<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1999
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BPI PACKAGING TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
--------------------------
<TABLE>
<S> <C> <C>
DELAWARE 3081 04-2997486
(State or jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or Industrial Identification No.)
organization) Classification Code
Number)
</TABLE>
455 SOMERSET AVENUE
NORTH DIGHTON, MASSACHUSETTS 02764
(508) 824-8636
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
HANSPETER SCHULZ
PRESIDENT
455 SOMERSET AVENUE
NORTH DIGHTON, MASSACHUSETTS 02764
(508) 824-8636
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
WITH COPIES TO:
DON S. HERSHMAN, ESQ.
AUDREY F. ZARMIN, ESQ.
HOLLEB & COFF
55 EAST MONROE
CHICAGO, ILLINOIS 60603
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ____________
If this Form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED PER SHARE(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common stock, par value $0.01 per share..... 3,850,697(1) $0.14 $539,097.58 $149.87
</TABLE>
(1) This Registration Statement covers shares owned by certain selling
securityholders which shares may be offered from time to time by the selling
securityholders.
(2) Estimated solely for the purpose of calculating the registration fee. All
shares of common stock are being offered by the selling securityholders, who
are not restricted as to the price or prices at which these securities may
be sold. It is anticipated that these securities will be offered at prices
approximating fluctuating market prices. Pursuant to Rule 457 of the
Securities Act of 1933, as amended, the registration fee has been calculated
based upon the average closing bid and asked prices of our common stock on
October 5, 1999, as reported by the NASDAQ OTC Bulletin Board.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON ANY DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON THAT DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION,
DATED OCTOBER 15, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS
BPI PACKAGING TECHNOLOGIES, INC.
455 SOMERSET AVENUE
NORTH DIGHTON, MASSACHUSETTS 02764
(508) 824-8636
3,850,697 SHARES OF COMMON STOCK,
$0.01 PAR VALUE PER SHARE
We convert commercially available high molecular weight, high density
polyethylene resins into thin film. The film is either sold directly into
industrial or packaging applications or converted in-house into carryout bags of
"T-shirt sack" design. Our customers include various supermarkets, convenience
stores and other retail markets. We use advanced, high quality extrusion,
printing and bag making equipment located in our North Dighton, Massachusetts
facility.
All of the shares of common stock and warrants offered in this prospectus
are being offered by the selling securityholders in transactions on the NASDAQ
Over-the-Counter Bulletin Board or in privately negotiated transactions from
time to time at prices to be determined at the time of each sale. We will not
receive any proceeds from the sales.
Our common stock is traded on the NASDAQ Over-the-Counter Bulletin Board
under the symbol "BPIE." On October 5, 1999, the closing price of our common
stock on the NASDAQ Over-the-Counter Bulletin Board was $0.14 per share.
THIS INVESTMENT IN THE SECURITIES OFFERED IN THIS PROSPECTUS INVOLVES A HIGH
DEGREE OF RISK. YOU SHOULD PURCHASE SHARES ONLY IF YOU CAN AFFORD A COMPLETE
LOSS. SEE PAGES 6 TO 9 FOR A DESCRIPTION OF THE RISK FACTORS OF THIS INVESTMENT.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities. They have not
determined if this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
------------------------
The date of this prospectus is October , 1999.
<PAGE>
TABLE OF CONTENTS
PROSPECTUS
<TABLE>
<S> <C>
ABOUT THIS PROSPECTUS................................................................. 1
PROSPECTUS SUMMARY.................................................................... 2
RISK FACTORS.......................................................................... 6
FORWARD-LOOKING STATEMENTS............................................................ 9
USE OF PROCEEDS....................................................................... 10
SELECTED FINANCIAL DATA............................................................... 11
BUSINESS.............................................................................. 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 17
MANAGEMENT............................................................................ 26
DESCRIPTION OF OUR SECURITIES......................................................... 36
PRICE RANGE OF COMMON STOCK........................................................... 39
PERFORMANCE GRAPH..................................................................... 40
PRINCIPAL STOCKHOLDERS................................................................ 41
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................ 44
SELLING SECURITYHOLDERS............................................................... 44
PLAN OF DISTRIBUTION.................................................................. 46
EXPERTS............................................................................... 47
CHANGE OF ACCOUNTANTS................................................................. 47
LEGAL MATTERS......................................................................... 47
TRANSFER AGENT........................................................................ 48
INDEMNIFICATION....................................................................... 48
WHERE YOU CAN FIND MORE INFORMATION................................................... 49
INCORPORATION OF INFORMATION WE FILE WITH THE SEC..................................... 49
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
</TABLE>
i
<PAGE>
ABOUT THIS PROSPECTUS
You should rely only on the information contained in the prospectus and the
documents incorporated into the prospectus. We have not authorized anyone to
provide you different information. The selling securityholders are offering to
sell, and seeking offers to buy, the shares for sale in this offering only in
jurisdictions where offers and sales are permitted. The information contained in
this prospectus is accurate only as of the date of this prospectus, regardless
of the time of delivery of this or of any sale of common stock.
This preliminary prospectus is subject to completion prior to this offering.
Among other things, this preliminary prospectus describes our company as we
currently expect it to exist at the time of this offering.
1
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. To understand this offering fully, you should read the entire
prospectus, especially the Risk Factors and Financial Statements.
OUR COMPANY
We convert commercially available high molecular weight, high density
polyethylene resins into thin film. This film is either sold directly into
industrial or packaging applications or converted in-house into carryout bags of
"T-shirt sack" design for supermarkets, convenience stores and other retail
markets.
All of our plastic products are manufactured using advanced, high quality
extrusion, printing and bag making equipment in our facility in North Dighton,
Massachusetts. Plastic resin is heated and blown into a thin film on blown film
extrusion lines. The film is cooled, wound on large rolls, printed with customer
information using water-based inks and shipped to customers. However, if the
film is to be used to manufacture bags, it is slit-sealed into bags, reviewed by
quality control inspectors, boxed and shipped to customers. Our manufacturing
equipment consists of blown film extrusion lines, printing presses, bag making
machines and film slitting operations.
Our proprietary, high performance plastic films are being marketed and sold
to the developing insulation overwrap market in the United States. This market
has grown due to long-term health concerns raised from the handling of asbestos
and other insulation materials. We use two films that we specifically developed
for encapsulating glass fiber insulation mats for the private housing and the
industrial buildings industries. One is flame retardant and passed the required
tests of United Laboratories.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered................ 3,850,697 shares of common stock. The common stock
offered hereby consists of Offered Shares issued to
Selling Securityholders and Offered Shares issued and
issuable upon exercise of warrants held by our investors
and consultants. See "Description of Securities."
Common Stock Currently
Outstanding..................... 27,131,221 shares
Use of Proceeds................... We will not receive any of the proceeds from the sale of
Offered Shares by the Selling Securityholders.
</TABLE>
RECENT DEVELOPMENTS
In July 1997, we sold 2,100,902 shares of common stock at a price of $1.00
per share in a best-efforts private placement offering with total net proceeds
of $2,100,902. Shares of common stock were sold in a single offering under
Regulation D and Regulation S of the Securities Act. Under Regulation D, we sold
850,902 shares of common stock only to accredited investors as defined in
Regulation D. Under Regulation S, we sold 1,250,000 shares of common stock
outside the United States to non-U.S investors.
In October 1997, we sold 1,796,000 shares of common stock at a price of
$1.05 per share in a best-efforts private placement offering with total net
proceeds of $1,885,800. Shares of common stock were sold in a single offering
under Regulation D and Regulation S of the Securities Act. Under Regulation D,
we sold 400,000 shares of common stock only to accredited investors as defined
in
2
<PAGE>
Regulation D. Under Regulation S, we sold 1,396,000 shares of common stock
outside the United States to non-U.S. investors.
In December 1997, we sold 1,094,223 shares of common stock in a private
placement offering of restricted securities with total net proceeds of
$1,004,800. The price per share for 88,889 of the shares was $1.125 per share
and the remaining shares were sold at $0.90 per share. Warrants exercisable for
a minimum of 10,000 shares at $1.08 per share were sold in this offering. Under
Regulation D, we sold 222,223 shares of common stock only to accredited
investors as defined in Regulation D. Under Regulation S, we sold 872,000 shares
of common stock outside the United States to non-U.S. investors.
In June 1998, we completed an offering of private placement units. Each unit
consisted of 100,000 shares of common stock and a three-year warrant to purchase
100,000 shares of common stock at $1.25 per share. However, if we announce the
receipt of a contract for the purchase of goods or services resulting in
revenues of $5,000,000 or more, then the purchase price will be reduced to $1.05
per share for 15 days after the announcement. The offering price was $90,000 per
unit and the net proceeds from the offering were $1,485,000. Under Regulation D,
we sold 1,050,000 shares of common stock only to accredited investors as defined
in Regulation D. Under Regulation S, we sold 600,000 shares of common stock
outside the United States to non-U.S. investors.
In each of the above four offerings:
- the issuances of the securities were deemed to be exempt from registration
under Section 4(2) and Regulation D of the Securities Act as transactions
by an issuer not involving any public offering;
- the sale proceeds were used as part of our working capital;
- we promised to use our best efforts to file with the SEC a registration
statement on Form S-1 or S-3 relating to the shares in each offering; and
- the securities sold under Regulation D are being registered under the
Securities Act in the registration statement of which this prospectus
forms a part.
On June 27, 1998, we stopped funding the operations of our two wholly-owned
subsidiaries, RC America, Inc. and Market Media, Inc. RC America purchased
surplus inventory from manufacturers of consumer products and markets and sold
the products to mass merchandise retailers and other retail chains. Market Media
sold and marketed in-store advertising and promotion programs. At the same time,
we also ended the employment of Ronald V. Caulfield, the Chief Executive Officer
and President of RC America.
On July 2, 1998, the employment of Dennis Caulfield, our former Chief
Executive Officer, was terminated.
On August 13, 1998, the NASDAQ Listing Qualifications Panel of the NASDAQ
Stock Market delisted our securities from NASDAQ NMS, effective as of close of
business on August 13, 1998. Shortly thereafter, we formally requested that the
NASDAQ Listing and Hearing Review Council review the August 13, 1998 decision.
On December 22, 1998, NASDAQ Listing and Review Council affirmed the decision of
the NASDAQ Listing Qualifications Panel to delist our common stock from the
NASDAQ NMS. As of the date of this prospectus, we have not appealed the NASDAQ
decision to the SEC.
On January 27, 1999, we entered into a Securities Purchase Agreement with
DGJ, L.L.C., a Delaware limited liability company, under which we issued and
sold to DGJ:
1. a Promissory Note in the principal amount of $3,200,000;
3
<PAGE>
2. a Common Stock Purchase Warrant to purchase up to 80,000,000 shares
of common stock, at an exercise price of $0.04 per share, exercisable until
January 27, 2009; and
3. 1,629,930 shares of our Series C Preferred Stock for $100. See
"Description of Our Securities--Series C Redeemable Preferred Stock" for a
description of the Series C Preferred Stock purchased by DGJ.
In connection with this financing, DGJ required certain members of our
management, C. Jill Beresford, James F. Koehlinger, Hanspeter Schulz, Richard H.
Nurse and Ivan J. Hughes, to invest $300,000, in the aggregate, in our warrants.
In January 1999, we obtained $2,000,000 of financing secured by our accounts
receivable and $1,000,000 of financing secured by our inventory pursuant to a
factoring agreement with Franklin Capital Corporation, a company related to DGJ.
We also refinanced our equipment, capital and operating leases in January
1999 when we entered into an equipment lease with DGJ, dated January 27, 1999.
The new lease carries no debt reduction obligation and is treated as long-term
debt. The combined monthly payments under the retired leases were reduced from
approximately $305,000 per month to $102,000 per month under the new equipment
lease with DGJ. The term of the lease is ten years and its monthly payments of
$102,000 represent interest only.
Also in January 1999, we entered into agreements with most of our unsecured
creditors that provided for a discounted payment in February 1999 or permitted
us to pay the entire balance without interest over a three-year period.
On August 19, 1999, we entered into a series of transactions with LaSalle
Business Credit, Inc. and DGJ to refinance our existing indebtedness. Our loan
agreement with LaSalle provides us with a $4,000,000 revolving line of credit.
This credit facility is secured by a first priority security interest in our
accounts receivable, inventory and certain other assets. DGJ is the lessor of
substantially all the equipment that we use, under a capital lease, and holds a
first priority security interest in our equipment. LaSalle received a second
priority security interest in our equipment. Certain of the proceeds of this
credit facility were used to retire existing indebtedness we owed to Franklin
Capital Corporation, including the factoring agreement and revolving note
described above, while the remaining proceeds were used to retire some of our
other indebtedness and for working capital purposes. This credit facility bears
interest at a fluctuating rate equal to 1.5% per annum above the prime rate of
LaSalle in effect from time to time and matures in three years.
In addition, we and DGJ amended and restated the promissory note in the
original principal amount of $3,200,000, described above, because we were unable
to fulfill the financial obligations under the terms of the loan and lease
documents with DGJ. To cure the defaults, we restated the note to include, in
addition to the original principal and interest accrued thereunder, all amounts
outstanding under: (i) an equipment loan made by DGJ to us as of March 1, 1999
in the original principal amount of $218,665; (ii) a series of advances made to
us by Franklin during the second quarter of 1999 (which totaled approximately
$900,000, and were reduced to approximately $660,000 after application of
proceeds of the credit facility), rights to repayment of which were subsequently
assigned by Franklin to us; (iii) delinquent payments under the DGJ lease of
approximately $570,000; and (iv) interest on the foregoing. The resulting
balance of $4,773,585 was restated as the principal amount of a new amended
promissory note. The amended promissory note is in the original principal amount
of $4,773,585 and is payable as follows: $3,200,000 of principal is due and
payable on February 1, 2004, or earlier by acceleration, as described in the
Securities Purchase Agreement between us and DGJ, or otherwise, and $1,573,585
is due and payable pursuant to the terms of an intercreditor agreement between
DGJ and LaSalle. The amended promissory note bears interest at a rate of 10% per
annum, and is secured by all of our assets, subordinated to LaSalle except as to
equipment.
4
<PAGE>
THE SELLING SECURITYHOLDERS
The security holders (the "Selling Securityholders") whose securities are
offered for sale (the "Offered Shares") in this prospectus, acquired the Offered
Shares through private placements of our equity securities with accompanying
warrants in 1997 and 1998.
The Offered Shares are subject to limitations on resale until they are
registered under the Securities Act. The registration statement, of which this
prospectus forms a part, has been filed in satisfaction of certain registration
rights we granted to the Selling Securityholders. See section titled "Selling
Securityholders" for more details about the Selling Securityholders and the
Offered Shares.
PLAN OF DISTRIBUTION
The Selling Securityholders may offer for sale and sell the Offered Shares
at any time on the NASDAQ OTC, or any national securities exchange or
interdealer quotation system on which the common stock may be listed, or in
privately negotiated transactions, including block transactions. In addition,
the Selling Securityholders may engage in short sales and other transactions in
the common stock or derivatives, and may pledge, sell, deliver or otherwise
transfer the Offered Shares in these transactions. This prospectus may be used
by the Selling Securityholders or by any broker-dealer who may participate in
sales of the Offered Shares. Participating broker-dealers may act as agents or
principals or both and may receive commissions, discounts or concessions in
connection with sales or other transfers of the Offered Shares.
5
<PAGE>
RISK FACTORS
You should carefully consider the following factors in evaluating an
investment in our securities.
WE HAVE SUSTAINED LOSSES IN THE PAST AND OUR PRIOR ACCOUNTANT RAISED
GOING-CONCERN ISSUES.
At December 31, 1998, we had an accumulated deficit of $43,989,302. Since
our inception in 1988, we have rarely operated profitably in any accounting
period. Net income was $821,834 for our first six months in 1999, including
extraordinary income of $1,917,707. A net loss of $3,239,213 was incurred for
the year ended December 31, 1998, including depreciation and amortization of
$2,538,880.
Our current independent accountants gave an unqualified opinion on our
financial statements for the year ended December 31, 1998. Our prior independent
accountants' report on our financial statements for the 10 month period ended
December 31, 1997 and the years ended February 28, 1997 and February 23, 1996
included an explanatory paragraph. This paragraph stated that recurring losses
from operations, our net working capital and operating cash flow deficiencies
and the defaults under capital lease obligations and notes payable raised
substantial doubt about our ability to continue as a going-concern. Note 2 in
our consolidated financial statements for the 10 month period ended December 31,
1997, describes our ability, at the date of that report, to continue as a
going-concern. This ability was contingent upon our success in implementing new
business and financing plans.
THE MARKETS OUR PRODUCTS ARE SOLD IN ARE HIGHLY COMPETITIVE.
The plastic film and bag markets are highly competitive. Of our patented
products, HANDI-SAC-TM- has direct competition from: Sonoco Products Company's
T-sack roll bag product, flat T-sacks provided by Sonoco Products Company,
Vanguard Plastics, Inc. and others, and paper bags.
FRESH-SAC-Registered Trademark- has direct competition from: Crown Poly, Inc.
and Sealed Air, Inc., which manufacture plastic roll bags in a patented
dispensing system and Better Bag, Inc., which manufactures flat produce bags. It
has competition from a variety of traditional plastic low-cost bag-on-a-roll
manufacturers.
We potentially have direct competition for our thin, clear film used for
tissue overwrap from Exxon Chemical Americas. However, we believe that Exxon
Chemical Americas has an exclusive five year supply agreement with a consumer
packaged goods company that prohibits it from supplying other companies. Hence,
Exxon Chemical Americas is not presently considered to be our competitor. We
compete with major manufacturers of flexible packaging and other companies that
manufacture thick plastic films for tissue overwrap.
Our competitors in the traditional T-shirt bag business include large
companies including Sonoco Products Company, Inteplast Corporation and Vanguard
Plastics, Inc.
Many of our competitors have substantially greater research and development,
marketing, financial and human resources than we do. In addition, competitors
may succeed in developing new or enhanced products that are more effective than
any that may be sold or developed by us. Those companies may also prove to be
more successful than us in marketing and selling products. We can give no
assurance that we will be able to compete successfully with any of these
companies or achieve a greater market share than we currently possess.
WE CAN GIVE NO ASSURANCES THAT THERE WILL BE MARKET ACCEPTANCE FOR OUR
PROPRIETARY PLASTIC FILM AND IN-STORE ADVERTISING AND PROMOTION PRODUCTS.
Demand and market acceptance for our products are subject to a high level of
uncertainty. We can give no assurances that our products will achieve and
maintain market acceptance.
6
<PAGE>
OUR BUSINESS DEPENDS HEAVILY ON OUR PATENTS AND PROPRIETARY TECHNOLOGY.
We have developed patents related to T-shirt bags. We own a patent issued in
1989 for our T-shirt carryout bag. In 1993, we were issued a U.S. patent for the
dispensing system used in conjunction with our FRESH-SAC-Registered Trademark-
and HANDI-SAC-TM- products. We have a registered trademark in the United States
for FRESH-SAC-Registered Trademark-. In 1996, we were issued a U.S. patent for
our FRESH-SAC-Registered Trademark- advertising vehicle called the Fresh Focus
CartridgeTalker-TM-.
We can give no assurances that our patents and any patents that may be
granted to us in the future will be enforceable or provide us with meaningful
protection from competitors. Even if a competitor's products were to infringe on
our patents, it could be costly for us to enforce our rights in an infringement
action and would divert funds and resources otherwise used in our operations.
Furthermore, we can give no assurances that we would be successful in enforcing
our patent rights or that our products will not infringe patents or rights of
others.
We have developed a number of proprietary manufacturing methods and
processes used in the manufacturing of our products. We rely on and employ
various methods to protect the concepts, ideas and documentation for these
manufacturing methods, like patents and confidentiality agreements with our
employees. However, these methods may not afford sufficient protection and we
can give no assurances that others will not independently develop similar
know-how or obtain access to our know-how, concepts, ideas and documentation.
WE ARE DEPENDENT UPON OUR MANAGEMENT AND KEY PERSONNEL TO SUCCEED.
Our ability to continue to develop and to market our products depends
largely on our ability to attract and retain qualified personnel. Currently, our
principal executives have extensive experience in manufacturing and sales of
plastics products. Competition for this personnel is intense and we can give no
assurances that we will be able to retain and attract these people. See
"Management" section for a list and description of our directors and executive
officers.
WE HAVE SUBSTANTIAL SHARES OF COMMON STOCK RESERVED FOR THE EXERCISE OR GRANT OF
OPTIONS AND WARRANTS WHICH MAY CAUSE DILUTION IF EXERCISED OR GRANTED.
As of October 5, 1999, 27,131,221 shares of common stock were outstanding.
The following number of shares of common stock are reserved for the issuance of
certain securities:
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK ARE RESERVED FOR: NUMBER OF SHARES:
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<S> <C>
Exercise of options granted or available for grant to employees, officers,
directors and consultants pursuant to our 1990, 1993 and 1996 Stock
Option Plan (Options to purchase 589,377 shares were outstanding on
December 31, 1998)....................................................... 1,950,000
Conversion of the Series A and Series B Convertible Preferred Stock........ 330,453
Exercise of warrants issued to the individual and principals of the
placement agent in private placements to overseas investors.............. 180,372
Exercise of warrants issued to our financial consultants................... 200,000
Exercise of options issued to our consultants.............................. 5,900,000
Exercise of options issued to DGJ in connection with January 1999
financing................................................................ 80,000,000
</TABLE>
The existence of the options, warrants and preferred stock listed above may
be a hindrance to our future financings. Even though the book value of our
common stock is currently significantly lower than the exercise prices of some
of the outstanding options and warrants, the exercise of these options or
warrants in the future could dilute the book value of the common stock. However,
a majority of the
7
<PAGE>
warrants are "in-the-money," meaning that the fair market value of the
underlying common stock is greater than the exercise price of the warrant. On
October 5, 1999, the closing price of our common stock underlying the warrant
held by DGJ was $0.14 per share and the exercise price of the warrant is $0.04
per share. Further, the holders of these options and warrants may exercise them
at a time when we would otherwise be able to obtain additional equity capital on
terms more favorable to us.
In August 1999, our stockholders approved an increase in the number of
authorized shares of common stock from 60,000,000 shares to 150,000,000 shares,
causing a possible dilution to the holders of common stock. Approximately
87,000,000 of the additional 90,000,000 newly authorized shares of common stock
have already been allocated for use. The following table summarizes the uses for
the increase in the number of authorized shares of common stock:
<TABLE>
<S> <C>
Reserve for exercise of DGJ Warrant......................... 49,062,500
Reserve for exercise of warrants issued to financial
consultants............................................... 900,000
Reserve for subscribed stock purchased by employees and
consultant................................................ 7,500,000(1)
Reserve for granting and exercise of options if performance
goals are met by the Company.............................. 14,750,000
Reserve for shares available to stockholders in rights
offering.................................................. 15,000,000
Unallocated shares.......................................... 2,787,500
--------------
Total increase in authorized number of shares of common
stock..................................................... 90,000,000
--------------
--------------
</TABLE>
- ------------------------
(1) Warrants to purchase 5,626,000 shares of common stock were exercised in
September 1999.
There are no remaining authorized but unissued shares of preferred stock.
SALES OF SECURITIES HELD UNDER RULE 144 MAY DEPRESS THE MARKET PRICE OF OUR
COMMON STOCK.
Ordinarily, under Rule 144, a person holding restricted securities for a
period of one year may, every three months, sell in ordinary brokerage
transactions or in transactions directly with a market maker an amount equal to
the greater of one percent of our then outstanding common stock or the average
weekly trading volume during the four calendar weeks prior to the sale. Rule 144
also permits sales by a person who is not our affiliate and who has satisfied a
two-year holding period to sell without any quantity limitation. Future sales
under Rule 144 may depress the market price of the common stock.
ONE OF OUR INVESTORS COULD CONTROL OVER 50% OF OUR VOTING COMMON STOCK.
We entered into a Securities Purchase Agreement with DGJ, L.L.C. in January
1999. Pursuant to this agreement, DGJ purchased a warrant to purchase up to
80,000,000 shares of our common stock at $0.04 per share. If DGJ exercises its
warrants, it will control over 50% of our voting common stock. Also, pursuant to
an agreement among DGJ, Ivan J. Hughes, Chairman of the Board, and C. Jill
Beresford, Vice President of Marketing, Mr. Hughes and Ms. Beresford agreed to
vote their shares of stock as directed by DGJ on any matters presented to our
stockholders with respect to the Securities Purchase Agreement. Therefore, DGJ
has greater voting power on some issues than it has with its securities holdings
alone. See "Principal Stockholders" for a more detailed description of investor
holdings.
WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE TO MEET OUR CAPITAL REQUIREMENTS.
We are intending to raise additional capital for the Company through a
rights offering in the fourth quarter of 1999. We are planning on selling
15,000,000 shares of common stock at $0.04 per share, for an aggregate offering
price of $600,000 to holders of common stock on a certain record date, that has
not yet been determined. Even after the completion of the rights offering, we
may need
8
<PAGE>
additional capital requirements than through the rights offering, our existing
credit facilities and cash flow from operations. However, we believe that we
will have access to sufficient funds to carry on our existing level of business.
We cannot assure you that our existing credit facilities will be renewed once
their terms have expired or that we will be able to consummate any future
financing transactions on satisfactory terms.
Factors which could affect our access to capital markets, or the cost of
such capital include:
- changes in interest rates;
- general and economic conditions; and
- investors' perceptions of our business, results of operations, leverage,
financial conditions and business prospectus.
Economic, financial, competitive and other matters strongly influence each
of these factors, and we may not be able to control these influences. Our
existing credit facilities require us to maintain certain financial ratios and
also prohibit new borrowings.
OUR CHARTER PROVISIONS AND DELAWARE LAW MAY INHIBIT A TAKEOVER.
We, as a Delaware corporation, are subject to the General Corporation Law of
the State of Delaware, including Section 203, an anti-takeover law enacted in
1988. In general, this law restricts the ability of a public Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder. As a result, any potential
acquirers of our Company may be discouraged from attempting to effect an
acquisition transaction with us. This could possibly deprive holders of our
securities of certain opportunities to sell or otherwise dispose of their
securities at above-market prices in these transactions. As a result of the
application of Section 203 and certain provisions in our Certificate of
Incorporation and By-laws, including the adoption of a classified Board of
Directors and the requirement for increased stockholder vote to take certain
actions involving the directors and the Certificate of Incorporation and
By-laws, potential acquirers may find it more difficult or be discouraged from
attempting to effect an acquisition transaction with our Company, thereby
possibly depriving holders of our securities of certain opportunities to sell or
otherwise dispose of these securities at above-market prices pursuant to these
transactions.
FORWARD-LOOKING STATEMENTS
We make statements in this prospectus and the documents incorporated by
reference that are considered forward-looking statements within the meaning of
the Securities Act of 1933 and the Securities Exchange Act of 1934. The Private
Securities Litigation Reform Act of 1995 contains safe harbor provisions that
cover these forward-looking statements. We are including this statement for
purposes of complying with these safe harbor provisions. We base these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are not guarantees of future
performance and are subject to risks, uncertainties and assumptions, including,
among other things:
- uncertain market acceptance of our products;
- competition;
- the continued availability of financing in the amounts, at the times and
on the terms required to support our future business;
- continued losses and cash flow deficits;
- reliance on key personnel;
9
<PAGE>
- safety, efficacy and patent concerns regarding our products and
technology;
- changes in general economic conditions; and
- unforeseen operational difficulties and financial losses due to year 2000
computer problems.
Words like "expect," "anticipate," "intend," "plan," "believe," "estimate"
and variations of these types of words and similar expressions are intended to
identify forward-looking statements. We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. Because of these risks, uncertainties
and assumptions, the forward-looking events discussed or incorporated by
reference in this document may not occur.
USE OF PROCEEDS
We will not receive any part of the proceeds of any sale or transactions for
the Offered Shares sold by the Selling Securityholders. We have agreed to pay
all of the costs and fees relating to the registration of the Offered Shares.
However, we will not pay any discounts, concessions or commissions payable to
underwriters, dealers or agents incident to the offering of the Offered Shares.
Certain of the Selling Securityholders purchased warrants to purchase common
stock at $1.25 per share and have not yet exercised these warrants. We could
receive $3,588,905 in gross proceeds if all of these warrants are exercised.
However, as it is unlikely that these warrants will be exercised in the near
term as their exercise price is greater than the value of the underlying stock.
There can be no assurance that any of the warrants will be exercised before they
expire. We will use the proceeds from the exercise of any of the warrants for
general working capital and general corporate purposes. The purpose of this
offering is to register securities acquired by the Selling Securityholders
through private placements of our equity securities with accompanying warrants
in 1997 and 1998.
10
<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth summary financial information for the periods
indicated. This information should be read in conjunction with our consolidated
financial statements (including the notes thereto) appearing later in this
prospectus.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS TEN MONTH FISCAL YEARS ENDED
ENDED ENDED YEAR ENDED PERIOD ENDED -------------------------------------------
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, FEBRUARY 28, FEBRUARY 23, FEBRUARY 24,
1999 1998 1998 1997 1997 1996 1995
------------ ------------ ------------ ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................ $ 7,471,964 $ 4,639,864 $10,382,819 $ 13,951,725 $ 30,810,037 $28,839,954 $25,254,645
Cost of goods sold....... 6,354,020 4,794,768 8,826,905 17,311,037 27,784,329 26,161,723 19,879,041
------------ ------------ ------------ ------------- ------------- ------------ ------------
Gross profit (loss)...... 1,117,944 (154,904) 1,555,914 (3,359,312) 3,025,708 2,678,231 5,375,604
Selling, general and
administrative
expense................ 1,424,695 2,375,830 4,301,842 6,137,985 8,695,612 6,370,956 5,029,832
Bad debt expense......... -- -- -- 319,736 93,165 -- --
Write-down of impaired
assets and related
expenses............... -- -- -- -- 5,385,000 -- --
Patent infringement
settlement............. -- -- -- -- 512,648 -- --
------------ ------------ ------------ ------------- ------------- ------------ ------------
Income (loss) from
Operations............. (306,751) (2,530,734) (2,745,928) (9,817,033) (11,660,717) (3,692,725) 345,772
Allowance for officer
loan................... -- -- (68,039) (586,978) -- -- --
Interest and other
Expense................ (832,105) (276,152) (471,166) (984,064) (1,112,647) (865,206) (280,445)
Interest income.......... 42,983 35,953 45,920 49,206 9,133 47,786 77,104
------------ ------------ ------------ ------------- ------------- ------------ ------------
Net income (loss) before
extraordinary income
and non-recurring
charges................ (1,095,873) (2,770,933) (3,239,213) (11,338,869) (12,764,231) (4,510,145) 142,431
Extraordinary income..... 1,917,707 -- -- -- -- -- --
Non-recurring charges.... -- -- -- -- -- -- (989,917)
------------ ------------ ------------ ------------- ------------- ------------ ------------
Net income (loss) after
extraordinary income
and non-recurring
charges................ $ 821,834 $(2,770,933) $(3,239,213) $(11,338,869) $(12,764,231) $(4,510,145) $ (847,486)
Earnings (loss) per share
before extraordinary
income:
Basic and diluted net
earnings (loss) per
share.................. $ .05 $ (.14) $ (.16) $ (.73) $ (.96) $ (.38) $ (.08)
Shares used in computing
basic and diluted net
loss per share......... 21,496,623 20,012,639 20,849,356 15,579,747 13,261,815 11,756,532 10,670,040
Earnings (loss) per share
after extraordinary
income and
non-recurring charges:
Basic and diluted net
earnings (loss) per
share.................. $ 0.04 $ (.14) $ (.16) $ (.73) $ (.96) $ (.38) $ (.08)
Shares used in computing
basic and diluted net
earnings (loss) per
share.................. 21,496,623 20,012,639 20,849,356 15,579,747 13,261,815 11,756,532 10,670,040
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
AT AT AT AT AT AT AT
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, FEBRUARY 28, FEBRUARY 23, FEBRUARY 24,
1999 1998 1998 1997 1997 1996 1995
----------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets............. $21,194,727 $ 19,388,057 $17,751,965 $20,970,740 $29,247,231 $35,277,975 $35,341,925
Long term obligations.... $10,856,267 -- -- -- $ 3,809,241 $ 5,441,057 $ 4,495,692
Redeemable preferred
Stock.................. $ 100 -- -- -- -- $ 183,369 $ 183,369
Working capital
(deficit).............. $(2,171,934) $(13,919,703) $(12,748,154) $(13,897,932) $(5,819,144) $(2,767,867) $ 3,909,634
Stockholders' equity..... $ 4,881,307 $ 3,747,753 $ 3,279,473 $ 5,115,535 $11,544,675 $19,768,971 $24,048,204
</TABLE>
11
<PAGE>
BUSINESS
OUR COMPANY
We convert commercially available high molecular weight, high density
polyethylene resins into thin film. This film is either sold directly into
industrial or packaging applications or converted in-house into carryout bags of
"T-shirt sack" design. Our customers include supermarkets, convenience stores
and other retail markets.
All of our plastic products are manufactured using advanced, high quality
extrusion, printing and bag making equipment in our facility in North Dighton,
Massachusetts. Plastic resin is heated and blown into a thin film on blown film
extrusion lines. The film is cooled, wound on large rolls, printed with customer
information using water-based inks and shipped to customers. However, if the
film is to be used to manufacture bags, it is slit-sealed into bags, reviewed by
quality control inspectors, boxed and shipped to customers.
Our proprietary, high performance plastic films are being marketed and sold
to the developing insulation overwrap market in the United States. This market
has grown due to long-term health concerns raised from the handling of asbestos
and other insulation materials. We use two films specifically developed for
encapsulating glass fiber insulation mats for the private housing and the
industrial buildings industries. One is flame retardant and passed the required
tests of United Laboratories.
HISTORY
Our predecessor, Beresford Packaging, Inc. ("Beresford-U.S."), was organized
as a wholly owned subsidiary of Beresford Packaging, Inc., a Canadian
corporation. In February 1988, Beresford-U.S. was merged into Beresford Box
Company Limited ("Beresford-Canada"), to acquire certain assets and assume
certain liabilities of Surrey Industries, Inc., which was an unaffiliated entity
manufacturing traditional resin plastic bags. We were organized as a Delaware
corporation in May 1990. In August 1990, Beresford-U.S. merged into us. In
February 1993, our stockholders and directors changed our name from BPI
Environmental, Inc. to BPI Packaging Technologies, Inc.
On June 27, 1998, we stopped funding the operations of our two wholly-owned
subsidiaries, RC America, Inc. and Market Media, Inc. RC America purchased
surplus inventory from manufacturers of consumer products and markets and sold
the products to mass merchandise retailers and other retail chains. Market Media
sold and marketed in-store advertising and promotion programs. At the same time,
we also ended the employment of Ronald V. Caulfield, the Chief Executive Officer
and President of RC America.
During the fourth quarter of the fiscal year ending February 28, 1997 we
exited the standard grocery T-shirt bag business. However, because our other
products did not fill our current conversion capacity of 40 million pounds of
resin per year, we re-entered this business in the third quarter of 1998 and it
has contributed to our fixed costs since then.
12
<PAGE>
PRODUCTS AND MARKETS
"Direct competition" refers to competition for substantially similar
products and "indirect competition" refers to products which are not identical,
but which could be substituted for our product.
<TABLE>
<CAPTION>
1999 ANNUAL MARKET PATENT
(MILLIONS) STATUS COMPETITION
<S> <C> <C> <C> <C> <C>
HANDI-SAC-TM- $37 U.S. PATENT DIRECT: SONOCO PRODUCTS
CONVENIENCE, HARDWARE/AUTOMOTIVE AND ISSUED 1993 COMPANY T-SACK ROLL BAG
DRUG
INDIRECT: PAPER AND FLAT
T-SACKS
FRESH-SAC-REGISTERED TRADEMARK- $63 U.S. PATENT DIRECT: CROWN POLY, INC.,
T-SHIRT PRODUCE BAG ISSUED 1993 SEALED AIR AND BETTER
BAG, INC.
INDIRECT: PRODUCE BAG ON
A ROLL
INSULATION OVERWRAP $15 PROCESS DIRECT: VANGUARD
TECHNOLOGY PLASTICS, INC.
NO INDIRECT
HIGH PERFORMANCE PRINTED TISSUE OVERWRAP UNDER EVALUATION PROCESS DIRECT: EXXON CHEMICAL
FILM TECHNOLOGY AMERICAS
NO INDIRECT
T-SHIRT CARRYOUT BAG $850 U.S. PATENT DIRECT: VANGUARD, SONOCO
ISSUED 1989 AND INTEGRATED BAGGING
SYSTEMS CORP.
INDIRECT: KRAFT PAPER
BAGS
</TABLE>
HANDI-SAC-TM- is a T-shirt bag sold in a patented dispensing mechanism. The
patented system allows the retailer to effectively store and dispense T-shirt
bags in a limited space under the check-out counter, which is important to
convenience, drug, retail and hardware stores. HANDI-SAC-TM- is installed in
approximately 11,000 convenience, drug, retail and hardware stores. Management
estimates the annual market potential for HANDI-SAC-TM- at approximately $37
million in 1999. The market is split approximately 70% plastic and 30% paper.
FRESH-SAC-Registered Trademark- is a thin T-shirt produce bag sold in a
patented dispensing mechanism. This program is presently being sold to
approximately 600 supermarkets directly, and through distributors. Management
estimates the total annual market potential for the FRESH-SAC-Registered
Trademark- Produce Profit Builder Program to be $63 million in 1999.
We are testing a thin, clear mono-layer high molecular weight, high density
polyethylene film specifically designed for printed tissue overwrap (for
example, paper towels and bathroom tissue) as a replacement for traditional film
more than twice its thickness. The market size for this product is under
evaluation. Our five year purchase agreement for tissue overwrap with Printpack,
Inc. was terminated on October 7, 1998.
We have specifically developed two films to encapsulate glass fiber
insulation mats for the private housing and the industrial buildings industries.
One is flame retardant and has passed the required tests
13
<PAGE>
of United Laboratories. The market size of this new film application is
currently estimated to be $15 million annually and is expected to grow in North
America.
COMPETITION
The plastic film and bag markets are highly competitive. High barriers of
entry into the plastic bag and film markets are created by significant capital
requirements.
Of our patented products, HANDI-SAC-TM- has direct competition from: Sonoco
Products Company's T-sack roll bag product, flat T-sacks provided by Sonoco
Products Company, Vanguard Plastics, Inc. and others, and paper bags.
FRESH-SAC-Registered Trademark- has direct competition from: Crown Poly, Inc.
and Sealed Air, Inc., which manufacture plastic roll bags in a patented
dispensing system and Better Bag, Inc., which manufactures flat produce bags. It
has indirect competition from a variety of traditional, plastic, low-cost,
bag-on-a-roll manufacturers.
We potentially have direct competition for our thin, clear film used for
tissue overwrap from Exxon Chemical Americas. However, we believe that Exxon
Chemical Americas has an exclusive five year supply agreement with a consumer
packaged goods company that prohibits it from supplying other companies and,
therefore, Exxon Chemical Americas is not presently considered to be our
competitor. We compete with major manufacturers of flexible packaging and other
companies that manufacture thick plastic films for tissue overwrap.
Our competitors in the traditional T-shirt bag business include large
companies including Sonoco Products Company, Inteplast Corporation and Vanguard
Plastics, Inc.
PROPRIETARY PROCESSES, PATENTS AND OTHER RIGHTS
We have developed patents related to T-shirt bags. We own a patent issued in
1989 for our T-shirt carryout bag. In 1993, we were issued a U.S. patent for the
dispensing system used in conjunction with our FRESH-SAC-Registered Trademark-
and HANDI-SAC-TM- products. We have a registered trademark in the United States
for FRESH-SAC-Registered Trademark-. In 1996, we were issued a U.S. patent for
our FRESH-SAC-Registered Trademark- advertising vehicle called the Fresh Focus
CartridgeTalker-TM-.
We can give no assurances that our current patents and any patents that may
be granted in the future will be enforceable or provide us with meaningful
protection from competitors. Even if a competitor's products were to infringe
our patents, it could be costly for us to enforce our rights in an infringement
action and would divert funds and resources otherwise used in our operations.
Furthermore, we can give no assurances that we would be successful in enforcing
our patent rights. We can give no assurances that our products will not infringe
patents or rights of others.
We have developed a number of proprietary manufacturing methods and
processes utilized in the manufacture of our products. We rely on and employ
various methods to protect the concepts, ideas and documentation for these
manufacturing methods, like patents and confidentiality agreements with our
employees. However, these methods may not afford sufficient protection and we
can give no assurances that others will not independently develop similar
know-how or obtain access to our know-how, concepts, ideas and documentation.
MANUFACTURING
All of our plastic products are manufactured in our facility in North
Dighton, Massachusetts. Plastic resin is heated and blown into a thin film on
blown film extrusion lines. The film is cooled, wound on large rolls, printed
with customer information using water-based inks and shipped to customers.
However, if the film is to be used to manufacture bags, it is slit-sealed into
bags, reviewed by quality control inspectors, boxed, and shipped to customers.
Our manufacturing equipment consists
14
<PAGE>
of blown film extrusion lines, printing presses, bag making machines and film
slitting operations. Additional slitting capacity was acquired in the first
quarter of 1999.
RAW MATERIALS
High molecular weight, high density polyethylene resin is the principal raw
material in our products. The principal component of this resin is ethylene, a
derivative of natural gas, which is currently available from several sources.
During the year ended December 31, 1998, as in some prior fiscal years, resin
prices fluctuated significantly, a trend we expect to continue.
BACKLOG
Our backlog of firm orders on October 5, 1999 was $988,735, as compared to
$889,164 on March 22, 1999. We generally sell products on an individual purchase
order basis 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
The first quarter of any year is traditionally the slowest quarter for bag
products marketed to the retail trade. There is no apparent seasonality in the
industrial film business.
MAJOR CUSTOMERS
For the year ended December 31, 1998, two of our customers each accounted
for more than 10% of sales: Owens Corning at 10% and Bunzl, a distributor of our
patented bag products to grocery and convenience store retailers, at 20%. Our
primary relationships are with the decision makers at the retail level who chose
Owens Corning, Bunzl or other distributors to redistribute our products.
Therefore, we do not believe that the loss of Owens Corning's or Bunzl's
business would have a material adverse effect on our business as our products
would be shipped either direct to the retailer or through a different
distributor.
EMPLOYEES
As of October 5, 1999, we had 174 full-time employees. None of our employees
are represented by a union. We have not experienced a significant work stoppage
and consider our relationships with our employees to be good.
FACILITIES
We maintain our principal executive offices and manufacturing operations in
a 124,000 square foot facility in North Dighton, Massachusetts. The premises are
leased from an unaffiliated landlord. The term of the lease expires on December
31, 2007. The premise's monthly rent was $31,738 effective August 1, 1997, and
thereafter is adjusted based on certain indices. However, the monthly rental
payment was reduced to $26,255 effective March 1, 1999 due to a reduction in
space. We are responsible for payment of real estate taxes, which are
approximately $52,000 per year, and maintenance costs, which are approximately
$30,000 per year. We have an option to extend the lease at its expiration for a
seven year period.
LEGAL PROCEEDINGS
At December 31, 1998, we were involved in various pending commercial legal
proceedings with equipment lessors and trade suppliers because of lease defaults
and overdue trade accounts. The debt of the equipment lessors was paid in
conjunction with the January 27, 1999 financing on terms we
15
<PAGE>
negotiated with the lessors. Currently, we have no significant pending
commercial legal proceedings with equipment lessors or trade suppliers.
A notice of potential claim has been sent by a group of investors to us and
our insurance carrier. This notice alleges that our former management made
misrepresentations concerning registration rights attendant to the securities
purchased by them pursuant to Regulation D, Rule 144A and Regulation S of the
Securities Act. The securities held by this group of investors is being
registered with the SEC in this prospectus and registration statement. We
believe that any settlement in connection with this potential claim will not
have a material effect on our operations. Except as noted below, no further
action has been taken by this group of investors as of October 13, 1999.
On October 4, 1999, Professional Edge Fund, L.P. ("Pro Edge"), one of the
group of investors described above, filed suit against us in the Court of Common
Pleas of Philadelphia County Trial Division, Action No. 000147. Pro Edge also
named as defendants C. Jill Beresford, our Vice President of Marketing, Dennis
N. Caulfield, our former Chief Executive Officer and our former Chairman of the
Board of Directors, and Newport Capital Partners in this matter. Pro Edge has
alleged that we have breached a contract in regards to the registration of
shares it purchased in a private placement of our shares in November 1997 and
that we have been unjustly enriched based on the sale of these unregistered
shares. Pro Edge is seeking damages in an amount of approximately $1,013,000
plus interest and costs and expenses of the lawsuit. We are currently vigorously
defending ourselves against these allegations.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
On December 2, 1997, our Board of Directors adopted a change of our fiscal
year end from a 52-53 week fiscal year ending on the Friday closest to February
28 to a calendar year ending on December 31. The change in fiscal year end
resulted in the 10 month period ended December 31, 1997, the results of which
are included in our consolidated financial statements contained elsewhere in
this prospectus.
In June 1998, our Board of Directors stopped funding the operations of our
two subsidiaries, RC America, Inc. and Market Media, Inc. in connection with
cost cutting measures instituted at that time. Accordingly, the results of
operations discussed below may not necessarily be indicative of the results of
our operations for future periods.
RESULTS OF OPERATIONS
FIRST SIX MONTHS OF 1999 COMPARED TO THE FIRST SIX MONTHS OF 1998
For the first six months ended June 30, 1999, we had sales of $7,471,964
compared to sales of $4,639,864 for the first six months ended June 30, 1998.
Sales of our proprietary bag products (FRESH-SAC-Registered Trademark-
T-shirt sack produce bag and HANDI-SAC-TM-) and film products were $4,830,916 in
the first six months of 1999, compared to sales of $4,396,137 in the first six
months of 1998, an increase of 9%. Sales of traditional plastic carry-out bags
were $2,641,048 in the first six months of 1999, compared to sales of $243,727
in the first six months of 1998. We re-entered the traditional plastic carry-out
bag market and expect continued sales increases in this segment in future
quarters.
In the first six months of 1999, cost of goods sold was $6,354,020 or 85% of
sales, compared to $4,794,768, or 104% of sales, in the first six months of
1998. The decrease in cost of goods sold as a percentage of sales is due to a
decrease in fixed costs, increased sales volume and a reduction in variable
costs as a percentage of sales. Cost of goods sold would have been approximately
$150,000 greater in the first six months of both 1999 and 1998 had we not
recorded a write-down of plant and equipment during the fiscal year ended
February 28, 1997.
Selling, general and administrative expense for the first six months of 1999
was $1,424,695, or 19% of sales, compared to $2,375,830, or 51% of sales, in the
first six months of 1998. The decrease in selling, general and administrative
expense, as a percentage of sales, is due to the reduction of fixed expenses,
offset by an increase in variable expenses, which resulted from an increase in
sales volume. Overhead reductions, including the closing of operations of its
two subsidiaries, were mainly responsible for the decrease.
For the first six months of 1999, interest expense was $832,105, compared to
$276,152 for the first six months of 1998. The increase in interest expense is
due to the conversion of operating leases to capital leases as a result of the
financial restructuring in January 1999.
The net loss before extraordinary income was $1,095,873 in the first six
months of 1999 compared to a net loss of $2,770,933 in the first six months of
1998. The decrease in the loss before extraordinary income was due to a decrease
in fixed expenses and an increase in sales volume. Overhead reductions,
including the closing of operations of its two subsidiaries, were mainly
responsible for the decrease.
Extraordinary income of $1,917,707 in the first six months of 1999 was the
result of the financial restructuring in January 1999 and the resulting
discounts from settlements with unsecured creditors. No extraordinary income was
reported for the first six months of 1998.
17
<PAGE>
Net income after extraordinary income was $821,834 for the first six months
of 1999, compared with a loss of $2,770,933 in the first six months of 1998. The
change from net loss to net income was caused by a decrease in fixed expenses,
an increase in sales volume and the financial restructuring during the first
quarter of 1999. Net income after extraordinary income during the first six
months of 1999 would have been approximately $150,000 lower and the loss for
1998, $150,000 higher had we not recorded a write-down of plant and equipment
during the fiscal year ended February 28, 1997.
We experienced losses in prior years resulting in operating loss
carryforwards for federal and state income tax purposes. Due to our past
history, no benefit was recognized for net operating loss carryforwards because
of the uncertainty of realization. We estimate that sufficient net loss
carryforwards are available to offset income for the six months ended June 30,
1999.
We had basic and diluted net loss before extraordinary income of $0.05 per
share in the first six months of 1999 compared to a loss before extraordinary
income of $0.14 per share in first six months of 1998
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE 10 MONTH PERIOD ENDED DECEMBER 31,
1997
We are unable to accurately recast operating results to provide for a 12
month period ending December 31, 1997 because we did not undertake monthly
accounting closings during the months in question. The months of January and
February are the lowest sales periods of the year under normal seasonality
trends. We believe that the results for a 12 month period ending December 31,
1997 would not have produced a lesser loss for the reporting period than the
loss as represented for the 10 month period ending December 31, 1997.
During the 10 month period ended December 31, 1997, we exited the
traditional plastic carryout bag market. Sales for the year ended December 31,
1998 were $10,382,819 compared to $13,951,725 in the 10 month period ended
December 31, 1997.
Sales of our proprietary bag products, FRESH-SAC-Registered Trademark-
T-shirt sack produce bag and HANDI-SAC-TM-, were $7,799,714 in the year ended
December 31, 1998, compared to sales of $6,185,039 in the 10 month period ended
December 31, 1997. Sales of traditional products decreased to $1,595,010 in the
year ended December 31, 1998 from $6,739,028 in the 10 month period ended
December 31, 1997. We exited the traditional bag market during the 10 month
period ending December 31, 1997 and had sales of $536,543 in the first nine
months of this period compared to sales of $1,058,467 in the last quarter of
1998, when we elected to return to the traditional bag market. The sales of
insulation overwrap films were $988,095 in 1998, compared to $58,731 in the 10
month period ended December 31, 1997. RC America, Inc. had no sales in 1998,
compared to $968,927 in the 10 month period ended December 31, 1997.
In 1998, cost of goods sold was $8,826,905, or 85.0% of sales, as compared
to cost of goods sold in the 10 month period ended December 31, 1997 of
$17,311,037, or 124.1% of sales. Plans to reduce overhead in 1998 resulted in
significant savings beginning in the second quarter of 1998. Cost of goods sold
would have been approximately $303,000 greater in 1998 and approximately
$253,000 greater during the 10 month period ended December 31, 1997 had we not
recorded a write-down of plant and equipment during the fiscal year ended
February 28, 1997.
Selling, general and administrative expense for 1998 was $4,301,842, or
41.4% of sales, as compared to selling, general and administrative expense of
$6,137,985 in the 10 month period ended December 31, 1997, or 44.0% of sales.
Overhead reductions, including the closing of operations of its two
subsidiaries, were mainly responsible for the decrease.
In 1998, interest expense decreased to $471,166, or 4.5% of net sales, as
compared to $984,064 in the 10 month period ended December 31, 1997, or 7.1% of
net sales. Interest decreased due to lower debt balances outstanding under our
credit lines.
18
<PAGE>
A net loss of $3,239,213 in 1998 compares to a net loss of $11,338,869 in
the 10 month period ended December 31, 1997. The non-cash expenses of
depreciation and amortization were $2,538,880 for 1998, compared to $2,186,621
for the 10 month period ended December 31, 1997. The net loss can be attributed
to reductions in plant and sales, general and administrative costs, and
discontinued operations of the two subsidiaries in the second quarter of 1998.
The losses for 1998 and the 10 month period ended December 31,1997 would have
been greater by approximately $303,000 and $253,000, respectively, if we had not
recorded a write-down of plant and equipment in fiscal year 1997.
We incurred a loss of $0.16 per share in 1998, as compared to a loss of
$0.73 per share in the 10 month period ended December 31, 1997.
Operating profits (loss) for the various business units are as follows:
<TABLE>
<CAPTION>
YEAR ENDED 10 MONTH PERIOD ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ---------------------
<S> <C> <C>
Proprietary, traditional and film products......... $ (1,004,120) $ (7,878,610)
RC America, Inc.................................... (130,345) (34,584)
BPI Packaging Technologies, Inc.................... (7,353) (119)
Market Media, Inc.................................. (122,136) (391,853)
Unallocated corporate overhead..................... (1,481,974) (1,511,867)
----------------- ---------------------
Operating profit (loss)............................ $ (2,745,928) $ (9,817,033)
Allowance for officer loan......................... (68,039) (586,978)
Interest expense, net.............................. (425,246) (934,858)
----------------- ---------------------
Net loss........................................... $ (3,239,213) $ (11,338,869)
----------------- ---------------------
----------------- ---------------------
</TABLE>
10 MONTH PERIOD ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR 1997
We are unable to accurately recast operating results to provide for a 12
month period ending December 31, 1997 because we did not undertake monthly
closing of the records during the months in question. The months of January and
February are the lowest sales periods of the year under normal seasonality
trends. We believe the results for a 12 month period ending December 31, 1997
would not have produced a lesser loss for the reporting period than the loss
represented for the 10 month period ending December 31, 1997.
Sales for the 10 month period ended December 31, 1997 were $13,951,725,
compared to sales of $30,810,037 for fiscal year 1997. Sales of our proprietary
bag products, FRESH-SAC-Registered Trademark- T-shirt sack produce bag,
HANDI-SAC-TM- and MAXI-SAC-TM-, and film products were $6,185,039 in the 10
month period ended December 31, 1997, compared to sales of $12,035,704 in fiscal
year 1997. Sales of traditional products decreased to $6,739,028 in the 10 month
period ended December 31, 1997 from $16,571,656 in fiscal year 1997. Insulation
overwrap sales were $58,731 during the 10 month period ended December 31, 1997.
