is not caused by
Tenant, or its agents or representatives, or visitors, or deliverymen. Landlord
shall maintain and keep the common areas on the Facility, including the grounds,
parking areas and sidewalks adjacent to the Facility, in good order, repair and
condition, and shall keep the parking
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areas and sidewalks free and clear from ice and snow (except any loading
platform(s) used by Tenant, or any entrance doorways, stairs, or ladders,
entering the Demised premises). Landlord shall not be responsible for repairs
made necessary because of Tenant alterations which were not properly designed or
which were not performed in a good and workmanlike manner.
Tenant shall be responsible for proper disposal of its garbage, trash,
debris, end product, by product or other waste in a proper manner, complying
with all relevant rules and regulations.
The Tenant shall be responsible for all interior maintenance of the
Demised Premises (other than structural repairs as herein noted) and agrees to:
(a) maintain all equipment, fixtures, and improvements in good repair and a
sanitary, neat and clean appearance, free of any infestation, (b) make all
necessary repairs to the Demised Premises, and all equipment, fixtures, and
improvements therein, except structural repairs as heretofore made the
responsibility of others, (c) use all plumbing, electric, and other facilities
safely and in the way for which they were intended, (d) use no more electricity
than the wiring or feeders were designed for or can safely accommodate, (e)
replace all broken glass in the Demised Premises, (f) keep nothing dangerous,
explosive, flammable (red label), or combustible, in the Rental Space that will
increase the risk the of fire, (g) promptly notify the Landlord of conditions
which need repair and promptly execute repairs which are the responsibility of
the Tenant, (h) avoid littering on the grounds, including but not limited to,
the littering by the Tenant's employees, agents, or visitors, and the blowing or
release of litter or rubbish from the Demised Premises or Tenant's trash
containers, or the spoilage of trash from the Tenant's trash removal
contractor(s) and (i) do nothing to destroy the peace and quiet of the
neighborhood, Landlord, other Tenants, or people in the neighborhood. Landlord
acknowledges that the present use of the Demised Premises by the Tenant complies
with clause (f) of this Section.
Capital repairs and replacements by the Tenant shall be limited to a
maximum expenditure of $5000.00 per year, adjusted annually by adding thereto an
amount determined by multiplying $5,000 by the ratio described in paragraph (c)
of Section PA1.03. If capital repairs or replacements are to exceed $5000.00 in
a given year, the Tenant agrees to notify the Landlord, and allow the Landlord
to participate in the decision making process to achieve said repairs in the
most cost effective solution possible
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consistent with proper maintenance of the Demised Premises. The excess annual
capital repairs over $5000.00 are to be paid by the Landlord.
Section 6.04. Alterations.
The Tenant may not make any changes or alterations or additions to the
Demised Premises without the Landlord's express written consent, which consent
shall not be unreasonably withheld. Any changes or alterations or additions made
without the consent of the Landlord will be removed immediately upon request of
the Landlord, and any damage caused will be promptly repaired to a satisfactory
condition. All alterations which are made with the Landlord's consent shall
remain as part of the premises at the termination of the Lease, unless the
Landlord requests their removal upon giving its permission to construct same. If
the improvements must be removed at the end of the term of this Lease, then, the
Tenant shall remove such and restore the premises, and any damage to it, to a
condition consistent with the condition of the premises at the inception of the
Lease, normal wear and tear and damage by casualty excepted. Whether under the
provisions of this Lease or otherwise, neither Tenant, nor any subtenant, nor
any agent, employee, representative, contractor, or subcontractor of either
Tenant or any subtenant, shall have any power or authority to do any act or
thing or to make any contract or agreement which will bind Landlord or which may
create or be the foundation for any mechanic's lien or other lien or claim upon
or against Landlord's interest in the Facility, and Landlord shall have no
responsibility to Tenant or to any subtenant, contractor, subcontractor,
supplier, materialman, workman or other person, firm or corporation who shall
engage in or participate in any construction of any Improvements or in any
Alterations unless Landlord shall expressly undertake such obligation by an
agreement in writing signed by Landlord and made between Landlord and Tenant, or
such subtenant, contractor, subcontractor, supplier, materialman, workman or
other person, firm or corporation. Where permitted by law Tenant shall endeavor
to have included in each contract with each such person, firm or corporation a
provision waiving any right, claim or lien which such person, firm or
corporation may have against Landlord.
Section 6.05. No harm or damage.
Tenant will not do, permit or suffer any waste, damage, disfigurement
or injury to or upon the Demised Premises or any part thereof. Tenant shall
maintain and repair the interior of
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the Demised Premises, and shall keep the same in good order, repair and
condition.
Section 6.06. (Intentionally Omitted)
Section 6.07. Access.
The Landlord shall have access to the Demised Premises on reasonable
notice to the Tenant to (a) inspect the Rental Space (b) make necessary repairs,
alterations, or improvements, (c) supply services, and (d) show it to
prospective buyers, mortgage lenders, contractors or insurers.
The Landlord may have access to the Demised Premises during the last 6
months of the term of this Lease for the purpose of showing the space to
prospective tenants.
The Landlord shall have access to the Demised Premises without prior
notice in the case of an emergency.
Section 6.08. No Liens.
Notice is hereby given that Landlord shall not be liable for any labor
or materials furnished or to be furnished to Tenant upon credit, and that no
mechanic's or other lien for any such labor or materials shall attach to or
affect the estate or interest of Landlord in and to the Facility.
Section 6.09. No Dumping.
Tenant shall not dump any effluent or other materials into any
streams, drains, sewers, rivers, waterways, soil or air, unless the Tenant has
first obtained all necessary permits, licenses and approvals, including approval
of Landlord.
Section 6.10. Sewerage.
