SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
For Quarterly Period Ended Commission File Number
September 30, 1998 1-10648
BPI PACKAGING TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2997486
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
455 Somerset Avenue, North Dighton, Massachusetts 02764
(Address of principal executive offices) (Zip Code)
(508) 824-8636
(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
Common Stock, $.01 par value
Series A Convertible Preferred Stock, $.01 par value
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 Exhange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___.
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 the OTC Bulletin Board
on November 12, 1998 was approximately $7,618,441 for the Common Stock and
$111,688 for the Series A Convertible Preferred Stock. As of November 12, 1998,
21,460,396 shares of Common Stock, $.01 par value per share, were outstanding
and 223,375 shares of Series A Convertible Preferred Stock, $.01 par value per
share, were outstanding.
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
INDEX
PART I - FINANCIAL INFORMATION Page No.
- ------------------------------ --------
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 1998
and December 31, 1997....................................... 1-2
Consolidated Statements of Operations - Three Month
periods ended September 30, 1998 and September 30, 1997..... 3
Consolidated Statements of Operations - Nine Month
periods ended September 30, 1998 and September 30, 1997..... 4
Consolidated Statements of Cash Flows - Nine Month
periods ended September 30, 1998 and September 30, 1997.... 5
Notes to Consolidated Financial Statements ...................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................ 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................ 17
Item 2. Changes in Securities............................................ 17
Item 3. Default Upon Senior Securities................................... 17
Item 4. Submission of Matters to a Vote of Security Holders.............. 17
Item 5. Other Information................................................ 17
Item 6. Exhibits and Reports on Form 8-K................................. 17
SIGNATURES................................................................ 18
i.
<PAGE>
Part I. Financial Information
Item I. Financial Statements
<TABLE>
<CAPTION>
BPI Packaging Technologies, Inc.
Consolidated Balance Sheet
Assets
September 30, December 31,
1998 1997
-------------- ------------
(unaudited)
<S> <C> <C>
Current assets
Cash $ 178,301 $ 125,220
Accounts receivable, net 1,037,476 721,239
Inventories, net 858,363 1,057,866
Prepaid expenses and other current assets, net 6,675 52,948
------------ ------------
Total current assets 2,080,815 1,957,273
------------ ------------
Property and equipment, net 15,905,193 17,828,860
------------ ------------
Deposits - leases and equipment purchases 141,284 141,284
Loans to officers, net 5,901 5,416
Other assets 695,552 1,037,907
------------ ------------
842,737 1,184,607
------------ ------------
$ 18,828,745 $ 20,970,740
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
1
<PAGE>
<CAPTION>
BPI Packaging Technologies, Inc.
Consolidated Balance Sheet
Liabilities and Stockholders' Equity
September 30, December 31,
1998 1997
-------------- ------------
(unaudited)
<S> <C> <C>
Current liabilities
Note payable $ 721,721 $ 1,162,349
Trade note payable 584,433 584,433
Capital lease obligations due within one year 4,173,852 4,426,205
Accounts payable 6,810,792 6,714,870
Accrued expenses 2,779,711 2,967,348
------------ ------------
Total current liabilities 15,070,509 15,855,205
------------ ------------
Capital lease obligations-long-term portion -- --
------------ ------------
Stockholders' Equity
Series B convertible preferred stock, $.01 par value 1,466,954 1,466,954
Series A convertible preferred stock, $.01 par value 1,126,932 1,126,932
Common stock, $.01 par value; shares authorized -
60,000,000; shares issued and outstanding - 21,163,496 at
September 30, 1998 and 19,513,496 at December 31, 1997 211,635 195,135
Capital in excess of par value 44,463,254 43,076,603
Accumulated deficit (43,510,539) (40,750,089)
------------ ------------
3,758,236 5,115,535
------------ ------------
Commitments and contingencies
$ 18,828,745 $ 20,970,740
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
BPI Packaging Technologies, Inc.
Consolidated Statement of Operations
-----------Three Months Ended------------
September 30, September 30,
1998 1997
------------- --------------
(unaudited)
<S> <C> <C>
Net sales $ 2,927,730 $ 3,342,006
Cost of goods sold 2,049,426 3,971,014
------------ ------------
Gross profit ( loss ) 878,304 (629,008)
Operating expenses:
Selling, general and administrative 807,900 1,125,944
Write-down of impaired assets and related expenses -- --
------------ ------------
807,900 1,125,944
(Loss) income from operations 70,404 (1,754,952)
Other (expense) income:
Interest expense (66,967) (236,528)
Interest income 7,046 15,614
------------ ------------
(59,921) (220,914)
Net profit (loss) $ 10,483 $ (1,975,866)
============ ============
Basic net profit (loss) per share $ 0.00 $ (0.13)
Shares used in computing basic
net profit (loss) per share 21,163,496 14,766,797
Diluted net profit (loss) per share $ 0.00 $ (0.13)
Shares used in computing diluted
net profit (loss) per share 21,755,874 14,766,797
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
BPI Packaging Technologies, Inc.
Consolidated Statement of Operations
------------Nine Months Ended------------
September 30, September 30,
1998 1997
------------- --------------
(unaudited)
<S> <C> <C>
Net sales $ 7,567,594 $ 17,540,392
Cost of goods sold 6,844,194 19,628,044
------------ ------------
Gross profit (loss) 723,400 (2,087,652)
Operating expenses:
Selling, general and administrative 3,183,730 4,429,733
Write-down of impaired assets and related expenses -- 5,897,648
------------ ------------
3,183,730 10,327,381
(Loss) income from operations (2,460,330) (12,415,033)
Other (expense) income:
Interest expense (343,119) (795,311)
Interest income 42,999 35,598
------------ ------------
(300,120) (759,713)
Net loss $ (2,760,450) $(13,174,746)
============ ============
Basic net profit (loss) per share $ (0.13) $ (0.89)
Shares used in computing basic
net profit (loss) per share 20,669,723 14,766,797
Diluted net profit (loss) per share $ (0.13) $ (0.89)
Shares used in computing diluted
net profit (loss) per share 20,669,723 14,766,797
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
BPI Packaging Technologies, Inc.