RC America, Inc.'s net sales were $968,927 in the 10 month period ended December
31, 1997 compared to $2,067,746 in fiscal year 1997. Market Media, Inc. recorded
no sales in the 10 month period ended December 31, 1997, compared to sales of
$134,932 during fiscal year 1997.
In the 10 month period ended December 31, 1997, cost of goods sold was
$17,311,037 or 124.1% of sales, as compared to cost of goods sold in fiscal year
1997 of $27,784,329, or 90.2% of sales. Selling, general and administrative
expense for the 10 month period ended December 31, 1997 was $6,137,985, or 44.0%
of sales, as compared to selling, general and administrative expense of
$8,695,612 in fiscal year 1997, or 28.2% of sales. Additional depreciation of
approximately $253,000 would have been recorded in the 10 month period ended
December 31, 1997, if we had not recorded the write-down of plant and equipment
during fiscal year 1997.
19
<PAGE>
For the 10 month period ended December 31, 1997 interest expense decreased
to $984,064, or 7.1% of net sales, as compared to $1,112,647 in fiscal year
1997, or 3.6% of net sales.
A net loss of $11,338,869 in the 10 month period ended December 31, 1997
compares to a net loss of $12,764,231 in fiscal year 1997. The non-cash expenses
of depreciation and amortization were $2,186,621 for the 10 month period ended
December 31, 1997, compared to $3,417,849 for fiscal year 1997. The loss
reported for the 10 month period ending December 31, 1997 would have been
$253,000 greater if we had not recorded the write-down of plant and equipment
during fiscal year 1997.
We incurred a loss of $0.73 per share in the 10 month period ended December
31, 1997 as compared to a loss of $0.96 per share in fiscal year 1997.
Operating profits (loss) for the various business units are as follows:
<TABLE>
<CAPTION>
10 MONTH PERIOD ENDED FISCAL YEAR
DECEMBER 31, 1997 1997
---------------------- ---------------
<S> <C> <C>
Proprietary, traditional and film products........... $ (7,878,610) $ (9,079,854)
RC America, Inc...................................... (34,584) 53,591
BPI Packaging, Inc................................... (119) (2,205)
Market Media, Inc.................................... (391,853) (809,199)
Unallocated corporate overhead....................... (1,511,867) (1,823,050)
------------ ---------------
Operating profit (loss).............................. $ (9,817,033) $ (11,660,717)
Allowance for Officer Loan........................... (586,978) --
Interest expense, net................................ (934,858) (1,103,514)
------------ ---------------
Net loss............................................. $ (11,338,869) $ (12,764,231)
------------ ---------------
------------ ---------------
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Since our initial public offering in October 1990, we have generated funds
to finance our activities through both public sales and private placements of
our securities, as well as bank loans, equipment lease financings and cash from
operations.
On January 27, 1999, we issued a promissory note in the aggregate principal
amount of $3,200,000 to DGJ. This note matures at the latest on February 1,
2004, has an interest rate of 6% per annum payable monthly in arrears and is
secured by all of our assets. On June 30, 1999, we were in default on the note
as we failed to make four monthly interest payments of $16,000 per month for the
months of March to June 1999, or a total of $64,000. In addition, we did not
make our July and August 1999 interest payments. As this caused an event of
default, as defined in the note, DGJ, the holder of the note, is entitled to
various rights and remedies under the note and the Securities Purchase
Agreement, including, but not limited to, the right to declare all or any part
of the unpaid principal amount of the note outstanding to be due and payable. As
of August 13, 1999, DGJ had indicated a willingness to defer exercising its
rights and remedies upon default pending discussion with us regarding how the
note default was to be cured. This note was amended on August 19, 1999, as
described in "Notes Payable" below.
On January 27, 1999, we entered into a factoring agreement with a company
related to DGJ. The factoring agreement provided us with $2,000,000 of financing
secured by our accounts receivable and $1,000,000 secured by our inventory. The
term for both the accounts receivable and inventory financing was six months,
subject to automatic termination unless we gave at least 90 days written notice
of termination. We gave written notice of termination regarding this factoring
agreement on March 30, 1999. The financing bore interest at the prime rate plus
5% on the outstanding balance on the inventory loan and prime rate plus 2% on
all accounts receivable submitted for financing. The parties to the factoring
agreement had indicated a willingness to extend the terms of the agreement on a
20
<PAGE>
month-to-month basis until the agreement could be replaced with a revolving line
of credit. This factoring agreement was replaced, on August 19, 1999 with a loan
agreement with LaSalle Business Credit, Inc., as described in "Notes Payable"
below.
During the second quarter of 1999, the lender under the factoring agreement,
described above, advanced us additional funds in various increments. These
additional funds were used as working capital. The terms of these additional
loans are on the same terms as the original factoring agreement. On August 19,
1999, the total amounts owed to this lender were assumed by DGJ and were added
into the $3,200,000 promissory note made in favor of DGJ, as described in "Notes
Payable" below.
Our equipment, capital and operating leases are funded by the equipment
lease with DGJ, dated January 27, 1999. On June 30, 1999, we were in default on
the equipment lease as we failed to make five monthly lease payments of $102,000
per month for the months of February to June 1999, or $510,000 in total. In
addition, we did not make our July and August 1999 lease payments. As this
caused an event of default, as defined in the equipment lease, DGJ is entitled
to various rights and remedies under the equipment lease and the Securities
Purchase Agreement, including, but not limited to, the right to have any and all
remaining sums under the lease become immediately due and payable and the right
to repossess the leased equipment. As of August 13, 1999, DGJ had indicated a
willingness to defer exercising its rights and remedies upon default pending
discussion with us regarding how the equipment lease default was to be cured. On
August 19, 1999 the past due amounts we owed under this equipment lease were
added to the $3,200,000 promissory note made in favor of DGJ, as described in
"Notes Payable" below.
In February 1999, we borrowed approximately $219,000 from DGJ to purchase
additional pieces of equipment. This loan bore interest at a rate of 18% per
annum and matured in September 1999. Beginning on April 1, 1999, we were
required to make six successive monthly installment payments of interest only.
As of June 30, 1999, we did not make any monthly interest payments under this
note. As of August 13, 1999, DGJ had indicated a willingness to defer exercising
its rights and remedies upon default pending discussion with us regarding how
the loan default was to be cured. On August 19, 1999, the amount of this loan
and any interest accrued thereunder were added to the $3,200,000 promissory note
made in favor of DGJ. See "Notes Payable" below for a description.
NOTE PAYABLE
At August 10, 1998, we entered into a new revolving line of credit
arrangement with a lender providing for the borrowing of up to $2,000,000
against eligible accounts receivable. Part of the proceeds were used to repay a
line of credit with Foothill Capital Corporation and the balance was used as
general working capital. On October 16, 1998, we negotiated an increase in the
advance on our receivable from 70% to 75% of eligible receivables. We paid a fee
of 2% of our monthly invoices with interest at prime plus 6%. The agreement was
secured by receivables, general intangibles, contract rights and all inventory.
As of December 31, 1998, we were in default under the terms of the agreement by
being late on rent payments to our landlord.
On January 27, 1999, we entered into a factoring agreement with Franklin
Capital Corporation, an entity affiliated with Gary R. Edidin, one of our
directors. Under this factoring agreement, we, with full recourse, assigned and
sold to Franklin our entire interest in all of our present and future accounts,
instruments, contractual rights, chattel paper, documents and general
intangibles arising from sales of goods and/or rendition of services, and
proceeds from these items and all security and guarantees on them, then existing
or subsequently created. We paid Franklin a factoring fee in an amount equal to
2% of the gross amount of these receivables; provided, however, that the minimum
commission for any receivables was $5.00.
Under the factoring agreement, Franklin may have advanced us up to 85% of
the purchase price of the receivables as they were created, subject to a maximum
advance at any time outstanding of
21
<PAGE>
$2,000,000. Interest was charged for the number of days that advances of the
purchase price of the receivables are made to us prior to the date they were
paid and for the number of days that the advances from Franklin's account
remained outstanding at the prime rate plus 2% per annum, except that the
interest was to be in no event less than 8% per annum. The factoring agreement
matured in July 1999 and was extended to August 1999.
On January 27, 1999, we issued a demand revolving note to Franklin in the
principal sum of $1,000,000 at an interest rate of 5% above the prime rate.
However, the interest rate charged could not be less than a minimum annual fixed
rate of 12 3/4%. We agreed to pay Franklin a late charge on all payments made
pursuant to the revolving note equal to 5% of the late payment.
The revolving note was secured by a security agreement we entered into with
Franklin on January 27, 1999. This security agreement granted Franklin a
continuing security interest in our right, title and interest in our then
present and future accounts, inventory, equipment and other property. Under the
terms of the Security Agreement, the amount eligible to be advanced under the
revolving note was limited to the lesser of:
- $1,000,000; and
- the sum of:
(a) 50% of eligible inventory consisting of finished goods covered by
firm purchase orders or contracts; and
(b) 50% of eligible inventory consisting of raw materials comprised of
resins.
On August 19, 1999, we entered into a series of transactions with LaSalle
Business Credit, Inc. and DGJ to refinance our existing indebtedness. Our loan
agreement with LaSalle provides us with a $4,000,000 revolving line of credit.
This credit facility is secured by a first priority security interest in our
accounts receivable, inventory and certain other assets. DGJ is the lessor of
substantially all the equipment that we use, under a capital lease, and holds a
first priority security interest in our equipment. LaSalle received a second
priority security interest in our equipment. Certain of the proceeds of this
credit facility were used to retire existing indebtedness we owed to Franklin
Capital Corporation, including the above described factoring agreement and
revolving note, while the remaining proceeds were used to retire some of our
other indebtedness and for working capital purposes. This credit facility bears
interest at a fluctuating rate equal to 1.5% per annum above the prime rate of
LaSalle in effect from time to time and matures in three years.
In addition, we and DGJ amended and restated the promissory note in the
original principal amount of $3,200,000, because we were unable to fulfill its
financial obligations under the terms of the loan and lease documents by and
between us and DGJ. To cure the defaults, we restated the note to include, in
addition to the original principal and interest accrued thereunder, all amounts
outstanding under: (i) an equipment loan made by DGJ to us as of March 1, 1999
in the original principal amount of $218,665; (ii) a series of advances made to
us by Franklin during the second quarter of 1999 (which totaled approximately
$900,000, and were reduced to approximately $660,000 after application of
proceeds of the credit facility), rights to repayment of which were subsequently
assigned by Franklin to us; (iii) delinquent payments under the DGJ lease of
approximately $570,000; and (iv) interest on the foregoing. The resulting
balance of $4,773,585 was restated as the principal amount of a new amended
promissory note. The amended promissory note is in the original principal amount
of $4,773,585 and is payable as follows: $3,200,000 of principal is due and
payable on February 1, 2004, or earlier by acceleration, as described in the
Securities Purchase Agreement between us and DGJ, or otherwise, and $1,573,585
is due and payable pursuant to the terms of an intercreditor agreement between
DGJ and LaSalle. The amended promissory note bears interest at a rate of 10% per
annum, and is secured by all of our assets, subordinated to LaSalle except as to
equipment.
22
<PAGE>
SALES OF SECURITIES
We received net proceeds from the privately placed sale of common stock from
January 1, 1998 to June 30, 1998, of $1,282,951. The proceeds were used for
general corporate purposes.
We issued no common stock between April 1, 1999 and June 30, 1999. In
connection with our financial restructuring in January 1999, 1,629,930 shares of
Series C Preferred Stock were issued to DGJ for $100. Also, in connection with
the January financial restructuring, we reserved 30,937,500 shares of authorized
but unissued shares of common stock to meet its requirements under the financing
terms of such restructuring.
EQUIPMENT PURCHASES AND LEASE FINANCINGS
From March 1994 through August 1997, we acquired, through purchase or lease,
approximately $19,700,000 of additional equipment to increase manufacturing
capacity and efficiency and to expand our product lines. The equipment was
financed from the sale of equity securities, equipment lease financing and bank
loans.
Some of our capital leases contained provisions that gave the lessors the
right to accelerate lease payments in the event of default. Each of these
capital lessors previously filed suit because of defaults. All of our capital
leases, operating leases and real-estate leases were in default on December 31,
1998.
Pursuant to the Securities Purchase Agreement, we entered into a ten year
equipment lease with DGJ in which we agreed to lease certain equipment for
$1,224,000, interest only at 18%, per year, payable in equal monthly
installments. This equipment lease replaced the existing equipment leases that
were in default or which were subject to judgments due to past due payments we
owed. See "Liquidity and Capital Resources" above for additional information.
In February 1999, we borrowed approximately $219,000 from DGJ to purchase
additional pieces of equipment. See "Liquidity and Capital Resources" above for
additional information.
LIQUIDITY
The non-cash charges of depreciation and amortization of $2,538,880 in 1998
were added to the net loss on our Statement of Cash Flows. Inventory was reduced
by $630,453 during 1998. The current asset ratio was 0.12:1 at December 31, 1998
and 0.66:1 after the financial restructuring that occurred on January 27, 1999.
The debt-to-equity ratio was 4.4:1 at December 31, 1998 and 2.8:1 after the
January 27, 1999 financial restructuring.
The non-cash charges of depreciation and amortization of $1,369,953 in the
first six months of 1999 were added to the net profit on our Statement of Cash
Flows for that period. Inventory and accounts receivable increased by a total of
$1,424,564 during the first six months of 1999. The current asset ratio was
0.60:1 at June 30, 1999 and 0.12:1 at December 31, 1998. The debt to equity
ratio was 3.34:1 at June 30, 1999 and 4.4:1 at December 31, 1998.
IMPAIRMENT OF LONG-LIVED ASSETS AND PATENT INFRINGEMENT SETTLEMENT
During the fourth quarter of fiscal year 1997, we made the decision to exit
the traditional T-shirt bag business. The application of Statement of Financial
Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed Of," to the decision to exit the
traditional T-shirt bag business caused us to recognize a non-cash charge of
$5,385,000 to write down to fair value some long-lived assets consisting
principally of machinery and equipment, patents and goodwill, together with
other related expenses. The assets consist of those related to the manufacture
of the traditional T-shirt bag business.
23
<PAGE>
Description of impaired assets, patents, goodwill and plant assets relating
to bag making facilities:
<TABLE>
<S> <C>
Patents........................................... $ 1,044,577
Goodwill.......................................... 620,353
Plant equipment................................... 3,335,070
Reserve for agreement with bag-making equipment
vendor.......................................... 285,000
Write-off of rubber plates used in bag-making
equipment....................................... 100,000
------------
Total............................................. $ 5,385,000
------------
------------
</TABLE>
The method used to determine fair value was a discounted cash flow approach.
Fair value of all assets, except plant equipment, was determined to be zero
based upon our decision to exit the traditional T-shirt bag business. Fair value
of the plant equipment was determined based upon projected future cash flows for
the remaining useful life, present book value and residual value of assets at
the end of its useful life, with cash flows both discounted at 14% per year, the
current average cost of secured debt financing.
A patent infringement suit settlement of $512,648, including legal defense
costs, was recorded during fiscal year 1997.
IMPACT OF INFLATION
Inflation during the year ended December 31, 1998 did not have any impact on
operating results nor did it have any impact on the last three fiscal periods.
YEAR 2000
In June 1998, we implemented a Year 2000 compliance project. This project
addresses the internal risk, requirements and budgets for becoming Year 2000
compliant. We have completed an inventory of all of our internal operations and
currently are addressing Year 2000 compliance with our suppliers and other
constituents. In the second quarter of 1999, we expended $25,000 on Year 2000
compliance.
As a result of the Year 2000 compliance project, we are upgrading our
financial and accounting system at a cost of approximately $25,000, and are
funding the upgrade out of working capital. The finance and accounting system
upgrade is currently in process and is expected to be installed and tested by
October 31, 1999. We have tested all of our manufacturing equipment, including
our manufacturing information systems, and all were determined to be Year 2000
compliant. We have not utilized any independent verification or validation
processes since the tests performed on our manufacturing systems determined the
systems to be Year 2000 compliant. We do not contract out our systems
maintenance and design and, therefore, have no third party risk in this regard.
As of October 5, 1999, we have contacted five significant customers, which
accounted for 50.3% of total sales for the first quarter of 1999 regarding their
Year 2000 compliance status. All of these customers have indicated that they are
either already Year 2000 complaint or are on schedule to be Year 2000 complaint
by December 31, 1999. None of these customers currently order from us through
electronic systems.
We sent questionnaires to all 409 vendors as of May 14, 1999 regarding their
Year 2000 compliance status. As of October 5, 1999, we received 177 responses.
All major vendors responded that they are currently Year 2000 compliant and the
other vendors are either Year 2000 compliant or are on schedule to be Year 2000
compliant by December 31, 1999.
In the worse-case scenario we envision, Year 2000 compliance issues may
cause the railroad systems in the United States to become dysfunctional, which
would require us to obtain our resin and
24
<PAGE>
other supplies by other means of transportation. We would be unable to
manufacture products and revenues would be impacted 60 days after the rail
system stops functioning. Our contingency plan is to implement a manual system
for our accounting and finance functions and accumulate a 30-day inventory
excess of raw materials by December 31, 1999.
We have not deferred any of our information technologies projects due to
Year 2000 efforts. Furthermore, there has been no impact from any deferred
projects on our financial condition or results of operations.
25
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers, their positions held and their ages
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Hanspeter Schulz........................... 60 President and Director
Richard H. Nurse........................... 54 Vice President of Manufacturing
Peter W. Blackett.......................... 50 Senior Vice President of Sales
James F. Koehlinger........................ 63 Chief Financial Officer and Treasurer
C. Jill Beresford.......................... 45 Vice President of Marketing
Ivan J. Hughes............................. 70 Chairman of the Board
David N. Laux.............................. 71 Director
Gary R. Edidin............................. 54 Director
Allen S. Gerrard........................... 63 Director
Bruce M. Fleisher.......................... 68 Director
Theodore L. Koenig......................... 40 Director
</TABLE>
No director or executive officer is related by blood, marriage or adoption
to any other director or executive officer.
HANSPETER SCHULZ, PH.D. Dr. Schulz has been our President and Director
since January 1999. From August 1998 to January 1999, Dr. Schulz served as our
consultant. From 1996 to 1998, Dr. Schulz was a Director of Business Integration
for Celanese Ltd., a member of the Hoechst Group, and was one of three managers
responsible for the global installation of Systems Anwendugen Prozesse
Technologies. From June 1995 to 1996, Dr. Schulz was Business Director for
Methanol/Formaldehyde/ Polyols, a global commodity business of Celanese, a
member of the Hoechst Group, with production sites in the United States, Canada
and Germany. From 1982 to June 1995, Dr. Schulz was Vice President and General
Manager of the High Density and Ultra High Molecular Weight Polyethylene
business at American Hoechst, a member of the Hoechst Group. From 1959 to 1969,
Dr. Schulz studied chemistry and related subjects at the Universities of
Stuttgart, Germany, Kansas, USA, on a scholarship basis, and Hamburg, Germany
resulting in a Ph.D. of Natural Sciences in 1969.
RICHARD H. NURSE, PH.D. Dr. Nurse has been our Vice President of
Manufacturing since January 1999. Prior thereto, he was our Vice President of
Technical Development since January 1995. Starting in 1989, Dr. Nurse was 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, he was a Technical Manager
for Nortech Company, another plastics additive manufacturer. From 1973 to 1985,
Dr. Nurse was with the Hoechst AG, a plastics resin manufacturer, serving in
technical application and development management in South Africa and Germany and
since 1979, in the United States. 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, London, England.
PETER W. BLACKETT. Mr. Blackett has been our Senior Vice President of Sales
since March 1999. From 1997 to 1999, he was employed with Fina Oil and Chemical
Company as Regional Sales Manager and from 1992 to 1997, as a Technical Service
Manager for Fina's High Density Polyethylene business group. Mr. Blackett holds
a Higher National Certificate in Mechanical Engineering from Peterborough
Technical College and a Graduateship of the Plastics Institute from Borough
Polytechnic in South London.
26
<PAGE>
JAMES F. KOEHLINGER. Mr. Koehlinger has been our Chief Financial Officer
and Treasurer since January 1999. He previously served as our consultant, on a
part-time basis, from August 1998 to January 1999. From October 1996 to January
1999, Mr. Koehlinger was a senior consultant with Benchmark, a financial
consulting firm. He previously served as our Chief Financial Officer from
February 1988 to October 1996. Mr. Koehlinger received a Bachelor of Science
degree from Indiana University and a Master of Business Administration degree
from Clark University. He is also a certified public accountant.
C. JILL BERESFORD. Ms. Beresford has been our Vice President of Marketing
since January 1999. From June 1998 until January 1999, she was our Chairman,
Chief Executive Officer and Chief Financial Officer. She also served as our
Chief Operating Officer from 1995 to 1998. She served as our President from July
1996 to June 1998. She was our Treasurer from May 1990 to January 1999 and our
Director from March 1989 until January 1999. From May 1990 to July 1995, Ms.
Beresford was our Vice President of Marketing. Ms. Beresford attended the
University of Guelph, Ontario, Canada and received a Masters degree in Business
Administration from Boston University.
IVAN J. HUGHES. Mr. Hughes was re-elected as our Director on July 13, 1998
and became Chairman of the Board on January 27, 1999. Mr. Hughes previously
served as our Director from March 1996 to February 1998. 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 for the food and retail industry. Mr. Hughes has been employed by
Duro Bag in various positions for the past 35 years and presently serves on the
Executive and Compensation Committees. Mr. Hughes received a Bachelor of Science
degree in Mechanical Engineering at Lafayette College and completed his graduate
studies at Columbia University.
DAVID N. LAUX. Mr. Laux has served as our Director since January 1993.
Since 1991, Mr. Laux has served as a Director of ROC Taiwan Fund, a closed end
fund listed on the New York Stock Exchange. 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. Mr. Laux
received his Bachelor of Arts degree from Amherst College and his Master of
Business Administration degree from the American University in Washington, D.C.
He has done graduate work at the University of California at Berkeley and
Georgetown University. Mr. Laux is also a graduate of the Advanced Management
Program at Harvard Business School.
GARY R. EDIDIN. Mr. Edidin has served as our Director since January 1999.
In January 1999, Mr. Edidin became a Member of the Board of Managers, Chairman,
President and Chief Executive Officer of DGJ. In 1975, Mr. Edidin co-founded
Edidin Associates, an investment banking firm. He has been Managing Partner of
Edidin Associates since 1980. In 1992, Mr. Edidin co-founded Franklin Capital
Corp., a regional asset based lender, and is presently the Co-Chairman and
member of its Board of Directors. In 1980, Mr. Edidin served as the Chief
Executive Officer and Chairman of Optique Du Monde, Ltd. ("ODM"), an eyewear
company. In 1988, ODM was sold to the Safilo Group, an Italian publicly traded
eyewear company. Since 1988, he has been a management consultant to the Safilo
Group and Safilo USA, its U.S. subsidiary. In 1997, Mr. Edidin represented
Safilo Group in its acquisition of Smith Sports Optics, Inc. and began serving
that company as a member of the Board of Directors and Executive Committee. He
has also served as the Chairman and Chief Executive Officer of Clarin Corp., a
manufacturer of institutional seating, since 1993. Since 1998, Mr. Edidin has
served as a member of the Board of Directors of Colors For Plastic, a plastic
coloration company. In 1977, a group of investors, including Edidin Associates,
purchased the Lawndale Trust and Savings Bank, a community bank in Chicago. The
same investors subsequently purchased the Garfield Ridge Trust and Savings Bank
and the Bank of Chicago, two Chicago community banks. In 1995, these three banks
were merged into one under the name Bank of Chicago. In 1997, Bank of Chicago
was sold to TCF, a publicly traded savings bank headquartered in Minnesota. Mr.
Edidin has served these banks in
27
<PAGE>
various capacities over the years, including Chairman and Chief Executive
Officer. Mr. Edidin received his Bachelor of Science degree from the University
of Pennsylvania, Wharton School, and his Juris Doctor degree from the University
of Chicago Law School. Mr. Edidin also attended the University of Chicago
Business School.
ALLEN S. GERRARD. Mr. Gerrard has served as our Director since January
1999. Since 1996, Mr. Gerrard has served as a Director of Deere Park Capital
Management, an investment and merchant banking firm. Since May 1998, he has also
served as Vice-Chairman of that company. Beginning in January 1999, Mr. Gerrard
has been a Member of the Board of Managers and Treasurer of DGJ. From November
1998 to March 1999, Mr. Gerrard served as Director of McConnell Dowell
Corporation, Limited, a publicly traded company involved in construction. Since
1997, Mr. Gerrard has served as a Director of Dominion Bridge Company, a
publicly-traded construction and shipbuilding company. Mr. Gerrard was a
Principal in the law firm of Allen S. Gerrard & Associates from 1978 to 1999.
Mr. Gerrard received his Bachelor of Arts degree in Political Science from the
University of Illinois in Champaign-Urbana and his Juris Doctor degree from the
University of Michigan Law School.
BRUCE M. FLEISHER. Mr. Fleisher has served as our Director since April
1999. Since 1998, Mr. Fleisher has been involved in private investing. From 1996
to 1998, he served as the Vice President and Division Manager, Chicago for the
Supply Systems Division of Unisource Worldwide, Inc., a wholesale distributor of
paper and packaging supplies. From 1983 to 1996, he was the President and owner
of Darter, Inc. In 1996, Darter, Inc. was purchased by Unisource Worldwide, Inc.
From 1996 to 1997, he was also a member of the Board of Directors and Chairman
of the Industrial Committee for the National Paper Trade Association. Mr.
Fleisher received his Bachelor of Science degree in Economics from the
University of Pennsylvania, Wharton School, and his Masters degree in Business
Administration from George Washington University.
THEODORE L. KOENIG. Mr. Koenig has served as our Director since April 1999.
In 1996, Mr. Koenig founded and since serves as the President and Chief
Executive Officer of Monroe Investments, Inc., a Chicago-based investment and
merchant banking firm specializing in strategic growth investment opportunities.
From 1989 to July 1999, Mr. Koenig was a partner at Holleb & Coff, a
Chicago-based law firm. Since July 1999, Mr. Koenig has acted as counsel to
Holleb & Coff. Mr. Koenig received his Bachelor of Arts degree in Accounting
from Indiana University Kelley School of Business and his Juris Doctor degree
from the Illinois Institute of Technology, Chicago Kent School of Law. Mr.
Koenig is also a Certified Public Accountant.
SIGNIFICANT EMPLOYEE
The following employee is not an executive officer but is expected to make
significant contributions to our business:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Tracy L. McGrath........................... 34 Vice President of Sales
</TABLE>
TRACY L. MCGRATH. Ms. McGrath has served as our Vice President of Sales
since January 1999. Prior to that position, she was our Vice President of
Marketing since December 1997 and, before that, was our Marketing Manager since
November 1993. Ms. McGrath has a Bachelor of Science degree in Communications
from Eastern Connecticut State University.
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
annual and long term compensation for services in all capacities to our business
during the 12 months ended December 31,
28
<PAGE>
1998, the 10 months ended December 31, 1997, fiscal year 1997 and the fiscal
year ended February 23, 1996, of those persons who were, at December 31, 1998:
- our Chief Executive Officer (including persons who held this position at
any time during 1998); and
- other executive officers receiving total cash and bonus compensation in
excess of $100,000 (the "Named Officers").
We did not grant any restricted stock awards or stock appreciation rights or
make any long term incentive plan payouts to the individuals named in the table
below during the periods indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
--------------------------------
ANNUAL COMPENSATION SECURITIES
------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY(1) BONUS(2) OPTIONS(#) COMPENSATION
- ------------------------------------------------- ------------- ---------- ------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Dennis N. Caulfield(3)........................... 1998 $ 169,846 $ 0 0 $ 9,923(3)
Former Chief Executive Officer 1997(A) $ 266,666 $ 0 0 $ 43,323(3)
1997 $ 320,000 $ 0 0 $ 130,220(3)
1996 $ 320,000 $ 0 0 $ 36,174(3)
C. Jill Beresford(4)............................. 1998 $ 182,506 $ 0 0 $ 12,848(4)
Chief Executive Officer, 1997(A) $ 150,000 $ 0 0 $ 6,424(4)
Chairman of the Board of 1997 $ 180,000 $ 0 0 $ 26,716(4)
Directors 1996 $ 180,000 $ 0 0 $ 14,612(4)
Alex F. Vaicunas(5).............................. 1998 $ 124,856 $ 0 0 $ 1,746(5)
Former Vice President of 1997(A) $ 104,167 $ 0 0 $ 3,150(5)
Film Sales 1997 $ 125,000 $ 0 0 $ 3,232(5)
1996 $ 125,000 $ 0 0 $ 1,213(5)
Richard Nurse, Ph.D.(6).......................... 1998 $ 119,115 $ 0 0 $ 8,935(6)
Vice President of Technical 1997(A) $ 64,399 $ 0 0 $ 3,410(6)
Development 1997 $ 77,279 $ 0 0 $ 4,401(6)
1996 $ 71,936 $ 0 0 $ 3,656(6)
Paul J. DeCristofaro(7).......................... 1998 $ 32,332 $ 0 0 $ 668(7)
Former Chief Financial 1997(A) $ 83,410 $ 0 0 $ 0
Officer 1997 $ 100,092 $ 0 0 $ 0
</TABLE>
- ------------------------
(A) Reflects information for the 10 months ended December 31, 1997.
(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 our group life and health
insurance.
(2) From July 1, 1993 through December 31, 1998, Mr. Caulfield, Ms. Beresford
and Mr. Vaicunas were eligible to participate in an executive compensation
program. This program provided them with an aggregate bonus equal to 6% of
our 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.
However, at the discretion of the Board of Directors the bonus would not
exceed $750,000 in the aggregate in any fiscal year beginning with fiscal
year 1995. No bonuses were paid to Mr. Caulfield, Ms. Beresford or Mr.
Vaicunas during 1998, the 10 month period ended December 31, 1997, in fiscal
year 1997 or fiscal year 1996 under this program. This program is no longer
in effect.
29
<PAGE>
(3) In the periods presented, we paid approximately $335 and $990 per month for
two personal term life insurance policies for Mr. Caulfield and $700 per
month for a disability policy. We also made automobile and insurance
payments of approximately $980 per month during 1998, the 10 months ended
December 31, 1997, in fiscal year 1997 and in fiscal year 1996, for an
automobile for Mr. Caulfield. The fiscal year 1997 amount includes $73,846
paid for unused vacation from prior fiscal years and $12,308 for unused
vacation from fiscal year 1997. This amount includes $0, $6,400, $8,000 and
$0 we contributed to Mr. Caulfield's 401(k) account during 1998, the 10
months ended December 31, 1997, in fiscal year 1997 and in fiscal year 1996,
respectively. Mr. Caulfield's employment with us was terminated on July 2,
1998.
(4) In the periods presented, we paid approximately $80 per month for a personal
term life insurance policy for Ms. Beresford and approximately $190 per
month for a disability policy. In the periods presented, we also made
automobile and insurance payments of approximately $435 and $790,
respectively, per month for an automobile for Ms. Beresford for 1998 and all
other periods presented, respectively. The amount also includes $10,385 and
$7,616 of unused vacation pay that was paid in fiscal year 1997 and fiscal
year 1996, respectively. This amount includes $3,655, $3,655, $3,738 and
$623 we contributed to Ms. Beresford's 401(k) account during 1998, the 10
months ended December 31, 1997, in fiscal year 1997 and in fiscal year 1996,
respectively. Ms. Beresford began serving as the chairman of the Board of
Directors and Chief Executive Officer on July 2, 1998, when Mr. Caulfield's
employment ceased.
(5) In the periods presented, we paid approximately $65 per month for a
disability policy for Mr. Vaicunas. This amount excludes automobile and
insurance payments made by us on behalf of Mr. Vaicunas of approximately
$760 per month for an automobile. Mr. Vaicunas reimbursed us for any
personal use of the automobile. This amount includes $0, $2,500, $2,452 and
$433 we contributed to Mr. Vaicunas' 401(k) account during 1998, the 10
months ended December 31, 1997, in fiscal year 1997 and in fiscal year 1996,
respectively. Mr. Vaicunas served as the Vice President of Film Sales until
December 26, 1998.
(6) In the periods presented, we reimbursed Dr. Nurse for mileage on his car and
travel expenses associated with company business. Dr. Nurse served as the
Vice President of Technical Development throughout 1998.
(7) This includes $668 we contributed to Mr. DeCristofaro's 401(k) account
during 1998. Mr. DeCristofaro served as our Chief Financial Officer until
March 1998.
STOCK OPTION PLANS
In May 1990, we adopted the 1990 stock option plan. On October 25, 1993, we
approved the 1993 stock option plan. The 1990 and 1993 stock option plans
provide certain individuals the right to purchase up to 200,000 shares and
750,000 shares, respectively, of common stock. In September 1996, we adopted a
stock option plan that entitles certain individuals the right to purchase up to
1,000,000 shares of common stock. Our Board determines: those individuals who
receive options; the time period during which the options may be exercised; 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 at the date
of grant. Options generally vest ratably over two to five years. We may not
grant employee incentive stock options with a fair value in excess of $100,000
that is exercisable during any one calendar year. Options granted under the
stock option plans generally expire 10 years from the date they are granted.
30
<PAGE>
AGGREGATED OPTION EXERCISED IN THE LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS
AT FY-END EXERCISABLE/
SHARES ACQUIRED EXERCISABLE/ UNEXERCISABLE
NAME ON EXERCISE VALUE REALIZED($) UNEXERCISABLE ($)(1)
- ------------------------------------------ --------------------- ----------------------- ------------------- ---------------
<S> <C> <C> <C> <C>
C. Jill Beresford......................... 0 0 163,224/0 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 December 31, 1998, the fair market value of our common stock
underlying the options as determined by the last sale price quoted on NASDAQ
OTC was $0.19. Since the exercise price of all of the options reflected in
this table is greater than $0.19, the options held by this individual are
not in-the-money and are, therefore, not included in this calculation.
401(k) RETIREMENT SAVINGS PLAN
We provide an employee retirement savings plan under Section 401(k) of the
Internal Revenue Code which covers substantially all employees. Under the terms
of the plan, employees may contribute a percentage of their salary, up to a
maximum of 15%, which is then invested in one or more of several mutual funds
selected by the employee. We match 100% of the employee contribution, up to a
maximum of 2% of their salary.
EMPLOYMENT AND CONSULTING AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE IN
CONTROL ARRANGEMENTS
We entered into employment, non-competition, and confidentiality agreements
with each of Mr. Caulfield, Ms. Beresford and Mr. Vaicunas. Base salaries for
Mr. Caulfield, Ms. Beresford and Mr. Vaicunas were $320,000, $180,000 and
$125,000 per annum, respectively, subject to periodic review by our Board. Each
of these agreements expired on June 30, 1998. However, Ms. Beresford's
employment agreement was renewed for an additional one year term. Her agreement
provided for severance payments of 60 months base salary in the event her
employment was terminated without cause and prohibited her from competing with
us for a period of 24 months following termination of her employment with us. In
the event of a change of control in our company, she had the option to terminate
her employment and to receive additional severance compensation subject to the
provisions of her employment agreement. We have has also entered into
non-competition and confidentiality agreements with certain other employees.
In conjunction with the January 1999 Financing, on January 27,1999, we
entered into an employment agreement with each of Ms. Beresford, Mr. Koehlinger,
Dr. Nurse and Dr. Schulz and a consulting agreement with Mr. Hughes with terms
as listed below. In addition, on March 22, 1999, we entered into an employment
agreement with Peter W. Blackett with terms as listed below.
31
<PAGE>
EMPLOYMENT AND CONSULTING AGREEMENT TERMS
<TABLE>
<CAPTION>
BASE
EMPLOYEE/CONSULTANT SALARY/FEE TERM WARRANT SHARES
- ---------------------------------------- -------------- ------------------ --------------
<S> <C> <C> <C>
C. Jill Beresford....................... $ 125,000 7/1/99 - 6/30/00 937,000
James F. Koehlinger..................... $ 125,000 1/27/99 - 1/27/02 1,719,000
Richard H. Nurse........................ $ 125,000 1/27/99 - 1/27/02 1,719,000
Hanspeter Schulz........................ $ 150,000 1/27/99 - 1/27/02 2,188,000
Ivan J. Hughes.......................... $ 52,000 1/27/99 - 1/27/02 937,000
Peter W. Blackett....................... $ 125,000 3/22/99 - 3/21/02 0
</TABLE>
At the end of the terms of employment of Mr. Koehlinger, Dr. Nurse, Dr.
Schulz and Mr. Blackett, each individual's employment will revert to the status
of employment at will and will thereafter be subject to termination by either
party at any time and regardless of cause. Upon expiration of Ms. Beresford's
term, at our option, we may extend her employment term for an additional 18
months provided we give Ms. Beresford proper notice.
Under the terms of each agreement described above, each of these individuals
will receive options to purchase common stock during the term of each's
respective agreement if we equal or exceed certain financial performance goals.
See "Compensation Committee--Board Compensation Committee Report on Executive
Compensation--Bonus Plan" below for a description of the performance goals.
Also, in consideration of Ms. Beresford, Mr. Koehlinger, Dr. Nurse, Dr. Schulz
and Mr. Hughes entering into his or her agreement, we granted each of these
individuals a warrant to purchase a certain number of shares of common stock at
$0.04 per share. These warrants expire on January 27, 2009. Please refer to the
chart above for the number of shares each received. Each of these individuals
has paid to us their respective amount due under these warrants and they can be
exercised by completing the proper documentation without requiring them to make
any additional payments to us. Dr. Schulz, Mr. Koehlinger and Dr. Nurse have
exercised these warrants received in connection with their individual
agreements. Dr. Schulz is also given as consideration for his employment costs
related to an apartment and an automobile for the duration of his employment
under his employment agreement. Mr. Blackett will be given, as consideration for
his employment, reimbursement for reasonable and necessary expenses incurred in
connection with the relocation of his personal residence close to our office.
Each of the employment and consulting agreements described above contains a
covenant not to compete and requires the employee or consultant to maintain the
confidentiality of our confidential information.
COMPENSATION OF DIRECTORS
All of our outside Directors are paid $1,875 each per calendar quarter. No
other Directors receive any compensation. In June 1992, David N. Laux, an
outside Director, received options to purchase a total of 7,500 shares of common
stock at a purchase price of $2.50 per share through June 9, 2002. In March
1996, Ivan J. Hughes, then considered an outside Director, received options to
purchase a total of 7,500 shares of common stock at a purchase price of $2.38
per share through June 9, 2003. In January 1998, Mr. Laux received options to
purchase a total of 25,000 shares of common stock at a purchase price of $1.25
per share through December 31, 2003.
BOARD OF DIRECTORS, BOARD COMMITTEE AND MEETINGS
Our Board has established an Audit Committee, a Compensation Committee and
an Executive Committee. Our Board held three meetings during 1998. Each director
attended at least 75% of all meetings of the Board and applicable Committees
held last year.
32
<PAGE>
EXECUTIVE COMMITTEE
The Executive Committee is empowered to act with all authority granted to it
by the Board between Board meetings, except with respect to those matters
required by Delaware law or by our By-laws to be subject to the power and
authority of the Board as a whole. Messrs. Ivan J. Hughes, Hanspeter Schulz,
Theodore L. Koenig and Gary R. Edidin are the current members of the Executive
Committee. The former Executive Committee did not meet during 1998. The current
Executive Committee has met two times in 1999.
AUDIT COMMITTEE
The Board has established an Audit Committee whose current members are David
N. Laux, Bruce M. Fleisher, Gary R. Edidin and Allen S. Gerrard. The purposes of
the Audit Committee are to:
- review our financial results and recommend the selection of our
independent auditors;
- review the effectiveness of our accounting policies and practices,
financial reporting and internal controls; and
- review the scope of independent audit coverage, the fees charged by the
independent auditors, any transactions which may involve a potential
conflict of interest and internal control systems.
The functions of the Audit Committee are to:
- recommend annually to the Board the appointment of our independent public
accountants;
- discuss and review the scope and the fees of the prospective annual audit
and to review the results of the annual audit with our independent public
accountants;
- review and approve non-audit services of the independent public
accountants;
- review compliance with our existing major accounting and financial
policies;
- review the adequacy of our financial organization; and
- review management's procedures and policies relative to the adequacy of
our internal accounting controls.
During 1998, the former Audit Committee met one time and the new Audit
Committee has met two times in 1999 for the purposes of:
- reviewing the arrangements and scope of our annual audit;
- discussing the matters of concern to the Committee with regard to our
financial statements or other results of the audit; and
- our internal accounting procedures and controls and the activities and
recommendations of our independent public accountants.
COMPENSATION COMMITTEE
David N. Laux, Bruce M. Fleisher, Gary R. Edidin and Allen S. Gerrard serve
on the Compensation Committee. The former Compensation Committee did not meet
during 1998. The current Compensation Committee has met one time in 1999.
33
<PAGE>
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee believes that the primary objectives of our
compensation policies are to attract and retain a management team that can
effectively implement and execute our strategic business plan. These
compensation policies include:
- an overall management compensation program that is competitive with
management compensation programs at companies of similar size to attract,
retain and motivate superior talent in our industry;
- short-term bonus incentives for management to meet our overall business
strategy and profitability goals, including net income performance goals;
- promoting our pay-for-performance philosophy; and
- long-term incentive compensation in the form of stock options and other
long-term equity compensation which will encourage management to continue
to focus on stockholder return.
It is the intention of the Compensation Committee to utilize a
pay-for-performance compensation strategy that is constructive towards the
attainment of our sales growth and profitability goals. Also, the Compensation
Committee's goal is to use compensation policies to closely align our interests
with the interests of stockholders so that our management has incentives to
achieve short-term performance goals while building long-term value for our
stockholders. The Compensation Committee will review its compensation policies
from time to time to determine the reasonableness of our compensation programs
and to take into account factors which are unique to us.
BONUS PLAN. To incentivize our senior management, Ms. Beresford, Mr.
Koehlinger, Dr. Nurse, Dr. Schulz, Mr. Blackett and Mr. Hughes will receive
options to purchase common stock during the term of their respective employment
or consulting agreements if we equal or exceed certain financial performance
goals in 1999, 2000 and 2001. If our net earnings for the particular fiscal
years plus amounts deducted in the computation thereof for: (a) interest
expense; (b) Federal, state and local income taxes; (c) depreciation; (d)
amortization of intangibles, as computed by our accountants in accordance with
generally accepted accounting principals, consistently applied; and (e) any
expenses or other charges associated with the investment, loans, and equipment
leases made by DGJ to us and all other charges ("EBITDA"), equals or exceeds one
of the EBITDA performance goals stated in the employment or consulting
agreements, we will grant to these individuals options to purchase a certain
number of shares of common stock. The maximum number of shares of common stock
these individuals and one other employee, Ms. McGrath, can purchase under these
options is 14,750,000 shares.
COMPENSATION FOR PRIOR CHIEF EXECUTIVE OFFICER. Mr. Caulfield's and Ms.
Beresford's compensation as Chief Executive Officer was based upon analysis of
other comparable public companies' chief executive officers' compensation and
each's efforts and success in the following areas: establishing strategic goals
and objectives for our long-term growth; raising equity and debt capital needed
to allow us to erase our working capital deficit and adequately capitalizing our
business to move forward; improving our operating results; and establishing
critical strategic partnerships with vendors and distribution channels.
BASE SALARIES. Ms. Beresford's base salary was $180,000 for the 12 month
period ended June 30, 1999 and for her employment term from July 1, 1999 to June
30, 2000 her salary will be $125,000. The current Compensation Committee
believes that executive officer salaries reflect base salaries paid to senior
officers of other companies of similar size.
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
disallows tax deductions to public companies for compensation over $1 million
paid to a corporation's chief
34
<PAGE>
executive officer and the four other most highly compensated executive officers.
Qualifying "performance-based" compensation will not be subject to the deduction
limit if certain requirements are met. The Compensation Committee has discussed
and considered and will continue to evaluate the potential impact Section 162(m)
has on us in making compensation determinations, but has not established a set
policy with respect to future compensation determinations.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of David N. Laux, Bruce M. Fleisher,
Gary R. Edidin and Allen S. Gerrard. None of our executive officers have served
on the Board of Directors of any other entity that has had any of their officers
serve either on our Board or Compensation Committee. However, Ivan J. Hughes,
our Chairman of the Board of Directors, serves on the Compensation Committee of
Duro Bag, one of our customers. See "Certain Relationships and Related
Transactions" below.
CONCLUSION
The current Compensation Committee believes that the newly-instituted
executive compensation plan implemented as part of the Securities Purchase
Agreement with DGJ discussed in this registration statement is consistent with
our overall corporate strategy for continued growth in sales, manufacturing and
earnings and stockholder value.
COMPENSATION COMMITTEE
Gary R. Edidin
Bruce M. Fleisher
Allen S. Gerrard
David N. Laux
35
<PAGE>
DESCRIPTION OF OUR SECURITIES
Our authorized capital stock consists of the following:
<TABLE>
<CAPTION>
CLASS OF SECURITIES PAR VALUE NUMBER OF AUTHORIZED SHARES
- ------------------------------------------------------ ----------- ---------------------------
<S> <C> <C>
Common Stock.......................................... $ 0.01 150,000,000
Series A Convertible Preferred........................ $ 0.01 183,758
Series B Convertible Preferred........................ $ 0.01 146,695
Series C Redeemable Preferred......................... $ 0.01 1,629,930
</TABLE>
As of October 5, 1999, 27,131,221 shares of our common stock were held of
record by 296 stockholders.
The following is a summary of certain provisions of the common stock, the
Certificate of Incorporation, and the By-laws. This summary is not intended to
be complete and is qualified by reference to the provisions of applicable law
and to the Certificate of Incorporation and By-laws.
COMMON STOCK
The following summary description of the common stock is qualified in its
entirety by reference to our Certificate of Incorporation. We are authorized to
issue up to 150,000,000 shares of common stock, $0.01 par value.
The holders of common stock are entitled to one vote for each share held of
record on each matter submitted to a vote of stockholders. There is no
cumulative voting for election of directors. Subject to the prior rights of any
series of preferred stock which may be outstanding from time to time, holders of
common stock are entitled to receive ratably dividends as may be declared by the
Board out of funds legally available for dividend distribution. In the event of
our liquidation, dissolution or winding, holders of common stock, are entitled
to share ratably in assets remaining after payment of liabilities, accrued
dividends and liquidation preferences on the preferred stock, if any. Holders of
common stock have no preemptive rights and have no rights to convert their
common stock into any other securities. The outstanding common stock is validly
issued, fully paid and not subject to further assessment or call.
COMMON STOCK WARRANTS
In the June 1998 private placement of securities, we sold units of
securities. Each unit consisted of 100,000 shares of common stock and a three
year warrant to purchase 100,000 shares of common stock at $1.25 per share.
However, if we announce the receipt of a contract for the purchase of goods or
services resulting in revenues of $5,000,000 or more, then the purchase price
will be reduced to $1.05 per share for 15 days after the announcement. The
offering price per unit was $90,000. Currently, warrants to purchase 1,650,000
shares of common stock are outstanding, of which 1,050,000 are being registered
in this registration statement. The warrants expire at various times throughout
the end of the year 2001 and are not subject to redemption or call before their
expiration.
In connection with the Securities Purchase Agreement we entered into in
January 1999, we issued and sold to DGJ a Common Stock Purchase Warrant to
purchase up to 80,000,000 shares of common stock, at an exercise price of $0.04
per share, exercisable until January 27, 2009. Also, in connection with the
January 1999 financing, we issued warrants exercisable into 5,900,000 shares of
common stock for various consulting services provided to us. Of the 5,900,000
warrant shares, 5,000,000 are exercisable at $0.04 per share until January 27,
2009 and 900,000 are exercisable at $0.10 per share until January 27, 2003.
Under the terms of the employment agreements with Ms. Beresford, Mr. Koehlinger,
Dr. Nurse and Dr. Schulz and the consulting agreements with Mr. Hughes, we
granted each of these individuals a warrant to purchase a certain number of
shares of common stock at $0.04 per share.
36
<PAGE>
These warrants expire on January 27, 2009. Mr. Koehlinger, Dr. Nurse and Dr.
Schulz exercised their warrants in September 1999. See "Employment and
Consulting Agreements, Termination of Employment and Change in Control
Arrangements" for a description of how many shares each individual's warrant is
exercisable into.
PREFERRED STOCK
The following summary description of our preferred stock is qualified in its
entirety by reference to our Certificate of Incorporation and the Certificates
of Designation for each series of outstanding preferred stock. We are authorized
to issue up to 2,000,000 shares of preferred stock, $0.01 par value. The
preferred stock may be issued in one or more series, the terms of which may be
determined at the time of issuance by the Board, without further action by
stockholders, and may include voting rights, including the right to vote as a
series on particular matters, preferences as to dividends and liquidation,
conversion, redemption rights and sinking fund provisions.
SERIES A CONVERTIBLE PREFERRED STOCK
In connection with our second public offering in June 1991, we authorized
1,400,000 shares of Series A Convertible Preferred Stock of which 1,061,800
shares were issued in the offering. A total of 873,142 shares of Series A
Convertible Preferred Stock have been converted to common stock as of December
31, 1998, leaving a balance of 183,758 shares of Series A Convertible Preferred
Stock outstanding. The Series A Convertible Preferred Stock is redeemable, at
our option, if the last sale price of the common stock has averaged at least
$9.00 per share, subject to equitable adjustments for stock splits, reverse
stock splits and similar recapitalizations, for at least 30 consecutive trading
days ending within five days prior to the date notice of redemption is given.
After payment of any sums due to holders of Series B Convertible Preferred
Stock, the Series A Convertible Preferred Stock retains a liquidation preference
over the common stock and any other class or series of stock ranking junior to
the Series A Convertible Preferred Stock at a rate of $4.00 per share plus any
declared but unpaid dividends. Holders of Series A Convertible Preferred Stock
are entitled to receive non-cumulative dividends out of any funds legally
available at an annual rate of $0.34 per share, payable annually on the last day
of June. The Series A Convertible Preferred Stock is convertible, at the
holder's option, into an equal number of fully paid and non-assessable shares of
common stock at any time prior to its redemption, subject to adjustment for
stock splits, stock dividends, recapitalization and similar events. The Series A
Convertible Preferred stock votes with the common stock as a single class on all
matters. Holders of the Series A Convertible Preferred Stock are entitled to
vote as a class upon any proposed amendment to our Certificate of Incorporation
that would change the rights and preferences of the Series A Convertible
Preferred Stock so as to affect the series adversely.
SERIES B CONVERTIBLE PREFERRED STOCK
Upon completion of our initial public offering in October 1990,
Beresford-Canada and its subsidiary, Beresford Box Company Ltd., converted long
term subordinated debt in the principal amount of $1,833,692 into 146,695 shares
of Series B Convertible Preferred Stock. The Series B Convertible Preferred
Stock is redeemable for $10.00 per share at our option. The Series B Convertible
Preferred Stock retains a liquidation preference over the Series A Convertible
Preferred Stock and the common stock at a rate of $10.00 per share plus any
declared but unpaid dividends. The holders of the Series B Convertible Preferred
Stock are entitled to receive non-cumulative dividends out of any funds legally
available for dividends at the rate of 6% per annum or $.60 per share, payable
in cash annually on March 1st of each year. Dividends on the Series B
Convertible Preferred Stock are payable before any dividends shall be paid,
declared or set apart for the Series A Convertible Preferred Stock and the
common stock. The Series B Convertible Preferred Stock have limited voting
rights. The Series B Convertible Preferred Stock is convertible at the holder's
option into an equal number of shares of
37
<PAGE>
common stock at any time, subject to adjustment for stock splits, stock
dividends, recapitalization and similar events.
SERIES C REDEEMABLE PREFERRED STOCK
In the January 1999 financing, we sold to DGJ, for an aggregate purchase
price of $100, a total of 1,629,930 shares of Series C Preferred Stock. The
Series C Preferred Stock is redeemable at our discretion if the promissory note
to DGJ, issued pursuant to the January 1999 financing, has been retired in its
entirety, at an aggregate redemption price of $100 plus accrued interest at a
rate of 6% per annum beginning on January 27, 1999. The shares of Series C
Preferred Stock are not convertible into shares of common stock and have no
preferences upon liquidation dissolution, winding up, or insolvency. The holders
of the Series C Preferred Stock have no voting rights; provided however, upon an
event of default, as defined in the Securities Purchase Agreement, holders of
the Series C Preferred Stock will be entitled to vote with the holders of common
stock as a single class on each matter submitted to a vote of our stockholders,
with each share of the Series C Preferred Stock having 30 votes.
No other shares of preferred stock are outstanding as of the date of this
prospectus, and we have no present plans for the issuance thereof.
38
<PAGE>
PRICE RANGE OF COMMON STOCK
Our common stock was traded on the National Association of Securities
Dealers Automated Quotation National Market System ("NASDAQ NMS") from October
12, 1992 through August 13, 1998. Since August 14, 1998, our common stock has
been traded on the National Association of Securities Dealers Automated
Quotation Over-the-Counter Bulletin Board ("NASDAQ OTC"), under the symbol
"BPIE."
As of October 5, 1999, 296 holders of record held 27,131,221 shares of our
common stock and 50 holders of record held 183,758 shares of our Series A
Convertible Preferred Stock. We believe that there are approximately 4,500 to
5,000 beneficial owners of our 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 our common stock for the relevant
periods as reported by the NASDAQ NMS or the range of the high and low bid
prices on the NASDAQ OTC. These quotations represent inter-dealer quotations
without adjustment for retail markups, markdowns or commissions and may not
represent actual transactions.
