<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 3, 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 organization) Industrial Identification No.)
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.
BETH M. GOTTLIEB, ESQ.
HOLLEB & COFF
55 EAST MONROE
SUITE 4000
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
AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE PRICE
<S> <C> <C> <C>
Common stock, par value $0.01 per share(1)... 15,000,000 $0.04 $600,000
<CAPTION>
AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTRATION FEE
<S> <C>
Common stock, par value $0.01 per share(1)... $158.40
</TABLE>
(1) Each right entitles a stockholder to purchase 0.7 shares of common stock at
a subscription price of $0.04 per share. The number of shares of common
stock registered hereunder is the maximum number of shares of common stock
to be sold in this rights offering.
------------------------------
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 DECEMBER , 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
15,000,000 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 for 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.
We are distributing non-transferable rights to owners of shares of our
common stock. During this rights offering, we will issue rights to purchase
15,000,000 shares of common stock.
<TABLE>
<CAPTION>
NET PROCEEDS
SUBSCRIPTION TO THE
PRICE COMPANY(1)
<S> <C> <C>
Per Share............................................... $0.04 $0.04
Total................................................... $600,000 $600,000
</TABLE>
(1) Before deducting expenses payable by us, estimated to be $75,000.
You will receive one right for each share of common stock that you own at
the close of business on December 2, 1999. Each right entitles you to purchase
0.7 shares of common stock, rounding any remaining fractional shares down to the
next whole number of shares, for $0.04 per share. DGJ, L.L.C., an entity which
controls 80,000,000 warrants convertible into shares of our common stock, has
agreed that it will not exercise, during this rights offering, rights
attributable to any shares if DGJ chooses to exercise any of its warrants.
Our common stock is traded on the NASDAQ Over-the-Counter Bulletin Board
under the symbol "BPIE." On November 10, 1999, the closing price of our common
stock on the NASDAQ Over-the-Counter Bulletin Board was $0.06 per share. The
rights may not be transferred and will not trade on any exchange or market.
THE EXERCISE OF THE RIGHTS INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
PURCHASE SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS. SEE PAGES 8 TO 11 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 December , 1999.
<PAGE>
TABLE OF CONTENTS
PROSPECTUS
<TABLE>
<S> <C>
ABOUT THIS PROSPECTUS....................................... 1
PROSPECTUS SUMMARY.......................................... 2
RISK FACTORS................................................ 8
FORWARD-LOOKING STATEMENTS.................................. 11
USE OF PROCEEDS............................................. 12
SELECTED FINANCIAL DATA..................................... 13
BUSINESS.................................................... 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 19
MANAGEMENT.................................................. 27
DESCRIPTION OF OUR SECURITIES............................... 37
PRICE RANGE OF COMMON STOCK................................. 40
PERFORMANCE GRAPH........................................... 41
PRINCIPAL STOCKHOLDERS...................................... 42
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 46
THE RIGHTS OFFERING......................................... 46
FEDERAL INCOME TAX CONSIDERATION............................ 51
TAX CONSEQUENCES TO STOCKHOLDERS............................ 52
TAXATION OF OUR COMPANY..................................... 53
IF YOU HAVE QUESTIONS....................................... 53
PLAN OF DISTRIBUTION........................................ 54
EXPERTS..................................................... 54
CHANGE OF ACCOUNTANTS....................................... 54
LEGAL MATTERS............................................... 54
TRANSFER AGENT.............................................. 55
INDEMNIFICATION............................................. 55
WHERE YOU CAN FIND MORE INFORMATION......................... 56
INCORPORATION OF INFORMATION WE FILE WITH THE SEC........... 56
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 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 section answers in summary form some questions you may have about us
and this rights offering. The information in this section is not complete and
may not contain all of the information that you should consider before
exercising your rights. You should read the entire prospectus carefully,
including the "Risk Factors" section and the documents listed under "Where You
Can Find More Information."
QUESTIONS AND ANSWERS ABOUT OUR COMPANY
WHAT IS BPI PACKAGING TECHNOLOGIES, INC.?
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.
WHERE ARE WE LOCATED?
Our corporate offices are located at 455 Somerset Avenue, North Dighton,
Massachusetts 02764. Our telephone number is (508) 824-8636.
WHAT ARE 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 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 each of common stock and warrants
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 each of common stock and warrants only to
accredited investors as defined in Regulation D. Under Regulation S, we sold
872,000 shares each of common stock and warrants outside the United States to
non-U.S. investors.
2
<PAGE>
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 were registered under the
Securities Act on October 28, 1999.
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. Since August 14, 1998, our common stock has been traded on
the NASDAQ Over-the-Counter Bulletin Board under the symbol "BPIE."
On January 27, 1999, we entered into a Securities Purchase Agreement with
DGJ, under which we issued and sold to DGJ:
1. a Promissory Note in the principal amount of $3,200,000;
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.
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. As of September 30, 1999, 5,626,000 of the 7,500,000 issued
warrant shares were converted into common stock.
3
<PAGE>
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. As of
November 10, 1999, the balance outstanding under this agreement is $3,231,130.
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 at 6%, 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 Capital Corporation 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>
QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING
WHAT IS A RIGHT?
We will distribute to you, at no cost, one right for each share of common
stock that you own at the close of business on December 2, 1999. For every right
you receive, you will be entitled to purchase 0.7 shares of common stock,
rounding any remaining fractional shares down to the nearest whole number of
shares, for $0.04 per share. When you "exercise" rights, that means that you
choose to purchase the shares of common stock that the rights entitle you to
purchase. You may exercise any number of your rights, or you may choose not to
exercise any rights.
WHAT IS THE RIGHTS OFFERING?
This rights offering is an opportunity for you to purchase shares of common
stock at a fixed price and in an amount proportional to your existing interest
in us.
WILL EVERY STOCKHOLDER RECEIVE RIGHTS IN PROPORTION TO THEIR CURRENT HOLDINGS?
Except as described below, all stockholders as of the close of business on
December 2, 1999 will receive rights in proportion to their holdings as of that
date. As part of the January 27, 1999 financing, we approved this rights
offering to holders of our common stock as of a set date; however, DGJ as an
investor in our Company, who received warrants to purchase our common stock at
$0.04 per share, and our affiliates were deemed not to be eligible to receive
rights in this offering. Hence, DGJ and our affiliates, as defined in the
Securities Purchase Agreement between us and DGJ, dated January 27, 1999, will
not receive rights to purchase our common stock in this offering. The purpose of
this offering is to give non-affiliated stockholders an opportunity to make an
additional investment in us at the same price per share as given to DGJ to
express our appreciation to you for maintaining your support in us.
HOW MANY SHARES MAY YOU PURCHASE?
You will receive one basic right for each share of common stock that you own
at the close of business on December 2, 1999. Each basic right entitles you to
purchase 0.7 shares of common stock, rounding any remaining fractional shares
down to the nearest whole number of shares, for $0.04 per share. If you exercise
all of your basic rights, you can elect to oversubscribe for oversubscription
rights, if available, which will entitle you to purchase an unlimited number of
shares of common stock, at $0.04 per share, subject to the maximum number of
shares of common stock offered in the rights offering and certain other
restrictions. If there are an insufficient number of unpurchased shares of
common stock to fill all subscriptions pursuant to the oversubscription rights,
then the available shares of common stock will be allocated pro rata among the
oversubscribers.
HOW DID WE ARRIVE AT THE $0.04 PER SHARE PRICE?
The price of $0.04 per share was decided upon in connection with the
January 27, 1999 financing. Our then Board of Directors felt it was important to
provide our stockholders the opportunity to make an additional investment in us
at the same price per share as DGJ to express appreciation to the stockholders
who have supported us through our financial difficulties. DGJ purchased
80,000,000 warrants convertible into shares of common stock, with a conversion
price $0.04 per share of common stock. Hence, the price per share in this
offering is $0.04.
HOW DO YOU EXERCISE YOUR RIGHTS?
You must properly complete the attached subscription certificate and forward
it to American Stock Transfer and Trust Company, as subscription agent, on or
before , 1999. The address for the
5
<PAGE>
subscription agent is on page 51. Your subscription certificate must be
accompanied by proper payment for each share that you wish to purchase.
HOW LONG WILL THE RIGHTS OFFERING LAST?
You will be able to exercise your rights only during a limited period. If
you do not exercise your rights before 5:00 p.m. eastern time, on , 1999,
the rights will expire. We, in our discretion, may decide to extend the rights
offering for up to ten days.
AFTER YOU EXERCISE YOUR RIGHTS, CAN YOU CHANGE YOUR MIND?