Consolidated Statement of Cash Flows
----------Nine Months Ended--------
September 30, September 30,
1998 1997
-------------- -------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,760,450) $(13,174,746)
------------ ------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,155,187 1,912,765
Decrease (increase) in accounts receivable - trade (316,237) 1,525,403
Decrease in inventories 199,503 3,338,843
Decrease in prepaid expenses and other current assets 46,273 279,592
Increase in accounts payable 95,922 2,913,910
Decrease in other accrued expenses (187,637) (904,558)
------------ ------------
Total adjustments 1,993,011 9,065,955
------------ ------------
Net cash provided by (used in) operating activities (767,439) (4,108,791)
------------ ------------
Cash flows from investing activities:
Decreases in property and equipment 19,507 3,313,476
Decrease in patents -- 1,113,548
Decrease in investments 9,000 --
Decrease in deposits, net -- 26,945
(Increase) in advance to officers (485) --
(Increase) in long-term debt -- (1,612,496)
Decrease in other assets 82,328 934,708
------------ ------------
Net cash provided by (used in) investing activities 110,350 3,776,181
------------ ------------
Cash flows from financing activities:
Net payments under note payable - bank (440,628) (1,756,658)
Principal payments on capital lease obligations (252,353) 60,963
Net proceeds from sales of stock and exercise of warrants 1,403,151 2,066,440
------------ ------------
Net cash provided (used in) by financing activities 710,170 370,745
------------ ------------
Net increase in cash 53,081 38,135
Cash at beginning of period 125,220 5,826
------------ ------------
Cash at end of period $ 178,301 $ 43,961
============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
5
<PAGE>
BPI Packaging Technologies, Inc.
Notes to Consolidated Financial Statements
Note 1: Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
consolidated financial statements.
Revenue is recognized upon the shipment of products and the passage of
title to customers.
The information included in the Consolidated Statements of Operations
for the three month and nine month periods ended September 30, 1997 has not
previously been reported due to the change in fiscal year end to December 31,
effective December 31, 1997.
In the opinion of Management, all adjustments (consisting solely of
normal recurring adjustments) considered necessary for a fair statement of the
interim financial data have been included. Results from Operations for the nine
month period ended September 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998.
For further information, refer to the consolidated financial statements
and the footnotes included in the transition period report on Form 10-K for BPI
Packaging Technologies, Inc. (the "Company") for the 10 months ended December
31, 1997.
Note 2. Recent Material Development
On August 13, 1998, the Company received notification from the Nasdaq
Listing Qualifications Panel ("the Panel") of the Nasdaq Stock Market ("Nasdaq")
that effective as of close of business on August 13, 1998, the Company's
securities would be de-listed from Nasdaq. On August 27, 1998, the Company
formally requested that the Nasdaq Listing and Hearing Review Council ("Review
Council") review the August 13, 1998 decision. As of the date of this report,
the Company has had no response from the Review Council. The Company's
securities are presently traded on the OTC Bulletin Board.
Note 3. Going Concern and Management's Plan
As shown in the accompanying consolidated financial statements, the
Company has suffered recurring net losses, working capital deficiencies and
except for this quarter, cash flow deficiencies. Additionally, significant trade
credit balances are past due and operating and capital lease obligations are in
default at the balance sheet date.
The Company's ability to continue as a going concern is dependent on
its ability to successfully implement its business and financial plans as
discussed below. However, there can be no assurances the Company will be able to
successfully complete these plans. The financial statements do not include any
adjustments related to the recoverability and the classification of recorded
assets and liabilities that might be necessary should the Company be unable to
continue as a going concern.
6.
<PAGE>
The Company exited the production of its traditional T-shirt bag
product lines during the 10 month period ended December 31, 1997. The objective
of exiting the T-shirt bag segment, which caused substantial losses, was to
shift the Company's resources to increasing sales and production of its
proprietary bag and plastic film product lines, which have the potential to have
higher profit margins. The Company continues to focus its resources on its high
margin patented and proprietary products: FRESH-SAC(R), HANDI-SAC(TM) and its
high performance plastic films business targeted to the insulation, bathroom
tissue and paper towel overwrap market and by accepting subcontracting on
T-shirt bag line that makes a contribution to margin (referred to in the plastic
industry as tolling).
The Company has had nominal and negative gross margins in prior years
and in the first two quarters of 1998. As a direct result of reductions in the
Company's overhead and additional sales volume in its film and bag businesses,
the gross margin has increased and is positive. A previously recorded allowance
for unusable inventory was eliminated as the Company sold off inventories of
products that were not made for a particular customer. Under the Company's new
financial plans, inventory is only made where customer orders exist. This
results in greater inventory turns, lower inventory and less problems in selling
off inventory. The new product lines are customer and order specific. The
overall gross margin will continue to improve as the Company sells more of its
higher profit margin product to volume customers at pricing significantly better
than the traditional plastic bag market. Cash flow improves with lower
inventories and higher margin. The Company, under its new financing plan, will
be able to obtain more inventory as needed to service the new film order
contracts. Additionally, the Company intends to continue accepting
subcontracting on T-shirt bag line products on a tolling basis.
Plans to reduce overhead and administrative expenditures began in 1998
and have resulted in savings of approximately $500,000 per month. Additional
savings from lower interest cost under the new financing plan will have an
impact in 1999.
The Company is currently operating with limited working capital and is
in default of its agreements with lessors under operating and capital leases. As
of September 30, 1998, approximately $2,086,000 was past due under capital and
operating leases and approximately $6 million was past due to trade creditors.
The Company is currently in the process of attempting to restructure
its balance sheet through refinancing of its debt with both the secured and
unsecured creditors and raising $4.0 million in a private placement of zero
coupon senior subordinated debt and warrants to purchase Company Common Stock.
The restructuring of the debt is currently planned to include a term
loan of approximately $6.5 million to pay out the secured equipment lessors and
a revolving line of credit of up to $3.5 million collateralized by Receivables
and Inventory to be used for working capital. Successfully restructuring the
debt would result in a reduction of monthly lease payments from approximately
$350,000 to approximately $140,000 under the new proposed lending agreements.
To date, no agreements have been signed for either debt or equity
financing and there can be no assurance that such financing will be obtained on
terms acceptable to the Company. The Company has also entered into a forbearance
agreement with a supplier pursuant to which the Company has deferred payments of
the outstanding payables until at least January 1, 1999.
7.
<PAGE>
Note 4: Basic and Diluted Net Loss Per Share
The Company is required to present "basic" and "diluted" earnings per
share. Basic earnings per share is computed by dividing the income available to
common stockholders by the weighted average number of common shares outstanding
for the period. For the purposes of calculating diluted earnings per share, the
denominator includes both the weighted average number of common shares
outstanding and potential dilutive common shares outstanding for the period.
For the periods ended September 30, 1997 and the nine month period
ended September 30, 1998, the Company has recorded a net loss. Therefore, basis
and diluted earnings per share are the same due to the anti-dilutive effect of
potential common shares outstanding. Anti-dilutive potential common shares
excluded from the computation include common shares issuable upon the exercise
of stock options, common shares issuable upon the conversion of redeemable
convertible preferred stock or upon the exercise of warrants.