Tenant agrees that its operations shall not significantly increase the
present amount of sewerage being generated by the Facility unless approved by
the Landlord. Tenant is responsible for any increased cost of sewage disposal
generated as a result of the Tenant's operation.
Section 6.11. Tenant's Access.
The Tenant shall have access to walkways, drives, parking areas, and
other common areas servicing the Demised Premises 24
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hours per day. Tenant may have access to no more than 100 parking spaces in non
designated areas within the Facility.
ARTICLE 7
Insurance
Section 7.01.
(a) The Tenant shall obtain, pay for, and a keep in full force and
effect for the benefit of the Landlord and the Tenant public liability insurance
on the Demised Premises.
(b) If due to the Tenant's use of the Demised Premises the fire
insurance rate is increased or decreased, the Tenant shall pay the increase or
decrease in the premium to the Landlord within 30 days.
Section 7.02. During the term of this Lease, Tenant will, at its sole
cost and expense, keep and maintain general public liability insurance
protecting and indemnifying Tenant, and Landlord, from and against any and all
claims for damages or injury to person or property or for loss of life or of
property occurring within, or about, the Demised Premises, such insurance to
afford immediate protection, to the limit of not less than $1,000,000.00 in
respect of bodily injury or death to any one person, and to the limit of not
less than $1,000,000.00 in respect of any one accident or occurrence and to the
limit of not less than $500,000.00 for property damage. At the request of
Landlord the coverages set forth herein may be adjusted annually by adding to
each limit an amount determined by multiplying such limit by the ratio described
in paragraph (c) of Section PA1.03.
Section 7.03. All insurance provided for in Sections 7.01 and 7.02
shall be effected under standard form policies issued by insurers of recognized
responsibility, authorized to do business in the state wherein the Facility is
located, which are well rated by Bests Key Rating guide for property casualty
insurance companies or any similar institution.
Section 7.04. Upon the execution and delivery of this Lease and prior
to occupancy and thereafter not less than thirty (30 days) prior to the
expiration dates of the expiring policies theretofore furnished pursuant to this
Article, certificates of
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insurance and proof of payment evidencing coverage as shall be delivered by
Tenant to Landlord.
Section 7.05. (Intentionally Omitted)
Section 7.06. Each policy hereunder shall, to the extent obtainable,
contain an agreement by the insurer that such policy shall not be canceled
without at least thirty (30) days prior written notice to Landlord except 10
days notice for nonpayment of premium.
Section 7.07 (Intentionally Omitted)
Section 7.08. All insurance policies maintained by either party with
respect to the Demised Premises shall, to the extent available in Massachusetts,
contain an express waiver on the part of the insurer of its right to make any
claim against the other party. Landlord and Tenant each hereby waives any rights
of recovery against the other for loss or injury against which the waiving party
is insured by insurance containing provisions denying to the insurer acquisition
of rights by subrogation, but only to the extent of the recovery on such
insurance.
Section 7.09. Subject to the limitation thereon in Section 7.08,
Landlord and Tenant agree to defend indemnify and hold each other harmless
against any and all liability, claims, demands, loss or damage to person or
property in any way arising from or occasioned in whole or in part by any
negligent act or omission of each other, or each other's agents or employees.
ARTICLE 8
Damage or Destruction
Section 8.01. The Tenant shall notify the Landlord immediately of any
fire or other casualty which occurs in the Demised Premises.
If, at any time during the term of this Lease, all or substantially
all of the Demised Premises or of the Facility (excluding Tenant's Property
shall be destroyed by fire or other casualty (including any casualty for which
insurance coverage was not obtained or obtainable) of any kind or nature,
ordinary or extraordinary, foreseen or unforeseen, this Lease shall terminate
and expire on the date of such fire or other casualty and the Rent and other
sums payable hereunder shall be apportioned and
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paid to such date. For purposes of this Article 8, "substantially all of the
Demised Premises or of the Facility" shall be deemed destroyed if the undamaged
portion cannot be practically and economically used or converted for use by
Tenant for the purposes permitted by this Lease.
Section 8.02. In the event of a fire or other casualty causing the
destruction of less than all or substantially all of the Demised Premises or the
Facility:
(a) if the destruction is of greater than or equal to twenty (20)
percent of the Demised Premises or the Facility, then Tenant may, at
its sole option, terminate the Lease as of the date of the fire or
other casualty within sixty (60) days after the date thereof, or may
continue in occupancy and Landlord shall use reasonable efforts to make
other space within the Facility available for Tenant's use on the same
terms and conditions and at comparable rents as set forth herein,
subject to the availability of, and Tenant's reasonable satisfaction
with such space. If such space is unavailable, or does not meet with
Tenant's reasonable satisfaction, then, as of the date of the fire or
other casualty, then Rent shall be reduced by a fraction thereof, the
numerator of which shall be the gross area of that portion of the
Demised Premises so destroyed and the denominator of which shall be the
gross area of the entire Demised Premises;
(b) if the destruction is of less than twenty (20) percent of the
Demised Premises or the Facility, then Tenant shall remain in occupancy
and Landlord shall use reasonable efforts to make other space within
the Facility available for Tenant's use on the same terms and
conditions as set forth herein, subject to the availability of, and
Tenant's reasonable satisfaction with such space. If such space is
unavailable, or does not meet with Tenant's reasonable satisfaction,
then, as of the date of the fire or other casualty, the Rent shall be
reduced by a fraction thereof, the numerator of which shall be the
gross area of that portion of the Demised Premises so destroyed and the
denominator of which shall be the gross area of the entire Demised
Premises.
Section 8.03. If Tenant remains in occupancy pursuant to subsection
(b) of Section 8.02 or through its failure to exercise its option to terminate
pursuant to subsection (a) of Section 8.02, then Landlord, at its sole cost and
expense, shall proceed
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with reasonable diligence to repair, alter and restore the remaining part of the
Demised Premises or the Facility to substantially its former condition to the
extent that the same may be feasible.