No. Once you send in your subscription certificate and payment, you cannot
revoke the exercise of your rights.
IS EXERCISING YOUR RIGHTS RISKY?
The exercise of your rights involves a degree of risk. You should carefully
consider the "Risk Factors" described in this prospectus, beginning on page 8.
WHAT HAPPENS IF YOU CHOOSE NOT TO EXERCISE YOUR RIGHTS?
You will retain your current number of shares of common stock even if you do
not exercise your rights. If you do not exercise your rights, you could diminish
your proportionate interest in us, and your voting rights could be diluted.
CAN YOU SELL YOUR RIGHTS?
No. You may not sell or transfer your rights to another individual or
entity.
CAN YOU SELL YOUR COMMON STOCK AFTER THE RIGHTS OFFERING?
Common stock sold in this rights offering will be registered under the
federal securities laws. Therefore, these shares of common stock may be sold
freely after the rights offering.
WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF EXERCISING YOUR RIGHTS?
It is intended that the receipt of the rights by stockholders will be a
non-taxable stock dividend. However, the IRS may view the distribution of the
rights as ordinary income to the stockholders taxable in the amount of the fair
market value of the rights. In any event, the exercise of the rights will not be
taxable. You should seek specific tax advice from your personal tax advisor.
WHEN WILL YOU RECEIVE YOUR NEW SHARES?
Certificates for shares of common stock subscribed for pursuant to the basic
rights will be delivered to you as soon as practicable after receipt by the
subscription agent of your duly completed and exercised subscription certificate
and payment in full for the shares of common stock pursuant to the basic rights.
As soon as practicable after the expiration date of the rights, we will
determine the number of shares of common stock, if any, which have been
purchased by holders of rights who have exercised their oversubscription rights,
and certificates representing the shares of common stock so purchased will be
sent to the purchasers. If it is necessary to allocate any available shares of
common stock among those rights holders exercising oversubscription rights,
overpayments for shares of common stock not issued to such holders will be
promptly refunded, without interest.
6
<PAGE>
CAN WE CANCEL THE RIGHTS OFFERING?
Yes. We can cancel the rights offering at any time on or before ,
1999, for any reason.
HOW MUCH MONEY WILL WE RECEIVE FROM THE RIGHTS OFFERING?
Our gross proceeds from the rights offering depend on the number of shares
of common stock that are purchased. If we sell all 15,000,000 shares offered by
this prospectus, then we will receive proceeds of $600,000 from the rights
offering.
HOW WILL WE USE THE PROCEEDS FROM THE RIGHTS OFFERING?
We will use the proceeds from the rights offering for working capital
purposes and general corporate purposes.
HOW MANY SHARES WILL BE OUTSTANDING AFTER THE RIGHTS OFFERING?
The number of shares of common stock outstanding after the rights offering
depends on the number of shares that are purchased.
If we sell all of the shares offered by this prospectus, then we will issue
during the rights offering 15,000,000 new shares of common stock. Based on this
number, we anticipate that there will be 42,131,221 shares of our common stock
outstanding after the rights offering.
WHO CAN YOU TALK TO IF YOU HAVE MORE QUESTIONS?
If you have questions or need assistance concerning the procedure for
exercising rights, or if you would like additional copies of this prospectus or
the notice of guaranteed delivery, you should contact the subscription agent at
the address on page 51 below.
If you have other questions about the rights offering, please contact:
Lisa Lima
455 Somerset Avenue
North Dighton, Massachusetts 02764
(508) 824-8636
7
<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 loss was $551,001 for our first nine months in 1999, including
extraordinary income of $1,920,465. 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 ten 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 ten 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. We
have 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 Tredegar Industries. However, we believe that Tredegar
Industries has an exclusive five year supply agreement with a consumer packaged
goods company that prohibits it from supplying other companies. Hence, Tredegar
Industries 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.
8
<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 November 10, 1999, 27,131,221 shares of common stock were outstanding.
The following number of shares of common stock are reserved for the issuance:
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK ARE RESERVED FOR: NUMBER OF SHARES:
- ---------------------------------------- -----------------
<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 Plans (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
9
<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
November 10, 1999, the closing price of our common stock underlying the warrant
held by DGJ was $0.06 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 this 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 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 warrant, 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 intend to raise additional capital for the Company through this rights
offering. We plan on selling up to 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 December 2, 1999. Even after the completion of this rights offering, we
may need additional capital requirements than through this rights offering, our
existing
10
<PAGE>
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 prospects.
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.
IF YOU DO NOT EXERCISE YOUR RIGHTS, YOUR OWNERSHIP INTEREST MAY BE DILUTED.
If you do not exercise all of your rights, you may suffer significant
dilution of your percentage ownership in our Company relative to stockholders
who exercise their rights. Immediately after the rights offering, the net
tangible book value per share of common stock will decrease.
POSSIBLE EXTENSION OF EXPIRATION DATE.
We have reserved the right to extend the expiration date to as late as
, 1999. Funds deposited in payment of the subscription price may not
be withdrawn and no interest will be paid thereon to stockholders.
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
11
<PAGE>
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;
- 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 intend to use the proceeds for working capital purposes and for general
corporate purposes.
12
<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>
NINE MONTHS NINE MONTHS TEN MONTH FISCAL YEARS ENDED
ENDED ENDED YEAR ENDED PERIOD ENDED ------------------------------------------
SEPTEMBER 30, SEPTEMBER 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................. $12,655,596 $ 7,567,594 $10,382,819 $13,951,725 $30,810,037 $28,839,954 $25,254,645
Cost of goods sold........ 10,963,520 6,406,468 8,826,905 17,311,037 27,784,329 26,161,723 19,879,041
----------- ----------- ----------- ------------ ------------ ----------- -----------
Gross profit.............. 1,692,076 1,161,126 1,555,914 (3,359,312) 3,025,708 2,678,231 5,375,604
Selling, general and
administrative
expense................. 2,887,941 3,621,456 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.............. (1,195,865) (2,460,330) (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................. (1,354,713) (343,119) (471,166) (984,064) (1,112,647) (865,206) (280,445)
Interest and other
income.................. 79,112 42,999 45,920 49,206 9,133 47,786 77,104
----------- ----------- ----------- ------------ ------------ ----------- -----------
Net income (loss) before
extraordinary income and
non-recurring charges... (2,471,466) (2,760,450) (3,239,213) (11,338,869) (12,764,231) (4,510,145) 142,431
Extraordinary income...... 1,920,465 -- -- -- -- -- --
Non-recurring charges..... -- -- -- -- -- -- (989,917)
----------- ----------- ----------- ------------ ------------ ----------- -----------
Net income (loss) after
extraordinary income and
non-recurring charges... $ (551,001) $(2,760,450) $(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................... $ (.11) $ (.13) $ (.16) $ (.73) $ (.96) $ (.38) $ (.08)
Shares used in computing
basic and diluted net
loss per share.......... 21,787,413 20,669,723 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................... $ (.03) $ (.13) $ (.16) $ (.73) $ (.96) $ (.38) $ (.08)
Shares used in computing
basic and diluted net
earnings (loss) per
share................... 21,787,413 20,669,723 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
SEPTEMBER 30, SEPTEMBER 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.............. $21,616,980 $ 18,828,745 $17,751,965 $20,970,740 $29,247,231 $35,277,975 $35,341,925
Long term obligations..... $10,389,246 -- -- -- $ 3,809,241 $ 5,441,057 $ 4,495,692
Redeemable preferred
stock................... $ 100 -- -- -- -- $ 183,369 $ 183,369
Working capital
(deficit)............... $(3,783,916) $(12,989,694) $(12,748,154) $(13,897,932) $(5,819,144) $(2,767,867) $ 3,909,634
Stockholders' equity...... $ 3,508,472 $ 3,758,236 $ 3,279,473 $ 5,115,535 $11,544,675 $19,768,971 $24,048,204
</TABLE>
13
<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 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.
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 fourth quarter of 1998 and it
has contributed to our fixed costs since then.
14
<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 ISSUED 1993
COMPANY T-SACK ROLL BAG
AND 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 PLASTICS,
TECHNOLOGY INC.
NO INDIRECT
HIGH PERFORMANCE PRINTED TISSUE UNDER EVALUATION PROCESS DIRECT: EXXON CHEMICAL
OVERWRAP FILM TECHNOLOGY AMERICAS
NO INDIRECT
T-SHIRT CARRYOUT BAG $850 U.S. PATENT DIRECT: VANGUARD, SONOCO AND
ISSUED 1989 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
15
<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 Tredegar Industries. However, we believe that Tredegar
Industries has an exclusive five year supply agreement with a consumer packaged
goods company that prohibits it from supplying other companies and, therefore,
Tredegar Industries 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.