Note 5: Accounts Receivable-Trade
Accounts receivable-trade consists of the following:
September 30, December 31,
1998 1997
---- ----
Accounts receivable-trade $ 1,326,981 $ 1,071,239
Allowance for doubtful accounts (214,505) (275,000)
Allowance for credits (75,000) (75,000)
----------- -----------
$ 1,037,476 $ 721,239
=========== ===========
Note 6: Inventories
Inventories, net of valuation reserves, consist of the following:
September 30, December 31,
1998 1997
---- ----
Raw materials $ 239,112 $ 285,058
Finished goods 694,251 1,062,808
Reserves (75,000) (290,000)
----------- -----------
$ 858,363 $ 1,057,866
=========== ===========
Note 7: Loans
On August 10, 1998, the Company entered into an Invoice Purchase & Sale
Agreement of up to $2.0 million against eligible Accounts Receivables replacing
the Company's former lender, Foothill Capital Corporation. On October 16, 1998,
the Company negotiated an increase in the advance on its receivable from 70% to
75% of eligible receivables. The Company pays a fee of 2% of its monthly
invoices and interest of prime +6%. The agreement is secured by purchased
receivables, general intangibles, contract rights and all inventory.
8.
<PAGE>
At September 30, 1998, the balance owed under the agreement was
$721,721. The agreement includes certain covenants that the Company must
maintain to avoid default. To date, the Company is not in default under any
terms of the agreement.
Note 8: Consolidated Statement of Changes in Stockholders' Equity for the
nine month period ended September 30, 1998
<TABLE>
<CAPTION>
BPI Packaging Technologies, Inc.
Consolidated Statement of Changes in Stockholders' Equity
For Nine Months Ended September 30, 1998
Series A Convertible Series B Convertible
Common Stock Preferred Stock Preferred Stock Capital in
--------------------- --------------------- --------------------- Excess of
Shares Amount Shares Amount Shares Amount Par Value
---------- -------- ------- ----------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 19,513,496 $195,135 325,483 $ 1,126,932 146,695 $ 1,466,954 $43,076,603
Sale of common stock pursuant to
Regulation S and Regulation D private
placement offerings, net of issuance costs 1,650,000 16,500 1,266,451
Warrants granted for lease extension 120,200
Net loss for the quarter ended
September 30, 1998 ---------- -------- ------- ----------- ------- ----------- -----------
Balance at September 30, 1998 21,163,496 $211,635 325,483 $ 1,126,932 146,695 $ 1,466,954 $44,463,254
========== ======== ======= =========== ======= =========== ===========
<CAPTION>
Accumulated
Deficit Total
------------- ----------
<S> <C> <C>
Balance at December 31, 1997 ($40,750,089) $5,115,535
Sale of common stock pursuant to
Regulation S and Regulation D private
placement offerings, net of issuance costs 1,282,951
Warrants granted for lease extension 120,200
Net loss for the quarter ended
September 30, 1998 (2,760,450) (2,760,450)
============ ==========
Balance at September 30, 1998 ($43,510,539) $3,758,236
============ ==========
</TABLE>
Note 9. Related Party Transactions
In March 1998, the Company received a notice from the Massachusetts
Department of Revenue requiring the Company to garnish the wages of the former
Chairman of the Company. The amount subject to the levy totaled approximately
$200,000. For the period through May 16, 1998, the Company did not comply with
the terms of the levy. Subsequently, the Company paid, on behalf of the
Chairman, approximately $36,000 of the levy and established an interest bearing
note due on or before June 30, 1998. As of September 30, 1998, the Company has
not received payment on the above referenced Note. As of the date of this
report, the Company is not required to comply with the levy as a result of the
former Chairman's resignation from the Company on July 1, 1998. The Company has
fully reserved all amounts receivable from its former Chairman.
9.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements or Information
This Form 10-Q includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Statements in this Form 10-Q which address
activities, events and developments that the Company expects or anticipates will
or may occur in the future, including such things as future capital expenditures
(including the amount and nature thereof), expansion and other development
trends of industry segments in which the Company is active, business strategy,
expansion and growth of the Company's business and operations and other such
matters are forward-looking statements. Although the Company believes the
expectations expressed in such forward-looking statements are based on
reasonable assumptions within the bounds of its knowledge of its business, a
number of factors could cause actual results to differ materially from those
expressed in any forward-looking statements, whether oral or written, made by or
on behalf of the Company. Many of these factors have previously been identified
in filings of statements made by or on behalf of the Company.
All phases of the Company's operations are subject to influences
outside its control. Any one, or a combination, of these factors could
materially affect the results of the Company's operations. These factors
include: sales, competition, inflation, raw material price increases, rate of
market penetration for products, new product development and market acceptance,
litigation, interest rate fluctuations, availability of equity financing,
availability of capital and operating lease financing, availability of bank or
other financial institution lines of credit and other capital market conditions.
Forward-looking statements made by or on behalf of the Company are based on a
knowledge of its business and the environment in which it operates, but because
of the factors listed above, actual results may differ from those in the
forward-looking statements. Consequently, all of the forward-looking statements
made are qualified by these cautionary statements and there can be no assurance
that the actual results or developments anticipated by the Company will be
realized or, even if substantially realized, that they will have the expected
consequences to or effects on the Company or its business or operations.
General
On December 2, 1997, the Board of Directors of the Company adopted a
change of fiscal year, effective immediately, from a 52-53 week fiscal year
ending on the Friday closest to February 28 to a calendar year ending on
December 31. The Company's last fiscal year ended February 28, 1997. As a result
of the change, the Company filed a transition report on Form 10-K for the 10
month period ended December 31, 1997.
Results of Operations
Third Quarter of 1998 Compared to the Comparable Period ended September 30,
1997.
For the third quarter ended September 30, 1998, the Company had sales
of $2,927,730 compared to sales of $3,342,006 for the comparable months (July,
August and September) of the prior year.
During the 10 month period ended December 31, 1997, the Company exited
the traditional plastic carry-out bag market. The exit occurred before the
Company's proprietary high performance tissue overwrap film and the
FRESH-SAC(R)Produce Profit Builder, two major growth products for 1998 and
beyond, were ready to make the transition from marketing to sales.
10.
<PAGE>
Sales of the Company's proprietary bag products (FRESH-SAC(R)T-shirt
sack produce bag and HANDI-SAC(TM)) and film products were $2,777,690 in the
third quarter of 1998 compared to sales of $2,553,281 in the comparable period
ended September 30, 1997, an increase of 9%. Sales of traditional plastic
carry-out bags decreased, as planned, and were $150,043 in the third quarter of
1998 compared to sales of $788,725 in the comparable period ended September 30,
1997. RC America, Inc. had no sales in either period. Market Media, Inc. had no
sales in either period. The Company's five-year Purchase Agreement with
Printpack, Inc., was terminated on October 7, 1998. The Company received no
revenue under the Printpack purchase agreement during the quarter but has trial
orders from Printpack in-house.