ARTICLE 9
Condemnation
Section 9.01. If, at any time during the term of this Lease, there
shall be a Taking of all or substantially all of the Demised Premises or of the
Facility, this Lease shall terminate and expire on the date of the Taking and
the Rent and other sums payable hereunder shall be apportioned and paid to the
date of the Taking. For purposes of this Article 9, there shall be deemed to
have been a Taking of "substantially all of the Demised Premises or of the
Facility" if the untaken portion cannot be practically and economically used or
converted for use by Tenant for the purposes permitted by this Lease.
In the event of any such taking and the termination of this Lease,
Landlord shall be entitled to receive the entire amount of the award, provided
that nothing in this Section shall be deemed to give Landlord any interest in,
or prevent Tenant from seeking any award against the taking authority for, the
Taking of Tenant's Property or for relocation or business interruption expenses
recoverable from the taking authority.
Section 9.02. In the event of a Taking of less than all or
substantially all of the Demised Premises or the Facility:
(a) if the Taking is of greater than or equal to twenty (20) percent
of the Demised Premises or the Facility, then Tenant may, at its sole option,
terminate the Lease as of the date of the Taking within sixty (60) days after
the date thereof or may continue in occupancy, and Landlord shall use reasonable
efforts to make other space within the Facility available for Tenant's use on
the same terms and conditions as set forth herein, subject to the availability
of and Tenant's reasonable satisfaction with such space. If such space is
unavailable, or does not meet with Tenant's reasonable satisfaction, then, as of
the date of the Taking, the Rent shall be reduced by a fraction thereof, the
numerator of which shall be the gross area of that portion of the Demised
Premises so taken and the denominator of which shall be the gross area of the
entire Demised Premises; and
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(b) if the Taking is of less than twenty (20) percent of the Demised
Premises or the Facility, then Tenant shall remain in occupancy and Landlord
shall use reasonable efforts to make other space within the Facility available
for Tenant's use on the same terms and conditions as set forth herein, subject
to the availability of, and Tenant's reasonable satisfaction with such space. If
such space is unavailable, or does not meet with Tenant's reasonable
satisfaction, then, as of the date of the Taking, the Rent shall be reduced by a
fraction thereof, the numerator of which shall be the gross area of that portion
of the Demised Premises so taken and the denominator of which shall be the gross
area of the entire Demised Premises.
Section 9.03. If Tenant remains in occupancy pursuant to subsection
(b) of Section 9.02 or due to its failure to exercise its option to terminate
pursuant to subsection (a) of Section 9.02, then Landlord, at its sole cost and
expense, shall proceed with reasonable diligence to repair, alter and restore
the remaining part of the Demised Premises or the Facility to substantially its
former condition to the extent that the same may be feasible.
ARTICLE 10
Assignment, Subletting, Etc.
Section 10.01. The Tenant may not do any of the following without the
Landlord's written consent, which consent shall not be unreasonably withheld:
(a) assign this Lease (b) sublet all or any part of the Demised Premises; or (c)
permit any other person or entity or business to use the Rental Space. The
preceding sentence shall not apply to any merger or consolidation of Tenant into
or with a third party, nor to an assignment, sublet, mortgage or pledge by
Tenant to an entity which controls, is under common control with or is
controlled by the Tenant; provided that, in the event of a merger or
consolidation with a third party, the financial strength of the surviving entity
shall be at least equivalent to the financial strength of Tenant. Prior to any
permitted transfer to a third party, Tenant shall deliver to Landlord a copy of
its most recent 10K report, filed with the United States Securities and Exchange
Commission, together with reasonably equivalent information regarding the third
party.
It is agreed and understood that if the Tenant obtains the permission
of the Landlord to any of the above that 50% (fifty
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percent) of any net increase in the Rent or other charges realized by the Tenant
over the rent or other charges paid by the Tenant to the Landlord shall be
turned over to the Landlord as Additional Rent, and, as an express condition of
any assignment, the Tenant shall remain liable for all Rents and Obligations of
the Lease.
ARTICLE 11
Payment of Rent
Rent is due and payable in advance on the first day of each month at
the office of the Landlord. The Landlord's address is: Post Office Box 8,
Bayonne, New Jersey 07002.
In the event that any monthly payment of Rent shall remain unpaid for
a period of ten days after due, there shall become due to Landlord from Tenant,
as Additional Rent and as compensation for Landlord's extra administrative costs
in investigating the circumstances of late rent, a late charge of two percent
(2%) of the amount overdue for each month or part thereof during which such
amount remains unpaid. For checks returned for any reason there will be a Fifty
Dollar (50.00) fee in addition to the above.
If the Tenant fails to make any payment due under this Lease other
than Rent, within thirty (30) days following the date of invoice, there will be
added to such payment a one and one half percent (1.5%) penalty each month (or
portion of month).