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 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, which is currently available from several sources. The
principal component of this resin is
16
<PAGE>
ethylene, a derivative of natural gas. 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 November 10, 1999 was $1,025,356, 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%. As of
the date hereof, Owens Corning is no longer our customer. Our primary
relationships are with the decision makers at the retail level who chose Bunzl
or other distributors to redistribute our products. Therefore, we do not believe
that the loss of 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 November 10, 1999, we had 181 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 negotiated with the
lessors. Currently, we have no significant pending commercial legal proceedings
with equipment lessors or trade suppliers.
A notice of a 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. On October 28, 1999, the securities held by this group of
investors were
17
<PAGE>
registered with the SEC by 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 November 10, 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 intend to vigorously
defend ourselves against these allegations.
On November 26, 1997, the estate of a former temporary worker, Mr. John
Dion, has filed a wrongful death suit against us in Bristol County
(Massachusetts) Superior Court, Civil Action No. 97-01688. The lawsuit alleges
that our actions caused or contributed to Mr. Dion's December 7, 1994, fatal
forklift accident at our Company. Both parties continue to conduct discovery
regarding this accident. Our general liability insurance carrier is vigorously
defending us against these allegations. The outcome of this lawsuit remains
uncertain. We have a total of $3 million in insurance coverage in place. We
believe the insurance coverage is sufficient to cover our exposure.
18
<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
THIRD QUARTER OF 1999 COMPARED TO THE THIRD QUARTER OF 1998
For the third quarter ended September 30, 1999, we had sales of $5,183,632
compared to sales of $2,927,730 for the third quarter ended September 30, 1998,
an increase of 77%. Sales of the traditional plastic carry-out bag market
accounted for approximately $2.4 million of this increase. We re-entered this
market during the fourth quarter of 1998 and expect continued sales increases in
this segment in future quarters.
To meet the increased sales demand, we went from a 3-shift, 5 day production
schedule to a 4-shift, 7 day production schedule. Due to the dilution of
experience and know-how, this change resulted in a temporary decrease in
productivity. In addition, our scrap rate increased above standard and resin
prices by 60%, resulting in higher material costs. We were unable to pass all of
the increased material costs to our customers due to competitive pricing
pressures. These difficulties were overcome late in the third quarter.
Productivity in the fourth quarter, to date, has increased by 29% over the third
quarter. For these reasons, costs of goods sold was $4,968,287 or 96% of sales,
compared to $1,884,685 or 65% of sales in the third quarter of 1998.
Selling, general and administrative expense for the third quarter of 1999
was $1,078,423, or 21% of sales, compared to $972,641, or 33% of sales, in the
third quarter 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. The decrease in fixed expenses is due to overhead reductions,
including the closing of operations of our two subsidiaries.
For the third quarter of 1999, interest expense was $522,609, compared to
$66,967 for the third quarter of 1998. The increase in interest expense is due
to the conversion of operating leases to capital leases as a result of the
Company's January 1999 financial restructuring.
The net loss before extraordinary income was $1,375,594 in the third quarter
of 1999 compared to a net income of $10,483 in the third quarter of 1998. The
combined income and loss change was primarily due to the increase in cost of
goods sold from a loss of productivity, an increase in material costs and an
increase in interest expense due to the conversion of operating leases to
capital leases. Cost of goods sold would have been approximately $75,000 greater
in the third quarter of both 1999 and 1998 had we not recorded a write-down of
plant and equipment during the fiscal year ended February 28, 1997.
19
<PAGE>
Extraordinary income of $2,758 in the third quarter of 1999 was the result
of the January 1999 financial restructuring and the resulting discounts from
settlements with unsecured creditors. No extraordinary income was reported for
the third quarter of 1998.
Net loss after extraordinary income was $1,375,594 for the third quarter of
1999, compared with a net income of $10,483 in the third quarter of 1998. The
combined income and loss change was primarily due to the increase in cost of
goods sold from a loss of productivity, an increase in material costs and an
increase in interest expense due to the conversion of operating leases to
capital leases. Cost of goods sold would have been approximately $75,000 greater
in the third quarter of both 1999 and 1998 had we not recorded a write-down of
plant and equipment during the fiscal year ended February 28, 1997.
We had basic and diluted net loss before extraordinary income of $0.06 per
share in the third quarter of 1999 compared to a net income of $0.00 per share
in third quarter of 1998.
FIRST NINE MONTHS OF 1999 COMPARED TO THE FIRST NINE MONTHS OF 1998
For the first nine months ended September 30, 1999, we had sales of
$12,655,596 compared to sales of $7,567,594 for the first nine months ended
September 30, 1998, an increase of 67%.
In the first nine months of 1999, cost of goods sold was $10,963,520, or 87%
of sales, compared to $6,406,468, or 85% of sales, in the first nine months of
1998. The increase in cost of goods sold, as percentage of sales, was primarily
due to a temporary loss of productivity and an increase in material costs in the
third quarter, offset by increased volume and productivity in the first two
quarters of 1999. Cost of goods sold would have been approximately $225,000
greater in the first nine months of 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 nine months of
1999 was $2,887,941, or 23% of sales, compared to $3,621,456, or 48% of sales,
in the first nine 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. The decrease in fixed expenses is due to overhead
reductions, including the closing of operations of our two subsidiaries.
For the first nine months of 1999, interest expense was $1,354,713, compared
to $343,119 for the first nine months of 1998. The increase in interest expense
is due to the conversion of operating leases to capital leases as a result of
the January 1999 financial restructuring.
The net loss before extraordinary income was $2,471,466 in the first nine
months of 1999 compared to a net loss of $2,760,450 in the first nine months of
1998. Cost of goods sold would have been approximately $225,000 greater in the
first nine months of 1999 and 1998 had we not recorded a write-down of plant and
equipment during the fiscal year ended February 28, 1997.
Extraordinary income of $1,920,465 in the first nine months of 1999 was the
result of the January 1999 financial restructuring and the resulting discounts
from settlements with unsecured creditors. No extraordinary income was reported
for the first nine months of 1998.
The net loss after extraordinary income was $551,001 for the first nine
months of 1999, compared with a net loss of $2,760,450 in the first nine months
of 1998, an improvement of over $2,200,000. Cost of goods sold would have been
approximately $225,000 greater in the first nine months of 1999 and 1998 had we
not recorded a write-down of plant and equipment during the fiscal year ended
February 28, 1997.
20
<PAGE>
We had basic and diluted net loss before extraordinary income of $0.11 per
share in the first nine months of 1999 compared to a loss before extraordinary
income of $0.13 per share in the first nine 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.
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.
21
<PAGE>
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.
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.
22
<PAGE>
Operating profits (loss) for the various business units are as follows:
<TABLE>
<CAPTION>
10 MONTH PERIOD ENDED
DECEMBER 31, 1997 FISCAL YEAR 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 financing and cash from
operations.
Currently we do not have readily available sources of funds for working
capital. In the second and third quarters of 1999, we borrowed additional funds
and are currently in default on some of our borrowings and our equipment lease.
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, had an interest rate of 6% per annum payable monthly in arrears and is
secured by all of our assets. As part of the new financing agreement obtained
with a bank on August 19, 1999, we entered into an amended loan agreement with
DGJ which restates the original note and includes $1,573,585, representing
subsequent advances made to us, an equipment loan made in March 1999 and past
due interest on our obligations to DGJ. This amended note bears interest at 10%
per annum. The addition to the original note is payable on demand. An
intercreditor agreement with the bank providing credit line financing as of
August 19, 1999, provides certain terms that we must meet before DGJ can collect
on its obligations. We failed to make interest payments to DGJ of $54,366 as of
September 30, 1999 and $40,347 in each of October and November 1999, or $135,060
in total on our obligation. As this has caused an event of default, as defined
in the amended note, DGJ is entitled to various rights and remedies under the
amended 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
amended note outstanding to be due and payable. As of November 10, 1999, DGJ has
indicated a willingness to defer exercising its rights and remedies upon default
pending discussion with us regarding how the amended note default is to be
cured.
On August 19, 1999, we entered into a credit line agreement with a bank that
provides us with $4,000,000 of financing secured by our accounts receivable,
inventory and other certain assets. The loan facility bears interest at a rate
of 1.5% above the bank's prime rate. At September 30, 1999, the balance
outstanding under this agreement was $2,395,022.
Our previous equipment, capital and operating leases were replaced with a
new equipment lease with DGJ in January 1999. 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. Our 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
23
<PAGE>
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 is being treated as such on an on-going
basis. The lease requires us to meet certain financial covenants including, but
not limited to, earnings targets and debt-to-equity ratios.