<TABLE>
<CAPTION>
HIGH SALE/BID LOW SALE/BID
------------- ------------
<S> <C> <C>
COMMON STOCK
Fiscal Year 1997
First Quarter.................................................. $ 4.25 $ 1.375
Second Quarter................................................. $ 3.625 $ 1.625
Third Quarter.................................................. $ 3.6875 $ 1.8125
Fourth Quarter................................................. $ 2.3125 $ 1.625
Ten Month Period Ending December 31, 1997
First Quarter.................................................. $ 1.96875 $ 1.5625
Second Quarter................................................. $ 1.875 $ 1.031
Third Quarter.................................................. $ 2.313 $ 1.031
Fourth Quarter (through December 31, 1997)(1).................. $ 1.938 $ 1.063
1998
First Quarter.................................................. $ 1.375 $ 0.688
Second Quarter................................................. $ 1.400 $ 0.844
Third Quarter.................................................. $ 0.94 $ 0.125
Fourth Quarter................................................. $ 0.40 $ 0.12
1999
First Quarter.................................................. $ 0.30 $ 0.14
Second Quarter................................................. $ 0.30 $ 0.14
Third Quarter.................................................. $ 0.30 $ 0.11
</TABLE>
- ------------------------
(1) In December 1997, we changed our fiscal year end from February 28 to
December 31.
On October 5, 1999, the high ask price of the common stock was $0.14; the
low bid price was $0.14 and the close price was $0.14.
DIVIDENDS
We have not paid any cash dividends on our common stock since inception. We
do not anticipate the payment of cash dividends on our common stock in the
foreseeable future. Any earnings generated from operations, after payment of
dividends on our Series A and B classes of preferred stock, will be used to
finance the growth of our business. Dividends on the preferred stock are
non-cumulative.
Section 7.12 of the Securities Purchase Agreement and our current revolving
line of credit loan arrangement prohibit the payment of dividends, in cash or
other property, on or in respect of any shares of any class of capital stock of
our securities.
39
<PAGE>
PERFORMANCE GRAPH
The following graph compares the performance of our common stock with the
performance of the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") Market Index of Companies and the Media General
Industry Group representing packaging and container companies, which consists of
other companies in the packaging and container industry, for the period from
December 31, 1993 to December 31, 1998. The graph assumes that the value of the
investment in the common stock and each index was $100 at December 31, 1993 and
that all dividends, if any, were reinvested.
MANUFACTURING INDUSTRY. COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG BPI PACKAGING TECHNOLOGIES, INC.,
NASDAQ MARKET INDEX AND PEER GROUP INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
BPI PACKAGING TECHNOLOGIES, INC. NASDAQ MARKET INDEX PEER COMPANIES GROUP
<S> <C> <C> <C>
1993 $100.00 $100.00 $100.00
1994 $62.26 $104.99 $101.48
1995 $32.08 $136.18 $100.15
1996 $28.77 $169.23 $108.45
1997 $16.98 $207.00 $100.92
1998 $10.85 $291.96 $87.00
</TABLE>
40
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of common stock and
Series A Preferred Stock as of October 5, 1999 by:
(1) our directors;
(2) our executive officers;
(3) our directors and executive officers as a group; and
(4) persons who beneficially owned more than 5% of the common stock and
Series A Preferred Stock or by persons who did not beneficially own more
than 5% of the common stock and Series A Preferred Stock, in the
aggregate, but who were considered members of a "group" within the
meaning of Section 13(d)(3) of the Exchange Act, beneficially owning more
than 5% of the common stock and Series A Preferred Stock.
Each of the persons listed below disclaims beneficial ownership in any shares
beneficially owned by the others. The number of shares of common stock and
Series A Preferred Stock beneficially owned by each person listed below is based
on information contained in the Schedule 13D filed with the SEC on behalf of the
listed persons and on information provided to us by the named entity or
individual. The percentage of shares of the common stock and Series A Preferred
Stock each listed person is indicated as beneficially owning is based on
27,131,221 and 183,758 shares of common stock and Series A Preferred Stock,
respectively, outstanding on October 5, 1999.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
BENEFICIALLY OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) CLASS(2)(3)
- ----------------------------------------------------------------------------- -------------------- -------------
<S> <C> <C>
Hanspeter Schulz, Ph.D.(4) .................................................. 2,188,000 9.16%
Richard H. Nurse, Ph.D.(4) .................................................. 1,725,000 7.37%
C. Jill Beresford(4)(5)(6)(7) ............................................... 2,561,249 10.60%
James F. Koehlinger(4) ...................................................... 1,719,000 7.34%
Peter W. Blackett(4) ........................................................ 0 0%
Ivan J. Hughes(5)(7)(8) ..................................................... 1,027,000 4.54%
Davis and Oak Streets
Ludlow, Kentucky 41016-0250
David N. Laux(9) ............................................................ 52,500 *
1700 N. Moore St, Suite 1703
Arlington, Virginia 22209
Gary R. Edidin(10) .......................................................... 80,000,000 78.67%
Edidin & Associates
600 Central Avenue
Suite 262
Highland Park, IL 60035
Allen S. Gerrard(11) ........................................................ 80,000,000 78.67%
Deere Park Capital Management
40 Skokie Boulevard
Suite 110
Northbrook, IL 60062
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
BENEFICIALLY OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) CLASS(2)(3)
- ----------------------------------------------------------------------------- -------------------- -------------
<S> <C> <C>
Theodore L. Koenig(12) ...................................................... 0 0%
Monroe Investments, Inc.
5 Revere Drive
Suite 206
Northbrook, Illinois 60062
Bruce M. Fleisher ........................................................... 0 0%
2350 N. Lincoln Park West
Chicago, Illinois 60614
DGJ, L.L.C.(7)(13) .......................................................... 80,000,000 78.67%
600 Central Avenue, Suite 262
Highland Park, Illinois 60035
All Officers and Directors As a Group (11 persons)(6)(7)(8)(9) .............. 89,220,249 81.43%
</TABLE>
- ------------------------
* Less than one percent.
(1) None of these persons owns any shares of Series A Preferred Stock. No other
stockholder owns at least 5% of the common stock and Series A Preferred
Stock, combined.
(2) Pursuant to SEC rules, 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 the 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.
(3) Except as otherwise noted, does not give effect to the issuance of:
- up to 330,453 shares of common stock issuable upon conversion of Series
A and Series B Convertible Preferred Stock;
- up to 180,372 shares issuable upon exercise of warrants issued to an
individual and principals of the placement agent in our private
placements to overseas investors;
- up to 1,950,000 shares issuable upon exercise of options granted or
available for grant under our 1990, 1993 and 1996 stock option plans;
- up to 200,000 shares of common stock issuable upon the exercise of
warrants issued to financial consultants, subject to adjustment; and
- up to 5,000,000 and 900,000 shares of common stock issuable upon the
exercise of options expiring January 27, 2009 and January 27, 2003,
respectively, issued to our consultants, subject to adjustments.
(4) These individuals may be reached at our office located at 455 Somerset
Avenue, North Dighton, Massachusetts 02764.
(5) These individuals acquired warrants to purchase a certain number of shares
common stock at $0.04 per share. These warrants expire on January 27, 2009
and are described above in "Board of Directors and Executive
Officers--Employment Contracts, Termination of Employment and Change in
Control Arrangements." The following table lists the name of the individual
and the
42
<PAGE>
corresponding number of shares of common stock their warrant is convertible
into (the "Warrant Shares"):
<TABLE>
<CAPTION>
NAME WARRANT SHARES
- -------------------------------------------------------------------- --------------
<S> <C>
C. Jill Beresford................................................... 937,000
Ivan J. Hughes...................................................... 937,000
--------------
1,874,000
</TABLE>
(6) Includes:
- 1,314,130 shares of common stock;
- 146,695 shares of Series B Convertible Preferred Stock;
- 163,224 shares of common stock issuable upon the exercise of an option
at a price of $2.50 per share through June 30, 2003; and
- 937,000 shares of common stock issuable upon the exercise of a warrant
(see footnote 5).
(7) Under the terms of a Lockup Agreement, dated January 27, 1999, between DGJ,
C. Jill Beresford and Ivan J. Hughes, Ms. Beresford and Mr. Hughes agreed
to vote their stock as directed by DGJ with respect to any matters
presented to our stockholders with respect to the Securities Purchase
Agreement and agreed not to sell shares of common stock without the prior
written consent of DGJ.
(8) Includes:
- 82,500 shares of common stock;
- 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; and
- 937,00 shares of common stock issuable upon the exercise of a warrant
(see footnote 5).
(9) Includes:
- 20,000 shares of common stock;
- 7,500 shares of common stock issuable upon exercise of an option at a
purchase price of $2.50 per share through June 9, 2002; and
- 25,000 shares of common stock issuable upon exercise of an option at a
purchase price of $1.25 per share through December 31, 2003.
(10) A member of DGJ and also a member of the Board of Managers, Chairman,
President and Chief Executive officer of DGJ. Mr. Edidin holds no shares
of our stock directly, but may be deemed to beneficially own 80,000,000
shares of common stock beneficially owned by DGJ by virtue of his
positions with DGJ. This amount does not include 1,629,930 shares of our
Series C Preferred Stock held by DGJ. Mr. Edidin disclaims beneficial
ownership of all of these shares.
(11) A Director of Deere Park Capital Management, which is a member of DGJ. He
has no direct or indirect beneficial ownership in the equity securities
owned by DGJ. He is also a Member of the Board of Managers and Treasurer
of DGJ. Mr. Gerrard holds no shares of our stock directly, but may be
deemed to beneficially own 80,000,000 shares of common stock beneficially
owned DGJ by virtue of his positions with DGJ. This amount does not
include 1,629,930 shares of our Series C Preferred Stock held by DGJ. Mr.
Gerrard disclaims beneficial ownership of all of these shares.
43
<PAGE>
(12) A member of Monroe Investments, Inc., which is a member of Hilco BPI,
L.L.C., which is a member of DGJ. He disclaims beneficial ownership of our
securities except to the extent of his membership interest in DGJ through
these entities.
(13) Includes 80,000,000 shares of common stock currently issuable upon the
exercise of a warrant at a price of $0.04 per share through January 27,
2009. However, DGJ has indicated that it has no current intention of
exercising this warrant to purchase common stock. This amount does not
include 1,629,930 shares of our Series C Preferred Stock owned by DGJ.
44
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Ivan J. Hughes, our Director, is the President of the Plastic's Division and
a Director and a member of the Executive and Compensation Committees of Duro
Bag. In January, February, March, April, May, June, July, August and September
1999, Duro Bag issued purchase orders to us for $192,000, $190,335, $209,513,
$255,729, $0, $350,019, $364,435, $249,355 and $51,696, respectively, to
purchase bags for Duro Bag customers. We expect similar monthly orders from Duro
Bag during the remainder of the year. We manufacture these products on behalf of
Duro Bag for its customers. We sell these products on terms as contracted
between Duro Bag and its customers, which terms are equal, if not better, than
we could obtain from our other customers for these products.
In November 1990, we established an officer's loan receivable to Dennis N.
Caulfield, our then Chairman for $132,197. The note was amended in April 1998
and the interest rate changed to 6%, effective from November 1990, and is now
payable on or before January 1, 2001. Interest on the loan, along with advances
for travel not offset by expense reports, caused the loan balance to equal
$586,978 at December 31, 1997. Mr. Caulfield did not make any payments against
the loan from the period beginning 1990 through December 31, 1997. Accordingly,
we reserved the full amount of this loan on that date. Also, no payments were
made in 1998. In addition, we paid, on behalf of Mr. Caulfield, approximately
$36,000 of a $200,000 personal income tax levy imposed by the Massachusetts
Department of Revenue on Mr. Caulfield in exchange for an interest bearing note
due on or before June 30, 1998, which has not yet been repaid. This note was
reserved for as of June 30, 1999.
Effective February 26, 1994, Ronald Caulfield exchanged his 49,500 shares of
common stock of RC America for 200,000 shares of our common stock, pursuant to
the terms of a Stock Exchange Agreement by and between us and Ronald Caulfield.
The Stock Exchange Agreement also provides for the issuance to Ronald Caulfield
of up to an additional 100,000 shares of our common stock over a five year
period based on RC America attaining certain levels of pre-tax earnings. No
shares of common stock were issued in 1998 or for the 10 month period ended
December 31, 1997. As a result of RC America's earnings for fiscal year 1997 and
Fiscal Year 1996, 2,649 and 2,550 shares, respectively, of the 100,000 shares of
common stock were issued to Mr. Ronald Caulfield. The Stock Exchange Agreement
contains demand and piggy-back registration rights for the shares.
Four of our directors, Gary R. Edidin, Allen S. Gerrard, Theodore L. Koenig
and Bruce M. Fleisher, are either affiliated with DGJ or have been appointed by
DGJ. The financial restructuring in January 1999, the loans described in the
"Liquidity and Capital Resources" and "Notes Payable" Sections, and all other
transactions between the us and DGJ will be deemed to be related party
transactions due to the relationship of these directors to DGJ. Also, Mr. Koenig
is counsel to the Chicago-based law firm of Holleb & Coff, which provides legal
services to us.
SELLING SECURITYHOLDERS
The Offered Shares were acquired by the Selling Securityholders in the
private offerings of securities that occurred in July 1997, October 1997,
December 1997 and June 1998. Absent registration under the Securities Act, the
Offered Shares are subject to limitations on resale. The Registration Statement
of which this prospectus forms a part has been filed in satisfaction of
registration rights we granted to the Selling Securityholders.
The following table shows the name of each Selling Securityholders, the
number of outstanding Shares of common stock beneficially owned by each Selling
Securityholder of October 5, 1999, the number of shares issuable upon exercise
of options and warrants held by the Selling Securityholder and the total number
of shares available for resale after the registration statement becomes
effective. The following table assumes that each of the Selling Securityholders
will sell all of the Offered Shares set forth opposite his or her name. However,
one or more of the Selling Securityholders may sell only a portion or may sell
none of the Offered Shares set forth opposite his or her name. Hence, no
estimate
44
<PAGE>
can be given as to the amount of Offered Shares that will be held by the Selling
Securityholders upon termination of this offering.
<TABLE>
<CAPTION>
NUMBER OF
SHARES ISSUABLE ON SHARES
NUMBER OF SHARES EXERCISE OF AVAILABLE
BENEFICIALLY OPTIONS FOR SALE
SELLING STOCKHOLDERS OWNED AND WARRANTS HEREUNDER
- --------------------------------------------------------- ----------------- ------------------ ---------------
<S> <C> <C> <C>
Charles R. Schaller (IRA)................................ 25,188 0 25,188
William Wolff............................................ 130,250 0 130,250
Norman Buchbinder........................................ 55,250 0 55,250
Noah Wolff, as Trustee of Noah Wolff Revocable Trust..... 55,250 0 55,250
William Pasternak........................................ 15,000 0 15,000
Ranan C. Wolff........................................... 10,000 0 10,000
Frederick S. Bogart...................................... 16,575 0 16,575
Cheryl Magence........................................... 16,575 0 16,575
Bernard Groverman & Barbara Ancona JTWROS................ 62,500 0 62,500
Jack Varon............................................... 10,000 0 10,000
Juda Kallus.............................................. 11,050 0 11,050
Ari D. Wolff & Chana Wolff JTWROS........................ 15,000 0 15,000
Barry Zeffren and Tziona Zeffren......................... 7,514 0 7,514
Sylvia Wolff............................................. 34,750 0 34,750
Jack Saltz............................................... 50,000 0 50,000
Helen S. Levine.......................................... 50,000 0 50,000
Baruch Z. Halberstam..................................... 76,667 66,667(1) 143,334
S. Marcus Finkle......................................... 100,000 0 100,000
David A. Messer.......................................... 100,000 0 100,000
Harold Kwitman........................................... 25,000 0 25,000
Spiegel 1982 Grandchildren's Trust FBO Anthony David
Spiegel................................................ 26,800 0 26,800
Spiegel 1982 Grandchildren's Trust, FBO Evan Scott
Spiegel................................................ 26,800 0 26,800
Abraham Spiegel.......................................... 53,600 0 53,600
Hindy Taub............................................... 50,000 50,000(1) 100,000
Professional Edge Fund, LLC.............................. 422,223 200,000(1) 622,223
Newport Capital Partners................................. 162,500 180,372(1) 342,872
George M. Goritz......................................... 120,750 0 120,750
Diane Stupay............................................. 152,250 0 152,250
Andrew W. Schonzeit...................................... 50,000 50,000(1) 100,000
Joseph Danon, M.D........................................ 283,333 283,333(1) 566,666
Nathan Low............................................... 100,000 100,000(1) 200,000
CCF Partners II, LLC..................................... 100,000 100,000(1) 200,000
Brencourt LLC............................................ 150,000 150,000(1) 300,000
The Bank of New York as Custodian for Robert D. Maum
IRA.................................................... 50,000 50,000(1) 100,000
Greenstar Partners....................................... 0 5,500(2) 5,500
----------------- ---------- ---------------
Total.................................................. 2,614,825 1,235,872 3,850,697
----------------- ---------- ---------------
----------------- ---------- ---------------
</TABLE>
- ------------------------
(1) Represents shares issuable upon exercise of warrants. The warrants are
exercisable for a period of three years from the issuance date a price of
$1.25 per share. However, if we announce receipt of a contract for at least
$5,000,000 of goods or services, the warrants shall be exercisable at a
price of $1.05 per share for a period of 15 days following the announcement
of the contract.
(2) Represents shares issuable upon exercise of options at a price of $1.08 per
share until December 17, 2002.
45
<PAGE>
We have agreed to pay the expenses of registering the Offered Shares on
behalf of the Selling Securityholders, not including broker-dealer commissions,
discounts, concessions or any legal fees incurred by the Selling Securityholders
in connection with sales of the Offered Shares. We and the Selling
Securityholders have agreed to indemnify each other against certain liabilities,
including liabilities under the Securities Act.
PLAN OF DISTRIBUTION
The shares of common stock may be offered and sold from time to time by the
Selling Securityholders, or by pledgees, donees, transferees or other successors
in interest. The shares of common stock covered by this prospectus may be sold
by the Selling Securityholders in one or more transactions on NASDAQ OTC, or
otherwise at prices and at terms then prevailing or at prices related to the
then current market price, or in negotiated transactions. The Selling
Securityholders will act independently of us in making decisions with respect to
these offers and sales. The shares of common stock may be sold by one or more of
the following:
- a block trade in which the broker or dealer will attempt to sell the
shares of common stock as an agent but may position and resell a portion
of the block as principal to facilitate the transaction;
- purchases by a broker or dealer as principal and resale by the broker or
dealer for its account pursuant to this prospectus; and
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers.
Thus, the period of distribution of these shares of common stock may occur
over an extended period of time. We are paying all of the other expenses of
registering the Offered Shares under the Securities Act. These expenses are
estimated to be $125,000 for filing, legal, accounting and miscellaneous fees
and expenses. We have agreed to indemnify the Selling Securityholders against
certain liabilities, including liabilities under the Securities Act. In
effecting sales, broker-dealers engaged by the Selling Securityholders may
arrange for other broker-dealers to participate. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders in connection with these sales.
We will receive $3,588,905 in gross proceeds if all of the warrants
described above are exercised. Any proceeds from the exercise of the warrants
will be used for general corporate purposes. We will not receive any part of the
proceeds of any sale or transactions of the Offered Shares made by the Selling
Securityholders.
The Selling Securityholders, any broker-dealers and any other participating
broker-dealers who execute sales for the Selling Securityholders may be deemed
to be underwriters within the meaning of the Securities Act. In connection with
these sales, and any profits realized by the Selling Securityholders and the
compensation of any broker-dealer may be deemed to be underwriting discounts and
commissions. Any shares covered by this prospectus which qualify for sale
pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this
prospectus.
The Selling Securityholders will pay or assume brokerage commissions or
underwriting discounts incurred in connection with the sale of their Offered
Shares. We will not pay or assume these commissions or discounts.
We have advised the Selling Securityholders that during the time they may be
engaged in a distribution of common stock and warrants included in this
prospectus, they are required to comply with Rules 10b-6 and 10b-7 under the
Exchange Act, as described below. In connection with these rules, they may not
engage in any stabilization activity, except as permitted under the Exchange
Act, are required to furnish each broker-dealer through which common stock
included in this prospectus
46
<PAGE>
may be offered copies of this prospectus, and may not bid for or purchase any of
our securities or attempt to induce any person to purchase any securities except
as permitted under the Exchange Act.
Rule 10b-6 under the Exchange Act prohibits, with certain exceptions,
participants in a distribution from bidding for or purchasing, for an account in
which the participant has a beneficial interest, any of the securities that are
the subject of the distribution. Rule 10b-7 governs bids and purchases made to
stabilize the price of a security in connection with a distribution of the
security.
EXPERTS
Livingston & Haynes, P.C., an independent accounting firm, audited our
consolidated financial statements for the year ended December 31, 1998. Their
report was relied on and given authority as this firm is an expert in accounting
and auditing.
The financial statements at December 31, 1997 and for the ten months ended
December 31, 1997 and the year ended February 28, 1997 included in this
prospectus have so been included in reliance on the report (which contains an
explanatory paragraph relating to our ability to continue as a going concern as
described in Note 2 to the financial statements) of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
On July 31, 1998, we reported on Form 8-K that we engaged Livingston &
Haynes, P.C. as our independent accountants on July 29, 1998. The decision to
engage Livingston & Haynes, P.C. was approved by our Audit Committee.
CHANGE OF ACCOUNTANTS
By letter dated July 6, 1998, PricewaterhouseCoopers LLP resigned as our
independent accountants.
The reports of PricewaterhouseCoopers LLP on our financial statements for
the 10 month period ended December 31, 1997 and the years ended February 28,
1997 and February 23, 1996 included an explanatory paragraph regarding our
ability to continue as a going concern. The foregoing notwithstanding, the
reports of PricewaterhouseCoopers LLP did not contain any other adverse opinion,
a disclaimer of opinion or qualification or modification as to uncertainty,
audit scope or accounting principles.
In connection with the audits of our financial statements for the 10 month
period ended December 31, 1997 and the years ended February 28, 1997 and
February 23, 1996, and during the subsequent interim period through July 6,
1998, there were no disagreements between us and PricewaterhouseCoopers LLP
relative to accounting principles or practices, financial statement disclosure,
or auditing scope or procedure, which, if not resolved to the satisfaction of
PricewaterhouseCoopers LLP, would have caused PricewaterhouseCoopers LLP to make
reference to the matter in its reports on the financial statements for such
periods. None of the reportable events listed in Item 304(a)(1)(iv)(B) of
Regulation S-K occurred with respect to us during the 10 month period ended
December 31, 1997 and the years ended February 28, 1997 and February 23, 1996
and the subsequent interim period preceding the resignation of
PricewaterhouseCoopers LLP.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Offered Shares
will be passed upon by Holleb & Coff, Chicago, Illinois. Theodore L. Koenig, our
Director, is counsel with the law firm of Holleb & Coff.
47
<PAGE>
TRANSFER AGENT
Our transfer agent for the common stock is American Stock Transfer,
Incorporated of 40 Wall Street, 46(th) Floor, New York, New York 10005.
INDEMNIFICATION
Delaware General Corporation Law, Section 102(b)(7), allows a corporation,
in its original Certificate of Incorporation or in a later amendment, validly
approved by stockholders, to eliminate or limit personal liability of members of
its Board of Directors for violations of a director's fiduciary duty of care.
However, the elimination of liability will not apply where there has been a
breach of the duty of loyalty, failure to act in good faith, intentional
misconduct or knowing violations of law, payment of a dividend or a stock
repurchase which is deemed illegal or a director has derived improper personal
benefit. Our Certificate of Incorporation includes the following language:
To the maximum extent permitted by Section 102(b)(7) of the General
Corporation Law of Delaware, a director of this Corporation shall not be
personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section
174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit.
Delaware General Corporation Law, Section 145, permits a corporation
organized under Delaware law to indemnify directors and officers with respect to
any matter in which the director or officer acted in good faith and in a manner
he reasonably believed to be not opposed to our best interests, and, with
respect to any criminal action, he had reasonable cause to believe his conduct
was not unlawful. Our By-laws include the following provision:
A reference is made to Section 145 and any other relevant provisions of the
General Corporation Law of the State of Delaware. Particular reference is
made to the class of persons, hereinafter called Indemnitees, who may be
indemnified by a Delaware corporation pursuant to the provisions of such
Section 145, namely, any person, or the heirs, executors, or administrators
of such person, who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative, by reason of the fact
that such person is or was a director, officer, employee or agent of such
corporation or is or was serving at the request of such corporation as a
director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise. The Corporation shall, and is
hereby obligated to, indemnify the Indemnitees, and each of them, in each
and every situation where the Corporation is obligated to make such
indemnification pursuant to the aforesaid statutory provisions, the
Corporation in not obligated, but is nevertheless permitted or empowered, to
make such indemnification, it being understood that, before making such
indemnification, with respect to any situation covered under this sentence,
(i) the Corporation shall promptly make or cause to be made, by any of the
methods referred to in Subsection (d) of such Section 145, a determination
as to whether each Indemnitee acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, it the case of any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful, and (ii) that no
such indemnification shall be made unless it is determined that such
Indemnitee acted in good faith and in a manner he reasonably believed to be
in, or not opposed to, the best interests of the Corporation, and, in the
case of any criminal action or proceeding, had no reasonable cause to
believe that his conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the registrant
pursuant to the foregoing provisions, we have
48
<PAGE>
been informed that, in the opinion of the SEC, this indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the SEC. Our
SEC filings are also available over the Internet at the SEC's web site at
HTTP://WWW.SEC.GOV. You may also read and copy any document we file at the SEC's
public reference room at 450 Fifth Street, N.W., Washington, D.C. Please call
the SEC at 1-800-SEC-0330 for information on their public reference rooms.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file with
them, which means:
- incorporated documents are considered part of the prospectus;
- we can disclose important information to you by referring you to those
documents; and
- information that we file with the SEC will automatically update and
supersede the prospectus.
We incorporate by reference each of the following documents that we will
file with the SEC after the date of the prospectus but before the end of the
offering:
- Reports filed under Sections 13(a) and (c) of the Exchange Act;
- Definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent stockholders' meeting; and
- Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of these filings, at no cost, by contacting us at the
following address, phone number or e-mail:
BPI Packaging Technologies, Inc.
Attn: James F. Koehlinger
Chief Financial Officer
455 Somerset Avenue
North Dighton, Massachusetts 02764
Tel: (508) 824-8636
http://[email protected]
This prospectus is part of a registration statement we filed with the SEC
(Registration No. 333- ).
49
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
INTERIM CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets at June 30, 1999 (unaudited) and December 31, 1998............................. F-2
Consolidated Statements of Operations (unaudited)--Three Month Periods ended June 30, 1999 and June 30,
1998..................................................................................................... F-3
Consolidated Statements of Operations (unaudited)--Six Month Periods ended June 30, 1999 and June 30,
1998..................................................................................................... F-4
Consolidated Statements of Cash Flows (unaudited)--Six Month Periods ended June 30, 1999 and June 30,
1998..................................................................................................... F-5
Notes to Consolidated Financial Statements (unaudited)..................................................... F-6
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Accountants--Livingston & Haynes, P.C. .............................................. F-14
Report of Independent Accountants.......................................................................... F-15
Consolidated Balance Sheets as of December 31, 1998 and 1997............................................... F-16
Consolidated Statements of Operations for the year ended December 31, 1998, the 10-Month period ended
December 31, 1997 and the fiscal year ended February 28, 1997............................................ F-17
Consolidated Statements of Stockholders' Equity for the year ended December 31, 1998, the 10-month period
ended December 31, 1997 and the fiscal year ended February 28, 1997...................................... F-18
Consolidated Statements of Cash Flows for the year ended December 31, 1998, the 10-month period ended
December 31, 1997 and the fiscal year ended February 28, 1997............................................ F-19
Notes to Consolidated Financial Statements................................................................. F-20
</TABLE>
F-1
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Current assets
Cash............................................................................ $ 176,726 $ 73,116
Accounts receivable, net........................................................ 1,351,505 882,389
Inventories..................................................................... 1,672,861 717,413
Prepaid expenses and other current assets, net.................................. 84,127 51,420
-------------- --------------
Total current assets.......................................................... 3,285,219 1,724,338
-------------- --------------
Property and equipment, net....................................................... 16,173,069 15,290,305
-------------- --------------
Deposits--leases and equipment purchases.......................................... 73,911 149,851
Loans to officers, net............................................................ 6,430 6,072
Other assets...................................................................... 1,656,098 581,399
-------------- --------------
1,736,439 737,322
-------------- --------------
$ 21,194,727 $ 17,751,965
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Note payable.................................................................... $ 1,690,163 $ 814,311
Trade notes payable............................................................. -- 584,433
Capital lease obligations due within one year................................... -- 3,800,286
Accounts payable................................................................ 2,886,573 6,597,223
Accrued expenses................................................................ 880,417 2,676,239
-------------- --------------
Total current liabilities..................................................... 5,457,153 14,472,492
-------------- --------------
Long-term liabilities
Capitalized lease obligations................................................... 7,018,665 --
Subordinated debt............................................................... 2,720,000 --
Accounts payable long term...................................................... 1,117,602 --
-------------- --------------
Total long-term liabilities................................................... 10,856,267 --
Stockholders' Equity
Series B convertible preferred stock, $0.01 par value........................... 1,466,954 1,466,954
Series A convertible preferred stock, $0.01 par value........................... 673,983 674,032
Series C redeemable preferred stock, $0.01 par value............................ 100 --
Common stock, $0.01 par value; shares authorized--60,000,000; shares issued and
outstanding--21,500,521 and 21,495,621 at June 30, 1999 and December 31, 1998,
respectively 215,005 214,956
Subscribed stock.................................................................. 300,000 --
Capital in excess of par value.................................................... 45,392,733 44,912,833
Accumulated deficit............................................................... (43,167,468) (43,989,302)
-------------- --------------
4,881,307 3,279,473
-------------- --------------
$ 21,194,727 $ 17,751,965
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
JUNE 30, JUNE 30,
1999 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
Net sales........................................................................... $ 4,130,980 $ 2,406,967
Cost of goods sold.................................................................. 3,697,856 2,561,729
------------- -------------
Gross profit (loss)............................................................... 433,124 (154,762)
Operating expenses:
Selling, general and administrative............................................... 539,669 1,280,759
------------- -------------
(Loss) income from operations..................................................... (106,545) (1,435,521)
Other (expense) income:
Interest/other expense............................................................ (560,333) (131,217)
Interest/other income............................................................. 26,971 18,598
------------- -------------
Net income/(loss) before extraordinary income....................................... (639,907) (1,548,140)
Extraordinary income--gain on debt restructuring.................................... 185,945 --
------------- -------------
Net income/(loss) after extraordinary income........................................ $ (453,962) $ (1,548,140)
------------- -------------
------------- -------------
Earnings (loss) per share before extraordinary income:
Basic and diluted net earnings (loss) per share..................................... $ (0.03) $ (0.07)
Shares used in computing basic and diluted net earnings (loss) per share............ 21,497,613 20,987,122
Earnings (loss) per share after extraordinary income:
Basic and diluted net earnings (loss) per share..................................... $ (0.02) $ (0.07)
Shares used in computing basic and diluted net earnings (loss) per share............ 21,497,613 20,987,122
</TABLE>
The accompanying notes are an integral part Of these consolidated financial
statements.
F-3
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
JUNE 30, JUNE 30,
1999 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
Net sales........................................................................... $ 7,471,964 $ 4,639,864
Cost of goods sold.................................................................. 6,354,020 4,794,768
------------- -------------
Gross profit (loss)............................................................... 1,117,944 (154,904)
Operating expenses:
Selling, general and administrative............................................... 1,424,695 2,375,830
------------- -------------
(Loss) income from operations..................................................... (306,751) (2,530,734)
Other (expense) income:
Interest/other expense............................................................ (832,105) (276,152)
Interest/other income............................................................. 42,983 35,953
------------- -------------
Net income/(loss) before extraordinary income....................................... (1,095,873) (2,770,933)
Extraordinary income--gain on debt restructuring.................................... 1,917,707 --
------------- -------------
Net income/(loss) after extraordinary income........................................ $ 821,834 $ (2,770,933)
------------- -------------
------------- -------------
Earnings (loss) per share before extraordinary income:
Basic and diluted net earnings (loss) per share..................................... $ (0.05) $ (0.14)
Shares used in computing basic and diluted net earnings (loss) per share............ 21,496,623 20,012,639
Earnings (loss) per share after extraordinary income:
Basic and diluted net earnings (loss) per share..................................... $ 0.04 $ (0.14)
Shares used in computing basic and diluted net earnings (loss) per share............ 21,496,623 20,012,639
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
JUNE 30, JUNE 30,
1999 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net profit (loss)................................................................. $ 821,834 $ (2,770,933)
------------- -------------
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization................................................... 1,369,953 1,269,439
Gain on restructuring of accounts payable....................................... (1,917,607) --
(Increase) in accounts receivable--trade........................................ (469,116) (185,695)
(Increase) decrease in inventories.............................................. (955,448) 344,067
(Increase) decrease in prepaid expenses and other current assets................ (32,707) 5,552
Increase (decrease) in accounts payable......................................... (1,259,874) 558,114
Increase (decrease) in other accrued expenses................................... (152,445) 82,930
------------- -------------
Total adjustments............................................................. (3,417,244) 2,074,407
------------- -------------
Net cash used in operating activities....................................... (2,595,410) (696,526)
------------- -------------
Cash flows from investing activities:
Additions to property and equipment............................................... (542,535) (1,530)
Deposits related to equipment refinancing......................................... 75,940 (318)
Additions to property and equipment debt refinancing.............................. (1,678,973) --
Increase in advance to officers................................................... (358) --
Decrease in other assets, net..................................................... -- 78,420
------------- -------------
Net cash (used in) provided by investing activities......................... (2,145,926) 76,572
------------- -------------
Cash flows from financing activities:
Net increase (payments) under note payable--bank.................................. 875,852 (780,945)
Capitalized financing costs....................................................... (1,105,908) --
Principal payments on capital lease obligations................................... -- (75,000)
Refinance of capital and operating leases......................................... (5,443,763) --
Refinanced capital lease obligation............................................... 7,018,665 --
Subordinated debt addition........................................................ 3,200,000 --
Subscribed stock.................................................................. 300,000 --
Net proceeds from sales of stock and exercise of warrants......................... 100 1,403,151
------------- -------------
Net cash provided by financing activities................................... 4,844,946 547,206
------------- -------------
Net increase (decrease) in cash..................................................... 103,610 (72,748)
Cash at beginning of period......................................................... 73,116 125,220
------------- -------------
Cash at end of period............................................................... $ 176,726 $ 52,472
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-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.
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 six month
period ended June 30, 1999 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1999.
For further information, refer to the consolidated financial statements and
the footnotes included in the Amendment No. 4 to the Annual Report on Form
10-K/A for BPI Packaging Technologies, Inc. (the "Company") for the year ended
December 31, 1998 and the Current Report on Form 8-K filed on February 11, 1999
related to the financial restructuring of the Company.
NOTE 2: FINANCIAL RESTRUCTURING
On January 27, 1999, the Company entered into a Securities Purchase
Agreement (the "Securities Purchase Agreement") with DGJ, L.L.C. ("DGJ") (the
"January 1999 Financing"), whereby the Company agreed to issue and sell to DGJ,
and DGJ agreed to purchase from the Company the following:
1. a Promissory Note in the aggregate principal amount of $3,200,000 (the
"Note");
2. a Common Stock Purchase Warrant for the purchase of up to 80,000,000
shares of the Company's common stock, $0.01 par value per share (the
"Common Stock"), at an exercise price of $0.04 per share, exercisable
until January 27, 2009; and
3. 1,629,930 shares of Series C Preferred Stock of the Company for $100.
The Note matures on February 1, 2004 or earlier if the Company enters into a
merger agreement, completes a public offering in excess of $10,000,000, defaults
on the payment of interest or sells 50% or more of its shares in the Company to
a stockholder not previously an investor in the Company. The Note has an
interest rate of 6% per annum payable monthly in arrears and is secured by all
assets of the Company. The Note is subordinated to the equipment lease and, in
certain respects, the factoring agreement, described below. On June 30, 1999,
the Company was in default on the Note as it failed to make four monthly
interest payments of $16,000 per month for the months of March to June 1999, or
a total of $64,000. In addition, the Company has not made its July and August
1999 interest payments. As this has caused an Event of Default as defined in the
Note, DGJ, the holder of the Note, is entitled to various rights and remedies
under the Note and the Securities Purchase Agreement, including, but not limited
to, the right to declare all or any part of the unpaid principal amount of the
Note outstanding to become due and payable. As of August 13, 1999, DGJ has
indicated a willingness to defer exercising its rights and remedies upon default
pending discussion with the Company regarding how the Note default is to be
cured.
In conjunction with the January 1999 Financing, DGJ required certain members
of the Company's management, C. Jill Beresford, James F. Koehlinger, Richard H.
Nurse, Hanspeter Schulz and Ivan J.
F-6
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: FINANCIAL RESTRUCTURING (CONTINUED)
Hughes, to invest, in the aggregate, $300,000 in the Company's warrants. The
Common Stock represented by the warrants cannot be issued until approval for an
increase in the Company's authorized shares of Common Stock is obtained at the
next annual meeting of stockholders.
The shares of the Series C Preferred Stock were purchased by DGJ for an
aggregate purchase price of $100. Some of the rights and restrictions of Series
C Preferred Stock include the following: (i) the holders of Series C Preferred
Stock have no voting rights; provided, however, upon an Event of Default, as
defined in the Securities Purchase Agreement, holders of the Series C Preferred
Stock will be entitled to vote with the holders of the Common Stock as a single
class on each matter submitted to a vote to the Company's stockholders, with
each share of the Series C Preferred Stock having 30 votes; (ii) if the Note has
been retired in its entirety, the Company, at its option, may elect to redeem
all or a portion of the outstanding Series C Preferred Stock, at an aggregated
redemption price of $100 plus accrued interest at a rate of 6% per annum
commencing on January 27, 1999; and (iii) the shares of the Series C Preferred
Stock are not convertible into shares of Common Stock.
In conjunction with the January 1999 Financing, the Company entered into
agreements with most of its unsecured creditors that provided a discounted
payment in February 1999 or a non-interest bearing agreement to pay the entire
balance over a three-year period. The unsecured creditor agreements, together
with the financing referred to above, allowed the Company to restructure trade
notes payable of $584,000 and accounts payable of $6,597,000, or a total of
$7,181,000, compared to $1,874,000 of current accounts payable and $1,426,000 of
long-term debt, or a total of $3,300,000 after refinancing. Unsecured creditors
of the Company owed approximately $3,009,000 as of January 27, 1999 selected the
discounted payment plan resulting in extraordinary income of $1,917,707 during
the first six months of 1999. This gain of $1,917,707 was recorded as
extraordinary income amounting to $0.08 per share. The tax effect of this gain
reduced the net operating tax loss carryforward from prior years which has been
fully reserved and, therefore, has no impact on current operations. The balance
of the unsecured creditors selected the three year payment plan or are currently
negotiating with the Company or did not reach discounted or deferred agreements
with the Company. The Company did not recognize any gain under the three year
payment arrangement.
The gain on the restructuring of trade notes payable and accounts payable
was accounted for as an extraordinary item in the Company's Consolidated
Statement of Operations for the six month period ended June 30, 1999. The
creditors who selected the long-term debt agreement are being paid their
balances due over a 36-month period in 36 equal installments with no interest.
The Company was involved in a patent infringement suit and reached a settlement
on January 27, 1999 to pay the balance due of $200,000 as part of the
restructuring of the Company's debt described above.
A factoring agreement with a company related to DGJ now provides the Company
with $2,000,000 of financing secured by the Company's accounts receivable and
$1,000,000 secured by its inventory. The term for both the accounts receivable
and inventory financing is six months, subject to automatic renewal unless the
Company gives at least 90 days written notice of termination. Written notice of
termination regarding this factoring agreement was given by the Company on March
30, 1999. The financing bears interest at the prime rate plus 5% on the
outstanding balance on the inventory loan and the prime rate plus 2% on all
accounts receivable submitted for financing. The Company may borrow up to 85% of
its qualified accounts receivable and 33% of its qualified inventory. The
parties to the factoring agreement have indicated a willingness to extend the
terms of the agreement on a
F-7
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: FINANCIAL RESTRUCTURING (CONTINUED)
month-to-month basis until the agreement can be replaced with a revolving line
of credit, which the Company is currently negotiating with another entity (Note
7).
The Company's equipment, capital and operating leases have been replaced
with a new equipment lease with DGJ. Current obligations of $3,800,000 and
accrued lease obligations of $1,643,000 were retired and $1,679,000 of equipment
previously treated as operating leases was added to the property and equipment
accounts. The new lease carries no debt reduction obligation and is treated as
long-term debt. The Company's combined monthly payments under the retired leases
were reduced from approximately $305,000 per month to $102,000 per month under
the new lease agreement with DGJ. The lease obligation is a ten-year lease with
monthly payments of $102,000 representing interest only. The total principal
amount of the lease is $6,800,000 and is due at the end of the lease term. The
lease was recorded as a capital lease during the quarter ended March 31, 1999
and will be treated as such in future periods. The lease requires the Company to
meet certain financial covenants, including, but not limited to, earnings
targets and debt-to-equity ratios.
On June 30, 1999, the Company was in default on the equipment lease with DGJ
as it failed to make five monthly lease payments of $102,000 per month for the
months of February to June 1999, or $510,000 in total. As this has caused an
Event of Default, as described in the equipment lease, DGJ is entitled to
various rights and remedies under the equipment lease and the Securities
Purchase Agreement, including, but not limited to, the right to have any and all
remaining sums under the lease become immediately due and payable and the right
to repossess the leased equipment. As of August 13, 1999, DGJ has indicated a
willingness to defer exercising its rights and remedies upon default pending
discussion with the Company regarding how the equipment lease default is to be
cured.
The note payable, warrants and Series C Preferred Stock purchased by DGJ for
$3,200,200 were valued using a discounted cash flow analysis, at an assumed rate
of 14%. Net cash proceeds after fees were assigned to the various components of
this transaction based upon the discounted value of the note payable at 14%. Of
the $3,200,200, $480,000 has been recorded as additional capital in excess of
par value related to the warrants. The Series C Preferred Stock is determined to
have no value separate from the warrants because it is not convertible to Common
Stock and its redemption price is the same as its purchase price, $100 plus
accrued interest at 6% per annum beginning on January 27, 1999. Also, the Series
C Preferred Stock has no preference in liquidation, although, it has a voting
preference. The fair market value of the Common Stock on January 27, 1999 was
$0.28 per share. The warrants have an exercise price of $0.04 per share.
Accounts payable long term consists of amounts due to vendors who selected a
36 month payment plan as part of the Company's financial restructuring. The
payment plan current portion is included in current liabilities.
NOTE 3: 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.
F-8
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3: BASIC AND DILUTED NET LOSS PER SHARE (CONTINUED)
For the periods ended June 30, 1999 and 1998, the Company had recorded a net
loss before extraordinary income. Therefore, basic 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 4: ACCOUNTS RECEIVABLE-TRADE
Accounts receivable-net consists of the following:
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
Accounts receivable-trade................................... $ 1,481,058 $ 1,066,841
Allowance for doubtful accounts............................. (54,553) (109,452)
Allowance for credits....................................... (75,000) (75,000)
------------- -----------------
$ 1,351,505 $ 882,389
------------- -----------------
------------- -----------------
</TABLE>
NOTE 5: INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
Raw materials............................................... $ 613,262 $ 296,427
Finished goods.............................................. 1,059,599 420,986
------------- --------
$ 1,672,861 $ 717,413
------------- --------
------------- --------
</TABLE>
NOTE 6: 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 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 shorter of the life of the asset or the remaining
life of the lease.
The carrying value of property and equipment is periodically reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying values may not be recoverable.
NOTE 7: NOTE PAYABLE
At December 31, 1998, the Company had a $2,000,000 revolving line of credit
secured by accounts receivable. Borrowings under the line of credit were subject
to 70% of qualifying accounts receivable, less the aggregate amount utilized
under all commercial and standby letters of credit and bank
F-9
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7: NOTE PAYABLE (CONTINUED)
acceptances. The line of credit bore interest at prime plus 6% (14.5% at
December 31, 1998). In addition, the Company paid 2% interest on all new
invoices submitted for financing. The credit line was for one year and subject
to renewal annually. At December 31, 1998, the balance under the line of credit
was $814,311, which was the maximum available based on the qualifying accounts
receivable. Subsequent to December 31, 1998, the Company repaid this note
payable in full in connection with its financial restructuring (Note 2).
On January 27, 1999, the Company entered into a factoring agreement, which
provides the Company with up to $2,000,000 of financing secured by the Company's
accounts receivables and $1,000,000 secured by its inventory. At June 30, 1999,
the balance under this agreement was $1,690,163 (Note 2).
During the second quarter of 1999, the lender under the factoring agreement,
described above, has advanced additional funds to the Company in various
increments. These additional funds were used as working capital. These
additional loans made to the Company are on the same terms as the original
factoring agreement. As of August 12, 1999, the Company had borrowed a total of
$600,000 from this lender.
On July 16, 1999, the Company received a non-binding letter from a bank
stating that it is intending to provide the Company with a $4,000,000 revolving
line of credit that would be secured, to some extent, by accounts receivable,
inventory and all other assets of the Company. The proceeds of this loan are to
be used to retire the factoring agreement, described above, and for working
capital purposes.
In February 1999, the Company borrowed approximately $219,000 from DGJ to
purchase additional pieces of equipment. This loan bears interest at a rate of
18% per annum and matures in September 1999. Beginning on April 1, 1999, the
Company was required to make six successive monthly installment payments of
interest only. As of June 30, 1999, the Company has not made any monthly
interest payments under this note. As of August 13, 1999, DGJ has indicated a
willingness to defer exercising its rights and remedies upon default pending
discussion with the Company regarding how the loan default is to be cured.
F-10
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8: CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE SIX
MONTH PERIOD ENDED JUNE 30, 1999
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE SERIES C REDEEMABLE
SERIES B CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
-------------------- -------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998....................... 146,695 $1,466,954 212,258 $ 674,032 0 $ 0
Subscribed stock.................................
Net income for six months ending June 30, 1999...
Ascribed value of Series C Redeemable Preferred
Stock under refinancing of 1/27/99.............
Issuance of stock during financial
Restructuring.................................. 1,629,930 $ 100
Conversion of Series A Convertible Preferred
Stock to Common Stock.......................... (4,900) $ (49)
Balance at June 30, 1999........................... 146,695 $1,466,954 207,358 $ 673,983 1,629,930 $ 100
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK SUBSCRIBED STOCK CAPITAL IN
-------------------- ------------------- EXCESS OF ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAR VALUE DEFICIT TOTAL
---------- -------- --------- -------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998....... 21,495,621 $214,956 0 $ 0 $44,912,833 $(43,989,302) $3,279,473
Subscribed stock................. 7,500,000 $300,000 $ 300,000
Net income for three months
ending March 31, 1999.......... $ 821,834 $ 821,834
Ascribed value of Series C
Redeemable Preferred Stock
under refinancing of 1/27/99... $ 480,000 $ 480,000
Issuance of stock during
financial Restructuring........ $ (100) $ 0
Conversion of Series A
Convertible Preferred Stock to
Common Stock................... 4,900 $ 49 0
Balance at June 30, 1999........... 21,500,521 $215,005 7,500,000 $300,000 $45,392,733 $(43,167,468) $4,881,307
</TABLE>
NOTE 9: RELATED PARTY TRANSACTIONS
Ivan J. Hughes, a director of the Company, is the President of the Plastic's
Division, and a director and a member of the Executive and Compensation
Committees of Duro Bag Manufacturing Company ("Duro Bag"). In January, February,
March, April, May, June and July, Duro Bag issued purchase orders for $192,000,
$190,335, $209,513, $255,729, $0, $350,019 and $364,435, respectively, to the
Company to purchase bags for Duro Bag customers. Orders from Duro Bag
represented 18% of sales during the first quarter period ended March 31, 1999,
15% of sales during the second quarter period ended June 30, 1999 and 16% of
sales for the six months ended June 30, 1999. The Company expects similar orders
from Duro Bag during the remainder of the year. The Company manufacturers these
products on behalf of Duro Bag for its customers. The Company sells these
products on terms as contracted between Duro Bag and its customers, which terms
are equal, if not better, than the Company could obtain from its other customers
for these products.
F-11
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9: RELATED PARTY TRANSACTIONS (CONTINUED)
In November 1990, the Company established an officer's loan receivable to
Dennis N. Caulfield, its Chairman for $132,197. The note was amended in April
1998 and the interest rate changed to 6% effective from November 1990 and is now
payable on or before January 1, 2001. Interest on the loan, along with advances
for travel not offset by expense records, caused the loan balance to equal
$586,978 as of December 31,1997. Mr. Caulfield did not make any payments against
the loan from the period beginning 1990 through December 31, 1997. According,
the Company reserved the full amount of this loan on that date. Also, no
payments were made in 1998. In addition, the Company paid, on behalf of the
former Chairman, approximately $36,000 of a $200,000 personal income tax levy
imposed by the Massachusetts Department of Revenue on Mr. Caulfield in exchange
for an interest bearing note due on or before June 30, 1998, which has not yet
been repaid. This note was reserved for as of June 30, 1999.
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 year period based on RC America
attaining certain levels of pre-tax earnings. No shares of Common Stock were
issued in 1998 or for the 10 month period ended December 31, 1997. As a result
of RC America's earnings for the fiscal year ended February 28, 1997 and
February 23, 1996, 2,649 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.
Four of the Company's directors, Gary R. Edidin, Allen S. Gerrard, Theodore
L. Koenig and Bruce M. Fleisher, are either related to DGJ or have been
designated by DGJ. The financial restructuring and loans described in Note 2,
Note 7 and all other transactions between the Company and DGJ will be deemed to
be related party transactions due to the relationships of these directors with
DGJ. Also, Mr. Koenig is counsel to the Chicago-based law firm of Holleb & Coff,
which provides legal services to the Company.
On August 19, 1999, the Company entered into a series of transactions with
LaSalle Business Credit, Inc. and DGJ to refinance its existing indebtedness.
The Company's loan agreement with LaSalle provides it with a $4,000,000
revolving line of credit. This credit facility is secured by a first priority
security interest in the Company's accounts receivable, inventory and certain
other assets. DGJ is the lessor of substantially all the equipment that the
Company uses, under a capital lease, and holds a first priority security
interest in its equipment. LaSalle received a second priority security interest
in the Company's equipment. Certain of the proceeds of this credit facility were
used to retire existing indebtedness the Company owed to Franklin Capital
Corporation, including the factoring agreement and revolving note, while the
remaining proceeds were used to retire some of the Company's other indebtedness
and for working capital purposes. This credit facility bears interest at a
fluctuating rate equal to 1.5% per annum above the prime rate of LaSalle in
effect from time to time and matures in three years.
In addition, the Company and DGJ amended and restated the promissory note in
the original principal amount of $3,200,000, because the Company was unable to
fulfill the financial obligations under the terms of the loan and lease
documents with DGJ. To cure the defaults, the Company restated the note to
include, in addition to the original principal and interest accrued thereunder,
all
F-12
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9: RELATED PARTY TRANSACTIONS (CONTINUED)
amounts outstanding under: (i) an equipment loan made by DGJ to the Company as
of March 1, 1999 in the original principal amount of $218,665; (ii) a series of
advances made to the Company by Franklin during the second quarter of 1999
(which totaled approximately $900,000, and were reduced to approximately
$660,000 after application of proceeds of the credit facility), rights to
repayment of which were subsequently assigned by Franklin to the Company; (iii)
delinquent payments under the DGJ lease of approximately $570,000; and (iv)
interest on the foregoing. The resulting balance of $4,773,585 was restated as
the principal amount of a new amended promissory note. The amended promissory
note is in the original principal amount of $4,773,585 and is payable as
follows: $3,200,000 of principal is due and payable on February 1, 2004, or
earlier by acceleration, as described in the Securities Purchase Agreement
between the Company and DGJ, or otherwise, and $1,573,585 is due and payable
pursuant to the terms of an intercreditor agreement between DGJ and LaSalle. The
amended promissory note bears interest at a rate of 10% per annum, and is
secured by all of the Company's assets, subordinated to LaSalle except as to
equipment.
F-13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS--LIVINGSTON & HAYNES, P.C.
March 22, 1999
To the Board of Directors and Stockholders
of BPI Packaging Technologies, Inc.
We have audited the accompanying consolidated balance sheet of BPI Packaging
Technologies, Inc., (the "Company") and subsidiaries as of December 31, 1998 and
the related consolidated statements of operations, stockholders' equity, cash
flows and Schedule 2, Valuation and Qualifying Accounts for the year then ended.
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 audit. The 1997 financial statements were audited by other auditors whose
report dated May 22, 1998, on those statements, included an explanatory
paragraph describing conditions that raised substantial doubt about the
Company's ability to continue as a going concern.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
and subsidiaries as of December 31, 1998 and the results of their operations,
their changes in stockholders' equity and cash flows for the year then ended are
in conformity with generally accepted accounting principles.
/s/ Livingston & Haynes, P.C.
Livingston & Haynes, P.C.
Wellesley, Massachusetts
F-14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of BPI Packaging Technologies, Inc.