ARTICLE 12
Default Provisions
Section 12.01. This Lease and the term and estate hereby granted are
subject to the limitation that a default occurs:
(a) whenever Tenant shall default in the payment of any installment of
Rent or of any other sum payable by Tenant to the Landlord and if any
such default shall continue for ten (10) days after Tenant received
from Landlord a written notice specifying such default or if Landlord
shall have given Tenant such notice on three or more prior occasions
within the same calendar year; or
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(b) whenever Tenant shall do, or permit anything to be done,
contrary to any covenant or agreement on the part of Tenant herein
contained or contrary to any of Tenant's obligations under this Lease,
or shall fail in the keeping or performance of any of Tenant's
Obligations under this Lease, and Tenant shall fail to remedy the same
within thirty (30) days after Landlord shall have given Tenant written
notice specifying the same, or, if such situation cannot be remedied
within said thirty (30) day period, Tenant shall fail to commence to
take steps to remedy the same within said thirty (30) day period or,
having so commenced, shall thereafter fail to proceed diligently to
remedy the same; or
(c) whenever an involuntary petition shall be filed against
Tenant under any bankruptcy or insolvency law or under the
reorganization provisions of any law of like import, or a receiver of
Tenant or of or for the property of Tenant shall be appointed without
the acquiescence of Tenant, or whenever this Lease or the estate hereby
granted or the unexpired balance of the term would, by operation of law
or otherwise, except for this provision, devolve upon or pass to any
person, firm or corporation other than Tenant or any corporation in
which Tenant may be duly merged, converted or consolidated under
statutory procedure, and such situation under this subsection (c) shall
continue and shall remain undischarged or unstayed for a period of
sixty (60) consecutive days or shall not be remedied by Tenant within
sixty (60) days; or
(d) whenever Tenant shall make an assignment of the property of
Tenant for the benefit of creditors or shall file a voluntary petition
under any bankruptcy or insolvency law, or whenever any court of
competent jurisdiction shall approve a petition filed by Tenant under
the reorganization provisions.of the United States Bankruptcy Act or
under the provisions of any law of like import, or whenever a petition
shall be filed by Tenant under the arrangement provisions of the United
States Bankruptcy Act or under the provisions of any law of like
import.
Upon Tenant's uncured default, Landlord has the right to immediately
take possession of the property, and to relet same.
Section 12.02. REENTRY
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B.P.I. PACKAGING TECHNOLOGIES, INC. AND MAXALDAN REALTY L.P.
OCTOBER 1, 1995
It is covenanted and agreed by Tenant that in the event of the
expiration or termination of this Lease or re-entry by Landlord, under any of
the provisions of this Article 12 or pursuant to law, or otherwise by reason of
default hereunder on the part of Tenant, Tenant will pay to Landlord, as damages
with respect to this Lease, at the election of Landlord, either:
(a) a sum which at the time of such termination of this Lease or
at the time of any re-entry by Landlord, as the case may be, represents
the excess, if any, of:
(i) the Rent which would have been payable by Tenant for the
period commencing with such earlier termination of this Lease or
the date of any such re-entry, as the case may be and ending with
the date hereinabove set for the expiration of the full term of
this Lease hereby granted, had this Lease not so terminated or had
Landlord not so re-entered the Demised Premises; over
(ii) the rental value of the Demised Premises for same
period; or
(b) sums equal to the Rent and other sums which would have been
payable by Tenant had this Lease not so terminated, or had Landlord not
so re-entered the Demised Premises, payable upon the rent days
specified herein following such termination or such re-entry and until
the date hereinabove set for the expiration of the full term of this
Lease hereby granted; provided, however, that if the Demised premises
shall be leased or re-let during said period, Landlord shall credit
Tenant with the net rents, if any, received by Landlord from such
leasing or re-letting, such net rents to be determined by first
deducting from the gross rents as and when received by Landlord from
such leasing or re-letting the expenses incurred or paid by Landlord in
terminating this Lease or of re-entering the Demised Premises and of
securing possession thereof, as well as the expenses of leasing and
re-letting, including altering and preparing any portion of the Demised
Premises for new tenants, brokers' commissions, attorneys fees, and all
other expenses properly chargeable against the Demised Premises and the
rental therefrom; but in no event shall Tenant be entitled to receive
any excess of such net rents over the Rent and other sums payable by
Tenant to Landlord hereunder; or
28
B. P. I. PACKAGING TECHNOLOGIES, INC. AND MAXALDAN REALTY L.P.
OCTOBER 1, 1995
(c) a sum which at the time of such termination of this Lease
equals all amounts payable by Tenant under Section 12.03, as if said
date of termination were the Release Date, as such term is defined
therein.
Suit or suits for the recovery of any and all damages, or any
installments thereof, provided for hereunder may be brought by Landlord from
time to time at its election, and nothing contained herein shall be deemed to
require Landlord to postpone suit until the date when the term of this Lease
would have expired if it had not been terminated under the provisions of this
Article 12, or under any provisions of law, or had Landlord not re-entered the
Demised Premises.
Nothing herein contained shall be construed as limiting or precluding
the recovery by Landlord against Tenant of any damages to which Landlord may
lawfully be entitled in any case other than those particularly provided for
above,
Section 12.03. If Tenant shall make a voluntary surrender and
assignment to Landlord of Tenant's interest in this Lease by request of
Landlord, then, notwithstanding the provisions of Section 12.02 or any other
provision of this Lease, Tenant shall be released of any and all further
Obligations under this Lease from and after the date (the "Release Date") on
which all of the following conditions shall have been met:
(a) Tenant shall have complied with the provisions of Article 24; and
(b) Tenant shall have paid to Landlord all Rent and other sums payable
to Landlord pursuant to the provisions of this Lease during or for the period up
to and including the Release Date.
Section 12.04. The Tenant agrees to be responsible for any legal fees
reasonably expended by the Landlord for the enforcement of any of the provisions
of this Lease due to the Tenant's violation of same.
Section 12.05. In the event of a default by Tenant hereunder which
continues beyond the expiration of the applicable grace period, Landlord shall
have the right to perform such defaulted obligation of Tenant, including the
right to enter upon the Demised Premises to do so. Landlord shall, as a courtesy
only, notify Tenant of its intention to perform such obligation. In the event of
a default by Tenant hereunder which has not yet continued beyond the expiration
of the applicable grace period
29
B.P.I. PACKAGING TECHNOLOGIES, INC. AND MAXALDAN REALTY L.P.