We are in default on the equipment lease with DGJ as we failed to make lease
payments of $102,000 per month for the months of September, October and November
1999 or $306,000 in total. As this has 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 November 10, 1999, DGJ has indicated a willingness to defer exercising its
rights and remedies upon default pending discussion with us regarding how the
equipment lease default is to be cured.
On October 12, 1999, DGJ advanced an additional $102,000 to us, for the
purchase of additional equipment, pursuant to a promissory note providing for a
single principal payment on February 1, 2004. The annual interest rate is 10%,
and interest is due monthly. The note is secured, subject to the same
subordination terms as the amended note, as reflected in the intercreditor
agreement, described above.
SALES OF SECURITIES
We received net proceeds from the privately placed sale of common stock and
exercise of warrants from January 1, 1998 to September 30, 1998 of $1,403,151.
The proceeds were used for general corporate purposes.
No common stock was issued from sales by us from January 1, 1999 through
September 30, 1999. In connection with our January 1999 financial restructuring,
1,629,930 shares of Series C Preferred Stock were issued to DGJ for $100. Also,
in connection with our January 1999 financial restructuring, we reserved
30,937,500 shares of authorized but unissued shares of common stock to meet our
requirements under the financing terms of such restructuring.
As of September 30, 1999, 5,626,000 of the 7,500,000 warrant shares issued
to management in connection with our January 1999 financial restructuring were
converted into common stock.
EQUIPMENT AND LEASE FINANCING
Pursuant to the Securities Purchase Agreement, we entered into a ten year
equipment lease with DGJ, whereby 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 existing equipment leases, which
have been terminated, in which we were in default or which were subject to
judgments due to past due payments owed by us. We are in default on this
equipment lease. See "Liquidity and Capital Resources".
LIQUIDITY
The non-cash charges from depreciation and amortization of $2,064,011 in the
first nine months of 1999 were added to the net loss on our Statement of Cash
Flows. Inventory and accounts receivable increased by a total of $2,127,941
during the first nine months of 1999. The current asset ratio was 0.51:1 at
September 30, 1999 and 0.12:1 at December 31, 1998. The debt to equity ratio was
5.16:1 at September 30, 1999 and 4.4:1 at December 31, 1998. Additional advances
of $1,573,585 from our investors was received by us to cover losses during the
third quarter.
24
<PAGE>
IMPAIRMENT OF LONG-LIVED ASSETS AND PATENT INFRINGEMENT SETTLEMENT
During the fourth quarter of the fiscal year ended February 28, 1997, we
made the decision to exit the traditional plastic carry-out 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," caused us 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 plastic
carry-out bag business.
Description of impaired assets, patents, goodwill and plant assets relating
to bag making facilities:
<TABLE>
<CAPTION>
<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 our decision to exit the traditional plastic carry-out 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 the fiscal year ended February 28, 1997.
IMPACT OF INFLATION
Resin prices increased by 10% during the third quarter of 1999 and did have
an unfavorable impact on cost of goods sold and increased the loss for the
quarter.
YEAR 2000
We implemented a Year 2000 compliance project in June 1998, which 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 from our suppliers and other constituents. In
1998, we did not have any costs associated with Year 2000 compliance. During the
first nine months of 1999, we expended $25,000 on Year 2000 compliance.
As a result of the Year 2000 compliance project, we have upgraded our
financial and accounting system at an investment of approximately $25,000, and
have funded the upgrade out of working capital. The finance and accounting
system upgrade was installed and tested as of October 22, 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 November 10, 1999, we have contacted five significant customers, which
accounted for 66.8% of total sales for the nine month period ended
September 30, 1999 regarding their Year 2000 compliance status. All of these
customers have indicated that they are either already Year 2000
25
<PAGE>
complaint or are on schedule to be Year 2000 compliant 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 November 10, 1999 we received 183 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 worst-case scenario envisioned by us, Year 2000 compliance issues may
cause the railroad systems in the United States to become dysfunctional, which
would cause us to obtain our resin and 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 ceases to function. 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 technology projects due to our
Year 2000 efforts. Furthermore, there has been no impact from any deferred
projects on our financial condition or results of operations.
26
<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
Chief Financial Officer and
James F. Koehlinger............... 63 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 Systeme Anwendungen Prozesse (SAP)
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.
27
<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
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<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,
29
<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.
30
<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 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. Ms. Beresford's employment as the
Chairman of the Board of Directors terminated on January 27, 1999. Since
such date, she has been serving as the Vice President of Marketing.
(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 $100,000
that is exercisable during any one calendar year. Options granted under the
stock option plans generally expire 10 years from the date they are granted.
31
<PAGE>
AGGREGATED OPTION EXERCISED IN THE LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS
AT FY-END EXERCISABLE/
SHARES ACQUIRED EXERCISABLE/ UNEXERCISABLE
NAME ON EXERCISE VALUE REALIZED($) 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 with a salary
of $125,000 per annum. 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.
32
<PAGE>
EMPLOYMENT AND CONSULTING AGREEMENT TERMS
<TABLE>
<CAPTION>
EMPLOYEE/CONSULTANT BASE 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 has been 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.
33
<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.
34
<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 current employment term from July 1, 1999
to June 30, 2000 her salary is $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
35
<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
36
<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 November 10, 1999, 27,131,221 shares of our common stock were held of
record by 291 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.
37
<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
38
<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.
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<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 November 10, 1999, 291 holders of record held 27,131,221 shares of our
common stock and 45 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
Fourth Quarter (through November 10, 1999)........ $ 0.14 $ 0.06
</TABLE>
- ------------------------
(1) In December 1997, we changed our fiscal year end from February 28 to
December 31.
On November 10, 1999, the high ask price of the common stock was $0.09; the
low bid price was $0.06 and the close price was $0.06.
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.
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<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>
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of common stock and
Series A Preferred Stock as of November 10, 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 November 10, 1999.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF CLASS(2)(3)
- ------------------------------------ --------------------- --------------
<S> <C> <C>
Hanspeter Schulz, Ph.D.(4) ................................. 2,188,000 8.01%
Richard H. Nurse, Ph.D.(4) ................................. 1,725,000 6.32%
C. Jill Beresford(4)(5)(6)(7) .............................. 2,561,249 8.50%
James F. Koehlinger(4) ..................................... 1,719,000 6.29%
Peter W. Blackett(4) ....................................... 0 0%
Ivan J. Hughes(5)(7)(8) .................................... 1,027,000 3.63%
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 74.55%
Edidin & Associates
600 Central Avenue
Suite 262
Highland Park, IL 60035
Allen S. Gerrard(11) ....................................... 80,000,000 74.55%
Deere Park Capital Management
40 Skokie Boulevard
Suite 110
Northbrook, IL 60062
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF 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 74.55%
600 Central Avenue, Suite 262
Highland Park, Illinois 60035
All Officers and Directors As a Group
(11 persons)(6)(7)(8)(9) ................................. 89,272,749 81.47%
</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
43
<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.
44
<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.
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<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 September 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.
THE RIGHTS OFFERING
THE RIGHTS YOU WILL RECEIVE:
BASIC RIGHTS
You will receive one basic right for each share of our common stock that you
held of record at the close of business on December 2, 1999. For each right you
receive, you may purchase 0.7 shares of our common stock, rounding any remaining
fractional shares down to the nearest whole number of shares, at $0.04 per
share. Your rights will be evidenced by non-transferable subscription
certificates which are expected to be mailed within ten business days following
the effective date of this registration statement. To exercise a basic right,
the reverse side of your subscription certificate must be properly completed and
received by our subscription agent, in accordance with the procedure described
below under "Exercising of Rights." Payment for the shares of common stock must
accompany the subscription certificate.
46
<PAGE>
OVERSUBSCRIPTION RIGHTS
If you exercise all of your basic rights, you will also be eligible for
oversubscription rights, which will entitle you to purchase, at $0.04 per share,
an unlimited number of shares of common stock, subject to the maximum number of
shares of common stock offered in the rights offering and certain other
restrictions. The maximum number of shares which may be purchased pursuant to
the exercise of all basic rights and oversubscription rights by all stockholders
may not exceed 15,000,000.
We will not allocate shares of common stock for oversubscription rights
until we have filled all subscriptions for basic rights. We may accept or reject
oversubscriptions at our sole discretion. All subscriptions pursuant to the
exercise of oversubscription rights will be fulfilled out of the shares of
common stock not required to satisfy the basic rights which are exercised. If
the shares of common stock are not sufficient to satisfy all subscriptions
pursuant to the oversubscription rights, the available shares of common stock
will be allotted pro rata among those of you who exercised the oversubscription
rights, based on the number of basic rights exercised by each of you, without
regard to the number of shares of common stock oversubscribed to by each of you
pursuant to the oversubscription rights.