In our opinion, the consolidated balance sheet and the related consolidated
statements of operations, of cash flows and of changes in stockholders' equity
as of December 31, 1997 and for the ten month period ended December 31, 1997 and
for the year ended February 28, 1997 (appearing on pages F-16 through F-37 of
this Form S-1 Registration Statement) present fairly, in all material respects,
the financial position of BPI Packaging Technologies, Inc. and its subsidiaries
at December 31, 1997, and the results of their operations and their cash flows
for the 10 month period ended December 31, 1997 and for the year ended February
28, 1997, in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule on page S-2 presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule 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. We have not
audited the consolidated financial statements of BPI Packaging Technologies,
Inc. for any periods subsequent to December 31, 1997.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has net working capital and operating cash flow deficiencies. In addition,
the Company is in default on its capital lease obligations and its note payable.
All of these factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
As discussed in Notes 1 and 6 to the financial statements, the Company
adopted Statement of Financial Accounting Standards 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.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 22, 1998
F-15
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Current assets:
Cash..................................................................... $ 73,116 $ 125,220
Accounts receivable, net................................................. 882,389 721,239
Inventories, net......................................................... 717,413 1,057,866
Prepaid expenses......................................................... 51,420 52,948
----------------- -----------------
Total current assets..................................................... 1,724,338 1,957,273
----------------- -----------------
Property and equipment, net................................................ 15,290,305 17,828,860
----------------- -----------------
Deposits--leases and equipment purchases................................... 149,851 141,284
Loans to officers, net..................................................... 6,072 5,416
Other assets, net.......................................................... 581,399 1,037,907
----------------- -----------------
737,322 1,184,607
----------------- -----------------
$ 17,751,965 $ 20,970,740
----------------- -----------------
----------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Note payable............................................................... $ 814,311 $ 1,162,349
Trade notes payable........................................................ 584,433 584,433
Capital lease obligations due within one year.............................. 3,800,286 4,426,205
Accounts payable........................................................... 6,597,223 6,714,870
Accrued expenses........................................................... 2,676,239 2,967,348
----------------- -----------------
Total current liabilities.................................................. 14,472,492 15,855,205
----------------- -----------------
Commitments and contingencies
Stockholders' Equity
Series B convertible preferred stock, $.01 par value....................... 1,466,954 1,466,954
Series A convertible preferred stock, $.01 par value....................... 674,032 1,126,932
Common stock, $.01 par value; shares authorized--60,000,000 at December 31,
1998 and 1997 Shares issued and outstanding-- 21,495,621 and 19,513,496
at December 31, 1998 and 1997, respectively.............................. 214,956 195,135
Capital in excess of par value............................................. 44,912,833 43,076,603
Accumulated deficit........................................................ (43,989,302) (40,750,089)
----------------- -----------------
3,279,473 5,115,535
----------------- -----------------
$ 17,751,965 $ 20,970,740
----------------- -----------------
----------------- -----------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR
10 MONTH PERIOD ENDED
FISCAL YEAR ENDED ENDED FEBRUARY 28,
DECEMBER 31, 1998 DECEMBER 31, 1997 1997
----------------- ----------------- ----------------
<S> <C> <C> <C>
Net sales................................................ $ 10,382,819 $ 13,951,725 $ 30,810,037
Cost of goods sold....................................... 8,826,905 17,311,037 27,784,329
----------------- ----------------- ----------------
Gross profit (loss)...................................... 1,555,914 (3,359,312) 3,025,708
Operating expenses:
Selling, general and administrative...................... 4,301,842 6,137,985 8,695,612
Bad debt expense......................................... -- 319,736 93,165
Write-down of impaired assets and related expenses....... -- -- 5,385,000
Patent infringement settlement........................... -- -- 512,648
----------------- ----------------- ----------------
Loss from operations..................................... (2,745,928) (9,817,033) (11,660,717)
Other (expense) income:
Allowance for officer loan............................... (68,039) (586,978) --
Interest expense......................................... (471,166) (984,064) (1,112,647)
Interest income.......................................... 45,920 49,206 9,133
----------------- ----------------- ----------------
Net loss................................................. $ (3,239,213) $ (11,338,869) $ (12,764,231)
----------------- ----------------- ----------------
----------------- ----------------- ----------------
Basic and diluted net loss per share..................... $ (0.16) $ (0.73) $ (0.96)
Shares used in computing basic and diluted net loss per
share.................................................. 20,849,356 15,579,747 13,261,815
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-17
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998, THE 10 MONTH PERIOD ENDED
DECEMBER 31, 1997 AND FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE
COMMON STOCK PREFERRED STOCK PREFERRED STOCK CAPITAL IN ACCUMU-
-------------------- -------------------- ------------------- EXCESS OF LATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT PAR VALUE DEFICIT TOTAL
---------- -------- -------- ---------- ------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at February
23, 1996.......... 11,800,909 118,009 303,946 1,215,784 146,695 1,466,954 33,615,213 (16,646,989 ) 19,768,971
Sale of common
stock pursuant
to Regulation S
and Regulation D
private
placement
offerings, net
of issuance
costs........... 1,207,500 12,075 2,194,793 2,206,868
Sale of common and
preferred stock
pursuant to
partial exercise
of underwriter's
warrants from
prior public
offerings, net
of issuance
costs........... 402,600 4,026 100,000 225,000 851,024 1,080,050
Conversion of
Series A
convertible
preferred stock
to common
stock........... 56,800 568 (56,800) (227,200) 226,632 --
Sale of common
stock pursuant
to exercise of
class B warrants
from the
Company's third
public offering,
net of issuance
costs........... 511,761 5,118 1,092,799 1,097,917
Issuance of common
stock based on
RC America's
FY96 results.... 2,550 26 5,074 5,100
Issuance of 92,308
Regulation S
common shares in
exchange for
Series C
redeemable
preferred
stock........... 92,308 923 149,077 150,000
Net loss for the
year ended
February 28,
1997............
---------- -------- -------- ---------- ------- ---------- ----------- ------------ ------------
Balance at February
28, 1997.......... 14,074,428 140,745 347,146 1,213,584 146,695 1,466,954 38,134,612 (29,411,220 ) 11,544,675
Conversion of
Series A
convertible
preferred stock
to common
stock........... 21,663 217 (21,663) (86,652) 86,435 --
Issuance of common
stock based on
RC America FY 97
results......... 5,280 52 8,527 8,579
Sale of common
stock pursuant
to Regulation S
and Regulation D
private
placement
offerings, net
of issuance
costs........... 4,991,125 49,911 4,354,080 4,403,991
Issuance of common
stock in
exchange for
commission on
private
placement
offerings....... 387,500 3,875 383,626 387,501
Issuance of common
stock in
exchange for
consulting
services........ 33,500 335 33,165 33,500
Warrants granted
to
consultants..... 76,158 76,158
Net loss for the
10 month period
ended December
31, 1997........ (11,338,869 ) (11,338,869)
---------- -------- -------- ---------- ------- ---------- ----------- ------------ ------------
Balance at December
31, 1997.......... 19,513,496 195,135 325,483 1,126,932 146,695 1,466,954 43,076,603 (40,750,089 ) 5,115,535
Sale of Stock
pursuant to
Regulation D
private
offerings, net
of issuance
costs........... 1,868,900 18,689 1,264,262 1,282,951
Warrants granted
for lease
extension....... 120,200 120,200
Conversion of
Series A
Convertible
Preferred....... 113,225 1,132 (113,225) (452,900) 451,768 --
Net loss for the
year ended
December 31,
1998............ (3,239,213 ) (3,239,213)
---------- -------- -------- ---------- ------- ---------- ----------- ------------ ------------
Balance at December
31, 1998.......... 21,495,621 $214,956 212,258 $ 674,032 146,695 $1,466,954 $44,912,833 $(43,989,302) $ 3,279,473
---------- -------- -------- ---------- ------- ---------- ----------- ------------ ------------
---------- -------- -------- ---------- ------- ---------- ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of consolidated financial
statements.
F-18
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR
10 MONTH ENDED
FISCAL YEAR ENDED PERIOD ENDED FEBRUARY 28,
DECEMBER 31, 1998 DECEMBER 31, 1997 1997
----------------- ----------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Loss....................................................... $ (3,239,213) $ (11,338,869) $ (12,764,231)
----------------- ----------------- ----------------
Adjustments to reconcile net loss to net cash provided (used)
by operating activities:
Depreciation and amortization................................ 2,538,880 2,186,621 3,417,849
Write-down of impaired assets and related Expenses........... -- -- 5,897,648
Inventory reserve............................................ (290,000) (925,000) 1,215,000
Allowance for lease losses................................... -- 1,643,377 --
Allowance for officer loan................................... -- 586,978 --
Warrants and common stock granted to consultants............. -- 109,658 --
Allowance for uncollectible trade receivables................ -- 175,000 --
Changes in assets and liabilities:
(Increase) Decrease in accounts receivable--trade............ (161,150) 1,197,521 84,372
(Increase) Decrease in inventories........................... 630,453 4,401,587 (1,821,856)
(Increase) Decrease in prepaid expenses...................... 1,528 217,538 (302,566)
Increase (Decrease) in other assets, net..................... 456,508 840,896 (198,418)
(Decrease) Increase in accounts payable...................... (117,647) 209,020 3,218,584
(Decrease) Increase in other accrued expenses................ (291,109) 364,134 132,409
----------------- ----------------- ----------------
Total Adjustments.......................................... 2,767,463 11,007,330 11,643,022
----------------- ----------------- ----------------
Net cash used in operating activities...................... (471,750) (331,539) (1,121,209)
----------------- ----------------- ----------------
Cash flows from investing activities:
Additions to property and equipment.......................... (325) (212,144) (1,549,878)
Cost of patents.............................................. -- -- (144,928)
Decrease (increase) in deposits, net......................... (8,567) (12,823) 388,922
Advances to officers......................................... (656) (112,597) (44,560)
----------------- ----------------- ----------------
Net cash used in investing activities.................... (9,548) (337,564) (1,350,444)
----------------- ----------------- ----------------
Cash flows from financing activities:
Net (payments) borrowings under note payable................... (348,038) (2,571,128) (19,127)
Principal payments on long-term debt and capital lease
Obligations.................................................. (625,919) (1,492,754) (1,945,014)
Net proceeds from sales and issuances of stock................. 1,403,151 4,800,071 4,384,835
----------------- ----------------- ----------------
Net cash provided by financing activities.................. 429,194 736,189 2,420,694
----------------- ----------------- ----------------
Net (decrease) increase in cash................................ (52,104) 67,086 (50,959)
Cash at beginning of period.................................... 125,220 58,134 109,093
----------------- ----------------- ----------------
Cash at end of period.......................................... $ 73,116 $ 125,220 $ 58,134
----------------- ----------------- ----------------
----------------- ----------------- ----------------
Cash paid for interest......................................... $ 471,166 $ 900,855 $ 1,093,648
----------------- ----------------- ----------------
----------------- ----------------- ----------------
</TABLE>
Non-cash investing and financing activities:
Capital lease obligations of $590,069 were incurred in fiscal year 1997 when
the Company entered into capital lease agreements to purchase machinery and
equipment.
During the 10 month period ended December 31, 1997, two trade payables,
totaling $584,433, were converted into trade notes payable (Note 10).
The accompanying notes are an integral part of these consolidated financial
statements.
F-19
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
BPI Packaging Technologies, Inc. (the "Company") converts commercially
available high molecular weight, high density polyethylene resins into thin
film, which is either sold directly into industrial or packaging applications or
converted in-house into carryout bags of "T-shirt sack" design for supermarkets,
convenience stores and other retail markets. The Company utilizes advanced, high
quality extrusion, printing and bag making equipment, which was installed
between 1990 and 1997. The Company operated two wholly-owned subsidiaries: RC
America, Inc., which purchased surplus inventory from manufacturers of consumer
products and markets and sells the products to mass merchandise retailers and
other retail chains; and Market Media, Inc., which sells and markets in store
advertising and promotion programs and anti-smoking advertising programs in
public schools. Operations of these two subsidiaries ceased during the year
ended December 31, 1998.
SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Company changed its fiscal year during the period ended December 31,
1997 to coincide with the calendar year, resulting in a 10 month period. In the
previous year, the Company's fiscal year ended February 28, 1997. The Company
was unable to accurately recast operating results to provide for a 12 month
period ending December 31, 1997 because monthly closing of the records were not
undertaken during the months in question. The months of January and February are
the lowest sales periods of the year under normal seasonality trends.
REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISK
The Company recognizes revenues on an accrual basis upon shipment of
products and passage of title to the Company's customers. 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.
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 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 shorter of the life of the asset or the remaining
life of the lease.
F-20
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1: ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The carrying value of property and equipment is periodically reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying values may not be recoverable.
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.
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, like net operating loss carry-forwards, to the extent that
realization of these benefits is more likely than not to occur.
ADVERTISING COSTS
Advertising and trade show costs are expensed as incurred. Total advertising
expenses were $42,127, $113,478 and $309,316 for the year ended December 31,
1998, the 10 month period ended December 31, 1997 and for the fiscal year ended
February 28, 1997.
BASIS OF CONSOLIDATION
The consolidated financial statements include the results of the Company's
wholly-owned subsidiaries, RC America, Inc., and Market Media, Inc. Operations
of these two subsidiaries ceased during the year ended December 31, 1998. All
inter-company activity has been eliminated in consolidation. The Company
operates in one reportable segment under SFAS No. 131. The activities of RC
America, Inc. and Market Media, Inc. were not significant to the overall
operations of the Company. Therefore, RC America, Inc. and Market Media, Inc.
are not presented as discontinued operations.
BASIC AND DILUTED NET LOSS PER SHARE
In February 1997, the Financial Accounting Standards Boards issued SFAS No.
128, "Earnings per Share", which supersedes Accounting Principles Board Opinion
No. 15 and specifies the computation, presentation and disclosure requirements
of earnings per share. SFAS No. 128 requires the presentation of "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. As required, the Company adopted SFAS No. 128 in the
fourth quarter of the 10 month period ended December 31, 1997. All prior periods
earnings per share amounts have been restated to comply with SFAS No. 128.
For each of the years presented the Company has recorded a net loss.
Therefore, basic and diluted earnings per share are the same due to the
antidilutive effect of potential common shares outstanding.
F-21
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1: ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Antidilutive potential common shares excluded from the year ended December 31,
1998, the 10 month period ended December 31, 1997 and the fiscal year ended
February 28, 1997 computation include 649,557, 783,117 and 773,830 common
shares, respectively, issuable upon the exercise of stock options. Antidilutive
potential common shares excluded from the year ended December 31, 1998, the 10
month period ended December 31, 1997 and the fiscal year ended February 28, 1997
computation also included 358,953, 472,178 and 493,841 common shares issuable
upon the conversion of redeemable convertible preferred stock. Antidilutive
potential common shares excluded from the 10 month period ended December 31,
1997 computation included 109,323 issuable upon the exercise of warrants.
Antidilutive potential common shares excluded from the year ended December 31,
1998 computation included 120,200 common shares issuable upon the exercise of
warrants.
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments are comprised of cash, accounts
receivable, deposits, accounts payable and bank borrowings, all of which
approximate fair value.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS
123"). SFAS 123 allows an entity to account for employee stock compensation
under a fair value based method or SFAS 123 also allows an entity to continue to
measure costs for employee stock based compensation plans using the intrinsic
value-based method of accounting under APB Opinion No. 25 "Accounting for Stock
Issued to Employees" ("APB 25"), supplemented by the appropriate note
disclosure. The Company continues to account for employee stock-based
compensation under APB 25 and has made the pro forma disclosures required under
SFAS 123 (Note 20).
IMPAIRMENT OF LONG-LIVED ASSETS
In Fiscal Year ended February 28, 1997, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of." The statement requires the recognition of an impairment loss for
an asset held for use when the estimate of undiscounted future cash flows
expected to be generated by the asset is less than its carrying amount.
Measurement of the impairment loss is based on fair value of the asset.
Generally, fair value will be determined using valuation techniques, including
the present value of expected future cash flows method.
RECLASSIFICATIONS
Certain balances in the prior year financial statements have been
reclassified to conform to the current period presentation.
F-22
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: GOING CONCERN AND MANAGEMENT'S PLAN
A going-concern footnote was included with the February 28, 1997 and
December 31, 1997 financial statements because the Company had unfavorable
working capital, debt-to-equity ratios and operating cash flow deficiencies,
which raised substantial doubt about the Company's ability to continue as a
going-concern. The restructuring with DGJ (as described below) significantly
improved both the working capital and debt-to-equity ratios subsequent to
December 31, 1998. New management of the Company put into place in the middle of
1998 an operating plan that reduced fixed costs and increased revenues in the
second half of 1998. These changes brought about by the new management have
resulted in an improvement in the results of operations and produce a positive
cash flow from operations for the last six months in 1998 and during the first
three months of 1999.
On January 27, 1999, the Company entered into a Securities Purchase
Agreement (the "Purchase Agreement") with an investor, DGJ, L.L.C., a Delaware
limited liability company, under which the Company agreed to issue and sell to
DGJ, and DGJ agreed to purchase from the Company the following:
1. a Promissory Note in the aggregate principal amount of $3,200,000
(the "Note");
2. a Common Stock Purchase Warrant for the purchase of up to 80,000,000
shares of the Company's common stock, $0.01 par value per share (the "Common
Stock"), at an exercise price of $0.04 per share, exercisable until January
27, 2009; and
3. 1,629,930 shares of Series C Preferred Stock of the Company for
$100.
The Note matures on February 1, 2004 or earlier in the event of a default,
the sale of 50% or more of the Company's assets, the merger or consolidation of
the Company, the purchase of 50% or more of the shares of the Common Stock by a
person who was not a stockholder of the Company at the time of the execution of
the Purchase Agreement, or a primary public offering of the Company's securities
in excess of $10,000,000. The Note has an interest rate of 6% per annum payable
monthly in arrears, principle is due at its maturity and it is secured by all
assets of the Company. The Note is subordinated to the equipment lease and the
factoring agreement, described below.
In conjunction with the financing, DGJ required certain members of the
Company's management to invest, in the aggregate, $300,000 in warrant exercises
that appear as subscribed stock on the Pro Forma Balance Sheet. The 49,062,500
shares of Common Stock underlying by the warrants cannot be issued until
approval for an increase in the authorized shares outstanding is obtained at the
next annual meeting of stockholders.
In conjunction with the financing, the Company entered into agreements with
most of its unsecured creditors that provided for a discounted payment in
February 1999 or a non-interest bearing agreement to pay the entire balance over
a three-year period. The unsecured creditor agreements, together with the
financing referred to above, allowed the Company to restructure trade notes
payable of $584,000 and accounts payable of $6,597,000, or a total of
$7,181,000, compared to $1,874,000 of current accounts payable and $1,426,000 of
long-term debt, or a total of $3,300,000 after refinancing. Unsecured creditors
of the Company owed approximately $3,009,000 as of January 27, 1999 selected the
discounted payment plan resulting in extraordinary income of $1,731,762 during
the first quarter of 1999. The balance of the unsecured creditors selected the
three year payment plan or are currently negotiating with the Company or did not
reach discounted or deferred agreements with the Company. The Company did not
recognize any gain under the three year payment arrangement. This gain of
$1,731,762 was recorded as extraordinary income amounting to $0.08 per share.
The tax effect of this
F-23
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: GOING CONCERN AND MANAGEMENT'S PLAN (CONTINUED)
gain reduced the net operating tax loss carry forward from prior years which has
been fully reserved and, therefore, has no impact on current operations.
A factoring agreement with a company related to DGJ now provides the Company
with $2,000,000 of financing secured by the Company's accounts receivable and
$1,000,000 secured by its inventory. The term for both accounts receivable and
inventory financing is six months, subject to automatic renewal unless the
Company gives at least 90 days written notice of termination. Written
termination regarding this factoring agreement was given by the Company on March
30, 1999. The financing bears interest at prime rate plus 5% on the outstanding
balance on the inventory loan and the prime rate plus 2% on all accounts
receivable submitted for financing. The Company may borrow up to 85% of its
qualified accounts receivable and 33% of its qualified inventory.
The gain on the restructuring of trade notes payable and accounts payable
will be accounted for as an extraordinary item in the Company's Consolidated
Statement of Operations in future periods. The creditors who selected the
long-term debt agreement are being paid their balances due over a 36-month
period in 36 equal installments with no interest. The Company was involved in a
patent infringement suit and reached a settlement on January 27, 1999 to pay the
balance due of $200,000 as part of the restructuring of the Company's debt as
described above.
The Company's equipment, capital and operating leases were funded by the new
equipment lease with DGJ. Current obligations of $3,800,000 and accrued lease
obligations of $1,643,000 were retired and $1,679,000 of equipment previously
treated as operating leases were added to the property and equipment accounts.
The new lease carries no debt reduction obligation and is treated as long-term
debt. The combined monthly payments under the retired leases were reduced from
approximately $305,000 per month to $102,000 per month under the new lease
agreement with DGJ. The term of the lease is ten years and its monthly payments
of $102,000 represent interest only. The total principal amount of the lease is
$6,800,000 and is due at the end of the lease term. The lease has been recorded
as a capital lease during the quarter ended March 31, 1999 and will be treated
as similarly in future periods. The lease required the Company to meet certain
financial covenants, including, but not limited to, earnings targets and
debt-to-equity ratios.
The Note, warrants and Series C Preferred Stock purchased by DGJ for
$3,200,200 were valued at the discounted fair market value at an assumed rate of
14%. Of the $3,200,200, $480,000 has been recorded as additional capital in
excess of par value related to the warrants because it is not convertible to
Common Stock and its redemption price is the same as its purchase price, $100,
plus accrued interest at 6% per annum, beginning on January 27, 1999. Also, the
Series C Preferred Stock has no preference in liquidation, although, it has a
voting preference.
The plan to restructure the Company's operations and management, which began
in the third quarter of 1998, to satisfy past due trade creditors and past due
operating and capital lease balances, is progressing.
F-24
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: GOING CONCERN AND MANAGEMENT'S PLAN (CONTINUED)
BPI PACKAGING TECHNOLOGIES, INC.
PRO FORMA BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
AS AUDITED PRO FORMA
DECEMBER 31, DECEMBER 31,
1998 ADJUSTMENTS 1998
------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets
Cash.............................. $ 73,116 3,500,000 (1,960,900) 250,000 (885,000) $ 977,216
Accounts receivable, net.......... 882,389 882,389
Inventories, net.................. 717,413 717,413
Prepaid expenses.................. 51,420 51,420
Total current assets.............. 1,724,338 2,628,438
Property and equipment, net....... 15,290,305 1,678,973 16,969,278
Deposits--leases and equipment
purchases....................... 149,851 (75,940) 73,911
Loans to officers, net............ 6,072 6,072
Other assets, net................. 581,399 885,000 (246,696) 1,219,703
------------ --------- --------- ----------- --------- --------- ------------
737,322 1,299,686
------------ --------- --------- ----------- --------- --------- ------------
Total assets...................... $17,751,965 3,500,000 (1,960,900) 250,000 0 1,356,337 $20,897,402
------------ --------- --------- ----------- --------- --------- ------------
------------ --------- --------- ----------- --------- --------- ------------
Current liabilities
Note payable...................... $ 814,311 250,000 $1,064,311
Trade notes payable............... 584,433 (584,433) --
Capital lease obligations due
within one year................. 3,800,286 (3,800,286) --
Accounts payable.................. 6,597,223 584,433 (1,960,900) (1,425,540) (1,846,100) (75,116) 1,874,000
Accrued expenses.................. 2,676,239 (1,643,377) 1,032,862
------------ ------------
Total current liabilities......... 14,472,492 3,971,173
------------ ------------
Capital lease
obligations--long-term
portion......................... -- 6,800,000 6,800,000
------------
Long-term debt.................... -- 1,425,540 1,425,540
------------
Accounts Payable
Notes payable..................... -- 3,200,000 (480,000) 2,720,000
------------
Stockholders' equity
Subscribed stock.................. -- 300,000 300,000
Series B convertible preferred
stock, $.01 par value........... 1,466,954 1,466,954
Series A convertible preferred
stock, $.01 par value........... 674,032 674,032
Series C redeemable preferred
stock, $.01 par value........... -- 100 100
Common stock, $.01 par value;
shares authorized--60,000,000... 214,956 214,956
Capital in excess of par value.... 44,912,833 480,000 (100) 45,392,733
Accumulated deficit............... (43,989,302) 1,846,100 75,116 (42,068,086)
------------ --------- --------- ----------- --------- --------- ------------
3,279,473 5,980,689
------------ --------- --------- ----------- --------- --------- ------------
Total liabilities and
stockholders' equity............ $17,751,965 3,500,000 (1,960,900) 250,000 0 1,356,337 $20,897,402
------------ --------- --------- ----------- --------- --------- ------------
------------ --------- --------- ----------- --------- --------- ------------
</TABLE>
F-25
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3: ACCOUNTS RECEIVABLE--TRADE
Accounts receivable-trade consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Accounts receivable-trade.............................. $ 1,066,841 $ 1,071,239
Allowance for doubtful accounts........................ (109,452) (275,000)
Allowance for credits.................................. (75,000) (75,000)
----------------- -----------------
$ 882,389 $ 721,239
----------------- -----------------
----------------- -----------------
</TABLE>
NOTE 4: INVENTORIES
Inventories, net of valuation reserves, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Raw material........................................... $ 296,427 $ 285,058
Finished goods......................................... 420,986 1,062,808
Reserves............................................... -- (290,000)
-------- -----------------
$ 717,413 $ 1,057,866
-------- -----------------
-------- -----------------
</TABLE>
Raw material includes virgin high density, high molecular weight
polyethylene ("HDHMWPE") resin, re-processed HDHMWPE material, color inks and
additives, and post-industrial scrap generated during the manufacturing process.
NOTE 5: PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Machinery and equipment................................ $ 24,817,161 $ 24,817,161
Leasehold improvements................................. 3,611,407 3,611,082
Office furniture and fixtures.......................... 303,731 303,731
Motor vehicles......................................... 19,900 19,900
----------------- -----------------
28,752,199 28,751,874
----------------- -----------------
----------------- -----------------
Less accumulated depreciation and Amortization......... (13,461,894) (10,923,014)
----------------- -----------------
$ 15,290,305 $ 17,828,860
----------------- -----------------
----------------- -----------------
</TABLE>
Assets recorded under capital leases and included in property and equipment
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Machinery and equipment................................ $ 13,041,270 $ 13,041,270
Less accumulated amortization.......................... (5,478,653) (4,055,971)
----------------- -----------------
$ 7,562,617 $ 8,985,299
----------------- -----------------
----------------- -----------------
</TABLE>
F-26
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5: PROPERTY AND EQUIPMENT, NET (CONTINUED)
Depreciation and amortization expense relating to fixed assets was
$2,538,880, $2,186,621 and $3,216,189 for the year ended December 31, 1998, the
10 month period ended December 31, 1997 and for the year ended February 28,
1997, respectively, of which $1,422,682, $1,185,568 and $1,158,749, related to
amortization of equipment held under capital leases, respectively.
During fiscal year 1997, in accordance with SFAS No. 121, the Company
wrote-down machinery and equipment to their estimated fair value, which resulted
in a non-recurring charge of $3,335,070, which is included in the $5.9 million
write-down of impaired assets and related expenses (Note 6).
NOTE 6: WRITE-DOWN OF IMPAIRED ASSETS AND PATENT INFRINGEMENT SETTLEMENT
During the fourth quarter of the fiscal year ended February 28, 1997, the
Company made the decision to exit the traditional T-shirt bag business. The
application of Statement of Financial Standard No. 121, "Accounting for the
Impairment of Ling-Lived Assets and Long-Lived Assets to be Disposed Of," caused
the Company to recognize a non-cash charge of $5,385,000 to write down to fair
value certain long-lived assets consisting principally of machinery and
equipment, patents and goodwill, together with other related expenses. The
method used to determine fair value was a discounted cash flow approach. The
assets consist of those related to the manufacture of the traditional T-shirt
bag business.
Description of impaired assets; patents, goodwill and plant assets relating
to bag making facilities:
<TABLE>
<S> <C>
Patents................................. $ 1,044,577
Goodwill................................ 620,353
Plant equipment......................... 3,335,070
Reserve for agreement with bag-making
equipment vendor...................... 285,000
Write-off of rubber plates used in
bag-making equipment.................. 100,000
------------
Total................................... $ 5,385,000
------------
------------
</TABLE>
Fair value of all assets, except plant equipment, was determined to be zero
based upon the Company's decision to exit the traditional T-shirt bag business.
Fair value of the plant equipment was determined based upon projected future
cash flows for the remaining useful life, present book value and residual value
of assets at the end of its useful life, with cash flows both discounted at 14%
per year (average cost of secured debt financing).
A patent infringement suit settlement of $512,648, including legal defense
costs, was recorded during fiscal year 1997.
Due to the increase in the Company's conversion capacity, the Company
re-entered the standard grocery T-shirt bag business in the third quarter of
1998 to realize marginal contributions to fixed costs.
NOTE 7: PATENTS
The Company owns several patents. No costs associated with patent
applications were capitalized during the year ended December 31, 1998, the 10
month period ended December 31, 1997 and fiscal year ended February 28, 1997.
Amortization expense of approximately $87,000 was recorded in the Fiscal Year
ended February 28, 1997.
F-27
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7: PATENTS (CONTINUED)
In conjunction with the write-down of impaired assets and related expenses,
the write-off of all patent costs and associated accumulated amortization
resulted in a charge of $1,045,000 to the Statement of Operations in the Fiscal
Year ended February 28, 1997. The total accumulated amortization balance at
February 23, 1996 was approximately $313,000. As more fully described in Note 6,
this charge is the result of the Company's decision to exit the traditional
T-shirt bag product lines.
NOTE 8: OTHER ASSETS
Other assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Spare parts and supplies, net.......................... $ 334,703 $ 669,405
Other assets........................................... 246,696 368,502
-------- -----------------
$ 581,399 $ 1,037,907
-------- -----------------
-------- -----------------
</TABLE>
NOTE 9: ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Employee compensation and benefits..................... $ 50,750 $ 207,283
Accrued lease expense.................................. 1,643,377 1,643,377
State taxes and penalties.............................. 299,096 550,000
Professional fees...................................... 47,000 140,000
Other.................................................. 636,016 426,688
----------------- -----------------
$ 2,676,239 $ 2,967,348
----------------- -----------------
----------------- -----------------
</TABLE>
NOTE 10: TRADE NOTES PAYABLE
The Company converted two trade payables into unsecured trade notes payable
which matured on March 15, 1998 and April 17, 1998 and bear fixed interest rates
of 10% and 8.5%. As of December 31, 1998, the Company was in default on both of
the above trade notes payable. These notes payable were satisfied in connection
with the financial restructuring, which occurred subsequent to December 31, 1998
(Note 2).
NOTE 11: NOTE PAYABLE
At December 31, 1998, the Company had a $2,000,000 revolving line of credit
secured by accounts receivable. Borrowings under the line of credit were subject
to 70% of qualifying accounts receivable, less the aggregate amount utilized
under all commercial and standby letters of credit and bank acceptances. The
line of credit bore interest at prime plus 6% (14.5% at December 31, 1998). In
addition, the Company paid 2% interest on all new invoices submitted for
financing. The credit line was for one year and subject to renewal annually. At
December 31, 1998, the balance under the line of credit was $814,311, which was
the maximum available based on the qualifying accounts receivable.
F-28
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11: NOTE PAYABLE (CONTINUED)
Subsequent to December 31, 1998, the Company repaid this note payable in full in
connection with its financial restructuring (Note 2).
At December 31, 1997, the Company had an $8,000,000 revolving line of credit
secured by accounts receivable and inventory. Borrowings under the line of
credit are subject to 80% of qualifying accounts receivable and 35% of
qualifying inventories, less the aggregate amount utilized under all commercial
and standby letters of credit and bank acceptances. The line of credit bore
interest at 5% above the variable interest rate quoted by Norwest Bank of
Minnesota with a minimum rate of 8% (13.5% at December 31, 1997) and provides
for a 1/2 of 1% unused line fee. The credit line was for 5 years and is subject
to renewal annually. At December 31, 1997, the balance under the line of credit
was $1,162,349, which was the maximum available based on the qualifying accounts
receivable and inventory balances. The line of credit included certain financial
covenants that the Company must maintain to avoid a default, including current
ratio, debt to equity ratio, maintaining a net worth of $14 million, limitation
on capital spending, and profitability. As of and during the 10 month period
ended December 31, 1997, the Company failed to meet several of the financial
covenants. The lender waived the condition of default for the financial
covenants that were not met.
NOTE 12: CAPITAL LEASE OBLIGATIONS
The Company's capital lease obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Total minimum lease payments........................... $ 4,307,824 $ 5,006,262
Less amount representing interest...................... 507,538 580,057
----------------- -----------------
Obligations under capital leases....................... 3,800,286 4,426,205
Less amounts due within one year....................... 3,800,286 4,426,205
----------------- -----------------
Long-term portion...................................... $ -- $ --
----------------- -----------------
----------------- -----------------
</TABLE>
As all capital leases were in default as of December 31, 1998 and 1997, all
future payments have been classified as current. Subsequent to December 31,
1998, these capital lease obligations were satisfied in connection with the
financial restructuring (Note 2).
NOTE 13: STOCKHOLDERS' EQUITY
As of December 31, 1998 the Company had 21,495,621 shares of common stock
outstanding. During fiscal year 1997, covering the period from February 24, 1996
to February 28, 1997, a total of 1,207,500 shares were issued in a private
placement with net proceeds of $2,206,868. From March 1, 1997 to December 31,
1997, a total of 4,991,125 shares were issued in a private placement with net
proceeds of $4,403,991. An additional 387,500 shares were issued relating to the
private placements from March 1, 1997 to December 31, 1997. During the year
ended December 31, 1998, a total of 1,868,900 shares were issued in a private
placement with net proceeds of $1,282,951.
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
F-29
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13: STOCKHOLDERS' EQUITY (CONTINUED)
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 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 December 31, 1998
and 1997, there were 212,258 and 325,483 shares issued and outstanding,
respectively.
Series B, 6% Non-Cumulative, Non-Voting Convertible Preferred Stock ("Series
B Preferred Stock"), redeemable at $10 per share at the Company's option and
convertible at any time at $10 per share. This series of stock retains a
liquidation preference over the Series A Preferred Stock at a rate of $10
per share plus any declared but unpaid dividends. At December 31, 1998 and
1997, there were 146,695 shares of Series B Preferred Stock issued and
outstanding.
The Company has reserved 3,472,536 shares of common stock for issuance upon
exercise of outstanding warrants and employee stock options granted or available
for grant (Note 20), upon the conversion of preferred stock and in connection
with the agreement with RC America, Inc. For the year ended December 31, 1998
and the 10 month period ended December 31, 1997, no shares of common stock were
issued. Based on the operating results of RC America, Inc. for fiscal year 1997
and Fiscal Year 1996, an additional 2,640 and 2,550 shares were issued in May
1997 and May 1996, respectively.
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. These 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 net earnings are less than this amount. Dividends on the Series B
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 are entitled to receive non-cumulative dividends at an annual
rate of $.60 per share payable in cash.
NOTE 14: WARRANTS TO PURCHASE SECURITIES OF THE COMPANY
An aggregate of 153,000 shares of Common Stock and 50,000 shares of Series A
Preferred Stock were issued to the underwriters of the second public offering,
at an exercise price of $2.25 in May 1996 upon the exercise of Class A Warrants
which would have expired on June 13, 1996.
In conjunction with the third public offering, an aggregate of 48,725 Class
A Warrants were exercised at $5.00 before the expiration date of June 15, 1995
and an aggregate of 456,931 Class B Warrants were exercised at $2.80 before the
expiration date of October 6, 1996. Additionally, an aggregate of 299,600 shares
of Common Stock were issued to the underwriters of the third public offering at
an exercise price of $2.25 in May 1996 upon the exercise of Class B Warrants
which would have expired on October 7, 1997.
As of December 31, 1997 all Class A and Class B warrants issued to the
public stockholders and the underwriters were exercised or expired.
In May 1996, the Company issued warrants to financial consultants to
purchase an aggregate of 200,000 shares of Common Stock at an exercise price of
$4.25 per share. The warrants expired on December 31, 1997 and were not
exercised.
F-30
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14: WARRANTS TO PURCHASE SECURITIES OF THE COMPANY (CONTINUED)
In December 1997, the Company issued 109,422 warrants with a three year life
to purchase one share of common stock at $1.10 per share in connection with a
private placement of its common stock, net of costs in the amount of $109,658.
In April 1998, the Company issued 150,000 warrants with a three year life to
purchase one share of common stock at $1.08 per share in connection with a
private placement of its securities.
During the year ended December 31, 1998, the Company issued 200,000 warrants
with a three year life to purchase one share of common stock at $1.05 per share
to lessors in connection with the restructuring of certain Capital and Operating
Leases that were in default as of December 31, 1997. Settlement expense in the
amount of $240,400 was recorded for the 10 month period ended December 31, 1997
(Note 12).
All warrants issued in 1998 have been issued at the current market price at
date of issuance.
NOTE 15: INCOME TAXES
Due to the taxable loss incurred and the availability of net operating
losses, there was no tax provision or benefit recorded for the year ended
December 31, 1998. Accordingly, the effective tax rate is zero percent as
compared to the Federal statutory rate of 34% because the Company has placed a
full valuation allowance on its net deferred tax assets. Cumulative temporary
differences under SFAS No. 109 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Deferred tax assets:
Allowance for uncollectible accounts................. $ 310,655 $ 377,322
Net operating loss carryforward...................... 13,270,876 12,825,784
Inventory............................................ 53,522 151,993
Write-down of fixed assets........................... 1,114,955 1,226,450
Write-down of patents................................ 367,862 400,031
Allowance for lease losses........................... 685,606 685,606
Investment tax credit................................ 528,200 528,200
Other items.......................................... 482,291 489,712
----------------- -----------------
Deferred tax assets................................ $ 16,813,967 $ 16,685,098
Deferred tax liabilities:
Excess depreciation.................................. $ 162,376 $ 76,197
Prepaid rent......................................... 99,345 143,281
----------------- -----------------
Net deferred tax assets................................ $ 16,552,246 $ 16,465,620
----------------- -----------------
----------------- -----------------
Deferred tax asset valuation allowance................. $ (16,552,246) $ (16,465,620)
----------------- -----------------
----------------- -----------------
</TABLE>
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 as it is not certain that
the results of future operations will generate sufficient taxable income to
realize the deferred tax asset.
F-31
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15: INCOME TAXES (CONTINUED)
At December 31, 1998 the Company had available for federal and state income
tax purposes unused net operating loss (NOL) carryforwards of approximately
$34,956,000 and $29,039,000, respectively. The federal carryforwards expire in
various amounts beginning in the year 2003, and the state carryforwards expire
in various amounts from 1999 through 2004. The Company has available state
investment tax credit carryforwards of approximately $528,000 expiring in
various amounts from 1999 to 2004, and approximately $113,000 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
Years 1994 and 1991, substantial changes in ownership occurred. In addition, the
Company has had a number of transactions subsequent to Fiscal Year 1994 which
may have further limited the Company's ability to use its federal NOL
carryforwards. The Company's ability to use its federal NOL carryforwards may be
further impacted by transactions subsequent to December 31, 1998 (Note 2).
NOTE 16: MAJOR CUSTOMERS
During the year ended December 31, 1998, sales to two customers represented
20% and 10% of total sales. During the 10 month period ended December 31, 1997,
no customer represented more than 10% of total sales. In Fiscal Year ended
February 28, 1997, sales to one customer represented 16% of total sales.
NOTE 17: RELATED PARTY TRANSACTIONS
In November 1990, the Company established an officer's loan receivable from
Dennis N. Caulfield, its then Chairman for $132,197. The note was amended in
April 1998 and the interest rate changed to 6% effective from November 1990 and
is now payable on or before January 1, 2001. Interest on the loan, along with
advances from travel not offset by expense reports, caused the loan balance to
equal $586,978 at December 31, 1997. Mr. Caulfield did not make any payments
against the loan from the period beginning 1990 through December 31, 1997.
Accordingly, the Company reserved the full amount of this loan on that date.
Also, no payments were made in 1998. In addition, the Company paid, on behalf of
Mr. Caulfield, approximately $36,000 of a $200,000 personal income tax levy
imposed by the Massachusetts Department of Revenue on Mr. Caulfield in exchange
for an interest bearing note due on or before June 30, 1998, which has not been
repaid. This note was reserved for as of March 31, 1999.
Loans made to another officer totaled $6,072 and $5,416 at December 31, 1998
and 1997, respectively, and bear interest at a rate of 9.5%.
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 Chairman. 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. became 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
F-32
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17: RELATED PARTY TRANSACTIONS (CONTINUED)
RC America, Inc. attaining certain levels of pre-tax earnings. RC America, Inc.
ceased operations during the year ended December 31, 1998.
For the year ended December 31, 1998 and the 10 month period ended December
31, 1997, no shares of common stock were issued. Based on the operating results
of RC America, Inc. for fiscal year 1997 a total of 2,640 shares were earned and
were issued to Mr. Caulfield in May. In addition, Ronald Caulfield entered into
a five year employment agreement with RC America, Inc. which provided for
certain bonus, severance and non-compete arrangements. This employment agreement
has since terminated.
The value of the stock issued pursuant to the Agreement exceeded the book
value of the assets acquired and the Company has recorded goodwill of $800,000,
amortizing the goodwill pro-rata over ten years. Issuance of the additional
2,640 and 2,550 shares of common stock resulted in an insignificant amount of
additional goodwill. At February 28, 1997, the Company wrote off approximately
$620,000 of goodwill as part of the impairment of long-lived assets Ivan J.
Hughes, a director of the Company is President of the Plastics Division Duro Bag
Manufacturing Company ("Duro"). For the year ended December 31, 1998 and the 10
month period ended December 31, 1997, there were no sales to Duro. For fiscal
year ended February (Note 6).
NOTE 18: EMPLOYMENT AGREEMENTS
During the year ended December 31, 1998, the Company renewed an employment
agreement with an officer for an additional one year term expiring on June 30,
1999. This agreement provides for minimum base compensation of $180,000.
On January 27, 1999 and March 22, 1999, the Company entered into employment
agreements with certain officers. Among other provisions, these agreements
provide for a minimum base compensation of $650,000 in the aggregate plus
incentive compensation based on pre-tax profits and for severance payments.
These agreements expire on various dates from June 30, 2000 through March 2002.
NOTE 19: OPERATING LEASES AND COMMITMENTS
The Company's lease agreement for its North Dighton facility was
renegotiated effective January 1, 1996 and runs for a period of 12 years. The
Company has entered into various operating leases for certain manufacturing
equipment expiring on various dates through 2007.
The future minimum rental commitments under non-cancelable operating leases
as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR OPERATING LEASES
- ---------------------------------------------------------------------------- ----------------
<S> <C>
1999........................................................................ 1,180,000
2000........................................................................ 893,000
2001........................................................................ 480,000
2002........................................................................ 383,000
2003........................................................................ 383,000
Thereafter.................................................................. 2,243,000
----------------
$ 5,562,000
----------------
----------------
</TABLE>
F-33
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19: OPERATING LEASES AND COMMITMENTS (CONTINUED)
Expense under operating leases was $937,340, $1,410,000 and $1,646,000 for
the year ended December 31, 1998, the 10 month period ended December 31, 1997
and the Fiscal Year ended February 28, 1997, respectively. All operating leases
and real-estate leases were in default as of December 31, 1997. Subsequent to
December 31, 1998, the Company reached agreement with all lessors as part of its
financial restructuring. (Note 2).
At December 31, 1998, the Company had commitments to purchase approximately
$275,000 of machinery and equipment.
NOTE 20: STOCK OPTION PLANS
In May 1990, the Company adopted a stock option plan and on October 25,
1993, the Company 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. In September 1996, the Company adopted a stock option plan that
entitles certain individuals the right to purchase up to 1,000,000 shares 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 can not be less than the fair market value of the common stock on
the date of grant). Options generally vest ratably over two to five years. The
Company may not grant employee incentive stock options with a fair value in
excess of $100,000 that is first exercisable during any one calendar year.
Options granted under the stock option plan generally expire ten years from the
date of grant.
There was no activity under the 1996 Stock Option Plan during the 10 month
period ended December 31, 1997 and the year ended February 28, 1997.
Transactions under the 1990 and 1993 Stock Option Plans during the 10 month
period ended December 31, 1997 and the year ended February 28, 1997 are
summarized as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED TEN MONTH PERIOD ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------------- ---------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
--------------------------- ---------------------------
OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- ----------------------------------------------------------- ---------- --------------- ---------- ---------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year........................... 783,117 $ 3.54 773,830 $ 3.98
Options granted whose exercise price equal the market price
of the stock on grant date............................... 25,000 $ 1.25 156,000 $ 1.75
Options granted whose exercise price is greater than the
market price of the stock on grant date Canceled......... (424,430) $ 2.23 (146,713) $ 3.98
---------- ----------
Outstanding at year end.................................... 383,687 $ 2.70 783,117 $ 3.54
---------- ----------
---------- ----------
Options exercisable at period end.......................... 358,687 629,317
---------- ----------
---------- ----------
Weighted average fair value of options granted during the
period................................................... $ 1.25 $ 1.75
</TABLE>
F-34
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20: STOCK OPTION PLANS (CONTINUED)
In April of 1997, the Company changed the exercise price for selected
options granted in prior periods from $6.25, $4.00, $3.88 and $3.00 to $2.50 per
share.
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28, 1997
--------------------------
WEIGHTED AVERAGE
--------------------------
OPTIONS SHARES EXERCISE PRICE
- ---------------------------------------------------------------------------------------- --------- ---------------
<S> <C> <C>
Outstanding at beginning of year........................................................ 795,630 $ 4.04
Options granted whose exercise price equal the market price of the stock on grant
date.................................................................................. 12,500 2.40
Options granted whose exercise price is greater than the market price of the stock on
grant date............................................................................ 9,200 2.40
Canceled................................................................................ (43,500) 3.49
---------
Outstanding at year end................................................................. 773,830 3.98
---------
---------
Options exercisable at period end....................................................... 589,377
---------
---------
Weighted average fair value of options granted during the period........................ $ 2.40
</TABLE>
In March 1996, the Company granted 18,500 options with an exercise price of
$2.38. In January 1997, the Company granted 3,200 options with an exercise price
of $2.50. In March 1996, the Company changed the exercise price for selected
options, which were granted in fiscal year 1993, from $6.25 to $4.00, and
selected options, which were granted in fiscal year 1994, from $6.63 to $4.00.
The following table summarizes information about employee options
outstanding at December 31, 1998:
OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
RANGE OF WEIGHTED AVERAGE
EXERCISE NUMBER OUTSTANDING AT REMAINING WEIGHTED AVERAGE
PRICES DECEMBER 31, 1998 CONTRACTUAL LIFE EXERCISE PRICE
- -------------- ---------------------- ------------------- -----------------
<S> <C> <C> <C>
$1.25 - 3.00 336,937 4.79 $ 2.42
3.88 - 4.75 24,250 4.78 4.13
5.50 - 5.75 22,500 6.10 5.58
-------
383,687 4.86 2.71
-------
-------
</TABLE>
OPTIONS EXERCISABLE
<TABLE>
<CAPTION>
RANGE OF
EXERCISE NUMBER EXERCISABLE AT WEIGHTED AVERAGE
PRICES DECEMBER 31, 1998 EXERCISE PRICE
- -------------- --------------------- -----------------
<S> <C> <C> <C>
$1.25 - 3.00 313,737 $ 2.51
3.88 - 4.75 22,450 4.14
5.50 - 5.75 22,500 5.58
-------
358,687 2.81
-------
-------
</TABLE>
F-35
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20: STOCK OPTION PLANS (CONTINUED)
FAIR VALUE DISCLOSURES
At December 31, 1998, the Company had three option plans, which are
described above. The Company applies APB 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
for its stock option plans. Had compensation cost for the Company's three stock
option plans been determined based on the fair value at the grant dates for
awards under those plans consistent with the method of FASB Statement 123, the
Company's net loss and loss per share would have been increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
TEN MONTH PERIOD
FISCAL YEAR ENDED ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C> <C>
Net Loss As reported $ (3,239,213) $ (11,338,869)
Pro forma $ (3,245,145) $ (11,468,958)
Basic and diluted As reported $ (0.16) $ (0.73)
Net loss per share Pro forma $ (0.16) $ (0.74)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants during the applicable periods: dividend yield of
0.0% for both periods; risk free interest rate of 5.16% for options granted
during the year ended December 31, 1998 and 5.81% for options granted and
re-priced during the 10 month period ended December 31, 1997; a weighted average
expected option term of 10 years for options granted during the year ended
December 31, 1998, and 10 years for options granted during the 10 month period
ended December 31, 1997; and expected volatility of 153.87% for options granted
during the year ended December 31, 1998 and 67.57% for options granted during
the 10 month period ended December 31, 1997.
NOTE 21: RETIREMENT SAVINGS PLAN
The Company provides an employee retirement savings plan under Section
401(k) of the Internal Revenue Code (the "Plan") which covers substantially all
employees. Under the terms of the Plan, employees may contribute a percentage of
their salary, up to a maximum of 15%, which is then invested in one or more of
several mutual funds selected by the employee. The Company matches 100% of the
employee contribution up to a maximum of 2% of their salary. Contributions to
the plan were $33,165, $47,604 and $80,503 for the year ended December 31, 1998,
10 month period ended December 31, 1997, and fiscal year ended February 28,
1997, respectively.
NOTE 22: SEGMENT REPORTING
Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SAFS No. 131
superseded SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise." SFAS No. 131 establishes standards for reporting information about
operating segments, products and services, geographic areas and major customers.
The adoption of SFAS No. 131 did not affect the Company's results of operations
or financial position. The Company operates in one reportable segment under SFAS
No. 131.
F-36
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 23: SIGNIFICANT FOURTH QUARTER ADJUSTMENTS TO THE 10 MONTH PERIOD ENDING
DECEMBER 31, 1997
All capital, operating and real estate leases were in default as of December
31, 1997. All future capital lease payments have been classified as current. As
a result of these defaults and based on negotiations which began in 1997, total
expenses of $1,643,400 were accrued as of December 31, 1997 for interest,
penalties and extension fees related to the default of the capital and operating
leases (Note 12 and 19).
Loans made to a former officer totaled $586,979 at December 31, 1997 and
bear interest at a rate of 9.5%. The loans are due and payable January 1, 2001.
The officer had agreed to apply any bonus payments received under the Company's
executive bonus plan to reduce the amounts outstanding under the loan. As the
Company has suffered recurring net losses and operating cash flow deficiencies,
a reserve of $586,978 has been established for this loan as of December 31,
1997.
Management decided to exit the traditional T-shirt bag business during the
10 month period ended December 31, 1997. Accordingly, an analysis of the fair
value of assets related to these product lines was performed during the fourth
quarter 1997 which resulted in a write-down of impaired assets and recognition
of related expenses totaling $5,897,648.
NOTE 24: LEGAL PROCEEDINGS
The Company has been notified by its insurance carrier of a potential claim
brought by a group of investors related to the registration of certain
securities. The Company believes that any settlement in connection with this
potential claim will not have a material effect on its operations.
F-37
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
SCHEDULE II
RULE 12-09 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
COLUMN C COLUMN D
COLUMN B ----------- ----------- COLUMN E
COLUMN A ----------- ADDITIONAL DEDUCTIONS --------------
- ------------------------------- BALANCE AT CHARGED TO ACCOUNTS BALANCE AT END
DESCRIPTION 1/1/98 EXPENSES WRITTEN-OFF OF PERIOD DESCRIPTION OF CHANGES
- ------------------------------- ----------- ----------- ----------- -------------- ------------------------------
<S> <C> <C> <C> <C> <C>
Reserve for Accounts Receivable
Credits...................... 75,000 0 0 75,000
Allowance for Doubtful
Accounts..................... 275,000 0 (165,548) 109,452 Allowance was reduced based on
evaluation of Accounts
Receivable at 12/31/98
Inventory Reserve.............. 290,000 0 (290,000) 0 Inventory reserved at 12/31/97
was sold during the year ended
12/31/98
</TABLE>
S-1
<PAGE>
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE 10 MONTH PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
COLUMN C COLUMN D
COLUMN B ----------- ----------- COLUMN E
COLUMN A ----------- ADDITIONAL DEDUCTIONS --------------
- ------------------------------- BALANCE AT CHARGED TO ACCOUNTS BALANCE AT END
DESCRIPTION 3/1/97 EXPENSES WRITTEN-OFF OF PERIOD DESCRIPTION OF CHANGES
- ------------------------------- ----------- ----------- ----------- -------------- ------------------------------
<S> <C> <C> <C> <C> <C>
Reserve for Accounts Receivable
Credits...................... 75,000 0 0 75,000
Allowance for Doubtful
Accounts..................... 50,000 225,000 0 275,000 Allowance was Increased based
on evaluation of Accounts
Receivable at 12/31/97
Inventory Reserve.............. 850,000 0 (560,000) 290,000 Reserve was reduced based on
evaluation of Inventory at
12/31/97
</TABLE>
S-2
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
---------------
PROSPECTUS
---------------------
3,850,697 SHARES OF COMMON STOCK
$0.01 PAR VALUE
OCTOBER , 1999
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION
WITH THIS OFFERING TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR A SOLICITATION IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE UNDER THIS PROSPECTUS WILL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE CIRCUMSTANCES OF OUR COMPANY OR
THE FACTS SET FORTH WITHIN SINCE THE DATE OF THIS PROSPECTUS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of our expenses incurred in the issuance and
distribution of the Offered Shares, other then underwriting discounts. All
amounts are estimated except the SEC registration fee.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 200
Transfer Agent and Registrar fees................................. $ 5,000
Printing and Engraving expenses................................... $ 25,000
Legal fees and expenses........................................... $ 60,000
Accounting fees and expenses...................................... $ 15,000
Blue Sky fees and expenses (including legal fees)................. $ 15,000
Miscellaneous..................................................... $ 4,800
---------
TOTAL........................................................... $ 125,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Delaware General Corporation Law, Section 102(b)(7), allows a corporation,
in its original Certificate of Incorporation or in a later amendment, validly
approved by stockholders, to eliminate or limit personal liability of members of
its Board of Directors for violations of a director's fiduciary duty of care.