OCTOBER 1, 1995
but which Landlord determines constitutes an emergency threatening imminent
injury to persons or damage to property, Landlord shall have the right to
perform such defaulted obligation of Tenant (including the right to enter upon
the Demised Premises to do so) after giving Tenant such notice (if any) as is
reasonable under the circumstances. In either event, all sums so paid by
Landlord and all necessary incidental costs and expenses in connection with the
performance of any such act by Landlord, shall be deemed to be Additional Rent
under this Lease and shall be payable to Landlord immediately upon demand.
Landlord may exercise its rights under this Section 12.05 without waiving any
other of its rights or releasing Tenant from any of its obligations under this
Lease.
ARTICLE 13
Cumulative Remedies: Waivers
Section 13.01. The mention herein of any particular remedy shall not
preclude Landlord from any other remedy it might have either in law or in
equity. The failure of Landlord to insist upon the strict performance of any one
of Tenant's Obligations hereunder or to exercise any right, remedy or election
herein contained or permitted by law shall not constitute or be construed as a
waiver or relinquishment for the future of such Obligation, right, remedy or
election, but the same shall continue and remain in full force and effect. Any
right or remedy of Landlord in this Lease specified and any other right or
remedy that Landlord may have at law, in equity or otherwise upon breach of any
of Tenant's Obligations hereunder shall be distinct, separate and cumulative
rights or remedies, and no one of them, whether exercised by Landlord or not,
shall be deemed to be in exclusion of any other. None of Tenant's Obligations
hereunder shall be deemed to have been waived by Landlord unless such waiver be
in writing and signed by Landlord. The consent of Landlord to any act or matter
must be in writing and shall apply only with respect to the particular act or
matter to which such consent is given and shall not relieve Tenant from the
Obligation wherever required under this Lease to obtain the consent of Landlord
to any other act or matter. Receipt or acceptance of any Rent by Landlord shall
not be deemed to be a waiver of any default by Tenant in its Obligations
hereunder or of any right which Landlord may be entitled to exercise under this
Lease. This Lease may not be changed orally but only by an agreement in writing
signed by the party against whom enforcement of any waiver, change, modification
or discharge is sought.
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B.P.I. PACKAGING TECHNOLOGIES, INC. AND MAXALDAN REALTY L.P.
OCTOBER 1, 1995
ARTICLE 14
Quiet Enjoyment
Section 18.01. Landlord covenants that if and so long as Tenant duly
and timely keeps and performs each and every Obligation of Tenant hereunder,
Tenant shall quietly enjoy the Demised Premises without hindrance or molestation
by Landlord or any person acting by, through or under the Landlord, subject to
the covenants, agreements, terms, provisions and conditions of this Lease.
ARTICLE 15
Waiver of Jury Trial
Section 19.01. The parties hereto waive a trial by jury of any and all
issues arising in any action or proceeding between them or their successors or
assigns under or connected with this Lease or any of its provisions or any
negotiations in connection therewith or Tenant's use or occupation of the
Demised Premises. If any matter arises involving the performance, or
interpretation of this Lease which the parties are unable to settle by mutual
agreement, the parties agree to arbitrate according to the American Arbitration
Association.
ARTICLE 16
Subordination of Mortgage
Tenant shall subordinate the Lease to any and all mortgages which now
or in the future may affect the building. The Tenant shall sign all papers
needed to give any mortgage priority over this Lease. If the Tenant refuses, the
Landlord may sign the papers on behalf of the Tenant. Tenant agrees to such
subordination provided the holder of such mortgage shall as consideration for
such subordination consent to this Lease, recognize all of the Tenant's rights
hereunder, and agree that the Tenant shall not be disturbed in its possession of
the Demised Premises for any reason other than a default by Tenant which would
entitle Landlord to terminate this Lease.
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B.P.I. PACKAGING TECHNOLOGIES, INC. AND MAXALDAN REALTY L.P.
OCTOBER 1, 1995
ARTICLE 17
Intentionally omitted
ARTICLE 18
Nuisance
Tenant covenants and agrees that it will not commit any nuisance nor
permit the emission of any objectionable sound, noise, smoke, waste or odor
which would be violative of any applicable local, state or federal governmental
rule of regulation or would, per se, create a nuisance.
ARTICLE l9
Indemnification
Subject to Section 7.08 and without limiting the Tenant's obligation
to provide insurance pursuant to Article 7 hereunder, Tenant shall indemnify and
save harmless Landlord against and from all liabilities, obligations, damages,
penalties, claims, costs, and expenses, including reasonable attorney's fees,
which may be imposed upon or incurred by the Landlord as a result of any of the
following occurring during the term of this Lease or any extension thereof:
(a) any failure on the part of the Tenant, its agents,
contractors, employees, invitees, licensees or subtenant to perform or
comply with any of the covenants, agreements, terms or conditions
contained in this Lease;
(b) any carelessness, negligence or improper conduct of the
Tenant, its agents, contractors, employees, invitees, licenses or
subtenant;
(c) any loss, injury or damage whatsoever caused to any person,
including the Tenant, its employees or agents, or property arising out
of Tenant's use, occupancy, control or management of the Demised
Premises or any part thereof or the sidewalks, public areas or streets
in front of or appurtenant thereto;
(d) any claim, damage, liability costs, penalties or fines
imposed upon the Landlord as a result of air or water pollution caused
by the Tenant in its use of the Demised Premises. Tenant shall notify
Landlord immediately of any
32
B.P.I. PACKAGING TECHNOLOGIES, INC. AND MAXALDAN REALTY L.P.
OCTOBER 1, 1995
claim or notice served upon it with respect to any of the above matters from
which Tenant has agreed to indemnify the Landlord. In case any action or
proceeding is instituted against the Landlord by reason of any of the foregoing
matters, Tenant, upon written notice from the Landlord, will, at Tenant's
expense, resist or defend such action or proceedings by counsel reasonably
approved by the landlord in writing, such approval not to be unreasonably
withheld; or
(e) any alterations made to the Demised Premises by the Tenant.