To exercise the oversubscription rights, you must also properly complete the
portion of the exercise form on the reverse side of the subscription certificate
relating to the oversubscription rights simultaneously with completion of the
portion of the form applicable to exercise of basic rights. Payment for
oversubscription shares should be included with the payment for basic shares and
should accompany the subscription certificate.
You may only subscribe for full shares. Once you have exercised a basic
right or an oversubscription right, the exercise is irrevocable.
NON-TRANFERABILITY OF RIGHTS
Both the basic rights and the oversubscription rights are non-transferable
and non-assignable. Only you may exercise such rights.
METHOD OF OFFERING
The rights offering described in this prospectus will be made directly by
us. We have not engaged any underwriters, brokers, dealers or other agents
(other than the subscription agent) to participate in this rights offering or to
solicit any exercise of the rights or sales of the shares of common stock. We
will pay no commission, finder's fees or other remuneration to any person in
connection with any sales of the shares of common stock.
EXPIRATION DATE
The rights will expire at 5:00 p.m. eastern time on , 1999,
unless we, in our sole discretion, extend the rights offering for up to ten
days. If you do not exercise your rights prior to such date, the rights will be
null and void. We will not be required to issue shares to you if the
subscription agent receives your subscription certificate or your payment after
that date, regardless of when you sent the subscription certificate and payment,
unless you send the documents in compliance with the "Guaranteed Delivery
Procedures" described below.
WITHDRAWAL RIGHT
We may withdraw the rights offering at any time prior to or on ,
1999, for any reason (including, without limitation, a change in the market
price of the common stock). If we withdraw the rights offering, any funds
received from stockholders will be promptly refunded, without interest or
penalty.
47
<PAGE>
DETERMINATION OF SHARE PRICE
The price of $0.04 per share was decided upon in connection with the
January 27, 1999 financing. Our then Board of Directors felt it was important to
provide our stockholders the opportunity to make an additional investment in us
at the same price per share as DGJ to express appreciation to the stockholders
who have supported us through our financial difficulties. DGJ purchased
80,000,000 warrants convertible into shares of common stock, with a conversion
price $0.04 per share of common stock. Hence, the price per share in this
offering is $0.04.
The rights may not be sold and may only be transferred by operation of law.
Our common stock will be represented by stock certificates. Common stock issued
under this rights offering will be registered under the federal securities laws.
Therefore, these shares of common stock may be sold freely after the rights
offering, subject to restrictions on our affiliates.
EXERCISE OF RIGHTS
You may exercise your rights by delivering to the subscription agent on or
prior to , 1999:
(1) a properly completed and duly executed subscription certificate;
(2) any required signature guarantees; and
(3) payment in full of $0.04 per share to be purchased through the exercise
of your basic rights and, if desired, your oversubscription rights.
You should deliver your subscription certificate and payment to the address
set forth below under "Subscription Agent."
METHOD OF PAYMENT
Payment for the shares must be made by:
(1) bank draft drawn upon a United States bank or a postal, telegraphic or
express money order payable to "American Stock Transfer and Trust
Company, as Subscription Agent";
(2) wire transfer of funds to the account maintained by the subscription
agent for such purpose: Chase Manhattan Bank, ABA No. 021-000021, A/C
323062547; or
(3) notice of guaranteed delivery of payment, as discussed below.
Payment will be deemed to have been received by the subscription agent only
upon:
(1) clearance of any uncertified check;
(2) receipt by the subscription agent of any certified check or bank draft
drawn upon a U.S. bank, of any postal, telegraphic or express money order
or of wire transfer of funds; or
(3) receipt of actual funds pursuant to any notice of guaranteed delivery.
The subscription agent will hold in escrow amounts paid in respect of the
exercise of oversubscription rights until this rights offering is terminated and
the number of available shares of common stock is determined. As soon as
practicable after the expiration date, the subscription agent will refund
without interest any subscriptions or oversubscriptions not accepted. We are not
required to issue any certificates or refunds to a subscriber until the check or
checks of such subscriber have cleared and the funds have been collected.
PLEASE NOTE THAT FUNDS PAID BY UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST
FIVE BUSINESS DAYS TO CLEAR. ACCORDINGLY, IF YOU WISH TO PAY BY
48
<PAGE>
MEANS OF AN UNCERTIFIED PERSONAL CHECK, WE URGE YOU TO MAKE PAYMENT SUFFICIENTLY
IN ADVANCE OF , 1999, TO ENSURE THAT THE PAYMENT IS RECEIVED
AND CLEARS BEFORE THAT DATE. WE ALSO URGE YOU TO CONSIDER PAYMENT BY MEANS OF
CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS.
GUARANTEED DELIVERY PROCEDURES
If you want to exercise your rights, but time will not permit your payment
or subscription certificate to reach the subscription agent on or prior to
, 1999, you may exercise your rights if you satisfy the following
guaranteed delivery procedures:
(1) you send, and the subscription agent receives, on or prior to
, 1999, a notice of guaranteed delivery, substantially in the
form provided with the prospectus, from a member firm of a registered
national securities exchange or a member of the National Association of
Securities Dealers, Inc., or a commercial bank or trust company having an
office or correspondent in the Untied States. The notice of guaranteed
delivery must state your name, the number of rights that you hold and the
number of shares that you wish to purchase pursuant to the rights. The
notice of guaranteed delivery must guarantee the delivery of:
(i) payment in full for each share common stock to be purchased through
the rights; and (ii) your subscription certificate to the subscription
agent within three NASDAQ trading days following the date of the notice
of guaranteed delivery; and
(2) you send and the subscription agent receives: (i) payment in full for
each share of common stock to be purchased through the rights; and
(ii) your properly completed and duly executed subscription certificate,
including any required signature guarantees, within three NASDAQ trading
days following the date of your notice of guaranteed delivery. The notice
of guaranteed delivery may be delivered to the subscription agent in the
same manner as your subscription certificate at the address set forth
below, or may be transmitted to the subscription agent by facsimile
transmission, to facsimile number (718) 234-5001. You can obtain
additional copies of the form of notice of guaranteed delivery by
requesting it from the subscription agent at the address set forth below
under "Subscription Agent."
SIGNATURE GUARANTEES
Signatures on the subscription certificate must be guaranteed by an
"eligible guarantor institution," as defined in Rule 17Ad-15 of the Exchange
Act, subject to the standards and procedures adopted by the subscription agent.
Eligible guarantor institutions include banks, brokers, dealers, credit unions,
national securities exchanges and savings associations.
Signatures on the subscription certificate do not need to be guaranteed if:
(1) the subscription certificate provides that the shares and certificates
for shares of common stock to be purchased are to be issued and delivered
directly to you, the record owner of such rights; or
(2) the subscription certificate is submitted for the account of a member
firm of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc., or a commercial bank or
trust company having an office or correspondent in the United States.
DELIVERY OF CERTIFICATES
Certificates for shares of common stock subscribed for pursuant to the basic
rights will be delivered to you as soon as practicable after receipt by the
subscription agent of your duly completed
49
<PAGE>
and exercised subscription certificate and payment in full for the shares of
common stock pursuant to the basic rights. As soon as practicable after the
expiration date of the rights, we will determine the number of shares of common
stock, if any, which have been purchased by holders of rights who have exercised
their oversubscription rights, and certificates representing the shares of
common stock so purchased will be sent to the purchasers. If it is necessary to
allocate any available shares of common stock among those rights holders
exercising oversubscription rights, overpayments for shares of common stock not
issued to such holders will be promptly refunded, without interest.
SHARES HELD FOR OTHERS
If you hold shares of common stock for the account of others, such as a
broker, a trustee or a depository for securities, you should notify the
respective beneficial owners of such shares as soon as possible to obtain
instructions with respect to the rights beneficially owned by them.
If you are a beneficial owner of common stock held by a holder of record,
such as a broker, trustee or a depository for securities, you should contact the
holder and ask him to effect transactions in accordance with your instructions.
AMBIGUITIES IN EXERCISE OF THE RIGHTS
If you do not specify the number of rights being exercised on your
subscription certificate, or if your payment is not sufficient to pay the total
purchase price for all of the shares that you indicated you wished to purchase,
you will be deemed to have exercised the maximum number of rights that could be
exercised for the amount of the payment that the subscription agent receives
from you.