In the third quarter of 1998, cost of goods sold was $2,049,426 or 70%
of sales, compared to $3,971,014, or 119% of sales, in the comparable period
ended September 30, 1997. The decrease in cost of goods sold as a percentage of
sales is due primarily to the decrease in fixed and variable costs. Plans to
reduce overhead in 1998 have resulted in significant savings beginning in the
second quarter of 1998.
Selling, general and administrative expense for the third quarter of
1998 was $807,900, or 28% of sales, compared to $1,125,944, or 34% of sales, in
the comparable period ended September 30, 1997. The decrease in selling, general
and administrative expense, as a percentage of sales, is due to the reduction of
fixed expenses. Plans to reduce administrative expenses in 1998 have resulted in
significant savings beginning in the second quarter of 1998.
For the third quarter of 1998, net interest expense was $66,967
compared to $236,528 for the comparable period ended September 30, 1997. The
decrease in interest expense is due to a decrease in the line of credit and
other financing charges.
The net income was $10,483 in the third quarter of 1998 compared to a
net loss of $1,975,866 in the comparable period ended September 30, 1997. The
change from net loss to net income in the third quarter of 1998, as compared to
the comparable period ended September 30, 1997, was primarily due to a decrease
in fixed and variable cost in the cost of goods sold and selling, general and
administrative expenses.
The Company incurred a net income of $0.00 per share in the third
quarter of 1998 compared to a loss of $0.13 per share in the comparable period
ended September 30, 1997.
Operating profit (loss) for the various business units are as follows:
<TABLE>
<CAPTION>
Comparable
Third Quarter Period Ended
1998 September 30, 1997
------------- ------------------
<S> <C> <C>
Proprietary, traditional and film products $ 548,500 $(1,119,571)
RC America, Inc. 0 (72,499)
Market Media, Inc. (12,922) (102,824)
Unallocated corporate overhead 465,174 460,091
Operating profit (loss) $ 70,404 $(1,754,952)
Interest expense, net (59,921) (220,914)
Net income (loss) $ 10,483 $(1,975,866)
</TABLE>
11.
<PAGE>
First Nine Months of 1998 Compared to the Comparable Period ended September 30,
1997.
For the nine months ended September 30, 1998, the Company had sales
totaling $7,567,594 compared to sales of $17,540,392 for the comparable months
(January through September) of 1997, a decrease of 57%, as a result of the
Company's previously announced decision to discontinue the traditional plastic
grocery carry-out bag and Maxi-Sac(TM) product lines.
Sales of the Company's proprietary carryout T-shirt bag products
(FRESH-SAC(R)T-shirt produce bag and HANDI-SAC(TM)) and film products were
$7,031,052 in the first nine months of 1998 compared to sales of $8,193,948 in
the comparable period ended September 30, 1997, a decrease of 14%. Sales of the
traditional grocery carry-out bags decreased as planned and were $536,543 in the
first nine months of 1998 compared to $9,346,444 in the comparable period ended
September 30, 1997. RC America, Inc., had no sales in the first nine months of
1998 compared to $937,389 in the comparable period ended September 30, 1997.
Market Media, Inc., had no sales in this period.
In the first nine months of 1998, cost of goods sold was $6,844,194, or
90% of sales, compared to $19,628,044, or 112% of sales, in the comparable
period ended September 30, 1997. The decrease in cost of goods sold, as a
percentage of sales, is due primarily to the decrease in fixed and variable
costs. Plans to reduce overhead in 1998 have resulted in significant savings
beginning in the second quarter of 1998.
Selling, general administrative expense for the first nine months of
1998 was $3,138,730, or 42% of sales, compared to $4,429,733, or 25% of sales,
in the comparable period ended September 30, 1997. The decrease in selling,
general administrative expense is due to the reduction of fixed expenses. Plans
to reduce administrative expenses in 1998 have resulted in significant savings
beginning in the second quarter of 1998.
For the first nine months of 1998, net interest expense was $343,119
compared to $795,311 for the comparable period ended September 30, 1997. The
decrease in interest expense is due to a decrease in the line of credit and
other financing charges.
The net loss was $2,760,450 for the first nine months of 1998 compared
to $13,174,746 in the comparable period ended September 30, 1997. The decrease
in net loss is primarily due to a decrease in fixed and variable cost in the
cost of goods sold and selling, general and administrative expenses.
The Company incurred a loss of $0.13 per share in the first nine months
of 1998 compared to a loss of $0.89 per share in the comparable period ended
September 30, 1997.
Operating profit (loss) for the various business units are as follows:
<TABLE>
<CAPTION>
Nine Months Comparable
Ended Period Ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Proprietary, traditional and film products $ (935,409) $(10,731,578)
RC America, Inc. (130,345) (37,080)
Market Media, Inc. (122,136) (354,354)
Unallocated corporate overhead 1,272,440 1,366,181
Operating profit (loss) $ (2,460,330) $(12,415,033)
Interest expense, net (300,120) (759,713)
Net loss $ (2,760,450) $(13,174,746)
</TABLE>
12.
<PAGE>
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.
Sales of Securities
The Company did not raise any equity from the sale of Common Stock or
Warrant exercise in the third quarter of 1998. As discussed in "Going Concern
and Management's Plan", Management intends to increase its liquidity in the
fourth quarter of 1998 by a combination of debt and equity financing subject to
financial market conditions. However, the Company has no commitments for such
financing, and no assurance can be given that additional financing will be
successfully completed or that such financing will be available on terms
favorable to the Company, if at all.
Equipment and Lease Financing
From March 1994 through August 1997, the Company acquired through
purchase or lease approximately $19.7 million in additional equipment to
increase manufacturing capacity and efficiency and to expand the Company's
product lines. The equipment was financed from the sale of equity securities,
equipment lease financing and bank loans.
The Company currently has outstanding commitments to purchase an
additional $275,000 in machinery and equipment.
As of December 31, 1997 and September 30, 1998, the Company was in
default on all of its capital and operating leases. In March and April 1998, the
Company entered into settlement agreements with three lessors to remedy the
defaults. The terms of the agreements are as follows:
For one lessor, with which the Company has both capital and operating
leases, a payment of $517,000 was due upon execution of the settlement agreement
in April 1998 and interest only payments were scheduled from March to June 1998.
The $517,000 payment represented four months of past due payments plus interest
and late fees. Commencing in July 1998, the Company's monthly payment schedule
under the leases would revert to the amounts identified in the original leases.