Subject to Section 7.08, Landlord agrees to indemnify and save
harmless the Tenant from and against and all claims with respect to death,
bodily injury, property damage or otherwise arising from any breach or default
on the part of the Landlord in the performance of any covenant or agreement on
its part to be performed pursuant to the terms of this Lease or arising from its
negligence or the negligence of any of its agents, partners, contractors or
employees, including all costs, counsel fees, expenses and liabilities incurred
in or about any such claim; and if any action or proceeding is brought against
the Tenant by reason of any such claim, the Landlord, upon notice from the
Tenant covenants to resist or defend such action or proceeding at its expense.
Each party will give the other party prompt notice of any claim
brought against it if it seeks to claim indemnification.
ARTICLE 20
Notices
Section 20.01. All notices, demands, requests or other communications
which may be or are required to be given, served or sent by either party to the
other shall be in writing and shall be deemed to have been properly given or
sent:
(a) if intended for Tenant -- by mailing by registered or certified
mail with the postage prepaid, return receipt requested, or by a nationally
recognized overnight delivery service such as Federal Express, or by personal
delivery, addressed to Tenant at the address listed on the Preamble.
33
B.P.I. PACKAGING TECHNOLOGIES, INC. AND MAXALDAN REALTY L.P.
OCTOBER 1, 1995
(b) if intended for Landlord -- by mailing by registered or certified
mail with the postage prepaid, return receipt requested, or by a nationally
recognized overnight delivery service, or by personal delivery, addressed to
Landlord at the address listed on the Preamble.
Each party may designate by notice in writing a new address to which
any notice, demand, request or communication may hereafter be so given, served
or sent. Each notice, demand, request or communication which shall be mailed in
the manner aforesaid shall be deemed sufficiently given, served or sent for all
purposes hereunder upon receipt by either party.
Section 20.02. If a request is received in writing by Landlord or
Tenant for consent or approval required under this Lease or for information to
which the party making such request shall be entitled, the party receiving such
request shall act with reasonable promptness thereon and shall not unreasonably
delay notifying the party making such reguest as to the granting or withholding
of such consent or approval or furnishing to such party the information
requested.
ARTICLE 21
Estoppel Certificate
Section 21.01. The parties mutually agree that at any time and from
time to time upon written request of the other party and at the reasonable cost
and expense to the party requesting the same, Landlord or Tenant, as the case
may be, will execute, acknowledge and deliver to the other party a certificate
evidencing whether or not:
(a) the Lease is in full force and effect;
(b) said Lease has been modified or amended in any respect, and
identifying such modifications or amendments, if any; and
(c) there are any existing defaults thereunder to the knowledge of
the party executing the certificate, and specifying the nature of
such defaults, if any,
(d whether any Rents are due and how much.
(e) any other items reasonably requested by Landlord,
34
B.P.I. PACKAGING TECHNOLOGIES, INC. AND MAXALDAN REALTY L.P.
OCTOBER 1, 1995
(f) any other items reasonably requested by Tenant, provided,
however, that such items do not reduce any of the Landlord's
rights or exposure as per this Lease.
ARTICLE 22
Survival
Section 22.01. If any term or provision of this Lease or the
application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Lease shall be valid and be enforced to the fullest
extent permitted by law.
ARTICLE 23
Miscellaneous
Section 23.01. Force majeure.
Neither Landlord nor Tenant shall be deemed to be in default hereunder
(and the time for performance of any of their respective obligations hereunder
other than the payment of money shall be postponed) for so long as the
performance of such obligation is prevented by strike, lock-out, act of God,
absence of materials or any other matter not reasonably within the control of
the party which must perform the obligation (collectively, "Force Majeure").
Section 23.02 Signs.
The Tenant shall obtain the Landlord's written consent before placing
any signs on or about the Premises. Any signs must comply with all local and/or
municipal ordinances. Permits are the responsibility of the Tenant.
35
B.P.I. PACKAGING TECHNOLOGIES, INC. AND MAXALDAN REALTY L.P.
OCTOBER 1, 1995
ARTICLE 24
End of Term; Tenant's Property
Section 24.01. Upon the expiration of the term of this Lease or upon
the earlier termination thereof, including a surrender of this Lease pursuant to
Section 12.03, or upon the reentry of Landlord upon the Demised Premises as
herein provided for (herein collectively referred to as the "Termination Date),
Tenant shall peaceably and quietly leave, surrender and yield up unto Landlord
all and singular the Demised Premises in good order, condition and repair,
reasonable wear and tear and loss by fire or other casualty excepted. In the
event Tenant holds over on a month to month basis the Base Rent shall be 200% of
the Base Rent in effect at the Termination Date, commencing thirty (30) days
after such Termination Date, but same shall not be deemed a renewal of the
Lease.
Section 24.02. Tenant's Property, including its business equipment,
removable property, and trade fixtures shall be, and shall remain the property
of Tenant and may be removed by it at any time during the term of this Lease, or
earlier termination thereof. Any business equipment, removable property, and
trade fixtures which shall remain in the Demised Premises after the Termination
Date and the removal of Tenant from the Demised Premises may, at the option of
Landlord, be deemed to have been abandoned by Tenant and may either be retained
by Landlord as its property or be disposed of, without accountability, in such
manner as Landlord may see fit; provided that Landlord shall give Tenant
reasonable prior written notice requesting the removal of any such Tenant's
Property from the Demised Premises and shall allow Tenant a reasonable period of
time to complete the removal thereof. Any costs incurred by the Landlord to
remove said abandoned Tenant's Property will be reimbursed to the Landlord by
the Tenant. Notwithstanding the foregoing, any claims relating to the condition
of the premises, including, but not limited to Tenant's obligation, if any, to
maintain or repair the Demised Premises or to make improvements or alterations
to or remove or restore such items, must be presented in writing by Landlord to
Tenant within thirty (30) days after expiration or termination of this Lease.