If your payment exceeds the total purchase price for all of the rights shown
on your subscription certificate, your payment will be applied, until depleted,
to subscribe for shares in the following order:
(1) to subscribe for the number of shares, if any, that you indicated on the
subscription certificate that you wished to purchase through your basic
rights; and
(2) to subscribe for shares until your basic rights have been fully
exercised.
Any excess payment remaining after the foregoing allocation will be returned
to you as soon as practicable by mail, without interest or deduction.
IMPORTANT
PLEASE CAREFULLY READ THE INSTRUCTIONS INCLUDED IN THE SUBSCRIPTION
CERTIFICATE AND FOLLOW THOSE INSTRUCTIONS IN DETAIL.
DO NOT SEND SUBSCRIPTION CERTIFICATES TO US.
YOU ARE RESPONSIBLE FOR CHOOSING THE PAYMENT AND DELIVERY METHOD FOR YOUR
SUBSCRIPTION CERTIFICATE, AND YOU BEAR THE RISKS ASSOCIATED WITH SUCH DELIVERY.
IF YOU CHOOSE TO DELIVER YOUR SUBSCRIPTION CERTIFICATE AND PAYMENT BY MAIL, WE
RECOMMEND THAT YOU USE REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED. WE ALSO RECOMMEND THAT YOU ALLOW A SUFFICIENT NUMBER OF DAYS TO
ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO
, 1999. BECAUSE AN UNCERTIFIED PERSONAL CHECK MAY TAKE AT
LEAST FIVE BUSINESS DAY TO CLEAR, WE STRONGLY URGE YOU TO PAY, OR ARRANGE FOR
PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER
OF FUNDS.
50
<PAGE>
OUR DECISION IS BINDING
All questions concerning the timeliness, validity, form and eligibility of
any exercise of rights will be determined by us, which determinations will be
final and binding. We, in our sole discretion, may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as we may determine, or reject the purported exercise of any right by
reason of any defect or irregularity in such exercise. Subscriptions will not be
deemed to have been received or accepted until all irregularities have been
waived or cured within such time as we determine in our sole discretion. Neither
we nor the subscription agent will be under any duty to give notification of any
defect or irregularity in connection with the submission of subscription
certificates or incur any liability for failure to give such notification.
NO REVOCATION
AFTER THE SUBSCRIPTION AGENT HAS RECEIVED YOUR SUBSCRIPTION CERTIFICATE OR A
NOTICE OF GUARANTEED DELIVERY ON YOUR BEHALF, YOU MAY NOT REVOKE YOUR
SUBSCRIPTION.
FEES AND EXPENSES
We will pay all fees charged by the subscription agent. You are responsible
for paying any other commissions, fees, taxes or other expenses incurred in
connection with the exercise of the rights. Neither we nor the subscription
agent will pay such expenses.
SUBSCRIPTION AGENT
We have appointed American Stock Transfer and Trust Company as subscription
agent for the rights offering. The subscription agent's address is 40 Wall
Street, 46th Floor, New York, New York 10005. The subscription agent's telephone
number is (718) 921-8247, and its facsimile number is (718) 921-8323.
You should deliver your subscription certificate, payment of the
subscription price and notice of guaranteed delivery, if any, to the
subscription agent.
We have agreed to indemnify the subscription agent from any liability which
it may incur in connection with the rights offering.
RIGHTS OF SUBSCRIBERS
As holders of the rights, you will not have rights as stockholders with
respect to the shares of common stock until stock certificates representing
shares for which you have subscribed are issued to you. If you subscribe, you
will not have any right to revoke your subscriptions after delivery of the
subscriptions to our subscription agent.
FEDERAL INCOME TAX CONSIDERATION
The following summarizes the material federal income tax considerations of
the rights offering to you and us. This summary is based on current law, which
is subject the change at any time, possibly with retroactive effect. This
summary is not a complete discussion of all federal income tax consequences of
the rights offering and, in particular, may not address federal income tax
consequences applicable to our stockholders subject to special treatment under
federal income tax law. In addition, this summary does not address the tax
consequences of the rights offering under applicable state, local or foreign tax
laws. This discussion assumes that your shares of common stock and the rights
and shares issued to you during the rights offering constitute capital assets.
51
<PAGE>
THIS DISCUSSION IS INCLUDED FOR YOUR GENERAL INFORMATION ONLY. YOU SHOULD
CONSULT YOUR TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES TO YOU OF THE RIGHTS
OFFERING IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES, INCLUDING ANY STATE, LOCAL
AND FOREIGN TAX CONSEQUENCES.
TAX CONSEQUENCES TO STOCKHOLDERS
ISSUANCE OF RIGHTS
It is intended that the rights offering be characterized as a tax-free
distribution under Section 305(a) of the Internal Revenue Code of 1986, as
amended. However, existing law is not clear as to whether distribution of rights
to less than all of a company's stockholders will be characterized as a
distribution under Section 305(a) of the Code or, alternatively, as a
distribution under Sections 301 and 305(b) of the Code. Under Section 305(a) of
the Code, a distribution of stock or stock rights to a corporation's
stockholders is generally tax free. Section 305(b), however, provides certain
instances where a distribution of stock or stock rights is taxable to the
stockholders. One such instance is a "disproportionate distribution" in which
the distribution or a series of distributions has the result of: (i) the receipt
of property by some stockholders; and (ii) an increase in the proportionate
interest of other stockholders in the assets or earnings and profit of the
corporation.
The Internal Revenue Service may contend that the distribution of rights is
a disproportionate distribution of stock taxable to recipients of the rights
under Section 305(b) of the Code. Alternatively, the IRS may contend that the
distribution of rights is a taxable distribution of "property" rather than stock
within the meaning of Section 317(a) of the Code. If the IRS were to prevail
under either contention, a stockholder would be viewed as receiving a
distribution equal to the fair market value of the rights, which would be
taxable as a dividend to the extent of our current and accumulated earnings and
profits. The determination of a corporation's earnings and profits is complex,
and in the case of current earnings and profits, cannot be determined until the
close of its taxable year.
Notwithstanding the foregoing, the rights offering may properly be
characterized as a tax-free distribution under Section 305(a) of the Code, in
which case it will not be taxable regardless of whether we have current or
accumulated earnings and profits for the year.
BASIS AND HOLDING PERIOD
If the rights offering is characterized as a non-taxable Section
305(a) distribution, except as provided below, the stockholder will assign a
zero tax basis to the rights. If, however, either: (i) the fair market value of
the rights on the date of distribution is equal to 15% or more of the fair
market value of the common stock with respect to which they are received; or
(ii) the stockholder elects, in his or her federal income tax return for the
taxable year in which the rights are received, to allocate part of the tax basis
of the common stock to the rights, then upon exercise of the rights, the
stockholder's tax basis in the common stock will be allocated between the common
stock and the rights in proportion to the fair market values of each on the date
of the distribution of the rights.
Regardless of the value of the rights, if the rights offering is treated as
a non-taxable Section 305(a) distribution, the holding period of the right
received as a distribution on the stockholder's common stock will include the
stockholder's holding period for the common stock with respect to which the
rights are issued.
If, however, the rights offering is characterized as a taxable dividend,
each stockholder will have a tax basis in the rights equal to the fair market
value of the rights on the date of the rights offering and the holding period of
the rights will commence on the day after the date of the distribution.
52
<PAGE>
LAPSE OF RIGHTS
If the rights offering is characterized as a non-taxable Section
305(a) distribution, a stockholder who allows rights received by him or her to
lapse without exercising them will not recognize any gain or loss and, as the
rights were not exercised, no adjustment will be made to the tax basis of the
common stock owned by the stockholder. If, however, the rights offering is
characterized as a taxable dividend, a stockholder who allowed the right to
lapse will have a short-term capital loss in an amount equal to his or her tax
basis in the rights, as discussed above, and no adjustment will be made to the
tax basis of the common stock owned by the stockholder.
EXERCISE OF RIGHTS
A stockholder will not recognize any gain or loss upon the exercise of
rights. The tax basis of common stock acquired through exercise of rights will
be equal to the sum of the subscription price and the holder's tax basis in the
rights, if any. The holding period for the common stock acquired through
exercise of the rights will begin on the day following the date the rights are
considered exercised.
COMMON STOCK ACQUIRED
The sale or other disposition of common stock acquired will result in the
recognition of gain or loss by the holder of such common stock in an amount
equal to the difference between the amount realized and the holder's adjusted
tax basis in the common stock. Any such gain or loss will generally be capital
gain or loss.
TAXATION OF OUR COMPANY
We will not recognize any gain, other income or loss upon the issuance of
the rights, the lapse of the rights or the receipt of payment for shares upon
exercise of the rights.