In consideration for the lease extension, the Company granted the lessor 200,000
warrants at an exercise price of $1.25 and a three year term. In addition, the
terms of the agreement require the Company to make three additional monthly
payments.
The second settlement agreement resulted in a reduction of the monthly
payments from $42,000 to $21,000 and an increase in the number of future monthly
payments. In consideration for the lease extension, a fee of $60,000 was built
into the remaining payments.
The third settlement agreement required a payment of $296,000 on or
before June 1, 1998. The payment represents past due amounts as well as interest
and late fees. Commencing in July 1998, the Company's monthly payment schedule
under the leases would revert to the amounts identified in the original leases.
In consideration for the lease extension, the Company granted the lessor 200,000
warrants at an exercise price of $1.25 and a three year term.
13.
<PAGE>
As September 30, 1998 the Company had not made the required payments
under the terms of the three settlement agreements. Management is currently
negotiating settlement agreements with the leasing companies and intends to pay
the settled amounts out of the proceeds of anticipated new debt financing.
However, as of the date of this report, no commitments for such funding has been
received and there can be no assurances that the Company will be successful in
obtaining such financing on terms acceptable to the Company, if at all.
Cash Flow
In the third quarter of 1998, the Company had non-cash charges of
$885,748 relating to depreciation and amortization. The Company also raised
$340,317 from an increase in the Note Payable. The Company used $462,192 to
decrease accounts payable and $270,567 to decrease accrued expenses. At
September 30, 1998, stockholders equity was $3,758,236 as compared to $5,115,535
at December 31, 1997. The Company's current ratio was 0.14:1 at September 30,
1998 as compared to 0.12:1 at December 31, 1997. The net book value of property
and equipment was $15,905,193 at September 30, 1998 as compared to $17,828,860
at December 31, 1997.
At September 30, 1998, the Company had a working capital deficit of
$14,862,494. Although the Company has instituted significant reductions in
operating expenses in the second and third quarters of 1998, the Company expects
to require additional debt or equity financing to sustain its operations.
Historically, a significant portion of the Company's capital
requirements has been funded through the proceeds from the Company's three prior
public offerings, the exercise of warrants sold in these public offerings,
equity and subordinated debt investments by Beresford Box Company, Ltd.,
(formerly Beresford Packaging, Inc., subsequently converted into the Company's
Series B and Series C Preferred Stock), a principal stockholder, and private
placements of Common Stock and warrants. The Company has also utilized bank loan
and line of credit facilities, trade credit facilities and equipment leases.
Impairment of Long-Lived Assets
The Company exited the traditional plastic grocery carry-out bag market
in the 10 month period ended December 31, 1997. This market is highly
competitive and margins remained low for several years, covering variable
manufacturing costs, but making little contribution to manufacturing overhead,
SG&A, interest or profit. As discussed in Notes 1 and 6 to the Company's
consolidated financial statements for the 10 month period ended December 31,
1997, the Company adopted Statement of Financial Account Standard No. 121
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
disposed of," for the year ended February 28, 1997. In conjunction with this
exit strategy, certain write-downs of assets and expenses related to the
traditional T-shirt product line were recorded in the fourth quarter of Fiscal
Year 1997 amounting to $5,897,648 in order to reflect these items, now
considered impaired, at fair value. In addition, due to the deterioration of the
product lines' gross margin from intense competition, approximately $1,165,000
of inventory reserves were established in the fourth quarter of Fiscal Year 1997
to properly state the traditional T-shirt bag product line inventory at net
realizable value. In the third quarter ended September 30, 1998, the Company
re-entered the traditional plastic grocery carry-out bag market on a tolling
basis.
Going Concern and Management's Plan
The Company has suffered recurring net losses, working capital
deficiencies, and except for the current reporting period, operating cash flow
deficiencies. Additionally, significant trade credit balances are past due and
operating and capital lease obligations are in default at the balance sheet
date.
14.
<PAGE>
The Company's ability to continue as a going concern is dependent on
its ability to successfully implement its business and financial plans as
discussed below. However, there can be no assurances the Company will be able to
successfully complete these plans. The financial statements do not include any
adjustments related to the recoverability and the classification of recorded
assets and liabilities that might be necessary should the Company be unable to
continue as a going concern.
The Company exited the production of its traditional T-shirt bag
product lines during the 10 month period ended December 31, 1997. The objective
of exiting the T-shirt bag segment, which caused substantial losses, was to
shift the Company's resources to increasing sales and production of its
proprietary bag and plastic film product lines, which have the potential to have
higher profit margins. The Company continues to focus its resources on its high
margin patented and proprietary products: FRESH-SAC(R), HANDI-SAC(TM)and its
high performance plastic films business targeted to the insulation, bathroom
tissue and paper towel overwrap market and by accepting subcontracting on
T-shirt bag lines through tolling.
The Company has had nominal and negative gross margins in prior years
and in the first two quarters of 1998. As a direct result of reductions in the
Company's overhead and additional sales volume in its film and bag businesses,
the gross margin results have turned larger and positive. A previously recorded
allowance for unusable inventory was eliminated as the Company sold off
inventories of products that were not made for a particular customer. Under the
Company's new financial plans, inventory is only made where customer orders
exist. This results in greater inventory turns, lower inventory and less
problems in selling off inventory. The new product lines are customer and order
specific. The overall gross margin is expected to continue to improve as the
Company sells more of its higher profit margin product to volume customers at
pricing significantly better than the traditional plastic bag market. Cash flow
improves with lower inventories and higher margin. The Company, under its new
financing plan, is expected to be able to obtain more inventory as needed to
service the new film order contracts. Additionally, the Company intends to
produce product for bag customers who supply the raw materials.
Plans to reduce overhead and administrative expenditures began in 1998
and have resulted in savings of approximately $500,000 per month. Additional
savings from lower interest cost under the new financing plan will have an
impact in 1999.
On July 2, 1998, the Company began to make significant SG&A cut-backs
in areas that did not focus on the Company's core competencies of manufacturing
plastic bag and film products. The Company suspended operations of its two
wholly-owned subsidiaries, RC America, Inc., and Market Media, Inc.
Additionally, the Company pared down its SG&A expense by closing non-performing
sales offices and focused on reducing sales expenses. Finally, the Company
reorganized its management team to absorb natural attrition and did not replace
resignees from the Company, except where deemed necessary for operations. The
resultant effect of the suspended operations, SG&A cut-backs and non-replacement
attrition is approximately $5.0 million, annualized.