36
B.P.I. PACKAGING TECHNOLOGIES, INC. AND MAXALDAN REALTY L.P.
OCTOBER 1, 1995
ARTICLE 25
Covenants Binding
Section 25.01. The covenants, agreements, terms, provisions and
conditions of this Lease shall be binding upon and inure to the benefit of the
successors and assigns of Landlord and, except as otherwise provided herein, the
successors and assigns of Tenant.
ARTICLE 26
Environmental Matters
Section 26.01. The Tenant represents and covenants that throughout the
term of this Lease it will abide by and comply with all applicable environmental
laws, orders, rules or regulations promulgated by local, state, or federal
authorities; provided that Tenant will not be required to make improvements or
alterations to the Demised Premises in order to effect such compliance unless
such improvements or alterations are made necessary by the particular nature of
Tenant's use.
ARTICLE 27
Intentionally Omitted
ARTICLE 28
Recording of Lease
The Landlord shall have the right to record this Lease. The Tenant has
no right to record this Lease without the express written permission of the
Landlord. Any recording of this Lease by the Tenant will be deemed an immediate
express violation of this Lease. Landlord agrees to execute in recordable form
and deliver to Tenant a notice of Lease which complies with Massachusetts
General Laws Chapter 183, Section 4.
37
B.P.I. PACKAGING TECHNOLOGIES, INC. AND MAXALDAN REALTY L.P.
OCTOBER 1, 1995
ARTICLE 29
Rules and Regulations
The Landlord has the right to impose reasonable rules and regulations
in writing and amend same from time to time.
ARTICLE 30
Common Area Maintenance
Without limitation, expenses to be included in Common Area Maintenance
shall include: 1 - All expenses for maintenance personnel related to employment,
such as salary, taxes, benefits, social security, workmens compensation,
uniform, working clothes, group insurance etc.
2 - The costs incurred by the Landlord for the following services, sprinkler
stand by fees, sprinkler monitoring, cost of repair and operation of any alarm
systems for fire or otherwise (which are owned by the Landlord), lawn care,
gardening, snow plowing, salting, parking lot sweeping and cleaning, common area
lighting, common area maintenance, common area and Landlord trash removal
(Tenant to contract for their own trash removal). Depreciation on lawn equipment
and snow removal equipment.
3 - The cost of replacements for tools and other similar equipment not having a
useful life in excess of one year used in the repair, maintenance, cleaning and
protection of the Property, provided that, in the case of any such equipment not
used solely on the Property, such costs shall be suitably prorated;
4 - Costs incurred by Landlord for utilities supplied to the Property or
purposes of serving those portions of the Building other than those leased or
intended to be leased to Tenants for their exclusive use and occupancy (i.e.,)
only those areas which are so-called common areas); and
5 - Cost associated with obtaining any operating permits required for the
mechanical systems located on or for the property.
38
B.P.I. PACKAGING TECHNOLOGIES, INC. AND MAXALDAN REALTY L.P.
OCTOBER 1, 1995
Tenant agrees to reimburse the Landlord for its proportionate share of
the common area maintenance costs. Such share shall be calculated on a pro rata
basis of the area the tenant occupies in the complex as compared to the entire
complex. Said pro rata share to be calculated by dividing the total square
footage of the Facility into the square footage of the Demised Premises. Said
proportionate share equals 33.53% which shall be prorated for any partial year
at the beginning or end of the term of this Lease.
IN WITNESS WHEREOF, the parties hereto have duly executed this
instrument as of the day and year first above written.
Witness: TENANT
BPI Packaging:Technologies, Inc.
/s/ James F. Koehilinger /s/ Dennis N. Caulfield
__________________________ By:_____________________________
LANDLORD
Maxaldan Realty, L.P.
/s/ Giovanna N. Rivera /s/ Brian D.Archibald
__________________________ By:_____________________________
39
EXHIBIT B
LANDLORD'S WAIVER AND CONSENT
WHEREAS, Maxaldan Realty L.P., a New Jersey limited partnership
("Landlord") is the owner of certain premises located at 455 Somerset Avenue,
North Dighton, Massachusetts, Building 3 and part of Building l ("Premises); and
WHEREAS, Landlord has leased Premises to B.P.I. Packaging
Technologies, Inc., ("Tenant"); and
WHEREAS, _________ ("Bank") has been asked to provide financing for
Tenant, which financing is to be secured by a security interest in the accounts
receivable and inventory located within the demises premises, (the
"Collateral").
NOW THEREFORE, in consideration of the sum of $1.00 and to induce Bank
to grant such financing, the Landlord, hereby agrees as follows:
1. The Collateral located upon the Premises shall be and hereby is
deemed personal property and the subject of a first and prior security interest
to secure Bank with respect to said financing and any other obligations now or
hereafter owing to Bank by Tenant and its affiliates.
2. Any Landlord's or Renter's Lien, right of distraint or Levy,
security interest or other interest which the Landlord may now or hereafter
acquire in any of the Collateral for unpaid rent or otherwise, whether by virtue
of a lease, Landlord-and-Tenant relationship, statute, or otherwise shall be
subject and subordinate in all respects to any security interests in the
collateral now or hereafter held by Bank, except as otherwise herein provided
for.