IF YOU HAVE QUESTIONS
If you have questions or need assistance concerning the procedure for
exercising rights, or if you would like additional copies of this prospectus or
the notice of guaranteed delivery, you should contact the subscription agent at
the address set out above.
If you have other questions concerning the rights offering or our Company,
you may contact:
Lisa Lima
455 Somerset Avenue
North Dighton, Massachusetts 02764
(508) 824-8636
53
<PAGE>
PLAN OF DISTRIBUTION
Promptly following the effective date of the registration statement that
contains this prospectus, we will distribute the rights and copies of this
prospectus to individuals who own shares of common stock at the close of
business on December 2, 1999. If you wish to exercise your rights and to
purchase shares, you should complete the subscription certificate and return it,
with payment for the shares, to the subscription agent, American Stock Transfer
and Trust Company, at the address on page 51. See "The Rights Offering--Exercise
of Rights." If you have any questions, you should contact the subscription agent
at the telephone number or address on page 51.
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 shares of common
stock offered hereby will be passed upon by Holleb & Coff, Chicago, Illinois.
Theodore L. Koenig, our Director, is counsel with the law firm of Holleb & Coff.
54
<PAGE>
TRANSFER AGENT
Our transfer agent for the common stock is American Stock Transfer and Trust
Company 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
55
<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 rooms at 450 Fifth Street, N.W., Washington, D.C.; 7 World
Trade Center, Suite 1300, New York, NY 10048; and 500 West Madison Street, Suite
1400, Chicago, IL 60661-2511. 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- ).
56
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
INTERIM CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets at September 30, 1999
(unaudited) and December 31, 1998......................... F-2
Consolidated Statements of Operations (unaudited)--Three
Month Periods ended September 30, 1999 and September 30,
1998...................................................... F-3
Consolidated Statements of Operations (unaudited)--Nine
Month Periods ended September 30, 1999 and September 30,
1998...................................................... F-4
Consolidated Statements of Cash Flows (unaudited)--Nine
Month Periods ended September 30, 1999 and September 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-13
Report of Independent Accountants........................... F-14
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... F-15
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-16
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-17
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-18
Notes to Consolidated Financial Statements.................. F-19
</TABLE>
F-1
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets
Cash...................................................... $ 118,184 $ 73,116
Accounts receivable, net.................................. 1,773,853 882,389
Inventories............................................... 1,953,890 717,413
Prepaid expenses.......................................... 89,419 51,420
----------- -----------
Total current assets.................................... 3,935,346 1,724,338
----------- -----------
Property and equipment, net................................. 15,900,527 15,290,305
----------- -----------
Deposits--leases and equipment purchases.................... 143,078 149,851
Loans to officers, net...................................... 6,617 6,072
Other assets................................................ 1,631,412 581,399
----------- -----------
1,781,107 737,322
----------- -----------
$21,616,980 $17,751,965
=========== ===========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
Current liabilities
Note payable.............................................. $ 2,395,022 $ 814,311
Trade notes payable....................................... -- 584,433
Capital lease obligations due within one year............. -- 3,800,286
Accounts payable.......................................... 2,217,816 6,597,223
Accrued expenses.......................................... 1,532,839 2,676,239
Note payable to related party............................. 1,573,585 --
------------ ------------
Total current liabilities............................... 7,719,262 14,472,492
------------ ------------
Long-term liabilities
Capitalized lease obligations............................. 6,800,000 --
Subordinated debt......................................... 2,720,000 --
Accounts payable long term................................ 869,246 --
------------ ------------
Total long-term liabilities............................. 10,389,246 --
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..... 673,936 674,032
Series C redeemable preferred stock, $0.01 par value...... 100 --
Common stock, $0.01 par value; shares
authorized--150,000,000; shares issued and
outstanding--27,131,221 at September 30, 1999 and
21,495,621 at December 31, 1998......................... 271,312 214,956
Subscribed Stock.......................................... 74,960 --
Capital in excess of par value............................ 45,561,513 44,912,833
Accumulated deficit....................................... (44,540,303) (43,989,302)
------------ ------------
3,508,472 3,279,473
------------ ------------
$ 21,616,980 $ 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
-----------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
Net sales................................................... $ 5,183,632 $ 2,927,730
Cost of goods sold.......................................... 4,968,287 1,884,685
----------- -----------
Gross profit.............................................. 215,345 1,043,045
Operating expenses:
Selling, general and administrative....................... 1,078,423 972,641
----------- -----------
(Loss) income from operations............................. (863,078) 70,404
Other (expense) income:
Interest/other expense.................................... (522,609) (66,967)
Interest/other income..................................... 10,093 7,046
----------- -----------
(512,516) (59,921)
Net income/(loss) before extraordinary income............... (1,375,594) 10,483
Extraordinary income--gain on debt restructuring............ 2,758 --
----------- -----------
Net income/(loss) after extraordinary income................ $(1,372,836) $ 10,483
=========== ===========
Earnings (loss) per share before extraordinary income:
Basic and diluted net earnings (loss) per share............. $ (0.06) $ 0.00
Shares used in computing basic and diluted net earnings
(loss) per share.......................................... 22,359,512 21,163,496
Earnings (loss) per share after extraordinary income:
Basic and diluted net earnings (loss) per share............. $ (0.06) $ 0.00
Shares used in computing basic and diluted net earnings
(loss) per share.......................................... 22,359,512 21,755,874
</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>
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
Net sales................................................... $12,655,596 $ 7,567,594
Cost of goods sold.......................................... 10,963,520 6,406,468
----------- -----------
Gross profit.............................................. 1,692,076 1,161,126
Operating expenses:
Selling, general and administrative....................... 2,887,941 3,621,456
----------- -----------
(Loss) from operations.................................... (1,195,865) (2,460,330)
Other (expense) income:
Interest/other expense.................................... (1,354,713) (343,119)
Interest/other income..................................... 79,112 42,999
----------- -----------
(1,275,601) (300,120)
Net loss before extraordinary income........................ (2,471,466) (2,760,450)
Extraordinary income--gain on debt restructuring............ 1,920,465 --
----------- -----------
Net loss after extraordinary income......................... $ (551,001) $(2,760,450)
=========== ===========
Earnings (loss) per share before extraordinary income:
Basic and diluted net earnings (loss) per share............. $ (0.11) $ (0.13)
Shares used in computing basic and diluted net earnings
(loss) per share.......................................... 21,787,413 20,669,723
Earnings (loss) per share after extraordinary income:
Basic and diluted net earnings (loss) per share............. $ (0.03) $ (0.13)
Shares used in computing basic and diluted net earnings
(loss) per share.......................................... 21,787,413 20,669,723
</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>
NINE MONTHS ENDED
-------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (551,001) $(2,760,450)
----------- -----------
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization........................... 2,064,011 2,155,187
Gain on restructuring of accounts payable............... (1,920,465) --
(Increase) in accounts receivable--trade................ (891,464) (316,237)
(Increase) decrease in inventories...................... (1,236,477) 199,503
(Increase) decrease in prepaid expenses and other
current assets........................................ (37,999) 46,273
Increase (decrease) in accounts payable................. (2,174,129) 95,922
Increase in other accrued expenses...................... (499,977) (187,637)
----------- -----------
Total adjustments..................................... (3,696,546) 1,993,011
----------- -----------
Net cash used in operating activities............... (4,247,547) (767,439)
----------- -----------
Cash flows from investing activities:
(Additions) deductions to property and equipment.......... (939,365) (19,507)
Reduction of deposits related to equipment refinancing.... 6,773 --
Decrease in investments................................... -- 9,000
(Additions) to property and equipment debt refinancing.... (1,678,973) --
(Increase) in advance to officers......................... (545) (485)
Decrease in other assets.................................. -- 82,328
----------- -----------
Net cash provided by (used in) by investing
activities........................................ (2,612,110) 110,350
----------- -----------
Cash flows from financing activities:
Net proceeds (payments) under note payable--bank.......... 1,580,711 (440,628)
Capitalized financing costs............................... (1,105,908) --
Principal payments on capital lease obligations........... -- (252,353)
Refinance of capital and operating leases................. (5,443,763) --
Note payable to related party............................. 1,573,585 --
Refinanced capital lease obligation....................... 6,800,000 --
Subordinated debt addition................................ 3,200,000 --
Net proceeds from sales of stock and exercise of
warrants................................................ 300,100 1,403,151
----------- -----------
Net cash provided by (used in) financing
activities........................................ 6,904,725 710,170
----------- -----------
Net increase in cash........................................ 45,068 53,081
Cash at beginning of period................................. 73,116 125,220
----------- -----------
Cash at end of period....................................... $ 118,184 $ 178,301
=========== ===========
</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 nine month
period ended September 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 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 Current Reports on Form 8-K filed on February 11, 1999 and August
19, 1999 related to the January 1999 Financial Restructuring and refinancing 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 Financial Restructuring"), 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 had an
interest rate of 6% per annum.