However, the elimination of liability will not apply where there has been a
breach of the duty of loyalty, failure to act in good faith, engaging in
intentional misconduct or knowingly violating a law, paying a dividend or
approving a stock repurchase which is deemed illegal or obtaining an improper
personal benefit. Our Certificate of Incorporation includes the following
language:
To the maximum extent permitted by Section 102(b)(7) of the General
Corporation Law of Delaware, a director of this Corporation shall not be
personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section
174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit.
Delaware General Corporation Law, Section 145, permits a corporation
organized under Delaware law to indemnify directors and officers with respect to
any matter in which the director or officer acted in good faith and in a manner
he reasonably believed to be not opposed to the best interests of the company,
and, with respect to any criminal action, he had reasonable cause to believe his
conduct was not unlawful. Our By-laws include the following provision:
A reference is made to Section 145 and any other relevant provisions of the
General Corporation Law of the State of Delaware. Particular reference is
made to the class of persons, hereinafter called Indemnitees, who may be
indemnified by a Delaware corporation pursuant to the provisions of such
Section 145, namely, any person, or the heirs, executors, or administrators
of such person, who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative, by reason of the fact
that such person is or was a director, officer, employee or agent of such
corporation or is or was serving at the request of such corporation as a
director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise. The Corporation shall, and is
hereby obligated to, indemnify the Indemnitees, and each of them, in each
and every situation where the Corporation is obligated to make such
indemnification pursuant to the aforesaid
II-1
<PAGE>
statutory provisions, the Corporation in not obligated, but is nevertheless
permitted or empowered, to make such indemnification, it being understood
that, before making such indemnification, with respect to any situation
covered under this sentence, (i) the Corporation shall promptly make or
cause to be made, by any of the methods referred to in Subsection (d) nb]of
such Section 145, a determination as to whether each Indemnitee acted in
good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Corporation, and, it the case of any criminal
action or proceeding, had no reasonable cause to believe that his conduct
was unlawful, and (ii) that no such indemnification shall be made unless it
is determined that such Indemnitee acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, in the case of any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the registrant
pursuant to the foregoing provisions, we have been informed that, in the opinion
of the SEC, this indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the past three years, we have made the following sales of unregistered
securities pursuant to exemptions from the registration requirements of the
Securities Act of 1933.
In July 1997, we sold 2,100,902 shares of common stock at a price of $1.00
per share in a best-efforts private placement offering with total net proceeds
of $2,100,902. Shares of common stock were sold in a single offering under
Regulation D and Regulation S of the Securities Act. Under Regulation D, we sold
850,902 shares of common stock only to accredited investors as defined in
Regulation D. Under Regulation S, we sold 1,250,000 shares of common stock
outside the United States to non-U.S investors.
In October 1997, we sold 1,796,000 shares of common stock at a price of
$1.05 per share in a best-efforts private placement offering with total net
proceeds of $1,885,800. Shares of common stock were sold in a single offering
under Regulation D and Regulation S of the Securities Act. Under Regulation D,
we sold 400,000 shares of common stock only to accredited investors as defined
in Regulation D. Under Regulation S, we sold 1,396,000 shares of common stock
outside the United States to non-U.S. investors.
In December 1997, we sold 1,094,223 shares of common stock in a private
placement offering of restricted securities with total net proceeds of
$1,004,800. The price per share for 88,889 of the shares was $1.125 per share
and the remaining shares were sold at $0.90 per share. Warrants exercisable for
a minimum of 10,000 shares at $1.08 per share were sold in this offering. Under
Regulation D, we sold 222,223 shares of common stock only to accredited
investors as defined in Regulation D. Under Regulation S, we sold 872,000 shares
of common stock outside the United States to non-U.S. investors.
In June 1998, we completed an offering of private placement units. Each unit
consisted of 100,000 shares of common stock and a three-year warrant to purchase
100,000 shares of common stock at $1.25 per share. However, if we announce the
receipt of a contract for the purchase of goods or services resulting in
revenues of $5,000,000 or more, then the purchase price will be reduced to $1.05
per share for 15 days after the announcement. The offering price was $90,000 per
unit and the net proceeds from the offering were $1,485,000. Under Regulation D,
we sold 1,050,000 shares of common stock only to accredited investors as defined
in Regulation D. Under Regulation S, we sold 600,000 shares of common stock
outside the United States to non-U.S. investors.
II-2
<PAGE>
In each of the above offerings:
- the issuances of the securities were deemed to be exempt from registration
under Section 4(2) and Regulation D of the Securities Act as transactions
by an issuer not involving any public offering;
- the sale proceeds were used as part of our working capital; and
- we promised to use our best efforts to file with the SEC a registration
statement on Form S-1 or S-3 relating to the shares in each offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<C> <S>
3 Certificate of Incorporation of the Company, as amended(6).
3.1 By-laws of the Company, as amended(6).
3.2 Certificate of Amendment to the Certificate of Incorporation.
4 Form of Certificate of Designation of Series A Convertible Preferred Stock, as
amended(2).
4.1 Form of Amended Certificate of Designation for Series B Convertible Preferred
Stock(2).
4.2 Specimen Series A Convertible Preferred Stock Certificate(2).
4.3 Form of Common Stock Purchase Warrant(13).
4.4 Certificate of Designation of Series C Preferred Stock(13).
4.5 Pledge Agreement, dated as of January 27, 1999, between DGJ and C. Jill
Beresford(13).
4.6 Common Stock Purchase Warrant issued by the Company to Global Financial Services,
Inc.(14).
4.7 Common Stock Purchase Warrant issued by the Company to DGJ, L.L.C.(14).
4.8 Common Stock Purchase Warrant issued by the Company to Brantrock(14).
5.1 Opinion of Holleb & Coff as to the legality of the Offered Shares being registered.
10** 1990 Stock Option Plan(1).
10.1** Form of Employment Agreement of Dennis N. Caulfield(3).
10.2** Form of Employment Agreement of C. Jill Beresford(3).
10.3** Form of Employment Agreement of Alex F. Vaicunas(3).
10.4** 1993 Stock Option Plan(3).
10.5 Stock Exchange Agreement by and between the Company and Ronald V. Caulfield(4).
10.6** Employment Agreement of Ronald V. Caulfield(4).
10.7 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(5).
10.8 Amendment to Promissory Note of Dennis N. Caulfield(7).
10.9 Lease for Premises at 455-473 Somerset Ave., North Dighton, Massachusetts(7).
10.10** 1996 Stock Option Plan(8).
10.11 Loan and Security Agreement by and among the Company, RC America, Inc. and Foothill
Capital Corporation(9).
10.12 Secured Promissory Note from the Company and RC America to Foothill(9).
10.13 Pledge and Security Agreement by and between the Company and Foothill(9).
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.14 Continuing Guaranty of Market Media, Inc(9).
10.15 Continuing Guarantee of BPI Packaging (UK) Limited(9).
10.16 Security Agreement by and between Market Media, Inc. and Foothill(9).
10.17 Security Agreement by and between BPI Packaging (UK) Limited and Foothill(9).
10.18* Settlement Agreement by and between the Company and Mobil Oil Corporation, dated
December 10, 1996(9).
10.19 Loan and Security Agreement by and among the Company, RC America, Inc. and Foothill
Capital Corporation(10).
10.20 Secured Promissory Note from the Company and RC America, Inc. to Foothill(10).
10.21 Pledge and Security Agreement by and between the Company and Foothill(10).
10.22 Continuing Guarantee of Market Media, Inc(10).
10.23 Continuing Guarantee of BPI Packaging (UK) Limited(10).
10.24 Security Agreement by and between Market Media, Inc. and Foothill(10).
10.25 Security Agreement by and between BPI Packaging (UK) Limited and Foothill(10).
10.26* Settlement Agreement by and between the Company and Mobil Oil Corporation, dated
December 10, 1996(10).
10.27 Invoice Purchase and Sale Agreement, dated August 19, 1998(12).
10.28 Joint Filing Agreement(13).
10.29 Securities Purchase Agreement, dated as of January 27, 1999, between the Company
and DGJ(13).
10.30 Agreement, dated January 27, 1999, among DGJ, Ivan J. Hughes and C. Jill
Beresford(13).
10.31 Closing Agreement, dated as of January 27, 1999, by and among the Company, DGJ, and
C. Jill Beresford(13).
10.32 Securities Purchase Agreement between the Company and DGJ(14).
10.33 Factoring Agreement between the Company and Franklin Capital Corporation(14).
10.34 Revolving Note issued by the Company to Franklin(14).
10.35 Security Agreement between the Company and Franklin(14).
10.36 Employment Agreement between the Company and C. Jill Beresford(14).
10.37 Employment Agreement between the Company and James Koehlinger(14).
10.38 Employment Agreement between the Company and Richard H. Nurse, Ph.D(14).
10.39 Employment Agreement between the Company and Hanspeter Schulz, Ph.D(14).
10.40 Consulting Agreement between the Company and Ivan J. Hughes(14).
10.41 Employment Agreement between the Company and Peter W. Blackett(15).
10.42 Loan and Security Agreement between the Company and LaSalle Business Credit, Inc.,
dated as of August 19, 1999.
10.43 Revolving Note from the Company to LaSalle, dated August 19, 1999.
10.44 Intercreditor Agreement between DGJ and LaSalle, dated August 19, 1999.
10.45 Amended and Restated Promissory Note issued by the Company to DGJ, dated August 19,
1999.
10.46 Amended and Restated Equipment Lease between the Company and DGJ.
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
16 Letter from PricewaterhouseCoopers LLP to the Securities and Exchange
Commission(11).
21 Subsidiaries of the Company(4).
23.1 Consent of Livingston & Haynes, P.C., Independent Accountants.
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1 Powers of Attorney (contained in the signature pages hereto).
27 Financial Data Schedule (16).
99 Press Release, dated July 7, 1998(11).
99.1 Press Release, dated January 28, 1999(14).
</TABLE>
- ------------------------
(1) Incorporated by reference from our Form S-18 Registration Statement (No.
33-36142-B) declared effective by the SEC on October 3, 1990.
(2) Incorporated by reference from our Form S-1 Registration Statement (No.
33-39463) declared effective by the SEC on June 13, 1991.
(3) Incorporated by reference from our Form S-1 Registration Statement (No.
33-39463) declared effective by the SEC on June 13, 1991.
(4) Incorporated by reference from our Annual Report on Form 10-K and amendment
thereto initially filed with the SEC on June 10, 1994.
(5) Incorporated by reference from our Quarterly Report on Form 10-Q for the
quarter ended August 25, 1995 and filed with the SEC on October 6, 1995.
(6) Incorporated by reference from our Quarterly Report on Form 10-Q for the
quarter ended November 24, 1995 and filed with the SEC on January 8, 1996.
(7) Incorporated by reference from our Annual Report on Form 10-K for the
fiscal year ended February 23, 1996 and filed with the Commission on June
7, 1996.
(8) Incorporated by reference from our Quarterly Report on Form 10-Q for the
quarter ended August 23, 1996 and filed with the SEC on October 15, 1996.
(9) Incorporated by reference from our Quarterly Report on Form 10-Q for the
quarter ended November 22, 1996 and filed with the SEC on January 7, 1997.
(10) Incorporated by reference from of our Annual Report on Form 10-K for the
10 month period ended December 31, 1997 and filed with the SEC on May 27,
1998.
(11) Incorporated by reference from our Current Report on Form 8-K with the SEC
on July 14, 1998.
(12) Incorporated by reference from our Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998 and filed with the SEC on November 16,
1998.
(13) Incorporated by reference from our Schedule 13D filed with the SEC on
February 2, 1999.
(14) Incorporated by reference from our Current Report on Form 8-K, dated
January 27, 1999, and filed with the SEC on February 11, 1999.
(15) Incorporated by reference from our Current Report on Form 8-K, dated March
31, 1999, and filed with the SEC on March 31, 1999.
(16) Incorporated by reference from our Annual Report on Form 10-K for the year
ended December 31, 1998 and filed with the SEC on March 31, 1999.
* Certain formation withheld and filed separately with the SEC pursuant to a
request for confidential treatment.
** These exhibits relate to executive compensation plans and arrangements.
II-5
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
- To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to include any
additional or changed material information on the plan of distribution.
- To include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933.
- To reflect in the prospectus any facts or events arising after the
effective date of the registration statement or its most recent
post-effective amendment which, individually or in the aggregate represent
a fundamental change in the information set forth in the registration
statement. However, any increase or decrease in volume of securities
offered, if the total dollar value of securities offered would not exceed
that which was registered and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of
prospectus filed with the SEC pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
- That, for the purposes of determining any liability under the Securities
Act, each post-effective amendment will be deemed to be a new registration
statement relating to the securities offered in the amendment, and the
offering of the securities at that time will be deemed to be a initial
bona fide offering.
- To remove from registration, by means of a post-effective amendment, any
of the securities being registered which remain unsold at the termination
of the offering.
- To deliver or cause to be delivered with the prospectus, to each person to
whom the prospectus is sent or given, the latest annual report, to
securityholders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule
14c-3 under the Exchange Act; and, where interim financial information
required to be presented by Article 3 of Regulation S-X is not set forth
in the prospectus, to deliver, or cause to be delivered to each person to
whom the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide the
required interim financial information.
- That, for purposes of determining any liability under the Securities Act,
each filing of our annual report pursuant to Section 13(a) or 15(d) of the
Exchange Act and, where applicable, each filing of an employee benefit
plans annual report pursuant to Section 15(d) of the Exchange Act that is
incorporated by referenced in the registration statement relating to the
securities offered in the registration statement, and the offering of this
securities at that time will be deemed to be the initial bona fide
offering of the securities.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing of Form S-1 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the Town
of North Dighton, Commonwealth of Massachusetts, on October 15, 1999.
<TABLE>
<S> <C> <C>
BPI PACKAGING TECHNOLOGIES, INC.
By: /s/ IVAN J. HUGHES
-----------------------------------------
Ivan J. Hughes
CHAIRMAN OF THE BOARD OF DIRECTORS
</TABLE>
<TABLE>
<S> <C> <C>
/s/ HANSPETER SCHULZ
-----------------------------------------
Hanspeter Schulz
President and Director
/s/ JAMES F. KOEHLINGER
-----------------------------------------
James F. Koehlinger
Chief Financial Offcier
/s/ GARY R. EDIDIN
-----------------------------------------
Gary R. Edidin
Director
/s/ BRUCE M. FLEISHER
-----------------------------------------
Bruce M. Fleisher
Director
/s/ ALLEN S. GERRARD
-----------------------------------------
Allen S. Gerrard
Director
/s/ THEODORE L. KOENIG
-----------------------------------------
Theodore L. Koenig
Director
/s/ DAVID N. LAUX
-----------------------------------------
David N. Laux
Director
</TABLE>
II-7
<PAGE>
POWERS OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Form S-1
relating to common stock has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby authorizes Ivan J. Hughes to file one or more amendments, including
additional post-effective amendments to this Registration Statement, which
amendments may make changes as any of the following persons deem appropriate,
and each person, individually and in each capacity stated below, hereby appoints
Mr. Hughes as attorney-in-fact to execute in his name and on his behalf any
amendments to the Registration Statement.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ IVAN J. HUGHES
- ------------------------------ Chairman of the Board of October 15, 1999
Ivan J. Hughes Directors
/s/ HANSPETER SCHULZ
- ------------------------------ President and Director October 15, 1999
Hanspeter Schulz
/s/ JAMES F. KOEHLINGER
- ------------------------------ Chief Financial Officer October 15, 1999
James F. Koehlinger
/s/ GARY R. EDIDIN
- ------------------------------ Director October 15, 1999
Gary R. Edidin
/s/ BRUCE M. FLEISHER
- ------------------------------ Director October 15, 1999
Bruce M. Fleisher
/s/ ALLEN S. GERRARD
- ------------------------------ Director October 15, 1999
Allen S. Gerrard
/s/ THEODORE L. KOENIG
- ------------------------------ Director October 15, 1999
Theodore L. Koenig
/s/ DAVID N. LAUX
- ------------------------------ Director October 15, 1999
David N. Laux
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
3 Certificate of Incorporation of the Company, as amended(6).
3.1 By-laws of the Company, as amended(6).
3.2 Certificate of Amendment to the Certificate of Incorporation.
4 Form of Certificate of Designation of Series A Convertible Preferred Stock, as amended(2).
4.1 Form of Amended Certificate of Designation for Series B Convertible Preferred Stock(2).
4.2 Specimen Series A Convertible Preferred Stock Certificate(2).
4.3 Form of Common Stock Purchase Warrant(13).
4.4 Certificate of Designation of Series C Preferred Stock(13).
4.5 Pledge Agreement, dated as of January 27, 1999, between DGJ and C. Jill Beresford(13).
4.6 Common Stock Purchase Warrant issued by the Company to Global Financial Services, Inc.(14).
4.7 Common Stock Purchase Warrant issued by the Company to DGJ, L.L.C.(14).
4.8 Common Stock Purchase Warrant issued by the Company to Brantrock(14).
5.1 Opinion of Holleb & Coff as to the legality of the Offered Shares being registered.
10** 1990 Stock Option Plan(1).
10.1** Form of Employment Agreement of Dennis N. Caulfield(3).
10.2** Form of Employment Agreement of C. Jill Beresford(3).
10.3** Form of Employment Agreement of Alex F. Vaicunas(3).
10.4** 1993 Stock Option Plan(3).
10.5 Stock Exchange Agreement by and between the Company and Ronald V. Caulfield(4).
10.6** Employment Agreement of Ronald V. Caulfield (4).
10.7 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(5).
10.8 Amendment to Promissory Note of Dennis N. Caulfield(7).
10.9 Lease for Premises at 455-473 Somerset Ave., North Dighton, Massachusetts(7).
10.10** 1996 Stock Option Plan(8).
10.11 Loan and Security Agreement by and among the Company, RC America, Inc. and Foothill Capital
Corporation(9).
10.12 Secured Promissory Note from the Company and RC America to Foothill(9).
10.13 Pledge and Security Agreement by and between the Company and Foothill(9).
10.14 Continuing Guaranty of Market Media, Inc(9).
10.15 Continuing Guarantee of BPI Packaging (UK) Limited(9).
10.16 Security Agreement by and between Market Media, Inc. and Foothill(9).
10.17 Security Agreement by and between BPI Packaging (UK) Limited and Foothill(9).
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.18* Settlement Agreement by and between the Company and Mobil Oil Corporation, dated December 10, 1996(9).
10.19 Loan and Security Agreement by and among the Company, RC America, Inc. and Foothill Capital
Corporation(10).
10.20 Secured Promissory Note from the Company and RC America, Inc. to Foothill(10).
10.21 Pledge and Security Agreement by and between the Company and Foothill(10).
10.22 Continuing Guarantee of Market Media, Inc(10).
10.23 Continuing Guarantee of BPI Packaging (UK) Limited(10).
10.24 Security Agreement by and between Market Media, Inc. and Foothill(10).
10.25 Security Agreement by and between BPI Packaging (UK) Limited and Foothill(10).
10.26* Settlement Agreement by and between the Company and Mobil Oil Corporation, dated December 10, 1996(10).
10.27 Invoice Purchase and Sale Agreement, dated August 19, 1998(12).
10.28 Joint Filing Agreement(13).
10.29 Securities Purchase Agreement, dated as of January 27, 1999, between the Company and DGJ(13).
10.30 Agreement, dated January 27, 1999, among DGJ, Ivan J. Hughes and C. Jill Beresford(13).
10.31 Closing Agreement, dated as of January 27, 1999, by and among the Company, DGJ, and C. Jill
Beresford(13).
10.32 Securities Purchase Agreement between the Company and DGJ(14).
10.33 Factoring Agreement between the Company and Franklin Capital Corporation(14).
10.34 Revolving Note issued by the Company to Franklin(14).
10.35 Security Agreement between the Company and Franklin(14).
10.36 Employment Agreement between the Company and C. Jill Beresford(14).
10.37 Employment Agreement between the Company and James Koehlinger(14).
10.38 Employment Agreement between the Company and Richard H. Nurse, Ph.D(14).
10.39 Employment Agreement between the Company and Hanspeter Schulz, Ph.D(14).
10.40 Consulting Agreement between the Company and Ivan J. Hughes(14).
10.41 Employment Agreement between the Company and Peter W. Blackett(15)
10.42 Loan and Security Agreement between the Company and LaSalle Business Credit, Inc., dated as of August
19, 1999.
10.43 Revolving Note from the Company to LaSalle, dated August 19, 1999.
10.44 Intercreditor Agreement between DGJ and LaSalle, dated August 19, 1999.
10.45 Amended and Restated Promissory Note issued by the Company to DGJ, dated August 19, 1999.
10.46 Amended and Restated Equipment Lease between the Company and DGJ.
16 Letter from PricewaterhouseCoopers LLP to the Securities and Exchange Commission(11).
21 Subsidiaries of the Company(4).
23.1 Consent of Livingston & Haynes, P.C., Independent Accountants
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants
24.1 Powers of Attorney (contained in the signature pages hereto).
27 Financial Data Schedule (16).
99 Press Release, dated July 7, 1998(11).
99.1 Press Release, dated January 28, 1999(14).
</TABLE>
- ------------------------
(1) Incorporated by reference from our Form S-18 Registration Statement (No.
33-36142-B) declared effective by the SEC on October 3, 1990.
(2) Incorporated by reference from our Form S-1 Registration Statement (No.
33-39463) declared effective by the SEC on June 13, 1991.
(3) Incorporated by reference from our Form S-1 Registration Statement (No.
33-39463) declared effective by the SEC on June 13, 1991.
(4) Incorporated by reference from our Annual Report on Form 10-K and amendment
thereto initially filed with the SEC on June 10, 1994.
(5) Incorporated by reference from our Quarterly Report on Form 10-Q for the
quarter ended August 25, 1995 and filed with the SEC on October 6, 1995.
(6) Incorporated by reference from our Quarterly Report on Form 10-Q for the
quarter ended November 24, 1995 and filed with the SEC on January 8, 1996.
(7) Incorporated by reference from our Annual Report on Form 10-K for the
fiscal year ended February 23, 1996 and filed with the Commission on June
7, 1996.
(8) Incorporated by reference from our Quarterly Report on Form 10-Q for the
quarter ended August 23, 1996 and filed with the SEC on October 15, 1996.
(9) Incorporated by reference from our Quarterly Report on Form 10-Q for the
quarter ended November 22, 1996 and filed with the SEC on January 7, 1997.
(10) Incorporated by reference from of our Annual Report on Form 10-K for the
10 month period ended December 31, 1997 and filed with the SEC on May 27,
1998.
(11) Incorporated by reference from our Current Report on Form 8-K with the SEC
on July 14, 1998.
(12) Incorporated by reference from our Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998 and filed with the SEC on November 16,
1998.
(13) Incorporated by reference from our Schedule 13D filed with the SEC on
February 2, 1999.
(14) Incorporated by reference from our Current Report on Form 8-K, dated
January 27, 1999, and filed with the SEC on February 11, 1999.
(15) Incorporated by reference from our Current Report on Form 8-K, dated March
31, 1999, and filed with the SEC on March 31, 1999.
(16) Incorporated by reference from our Annual Report on Form 10-K for the year
ended December 31, 1998 and filed with the SEC on March 31, 1999.
* Certain formation withheld and filed separately with the SEC pursuant to a
request for confidential treatment.
** These exhibits relate to executive compensation plans and arrangements.
II-11
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF INCORPORATION
BPI PACKAGING TECHNOLOGIES, INC.
BPI Packaging Technologies, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), pursuant to the
provisions of the General Corporation Law of the State of Delaware (the
"DGCL"), DOES HEREBY CERTIFY as follows:
FIRST: The Certificate of Incorporation of the Corporation is hereby
amended by deleting the first and second paragraphs of Section 4 of the
Certificate of Incorporation in its present form and substituting therefor a
new first and second paragraph of Section 4 in the following form:
A. This Corporation is authorized to issue two classes of stock, to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares this Corporation is authorized to issue is one hundred fifty
two million (152,000,000) shares of capital stock.
B. Of such authorized shares, one hundred fifty million (150,000,000)
shares shall be designated "Common Stock" and have a par value of $0.01 per
share. Two million (2,000,000) shares shall be designated "Preferred Stock"
and have a par value of $0.01 per share.
SECOND: The amendment to the Certificate of Incorporation of the
Corporation set forth in this Certificate of Amendment has been duly adopted
in accordance with the provisions of Section 242 of DGCL by (a) the Board of
Directors of the Corporation having duly adopted a resolution setting forth
such amendment and declaring its advisability and submitting it to the
stockholders of the Corporation for their approval, and (b) the stockholders
of the Corporation having duly adopted such amendment by vote of the holders
of a majority of the outstanding stock entitled to vote thereon at the annual
meeting of stockholders called and held on August 24, 1999.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by Hanspeter Schulz, its President, and attested by
Marci A. Moss, its Secretary, this 24th day of August, 1999.
BPI PACKAGING TECHNOLOGIES, INC.
By: /s/ Hanspeter Schulz
----------------------------
Hanspeter Schulz
PRESIDENT
ATTEST:
By: /s/ Marci A. Moss
----------------------------
Marci A. Moss
SECRETARY
Note: Filed with the Delaware Secretary of State on August 27, 1999.
<PAGE>
EXHIBIT 5.1
HOLLEB & COFF
ATTORNEYS AT LAW
55 EAST MONROE STREET
SUITE 4100
CHICAGO, ILLINOIS 60603-5896
(312) 807-4600
TELECOPIER (312) 807-3900
OPINION OF HOLLEB & COFF
October 15, 1999
BPI Packaging Technologies, Inc.
455 Somerset Avenue
North Dighton, Massachusetts 02764
Ladies and Gentlemen:
We have acted as special counsel for BPI Packaging Technologies, Inc., a
Delaware corporation (the "Company"), in connection with the Company's
Registration Statement on Form S-1 (the "Registration Statement") being filed by
the Company under the Securities Act of 1933, as amended, with respect to
2,614,825 shares of the Company's common stock, par value $0.01 per share (the
"Common Stock") and warrants to purchase 1,235,872 shares of Common Stock (the
"Warrants", together with the Common Stock, the "Shares"), which may be disposed
of from time to time by the selling securityholders (the "Selling
Securityholders") named therein.
In connection with the preparation of the Registration Statement and this
letter, we have examined, considered and relied solely upon the following
documents (collectively, the "Documents"): the Company's Amended and Restated
Certificate of Incorporation as filed with the Secretary of State of the State
of Delaware; By-laws; a Certificate of Good Standing of the Company issued on
October 13, 1999 by the Secretary of State of the State of Delaware; certain
minutes of the meetings of the Company's Board of Directors and any matters of
law as we have considered necessary or appropriate for the expression of the
opinions contained herein.
In rendering the opinions set forth below, we have assumed without
investigation the genuineness of all signatures and the authenticity of all
documents submitted to us as originals, the conformity to authentic original
documents of all documents submitted to us as copies, and the veracity of the
Documents. As to questions of fact material to the opinions hereinafter
expressed, we have relied upon the representations and warranties of the Company
made in the Documents. We would call your attention to the fact that Theodore L.
Koenig, counsel to this law firm, also acts as a director of the Company.
Based solely upon and subject to the Documents, and subject to the
qualification set forth below, we are of the opinion that the Shares have been
duly authorized and when the Shares have been duly delivered are validly issued,
fully paid and non-assessable.
Although we have acted as counsel to the Company in connection with certain
other matters, our engagement is limited only to matters which have been
specifically referred to us. Consequently, there may exist matters of a legal
nature involving the Company in connection with which we have not been consulted
and have not represented the Company. This opinion letter is limited to the
matters stated herein and no opinions may be implied or inferred beyond the
matters expressly stated herein. The opinions expressed herein are as of the
date hereof, and we assume no obligation to update or
<PAGE>
BPI Packaging Technologies, Inc.
October 15, 1999
Page 2
supplement this opinions to reflect any facts or circumstances that may
hereafter come to our attention or any changes in law that may hereafter occur.
This opinion is solely for the information of the addressee hereof and the
purchasers of the Shares, and is not to be quoted in whole or in part or
otherwise referred to, nor is it to be filed with any governmental agency or
other person without a prior written consent. Other than the addressee, and the
purchasers of the Shares, no one is entitled to rely on this opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Prospectus contained in the Registration Statement.
Very truly yours,
/s/ Holleb & Coff
HOLLEB & COFF
<PAGE>
EXHIBIT 10.42
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("Agreement") is made as of this 19th
day of August, 1999, by and between LASALLE BUSINESS CREDIT, INC., a Delaware
corporation ("LaSalle"), with its principal office at 135 South LaSalle Street,
Chicago, Illinois 60603, and BPI PACKAGING TECHNOLOGIES, INC., a Delaware
corporation ("Borrower"), with its principal office at 455 Somerset Avenue,
Building No. 3, North Dighton, MA 02764.
WITNESSETH:
WHEREAS, from time to time Borrower may request LaSalle to make loans and
advances to and extend certain credit accommodations to Borrower, and the
parties wish to provide for the terms and conditions upon which such loans,
advances and credit accommodations shall be made;
NOW, THEREFORE, in consideration of any loans, advances and credit
accommodations (including any loans by renewal or extension) hereafter made to
Borrower by LaSalle, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged by Borrower, the parties agree
as follows:
1. DEFINITIONS
(a) General Definitions
"ACCOUNT," "ACCOUNT DEBTOR," "CHATTEL PAPER," "DOCUMENTS," "EQUIPMENT,"
"GENERAL INTANGIBLES," "GOODS," "INSTRUMENTS," and "INVENTORY," shall have the
respective meanings assigned to such terms, as of the date of this Agreement, in
the Illinois Uniform Commercial Code.
"AFFILIATE" shall mean any Person directly or indirectly controlling,
controlled by or under common control with Borrower.
"ANNUAL FEE" shall mean the Annual Fee set forth in paragraph 5(i) of
this Agreement.
"BENEFIT PLAN" shall mean an employee pension benefit plan of the
Borrower or an ERISA Affiliate, as defined in Section 3(2) of ERISA, which is
subject to Title IV of ERISA, each of which is specified on SCHEDULE 13(x)
attached hereto.
"BORROWING BASE" shall have the meaning specified in PARAGRAPH 2(b)(i)
hereof.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday, or such
other day as banks in Chicago, Illinois are authorized or required to be closed
for business.
"CAPITAL EXPENDITURES" shall mean, with respect to any period, the
aggregate of all expenditures (whether paid in cash or accrued as liabilities
and including expenditures for capitalized lease obligations) by Borrower during
such period that are required by GAAP to be included in or reflected by the
property, plant or equipment or similar fixed asset accounts (or in intangible
accounts subject to amortization) in the balance sheet of Borrower.
"CHANGE OF CONTROL" shall mean if the current shareholders of Borrower
shall cease to directly or indirectly, of record or beneficially, own or control
in the aggregate at least fifty percent (50%) of the voting shares of Borrower
on a fully diluted basis and free and clear of all liens and security interests.
"CLOSING AGENDA" shall have the meaning specified in PARAGRAPH 15(a)(i)
hereof.
<PAGE>
"CLOSING DATE" shall mean the date first stated above.
"COLLATERAL" shall mean all of the personal property of Borrower
described in PARAGRAPH 7 hereof, all of the real property of Borrower described
in the Mortgages and all other real or personal property of any Obligor or any
other Person now or hereafter pledged to LaSalle to secure, either directly or
indirectly, repayment of any of the Liabilities.
"CONTINUATION" [RESERVED]
"CONVERSION" [RESERVED]
"DEBT SERVICE COVERAGE RATIO" shall mean, with respect to any period, the
ratio of (i) net income after taxes for such period (excluding any after-tax
gains or losses on the sale of assets (other than the sale of Inventory in the
ordinary course of business) and excluding other after-tax extraordinary gains
or losses), PLUS deferred taxes, PLUS depreciation and amortization deducted in
determining net income for such period, MINUS Capital Expenditures for such
period not financed, MINUS any cash dividends paid or accrued and cash
withdrawals paid or accrued to shareholders or other Affiliates for such period
which were not calculated in determining net income after taxes, and PLUS the
after-tax increase in LIFO reserves or MINUS the after tax decrease in LIFO
reserves, TO (ii) current principal maturities of long term debt and capitalized
leases paid or scheduled to be paid during such period, PLUS any prepayments on
indebtedness owed to any Person (except trade payables and revolving loans) and
paid during such period.
"DEFAULT" shall mean any event, condition or default which with the
giving of notice, the lapse of time or both would be an Event of Default.
"DGJ" shall mean DGJ, L.L.C., a Delaware limited liability company.
"DGJ DEBT" shall mean the Promissory Note dated August 19, 1999 in the
original principal amount of $4,773,584.88, made by Borrower and payable to DGJ,
which note replaces and/or aggregates (i) Borrower's prior Promissory Note dated
January 27, 1999 in the original principal amount of $3,200,000, (ii) a
Promissory Note dated March 1, 1999 in the original principal amount of
$218,665, and (iii) indebtedness owing to DGJ of $1,354,919.88, including
interest on the foregoing.
"DILUTION" shall mean, with respect to any period, the percentage
obtained by dividing: (a) the sum of non-cash credits against Accounts of
Borrower for such period, plus pending or probable, but not yet applied,
non-cash credits against Accounts of Borrower for such period, as determined by
LaSalle, by (b) gross invoiced sales of Borrower for such period.
"EBITDA" shall mean, with respect to any period, net income after taxes
for such period (excluding any after-tax gains or losses on the sale of assets
and excluding other after-tax extraordinary gains or losses) PLUS interest
expense, income tax expense, depreciation and amortization for such period, LESS
gains and losses attributable to any fixed asset sales made during such period,
PLUS or MINUS any other non-cash charges or gains which have been subtracted or
added in calculating net income after taxes for such period.
"ELIGIBLE ACCOUNT" shall mean an Account owing to Borrower which is
acceptable to LaSalle in its sole discretion for lending purposes. LaSalle
shall, in general, consider an Account to be an Eligible Account if it meets,
and so long as it continues to meet, the following requirements:
(i) it is genuine and in all respects is what it purports to
be;
(ii) it is owned by Borrower and Borrower has the right to
subject it to a security interest in favor of LaSalle;
<PAGE>
(iii) it arises from (A) the performance of services by Borrower
and such services have been fully performed and acknowledged and accepted by the
Account Debtor thereunder; or (B) the sale of Goods by Borrower, and such Goods
have been completed in accordance with the Account Debtor's specifications (if
any) and delivered to and accepted by the Account Debtor, such Account Debtor
has not refused to accept and has not returned or offered to return any of the
Goods, or has not refused to accept any of the services, which are the subject
of such Account, and Borrower has possession of, or has delivered to LaSalle at
LaSalle's request, shipping and delivery receipts evidencing delivery of such
Goods;
(iv) it is evidenced by an invoice rendered to the Account
Debtor thereunder, is due and payable within thirty (30) days after the
stated invoice date thereof and does not remain unpaid more than ninety (90)
days past the stated invoice date thereof; PROVIDED, HOWEVER, that if more
than twenty-five percent (25%) of the aggregate dollar amount of invoices
owing by a particular Account Debtor remain unpaid for more than ninety (90)
days past the respective invoice dates thereof, then all Accounts owing to
Borrower by that Account Debtor shall be deemed ineligible;
(v) it is not subject to any prior assignment, claim, lien,
security interest or encumbrance whatsoever, other than Permitted Liens;
(vi) it is a valid, legally enforceable and unconditional
obligation of the Account Debtor thereunder, and is not subject to setoff,
counterclaim, credit, allowance or adjustment by such Account Debtor, or to any
claim by such Account Debtor denying liability thereunder in whole or in part;
(vii) it does not arise out of a contract or order which fails in
any material respect to comply with the requirements of applicable law;
(viii) the Account Debtor thereunder is not a director, officer,
employee or agent of Borrower, or a Subsidiary, Parent or Affiliate of Borrower;
(ix) it is not an Account with respect to which the Account
Debtor is the United States of America or any department, agency or
instrumentality thereof, unless Borrower assigns its right to payment of such
Account to LaSalle pursuant to, and in full compliance with, the Assignment of
Claims Act of 1940, as amended;
(x) it is not an Account with respect to which the Account
Debtor is located in a state which requires Borrower, as a precondition to
commencing or maintaining an action in the courts of that state, either to (A)
receive a certificate of authority to do business and be in good standing in
such state, or (B) file a notice of business activities report or similar report
with such state's taxing authority, unless (x) Borrower has taken one of the
actions described in clauses (A) or (B), (y) the failure to take one of the
actions described in either clause (A) or (B) may be cured retroactively by
Borrower at its election, or (z) Borrower has proven, to LaSalle's satisfaction,
that it is exempt from any such requirements under any such state's laws;
(xi) it is an Account which arises out of a sale made in the
ordinary course of Borrower's business;
(xii) the Account Debtor is a resident or citizen of, and is
located within, the United States of America or Canada;
(xiii) it is not an Account with respect to which the Account
Debtor's obligation to pay is conditional upon the Account Debtor's approval of
the Goods or services or is otherwise subject to any repurchase obligation or
return right, as with sales made on a bill-and-hold, guaranteed sale, sale on
approval, sale or return or consignment basis;
(xiv) it is not an Account (A) with respect to which any
representation or warranty contained in this Agreement is untrue or (B) which
violates any of the covenants of Borrower contained in this Agreement;
<PAGE>
(xv) it is not an Account which, when added to a particular
Account Debtor's other indebtedness to Borrower, exceeds the lesser of ten
percent (10%) of the aggregate of Borrower's Accounts or a credit limit
determined by LaSalle in its reasonable credit judgment for that Account Debtor,
PROVIDED, HOWEVER, that the credit limit for a particular Account Debtor so
determined by LaSalle will not be decreased to less than ten percent (10%) if
Borrower has obtained and properly assigned to LaSalle credit insurance with
respect to such Account Debtor's Accounts; PROVIDED FURTHER, that Accounts
excluded from Eligible Accounts solely by reason of this PARAGRAPH 1(a)(xv)
shall be Eligible Accounts to the extent of such credit limit; PROVIDED FURTHER,
that Accounts owed by Sonoco or Duro Bag Manufacturing Co. shall be eligible up
to the lesser of (A) thirty-five percent (35%) of the aggregate of Borrower's
Accounts, in each case individually and not in the aggregate, or (B) the limit
of credit insurance obtained by Borrower and properly assigned to LaSalle with
respect to such Accounts; AND PROVIDED FURTHER, that Accounts owed by Bunzl
shall be eligible to the lesser of (A) twenty-five percent of the aggregate of
Borrower's Accounts, or (B) the limit of credit insurance obtained by Borrower
and properly assigned to LaSalle with respect to such Accounts;
(xvi) it is not an Account with respect to which the prospect of
payment or performance by the Account Debtor is or will be impaired, as
determined by LaSalle in its sole discretion.
"ELIGIBLE FINISHED GOODS INVENTORY" shall mean that portion of Eligible
Inventory consisting of all fully manufactured goods and products which are
ready for sale in the ordinary course of business, including products to be
resold by Borrower, provided that Eligible Finished Goods Inventory shall not
include any items which, in the sole discretion of LaSalle, are obsolete,
unsalable or unmerchantable, based on such criteria as LaSalle in its sole
discretion may from time to time deem appropriate.
"ELIGIBLE INVENTORY" shall mean Inventory of Borrower which is acceptable
to LaSalle in its sole discretion. Without limiting LaSalle's discretion,
LaSalle shall, in general, consider Inventory to be Eligible Inventory if it
meets, and so long as it continues to meet, the following requirements:
(i) it is owned by Borrower and Borrower has the right to
subject it to a security interest in favor of LaSalle;
(ii) it is located on the premises listed on EXHIBIT A and is
not in transit;
(iii) it is not subject to any prior assignment, claim, lien,
security interest or encumbrance whatsoever, other than Permitted Liens;
(iv) it is not work in process and is held for sale or
furnishing under contracts of service, it is (except as LaSalle may otherwise
consent in writing) new and unused and free from defects which would, in
LaSalle's sole determination, affect its marketability or market value;
(v) it is not stored with a bailee, consignee, warehouseman,
processor or similar party unless LaSalle has given its prior written approval
and Borrower has caused any such bailee, consignee, warehouseman, processor or
similar party to issue and deliver to LaSalle, in form and substance acceptable
to LaSalle, such UCC financing statements, warehouse receipts, waivers and other
documents as LaSalle shall require;
(vi) LaSalle has determined in accordance with LaSalle's
customary business practices that it is not unacceptable due to age, type,
category or quantity;
(vii) it is not Inventory (A) with respect to which any of the
representations and warranties contained in this Agreement are untrue or (B)
which violates any of the covenants of Borrower contained in this Agreement; and
(viii) does not consist of inks, solvents or packaging.
<PAGE>
"ELIGIBLE RAW MATERIALS INVENTORY" shall mean that portion of Eligible
Inventory consisting of any and all goods and materials purchased by Borrower
for use in any further manufacturing and/or processing and not yet transferred
to Borrower's work-in-process inventory or otherwise issued to any production
department or of Borrower, provided that Eligible Raw Materials Inventory shall
not include any raw material which, in the sole discretion of LaSalle, are
obsolete or unusable in Borrower's manufacturing, production or processing
operations based on such criteria as LaSalle in its sole discretion may from
time to time deem appropriate.
"ENVIRONMENTAL LAWS" shall mean all federal, state, district, local and
foreign laws, rules, regulations, ordinances, and consent decrees relating to
health, safety, hazardous substances, pollution and environmental matters, as
now or at any time hereafter in effect, applicable to Borrower's business or
facilities owned or operated by Borrower, including laws relating to emissions,
discharges, releases or threatened releases of pollutants, contamination,
chemicals, or hazardous, toxic or dangerous substances, materials or wastes into
the environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata) or otherwise relating to the
generation, manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials.
"EQUIPMENT LEASE" shall mean that certain Equipment Lease dated January
27, 1999 between DGJ and Borrower.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and all references to sections thereof shall include such sections
and any predecessor and successor provisions thereto.
"ERISA AFFILIATE" shall mean any member of a controlled group of entities
as determined under Section 414(b), (c), (m), or (o) of the IRC, of which the
Borrowers are a member.
"EVENT OF DEFAULT" shall have the meaning specified in PARAGRAPH 16
hereof.
"EXCESS AVAILABILITY" shall mean, as of any date of determination by
LaSalle, the excess, if any, of (i) the Borrowing Base over (ii) the outstanding
Revolving Loans, in each case as of the close of business on such date. For
purposes of calculating Borrower's Excess Availability and the amount of the
Borrowing Base relating thereto, all of Borrower's trade payables and
outstanding debt, other than the Liabilities hereunder, which remain unpaid more
than thirty (30) days after the due dates thereof shall, on the date of the
determination of Excess Availability, be deemed to have been paid by Borrower.
"EXHIBIT A" shall mean the exhibit entitled "Exhibit A - Business and
Collateral Locations" which is attached hereto and made a part hereof.
"EXHIBIT B" shall mean the exhibit entitled Exhibit B - Officer's
Certificate, which is attached hereto and made a part hereof.
"FISCAL YEAR" shall mean with respect to Borrower, the twelve (12) month
accounting period of Borrower commencing January 1 of each calendar year and
ending December 31 of such calendar year.
"GAAP" shall mean generally accepted accounting principles and policies
in the United States as in effect from time to time, consistently applied.
"HAZARDOUS MATERIALS" shall mean any hazardous, toxic or dangerous
substance, materials and wastes, including, without limitation, hydrocarbons
(including naturally occurring or man-made petroleum and hydrocarbons),
flammable explosives, asbestos, urea formaldehyde insulation, radioactive
materials, biological substances, polychlorinated biphenyls, pesticides,
herbicides and any other kind and/or type of pollutants or contaminants
(including, without limitation, materials which include hazardous constituents),
sewage, sludge, industrial slag, solvents and/or any other similar substances,
materials, or wastes and including any other substances, materials or wastes
that are or become regulated under any Environmental Law (including, without
limitation, any that are or become classified as hazardous or toxic under any
Environmental Law).
<PAGE>
"INDEMNIFIED PARTY" shall have the meaning specified in PARAGRAPH 18
hereof.
"INITIAL TNW AMOUNT" shall have the meaning prescribed in PARAGRAPH
14(n)(i) hereof.
"LETTERS OF CREDIT" shall mean those documentary or stand-by letters of
credit issued for Borrower's account in accordance with the terms of PARAGRAPH 4
hereof.
"LETTER OF CREDIT OBLIGATIONS" shall mean, as of any date of
determination, the sum of (i) the aggregate undrawn face amount of all Letters
of Credit and (ii) the aggregate unreimbursed amount of all drawn Letters of
Credit not already converted to a Loan hereunder.
"LIABILITIES" shall mean any and all obligations, liabilities and
indebtedness of Borrower to LaSalle or to any parent, affiliate or subsidiary of
LaSalle of any and every kind and nature, howsoever created, arising or
evidenced and howsoever owned, held or acquired, whether now or hereafter
existing, whether now due or to become due, whether primary, secondary, direct,
indirect, absolute, contingent or otherwise (including, without limitation,
obligations of performance), whether several, joint or joint and several, and
whether arising or existing under written or oral agreement or by operation of
law.
"LOAN" or "LOANS" shall mean any and all Revolving Loans made by LaSalle
to Borrower pursuant to PARAGRAPHS 2 AND 3 hereof and all other loans, advances
and financial accommodations made by LaSalle to or on behalf of Borrower
hereunder. If paragraph 3 of this Agreement is reserved, then Loans shall
consist of Revolving Loans only, and any references to Term Loans shall be
deemed surplusage.
"LOCK BOX" and "BLOCKED ACCOUNT" shall have the meanings specified in
PARAGRAPH 10 hereof.
"MATERIAL ADVERSE EFFECT" shall mean with respect to any event, act,
condition or occurrence of whatever nature (including any adverse determination
in any litigation, arbitration or governmental investigation or proceeding),
whether singly or in conjunction with any other event or events, act or acts,
condition or conditions, occurrence or occurrences, whether or not related, a
material adverse change in, or a material adverse effect upon, any of the
business, property, assets, operations, condition (financial or otherwise) or
prospects of Borrower.
"MORTGAGE" shall mean each mortgage or deed of trust executed by Borrower
in favor of LaSalle to secure the Liabilities.
"MULTIEMPLOYER PLAN" shall mean a plan described in Section 4001(a)(3) of
ERISA which covers employees of any Borrower or any ERISA Affiliate.
"NOTE" shall mean the Revolving Note.
"OBLIGOR" shall mean Borrower and each Person who is or shall become
primarily or secondarily liable for any of the Liabilities; PROVIDED, HOWEVER,
that such term shall not include any Account Debtor.
"ORIGINAL TERM" shall have the meaning specified in PARAGRAPH 12 hereof.
"OTHER AGREEMENTS" shall mean all agreements, instruments and documents
including, without limitation, guaranties, mortgages, trust deeds, pledges,
powers of attorney, consents, assignments, contracts, notices, security
agreements, leases, financing statements and all other writings heretofore, now
or from time to time hereafter executed by or on behalf of Borrower or any other
Person and delivered to LaSalle or to any parent, affiliate or subsidiary of
LaSalle in connection with the Liabilities or the transactions contemplated
hereby.
"PARENT" shall mean any Person now or at any time or times hereafter
owning or controlling (alone or with any other Person) at least a majority of
the issued and outstanding stock or other similar ownership interest of Borrower
or any Subsidiary.
<PAGE>
"PERMITTED LIENS" shall mean (i) statutory liens of landlords, carriers,
warehousemen, mechanics, materialmen or suppliers incurred in the ordinary
course of business and securing amounts not yet due or declared to be due by the
claimant thereunder, (ii) liens or security interests in favor of LaSalle, (iii)
zoning restrictions and easements, rights of way, licenses, covenants and other
restrictions affecting the use of real property that do not individually or in
the aggregate have a Material Adverse Effect on Borrower's ability to use such
real property for its intended purpose in connection with Borrower's business,
(iv) liens securing the payment of taxes or other governmental charges not yet
delinquent or being contested in good faith and by appropriate proceedings, (v)
liens incurred or deposits made in the ordinary course of Borrower's business in
connection with capitalized leases or purchase money security interests for
purchase of, and applying only to, Equipment included in the permitted
borrowings under PARAGRAPH 13(q) or permitted as Capital Expenditures under
PARAGRAPH 14(n), the documents relating to such liens to be in form and
substance acceptable to LaSalle, (vi) liens securing indebtedness owing by any
Subsidiary to Borrower to the extent such indebtedness is permitted under
PARAGRAPH 14(l), or to any other Subsidiary of Borrower, (vii) deposits to
secure performance of bids, trade contracts, leases and statutory obligations
(to the extent not excepted elsewhere herein); (viii) liens specifically
permitted by LaSalle in writing as set forth on SCHEDULE 1(a) attached hereto
(including the liens relating to the DGJ Debt and the Equipment Lease, as set
forth on SCHEDULE 1(a)); (ix) any lien arising out of the refinancing,
extension, renewal or refunding of any indebtedness secured by an lien permitted
by any of the foregoing SUBPARAGRAPHS (i) THROUGH (viii) inclusive; PROVIDED,
that (a) such indebtedness is not secured by any additional assets, and (b) the
amount of such indebtedness is not increased, (x) pledges or deposits in
connection with worker's compensation, unemployment insurance and other social
security legislation, (xi) securities and other properties held at banks or
financial institutions to secure the payment or reimbursement under overdraft,
acceptance and other facilities, and (xii) rights of setoff, banker's lien and
other similar rights arising solely by operation of law.
"PERSON" shall mean any individual, sole proprietorship, partnership,
limited liability company venture, trust, unincorporated organization,
association, corporation, institution, entity, party or foreign or United States
government (whether federal, state, county, city, municipal or otherwise),
including, without limitation, any instrumentality, division, agency, body or
department thereof.
"PRIME RATE" shall mean the publicly announced prime rate of LaSalle Bank
National Association, Chicago, Illinois, in effect from time to time. The Prime
Rate is not intended to be the lowest or most favorable rate of LaSalle Bank
National Association in effect at any time.
"PRIME RATE LOAN" shall mean a Revolving Loan that bears interest based
on the Prime Rate.
"PRIME RATE REVOLVING LOAN" shall mean a Revolving Loan that bears
interest based on the Prime Rate.
"RENEWAL TERM" shall have the meaning specified in PARAGRAPH 12 hereof.
"REVOLVING LOANS" shall have the meaning specified in PARAGRAPH 2 hereof.
"REVOLVING LOAN COMMITMENT" shall mean the sum of Four Million and no/100
Dollars ($4,000,000.00).
"REVOLVING NOTE" shall mean the promissory note in the original principal
amount of Four Million and no/100 Dollars ($4,000,000.00), executed by Borrower
to the order of LaSalle, dated as of the Closing Date.
"SUBORDINATED DEBT" shall mean indebtedness subordinated to the
Liabilities in writing and on terms satisfactory to LaSalle in its sole
discretion.
"SUBSIDIARY" shall mean any corporation or company of which more than
fifty percent (50%) of the outstanding capital stock having ordinary voting
power to elect a majority of the board of directors of such corporation
(irrespective of whether at the time stock of any other class of such
corporation shall have or might have voting power by reason of the happening of
any contingency) is at the time, directly or indirectly, owned by Borrower or by
any partnership or joint venture of which more than fifty percent (50%) of the
outstanding equity interests are at the time, directly or indirectly, owned by
Borrower.
<PAGE>
"TANGIBLE NET WORTH" shall mean shareholders' equity (including retained
earnings) LESS the book value of all intangible assets, determined by LaSalle on
a consistent basis, PLUS the amount of any debt subordinated to LaSalle on terms
and conditions acceptable to LaSalle in its sole judgment, all as determined in
accordance with GAAP, consistently applied.
"TOTAL CREDIT FACILITY" shall mean the sum of Four Million and no/100
Dollars ($4,000,000.00).
(b) ACCOUNTING TERMS AND DEFINITIONS. Unless otherwise defined or
specified herein, all accounting terms used in this Agreement shall be construed
in accordance with GAAP, applied on a basis consistent in all material respects
with the financial statements delivered by Borrower to LaSalle on or before the
Closing Date. All accounting determinations for purposes of determining
compliance with the financial covenants contained in PARAGRAPH 14(n) shall be
made in accordance with GAAP as in effect on the Closing Date and applied on a
basis consistent in all material respects with the audited financial statements
delivered to LaSalle by Borrower on or before the Closing Date. The financial
statements required to be delivered hereunder from and after the Closing Date,
and all financial records, shall be maintained in accordance with GAAP. If GAAP
shall change from the basis used in preparing the audited financial statements
delivered to LaSalle by Borrower on or before the Closing Date, the certificates
required to be delivered pursuant to PARAGRAPH 14(b) demonstrating compliance
with the covenants contained herein shall include, at the election of Borrower
or upon the request of LaSalle, calculations setting forth the adjustments
necessary to demonstrate how Borrower is in compliance with the financial
covenants based upon GAAP as in effect on the Closing Date.