On August 10, 1998, the Company entered into a new revolving line of
credit arrangement with a lender providing for the borrowing of up to $2.0
million against eligible Accounts Receivable. Part of the proceeds were used to
repay the existing line of credit with Foothill Capital Corporation and the
balance was used as general working capital. In addition, the Company continues
its discussions with potential lenders for a $6.5 million term loan to buy out
the capital and operating leases. The Company is also attempting to raise $4.0
million in a zero coupon senior subordinated debt through a private placement
the proceeds of which will be used to pay unsecured creditors on either a
payment plan or discounted basis, depending on which plan the unsecured creditor
selects.
15.
<PAGE>
The Company has no commitments for such financing, and no assurance can
be given that the Company will be successful in obtaining such additional
financing or that such financing will be available on terms favorable to the
Company, if at all.
Impact of Inflation
Inflation during the third quarter of 1998 did not have any impact on
operating results nor did it have any impact on operating results in the past
three fiscal periods.
Year 2000
The Company implemented a Year 2000 compliance project in June 1998,
which addresses the internal risks, requirements and budgets for becoming Year
2000 compliant. The Company has completed an inventory of its financial systems
and operating equipment which may contain embedded technology.
The Company has determined that its financial system will require an
investment of approximately $50,000 and 120 days of implementation to become
Year 2000 compliant. The Company is in the process of reviewing with third party
vendors the Year 2000 compliance of its operating equipment. The Company has
completed this process with respect to 35% of its operating equipment and
expects to complete the balance of its evaluations by mid year 1999. The Company
has not found, and does not presently expect to find, any case in which the
failure of a piece of operating equipment to be Year 2000 compliant that would
materially affect the operation of such equipment. The Company does not expect
that the cost of making any operating equipment Year 2000 compliant would be
material.
The replacement of the financial computer system is planned for the
first half of 1999 and the Company expects to fund the $50,000 from working
capital. The failure of the Company's financial systems to be Year 2000
compliant could have a material adverse effect on the Company and may cause
system mal-functions, incorrect or incomplete transaction processing and the
inability to reconcile accounting books and records.
The Company presently expects to complete contingency plans by mid year
1999.
16.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in pending commercial legal proceedings with
equipment lessors and trade suppliers because of lease defaults and overdue
trade accounts. During the quarter there have been no material developments in
any material pending legal proceeding and no new material legal proceeding has
been commenced. Management believes these legal proceedings will be settled by
negotiation; however, the failure to settle these proceedings by negotiation
could have material adverse effects on the Company's business.
Item 2. Changes in securities. None
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission of Matters to a Vote of Security Holders None
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-K.
A) The following Exhibit is filed herewith as Exhibit 10.1:
Invoice Purchase and Sale Agreement dated August 10, 1998
B) Reports on Form 8-K during the quarter the Company filed the
following report on 8-K
7/6/98 - Reporting among other things, resignation of
Dennis N. Caulfield, CEO
7/28/98 - Reporting engagement of Livingston and
Haynes as Independent Accountants
17.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 14 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: November 13, 1998 By: /s/ C. Jill Beresford
C. Jill Beresford, Chairman and
Chief Executive Officer
18.
EXHIBIT 10.1
INVOICE PURCHASE AND SALE AGREEMENT
"Seller" means BPI PACKAGING TECHNOLOGIES, INC. of 455
Somerset Avenue, North Dighton, Massachusetts 02764. "Buyer" means Patriot
Funding, a division of United Credit Corporation, of 15 West 44th Street, New
York, New York 10036-6611 ("United"), it being understood that United and
Patriot Funding are one and the same.
1. The Seller hereby agrees to sell to the Buyer and the Buyer
hereby agrees to purchase from the Seller such of the invoices of the Seller
listed on a schedule made with respect hereto as are accepted by the Buyer. The
Buyer's acceptance is evidenced by its failure to cross out and have a
representative place his or her initials alongside a listed invoice. The
invoices so purchased are called the "Invoices." The customers of the Seller are
called "Account Debtors." "Account" has the meaning given to it by the New York
Uniform Commercial Code. It is anticipated that the Buyer will make purchases of
Invoices to the extent of the permissible line. The permissible line is
$2,000,000.00, consisting of the cash balance outstanding at any given time with
respect to the sum of purchases hereunder plus fees, interest and reimbursable
expenses with respect thereto.
2. Unless otherwise agreed, the purchase price for Invoices is
the net amount thereof minus the fees and interest payable to the Buyer. For the
Buyer's services in assuming the credit risk on Invoices as set forth in
Paragraph 4 hereof, the Seller shall pay the Buyer a fee each month of 2% of its
Invoices arising in such month. The Seller shall pay the Buyer interest each
month on cash balances outstanding during the month at a rate equal to the
highest prime rate as generally reported to be in effect at New York City banks
during such month, plus 6% per annum. Interest shall be computed on the basis of
a 360-day year applied to the actual number of days funds are outstanding or
deemed to be outstanding, except as may otherwise be required under applicable
law.
3. The purchase price is payable as follows: (a) an amount
equal to approximately 70% of the underlying Invoice (the "Down Payment") at the
time of the acceptance of the Invoice by the Buyer and (b) the balance (the
"Back End"), subject to the further terms hereof, upon payment of the Invoice by
the Account Debtor, after allowing a reasonable time after the Buyer's receipt
of a check for the clearance thereof and the Buyer's administrative needs (which
time in the case of checks received on a Monday through Wednesday shall be
deemed to end on the following Friday, and in the case of checks received on a
Thursday or Friday shall be deemed to end on the Friday of the following week).
Checks received by the Buyer after 1:00 p.m. on a business day shall be deemed
received on the next business day. If more than one invoice is set forth on a
schedule and accepted by the Buyer the group of such invoices shall be deemed an
Invoice for purposes of paragraph 2 and 3 hereof. If the payment by the Account
Debtor exceeds the Down Payment plus the sums the Buyer is entitled to
hereunder, the difference shall be paid to the Seller along with the Bank End.
4. If an Account Debtor fails to pay an Invoice within 60 days
after the purchase thereof, and such failure is due solely to the Account
Debtor's "Insolvency," then the Buyer shall pay the balance of the purchase
price, over and above the Down Payment, promptly after the expiration of such
period. The "Insolvency" of an Account Debtor is the Account Debtor's voluntary
or involuntary entry into proceedings under any Federal or State law looking to
the adjustment or discharge of the debts of an insolvent, which proceedings have
not been dismissed by the time payment from the Buyer is due. If an Account
Debtor communicates a dispute concerning the goods or services underlying the
Invoice and thereafter enters Insolvency, its failure to pay shall be deemed not
due solely to the Account Debtor's Insolvency. Anything herein contained to the
contrary notwithstanding, the Buyer may withhold payment of any Down Payment or
Back End to cover (a) any unpaid obligation of the Seller to the Buyer under
this agreement, (b) any breach by the Seller of any representation or warranty
hereunder, (c) any such breach by the Seller which is reasonably anticipated by
the Buyer or (d) any obligation of the Seller to the Buyer under any other
agreement. Any amount so withheld may be applied by the Buyer to the liabilities
of the Seller to the Buyer and shall, to the extent not so applied be paid over
to the Seller when it reasonably appears to the Buyer that further retention of
the sum is unnecessary. In determining the existence of a breach of
representation or warranty hereunder, the Buyer may rely on any oral or written
advice given it which it reasonably believes to be true until the Seller
furnishes the Buyer with evidence of the falsity of such advice.