3. Notwithstanding any of the provisions of the Lease to the contrary,
Landlord agrees that Bank, in exercising any rights upon default by Tenant may
remove any of the Collateral, Bank shall reimburse Landlord for the reasonable
and necessary cost of repair of any physical injury to the premises caused by
such removal, (i.e. properly terminate wires, hoses, pipes, plugs, etc.). Bank
is obligated to the Landlord to perform any reguired repairs in a professional
manner. Bank will leave the Premises in same condition as upon entry but will
not be responsible for conditions caused by BPI or any person other than Bank or
its agents. The Landlord shall have no obligation to maintain security for the
area, and will not be liable in any way for any harm or loss to the Collateral.
The Bank shall not be required to post any bond or other security with respect
to such removal. At any time after termination of the Lease, the Landlord may
cancel the Bank's right to enter the Premises and to remove Collateral under
this Agreement upon thirty (30) days written notice to the Bank, such notice to
be made by certified mail, return receipt requested or by a nationally
recognized overnight delivery service such as Federal Express.
4. Bank may, without affecting the validity of this Agreement, extend
the times of payment of any indebtedness of Lessee to Bank, or assigns, of the
performance of any of the terms and conditions of such lease and security
agreement, without the consent of the Landlord, or without giving notice to the
Landlord.
2
5. Bank and Landlord agree to notify each other in the event of a
pending default by the Tenant to either the Bank or the Landlord.
6. Any notice or demand which by any provision of this Agreement is
required or provided to be given shall be deemed to have been sufficiently given
or served by sending all papers by certified or registered mail, postage and
registration fees prepaid by the parties hereto as follows:
Landlord: Maxaldan Realty L.P.
101 East Main Street
Little Falls, NJ 07424
ATTN: General Manager
Tenant: B.P.I. Packaging Technologies, Inc.
455 Somerset Avenue
N. Dighton, MA 02764
Bank:
7. This Agreement shall bind and benefit Landlord, Bank, Tenant and
their respective heirs, administrators, legal representatives, successors and
assigns upon execution by the Landlord and the Bank.
IN WITNESS WHEREOF, the Landlord has entered and delivered this
Agreement on the day of ,199_.
Maxaldan Realty L.P.
By:_____________________________
Accepted:_________________Bank
By:____________________________________
3
MAXALDAN REALTY, L.P.
101 EAST MAIN STREET
LITTLE FALLS, NEW JERSEY 07424
Telephone: (201) 256-6644
Fax: (201) 256-6865
October 30, 1995
To Whom it May Concern:
I, Steve Rubenstein, Managing General Partner of Maxaldan Realty, L.P. hereby
authorize Brian D. Archibald to sign leases and bind Maxaldan Realty, L.P. as to
their content.
Very truly yours,
MAXALDAN REALTY, L.P.
/s/Steve Rubenstein
Steve Rubenstein
Managing General Partner
SR\mc
max1030
/s/ Giovanna N. Rivera [SEAL]
GIOVANNA N. RIVERA
NOTARY PUBLIC OF NEW JERSEY
MY COMMISSION EXPIRES NOV. 27, 1996
NOTICE OF LEASE
---------------
In accordance with the provisions of Massachusetts General Laws,
Chapter 183, Section 4, as amended, NOTICE is hereby given of the following
described lease:
PARTIES TO THE LEASE:
- - ---------------------
Lessor: Maxaldan Realty, L.P.
P.O. Box 8
Bayonne, NJ 07002
Lessee: BPI Packaging Technologies, Inc.
455 Somerset Avenue, Bldg No. 3
North Dighton, MA 02764
DATE OF EXECUTION OF THE LEASE: October 1, 1995
- - -------------------------------
DESCRIPTION, IN THE FORM Building No. 3 and approximately 82,780 square feet
CONTAINED IN SUCH LEASE, plus second story office space and a loading dock
OF THE PREMISES DEMISED: located in building no. 1, at 455-473 Somerset
- - ------------------------ Avenue, North Dighton, Mass. Also a 3763 square foot
addition to Building No. 3 and a 1350 square feet
shipping/receiving area in Building No. 1 to be
constructed by the Lessee.
COMMENCEMENT DATE AND TERM OF LEASE: A term of twelve years
- - ----------------------------------- commencing January 1,
1996 and terminating
December 31, 2007.
RIGHTS OF EXTENSION OR RENEWAL: one seven year renewal
- - ------------------------------- right.
WITNESS the execution hereof, under seal by the parties to the lease as
of the 1st day of November, 1995.
LESSOR: Maxaldan Realty, L.P.
(Seal)
By:/s/ Brian D. Archibald
----------------------
Brian D.Archibald, its
General Manager
LESSEE: BPI Packaging
Technologies, Inc.
(Seal)
By: /s/ Dennis N. Caulfield
--------------------------
Dennis N. Caulfield, its
President
STATE OF NEW JERSEY
, ss. , 1995
Then personally appeared the above named Brian D. Archibald, and
acknowledged the foregoing to be his free act and deed and the free act and deed
of Maxaldan Realty, L.P., before me,
GIOVANNA N. RIVERA /s/ Giovanna N. Rivera
NOTARY PUBLIC OF NEW JERSEY -----------------------
MY COMMISSION EXPIRES NOV. 27, 1996 Notary Public
My commission expires:
COMMONWEALTH OF MASSACHUSETTS
Bristol, ss. November 2 , 1995
Then personally appeared the above named Dennis N. Caulfield and
acknowledged the foregoing to be the free act and deed of BPI Packaging
Technologies, Inc., before me,
/s/ Rita Pires
---------------------
Notary Public
My commission expires: 5/17/2002
2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (No. 33-87562) and on Form S-8 (No. 33-60994) of our
report dated June 7, 1996 appearing on Page F-1 of BPI Packaging Technologies,
Inc.'s Form 10-K for the year ended February 23, 1996.
/s/ Price Waterhouse LLP
Boston, Massachusetts
June 7, 1996
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