2. REVOLVING LOANS. Subject to the terms and conditions of this Agreement
and the Other Agreements, during the Original Term and any Renewal Term, absent
the existence of an Event of Default:
(a) LaSalle shall make such revolving loans and advances (the
"Revolving Loans") to Borrower as Borrower shall from time to time request, in
accordance with the terms of PARAGRAPH 2(b) hereof. The aggregate unpaid
principal amount of all Revolving Loans outstanding at any one time made to
Borrower shall not exceed the lesser of (i) the Borrowing Base or (ii) the
Revolving Loan Commitment, in each case minus the outstanding Letter of Credit
Obligations. All Revolving Loans shall be repaid in full upon the earlier to
occur of (A) the end of the Original Term or any Renewal Term, if either LaSalle
or Borrower elects to terminate this Agreement as of the end of any such term
and (B) the acceleration of the Liabilities pursuant to PARAGRAPH 17 of this
Agreement. If at any time the outstanding principal balance of the Revolving
Loans made to Borrower exceeds (i) the Borrowing Base or (ii) the Revolving Loan
Commitment, in each case minus the outstanding Letter of Credit Obligations,
Borrower shall immediately, and without the necessity of a demand by LaSalle,
pay to LaSalle such amount as may be necessary to eliminate such excess, and
LaSalle shall apply such payment against the outstanding principal balance of
the Revolving Loans. In addition, if at any time the sum of (A) the outstanding
principal balance of the Loans and (B) the outstanding Letter of Credit
Obligations exceeds the Total Credit Facility, Borrower shall immediately and
without the necessity of a demand by LaSalle pay to LaSalle such amount as may
be necessary to eliminate such excess, and LaSalle shall apply such payment
against the outstanding principal balance of the Loans in such order as LaSalle
shall determine in its sole discretion. Borrower hereby authorizes LaSalle to
charge any of Borrower's accounts to make any payments of principal or interest
required by this Agreement. All Revolving Loans shall, in LaSalle's sole
discretion, be evidenced by one or more promissory notes in form and substance
satisfactory to LaSalle. However, if such Revolving Loans are not so evidenced,
such Revolving Loans may be evidenced solely by entries upon the books and
records maintained by LaSalle.
(b) LaSalle shall make Revolving Loans to Borrower up to the lesser of
the following amounts, the amount calculated pursuant to SUBPARAGRAPH (i) below
being the "Borrowing Base":
(i) an amount equal to the sum of: (A) up to eighty-five
percent (85%) of the face amount of Eligible Accounts PLUS, (B) the lesser of
(x) the sum of (I) up to fifty percent (50%) of the value of Eligible Finished
Goods Inventory and (II) up to sixty percent (60%) of the value of Eligible Raw
Materials Inventory, in each case calculated on the basis of the lower of cost
or market value on a first-in, first-out basis, and (y) One Million Five Hundred
Thousand and no/100 Dollars ($1,500,000.00); in each case, less such reserves as
LaSalle
<PAGE>
elects to establish from time to time in the exercise of its sole
discretion including, without limitation, a Dilution reserve if Dilution exceeds
five percent (5%); OR
(ii) the Revolving Loan Commitment.
3. TERM LOAN [RESERVED]
4. LETTERS OF CREDIT [RESERVED]
5. INTEREST, FEES AND CHARGES
(a) RATES OF INTEREST. Interest accrued on all Loans shall be due on
the earliest of: (i) the first day of each month (for the immediately preceding
month), computed through the last calendar day of the preceding month; (ii) the
occurrence of an Event of Default in consequence of which LaSalle elects to
accelerate the maturity and payment of the Liabilities; or (iii) termination of
this Agreement pursuant to PARAGRAPH 12 hereof. Interest shall accrue on the
principal amount of the Revolving Loans made to Borrower outstanding at the end
of each day at a fluctuating rate per annum equal to one and one-half per cent
(1.5%) above the Prime Rate. The rate of interest payable on Prime Rate Loans
shall increase or decrease by an amount equal to any increase or decrease in the
Prime Rate, effective as of the opening of business on the day that any such
change in the Prime Rate occurs. Upon and after the occurrence of an Event of
Default, and during the continuation thereof, the principal amount of all Loans
shall bear interest on demand at a rate per annum equal to the rate of interest
then in effect with respect to Revolving Loans under this PARAGRAPH 5 (a) plus
two percent (2%).
(b) COMPUTATION OF INTEREST AND FEES. Interest and collection charges
hereunder shall be calculated daily and shall be computed on the actual number
of days elapsed over a year consisting of three hundred and sixty (360) days.
For the purpose of computing interest hereunder, all items of payment received
by LaSalle shall be deemed applied by LaSalle on account of the Liabilities
(subject to final payment of such items) on the second Business Day after
receipt by LaSalle of good funds in LaSalle's account located in Chicago,
Illinois.
(c) MAXIMUM INTEREST. It is the intent of the parties that the rate
of interest and the other charges to Borrower under this Agreement shall be
lawful; therefore, if for any reason the interest or other charges payable under
this Agreement are found by a court of competent jurisdiction, in a final
determination, to exceed the limit which LaSalle may lawfully charge Borrower,
then the obligation to pay interest and other charges shall automatically be
reduced to such limit and, if any amount in excess of such limit shall have been
paid, then such amount shall be refunded to Borrower.
(d) Letter of Credit Fees. [RESERVED]
(e) CLOSING FEE. Borrower shall pay to LaSalle a closing fee of Forty
Thousand and no/100 Dollars ($40,000.00), which shall be fully earned,
nonrefundable and due on the Closing Date.
(f) UNUSED LINE FEE. Borrower shall pay to LaSalle at the end of each
month, in arrears, an Unused Line Fee equal to three-eighths of one percent
(0.375%) per year on the daily average amount by which the Revolving Loan
Commitment exceeds the sum of (i) the outstanding principal balance of the
Revolving Loans and (ii) the outstanding Letter of Credit Obligations. The
Unused Line Fee shall accrue from the Closing Date until the last day of the
Original Term, and if applicable, from the first day to the last day of each
Renewal Term; provided, however, that no Unused Line Fee shall accrue after
payment in full of the Liabilities.
(g) EXAMINATION AND APPRAISAL FEES. In addition to the costs and
expenses described in PARAGRAPH 14(o) hereof, Borrower shall pay to LaSalle an
examination fee of Seven Hundred and no/100 Dollars ($700) per auditor per day
for each examination performed by or at LaSalle's direction of Borrower's books
and records and Collateral and such other matters as LaSalle shall deem
appropriate in its commercially reasonable judgment, each such fee to be paid
upon the completion of each such examination.
<PAGE>
(h) CAPITAL ADEQUACY CHARGE. If LaSalle shall have determined that
the adoption of any law, rule or regulation regarding capital adequacy, or any
change therein or in the interpretation or application thereof, or compliance by
LaSalle with any request or directive regarding capital adequacy (whether or not
having the force of law) from any central bank or governmental authority enacted
after the Closing Date and having general application to the types of loans made
by LaSalle, does or shall have the effect of reducing the rate of return on
LaSalle's capital as a consequence of its obligations hereunder to a level below
that which LaSalle could have achieved but for such adoption, change or
compliance (taking into consideration LaSalle's policies with respect to capital
adequacy) by a material amount, then from time to time, after submission by
LaSalle to Borrower of a written demand therefor ("Capital Adequacy Demand")
together with the certificate described below, Borrower shall pay to LaSalle
such additional amount or amounts ("Capital Adequacy Charge") as will compensate
LaSalle for such reduction, such Capital Adequacy Demand to be made with
reasonable promptness following such determination. A certificate of LaSalle
claiming entitlement to payment as set forth above shall be conclusive in the
absence of manifest error. Such certificate shall set forth the nature of the
occurrence giving rise to such reduction, the amount of the Capital Adequacy
Charge to be paid to LaSalle, and the method by which such amount was
determined. In determining such amount, LaSalle may use any reasonable
averaging and attribution method, applied on a non-discriminatory basis.
(i) ANNUAL FEE. Borrower shall pay to LaSalle on each anniversary of
the Closing Date, an Annual Fee equal to one quarter of one percent (0.25%) of
the Total Facility. No annual fee shall be payable on August 19, 2002 unless
this Agreement shall have been renewed.
6. LOAN ADMINISTRATION
(a) LOAN REQUESTS. A request for a Revolving Loan shall be made or
shall be deemed to be made, each in the following manner: (i) Borrower shall
give LaSalle same day notice, no later than 10:30 A.M. (Chicago time) of such
day, of its intention to borrow a Prime Rate Revolving Loan, in which notice
Borrower shall specify the amount of the proposed borrowing and the proposed
borrowing date; PROVIDED, HOWEVER, that no such request may be made at a time
when there exists a Default or an Event of Default; and (ii) the coming due of
any amount required to be paid under this Agreement or any Note, whether on
account of interest or for any other Liability, shall be deemed irrevocably to
be a request for a Prime Rate Revolving Loan on the due date thereof in the
amount required to pay such interest or other Liability. As an accommodation to
Borrower, LaSalle may permit telephone requests for Revolving Loans and
electronic transmittal of instructions, authorizations, agreements or reports to
LaSalle by Borrower. Unless Borrower specifically directs LaSalle in writing
not to accept or act upon telephonic or electronic communications from Borrower,
LaSalle shall have no liability to Borrower for any loss or damage suffered by
Borrower as a result of LaSalle's honoring of any requests, execution of any
instructions, authorizations or agreements or reliance on any reports
communicated to it telephonically or electronically and purporting to have been
sent to LaSalle by Borrower and LaSalle shall have no duty to verify the origin
of any such communication or the authority of the Person sending it. Each
notice of borrowing shall be irrevocable by and binding on Borrower.
(b) DISBURSEMENT. Borrower hereby irrevocably authorizes LaSalle to
disburse the proceeds of each Revolving Loan requested by Borrower, or deemed to
be requested by Borrower, as follows: (i) the proceeds of each Revolving Loan
requested under PARAGRAPH 6(a)(i) shall be disbursed by LaSalle in lawful money
of the United States of America in immediately available funds, in the case of
the initial borrowing, in accordance with the terms of the written disbursement
letter from Borrower, and in the case of each subsequent borrowing, by wire
transfer to such bank account as may be agreed upon by Borrower and LaSalle from
time to time, or elsewhere if pursuant to a written direction from Borrower; and
(ii) the proceeds of each Revolving Loan requested under PARAGRAPH 6(a)(ii)
shall be disbursed by LaSalle by way of direct payment of the relevant interest
or other Liability.
7. GRANT OF SECURITY INTEREST TO LASALLE. As security for the payment of
all Loans now or in the future made by LaSalle to Borrower hereunder and for the
payment or other satisfaction of all other Liabilities, Borrower hereby assigns
to LaSalle and grants to LaSalle a continuing security interest in the following
property of Borrower, whether now or hereafter owned, existing, acquired or
arising and wherever now or hereafter located: (a) all Accounts (whether or not
Eligible Accounts) and all Goods whose sale, lease or other disposition by
Borrower has given rise to Accounts and have been returned to or repossessed or
stopped in transit by Borrower; (b)
<PAGE>
all Chattel Paper, Instruments, investment property, Documents and General
Intangibles (including, without limitation, all patents, patent applications,
trademarks, trademark applications, tradenames, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, customer lists, tax refund
claims, claims against carriers and shippers, guarantee claims, contracts
rights, security interests, security deposits and any rights to
indemnification); (c) all Inventory; (d) all Goods (other than Inventory)
including, without limitation, Equipment, vehicles and fixtures; (e) all
deposits and cash and any other property of Borrower now or hereafter in the
possession, custody or control of LaSalle or any agent or any parent,
affiliate or subsidiary of LaSalle or any participant with LaSalle in the
Loans for any purpose (whether for safekeeping, deposit, collection, custody,
pledge, transmission or otherwise); and (f) all additions and accessions to,
substitutions for, and replacements, products and proceeds of the foregoing
property, including, without limitation, proceeds of all insurance policies
insuring the foregoing property, and all of Borrower's books and records
relating to any of the foregoing and to Borrower's business.
8. PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY INTERESTS THEREIN.
Borrower shall, at LaSalle's request, at any time and from time to time, execute
and deliver to LaSalle such financing statements, documents and other agreements
and instruments (and pay the cost of filing or recording the same in all public
offices deemed reasonably necessary or desirable by LaSalle) and do such other
acts and things as LaSalle may deem necessary or desirable in order to establish
and maintain a valid, attached and perfected security interest in the Collateral
in favor of LaSalle (free and clear of all other liens, claims and rights of
third parties whatsoever, whether voluntarily or involuntarily created, except
Permitted Liens) to secure payment of the Liabilities, and in order to
facilitate the collection of the Collateral. Borrower irrevocably hereby makes,
constitutes and appoints LaSalle (and all Persons designated by LaSalle for that
purpose) as Borrower's true and lawful attorney and agent-in-fact to execute
such financing statements, documents and other agreements and instruments and do
such other acts and things as may be necessary to preserve and perfect LaSalle's
security interest in the Collateral. Borrower further agrees that a carbon,
photographic, photostatic or other reproduction of this Agreement or of a
financing statement shall be sufficient as a financing statement.
9. POSSESSION OF COLLATERAL AND RELATED MATTERS. Until an Event of Default
has occurred, Borrower shall have the right, except as otherwise provided in
this Agreement, in the ordinary course of Borrower's business, to (a) sell,
lease or furnish under contracts of service any of Borrower's Inventory normally
held by Borrower for any such purpose, and (b) use and consume any raw
materials, work in process or other materials normally held by Borrower for such
purpose; PROVIDED, HOWEVER, that a sale in the ordinary course of business shall
not include any transfer or sale in satisfaction, partial or complete, of a debt
owed by Borrower.
10. COLLECTIONS.
(a) Borrower shall direct all of its Account Debtors to make all
payments on the Accounts directly to a post office box ("LOCK BOX") with a
financial institution acceptable to, and in the name and under exclusive control
of, LaSalle. Borrower shall establish an account ("BLOCKED ACCOUNT") in
LaSalle's name for the benefit of Borrower with a financial institution
acceptable to LaSalle, into which all payments received in the Lock Box shall be
deposited, and into which Borrower will immediately deposit all payments made
for Inventory or services sold or rendered by Borrower and received by Borrower
in the identical form in which such payments were made, whether by cash or
check. If Borrower, any Affiliate or Subsidiary of Borrower, or any
shareholder, officer, director, employee or agent of Borrower or any Affiliate
or Subsidiary, or any other Person acting for or in concert with Borrower shall
receive any monies, checks, notes, drafts or other payments relating to or as
proceeds of Accounts or other Collateral, Borrower and each such Person shall
receive all such items in trust for, and as the sole and exclusive property of,
LaSalle and, immediately upon receipt thereof, shall remit the same (or cause
the same to be remitted) in kind to the Blocked Account. Each financial
institution with which a Lock Box and Blocked Account are established shall
acknowledge and agree, in a manner satisfactory to LaSalle, that the amounts on
deposit in such Lock Box and Blocked Account are the sole and exclusive property
of LaSalle, that such financial institution has no right to set off against such
Lock Box or Blocked Account or against any other account maintained by such
financial institution into which the contents of such Blocked Account are
transferred, and that such financial institution shall wire, or otherwise
transfer in immediately available funds in a manner satisfactory to LaSalle,
funds deposited in the Blocked Account on a daily basis as such funds are
collected. Borrower agrees that all payments made to the Blocked Account
established by Borrower or otherwise received by LaSalle, whether in respect of
the Accounts of
<PAGE>
Borrower or as proceeds of other Collateral of Borrower or otherwise, will be
applied on account of the Liabilities of Borrower in accordance with the
terms of this Agreement. Borower agrees to pay all fees, costs and expenses
which Borrower incurs in connection with opening and maintaining a Lock Box
and Blocked Account. All of such fees, costs and expenses which remain
unpaid by Borrower pursuant to any Lock Box or Blocked Account Agreement with
Borrower, to the extent same shall have been paid by LaSalle hereunder, shall
constitute Revolving Loans hereunder, shall be payable to LaSalle by Borrower
upon demand, and, until paid, shall bear interest at the highest rate then
applicable to Revolving Loans hereunder. All checks, drafts, instruments and
other items of payment or proceeds of Collateral delivered to LaSalle in kind
shall be indorsed by Borrower to LaSalle, and, if that indorsement of any
such item shall not be made for any reason, LaSalle is hereby irrevocably
authorized to indorse the same on Borrower's behalf. For the purpose of this
paragraph, Borrower irrevocably hereby makes, constitutes and appoints
LaSalle (and all Persons designated by LaSalle for that purpose) as
Borrower's true and lawful attorney and agent-in-fact (i) to indorse
Borrower's name upon said items of payment and/or proceeds of Collateral of
Borrower and upon any Chattel Paper, document, instrument, invoice or similar
document or agreement relating to any Account of Borrower or goods pertaining
thereto; (ii) to take control in any manner of any item of payment or
proceeds thereof; (iii) to have access to any lock box or postal box into
which any of Borrower's mail is deposited; and (iv) open and process all mail
addressed to Borrower and deposited therein; PROVIDED, HOWEVER, that LaSalle
shall not exercise any such powers described in subparagraphs (i),
(ii) (except for routine lock box payments/proceeds) and (iv) unless and until
an Event of Default has occurred.
(b) LaSalle may, at any time and from time to time after the
occurrence of an Event of Default, whether before or after notification to any
Account Debtor and whether before or after the maturity of any of the
Liabilities, (i) enforce collection of any of Borrower's Accounts or contract
rights by suit or otherwise; (ii) exercise all of Borrower's rights and remedies
with respect to proceedings brought to collect any Accounts; (iii) surrender,
release or exchange all or any part of any Accounts of Borrower, or compromise
or extend or renew for any period (whether or not longer than the original
period) any indebtedness thereunder; (iv) sell or assign any Account of Borrower
upon such terms, for such amount and at such time or times as LaSalle deems
advisable; (v) prepare, file and sign Borrower's name on any proof of claim in
bankruptcy or other similar document against any Account Debtor indebted on an
Account of Borrower; and (vi) do all other acts and things which are necessary,
in LaSalle's sole discretion, to fulfill Borrower's obligations under this
Agreement and to allow LaSalle to collect the Accounts. In addition to any
other provision hereof, LaSalle may at any time on or after the occurrence of an
Event of Default, at Borrower's expense, notify any parties obligated on any of
the Accounts of Borrower to make payment directly to LaSalle of any amounts due
or to become due thereunder.
(c) For the purpose of determining Borrower's Borrowing Base
hereunder, LaSalle shall, upon receipt by LaSalle at its office in Chicago,
Illinois, of cash or other immediately available funds from collections of items
of payment and proceeds of any Collateral, apply the whole or any part of such
collections or proceeds against the Liabilities in such order as LaSalle shall
determine in its sole discretion.
(d) In its sole credit judgment, without waiving or releasing any
obligation, liability or duty of Borrower under this Agreement or the Other
Agreements or any Event of Default, at any time or times hereafter, LaSalle may
(but shall not be obligated to) pay, acquire or accept an assignment of any
security interest, lien, encumbrance or claim asserted by any Person in, upon or
against the Collateral. All sums paid by LaSalle in respect thereof and all
costs, fees and expenses (including, without limitation, reasonable attorneys'
fees for both inside and outside counsel, all court costs and all other charges
relating thereto) incurred by LaSalle shall constitute Revolving Loans, payable
by Borrower to LaSalle on demand and, until paid, shall bear interest at the
highest rate then applicable to Revolving Loans hereunder.
(e) Immediately upon Borrower's receipt of any portion of the
Collateral evidenced by an agreement, Instrument or Document including, without
limitation, any Chattel Paper, Borrower shall deliver the original thereof to
LaSalle together with an appropriate indorsement or other specific evidence of
assignment thereof to LaSalle (in form and substance acceptable to LaSalle). If
an indorsement or assignment of any such items shall not be made for any reason,
LaSalle is hereby irrevocably authorized, as Borrower's attorney and
agent-in-fact, to indorse or assign the same on Borrower's behalf.
<PAGE>
(f) LaSalle shall render to Borrower each month a statement of
Borrower's account or accounts, as the case may be, which shall constitute an
account stated and shall be deemed to be correct and accepted by and be binding
upon Borrower unless LaSalle receives a written statement of Borrower's
exceptions thereto within thirty (30) days after such statement was rendered to
Borrower.
11. SCHEDULES AND REPORTS. Borrower shall furnish or cause to be furnished
to LaSalle the following:
(a) DAILY REPORTS. Borrower shall provide LaSalle with an executed
daily loan report and certificate in LaSalle's then current form on each day on
which Borrower requests a Revolving Loan, and in any event at least one each
week, which shall be accompanied by copies of Borrower's sales journal, cash
receipts journal and credit memo journal for the relevant period. Such report
shall reflect the activity of Borrower with respect to Accounts for the
immediately preceding week, and shall be in a form and with such specificity as
is satisfactory to LaSalle and shall contain such additional information as
LaSalle may reasonably require concerning Accounts and Inventory included,
described or referred to in such report and any other documents in connection
therewith requested by LaSalle including, without limitation, but only if
specifically requested by LaSalle, copies of all invoices prepared in connection
with such Amounts.
(b) MONTHLY FINANCIAL STATEMENTS. As soon as practicable and in any
event within twenty (20) days following the end of each calendar month: (1)
statements of income and statements of cash flow of Borrower for each such month
and for the period from beginning of the then current Fiscal Year of Borrower to
the end of such month, (2) balance sheets of Borrower as of the end of such
month, and (3) with respect to such statements of income and balance sheets, in
comparative form, figures for the corresponding periods in the preceding Fiscal
Year of Borrower, all in reasonable detail and certified by the chief financial
officer of Borrower that such statements fairly present the financial condition
of Borrower in accordance with GAAP, subject to changes resulting from normal
year-end computations of Borrower's compliance with the covenants set forth in
this Agreement.
(c) MONTHLY REPORTS. In addition to any other reports, as soon as
practicable and in any event: (i) within ten (10) days after the end of each
month, (a) a detailed trial balance of Borrower's Accounts aged per invoice
date, in form and substance reasonably satisfactory to LaSalle including,
without limitation, the names and addresses of all Account Debtors of Borrower,
and (b) a summary and detail of accounts payable (such Accounts and accounts
payable divided into such time intervals as LaSalle may require in its sole
discretion), including a listing of any held checks; and (2) within ten (10)
days after the end of each month, the general ledger inventory account balance,
a perpetual inventory report and LaSalle's standard form of Inventory report
then in effect or the form most recently requested from Borrower by LaSalle, for
Borrower by each category of Inventory, together with a description of the
monthly change in each category of Inventory.
(d) ANNUAL FINANCIAL STATEMENTS. As soon as practicable and in any
event within ninety (90) days after the end of each Fiscal Year of Borrower: (a)
statements of income of Borrower for such Fiscal Year, and a balance sheet of
Borrower as of the end of such Fiscal Year, and (2) statements of cash flow of
Borrower for such Fiscal Year, such statements to be presented in accordance
with GAAP and certified by independent certified public accountants of
recognized national standing selected by Borrower and satisfactory to LaSalle,
whose opinion shall be unqualified, in form and substance reasonably
satisfactory to LaSalle. Commencing with the Fiscal Year ending on or about
December 31, 1999, such financial statements shall set forth in comparative
form, corresponding figures for the period covered by the preceding annual audit
and as of the end of the preceding Fiscal Year of Borrower.
(e) ANNUAL PROJECTIONS. As soon as practicable and in any event prior
to the beginning of each Fiscal Year of Borrower, projected balance sheets,
statements of income and cash flow for Borrower, for each of the twelve (12)
months during such Fiscal Year, which shall include the assumptions used
therein, together with appropriate supporting details as reasonably requested by
LaSalle.
(f) ACCOUNTANT'S REPORTS. As soon as practicable and in any event
within ten (10) days of delivery to Borrower, a copy of any letter issued by
Borrower's independent public accountants or other management
<PAGE>
consultants with respect to Borrower's financial or accounting systems or
controls, including all so-called "management letters."
(g) EXPLANATION OF BUDGETS AND PROJECTIONS. In conjunction with the
delivery of the annual presentation of projections or budgets referred to in
PARAGRAPH 11(e) above, a letter signed by the President or a Vice President of
Borrower and by the Treasurer or Chief Financial Officer of Borrower,
describing, comparing and analyzing, in detail, all changes and developments
between the anticipated financial results included in such projections or
budgets and the historical financial statements of Borrower.
(h) OTHER INFORMATION. With reasonable promptness, such other
business or financial data, reports, appraisals and projections as LaSalle may
reasonably request.
(i) ACCOMPANYING CERTIFICATES. All financial statements delivered to
LaSalle pursuant to the requirements of this paragraph (except where otherwise
expressly indicated) shall be prepared in accordance with GAAP as provided in
this Agreement. Together with each delivery of financial statements required by
PARAGRAPH 11 (b) and (d) above, Borrower shall deliver to LaSalle an officer's
certificate in the form attached hereto as EXHIBIT B, which shall include a
calculation of financial covenants in the schedule attached to such officer's
certificate in form satisfactory to LaSalle.
12. TERMINATION.
(a) This Agreement shall be in effect from the date hereof until
August 19, 2002 ("ORIGINAL TERM") and shall automatically renew itself from year
to year thereafter (each such one year renewal being referred to herein as a
"RENEWAL TERM") unless (i) the due date of the Liabilities is accelerated
pursuant to PARAGRAPH 17 hereof; or (ii) Borrower elects or LaSalle elects to
terminate this Agreement at the end of the Original Term or at the end of any
Renewal Term by giving the other party written notice of such election.
Borrower shall pay all of the Liabilities in full on the effective date of such
termination. If one or more of the events specified in SUBPARAGRAPHS (i) or
(ii) occurs, this Agreement shall terminate on the date thereafter that the
Liabilities are paid in full; PROVIDED, HOWEVER, that the security interests and
liens created under this Agreement and the Other Agreements shall survive such
termination until the date upon which payment and satisfaction in full of the
Liabilities shall have occurred. At such time as Borrower has repaid all of the
Liabilities and this Agreement has terminated, (A) Borrower shall deliver to
LaSalle a release, in form and substance reasonably satisfactory to LaSalle, of
all obligations and liabilities of LaSalle and its officers, directors,
employees, agents, parents, subsidiaries and affiliates to Borrower, and if
Borrower is obtaining new financing from another lender, Borrower shall deliver
such lender's indemnification of LaSalle, in form and substance satisfactory to
LaSalle, for checks which LaSalle has credited to Borrower's account, but which
subsequently are dishonored for any reason and (B) upon Borrower's request,
LaSalle shall deliver to Borrower a release in form and substance reasonably
satisfactory to Borrower.
(b) If, for any reason, this Agreement is terminated prior to the end
of the Original Term or any Renewal Term including, in the sole discretion of
LaSalle, if an effective termination results from Borrower prepaying all or
substantially all of the Liabilities, Borrower agrees to pay to LaSalle, as a
prepayment fee, in addition to the payment of all other Liabilities owing by
Borrower, and in lieu of any further annual fee, an amount equal to: (i) one
percent (1.0%) of the Total Credit Facility if this Agreement is terminated
during the first year of the Original Term; and (ii) no prepayment fee if this
Agreement is terminated after the first year of the Original Term. In light of
the extreme difficulty of accurately calculating actual damages arising out of
any early termination, LaSalle and Borrower have agreed that the prepayment fee
provided for above is a reasonable estimate of actual damages that would be
incurred.
13. REPRESENTATIONS AND WARRANTIES. Borrower hereby makes the following
representations, warranties and covenants:
(a) the financial statements delivered or to be delivered by Borrower
to LaSalle at or prior to the date of this Agreement and at all times subsequent
thereto accurately reflect the financial condition of Borrower, and since the
date of the Borrower's financial statements delivered to LaSalle most recently
prior to the date of this
<PAGE>
Agreement, no event or condition has occurred which has had, or is reasonably
likely to have, a Material Adverse Effect;
(b) the office where Borrower keeps its books, records and accounts
(or copies thereof) concerning the Collateral, Borrower's principal place of
business and all of Borrower's other places of business, locations of Collateral
and post office boxes are as set forth in EXHIBIT A; Borrower shall promptly
(but in no event less than ten (10) days prior thereto) advise LaSalle in
writing of the proposed opening of any new place of business, the closing of any
existing place of business, any change in the location of Borrower's books,
records and accounts (or copies thereof) or the opening or closing of any post
office box of Borrower;
(c) the Collateral, including without limitation the Equipment (except
any part thereof which prior to the date of this Agreement Borrower shall have
advised LaSalle in writing consists of Collateral normally used in more than one
state) is and shall be kept, or, in the case of vehicles, based, only at the
addresses set forth on the first page of this Agreement or on EXHIBIT A, and at
other locations within the continental United States of which LaSalle has been
advised by Borrower in writing;
(d) Borrower shall immediately give written notice to LaSalle of any
use of any such Goods in any state other than a state in which Borrower has
previously advised LaSalle such Goods shall be used, and such Goods shall not,
unless LaSalle shall otherwise consent in writing, be used outside of the
continental United States;
(e) no security agreement, financing statement or analogous instrument
exists or shall exist with respect to any of the Collateral other than any
security agreement, financing statement or analogous instrument evidencing
Permitted Liens;
(f) each Account or item of Inventory which Borrower shall, expressly
or by implication, request LaSalle to classify as an Eligible Account or as
Eligible Inventory, respectively, shall, as of the time when such request is
made, conform in all respects to the requirements of such classification as set
forth in the respective definitions of Eligible Account and Eligible Inventory
and as otherwise established by LaSalle from time to time, and Borrower shall
promptly notify LaSalle in writing if any such Eligible Account or Eligible
Inventory shall subsequently become ineligible;
(g) Borrower is and shall at all times during the Original Term or any
Renewal Term be the lawful owner of all Collateral now purportedly owned or
hereafter purportedly acquired by Borrower, free from all liens, claims,
security interests and encumbrances whatsoever, whether voluntarily or
involuntarily created and whether or not perfected, other than the Permitted
Liens;
(h) Borrower has the right and power and is duly authorized and
empowered to enter into, execute and deliver this Agreement and the Other
Agreements and perform its obligations hereunder and thereunder; Borrower's
execution, delivery and performance of this Agreement and the Other Agreements
does not and shall not conflict with the provisions of any statute, regulation,
ordinance or rule of law, or any agreement, contract or other document which may
now or hereafter be binding on Borrower, and Borrower's execution, delivery and
performance of this Agreement and the Other Agreements shall not result in the
imposition of any lien or other encumbrance upon any of Borrower's property
under any existing indenture, mortgage, deed of trust, loan or credit agreement
or other agreement or instrument by which Borrower or any of its property may be
bound or affected;
(i) except as otherwise disclosed on SCHEDULE 13 (i), there are no
actions or proceedings which are pending or, to the best of Borrower's
knowledge, threatened against Borrower which are reasonably likely to have a
Material Adverse Effect and Borrower shall, promptly upon becoming aware of any
such pending or threatened action or proceeding, give written notice thereof to
LaSalle;
(j) Borrower has obtained all licenses, authorizations, approvals and
permits, the lack of which would have a Material Adverse Effect on the operation
of its business, and Borrower is and shall remain in compliance in all material
respects with all applicable federal, state, local and foreign statutes, orders,
regulations, rules and ordinances (including, without limitation, Environmental
Laws and statutes, orders, regulations, rules and
<PAGE>
ordinances relating to taxes, employer and employee contributions and similar
items, securities, ERISA or employee health and safety), the failure to
comply with which would have a Material Adverse Effect on its business,
property, assets, operations or condition, financial or otherwise;
(k) all written information now, heretofore or hereafter furnished by
Borrower to LaSalle is and shall be true and correct in all material respects as
of the date with respect to which such information was or is furnished (except
for financial projections, which have been prepared in good faith based upon
reasonable assumptions);
(l) Borrower is not conducting, permitting or suffering to be
conducted, nor shall it conduct, permit or suffer to be conducted, any
activities pursuant to or in connection with which any of the Collateral is now,
or will (while any Liabilities remain outstanding) be owned by any Affiliate;
(m) Borrower's name, for not less than five (5) years has been as set
forth on the first page of this Agreement and Borrower uses no tradenames or
division names in the operation of its business, except as otherwise disclosed
in writing to LaSalle; Borrower shall notify LaSalle in writing within ten (10)
days of the change of its name or the use of any tradenames or division names
not previously disclosed to LaSalle in writing;
(n) with respect to Borrower's Equipment (except for that portion
of the Equipment which is subject to the Equipment Lease and title to which
is retained by DGJ): (i) Borrower has good and indefeasible and merchantable
title to and ownership of all Equipment, including, without limitation, the
Equipment described or listed on the appraisal schedule of Equipment prepared
by Daley-Hodkin Appraisal Corporation and dated September, 1998, delivered to
LaSalle prior to the date of this Agreement; (ii) Borrower shall keep and
maintain the Equipment in good operating condition and repair and shall make
all necessary replacements thereof and renewals thereto so that the value and
operating efficiency thereof shall at all times be preserved and maintained,
ordinary wear and tear excepted; (iii) Borrower shall not permit any such
items to become a fixture to real estate or an accession to other personal
property; (iv) from time to time Borrower may sell, exchange or otherwise
dispose of obsolete, unused or worn out Equipment; and (v) Borrower,
immediately on demand by LaSalle, shall deliver to LaSalle any and all
evidence of ownership of, including, without limitation, certificates of
title and applications of title to, any of the Equipment;
(o) this Agreement and the Other Agreements to which Borrower is a
party are the legal, valid and binding obligations of Borrower and are
enforceable against Borrower in accordance with their respective terms, except
to the extent that such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the rights of
creditors generally;
(p) Borrower is solvent, is able to pay its debts as they become due
and has capital sufficient to carry on its business, now owns property having a
value both at fair valuation and at present fair saleable value greater than the
amount required to pay its debts, and will not be rendered insolvent by the
execution and delivery of this Agreement or any of the Other Agreements or by
completion of the transactions contemplated hereunder or thereunder;
(q) Borrower is not now obligated, whether directly or indirectly, for
any loans or other indebtedness for borrowed money other than (i) the
Liabilities; (ii) indebtedness disclosed to LaSalle on SCHEDULE 13 (q); (iii)
unsecured indebtedness to trade creditors arising in the ordinary course of
Borrower's business and (iv) unsecured indebtedness arising from the indorsement
of drafts and other instruments for collection, in the ordinary course of
Borrower's business;
(r) Borrower does not own any margin securities, and none of the
proceeds of the Loans hereunder shall be used for the purpose of purchasing or
carrying any margin securities or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase any margin securities or
for any other purpose not permitted by Regulation G or Regulation U of the Board
of Governors of the Federal Reserve System as in effect from time to time;
<PAGE>
(s) except as otherwise disclosed on SCHEDULE 13(s), Borrower has no
Parents, Subsidiaries or divisions, nor is Borrower engaged in any joint venture
or partnership with any other Person;
(t) Borrower is duly organized and in good standing in its state of
organization and Borrower is duly qualified and in good standing in all states
where the nature and extent of the business transacted by it or the ownership of
its assets makes such qualification necessary, except for such other states in
which the failure to so qualify would not have a Material Adverse Effect;
(u) Except as set forth in SCHEDULE 13(u) Borrower is not in default
under any material contract, lease or commitment to which it is a party or by
which it is bound, nor does Borrower know of any dispute regarding any contract,
lease or commitment which is material to the continued financial success and
well-being of Borrower;
(v) there are no controversies pending or threatened between Borrower
and any of its employees, other than employee grievances arising in the ordinary
course of business which are not, in the aggregate, material to the continued
financial success and well-being of Borrower, and Borrower is in compliance in
all material respects with all federal and state laws respecting employment and
employment terms, conditions and practices, except where the failure to so
comply would not have a Material Adverse Effect;
(w) Borrower possesses, and shall continue to possess, adequate
licenses, patents, patent applications, copyrights, service marks, trademarks,
trademark applications, tradestyles and tradenames to continue to conduct its
business as heretofore conducted by it;
(x) except as set forth on SCHEDULE 13(x), no Benefit Plan is in
violation in any material respect of any of the provisions of ERISA or any of
the qualification requirements of Section 401(a) of the IRC within the
immediately preceding five (5) year period; no Prohibited Transaction or
Reportable Event has occurred with respect to any Benefit Plan has been the
subject of a waiver of the minimum funding standard under Section 412 of the
IRC; no Benefit Plan has experienced an accumulated funding deficiency under
Section 412 of the IRC; no lien has been imposed upon such Borrower or any
ERISA Affiliate of such Borrower under Section 412(n) of the IRC, no Benefit
Plan has been amended in such a way that the security requirements of Section
401(a)(29) of the IRC apply; no notice of intent to terminate a Benefit Plan has
been distributed to affected parties or filed with the PBGC under Section 4041
of ERISA; the PBGC has not instituted proceedings to terminate, or appoint a
trustee to administer, a Benefit Plan and no event has occurred or condition
exists which might constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Benefit plan;
neither Borrower nor any ERISA Affiliate of Borrower would be liable for any
amount in the aggregate in excess of $5,000 pursuant to Sections 4062, 4063 or
4064 of ERISA if all Benefit Plans terminated as of the most recent valuation
dates of such Benefit Plans; neither Borrower nor any ERISA Affiliate of
borrower maintains any employee welfare benefit plan, as defined in Section 3(1)
of ERISA, which provides any benefits to an employee or the employee's
dependents with respect to claims incurred after the employee separates from
service other than is required by applicable law; and neither Borrower or any
ERISA Affiliate of Borrower has incurred or expects to incur any withdrawal
liability to any Multiemployer Plan;
(y) (i) Borrower has not generated, used, stored, treated,
transported, manufactured, handled, produced or disposed of any Hazardous
Materials, on or off its premises (whether or not owned by it) in any manner
which at any time violates any Environmental Law or any license, permit,
certificate, approval or similar authorization thereunder and the operations of
the Borrower comply in all material respects with all Environmental Laws and all
licenses, permits, certificates, approvals and similar authorizations
thereunder; (ii) there has been no investigation, proceeding, complaint, order,
directive, claim, citation or notice by any governmental authority or any other
Person, nor is any pending or to the best of the Borrower's knowledge
threatened, and Borrower shall immediately notify LaSalle upon becoming aware of
any such investigation, proceeding, complaint, order, directive, claim, citation
or notice and take prompt and appropriate actions to respond thereto, with
respect to any non-compliance with or violation of the requirements of any
Environmental Law by the Borrower or the release, spill or discharge, threatened
or actual, of any Hazardous Materials or the generation, use, storage,
treatment, transportation, manufacture, handling, production or disposal of any
Hazardous Materials or any other environmental, health or safety matter, which
affects the Borrower or its business, operations or assets or any
<PAGE>
properties at which the Borrower has transported, stored, disposed of any
Hazardous Materials; (iii) Borrower has no material liability (contingent or
otherwise) in connection with a release, spill or discharge, threatened or
actual, of any Hazardous Materials or the generation, use, storage,
treatment, transportation, manufacture, handling, production or disposal of
any Hazardous Materials; and (iv) without limiting the generality of the
foregoing, Borrower shall, following the determination by LaSalle that there
is non-compliance, or any condition which requires any action by or on behalf
of Borrower in order to avoid any non-compliance, with any Environmental Law,
at Borrower's expense, cause an independent environmental engineer acceptable
to LaSalle to conduct such tests of the relevant site(s) as are appropriate
and prepare and deliver a report setting forth the result of such tests, a
proposed plan for remediation and an estimate of the costs thereof; and
(z) Borrower and its Subsidiaries have reviewed the areas within their
business and operations which could be adversely affected by, and have developed
or are developing a program to address on a timely basis, the "Year 2000
Problem" (that is, the risk that computer applications used by Borrower and its
Subsidiaries may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date on or after December 31,
1999), and have made related appropriate inquiry of material suppliers and
vendors. Based on such review and program, Borrower believes that the "Year
2000 Problem" will not have a Material Adverse Effect on Borrower. From time to
time, at the request of LaSalle, Borrower and its Subsidiaries shall provide to
LaSalle such updated information or documentation as is requested regarding the
status of their efforts to address the Year 2000 problem.
Borrower represents, warrants and covenants to LaSalle that all representations,
warranties and covenants of Borrower contained in this Agreement (whether
appearing in PARAGRAPHS 13 or 14 hereof or elsewhere) shall be true at the time
of Borrower's execution of this Agreement, shall survive the execution, delivery
and acceptance hereof by the parties hereto and the closing of the transactions
described herein or related hereto, shall remain true until the repayment in
full of all of the Liabilities and termination of this Agreement, and shall be
remade by Borrower at the time each Revolving Loan is made pursuant to this
Agreement.
14. COVENANTS. Until payment or satisfaction in full of all Liabilities and
termination of this Agreement, unless Borrower obtains LaSalle's prior written
consent waiving or modifying any of Borrower's covenants hereunder in any
specific instance, Borrower agrees as follows:
(a) Borrower shall at all times keep accurate and complete books,
records and accounts with respect to all of Borrower's business activities, in
accordance with sound accounting practices and generally accepted accounting
principles consistently applied, and shall keep such books, records and
accounts, and any copies thereof, only at the addresses indicated for such
purpose on EXHIBIT A;
(b) Borrower agrees to deliver to LaSalle the following financial
information, all of which shall be prepared in accordance with generally
accepted accounting principles consistently applied: (i) no later than thirty
(30) days after each calendar month, copies of internally prepared financial
statements of Borrower and its Subsidiaries, on a consolidated and
consolidating, monthly and year-to-date basis including, without limitation,
balance sheets and statements of income, retained earnings and cash flow of
Borrower and its Subsidiaries, certified by the chief financial officer of
Borrower and accompanied by an officer's certificate certifying that no Event of
Default exists hereunder and (ii) no later than ninety (90) days after the end
of the Borrower's Fiscal Years, annual financial statements of Borrower and its
Subsidiaries on a consolidated and consolidating basis certified by independent
certified public accountants selected by Borrower and reasonably satisfactory to
LaSalle, together with such accountants' "management letter";
(c) LaSalle, or any Persons designated by it, shall have the right,
at any time, in the exercise of its commercially reasonable credit judgment,
to call at Borrower's places of business at any reasonable times, and,
without hindrance or delay, to inspect the Collateral and to inspect, audit,
check and make extracts from Borrower's books, records, journals, orders,
receipts and any correspondence and other data relating to Borrower's
business, the Collateral or any transactions between the parties hereto, and
shall have the right to make such verification concerning Borrower's business
as LaSalle may consider reasonable under the circumstances. Borrower shall
furnish to LaSalle such information relevant to LaSalle's rights under this
Agreement as LaSalle shall at any time
<PAGE>
and from time to time reasonably request. Borrower authorizes LaSalle to
discuss the affairs, finances and business of Borrower with any officers or
directors of Borrower or any Affiliate, or with those employees of Borrower
with whom LaSalle has determined in its commercially reasonable judgment to
be necessary or desirable to converse, and to discuss the financial condition
of Borrower with Borrower's independent public accountants. Any such
discussions shall be without liability to LaSalle or to such accountants.
Borrower shall pay to or reimburse LaSalle for all reasonable fees, costs,
and out-of-pocket expenses incurred by LaSalle in the exercise of its rights
hereunder (in addition to the fees payable by Borrower pursuant to PARAGRAPH
5(g) hereof in connection with LaSalle's examination of Borrower's books and
records and Collateral) and all of such costs, fees and expenses shall
constitute Revolving Loans hereunder, shall be payable on demand and, until
paid, shall bear interest at the highest rate then applicable to Loans
hereunder;
(d) (i) Borrower shall: keep the Collateral properly housed and
shall keep the Collateral insured against such risks and in such amounts as are
customarily insured against by Persons engaged in businesses similar to that of
Borrower with such companies, in such amounts and under policies in such form as
shall be reasonably satisfactory to LaSalle. Originals or certified copies of
such policies of insurance have been, or within fifteen (15) days after the
Closing Date, shall be, delivered to LaSalle together with evidence of payment
of all premiums therefor, and shall contain an endorsement, in form and
substance acceptable to LaSalle, showing loss under such insurance policies
payable to LaSalle. Such endorsement, or an independent instrument furnished to
LaSalle, shall provide that the insurance company shall give LaSalle at least
thirty (30) days written notice before any such policy of insurance is altered
or cancelled and that no act, whether willful or negligent, or default of
Borrower or any other Person shall affect the right of LaSalle to recover under
such policy of insurance in case of loss or damage. Borrower hereby directs all
insurers under such policies of insurance to pay all proceeds payable thereunder
directly to LaSalle. Borrower irrevocably, makes, constitutes and appoints
LaSalle (and all officers, employees or agents designated by LaSalle) as
Borrower's true and lawful attorney (and agent-in-fact) for the purpose of
making, settling and adjusting claims under such policies of insurance,
endorsing the name of Borrower on any check, draft, instrument or other item of
payment for the proceeds of such policies of insurance and making all
determinations and decisions with respect to such policies of insurance;
PROVIDED, HOWEVER, that LaSalle shall exercise such rights only upon the
occurrence of an Event of Default;
(ii) Borrower shall maintain, at its expense, such public
liability and third party property damage insurance as is customary for Persons
engaged in businesses similar to that of Borrower with such companies and in
such amounts, with such deductibles and under policies in such form as shall be
reasonably satisfactory to LaSalle and originals or certified copies of such
policies have been, or within fifteen (15) days after the Closing Date, shall
be, delivered to LaSalle together with evidence of payment of all premiums
therefor; each such policy shall contain an endorsement showing LaSalle as
additional insured thereunder and providing that the insurance company shall
give LaSalle at least thirty (30) days written notice before any such policy
shall be altered or cancelled; and
(iii) If Borrower at any time or times hereafter shall fail to
obtain or maintain any of the policies of insurance required above or to pay any
premium in whole or in part relating thereto, then LaSalle, without waiving or
releasing any obligation or default by Borrower hereunder, may (but shall be
under no obligation to) obtain and maintain such policies of insurance and pay
such premiums and take such other actions with respect thereto as LaSalle deems
advisable. All sums disbursed by LaSalle in connection with any such actions,
including, without limitation, court costs, expenses, other charges relating
thereto and reasonable attorneys' fees, shall constitute Revolving Loans
hereunder and, until paid, shall bear interest at the highest rate then
applicable to Revolving Loans hereunder;
(e) Borrower shall not use the Collateral, or any part thereof, in any
unlawful business or for any unlawful purpose or use or maintain any of the
Collateral in any manner that does or could result in material damage to the
environment or a violation of any applicable Environmental Laws, rules or
regulations; Borrower shall keep the Collateral in good condition, repair and
order, ordinary wear and tear excepted; Borrower shall not permit the
Collateral, or any part thereof, to be levied upon under execution, attachment,
distraint or other legal process; Borrower shall not sell, lease, grant a
security interest in or otherwise dispose of any of the Collateral except as
expressly permitted by this Agreement; and Borrower shall not secrete or abandon
any of the Collateral, or remove
<PAGE>
or permit removal of any of the Collateral from any of the locations listed
on EXHIBIT A or in any written notice to LaSalle pursuant to PARAGRAPH 13(c)
hereof, except for the removal of Inventory sold in the ordinary course of
Borrower's business as permitted herein;
(f) all monies and other property obtained by Borrower from LaSalle
pursuant to this Agreement will be used solely for business purposes of
Borrower;
(g) Borrower shall, at the request of LaSalle, indicate on its records
concerning the Collateral a notation, in form satisfactory to LaSalle, of the
security interest of LaSalle hereunder, and Borrower shall not maintain
duplicates or copies of such records at any address other than Borrower's
principal place of business set forth on the first page of this Agreement;
PROVIDED, HOWEVER, that Borrower, in the ordinary course of its business, may
furnish copies of such records to its accountants, attorneys and other agents or
advisors as it may determine to be necessary or desirable, in the exercise of
its commercially reasonable judgment;
(h) Borrower shall file all required tax returns and pay all of its
taxes when due, including, without limitation, taxes imposed by federal, state
or municipal agencies, and shall cause any liens for taxes to be promptly
released; provided, that Borrower shall have the right to contest the payment of
such taxes in good faith by appropriate proceedings so long as (i) the amount so
contested is shown on Borrower's financial statements, (ii) the contesting of
any such payment does not give rise to a lien for taxes, (iii) upon the
occurrence of an Event of Default, Borrower keeps on deposit with LaSalle (such
deposit to be held without interest) an amount of money which, in the sole
judgment of LaSalle, is sufficient to pay such taxes and any interest or
penalties that may accrue thereon, and (iv) if Borrower fails to prosecute such
contest with reasonable diligence, LaSalle may apply the money so deposited in
payment of such taxes. If Borrower fails to pay any such taxes and in the
absence of any such contest by Borrower, LaSalle may (but shall be under no
obligation to) advance and pay any sums required to pay any such taxes and/or to
secure the release of any lien therefor, and any sums so advanced by LaSalle
shall constitute Revolving Loans hereunder, shall be payable by Borrower to
LaSalle on demand, and, until paid, shall bear interest at the highest rate then
applicable to Revolving Loans hereunder;
(i) Borrower shall not (i) incur, create, assume or suffer to exist
any indebtedness other than (A) indebtedness arising under this Agreement, (B)
unsecured indebtedness owing in the ordinary course of business to trade
suppliers, and (C) any other indebtedness described in PARAGRAPH 13(q)(ii)
hereof; or (ii) assume, guarantee or indorse, or otherwise become liable in
connection with, the obligations of any Person, except by indorsement of
instruments for deposit or collection or similar transactions in the ordinary
course of business;
(j) Borrower shall not enter into any merger or consolidation, or
sell, lease or otherwise dispose of all or substantially all of its assets;
Borrower shall not create any new Subsidiary or Affiliate or issue any shares
of, or warrants or other rights to receive or purchase any shares of, any class
of its stock; Borrower shall not enter into any transaction outside the ordinary
course of Borrower's business;
(k) Borrower shall not (i) declare or pay any dividend or other
distribution (whether in cash or in kind) on, purchase, redeem or retire any
shares of any class of its stock, or make any payment on account of, or set
apart assets for the repurchase, redemption, defeasance or retirement of, any
class of its stock; or (ii) make any optional payment or prepayment on or
redemption (including without limitation by making payments to a sinking fund or
analogous fund) or repurchase of any indebtedness for borrowed money other than
indebtedness pursuant to this Agreement; PROVIDED, that Borrower may make
payments and prepayments on Subordinated Debt if Borrower has satisfied the
conditions set forth in PARAGRAPH 14(n)(v);
(l) Borrower shall not make any loans to, or investment in, any
Person, whether in cash, securities or other property of any kind, other than
investments that are direct obligations of the United States;
(m) Borrower shall not amend its organizational documents or change
its Fiscal Year;
(n) Borrower shall maintain and keep in full force and effect each of
the financial covenants set forth below. The calculation and determination of
each such financial covenant, and all accounting terms contained
<PAGE>
therein, shall be so calculated and construed in accordance with GAAP,
applied on a basis consistent with the financial statements of Borrower
delivered on or before the Closing Date:
(i) CONSOLIDATED TANGIBLE NET WORTH. Borrower and its
Subsidiaries, on a consolidated basis, shall maintain at all times during the
following fiscal periods, Tangible Net Worth in an amount not less than the
amount set forth for such fiscal period: (A) for the six-month period ending
December 31, 1999 a Tangible Net Worth of not less than the greater of (x) Five
Million Two Hundred Thousand and no/100 Dollars ($5,200,000.00) or (y) ninety
percent (90%) of Borrower's Tangible Net Worth as of June 30, 1999 (the "Initial
TNW Amount"); and (B) for each fiscal year thereafter Tangible Net Worth shall
increase, cumulatively, by the amount of Two Hundred Fifty Thousand and no/100
Dollars ($250,000.00);
(ii) CONSOLIDATED INTEREST COVERAGE RATIO. Borrower and its
Subsidiaries, on a consolidated basis, shall maintain for the periods set
forth below a ratio of (A) EBITDA for such period to (B) interest expense for
such period, of not less than 1.50 to 1.00: (1) as of December 31, 1999 for
the semi-annual period then ended; (2) as of March 31, 2000, for the
nine-month period then ended; (3) as of June 30, 2000, for the twelve-month
period then ended; and (4) thereafter, as of the last day of each fiscal
quarter thereafter for the twelve-month period then ended.
(iii) Consolidated Debt Service Coverage Ratio. [RESERVED]
(iv) CONSOLIDATED CAPITAL EXPENDITURES. Borrower and its
Subsidiaries, on a consolidated basis, shall not make Capital Expenditures of an
aggregate amount of more than One Million and no/100 Dollars ($1,000,000.00)
during any fiscal year with not more than Seven Hundred Fifty Thousand and
no/100 Dollars ($750,000.00) of such Capital Expenditures in the form of capital
lease obligations or similar financing obligations;
(v) SUBORDINATED DEBT PAYMENTS. Except to the extent set forth
below, Borrower shall not make payments on any Subordinated Debt, including,
without limitation, the DGJ Debt or the Equipment Lease unless: (A) no Default
or Event of Default shall have occurred or be continuing, (B) Borrower shall
have Excess Availability in an amount not less than Three Hundred Thousand and
no/100 Dollars ($300,000.00) after taking into account the payment then proposed
to be made on the Subordinated Debt, and (C) the Borrower's required
Consolidated Tangible Net Worth, as determined under the preceding subparagraph
(i), shall be not less than the amount then required both as of the date of, and
after giving effect to, the proposed payment; PROVIDED, HOWEVER, that Borrower
may make regularly scheduled, current payments under the Equipment Lease without
satisfying the Excess Availability requirement under clause (B) above, but
Borrower may not pay any amount under the Equipment Lease which was past due or
delinquent as of the date of the initial funding of the Revolving Loan unless
all of the foregoing conditions are satisfied. Subject to the terms and
provisions of the Intercreditor Agreement dated August __, 1999 (the
"Intercreditor Agreement"), the prohibitions on payment of Subordinated Debt
shall not apply to DGJ's recovery of proceeds of the sale or disposition of the
Creditor Equipment (as defined in the Intercreditor Agreement) as a result of
the an Enforcement Action (as defined in the Intercreditor Agreement) by the
holder(s) of the Subordinated Debt permitted under the Intercreditor Agreement.