5. Seller shall pay to Buyer, on demand, all expenses and
charges incurred by Buyer in connection with the Buyer's exercising any rights
under this Agreement, including, without limitation, filing fees, search fees
(but initial filing and search fees shall be covered by the opening charge
referred to below), delivery services, the Buyer's then current charges for wire
transfer of funds, check certifications or like services, uncleared checks,
credit checks, messengers and the reasonable fees and expenses of Buyer's
counsel in connection with the enforcement or defense of any term of this
Agreement or enforcing payment of an Invoice or account. Seller shall also pay
Buyer a $1,000.00 opening charge intended to cover Buyer's expenses in
initiating the transactions envisioned hereby and 1% of the permissible line as
hereinabove set forth as of the commencement of this Agreement and 1% of the
permissible line as then in effect on each anniversary hereof as a facility or
commitment fee for Buyer's agreements hereunder (and 1% of the increase in the
permissible line occurring between the start of this Agreement and any
anniversary or between anniversaries hereof).
6. The Seller represents and warrants (a) the Seller, is and
will be the sole and absolute owner, free of any lien or encumbrance, of all
items of inventory on its premises, and of each Invoice at the time of the sale
thereof to the Buyer and at all times thereafter; (b) the amount of each Invoice
is or will be correctly stated on the schedule given to the Buyer with respect
thereto at the time the schedule is delivered to the Buyer, and at such time
there shall be no contingency or condition with respect to the payment of such
Invoice; (c) each Invoice will be paid in full on its due date, free of any
offset, deduction or counterclaim except for reasons of the Account Debtor's
Insolvency; and in the event the breach of such representation and warranty
results in an Account Debtor's failure to pay an invoice within the time period
set forth in Paragraph 4 hereof otherwise than by reason of the Account Debtor's
Insolvency, then the Seller shall promptly pay the Buyer the Down Payment with
respect to such Invoice and all other sums owing by it to the Buyer hereunder or
any other agreement between the parties hereto; (d) it shall keep its business
operating at a level of solvency, paying, when due, all hereafter arising rent,
taxes, salaries and wages; and (e) in the event the Seller shall receive any
payments with respect to an Invoice or Account after the Buyer is entitled to
receive payment on such Invoice or Account, then the Seller shall immediately
turn over such payment to the Buyer in the original form received by the Seller,
together with an identification of the Invoice or Account to which the payment
belongs. Amounts due the Buyer by reason of a breach of any representation or
warranty shall bear interest at the rate of 24% per annum from the date of
breach. The Buyer hereby appoints the Seller as the Agent of the Buyer to grant
credits and allowances on Invoices up to 5% of the face amount of any Invoice
involved, provided prompt notice of such credit or allowance is given to the
Buyer and the balance of the Invoice is paid within 30 days of its due date.
7. From the date of the Buyer's purchase of an Invoice, the
Buyer shall have all the rights of an owner of the Invoice. As collateral for
any and all liabilities of the Seller to the Buyer, whether for breach of a
representation or covenant with respect to an Invoice, a loan, or charges or
fees, the Buyer shall have a security interest in all of the Seller's present
and future Accounts, contract rights, general intangibles, and inventory,
wherever located, and documents related thereto and the proceeds of the
foregoing. The Buyer shall have all the rights of a secured party as provided by
law or hereunder with respect to such collateral. Without limiting the
generality of the foregoing, it is understood the Buyer shall be entitled at any
time and from time to time, and in such manner as it deems best, by itself or
through any agent, (a) to verify the accuracy of any representation made
hereunder or in connection with any transaction hereunder; (b) to sign and file
financing statements in its own name and the name of the Seller under the
Uniform Commercial Code covering the aforesaid collateral or any part thereof;
(c) to direct that payments be made directly to it on any Invoice or, after a
breach by Seller of the terms hereof, on any collateral; (d) to endorse any
proceeds on Invoices or Accounts that may come into its possession to permit the
Buyer to collect thereon; (e) if an event of default has occurred hereunder or
in the Buyer's reasonable discretion a default appears imminent, then in the
Buyer's sole discretion, to compromise any dispute relating to an Invoice or an
Account; and (f) after a breach of any representation or warranty by Seller, to
require the Seller to assemble and make all goods included in the collateral
ready for public or private sale at a place designated by the Buyer. The Seller
agrees to provide Buyer all assistance deemed necessary by Buyer in connection
with the sale of any inventory and the collection of any Invoices or Accounts.
8. In the event the Seller shall desire to borrow funds from
the Buyer and the Buyer, in its discretion is agreeable to making a loan on one
or more occasions to the Seller, then the interest applicable to such loan shall
be interest at the rate of 24% per annum, and unless otherwise agreed in
writing, the loan shall be repayable on demand.
9. In the event of a breach by the Seller of any term of this
Agreement, then, upon the request of the Buyer, the Seller shall immediately pay
to the Buyer all unpaid amounts owing by Account Debtors on all Invoices
purchased by the Buyer from the Seller pursuant to the terms of this Agreement
and the due date of all such Invoices, and of any outstanding loans which by
their terms are not payable on demand, shall be deemed accelerated to the date
of such request. The Buyer shall promptly refund to the Seller any amount paid
to it in excess of the sums that the Buyer is entitled to hereunder.
10. No failure or delay on the part of the Buyer in exercising
any power or right under this Agreement, shall operate as a waiver thereof, nor
shall any partial exercise of any such right or power or any abandonment or
discontinuance of any steps to enforce such right or power preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of Buyer hereunder are cumulative and not exclusive of any rights
or remedies which it would otherwise have. Notwithstanding the foregoing
provisions of this paragraph, it is recognized that the Buyer will not rely on
any immaterial breach of this Agreement, by itself, as the basis for terminating
the Agreement or in accelerating the due date of any obligation of the Seller to
the Buyer.
11. This Agreement shall be governed by the laws of New York.
Seller and Buyer agree that they are subject to, and hereby irrevocably submit
to, the jurisdiction of the Courts of New York or any federal court sitting in
New York, New York in connection with any suit, action or proceeding arising out
of or relating to this Agreement.