(o) Borrower shall reimburse LaSalle for all costs and expenses
including, without limitation, legal expenses and reasonable attorneys' fees
(both in-house and outside counsel), incurred by LaSalle in connection with the
documentation and consummation of this transaction and any amendments or
modifications of this Agreement or the Other Agreements or other transactions
between Borrower and LaSalle, including, without limitation, Uniform Commercial
Code and other public record searches, lien filings, Federal Express or similar
express or messenger delivery, appraisal costs, surveys, title insurance and
environmental audit or review costs, and in seeking to collect, protect or
enforce any rights in or to the Collateral or incurred by LaSalle in seeking to
collect any Liabilities and to administer and enforce any of LaSalle's rights
under this Agreement. Borrower shall also pay all normal service charges with
respect to accounts maintained by LaSalle for the benefit of Borrower. All such
costs, expenses and charges shall constitute Revolving Loans hereunder, shall be
payable by Borrower to LaSalle on demand, and, until paid, shall bear interest
at the highest rate then applicable to Revolving Loans hereunder;
<PAGE>
(p) Except for (I) management and consulting fees that are fair and
reasonable to the Company and payable to Persons who are not Affiliates of
Borrower, (II) fees payable to any or all directors of Borrower in an annual
aggregate amount not to exceed Thirty-Six Thousand and no/100 Dollars
($36,000.00), and (III) salary, compensation, fees and other payments to Ivan
Hughes in annual aggregate amount not to exceed Fifty-Two Thousand and no/100
Dollars ($52,000.00); Borrower shall not: (i) pay management or consulting fees
to any Affiliate unless (x) no Event of Default shall have occurred and be
continuing, or would be caused thereby, (y) Borrower has, both before and after
the payment of such management and consulting fees, Excess Availability of not
less than Three Hundred Thousand and no/100 Dollars ($300,000.00), and (z) the
sum of the management or consulting fee proposed to be paid, together with all
other management and consulting fees paid to Affiliates during the then-current
Fiscal Year, does not in aggregate exceed fifteen percent (15%) of Borrower's
net income before tax for the preceding Fiscal Year as determined in accordance
with GAAP; (ii) make any loan to any Person except travel advances made to
employees in the ordinary course of business and loans to employees not
exceeding Ten Thousand and no/100 Dollars ($10,000.00) to any single Person and
Twenty-Five Thousand and no/100 Dollars ($25,000.00) in the aggregate
outstanding for all Persons at any one time; (ii) pay annual aggregate
compensation, whether as salary, bonus or otherwise, to all officers of Borrower
in excess of one hundred ten percent (110%) of the aggregate compensation in
effect on the date of this Agreement for the first year and one hundred ten
percent (110%) of the prior year's aggregate compensation amount for subsequent
years. The aggregate annual compensation amount(s) shall be adjusted each year
for the net addition or loss of officers;
(q) Except with respect to the arrangements in effect as of the
initial funding of the Revolving Loan under the Equipment Lease and the DGJ
Debt, Borrower shall not enter into or be a party to, or permit any Subsidiary
to enter into or be a party to, any transaction with any Affiliate of Borrower
except in the ordinary course of business in a manner and to an extent
consistent with past practices of Borrower and necessary or desirable for the
prudent operation of its business, for fair consideration and on terms no less
favorable to Borrower or such Subsidiary as are available from unaffiliated
third parties;
(r) Borrower shall promptly advise LaSalle in writing of any Material
Adverse Effect or the occurrence of any Default or Event of Default; and
(s) Borrower shall not pay fees owed to DGJ, L.L.C. unless no Default
or Event of Default shall have occurred and been continuing, and Borrower shall
have Excess Availability in an amount not less than Three Hundred Thousand and
no/100 Dollars ($300,000.00) after taking into account the payment then proposed
to be made; this PARAGRAPH 14(s) shall not be construed to limit payments under
the Equipment Lease or the DGJ Debt otherwise permitted under paragraph 14(n)(v)
above.
15. CONDITIONS PRECEDENT.
(a) The obligation of LaSalle to fund the initial Revolving Loan is
subject to the satisfaction or waiver on or before the Closing Date of the
following conditions precedent:
(i) LaSalle shall have received each of the agreements,
opinions, reports, approvals, consents, certificates and other documents set
forth on the closing document list attached hereto as SCHEDULE 15(a)(i) (the
"Closing Agenda");
(ii) Since June 30, 1999, no event shall have occurred which has
had or could reasonably be expected to have a Material Adverse Effect, as
determined by LaSalle in its sole discretion;
(iii) LaSalle shall have received payment in full of all fees and
expenses payable to it by Borrower on or before the Closing Date;
(iv) LaSalle shall have determined that immediately after giving
effect to (A) the making of the initial Loans, including without limitation the
Revolving Loans, if any, requested to be made on the Closing Date, and (B) the
payment or reimbursement by Borrower of LaSalle for all closing costs and
expenses incurred in
<PAGE>
connection with the transactions contemplated hereby, on a PRO FORMA basis
the Excess Availability of Borrower shall not be less than Three Hundred
Thousand and no/100 Dollars ($300,000.00);
(v) LaSalle shall have received a certificate from Borrower's
chief executive officer or chief financial officer, pursuant to which such
officer shall certify that in calculating the Excess Availability described in
clause (iv) above, Borrower's outstanding trade payables were (and are) current
and not past due in any material respect; and
(vi) The Obligors shall have executed and delivered to LaSalle
all documents which LaSalle determines are reasonably necessary to consummate
the transactions contemplated hereby.
After the Closing Date, the obligation of LaSalle to make any requested
Revolving Loan is subject to the satisfaction of the conditions precedent set
forth below. Each such request shall constitute a representation and warranty
that such conditions are satisfied:
(vii) All representations and warranties contained in this
Agreement and the Other Agreements shall be true and correct on and as of the
date of such request, as if then made, other than representations and
warranties that relate solely to an earlier date;
(viii) No Default or Event of Default shall have occurred, or
would result from the making of the requested Revolving Loan or the issuance of
the requested Letter of Credit, which has not been waived; and
(ix) Since June 30, 1999, no event has occurred which has had or
could reasonably be expected to have a Material Adverse Effect.
16. DEFAULT. The occurrence of any one or more of the following events shall
constitute an "EVENT OF DEFAULT" hereunder:
(a) the failure of any Obligor to pay when due, declared due, or
demanded by LaSalle in accordance with the terms hereof, any of the Liabilities;
(b) the failure of any Obligor to perform, keep or observe any of the
covenants, conditions, promises, agreements or obligations of such Obligor under
this Agreement or any of the Other Agreements; provided, that with respect to
any breach of the reporting requirements under PARAGRAPH 11 of this Agreement,
Borrower shall have a grace period of five (5) days from the due date of any
such report to cure such Event of Default;
(c) the making or furnishing by any Obligor to LaSalle of any
representation, warranty, certificate, schedule, report or other communication
within or in connection with this Agreement or the Other Agreements or in
connection with any other agreement between such Obligor and LaSalle, which is
untrue or misleading in any respect, or the failure of any Obligor to perform,
keep or observe any of the covenants, conditions, promises, agreement of such
Obligor under any other agreement with any Person if such failure has or is
reasonably likely to have a Material Adverse Effect;
(d) the creation (whether voluntary or involuntary) of, or any attempt
to create, any lien or other encumbrance upon any of the Collateral, other than
the Permitted Liens, or the making or any attempt to make any levy, seizure or
attachment thereof;
(e) the commencement of any proceedings (i) in bankruptcy by or
against any Obligor, (ii) for the liquidation or reorganization of any Obligor,
(iii) alleging that such Obligor is insolvent or unable to pay its debts as they
mature, or (iv) for the readjustment or arrangement of any Obligor's debts,
whether under the United States Bankruptcy Code or under any other law, whether
state or federal, now or hereafter existing for the relief of debtors, or the
commencement of any analogous statutory or non-statutory proceedings involving
any Obligor; PROVIDED, HOWEVER, that if such commencement of proceedings against
such Obligor is involuntary, such action shall not
<PAGE>
constitute an Event of Default unless such proceedings are not dismissed
within sixty (60) days after the commencement of such proceedings;
(f) the appointment of a receiver or trustee for any Obligor, for any
of the Collateral or for any substantial part of any Obligor's assets or the
institution of any proceedings for the dissolution, or the full or partial
liquidation, or the merger or consolidation, of any Obligor which is a
corporation or a partnership; PROVIDED, HOWEVER, that if such appointment or
commencement of proceedings against such Obligor is involuntary, such action
shall not constitute an Event of Default unless such appointment is not revoked
or such proceedings are not dismissed within sixty (60) days after the
commencement of such proceedings;
(g) the entry of any judgment or order in excess of $50,000.00 against
any Obligor which remains unsatisfied or undischarged and in effect for sixty
(60) days after such entry without a stay of enforcement or execution;
(h) the occurrence of an event of default under, or the revocation or
termination of, any agreement, instrument or document executed and delivered by
any Person to LaSalle pursuant to which such Person has guaranteed to LaSalle
the payment of all or any of the Liabilities or has granted LaSalle a security
interest in or lien upon some or all of such Person's real and/or personal
property to secure the payment of all or any of the Liabilities;
(i) the occurrence of an event of default under any other agreement or
instrument evidencing indebtedness for borrowed money in excess of $50,000.00
executed or delivered by Borrower or pursuant to which agreement or instrument
Borrower or its properties is or may be bound;
(j) a Change of Control shall have occurred; or
(k) if any Reportable Event shall have occurred or any Benefit Plan
shall be terminated within the meaning of title IV of ERISA, or a trustee shall
be appointed by the appropriate United States District Court to administer any
Benefit Plan, the PBGC shall institute proceedings to terminate any Benefit
Plan, or there shall be a withdrawal from any Multiemployer Plan, and there
shall be a Material Adverse Effect in the case of any event described in this
PARAGRAPH 16(k); or
(l) the occurrence of any event or condition which has or is
reasonably likely to have a Material Adverse Effect.
Notwithstanding anything contained in this PARAGRAPH 16 or contained in any
other provision of this Agreement or Other Agreements to the contrary, in the
event of the institution of any proceedings described in PARAGRAPH 16(e) hereof
against Borrower, LaSalle shall not be obligated to make advances to Borrower
during the sixty (60) day grace period provided in PARAGRAPH 16(e).
17. REMEDIES UPON AN EVENT OF DEFAULT.
(a) Upon the occurrence of an Event of Default described in PARAGRAPH
16(e) hereof, all of the Liabilities shall immediately and automatically become
due and payable, without notice of any kind. Upon the occurrence of any other
Event of Default, all of the Liabilities may, at the option of LaSalle, and
without demand, notice or legal process of any kind, be declared, and
immediately shall become, due and payable.
(b) Upon the occurrence of an Event of Default, LaSalle may exercise
from time to time any rights and remedies available to it under the Uniform
Commercial Code and any other applicable law in addition to, and not in lieu of,
any rights and remedies expressly granted in this Agreement or in any of the
Other Agreements and all of LaSalle's rights and remedies shall be cumulative
and non-exclusive to the extent permitted by law. In particular, but not by way
of limitation of the foregoing, LaSalle may, without notice, demand or legal
process of any kind, take possession of any or all of the Collateral (in
addition to Collateral of which it already has possession), wherever it may be
found, and for that purpose may pursue the same wherever it may be found, and
may enter into any of Borrower's premises where any of the Collateral may be,
and search for, take possession of, remove, keep and store
<PAGE>
any of the Collateral until the same shall be sold or otherwise disposed of,
and LaSalle shall have the right to store the same at any of Borrower's
premises without cost to LaSalle. At LaSalle's request, Borrower shall, at
Borrower's expense, assemble the Collateral and make it available to LaSalle
at one or more places to be designated by LaSalle and reasonably convenient
to LaSalle and Borrower. Borrower recognizes that if Borrower fails to
perform, observe or discharge any of its Liabilities under this Agreement or
the Other Agreements, no remedy at law will provide adequate relief to
LaSalle, and Borrower agrees that LaSalle shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages. Any notification of intended disposition of any of the
Collateral required by law will be deemed reasonably and properly given if
given at least ten (10) calendar days before such disposition. Any proceeds
of any disposition by LaSalle of any of the Collateral may be applied by
LaSalle to the payment of expenses in connection with the Collateral
including, without limitatin, legal expenses and reasonable attorneys' fees
(both in-house and outside counsel) and any balance of such proceeds may be
applied by LaSalle toward the payment of such of the Liabilities, and in such
order of application, as LaSalle may from time to time elect.
18. INDEMNIFICATION. Borrower agrees to defend (with counsel reasonably
satisfactory to LaSalle), protect, indemnify and hold harmless LaSalle, each
affiliate or subsidiary of LaSalle, and each of their respective officers,
directors, employees, attorneys and agents (each an "INDEMNIFIED PARTY") from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses and disbursements of any kind
or nature (including, without limitation, the disbursements and the reasonable
fees of counsel for each Indemnified Party in connection with any investigative,
administrative or judicial proceeding, whether or not the Indemnified Party
shall be designated a party thereto), which may be imposed on, incurred by, or
asserted against, any Indemnified Party (whether direct, indirect or
consequential and whether based on any federal, state or local laws or
regulations including, without limitation, securities, environmental and
commercial laws and regulations, under common law or in equity, or based on
contract or otherwise) in any manner relating to or arising out of this
Agreement or any Other Agreement, or any act, event or transaction related or
attendant thereto, the making and the management of the Loans or the use or
intended use of the proceeds of the Loans; PROVIDED, HOWEVER, that Borrower
shall not have any obligation hereunder to any Indemnified Party with respect to
matters caused by or resulting from the willful misconduct or gross negligence
of such Indemnified Party. To the extent that the undertaking to indemnify set
forth in the preceding sentence may be unenforceable because it is violative of
any law or public policy, Borrower shall satisfy such undertaking to the maximum
extent permitted by applicable law. Any liability, obligation, loss, damage,
penalty, cost or expense covered by this indemnity shall be paid to each
Indemnified Party on demand, and, failing prompt payment, shall, together with
interest thereon at the highest rate then applicable to Revolving Loans
hereunder from the date incurred by each Indemnified Party until paid by
Borrower, be added to the Liabilities of Borrower and be secured by the
Collateral. The provisions of this paragraph 18 shall survive the satisfaction
and payment of the other Liabilities and the termination of this Agreement.
19. NOTICES. All written notices and other written communications with
respect to this Agreement shall be sent by ordinary, certified or overnight
mail, by telecopy or delivered in person, and in the case of LaSalle shall be
sent to it at LaSalle Business Credit, Inc., 135 South LaSalle Street, Suite
400, Chicago, IL 60603, Attention: District Credit Manager (if by telecopy to
(312) 904-0291), and in the case of Borrower shall be sent to (1) Borrower at
its principal place of business as set forth on the first page of this Agreement
(if by telecopy to (508) 822-6872), (2) DGJ, L.L.C., 600 Central Avenue, Suite
206, IL 60035, Attention: Gary Edidin (if by telecopy to (847) 509-1150) and
(3) Holleb & Coff, 55 East Monroe Street, Suite 4100, Chicago, IL 60603,
Attention: Mark Glennon (if by telecopy to (312) 807-3900).
20. CHOICE OF GOVERNING LAW AND CONSTRUCTION. This Agreement and the Other
Agreements are submitted by Borrower to LaSalle for LaSalle's acceptance or
rejection at LaSalle's principal place of business as an offer by Borrower to
borrow monies from LaSalle now and from time to time hereafter, and shall not be
binding upon LaSalle or become effective until accepted by LaSalle, in writing,
at said place of business. If so accepted by LaSalle, this Agreement and the
Other Agreements shall be deemed to have been made at said place of business.
THIS AGREEMENT AND THE OTHER AGREEMENTS SHALL BE GOVERNED AND CONTROLLED BY THE
INTERNAL LAWS OF THE STATE OF ILLINOIS AS TO INTERPRETATION, ENFORCEMENT,
VALIDITY, CONSTRUCTION, EFFECT, AND IN ALL OTHER RESPECTS, INCLUDING, WITHOUT
LIMITATION, THE LEGALITY OF THE INTEREST RATE AND OTHER CHARGES, BUT EXCLUDING
PERFECTION OF THE SECURITY INTERESTS IN THE
<PAGE>
COLLATERAL, WHICH SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE
RELEVANT JURISDICTION. If any provision of this Agreement shall be held to
be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or remaining provisions of this
Agreement.
21. FORUM SELECTION AND SERVICE OF PROCESS. To induce LaSalle to accept this
Agreement, Borrower irrevocably agrees that, subject to LaSalle's sole and
absolute election, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT,
ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE OTHER AGREEMENTS OR THE
COLLATERAL SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO,
STATE OF ILLINOIS. BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF
ANY LOCAL, STATE OR FEDERAL COURTS LOCATED WITHIN SAID CITY AND STATE. Borrower
hereby irrevocably appoints and designates the law firm of Holleb & Coff, whose
address is set forth in Section 19 of this Agreement (or any other person having
and maintaining a place of business in such state whom Borrower may from time to
time hereafter designate upon ten (10) days written notice to LaSalle and who
LaSalle has agreed in its sole discretion in writing is satisfactory and who has
executed an agreement in form and substance satisfactory to LaSalle agreeing to
act as such attorney and agent), as Borrower's true and lawful attorney and duly
authorized agent for acceptance of service of legal process. Borrower agrees
that service of such process upon such person shall constitute personal service
of such process upon Borrower. BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO
TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST BORROWER BY
LASALLE IN ACCORDANCE WITH THIS PARAGRAPH.
22. MODIFICATION AND BENEFIT OF AGREEMENT. This Agreement and the Other
Agreements may not be modified, altered or amended except by an agreement in
writing signed by Borrower and LaSalle. Borrower may not sell, assign or
transfer this Agreement, or the Other Agreements or any portion thereof
including, without limitation, Borrower's rights, titles, interest, remedies,
powers or duties thereunder. Borrower hereby consents to LaSalle's sale,
assignment, transfer or other disposition, at any time and from time to time
hereafter, of this Agreement, or the Other Agreements, or of any portion
thereof, or participations therein including, without limitation, LaSalle's
rights, titles, interest, remedies, powers and/or duties thereunder. Borrower
agrees that it shall execute and deliver such documents as LaSalle may request
in connection with any such sale, assignment, transfer or other disposition.
23. HEADINGS OF SUBDIVISIONS. The headings of subdivisions in this Agreement
are for convenience of reference only, and shall not govern the interpretation
of any of the provisions of this Agreement.
24. POWER OF ATTORNEY. Borrower acknowledges and agrees that its appointment
of LaSalle as its attorney and agent-in-fact for the purposes specified in this
Agreement is an appointment coupled with an interest and shall be irrevocable
until all of the Liabilities are paid in full and this Agreement is terminated.
25. WAIVER OF JURY TRIAL; OTHER WAIVERS; CONFIDENTIALITY
(a) LASALLE AND BORROWER HEREBY WAIVE ALL RIGHTS TO TRIAL BY JURY IN
ANY ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS
AGREEMENT, ANY OF THE OTHER AGREEMENTS, THE LIABILITIES, THE COLLATERAL, ANY
ALLEGED TORTIOUS CONDUCT OF BORROWER OR LASALLE OR WHICH, IN ANY WAY, DIRECTLY
OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP BETWEEN BORROWER AND
LASALLE. IN NO EVENT SHALL LASALLE BE LIABLE FOR LOST PROFITS OR OTHER SPECIAL
OR CONSEQUENTIAL DAMAGES.
(b) BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY
KIND PRIOR TO THE EXERCISE BY LASALLE OF ITS RIGHTS TO REPOSSESS THE COLLATERAL
OF BORROWER WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON SUCH
COLLATERAL WITHOUT PRIOR NOTICE OR HEARING.
<PAGE>
(c) Borrower hereby waives demand, presentment, protest and notice of
nonpayment, and further waives the benefit of all valuation, appraisal and
exemption laws.
(d) LaSalle's failure, at any time or times hereafter, to require
strict performance by Borrower of any provision of this Agreement or any of the
Other Agreements shall not waive, affect or diminish any right of LaSalle
thereafter to demand strict compliance and performance therewith. Any suspension
or waiver by LaSalle of an Event of Default under this Agreement or any default
under any of the Other Agreements shall not suspend, waive or affect any other
Event of Default under this Agreement or any other default under any of the
Other Agreements, whether the same is prior or subsequent thereto and whether of
the same or of a different kind or character. No delay on the part of LaSalle
in the exercise of any right or remedy under this Agreement or any Other
Agreement shall preclude other or further exercise thereof or the exercise of
any right or remedy. None of the undertakings, agreements, warranties, covenants
and representations of Borrower contained in this Agreement or any of the Other
Agreements and no Event of Default under this Agreement or default under any of
the Other Agreements shall be deemed to have been suspended or waived by LaSalle
unless such suspension or waiver is in writing, signed by a duly authorized
officer of LaSalle and directed to Borrower specifying such suspension or
waiver.
(e) Borrower has furnished and will furnish to LaSalle certain
information concerning Borrower which Borrower has advised is non-public,
proprietary or confidential in nature ("CONFIDENTIAL INFORMATION"). LaSalle
confirms to the Borrower that it is LaSalle's policy and practice to maintain in
confidence all Confidential Information which is provided to it under agreements
providing for the extension of credit and which is identified to it as such, and
that it will protect the confidentiality of Confidential Information submitted
to it with respect to Borrower under this Agreement, commensurate with its
efforts to maintain the confidentiality of its own Confidential Information,
PROVIDED, HOWEVER, that (i) nothing contained herein shall prevent LaSalle from
disclosing Confidential Information (A) to its Affiliates and their respective
directors, officers, and employees and to any legal counsel, auditors,
appraisers, consultants or other persons retained by it or its Affiliates as
professional advisors, on the condition that such information not be further
disclosed except in compliance with this PARAGRAPH 25(e); (B) under color of
legal authority, including, without limitation, to any regulatory authority
having jurisdiction over it or its operations or to, or under the authority of,
any court deemed by it to be of competent jurisdiction; (C) to any actual or
potential assignee of or participant in LaSalle's rights and obligations under
this Agreement to the extent such actual potential assignee or participant has
agreed to maintain such information in confidence on the basis set forth in this
PARAGRAPH 25(e); and (D) as necessary in connection with the exercise of its
remedies under this Agreement or any of the Other Agreements; (ii) the terms of
this PARAGRAPH 25(e) shall be inapplicable to any information furnished to it
which is in possession prior to the delivery to it of such information by
Borrower or any other authorized Person, or otherwise has been obtained by it on
a non-confidential basis, or which was or becomes available to the public or
otherwise part of the public domain (other than as a result of LaSalle's failure
or any prospective participant's or assignee's failure to abide hereby), or
which was not non-public, proprietary or confidential when Borrower or any other
authorized Person delivered it to LaSalle; and (iii) the determination by
LaSalle as to the application of any of the circumstances described in the
foregoing clauses (i) and (ii) will be conclusive and binding if made in good
faith.
(f) Notwithstanding SUBPARAGRAPH (e) above, Borrower consents to
LaSalle publishing a tombstone or similar advertising material relating to the
financing transaction contemplated by this Agreement.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this LOAN AND
SECURITY AGREEMENT as of the 19th day of August, 1999.
LASALLE BUSINESS CREDIT, INC.
By: /s/ William A. Stapel
-----------------------------------------
Title: F.V.P.
------------------------------------
ATTEST: BPI PACKAGING TECHNOLOGIES, INC.
By: /s/ Hanspeter Schulz By: /s/ James F. Koehlinger
----------------------- -------------------------------
Title: President Title: Chief Financial Officer
--------------- ----------------------------
<PAGE>
EXHIBIT A - BUSINESS AND COLLATERAL LOCATIONS
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between BORROWER and LASALLE BUSINESS CREDIT, INC.
a. Borrower's business locations (please indicate which location is the
principal place of business and at which locations originals and all copies of
Borrower's books, records and accounts are kept):
455 Somerset Avenue
Building No. 3
North Dighton, MA 02764
b. Other locations of Collateral owned by Borrower (including, without
limitation, warehouse locations, processing locations, consignment locations)
and all post office boxes of Borrower. Please indicate the relationship of such
location to Borrower (i.e. public warehouse, processor, etc.).
None.
<PAGE>
SCHEDULE 1(A) - PERMITTED LIENS
Securities Purchase Agreement dated January 27, 1999 between Borrower and DGJ,
L.L.C. providing for a loan by DGJ, L.L.C. to Borrower of $3,200,000 secured by
all assets of Borrower, to be amended to include additional amounts currently
being determined.
Lease dated January 27, 1999 from DGJ, L.L.C. to the Borrower covering certain
equipment described in the Lease.
See attached chart.
[NOTE: THIS SCHEDULE 1(A) MAY BE AMENDED BASED ON FURTHER SEARCH RESULTS]
<PAGE>
UCC AND TAX LIEN SERACH RESULTS OF BPI TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
Jurisdiction UCC TL Filing No. Filing Secured Party Collateral
Date
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Massachusetts Secretary of X 188437 9/28/93 Wentworth Capital Corporation Equipment lease
the Commonwealth assigned to P.C. Leasing, a
division of Phoenixcor, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 539155 3/31/98 P.C. Leasing , a division of Continuation of #188437
the Commonwealth Phoenixcor, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 607683 2/2/99 DGJ, L.L.C. Assignment of #188437 to
the Commonwealth DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 200388 11/29/93 Wentworth Capital Corporation Equipment lease
the Commonwealth assigned to P.C. Leasing, a
division of Phoenixcor, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 558833 6/22/98 P.C. Leasing, a division of Continuation of #200388
the Commonwealth Phoenixcor, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 607682 2/2/99 DGJ, L.L.C. Assignment of #200388 to
the Commonwealth DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 218022 2/24/94 Wentworth Capital Corporation Equipment lease
the Commonwealth assigned to P.C. Leasing, a
division of Phoenixcor, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 575369 9/2/98 P.C. Leasing, a division of Continuation of #218022
the Commonwealth Phoenixcor, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 607681 2/2/99 DGJ, L.L.C. Assignment of #218022 to
the Commonwealth DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 238886 6/1/94 Wentworth Capital Corporation Equipment lease
the Commonwealth assigned to P.C. Leasing, a
division of Phoenixcor, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 603111 1/11/99 P.C. Leasing, a division of Continuation of #238886
the Commonwealth Phoenixcor, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 607680 2/2/99 DGJ, L.L.C. Assignment of #238886 to
the Commonwealth DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 258146 9/1/94 The CIT Group/Equipment Specific equipment
the Commonwealth Financing, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 276679 11/29/94 The CIT Group/Equipment Amendment of #258146
the Commonwealth Financing, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 607674 2/2/99 DGJ, L.L.C. Assignment of #258146 to
the Commonwealth DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 258147 9/1/94 The CIT Group/Equipment Specific equipment
the Commonwealth Financing, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 277893 12/5/94 The CIT Group/Equipment Amendment of #258147
the Commonwealth Financing, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction UCC TL Filing No. Filing Secured Party Collateral
Date
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Massachusetts Secretary of X 607669 2/2/99 DGJ, L.L.C. Assignment of #258147 to
the Commonwealth DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 258148 9/1/94 The CIT Group/Equipment Specific equipment
the Commonwealth Financing, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 276680 11/29/94 The CIT Group/Equipment Amendment of #258148
the Commonwealth Financing, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 607670 2/2/99 DGJ, L.L.C. Assignment of #258148 to
the Commonwealth DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 258149 9/1/94 The CIT Group/Equipment Specific equipment
the Commonwealth Financing, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 276681 11/29/94 The CIT Group/Equipment Amendment of #258149
the Commonwealth Financing, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 607671 2/2/99 DGJ, L.L.C. Assignment of #258149 to
the Commonwealth DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 262063 9/20/94 Textron Financial Corporation, Equipment lease
the Commonwealth Textron Capital Corporation, &
affiliates "TEXTRON"
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 607685 2/2/99 DGJ, L.L.C. Assignment of #262063 to
the Commonwealth DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 262863 9/23/94 The CIT Group/Equipment Specific equipment
the Commonwealth Financing, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 540327 4/3/98 The CIT Group/Equipment Partial release of
the Commonwealth Financing, Inc. #262863
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 607672 2/2/99 DGJ, L.L.C. Assignment of #262863 to
the Commonwealth DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 268288 10/19/94 The CIT Group/Equipment Specific equipment
the Commonwealth Financing, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 607673 2/2/99 DGJ, L.L.C. Assignment of #268288 to
the Commonwealth DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 276883 11/30/94 Phoenixcor, Inc. Equipment lease
the Commonwealth
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 282581 12/27/94 Phoenixcor, Inc. Amendment of #276883
the Commonwealth
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 607679 2/2/99 DGJ, L.L.C. Assignment of #276883 to
the Commonwealth DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 295116 2/27/95 USL Capital Corporation Equipment owned or
the Commonwealth hereafter acquired
consisting of plastics
manufacturing equipment
subject to Proposal
Letter dtd 1/25/95
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction UCC TL Filing No. Filing Secured Party Collateral
Date
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Massachusetts Secretary of X 300428 3/23/95 USL Capital Corporation Amendment of #295116
the Commonwealth
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 312353 5/15/95 USL Capital Corporation Amendment of #295116
the Commonwealth
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 331796 8/14/95 USL Capital Corporation Amendment of #295116
the Commonwealth
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 369861 2/15/96 Mellon U.S. Leasing, a Amendment of #295116
the Commonwealth division of Mellon Leasing
Corp., successor to USL
Capital Corporation
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 607686 2/2/99 DGJ, L.L.C. Assignment of #295116 to
the Commonwealth DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 298769 3/13/95 Cooney Industrial Trucks, Inc. Specific equipment
the Commonwealth assigned to Citicorp Dealer
- --------------------------------------------------------------------------------------------------------------------------------
Finance
Massachusetts Secretary of X 308803 4/27/95 Cooney Industrial Trucks, Inc. Specific equipment
the Commonwealth assigned to Citicorp Dealer
- --------------------------------------------------------------------------------------------------------------------------------
Finance
Massachusetts Secretary of X 311670 5/10/95 Wentworth Capital Corporation Equipment lease
the Commonwealth assigned to Phoenixcor, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 607678 2/2/99 DGJ, L.L.C. Assignment of #311670 to
the Commonwealth DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 324579 7/10/95 Cooney Industrial Trucks, Inc. Specific equipment
the Commonwealth assigned to Citicorp Dealer
- --------------------------------------------------------------------------------------------------------------------------------
Finance
Massachusetts Secretary of X 328112 7/26/95 Wentworth Capital Corporation Equipment lease
the Commonwealth assigned to Phoenixcor, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 607677 2/2/99 DGJ, L.L.C. Assignment of #328112 to
the Commonwealth DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 357684 12/15/95 Phoenixcor, Inc. Equipment lease
the Commonwealth
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 368512 2/8/96 Phoenixcor, Inc. Continuation of #357684
the Commonwealth
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 607676 2/2/99 DGJ, L.L.C. Assignment of #357684 to
the Commonwealth DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 367999 2/7/96 Charter Financial, Inc. Specific equipment
the Commonwealth
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 384841 4/24/96 Charter Financial, Inc. Amendment of #367999
the Commonwealth
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 607965 2/3/99 DGJ, L.L.C. Assignment of #367999 to
the Commonwealth DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 404022 7/17/96 FINOVA Capital Corporation Equipment lease
the Commonwealth
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction UCC TL Filing No. Filing Secured Party Collateral
Date
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Massachusetts Secretary of X 607675 2/2/99 DGJ, L.L.C. Assignment of #404022 to
the Commonwealth DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 430711 11/20/96 Foothill Capital Corporation Equipment lease
the Commonwealth
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 574309 8/28/98 United Credit Patriot Funding Assignment of #430711
the Commonwealth United Credit Corporation
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 617643 3/18/99 Franklin Capital Corporation Assignment of #430711
the Commonwealth and DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 430712 11/20/96 Foothill Capital Corporation Accounts, contract
the Commonwealth rights, general
intangibles, instruments,
documents, leases,
chattel paper, inventory
and all the proceeds
thereof.
- ---------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 574310 8/28/98 United Credit Patriot Funding Assignment of #430712
the Commonwealth United Credit Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 638204 6/10/99 DGJ, L.L.C. Assignment of #430712 to
the Commonwealth DGJ, L.L.C.
- ---------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 443442 1/21/97 Caterpillar Financial Services Equipment lease
the Commonwealth Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 456078 3/21/97 Caterpillar Financial Services Specific equipment
the Commonwealth Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 463979 4/25/97 Caterpillar Financial Services Specific equipment
the Commonwealth Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 573279 8/24/98 Patriot Funding, division of Accounts, contract
the Commonwealth United Credit Corporation rights, chattel paper,
general intangibles and
merchandise returns,
inventory and proceeds
and books and records
relating to the
foregoing.
- ---------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 617642 3/18/99 Franklin Capital Corporation Assignment of #573279
the Commonwealth and DGJ, L.L.C.
- ---------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 538442 3/26/98 Phoenixcor, Inc. Specific equipment
the Commonwealth
- ---------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 607684 2/2/99 DGJ, L.L.C. Assignment of #538442 to
the Commonwealth DGJ, L.L.C.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction UCC TL Filing No. Filing Secured Party Collateral
Date
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Massachusetts Secretary of X 604995 1/21/99 DGJ, L.L.C./Franklin Capital Accounts, chattel paper,
the Commonwealth Corporation documents, equipment,
general intangibles,
instruments, investment
property and proceeds,
profits or products
relating to the
foregoing.
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 606348 1/27/99 Franklin Capital Corporation Accounts, chattel paper,
the Commonwealth documents, equipment,
general intangibles,
instruments, investment
property and proceeds,
profits or products
relating to the
foregoing.
- ---------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 606349 1/27/99 DGJ, L.L.C. Accounts, chattel paper,
the Commonwealth documents, equipment,
general intangibles,
instruments, investment
property and proceeds,
profits or products
relating to the
foregoing.
- ----------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 615018 3/8/99 Fina Oil and Chemical Company Secured Party's security
the Commonwealth interest is subordinate
to DGJ, L.L.C. and
Franklin Capital
Corporation pursuant to
the Subordination
Agreement dtd 1/27/99
- ----------------------------------------------------------------------------------------------------------------------------------
Massachusetts Secretary of X 049145 11/12/96 Massachusetts Secretary of State tax lien in the
the Commonwealth State amount of $154,989.80
- ----------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 14-331 9/29/93 Wentworth Capital Corporation Equipment lease
Massachusetts assigned to P.C. Leasing, a
division of Phoenixcor, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 98-8 4/7/98 P.C. Leasing, a division of Continuation of #14-331
Massachusetts Phoenixcor, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 99-25 3/1/99 DGJ, L.L.C. Assignment of #14-331 to
Massachusetts DGJ, L.L.C.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction UCC TL Filing No. Filing Secured Party Collateral
Date
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Town Clerk - North Dighton, X 14-345 11/30/93 Wentworth Capital Corporation Equipment lease
Massachusetts assigned to P.C.Leasing, a
division of Phoenixcor, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 98-23 6/25/98 P.C.Leasing, ad division of Continuation of #14-345
Massachusetts Phoenixcor, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 99-24 3/1/99 DGJ, L.L.C. Assignment of #14-345 to
Massachusetts DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 14-358 3/4/94 Wentworth Capital Corporation Equipment lease
Massachusetts assigned to P.C. Leasing , a
division of Phoenixcor, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 98-54 10/13/98 P.C. Leasing, a division of Continuation of #14-358
Massachusetts Phoenixcor, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 99-23 3/1/99 DGJ, L.L.C. Assignment of #14-358 to
Massachusetts DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 14-393 6/3/94 Wentworth Capital Corporation Specific equipment
Massachusetts assigned to P.C. Leasing, a
division of Phoenxicor, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 99-1 1/13/99 P.C. Leasing, a division of Continuation of #14-393
Massachusetts Phoenixcor, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 99-22 3/1/99 DGJ, L.L.C. Assignment of #14-393 to
Massachusetts DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 14-430 9/9/94 The CIT Group/Equipment Specific equipment
Massachusetts Financing, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 99-15 2/22/99 DGJ, L.L.C. Assignment of #14-430 to
Massachusetts DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 14-431 9/20/94 Textron Financial Corporation, Specific equipment
Massachusetts Textron Capital Corporation &
affiliates "TEXTRON"
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 99-58 6/8/99 Textron Financial Corporation, Continuation of #14-431
Massachusetts Textron Capital Corporation &
affiliates "TEXTRON"
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 99-60 6/8/99 DGJ, L.L.C. Assignment of #14-431 to
Massachusetts DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 14-437 10/19/94 The CIT Group/Equipment Specific equipment
Massachusetts Financing, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 99-13 2/22/99 DGJ, L.L.C. Assignment of #14-437 to
Massachusetts DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 14-440 11/29/94 The CIT Group/Equipment Specific equipment
Massachusetts Financing, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction UCC TL Filing No. Filing Secured Party Collateral
Date
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Town Clerk - North Dighton, X 99-16 2/22/99 DGJ, L.L.C. Assignment of #14-440 to
Massachusetts DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 14-441 11/30/94 Phoenixcor, Inc. Property set forth in
Massachusetts Lease dtd 11/10/94. See
attached.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 14-458 12/28/94 Phoenixcor, Inc. Amendment of #14-441
Massachusetts
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 99-21 3/1/99 DGJ, L.L.C. Assignment of #14-458 to
Massachusetts DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 14-447 12/14/94 Citizens Savings Bank Accounts, inventory, and
Massachusetts general intangibles.
Debtor listed as RC
America, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 14-467 2/27/95 USL Capital Corporation Equipment lease
Massachusetts
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 14-473 3/24/95 USL Capital Corporation Amendment of #14-467
Massachusetts
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 14-495 5/18/95 USL Capital Corporation Amendment of #14-467
Massachusetts
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 14-507 8/16/95 USL Capital Corporation Amendment of #14-467
Massachusetts
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 14-537 2/8/96 USL Capital Corporation Amendment of #14-467
Massachusetts
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 99-12 2/22/99 DGJ, L.L.C. Assignment of #14-467 to
Massachusetts DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 14-471 3/14/95 Cooney Industrial Trucks, Inc. Specific equipment
Massachusetts assigned to Citicorp Dealer
Finance
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Digthon, X 14-485 4/27/95 Cooney Industrial Trucks, Inc. Specific equipment
Massachusetts assigned to Citicorp Dealer
Finance
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 14-494 5/10/95 Wentworth Capital Corporation Property set forth in
Massachusetts assigned to Phoenixcor, Inc. Lease dtd 4/20/95. See
attached.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 99-20 3/1/99 DGJ, L.L.C. Assignment of #14-494 to
Massachusetts DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 14-502 7/11/95 Cooney Industrial Trucks, Inc. Specific equipment
Massachusetts assigned to Citicorp Dealer
Finance
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 14-506 7/31/95 Wentworth Capital Corporation Equipment lease
Massachusetts assigned to Phoenixcor, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction UCC TL Filing No. Filing Secured Party Collateral
Date
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Town Clerk - North Dighton, X 99-19 3/1/99 DGJ, L.L.C. Assignment of #14-506 to
Massachusetts DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 14-527 12/18/95 Phoenixcor, Inc. Property set forth in
Massachusetts Lease dtd 12/7/95. See
attached.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 14-536 2/8/96 Phoenixcor, Inc. Amendment of #14-527
Massachusetts
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 99-18 3/1/99 DGJ, L.L.C. Assignment of #14-527 to
Massachusetts DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 14-535 2/7/96 Charter Financial, Inc. Various equipment
Massachusetts
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 14-544 4/25/96 Charter Financial, Inc. Amendment of #14-535
Massachusetts
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 99-29 3/9/99 DGJ, L.L.C. Assignment of #14-535 to
Massachusetts DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 14-563 7/19/96 FINOVA Capital Corporation Specific equipment
Massachusetts
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 99-26 3/1/99 DGJ, L.L.C. Assignment of #14-563 to
Massachusetts DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 14-576 11/21/96 Foothill Capital Corporation Accounts, contract
Massachusetts rights, general
intangibles, instruments,
documents, chattel paper,
inventory and the
proceeds thereof. Debtor
name listed as RC
America, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 98-45 8/28/98 United Credit Patriot Assignment of #14-576
Massachusetts Funding/United Credit
Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 99-39 3/26/99 Franklin Capital Corporation Assignment of #14-576
Massachusetts and DGJ, L.L.C.
- ---------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 14-578 11/21/96 Foothill Capital Corporation Accounts, inventory,
Massachusetts chattel paper, general
intangibles, instruments
and documents and the
proceeds thereof.
- ---------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 98-44 8/28/98 United Credit Patriot Assignment of #14-578
Massachusetts Funding/United Credit
Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction UCC TL Filing No. Filing Secured Party Collateral
Date
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Town Clerk - North Dighton, X 99-38 3/26/99 Franklin Capital Corporation Assignment of #14-578
Massachusetts and DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 97-8 1/2/97 Caterpillar Financial Services Specific equipment
Massachusetts Corporation
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 97-18 3/24/97 Caterpillar Financial Services Specific equipment
Massachusetts Corporation
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 97-24 4/28/97 Caterpillar Financial Services Specific equipment
Massachusetts Corporation
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 14-432 9/26/94 The CIT Group/Equipment Specific equipment
Massachusetts Financing, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 98-7 4/3/98 The CIT Group/Equipment Partial Release of #14-
Massachusetts Financing, Inc. 432
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 99-14 2/22/99 DGJ, L.L.C. Assignment of #14-432 to
Massachusetts DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 99-17 2/22/99 DGJ, L.L.C. Assignment of #14-432 to
Massachusetts DGJ, L.L.C.
- --------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 98-47 8/31/98 Patriot Funding, division of Accounts, contract
Massachusetts United Credit Corporation rights, chattel paper,
general intangibles,
inventory and proceeds
and books and records
related to the foregoing.
- ---------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 99-40 3/26/99 Franklin Capital Corporation Assignment of #98-47
Massachusetts and DGJ, L.L.C.
- ---------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 99-5 1/22/99 DGJ, L.L.C. and Franklin Accounts, chattel paper,
Massachusetts Capital Corporation documents, equipment,
general intangibles,
instruments, investment
property and all
proceeds, profits or
products of any or all of
the foregoing.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction UCC TL Filing No. Filing Secured Party Collateral
Date
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Town Clerk - North Dighton, X 99-7 1/27/99 Franklin Capital Corporation Accounts, chattel paper,
Massachusetts documents, equipment,
general intangibles,
instruments, investment
property and all
proceeds, profits or
products of any or all of
the foregoing.
- ---------------------------------------------------------------------------------------------------------------------------------
Town Clerk - North Dighton, X 99-8 1/27/99 DGJ, L.L.C. Accounts, chattel paper,
Massachusetts documents, equipment,
general intangibles,
instruments, investment
property and all
proceeds, profits or
products of any or all of
the foregoing.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 13(I) - LITIGATION
Ronald V. Caulfield, through his attorney, has sent correspondence to the
Borrower suggesting that he may file a lawsuit against the Borrower for past due
severance pay equal to two years' base salary allegedly owed him by the Borrower
upon his resignation. As of the date hereof, no claim has been filed by Mr.
Caulfield against the Borrower.
On July 9, 1998, the Borrower sent written notice to Dennis Caulfield proposing
to terminate his employment with the Borrower for "cause." Mr. Caulfield sent a
letter the subsequent day disputing the termination but resigning as President
and Chairman of the Borrower. Mr. Caulfield's employment agreement provides for
the payment of five (5) years' base salary if his employment is terminated
without "cause" as defined in the employment agreement.
Natalie T. Dion, Administratix of the Estate of John A. Dion, filed a complaint
against the Borrower on or about December 1997. The plaintiff, the
administratix of a former temporary employee of the Borrower, has alleged counts
of wrongful death, conscious pain and suffering, gross negligence and willful,
wanton and reckless conduct relating to an accident which occurred during Mr.
Dion's employment. The plaintiff alleges damages of up to $3,000,000. The
Borrower has a Commercial General Liability Policy with the United States Fire
Insurance Company with a per occurrence limit of $1,000,000. United States Fire
Insurance Company has retained counsel for the Borrower to defend against the
plaintiff's claims.
The Borrower's subsidiary, Market Media, Inc., has received a letter from an
attorney representing Brenda Brasiel stating that Ms. Brasiel suffered injuries
when she tripped and fell on a raised advertisement tile which Market Media,
Inc. may have installed at a Winn Dixie store in Georgia. Although Market
Media, Inc. believes that it is not responsible for the injuries incurred by Ms.
Brasiel, it has insurance in place which covers approximately $6,000,000 per
personal injury claim.
The Borrower has received correspondence from Lehmacher, a German-based
manufacturing entity, stating that the Borrower owes Lehmacher approximately
300,000 deutsche marks, the balance due from the sale of machinery to the
Borrower. The Borrower is currently inquiring into the substance of such a
claim but believes that it owes, at the most, 166,000 deutsche marks, which has
been recognized under accrued expenses in the Borrower's financial statements.
The balance represents the amount allegedly due for purchase commitment for
machinery and parts.
The Borrower has received a Notice of Assessment from the Massachusetts
Department of Revenue of a tax liability in the amount of approximately $150,000
resulting from sales tax assessed on the Borrower's purchase of manufacturing
equipment from 1992 to 1994. The Borrower believes that it does not owe such
tax and intends to dispute this notice. Payment of $19,500 has been sent to the
Massachusetts Department of Revenue and the Borrower has hired a sales tax
specialist to dispute the claim and an appeal has been filed. A hearing before
the tax appeal court is scheduled for June, 2000.
The Borrower has not yet filed its federal and state income tax reports for its
Fiscal Year 1998. The Borrower did not realize income for its Fiscal Year 1998
and, therefore, believes that it will not incur any fines for its late filing.
A notice of potential claim has been sent by a group of investors to both the
Borrower and its insurance carrier alleging that the Borrower's former
management made misrepresentations concerning registration rights attendant to
the securities purchased by them pursuant to Regulation D of the Securities Act
of 1933, as amended. The Borrower believes that any settlement in connection
with this potential claim will not have a material effect on its operations.
On or about March 17, 1998, Eastern Freightways filed suit against the Borrower
in the Bristol County Court, New Bedford District, Case No. 9833 CV 0280 for
services provided in the amount of $5,712.00. The Borrower answered the suit on
April 15, 1998. Judgment, including costs and attorneys' fees, was entered on
August 12, 1998 in the amount of $7,833.89. On October 8, 1998, Eastern
Freightways filed
<PAGE>
motions to compel production of documents and answers to interrogatories. A
hearing was scheduled on such motions for October 29, 1998. On October 27,
1998, an offer of settlement was proposed. On November 9, 1998, the
settlement offer of $2,284.80 was accepted. A check in that amount was sent
on January 29, 1999 to counsel for Eastern Freightways. On May 26, 1999,
Eastern Freightways forwarded its release to the Borrower. The Borrower is
waiting for the stipulation of dismissal of the case and the stipulation to
vacate judgment.
On or about September 17, 1998, Maxaldan Realty, L.P. filed a complaint in
Bristol District Court, Fall River Division alleging the Borrower's failure to
pay rent in the amount of $227,951.06. An answer was filed on October 13, 1998
and trial of this eviction matter was continued to October 29, 1998. As of
December 31, 1998, the trial date was rescheduled to January 14, 1999. As of
this date, the matter has been settled and counsel is awaiting the filed
stipulation of dismissal.
On or about March 20, 1998, New England Motor Freight, Inc. filed a complaint in
the Bristol County, New Bedford District Court, Case No. 9833 CV 0301 alleging
that the Borrower refused to pay approximately $53,012.67 for services provided
to the Borrower. The Borrower filed an answer to the suit on April 14, 1998.
Judgment, including interest, costs and attorneys' fees, was entered on August
12, 1998 in the amount of $71,662.43. On October 8, 1998, New England Motor
Freight, Inc. filed motions to compel production of documents and answers to
interrogatories. On October 27, 1998, a proposed settlement was offered to New
England Motor Freight, Inc. On November 9, 1998, settlement was accepted in the
amount of $5,616.25. On January 29, 1999, a check in the amount of $5,616.25
was paid to New England Motor Freight, Inc. through its attorney. On February
5, 1999, the Borrower forwarded its executed release. On May 26, 1999, New
England Motor Freight, Inc. forwarded its release to the Borrower. The Borrower
is awaiting the stipulation of dismissal of the case and stipulation to vacated
judgment.
On or about June 24, 1999, Textron Financial Corporation filed a complaint in
the Bristol County Superior Court, Case No. B99-824 naming Citizens Bank of
Rhode Island as defendant. Textron Financial Corporation seeks to collect
$317,000 under a letter of credit issued by Citizens Bank of Rhode Island to
Textron Financial Corporation in order to partially secure certain equipment
lease payments due to Textron Financial Corporation from the Borrower. Citizens
Bank of Rhode Island has filed an answer alleging the letter of credit has been
terminated prior to Textron Financial Corporation's attempt to draw on it.
Citizens Bank of Rhode Island has given the Borrower notice that it intends to
file a third party complaint in which it shall seek a judgment that the Borrower
must indemnify it for any judgment entered on Textron Financial Corporation's
behalf. The Borrower intends to defend any such indemnification claim
vigorously. It is impossible for special counsel to the firm, Wilson & Orcutt,
to assess the likelihood of an unfavorable outcome.
On or about March 19, 1998, Jonathan D. Yeltin, Chapter 7 Trustee for Rich's
Department Stores, Inc., filed an adversary proceeding in the United States
Bankruptcy Court, District of Massachusetts, Case No. 98-1402, against RC
America, Inc., a wholly owned subsidiary of the Borrower, in which he sought to
recover $10,241 paid by Rich's Department Stores, Inc. to RC America, Inc.,
allegedly as a preferential payment. Counsel for the Chapter 7 Trustee has
indicated a potential claim in that amount against the Borrower based upon an
allegation that the Borrower benefited from the payment. The parties are in the
midst of exchanging factual information and documents in an effort to seek to
reach agreement as to whether the Borrower has any liability. To date, no such
agreement has been reached. Should the Chapter 7 Trustee add the Borrower as a
defendant, it is impossible for us to assess the likelihood of an unfavorable
outcome.
On August 13, 1998, the Borrower received notice from counsel for Donohue Meehan
Publishing demanding that the outstanding balance of $16,511.88 be paid. On
October 27, 1998, the Borrower offered a settlement to Donohue Meehan
Publishing. On January 29, 1999, a check in the amount of $5,520, representing
settlement of this matter, was sent to Donohue Meehan Publishing's counsel. The
Borrower is awaiting a release in this matter.
<PAGE>
On May 2, 1998, the Borrower received notice from counsel for Reliance Electric
Co. demanding that an outstanding balance of $1,701.27 be paid. On October 27,
1998, the Borrower made an offer of settlement. On November 9, 1998, the offer
of settlement was accepted. On January 29, 1999, a check in the amount of
$334.90 was forwarded to Reliance.
<PAGE>
SCHEDULE 13(Q) - INDEBTEDNESS
See Schedule 1(A) - Permitted Liens.
Agreements with most of the Borrower's unsecured creditors that provide a
non-interest bearing agreement to pay the balances over a three-year period
in monthly installments.
Other indebtedness being discharged at closing.
<PAGE>
SCHEDULE 13(S) - PARENTS, SUBS, JOINT VENTURES AND PARTNERSHIPS
Borrower had two (2) wholly-owned subsidiaries:
Market Media, Inc.
RC America, Inc.
Borrower suspended operations of each of the subsidiaries on or about June 29,
1998.
<PAGE>
SCHEDULE 13(U)
The company is in violation of the terms of certain of its previous private
placements to file within a specified term a registration statement with the
Securities and Exchange Commission relating to the registration of the shares of
Common Stock (the "Shares") and shares of Common Stock underlying warrants (the
"Warrant Shares") issued in such private placements. The Shares and the Warrant
Shares issued in such private placements totaled 6,641,125 and 1,767,000,
respectively.
<PAGE>
SCHEDULE 13(X) - BENEFIT PLAN NON-COMPLIANCE
None.
<PAGE>
EXHIBIT 10.43
REVOLVING NOTE
EXECUTED AS OF THE 19TH DAY OF AUGUST, 1999 AMOUNT $4,000,000.00
FOR VALUE RECEIVED, the Undersigned promises to pay to the order of LASALLE
BUSINESS CREDIT, INC. (hereinafter, together with any holder hereof, called
"LaSalle"), at the main office of LaSalle, 135 South LaSalle Street, Chicago,
Illinois 60603, the principal sum of FOUR MILLION AND NO/100 DOLLARS
($4,000,000.00) plus the aggregate unpaid principal amount of all advances made
by LaSalle to the Undersigned pursuant to and in accordance with Paragraph 2 of
the Loan Agreement (as hereinafter defined) in excess of such amount, or, if
less, the aggregate unpaid principal amount of all advances made by LaSalle to
the Undersigned pursuant to and in accordance with Paragraph 2 of the Loan
Agreement. The outstanding principal balance shall be payable in accordance
with the terms and conditions in the Loan Agreement. The Undersigned further
promises to pay interest on the outstanding principal amount hereof on the dates
and at the rates provided in the Loan Agreement from the date hereof until
payment in full hereof.
This Revolving Note is referred to in and was delivered pursuant to that
certain Loan and Security Agreement, as it may be amended from time to time,
together with all exhibits thereto, dated August ___, 1999, between LaSalle and
the Undersigned (the "Loan Agreement"). All terms which are capitalized and
used herein (which are not otherwise defined herein) shall have the meanings
ascribed to such terms in the Loan Agreement.