12. Notwithstanding the provisions of Paragraph 11 hereof, the
parties hereto agree that any action, dispute, proceeding, claim or controversy
between them, whether sounding in contract, tort or otherwise hereunder
("Dispute" or "Disputes") shall, at the election of either party, which election
may be made at any time prior to the commencement of a judicial proceeding by
the Buyer or in the event of a judicial proceeding instituted by the Seller, at
any time prior to the last day to answer and/or respond to a summons and/or
complaint of the Seller, be resolved by arbitration in accordance with the
provisions of this paragraph and shall, at the election of the Buyer, include
all disputes arising out of or in connection with this Agreement. Any election
by the Buyer to require arbitration of any Dispute may be made without the Buyer
thereby being required to arbitrate all Disputes between the parties, but only
the specified Dispute with the effect of leaving to judicial determination any
other Disputes. Any Dispute referred for arbitration shall be resolved by
binding arbitration in accordance with Article 75 of the New York Civil Practice
Law and Rules and the Commercial Arbitration rules of the American Arbitration
Association ("AAA"). In the event of any inconsistency between such Rules and
these arbitration provisions, these provisions shall supersede such Rules. All
statutes of limitations which would otherwise be applicable shall apply to any
arbitration proceeding under this paragraph. In any arbitration proceeding
subject to this paragraph, the arbitration panel (the "arbitrator") is
specifically empowered to decide (by documents only, or with a hearing, at the
arbitrator's sole discretion) pre-hearing motions which are substantially
similar to pre-hearing motions to dismiss and motions for summary adjudication.
In any such arbitration proceeding, the arbitrator shall not have the power or
authority to award punitive damages to any party. Judgment upon the award
rendered may be entered in any court having jurisdiction. Whenever an
arbitration is required, the parties shall select an arbitrator in the manner
provided in this paragraph. No provisions of, nor the exercise of any rights
under, this paragraph shall limit the right of the Buyer (1) to foreclose
against any real or personal property collateral through judicial foreclosure,
by the exercise of the power of sale under a deed of trust, mortgage or other
security agreement or instrument, pursuant to applicable provisions of the
Uniform Commercial Code, or otherwise pursuant to applicable law, (2) to
exercise self-help remedies including but not limited to set off and
repossession, or (3) to request and obtain from a court having jurisdiction
before, during or after the pendency of any arbitration, provisional or
ancillary remedies and relief including but not limited to injunctive or
mandatory relief or the appointment of a receiver, all in accordance with the
provisions of this Agreement. The institution and maintenance of an action or
judicial proceeding for, or pursuit of, provisional or ancillary remedies or
exercise of self-help remedies shall not constitute a waiver of the right of the
Buyer, even if the Buyer is the plaintiff, to submit the Dispute to arbitration
if the Buyer would otherwise have such right. Whenever an arbitration is
required under this paragraph, the arbitrator shall be selected, except as
otherwise herein provided, in accordance with the Conunercial Arbitration Rules
of the AAA. The Dispute shall be decided by a majority of three persons, at
least two of whom shall be attorneys with at least five years' experience
representing commercial banks, factors or commercial finance companies. The
arbitrator shall have the power to award recovery of all costs and fees
(including attorneys' fees, administrative fees, arbitrators' fees, and court
costs) to the prevailing party. In the event of any Dispute governed by this
paragraph, each of the parties shall, subject to the award of the arbitrator,
pay an equal share of the arbitrator's fees.
13. SELLER AND BUYER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREIN OR ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS
AGREEMENT OR IN ANY COURSE OF CONDUCT, COURSE OF DEALING, OR ACTIONS OF THE
SELLER OR BUYER.
14. Buyer intends to make no charge for compensation which,
under the circumstances existing at the time the charge therefor might be made
shall constitute a violation of the maximum permissible charge to a corporation
for the loan or forbearance of money under applicable law. Provided any such law
would not thereby be violated, the compensation payable for any prior or
subsequent month hereunder may be increased to absorb, in whole or in part, the
difference between the charges computed hereunder without reference to such law
and charges computed with reference to such law; it being understood that the
entire period of Buyer's financing and the total of interest charges for such
entire period shall be utilized in determining compliance with such law. In the
event the rate of interest as determined hereunder is in excess of the maximum
permissible rate, then the amount paid in excess of such maximum shall be deemed
to have been payments toward the reduction of principal and not to the interest
due hereunder and appropriate calculation shall be made to produce such a
result. The bona fide tender of a refund of any interest erroneously collected
in violation of applicable law shall be a full acquittance of Buyer.
15. This Agreement shall remain in effect for a period of one
year and shall be renewed from year to year thereafter unless either party
hereto shall give the other notice of its intention to terminate this Agreement
as of the end of such initial period or any renewal year, as the case may be, at
least 30 days prior to its expiration. This Agreement may be terminated by Buyer
at any time because of the occurrence of an event of default by the Seller.
16. Notices hereunder shall be in writing and shall be
delivered personally or be sent to the parties hereto at their respective
addresses set forth above or to such other addresses as of which notice shall be
duly given. Notices given personally shall be given to the President and notices
given by mail shall be marked "Attention: President," In the case of notice
intended for the Buyer, the president shall mean the President of the Patriot
Funding division of United Credit Corporation.
17. The invalidity of any portion of this agreement shall not
affect the balance of this agreement, nor shall the invalidity of any portion
hereof as applied to any particular circumstance affect the validity of this
agreement when applied to any other circumstances.
18. This agreement cannot be modified or terminated orally.
19. This agreement shall be binding on the parties hereto and
their respective successors and assigns.
Dated: August 10, 1998
SELLER: BPI PACKAGING TECHNOLOGIES, INC.
By: /s/ C.J. Beresford
BUYER: PATRIOT FUNDING DIVISION OF
UNITED CREDIT CORPORATION
By: /s/
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited financial statements of BPI Packaging Technologies, Inc. at
and for the period ended September 30, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 178,301
<SECURITIES> 0
<RECEIVABLES> 1,326,981
<ALLOWANCES> 289,505
<INVENTORY> 858,363
<CURRENT-ASSETS> 2,080,815
<PP&E> 28,732,367
<DEPRECIATION> 12,827,174
<TOTAL-ASSETS> 18,828,745
<CURRENT-LIABILITIES> 15,070,509
<BONDS> 0
0
2,593,886
<COMMON> 211,635
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,758,236
<SALES> 7,567,594
<TOTAL-REVENUES> 0
<CGS> 6,844,194
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 343,119
<INCOME-PRETAX> (2,760,450)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,760,450)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