The Undersigned hereby authorizes LaSalle to charge any account of the
Undersigned for all sums due hereunder. If payment hereunder becomes due and
payable on a Saturday, Sunday or legal holiday under the laws of the United
States or the State of Illinois, the due date thereof shall be extended to the
next succeeding business day, and interest shall be payable thereon at the rate
specified during such extension. Credit shall be given for payments made in the
manner and at the times provided in the Loan Agreement. It is the intent of the
parties that the rate of interest and other charges to the Undersigned under
this Revolving Note shall be lawful and shall be limited to the maximum
nonusurious rate of interest permitted by law; therefore, if for any reason the
interest or other charges payable hereunder are found by a court of competent
jurisdiction, in a final determination, to exceed the limit which LaSalle may
lawfully charge the Undersigned, then the obligation to pay interest or other
charges shall automatically be reduced to such limit and, if any amount in
excess of such limit shall have been paid, then such amount shall be refunded to
the Undersigned.
The principal and all accrued interest hereunder may be prepaid by the
Undersigned, in part or in full, at any time; provided, however, that if the
Undersigned prepays all of the Liabilities prior to the end of the Original Term
or any Renewal Term, the Undersigned shall pay a prepayment fee as provided in
the Loan Agreement.
The Undersigned waives the benefit of any law that would otherwise restrict
or limit LaSalle in the exercise of its right, which is hereby acknowledged, to
set-off against the Liabilities, without notice and at any time hereafter, any
indebtedness matured or unmatured owing from LaSalle to the Undersigned. The
Undersigned waives every defense, counterclaim or setoff which the Undersigned
may now have or hereafter may have to any action by LaSalle in enforcing this
Note and/or any of the other Liabilities, or in enforcing LaSalle's rights in
the Collateral and ratifies and confirms whatever LaSalle may do pursuant to the
terms hereof and of the Loan Agreement and with respect to the Collateral and
agrees that LaSalle shall not be liable for any error in judgment or mistakes of
fact or law.
The Undersigned, any other party liable with respect to the Liabilities and
any and all endorsers and accommodation parties, and each one of them, if more
than one, waive any and all presentment, demand, notice of dishonor, protest,
and all other notices and demands in connection with the enforcement of
LaSalle's rights hereunder.
<PAGE>
The loan evidenced hereby has been made and this Note has been delivered at
Chicago, Illinois. THIS NOTE SHALL BE GOVERNED AND CONTROLLED BY THE INTERNAL
LAWS OF THE STATE OF ILLINOIS AS TO INTERPRETATION, ENFORCEMENT, VALIDITY,
CONSTRUCTION, EFFECT, AND IN ALL OTHER RESPECTS, INCLUDING WITHOUT LIMITATION,
THE LEGALITY OF THE INTEREST RATE AND OTHER CHARGES, and shall be binding upon
the Undersigned and the Undersigned's heirs, legal representatives, successors
and assigns. If this Note contains any blanks when executed by the Undersigned,
LaSalle is hereby authorized, without notice to the Undersigned to complete any
such blanks according to the terms upon which the loan or loans were granted.
Wherever possible, each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited by or be invalid under such law, such provision
shall be severable, and be ineffective to the extent of such prohibition or
invalidity, without invalidating the remaining provisions of this Note, the term
"Undersigned" as used herein shall mean all parties signing this Note, and each
one of them, and all such parties, their respective heirs, executors,
administrators, successors and assigns, shall be jointly and severally obligated
hereunder.
To induce LaSalle to make the loan evidenced by this Note, the Undersigned
(i) irrevocably agrees that, subject to LaSalle's sole and absolute election,
all actions arising directly or indirectly as a result or in consequence of this
Note or any other agreement with LaSalle, or the Collateral, shall be instituted
and litigated only in courts having situs in the City of Chicago, Illinois, (ii)
hereby consents to the exclusive jurisdiction and venue of any State or Federal
Court located and having its situs in said city, and (iii) waives any objection
based on forum non-conveniens. IN ADDITION, THE UNDERSIGNED HEREBY WAIVES TRIAL
BY JURY IN ANY ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO
THIS NOTE, THE LIABILITIES, THE COLLATERAL, ANY ALLEGED TORTIOUS CONDUCT BY THE
UNDERSIGNED OR LASALLE OR WHICH IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT
OF OR RELATES TO THE RELATIONSHIP BETWEEN THE UNDERSIGNED AND LASALLE, waives
personal service of any and all process, and consents that all such service of
process may be made by certified mail, return receipt requested, directed to the
Undersigned either at the office of the Illinois Secretary of State, as provided
in the Loan Agreement, or at the address indicated in LaSalle's records; and
service so made shall be complete five (5) days after the same has been
deposited in the U.S. mails as aforesaid.
As used herein, all provisions shall include the masculine, feminine,
neuter, singular and plural thereof, wherever the context and facts require such
construction and in particular the word "Undersigned" shall be so construed.
IN WITNESS WHEREOF, the Undersigned has executed this Note on the date
above set forth.
BPI PACKAGING TECHNOLOGIES, INC.
By: /s/ James F. Koehlinger
--------------------------------------
Title: Chief Financial Officer
---------------------------
<PAGE>
ACKNOWLEDGMENT OF SIGNATURE
STATE OF MASSACHUSETTS )
) SS.
COUNTY OF BRISTOL )
I, Rita Pires, a Notary Public in and for the state and county aforesaid,
do hereby certify that before me this day personally appeared James F.
Koehlinger (name), Chief Financial Officer (title) of BPI PACKAGING
TECHNOLOGIES, INC., known to me to be the same person whose name is subscribed
to the foregoing Revolving Note, and acknowledged to me that he executed and
delivered the foregoing Revolving Note as his free and voluntary act, for the
uses set forth therein.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal this 19th
day of August, 1999.
/s/ Rita Pires
---------------------------------
Notary Public
My Commission Expires
May 17, 2002
---------------------------------
<PAGE>
EXHIBIT 10.44
INTERCREDITOR AGREEMENT
This Intercreditor Agreement dated as of this 19th day of August,
1999, is made by and between DGJ, L.L.C., a Delaware limited liability
company ("Creditor"), with an address at 600 Central Avenue, Suite 262,
Highland Park, IL 60062 and LASALLE BUSINESS CREDIT, INC. ("LaSalle"), with
an address at 135 South LaSalle Street, Suite 400, Chicago, IL 60603.
PRELIMINARY STATEMENT
A. BPI PACKAGING TECHNOLOGIES, INC., a Delaware corporation
("Borrower"), has heretofore, now or may hereafter enter into certain
financing arrangements with LaSalle pursuant to a Loan and Security Agreement
dated as of August 19, 1999 (as it may be amended from time to time, the
"LaSalle Loan Agreement") between Borrower and LaSalle in connection with
which LaSalle has made or may now or from time to time hereafter make loans
and other extensions of credit to Borrower for working capital purposes.
Capitalized terms used herein without definition shall have the meanings
given in the LaSalle Loan Agreement. The financing arrangements and
extensions of credit made by LaSalle under the LaSalle Loan Agreement, as
well as any and all other indebtedness now or at any time or times hereafter
owing by Borrower to LaSalle, whether under the Loan Agreement or otherwise,
and whether such indebtedness is absolute or contingent, direct or indirect
and however so evidenced, including without limitation all interest thereon
(including interest accrued subsequent to the commencement of any Bankruptcy
Proceeding (as defined below)), are collectively referred to as the "LaSalle
Loans." The LaSalle Loan Agreement, together with all documents, instruments
and agreements executed and delivered in connection therewith or contemplated
thereby, as the same may be amended, modified or supplemented from time to
time, are hereinafter referred to as the "LaSalle Agreements." The LaSalle
Loans are or will be secured by a security interest in and lien on
substantially all of the personal property of Borrower, whether now existing
or hereafter arising and wheresoever located, including, without limitation,
all accounts, chattel paper, deposit accounts, documents, equipment,
fixtures, general intangibles, instruments, and inventory, together with all
proceeds of any and all of the foregoing (including insurance proceeds), all
as more fully set forth in the LaSalle Loan Agreement (all of such collateral
being hereinafter referred to as the "Collateral").
B. Creditor has provided, or will provide, certain financing to
Borrower pursuant to that certain Secured Promissory Note dated August 19,
1999 (the "Creditor Note") in the original principal amount of $4,773,584.88
made by Borrower and payable to Creditor. The indebtedness evidenced by the
Creditor Note is referred to as the "Creditor Term Loan."
C. Creditor is also leasing certain equipment to Borrower for use
in Borrower's business conducted at 455 Somerset Avenue, North Dighton,
Massachusetts 02764 (the "Facility") under an Equipment Lease dated January
27, 1999, as amended on August 19, 1999 (as so amended, the "Equipment
Lease") between Borrower and Creditor. All of Borrower's "equipment," as
such term is defined in the Uniform Commercial Code as in effect in the State
of Illinois (the "UCC"), whether now owned or hereafter acquired, together
with all proceeds thereof is hereinafter referred to as the "Creditor
Equipment." The term "Creditor Equipment," as used herein, also includes all
equipment and fixtures subject to the Equipment Lease, and proceeds thereof.
That portion of the Creditor Equipment which is not leased to Borrower under
the Equipment Lease is hereinafter referred to as the "Borrower-Owned
Equipment." The Creditor Term Loan and the obligations of Borrower under the
Equipment Lease, as well as any and all other indebtedness now or at any time
or times hereafter owing by Borrower to Creditor, whether such indebtedness
is absolute or contingent, direct or indirect and however so evidenced,
including without limitation all interest thereon (including interest accrued
subsequent to the commencement of any Bankruptcy Proceeding (as defined
below)), are collectively referred to as the "Creditor Loans." The Creditor
Note, the Equipment Lease, and all of the documents, instruments and
agreements executed and delivered in connection therewith or contemplated
<PAGE>
thereby, as the same may be amended, modified or supplemented from time to
time, are hereafter referred to as the "Creditor Agreements."
D. As collateral for the Creditor Loans, Creditor received a
security interest in and lien on substantially all of the assets of Borrower,
including, without limitation, the Creditor Equipment, and all proceeds of
the foregoing, and all replacements and substitutions of the foregoing
purchased with the proceeds of the foregoing.
E. As a condition to making the LaSalle Loans, LaSalle requires
that Creditor subordinate its debts and its liens on all of the assets of
Borrower, other than the Creditor Equipment, and that Creditor agree to
restrictions and limitations on its rights as a secured creditor and/or
lessor under the Equipment Lease with respect to Borrower, the Collateral and
the Creditor Equipment, and with respect to any action, whether judicial or
nonjudicial, to repossess, collect, set off, give notification to third
parties with respect to, sell, dispose of, foreclose on, give notice of sale,
disposition or foreclosure with respect to, or obtain equitable or injunctive
relief with respect to, the Collateral, the Creditor Equipment, the Equipment
Lease or the Creditor Loans (any and all of the foregoing being hereinafter
referred to as an "Enforcement Action"), all as set forth in this
Intercreditor Agreement.
NOW, THEREFORE the parties hereby certify, covenant and agree as
follows:
1. LIEN SUBORDINATION BY CREDITOR. Notwithstanding: (a) the
time, order, manner or method of creation, attachment or perfection of the
respective security interests and/or liens granted to Creditor and LaSalle in
or on any or all of the property or assets of Borrower; (b) the time or
manner of filing of their respective financing statements; (c) whether
Creditor or LaSalle or any agent or bailee of either of them holds possession
of any or all of the property or assets of the Company; (d) the dating,
execution or delivery of any agreement, document or instrument granting
Creditor or LaSalle security interests in or on any or all of the assets of
property of Borrower; (e) any provision of the Uniform Commercial Code or any
other applicable law to the contrary, Creditor and LaSalle hereby stipulate
and agree to the following allocation of priorities of security interests in
the assets and property of the Company:
(A) LaSalle shall have a first, senior and prior security
interest in and lien on the Collateral other than the
Creditor Equipment, and a second and subordinate security
interest in the Borrower-Owned Equipment junior only to
that of Creditor; and
(B) Creditor shall have a first, senior and prior security
interest in and lien on the Creditor Equipment, and a
second and subordinate security interest in the Collateral
other than the Creditor Equipment junior only to that of
LaSalle.
Concurrently with the execution of this Agreement and at LaSalle's request,
made at any time, Creditor will provide to LaSalle such statements of
amendment, partial release or other appropriate documents which LaSalle shall
deem reasonably necessary to give effect to Creditor's subordination of its
security interests in the Collateral. In the event Creditor receives from
Borrower any security for the Creditor Loans other than the Creditor
Equipment, which security interest is senior or prior to that of LaSalle,
Creditor agrees that such security interest shall by virtue of this Agreement
and without further action, be junior and subordinate to that of LaSalle.
LaSalle and Creditor understand and agree that the lien priorities stated in
this Agreement shall continue during any Bankruptcy Proceeding.
2. PROCEEDS. The order of priority of liens set forth in this
Agreement shall also apply to all proceeds of the Collateral, including,
without limitation, any insurance proceeds payable in the event of loss of,
or damage to, the Collateral. Any loss payable under any property or
casualty insurance policy relating to the Collateral other than the Creditor
Equipment shall be made payable solely to LaSalle, and if such insurance
proceeds payable in respect of the Collateral other than the Creditor
Equipment are received by Creditor, all such funds shall be held in trust for
LaSalle by Creditor and shall be paid over to LaSalle immediately upon demand
therefor. Creditor irrevocably constitutes and appoints LaSalle as its true
and lawful attorney and agent in fact for the purpose of making, settling and
adjusting any claim under any such policy, and for making all determinations
and decisions with respect to any such policy. Any insurance proceeds
payable in the event of loss of, or damage to, the Creditor Equipment shall
be made payable solely to Creditor, and if such insurance proceeds payable in
respect of the Creditor Equipment are received by LaSalle, such funds shall
be held in trust for Creditor by LaSalle and shall be paid over to Creditor
<PAGE>
immediately upon demand therefor. In the event either LaSalle or Creditor
collect and receive any insurance proceeds in excess of the amounts necessary
to discharge in full the obligations secured thereby, such parties shall turn
over such excess to the other party (for application on such other party's
second priority secured claims) to the full extent consistent with applicable
law and any other obligation to which they are subject.
3. PAYMENT ON SUBORDINATED DEBT. Except to the extent set forth
below, Creditor shall not accept, and understands that Borrower may not make,
any payments on any Creditor Loans unless: (A) no Default or Event of Default
under the LaSalle Loan Agreement shall have occurred and be continuing, (B)
Borrower shall have Excess Availability (as defined in the LaSalle Loan
Agreement) in an amount not less than Three Hundred Thousand and no/100
Dollars ($300,000.00) after taking into account the payment then proposed to
be made on the Creditor Loans, and (C) the Borrower's required Consolidated
Tangible Net Worth, as determined under the LaSalle Loan Agreement, shall be
not less than the amount then required both as of the date of, and after
giving effect to, the proposed payment; PROVIDED, HOWEVER, that Borrower may
make regularly scheduled, current payments under the Equipment Lease unless
and until LaSalle shall have given Creditor notice of an Event of Default
under paragraph 16(a) of the LaSalle Loan Agreement (i.e., default with
respect to payment of the Liabilities owed to LaSalle), but Borrower may not
pay any amount under the Equipment Lease which was past due or delinquent as
of the date of the initial funding of the Revolving Loan unless all of the
foregoing conditions are satisfied. This paragraph 3 shall not be construed
to prohibit payments on Creditor Loans made with the proceeds of recoveries
under Enforcement Actions initiated by Creditor in accordance with the terms
of this Intercreditor Agreement, including but not limited to the following,
all to the extent consistent with the other restrictions contained in this
Intercreditor Agreement:
(a) payments on Creditor's claims in bankruptcy proceedings;
(b) payments made in the form of turn-over of Creditor
Equipment, such as by repossession or recovery of leased
equipment, strict foreclosure or deed in lieu of
foreclosure;
(c) payments made pursuant to foreclosure sales of Creditor
Equipment; and
(d) other payments made in exchange for Creditor's release of
its security interest in Creditor Equipment.
4. LIMITATIONS ON ENFORCEMENT ACTIONS. Prior to payment in full
of the LaSalle Loans, and notwithstanding any term or provision of the
documents evidencing or securing the Creditor Loans, Creditor shall not,
without the prior written consent of LaSalle, which may be withheld by
LaSalle in its sole and absolute discretion, take any Enforcement Action;
provided, however, that:
(a) If a default shall occur under the Creditor Agreements,
then Creditor may commence an Enforcement Action against
the Creditor Equipment provided that Creditor shall have
given to LaSalle at least one hundred eighty (180) days'
prior written notice of such default; provided, that if
Borrower or LaSalle cures such default within that one
hundred eighty-day period, Creditor shall cease and
desist from further pursuit of the Enforcement Action;
(b) In addition to the circumstances described in paragraph
4(a), above, at any time after LaSalle shall have taken
any Enforcement Action against the Collateral or shall
have accelerated the maturity of all of the Liabilities
under the LaSalle Loan Agreement, then Creditor may
commence an Enforcement Action under the Creditor
Agreements, subject, however, to the following
limitations: (I) Any Enforcement Action by Creditor shall
be limited to remedies against the Creditor Equipment,
and Creditor acknowledges, understands and agrees that it
shall not take any Enforcement Action against any of the
Collateral other than the Creditor Equipment unless and
until all of the Liabilities owed to LaSalle under the
LaSalle Agreements have been paid in full; and (II)
LaSalle shall have the sole right to control all aspects
of liquidation of the Collateral, other than the Creditor
Equipment, and the disposition of all proceeds thereof;
<PAGE>
(c) In the event Borrower or any successor or assign of
Borrower defaults on its obligations to LaSalle and, as a
result, LaSalle undertakes to enforce its security
interests in and liens on the Collateral, other than the
Creditor Equipment, Creditor agrees that it will not
hinder, delay or otherwise prevent LaSalle from taking
any and all action to the extent permitted under law
which LaSalle deems necessary to enforce its security
interests and liens and to realize thereon;
(d) To the extent consistent with the terms of this
Intercreditor Agreement, in the event Borrower or any
successor or assign of Borrower defaults on its
obligations to Creditor and, as a result, Creditor
undertakes to enforce its security interest, lease and/or
liens on the Creditor Equipment, LaSalle agrees that it
will not hinder, delay or otherwise prevent Creditor from
taking any and all action to the extent permitted under
the law which Creditor deems necessary to enforce its
security interest and liens and to realize thereon; and
(e) Prior to each of Creditor's and LaSalle's commencement of
any Enforcement Action or acceleration of any obligation
owned by Borrower to it, LaSalle and Creditor shall give
written notice to the other party of its intention to
commence such Enforcement Action or to declare such
acceleration.
5. CREDITOR DEBT; ADDITIONAL ADVANCES. The principal of the
Creditor Note is $4,773,584.88. There are no past-due payments under the
Equipment Lease, except for the sum of $1,573,584.88, which represents such
past-due amounts and is included as part of the principal balance of the
Creditor Note. LaSalle and Creditor agree that Creditor may make further
advances which would be secured by a first and prior lien on the Creditor
Equipment and a junior and subordinate lien on the Collateral other than the
Creditor Equipment, with all such additional advances deemed part of the
Creditor Loans and subject to the terms and conditions of this Agreement;
provided, however, that all such loans and advances are made for the purpose
of purchasing additional equipment, and shall not exceed the annual aggregate
limit placed on Borrower's capital expenditures (including the sublimit on
the amount of capital expenditures financed) in Section 14(n) of the LaSalle
Loan Agreement.
6. DEBT SUBORDINATION IN BANKRUPTCY PROCEEDINGS. In the event of
any liquidation, bankruptcy, arrangement, receivership, assignment,
reorganization or dissolution proceedings, whether filed by or against
Borrower (any of the foregoing being referred to as a "Bankruptcy
Proceeding"), and the proceeds of Creditor's Collateral are insufficient to
pay in full the Creditor Term Loan, Creditor irrevocably agrees that any
portion of the Creditor Term Loan that is an unsecured claim in any
Bankruptcy Proceeding shall be junior and subordinate to any portion of the
LaSalle Loans that is an unsecured claim in such Bankruptcy Proceeding, and
Creditor hereby irrevocably authorizes LaSalle to collect, receive, enforce
and accept any and all sums or distributions of any kind that may become due,
payable or distributable on or in respect of the Creditor Term Loan, whether
paid directly by Borrower or paid or distributed in any Bankruptcy Proceeding
or otherwise, for application to the LaSalle Loans. After all of the LaSalle
Loans shall have been paid in full, and until the Creditor Term Loan is paid
in full, with respect to the Creditor Term Loan, Creditor shall be subrogated
to the rights of LaSalle to receive distributions applicable to the LaSalle
Loans to the extent that distributions otherwise payable to Creditor with
respect to the Creditor Term Loan have been applied to the payment of the
LaSalle Loans. A distribution made under this Section 6 for application to
the LaSalle Loans which otherwise would have been made to Creditor with
respect to the Creditor Term Loan is not, as between Creditor and Borrower, a
payment by Borrower on the LaSalle Loans.
7. PAYMENTS IN BREACH OF AGREEMENT. Creditor and LaSalle each
agree to receive and hold in trust for and promptly turn over to the other,
in the form received (except for the indorsement or assignment where
necessary), any sums at any time paid to, or received by, either of them in
violation of the terms of this Agreement and to reimburse each other for all
costs, including reasonable attorney's fees, incurred by the other in the
course of collecting said sums should the party having received the same fail
to voluntarily turn the same over to the other as herein required. If either
Creditor or LaSalle fail to indorse or assign any items of payment wrongfully
received by either of them, as the case may be, Creditor and LaSalle hereby
irrevocably make, constitute and appoint each other (and all persons
designated by either of them for that purpose) as its true and lawful
attorney and agent-in-fact, to make such indorsement or assignment in the
other's name.
<PAGE>
8. WAIVER OF MARSHALING. In the event that the LaSalle Loans
are, or hereafter become, secured by property, instruments, documents or
agreements other than the Creditor Equipment, including, without limitation,
any guaranty of the LaSalle Loans by any person, Creditor agrees that LaSalle
shall have no obligation to marshal such other property, instruments,
documents, agreements, or guaranties before enforcing its rights against the
Collateral or its rights herein as against Creditor. In the event that the
Creditor Loans are, or hereafter become, secured by property, instruments,
documents or agreements, including, without limitation, any guaranty of the
Creditor Loans by any person, LaSalle agrees that Creditor shall have no
obligation to marshal such other property, instruments, documents,
agreements, or guaranties before enforcing its rights against the Collateral
or its rights herein as against LaSalle.
9. NO CONTEST OF LIENS. Neither LaSalle nor Creditor shall
contest the validity, perfection of enforceability of any lien or security
interest granted to the other by Borrower, if any, and each party agrees to
reasonably cooperate in the defense of any action contesting the validity,
perfection or enforceability of such liens or security interests. Nothing in
this Agreement shall be construed as in any way limiting a party's right to
enforce the order of priorities of liens and debts set forth herein as
against any person.
10. AMENDMENTS TO CREDITOR AGREEMENTS. Except for amendments to
the Creditor Agreements to reflect additional advances permitted under
Section 5 of this Agreement, and except for increases in rates of interest on
certain Creditor Loans as permitted under a letter agreement of even date
herewith between Creditor and LaSalle, Creditor agrees that it shall not
modify or amend any agreement, instrument or document evidencing the Creditor
Loans without prior written notice to LaSalle; and agrees that it shall not
modify or amend any agreement, instrument or document securing the Creditor
Loans without the prior written consent of LaSalle.
11. SUBORDINATION NOT AFFECTED BY CREDITOR AGREEMENTS. Nothing in
this Agreement shall be construed as affecting or in any way limiting the
extension of new or additional financial accommodation by LaSalle to
Borrower, all of which shall constitute and be deemed part of the LaSalle
Loans and be entitled to the benefits and priorities afforded under this
Agreement. The subordinations effected, and the rights created, hereby shall
not be affected by (a) any amendment of, or any addition of or supplement to,
any LaSalle Agreement, (b) any exercise or non-exercise of any right, power,
or remedy under or in respect of the LaSalle Loans or any instrument,
document or agreement relating thereto, (c) the release, sale, exchange or
surrender, in whole or in part, of any part of the Collateral or any
additional collateral to which LaSalle may become entitled, (d) any release
of any guarantor of the LaSalle Loans or any security for any such guaranty,
or (e) any waiver, consent, release, indulgence, extension, renewal,
modification, delay or other action, inaction or omission in respect of the
LaSalle Loans or any LaSalle Agreement, regardless of whether or not Creditor
or Borrower shall have had notice or knowledge thereof, and regardless of
whether Creditor or Borrower shall have consented or objected thereto. Any
provision of any Creditor Agreement purporting to limit or restrict in any
way Borrower's ability to enter into any agreement with LaSalle or to amend
or modify any LaSalle Agreement, shall be deemed void and of no force or
effect unless and until the Liabilities have been repaid in full to LaSalle
and LaSalle has no further obligation to make advances under the LaSalle
Agreements.
12. BORROWER INFORMATION. Creditor hereby assumes responsibility
for keeping itself informed of the financial condition of Borrower, and of
all other circumstances bearing upon the risk of nonpayment of the LaSalle
Loans and the Creditor Loans that diligent inquiry would reveal, and Creditor
hereby agrees that LaSalle shall have no duty to advise Creditor of
information known to LaSalle regarding such condition or any such
circumstances or to undertake any investigation not a part of its regular
business routine. If LaSalle, in its sole discretion, undertakes, at any
time or from time to time, to provide any information of the type described
herein to Creditor, LaSalle shall be under no obligation to subsequently
update any such information or to provide any such information to Creditor on
any subsequent occasion.
13. FORUM; JURIES. To induce LaSalle to accept this Agreement,
Creditor irrevocably agrees that, subject to LaSalle's sole and absolute
election, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING
OUT OF OR FROM OR RELATED TO THIS AGREEMENT SHALL BE LITIGATED IN COURTS
HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS. CREDITOR HEREBY
CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE
<PAGE>
OR FEDERAL COURTS LOCATED WITHIN SAID CITY AND STATE. Creditor hereby
irrevocably agrees that service of legal process may be made to it, as DGJ,
L.L.C., at the address specified in Section 14 below. Creditor agrees that
service of such process upon such person shall constitute personal service of
such process upon Creditor. CREDITOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO
TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST CREDITOR BY
LASALLE IN ACCORDANCE WITH THIS PARAGRAPH.
CREDITOR HEREBY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT.
14. NOTICE. For purposes of this paragraph, any notice required
or desired to be served, given or delivered hereunder shall be in writing
(including facsimile transmission), and shall be deemed to have been validly
served, given or delivered upon the earlier of (a) personal delivery to the
address set forth below (b) in the case of mailed notice, five (5) days after
deposit in the United States mails, with proper postage for certified mail,
return receipt requested, prepaid, or in the case of notice by Federal
Express or other reputable overnight courier service, one (1) business day
after delivery to such courier service, and (c) in the case of facsimile
transmission, upon transmission with confirmation of receipt, in any such
case addressed to the party to be notified as follows:
(i) If to the LaSalle at:
LaSalle Business Credit, Inc.
135 South LaSalle Street
Chicago, Illinois 60603-4105
Attention: Michael B. Carsella, Esq.
Facsimile Number: (312) 904-7828
With a copy to:
Dykema Gossett PLLC
55 East Monroe Street
Suite 3050
Attention: Paul G. Neilan
Facsimile Number:(312) 551-4919
(ii) If to Creditor:
DGJ, L.L.C.
600 Central Avenue
Suite 262
Attention: Gary Edidin
Facsimile Number: (847) 509-1150
With a copy to:
Holleb & Coff
55 East Monroe Street
Suite 4100
Attention: Mark E. Glennon
Facsimile Number: (312) 807-3900
or to such other address as each party designates to the other in the manner
herein prescribed.
15. SUCCESSORS, ASSIGNS, ETC. This Intercreditor Agreement shall
be binding on the parties hereto and their successors and assigns. Creditor
and LaSalle agree that they will, at the request of the other, enter into an
agreement, in the form of this Intercreditor Agreement, MUTATIS MUTANDIS,
with another lender in the event the obligations of Borrower or any successor
or assign of Borrower are refinanced by such lender.
<PAGE>
16. GOVERNING LAW. This Intercreditor Agreement shall be governed
as to validity, interpretation, enforcement and effect by the laws of the
State of Illinois without giving effect to conflicts of law principles
thereunder.
IN WITNESS WHEREOF, Creditor has executed this Intercreditor
Agreement as of the date first above written.
LASALLE BUSINESS CREDIT, INC. DGJ, L.L.C.
By: /s/ William A. Stapel By: /s/ Gary R. Edidin
--------------------- ----------------------
Its: F.V.P. Its: President
<PAGE>
BORROWER'S CONSENT
Borrower hereby consents to the foregoing Intercreditor Agreement
(and the terms thereof) and agrees to abide thereby and to keep, observe and
perform the several matters and things therein intended to be kept, observed
and performed by it, and specifically agrees not to make any payments
contrary to the terms of said Agreement.
A breach of any of the terms and conditions of this consent shall
constitute an "Event of Default" under the Loan and Security Agreement dated
August 19, 1999 between Borrower and Bank.
BORROWER:
BPI PACKAGING TECHNOLOGIES, INC.
By: /s/ James F. Koehlinger
---------------------------
Title: Chief Financial Officer
---------------------------
<PAGE>
EXHIBIT 10.45
AMENDED AND RESTATED PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND SHALL NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT. FURTHERMORE,
THIS NOTE CAN BE SOLD OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE
CONDITIONS SPECIFIED IN THE SECURITIES PURCHASE AGREEMENT BETWEEN THE COMPANY
(AS HEREINAFTER DEFINED) AND INVESTOR (AS HEREINAFTER DEFINED) DATED AS OF
JANUARY 27, 1999 (THE "SECURITIES PURCHASE AGREEMENT"), A COMPLETE AND
CORRECT COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF
THE COMPANY AND WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER OF THIS NOTE
UPON WRITTEN REQUEST.
No. N-2
$4,773,584.88 August 19, 1999
BPI Packaging Technologies, Inc., a Delaware corporation (the "Company"), for
value received, hereby promises to pay to the order of DGJ, L.L.C.
("Investor"), or its registered assigns, the principal amount of Four Million
Seven Hundred Seventy Three Five Hundred Eighty Four and 88/100
($4,773,584.88) payable as follows: The principal amount of $3,200,000 is
due and payable on February 1, 2004, or the earlier occurrence of one of the
events set forth in Sections 3.1(b) through (f) of the Securities Purchase
Agreement (or earlier whether by acceleration or otherwise), and the
remaining principal balance of $1,573,584.88 shall be due and payable ON
DEMAND. The Company also agrees to pay interest on the unpaid principal
amount hereof from the date hereof until such principal amount shall have
become due and payable (whether at maturity or otherwise) at the rate of ten
percent (10%) per annum (computed on the basis of actual number of days
elapsed and a 360-day year). Interest shall be payable monthly in arrears on
the first business day of each month, commencing September 1999, through
maturity and on each date a principal payment is made. The Company also
agrees to pay, on demand, interest at the rate of fifteen percent (15%) per
annum on any overdue principal and, to the extent permitted by applicable
law, any overdue interest, until the obligation of the Company with respect
to the payment thereof shall be discharged. In the event that all or any
portion of the principal amount of this Amended and Restated Promissory Note
(the "Note") is repaid prior to maturity, regardless of whether such
repayment is a voluntary prepayment or results from the exercise of the
Investor's remedies pursuant to the Security Agreement by and between the
Company and the Investor dated January 27, 1999, executed in connection with
the Securities Purchase Agreement (the "Security Agreement"), such prepayment
shall not include a prepayment premium.
This Note is in replacement of and substitution for instruments previously
executed by the Company as more particularly described in that certain First
Amendment to Security Agreement of even date herewith between the Company and
the Investor.
All payments of principal and interest hereof shall be made in lawful money
of the United States of America upon presentation hereof to the account of
the holder hereof at the principal office of Investor at 600 Central Avenue,
Suite 262, Highland Park, Illinois 60035, or at such other place as the
holder hereof shall have designated to the Company in writing.
The holder of this Note is entitled to enforce the provisions of the
Securities Purchase Agreement and Exhibits thereto and to enjoy the benefits
thereof. This Note is secured pursuant to the Security Agreement.
The Company may at its election prepay this Note, in whole or in part, and
the maturity hereof may be accelerated by the holder of this Note or by
holders of a percentage of the Note outstanding following an Event of
Default, all as provided in such Security Agreement, to which reference is
made for the terms and conditions of such provisions as to prepayment and
acceleration.
<PAGE>
Transfer of this Note is registrable on the note register of the Company upon
presentation at the principal office of the Company accompanied by a written
instrument of transfer in form satisfactory to the Company duly executed by,
or on behalf of, the holder hereof. This Note may also be exchanged at such
office for one or more Notes in any authorized denominations (multiples of
$50,000.00), as requested by the holder, of a like aggregate unpaid principal
amount.
Prior to due presentment for registration of transfer, the Company and any
agent of the Company may treat the person in whose name this Note is
registered as the owner hereof for the purpose of receiving payment of
principal and interest as herein provided and for all other purposes.
The obligations of the Company under this Note are subject to the terms of
that certain Intercreditor Agreement dated August 19, 1999, by and between
the Investor and LaSalle Business Credit, Inc.
This Note shall be deemed to take effect as a sealed instrument under the
laws of the State of Illinois and for all purposes shall be construed in
accordance with such laws.
BPI PACKAGING TECHNOLOGIES, INC.
By: /s/ James F. Koehlinger
-----------------------
Name: James F. Koehlinger
-----------------------
Title: Chief Financial Officer
-----------------------
<PAGE>
EXHIBIT 10.46
EQUIPMENT LEASE
THIS EQUIPMENT LEASE (the "Lease") is entered into as of the 27th day of
January, 1999, between DGJ, L.L.C., a Delaware limited liability company,
with its principal place of business located at 600 Central Avenue, Suite
262, Highland Park, Illinois 60035 ("Lessor") and BPI Packaging Technologies,
Inc., a Delaware corporation, with its principal place of business located at
455 Somerset Avenue, North Dighton, Massachusetts 02764 ("Lessee").
W I T N E S S E T H:
WHEREAS, Lessor and Lessee desire to enter into an agreement for the
leasing of certain equipment described herein on the terms and subject to the
conditions contained herein;
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. LEASE. Lessor shall lease to Lessee, and Lessee hereby accepts and
leases from Lessor, the personal property described on Schedule A attached
hereto and made a part hereof (hereinafter, together with all replacement
parts, repairs, additions and accessories incorporated therein and/or affixed
thereto, the "Equipment") on the terms and subject to the conditions
hereinafter set forth. All prior leases relating to the Equipment between
Lessee and other Lessors are hereby terminated.
2. TERM. The initial term of this Lease shall commence on the date
hereof and terminate on the tenth annual (10th) anniversary of the date
hereof, unless terminated sooner as hereinafter set forth.
3. RENT. The rent for the Equipment shall be One Hundred Two Thousand
and No/100 Dollars ($102,000.00) per month payable monthly in advance. The
first payment of rent shall be due on the first day of the month after the
effective date of this Lease and shall be a pro rata portion of the monthly
rent. Thereafter, rent shall be paid on the first (1st) day of each
successive month during any term hereof, or any extension or renewal thereof.
Lessee shall pay Lessor said rent at the office of Lessor set forth in the
preamble of this Lease, or at such other place as Lessor may from time to
time designate in writing.
4. CONDITION OF EQUIPMENT, DELIVERY, INSTALLATION, AND TECHNICAL
ASSISTANCE.
(a) CONDITION OF EQUIPMENT. The Lessee acknowledges that the Equipment
being leased hereunder is being leased "as is, where is," and Lessee agrees
to accept and lease such Equipment at its own risk. LESSOR MAKES NO
WARRANTIES, EXPRESS OR IMPLIED, AS TO THE CONDITION, MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE, OR ANY OTHER MATTER CONCERNING THE EQUIPMENT.
(b) DELIVERY OF EQUIPMENT. To the extent the Equipment is not
otherwise located at the Lessee's premises at 455 Dighton Avenue, Somerset,
Massachusetts (the "Premises"), Lessor shall, at Lessee's expense, pack the
Equipment and deliver the Equipment to Lessee at the Lessee's premises.
Lessee shall, at its expense, be responsible for unpacking, installing, and
connecting the Equipment at the Lessee's premises.
(c) LOSSES. Lessor shall not be liable for any losses or damages of
any kind (whether incidental, consequential or otherwise) suffered by Lessee
or by any other person or entity, including, without limitation, damages
resulting from business interruption and injury to persons or property,
resulting from non-delivery or late delivery, installation, failure or faulty
operation, condition, suitability or use of the Equipment.
5. MAINTENANCE OF THE EQUIPMENT. During the term of this Lease and any
extension or renewal thereof, Lessee shall, at its expense, maintain the
Equipment in good condition and repair and in safe working order, ordinary
wear and tear resulting from proper use thereof excepted. Lessee shall be
responsible for all costs
<PAGE>
associated with the repair and maintenance of the Equipment. There shall be
no abatement of rent during any time the Equipment is under repair or is not
operating. Not in limitation of the foregoing, Lessee shall be solely
responsible for the following: (i) the addition of safety devices and guards
to, or the repair or replacement of missing, outdated or deficient safety
devices and guards on, the Equipment, or otherwise ensuring the compliance
and condition of the Equipment or the Premises, as may be necessary to meet
any and all applicable governmental safety standards, in effect on the date
hereof and at all times hereafter, including without limitation, all safety
standards under OSHA regulations; (ii) the compliance with all governmental
regulations with respect to the affixation of prominently displaced legible
warning labels on the Equipment; and (iii) ensuring that all persons using or
affected by the Equipment are properly trained and supervised and are
provided with adequate safety equipment.
6. USE OF EQUIPMENT, LOCATION AND ACCESS.
(a) USE AND LOCATION. The Equipment shall be used exclusively for the
manufacture of products sold by Lessee. Lessee shall maintain and operate
the Equipment exclusively at the Premises and shall not remove the Equipment
therefrom without the prior written consent of Lessor.
(b) ACCESS. Lessee shall provide Lessor access, during normal business
hours, to the Equipment, to any meters attached to or provided with the
Equipment, and to all maintenance and other records concerning the Equipment,
including, without limitation, all records concerning the compliance with
governmental safety standards.
7. EXPENSES, TAXES, INSURANCE, AND RISK OF LOSS.
(a) EXPENSES AND TAXES. Except as otherwise herein specifically
provided, Lessee shall pay all costs and expenses of every character related
to the purchase, sale, ownership, delivery, leasing, possession, use,
operation or sale of the Equipment, including, without limitation, all
license and registration fees, repairs, maintenance, taxes, assessments,
governmental and other charges imposed upon the Equipment. Such amounts
shall be paid as additional rent hereunder.
(b) INSURANCE. Lessee, at its sole cost and expense, will procure and
maintain: (i) insurance against any risk of loss or theft of or damage from
any and every cause to the Equipment, for the full replacement value thereof;
(ii) public liability and property damage insurance; and (iii) personal
injury and products liability insurance, in forms and amounts reasonably
satisfactory to Lessor. Such policy or policies shall not be subject to
cancellation or modification with less than thirty (30) days notice to
Lessor. Lessee shall provide Lessor with a certificate of insurance, naming
Lessor as an additional insured as its interest may appear, within ten (10)
days of the commencement of this Lease and any and all certificates of
renewal not less than thirty (30) days prior to the renewal of any such
policy or policies. Lessee shall be responsible for procuring such other or
additional insurance as it may deem desirable or appropriate to protect its
interests or obligations hereunder.
(c) RISK OF LOSS. Until the Equipment is returned to Lessor upon the
termination of this Lease, Lessee hereby assumes and shall bear the entire
risk of loss, damage to, theft of, or destruction of the Equipment for any
cause whatsoever ("Loss or Damage") whether or not such Loss or Damage is
covered by insurance. Such risk of loss shall pass to Lessee upon Lessor's
commencement of delivery of the Equipment to Lessee or upon the effective
date hereof, if no such delivery is required. No such Loss or Damage shall
relieve Lessee of any of its obligations under this Lease. Lessee shall
immediately notify Lessor of any accident or event of loss involving the
Equipment.
8. INDEMNIFICATION AND WAIVER.
(a) INDEMNITY. Lessee for itself and for its successors, assigns,
stockholders, officers, directors, employees, and representatives, hereby
indemnifies and agrees to defend and hold Lessor and its successors, assigns,
members, stockholders, officers, directors, employees, and representatives,
harmless from and against any and all claims (including, without limitation,
claims of personal injury or property damage), actions, liabilities, losses
and costs (including, without limitation, reasonable attorneys' fees and
expenses), arising out of, resulting from or in any way attributable to the
use or operation of the Equipment, while in Lessee's possession, or any
devices, materials or things to which the products manufactured with the
Equipment are made a part, notwithstanding the subsequent transfer of such
products, devices, materials or things to any third party, regardless of
whether Lessor or others may
<PAGE>
be wholly, concurrently, partially, jointly or solely negligent or otherwise
at fault. This subparagraph shall survive the termination of this Lease.
(b) WAIVER. Lessee, for itself and its insurance carriers, forever
waives any workers compensation lien, if any, and subrogation rights against
Lessor, its successors, assigns, stockholders, officers, directors,
employees, or representatives, for any personal injuries arising out of,
resulting from or in any way attributable to the use or operation of the
Equipment, occurring on or after the date the Equipment is or was first
delivered to or put in service by Lessee. Further, Lessee, for itself and
its insurance carriers, covenants and agrees not to threaten or bring action
or suit against Lessor, its successors, assigns, members, stockholders,
officers, directors, employees, or representatives, for any losses,
liabilities, damages, costs or expenses, including, without limitation,
reasonable attorneys' fees and expenses that Lessee may incur on or after the
date hereof arising out of, resulting from or in any way attributable to the
use or operation of the Equipment. This subparagraph shall survive the
termination of this Lease.
9. EARLY TERMINATION; EXPIRATION AND PAYMENT THEREON; SURRENDER AND
RETURN OF EQUIPMENT; STORAGE.
(a) Omitted.
(b) EXPIRATION AND PAYMENT THEREON. Upon the expiration of this Lease
at the end of its term as provided Paragraph 2, or earlier termination as
herein provided, Lessee shall pay to Lessor the cash sum of Six Million Eight
Hundred Thousand Dollars ($6,800,000), and title to the Equipment shall
thereupon vest in Lessee. Lessor shall execute all such bills of sale,
releases and other instruments as are appropriate and customary to effectuate
such transfer. Payment of such amount shall be made to Lessor by Lessee on
the last day of the term of this Lease. Such payment shall not be due if
early termination is elected by Lessor pursuant to Paragraph 9(a) and Lessee
has duly and timely returned the Equipment to Lessor and complied with all
other terms and conditions hereof.
(c) GENERAL. Upon early termination pursuant to Paragraph 9(a), or
upon expiration of the term of this lease but failure to pay the amount
required of Lessee under Paragraph 9(b), Lessee shall make available the
Equipment, in good condition and repair and in working order, by
disconnecting the Equipment and providing Lessor or Lessor's authorized
representatives, access to Lessee's facilities at such time or times as
requested by Lessor to enable Lessor to package and remove the Equipment from
Lessee's facility. Upon Lessor's request, subsequent to the termination or
expiration hereof, Lessee shall store the Equipment upon its Premises for so
long as may be requested by Lessor, at no charge to Lessor.
10. DEFAULT; COMPLIANCE WITH SECURITIES PURCHASE AGREEMENT. It shall
be an event of default hereunder if: (i) Lessee fails to pay any rent or
other charges due hereunder when due and such failure shall continue for five
(5) days, or Lessee fails to make the payment required upon termination of
this Lease under paragraph 9 hereof by the date indicated therein; (ii)
Lessee fails to perform any other covenant herein and such failure shall
continue for ten (10) days after written notice thereof by Lessor to Lessee;
(iii) Lessee shall cease to do business as a going concern; (iv) a petition
is filed by or against Lessee under the United States Bankruptcy Code or any
amendment thereto (including a petition for reorganization or an
arrangement), which if involuntary is not discharged within ninety (90) days;
(v) Lessee makes a general assignment for the benefit of its creditors; (vi)
Lessee sells, transfers or disposes of all or substantially all of its assets
or property; (vii) Lessee attempts to remove, sell, transfer, encumber,
sublet or part with possession of the Equipment; or (viii) upon any Event of
Default under that certain Securities Purchase Agreement dated as of the date
hereof between Lessor and Lessee or any Related Document (as defined
therein). In the event of the occurrence of a default: (1) all sums to
become due hereunder, including but not limited to the $6,800,000 payment due
upon expiration, shall, at Lessor's option, become due and payable forthwith;
or (2) the Equipment shall upon Lessor's demand be surrendered in accordance
with Paragraph 9 or Lessor and/or its agents may, without notice or liability
or legal process, enter into any premises under the control of Lessee, or any
agent of Lessee, where the Equipment may be or where Lessor believes the
Equipment to be, and repossesses all or any part of the Equipment,
discontinue and separate all thereof from any other property and using all
force necessary or permitted by applicable law to do so. Lessee hereby
expressly waives all further rights to possession of the Equipment and all
claims for injuries suffered through or caused by such repossession. Should
any legal proceedings be instituted by Lessor to recover any moneys due or to
become due hereunder and/or for possession of any or all of the Equipment,
Lessee shall pay all expenses incurred by Lessor in exercising or
<PAGE>
attempting to exercise its rights, powers and remedies herein conferred or
now or hereafter existing, at law or in equity, or in collecting or
attempting to collect moneys due or to become due under the Lease, including,
without limitation, reasonable attorneys' fees and expenses.
To the extent permitted by applicable law, Lessee waives any and all
rights and remedies conferred upon a lessee by Sections 2A-401 and 2A-402,
and Sections 2A-508 through 2A-522 of the Illinois Uniform Commercial Code,
including, but not limited to, Lessee's rights to: (a) cancel, terminate,
repudiate or rescind this Lease; (b) suspend performance of any of its
obligations; (c) reject the Equipment or revoke acceptance of the Equipment
after Lessee shall have executed and delivered to Lessor the Delivery and
Acceptance Certificate for the Equipment; (d) recover damages or rent or the
Equipment from Lessor for any breach of warranty or for any other reason, or
deduct any damages from any rent or other sums due Lessor; (e) claim a
security interest in the Equipment in Lessee's possession or control for any
reason; (f) sell or otherwise dispose of the Equipment, or claim any expenses
in connection therewith; (g) deduct from rental payments or any other sums
due hereunder all or any part of any claimed damages resulting from Lessor's
default under this Lease; (h) accept partial delivery of the Equipment; (i)
"cover" by making any purchase or lease of other equipment in substitution
for the equipment due from Lessor hereunder; (j) recover from the Lessor or
any Assignee any general, special, incidental or consequential damages, for
any reason whatsoever; and (k) specific performance, replevin or the like for
any of the Equipment.
To the extent permitted by applicable law, Lessee hereby waives any
rights now or hereafter conferred by statute or otherwise which may require
Lessor to sell, lease or otherwise use the Equipment in mitigation of
Lessor's damages, as set forth in this Section or which may otherwise limit
or modify any of Lessor's rights or remedies under this Section.
Lessee expressly agrees to perform, observe and comply with each term,
covenant and condition imposed on it under the Securities Purchase Agreement.
Any default by Lessee thereunder shall be deemed a default by Lessee
hereunder.
11. OWNERSHIP, PERSONAL PROPERTY, AND FURTHER ASSURANCES. The
Equipment is, and shall at all times during the term hereof remain, the sole
and exclusive property of Lessor. Lessee shall have no right, title or
interest to the Equipment except as expressly set forth in this Lease.
Lessee shall not part with possession or control of the Equipment or sell,
pledge, mortgage, otherwise encumber, or allow any financing statements to be
filed against the Equipment or any part thereof or any interest under this
Lease. The Equipment shall remain personal property regardless of whether it
becomes affixed or attached to real property. Lessee shall execute and
deliver to Lessor, upon Lessor's request, such instruments and assurances as
Lessor deems necessary or advisable for the confirmation or recordation of
this Lease and Lessor's rights in the Equipment. Where so provided by law,
Lessor may execute and file an appropriate Financing Statement on Lessee's
behalf. After payment in full of all amounts due hereunder or upon the
termination of this Lease and the return of the Equipment to Lessor, Lessor
agrees to execute a release of any Financing Statement filed against the
Equipment and Lessee. If Lessor has put a label or any other identifying
mark on the Equipment, Lessee shall not remove the same, without the prior
written consent of Lessor.
12. ASSIGNMENT. Lessee shall not assign or pledge this Lease or any
interest therein, or sublet or lend the Equipment, without the prior written
consent of Lessor. Lessor may assign this Lease without notice and the
assignee shall succeed to the rights of Lessor. Lessee is precluded from
asserting against any such assignee of Lessor any defense, set-off,
counterclaim or action which Lessee may have against Lessor. Upon
notification of such assignment, all payments required hereunder shall be
made in accordance with Lessor's directions.
13. GENERAL PROVISIONS.
(a) ENTIRE AGREEMENT; SEVERABILITY. This Lease constitutes the entire
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all discussions, negotiations and agreements among the
parties, whether written or oral, prior to or contemporaneous with the date
hereof. If any provision of this Lease is found invalid, unenforceable or in
violation of any law by a court of competent jurisdiction, such provision
shall be modified only to the extent necessary to enable such provision to be
valid and enforceable, without affecting the remaining portions of this
Lease, which shall remain in full force and effect. No representation,
inducement,
<PAGE>
agreement, promise or understanding altering, modifying, taking from or
adding to the terms and conditions hereof shall have any force or effect
unless the same is in writing and validly executed by the parties hereto.
(b) GOVERNING LAW. This Lease shall be governed by and construed in
accordance with the laws of the State of Illinois. The parties hereto
consent and submit to the jurisdiction of any local, state or federal court
located in Cook County, Illinois for purposes of resolving any disputes
arising hereunder and said courts shall have the exclusive jurisdiction to
adjudicate the rights and obligations of the parties arising out of or
relating in any manner to this Lease. In the event that it becomes necessary
to bring legal action to enforce any of the provisions of this Lease, the
prevailing party shall, in addition to any other rights at law or in equity,
be entitled to recover its expenses of such action, including, without
limitation, attorneys' fees and expenses, from the nonprevailing party.
(c) WAIVER. Except to the extent specifically set forth herein, no
waiver, forbearance or failure by any party of its right to enforce any
provision of this Lease shall constitute a waiver or estoppel of such party's
right to enforce any other provision of this Lease or such party's right to
enforce such provision in the future.
(d) NOTICES. Any notice or other communication required or permitted
under this Lease shall be valid and effective only if given by written
instrument that is personally delivered or sent by telegraph, telecopier, or
registered or certified mail, postage prepaid, addressed in accordance with
the addresses set forth in the preamble of this Lease. Any party may change
the address at which it is to be given notice by giving notice to the other
party as provided in this subparagraph 13(d).
(e) SUCCESSORS AND ASSIGNS. This Lease shall be binding upon and inure
to the benefit of the parties hereto and their respective permitted
successors and assigns.
(f) HEADINGS. The paragraph headings in this Lease are for reference
purposes only and are not intended to limit or restrict, expand or otherwise
affect the meaning or interpretation of the provisions of this Lease.
(g) COUNTERPARTS. This Lease may be executed in one or more
counterparts which, when taken together, shall constitute one and the same
Agreement. Any party may execute and deliver this Lease by executing and
delivering any such counterpart.
14. REPLACEMENT OF PREVIOUS LEASE. This Lease is executed in full
replacement of and full substitution for that certain Equipment Lease dated
as of January 27, 1999 between Lessor and Lessee.
IN WITNESS WHEREOF, the parties have duly executed this Equipment Lease
as of the date first above written.
BPI Packaging Technologies, Inc.
By: /s/ James F. Koehlinger
-----------------------
Title: Chief Financial Officer
DGJ, L.L.C.
By: /s/ Gary R. Edidin
-----------------------
Title: President
<PAGE>
SCHEDULE A TO EQUIPMENT LEASE DATED JANUARY 27, 1999
BETWEEN DGJ, L.L.C. AND BPI PACKAGING TECHNOLOGIES, INC.
The "Equipment" subject to the Lease means all Equipment described or
referenced in those certain Bills of Sale executed by Charter Financial
Corporation, the CIT Group/Equipment Financing, Inc., FINOVA Capital
Corporation, General Electric Capital Corporation, Mellon Financial
Corporation, Phoenixcor, and Textron Financial Corporation, or their
subsidiaries or affiliates, each dated on or about January 22, 1999, and, in
addition, all "Equipment" under and as defined in that certain Bill of Sale
dated January 27, 1999 executed by BPI Packaging Technologies, Inc., as
grantor to DGJ, L.L.C.
<PAGE>
EXHIBIT 23.1
CONSENT OF LIVINGSTON & HAYNES, P.C., INDEPENDENT ACCOUNTANTS
The Board of Directors
BPI Packaging Technologies, Inc.
We consent to the use in this Registration Statement of BPI Packaging
Technologies, Inc. on Forms S-1 for registration of 3,850,697 shares of its
common stock of our report dated March 22, 1999, which appears in such
Registration Statement, and to the reference to us under the caption "Experts"
in such Registration Statement.
/s/ LIVINGSTON & HAYNES, P.C.
Livingston & Haynes, P.C.
Wellesley, MA
October 15, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
BPI Packaging Technologies, Inc.
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated May 22, 1998, relating to the financial statements of BPI
Packaging Technologies, Inc., which appear in such registration Statement. We
also consent to the reference to us under the heading "Experts" in such
Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Boston, MA
October 15, 1999