As part of the new financing agreement obtained with a bank on August 19,
1999, the Company entered into an amended loan agreement with DGJ (the "Amended
Note"), which restates the Note and includes $1,573,585, representing subsequent
advances made to the Company, an equipment loan made in March 1999 and past due
interest on obligations of the Company to DGJ. The Amended Note bears interest
at 10% per annum. The addition to the Note is payable on demand. An
intercreditor agreement with the bank providing credit line financing as of
August 19, 1999, provides certain terms that must be met by the Company before
DGJ can collect on its obligations. The Company failed to make interest payments
to DGJ of $54,366 as of September 30, 1999 and $40,347 in each of October and
November 1999, or $135,060 in total on its obligation. As this has caused an
Event of Default, as defined in the Amended Note, DGJ, the holder of the Amended
Note, is entitled to various rights and remedies under the Amended 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 Amended Note
outstanding to be due and payable. As of November 10, 1999, DGJ has indicated a
willingness to defer
F-6
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: FINANCIAL RESTRUCTURING (CONTINUED)
exercising its rights and remedies upon default pending discussion with the
Company regarding how the Amended Note default is to be cured.
In conjunction with the January 1999 Financial Restructuring, DGJ required
certain members of the Company's management, C. Jill Beresford, James F.
Koehlinger, Richard H. Nurse, Hanspeter Schulz and Ivan J. Hughes, to invest, in
the aggregate, $300,000 in the Company's warrants. As of September 30, 1999,
5,626,000 of the 7,500,000 issued warrant shares were converted into Common
Stock.
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 Financial Restructuring, 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 January 1999 Financial Restructuring 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 $1,920,465 during the first nine
months of 1999. This gain of $1,920,465 was recorded as extraordinary income
amounting to $0.08 per share. The tax effect of this 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. The balance of the
unsecured creditors either selected the three-year payment plan, 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.
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. Subsequent to
December 31, 1998, the Company repaid this note payable in full in connection
with its January 1999 Financial Restructuring (Note 7).
The gain on the restructuring of trade notes payable and accounts payable
was accounted for as an extraordinary item in the Company's Consolidated
Statements of Operations for the nine month period ended September 30, 1999. The
creditors who selected the long-term debt agreement are being paid
F-7
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: FINANCIAL RESTRUCTURING (CONTINUED)
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.
On August 19, 1999, the Company entered into a credit line agreement with a
bank that provides the Company with $4,000,000 of financing secured by the
Company's accounts receivables, inventory and other certain assets. The loan
facility bears interest at a rate of 1.5% above the bank's prime rate. At
September 30, 1999, the balance outstanding under this agreement was $2,395,022
(Note 7).
On October 12, 1999, DGJ advanced an additional $102,000 to the Company, for
the purchase of additional equipment, pursuant to a promissory note providing
for a single principal payment on February 1, 2004. The annual interest rate is
10%, and interest is due monthly. The note is secured, subject to the same
subordination terms as the Amended Note, as reflected in the intercreditor
agreement, described above.
The Company's previous equipment, capital and operating leases were replaced
with a new equipment lease with DGJ in January 1999. 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 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 is being treated as such on an on-going basis. The lease
requires the Company to meet certain financial covenants, including, but not
limited to, earnings targets and debt-to-equity ratios.
The Company is in default on the equipment lease with DGJ as it failed to
make lease payments of $102,000 per month for the months of September, October
and November 1999 or $306,000 in total. As this has 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 November 10, 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.
F-8
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
For the nine month periods ended September 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-NET
Accounts receivable-net consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Accounts receivable-trade................................... $1,904,306 $1,066,841
Allowance for doubtful accounts............................. (54,553) (109,452)
Allowance for credits....................................... (75,900) (75,000)
---------- ----------
$1,773,853 $ 882,389
========== ==========
</TABLE>
NOTE 5: INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Raw materials............................................... $ 799,304 $ 296,427
Finished goods.............................................. 1,154,586 420,986
---------- ----------
$1,953,890 $ 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.
F-9
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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 August 19, 1999, the Company entered into a credit line agreement with a
bank that provides the Company with $4,000,000 of financing secured by the
Company's accounts receivables, inventory and other certain assets. The loan
facility bears interest at a rate of 1.5% above the bank's prime rate. At
September 30, 1999, the balance outstanding under this agreement was $2,395,022
(Note 2).
NOTE 8: NOTE PAYABLE--RELATED PARTY
On January 27, 1999 the Company issued a promissory note in the aggregate
principal amount of $3,200,000 to DGJ, L.L.C. ("DGJ") (Note 2). The Note matures
at the latest on February 1, 2004, had an interest rate of 6% per annum payable
monthly in arrears and is secured by all assets of the Company. As part of the
new financing agreement obtained with a bank on August 19, 1999, the Company
entered into an amended loan agreement with DGJ (the "Amended Note"), which
restates the Note and includes $1,573,585, representing subsequent advances made
to the Company, an equipment loan made in March 1999 and past due interest on
obligations of the Company to DGJ. The Amended Note bears interest at 10% per
annum. The addition to the Note is payable on demand. An intercreditor agreement
with the bank providing credit line financing as of August 19, 1999, provides
certain terms that must be met by the Company before DGJ can collect on its
obligations. The Company failed to make interest payments to DGJ of $54,366 as
of September 30, 1999 and $40,347 in each of October and November 1999, or
$135,060 in total on its obligation. As this has caused an Event of Default, as
defined in the Amended Note, DGJ is entitled to various rights and remedies
under the Amended 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 Amended Note outstanding to be due and payable. As of November 10, 1999,
DGJ has indicated a willingness to defer exercising its rights and remedies upon
default pending discussion with the Company regarding how the Amended Note
default is to be cured.
F-10
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9: CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE NINE
MONTH PERIOD ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
SERIES A
SERIES B CONVERTIBLE CONVERTIBLE SERIES C
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK
--------------------- ------------------- -------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ---------- -------- -------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1998...................... 146,695 $1,466,954 212,258 $674,032 0 $ 0 21,495,621 $214,956
Subscribed stock..........
Net loss for the nine
months ending
September 30, 1999......
Ascribed value of
Series C 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... (9,600) $ (96) 9,600 $ 96
Warrants exercised
subscribed stock........ 5,626,000 $ 56,260
Balance at September 30,
1999...................... 146,695 $1,466,954 202,658 $673,936 1,629,930 $100 27,131,221 $271,312
<CAPTION>
SUBSCRIBED STOCK CAPITAL IN
---------------------- EXCESS OF ACCUMULATED
SHARES AMOUNT PAR VALUE DEFICIT TOTAL
---------- --------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1998...................... 0 $ 0 $44,912,833 $(43,989,302) $3,279,473
Subscribed stock.......... 7,500,000 $ 300,000 $ 300,000
Net loss for the nine
months ending
September 30, 1999...... $ (551,001) $ (551,001)
Ascribed value of
Series C 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... $ 0
Warrants exercised
subscribed stock........ (5,626,000) $(225,040) $ 168,780 $ 0
Balance at September 30,
1999...................... 1,874,000 $ 74,960 $45,561,513 $(44,540,303) $3,508,472
</TABLE>
F-11
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10: RELATED PARTY TRANSACTIONS
Ivan J. Hughes, Chairman of the Board of Directors 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"). During the first, second and third quarters, Duro Bag issued purchase
orders for $591,848, $605,748 and $665,486, 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 13% of sales during the third
quarter period ended September 30, 1999. The Company expects similar orders from
Duro Bag during the fourth quarter of 1999. 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.
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. 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 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 September 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 January 1999 Financial Restructuring and loan described
in Note 2, Note 8 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.
NOTE 11: RECLASSIFICATIONS
Certain distribution costs in the Consolidated Statements of Operations for
the period ended September 30, 1999 have been reclassified to conform with
current presentation.
F-12
<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-13
<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-14
<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-15
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
10 MONTH PERIOD FISCAL YEAR
FISCAL YEAR ENDED ENDED ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997 FEBRUARY 28, 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-16
<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
--------------------- --------------------- --------------------- EXCESS OF
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT PAR VALUE
---------- -------- -------- ---------- -------- ---------- -----------
<S> <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
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
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
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
Issuance of common stock based
on RC America's FY96
results...................... 2,550 26 5,074
Issuance of 92,308 Regulation S
common shares in exchange for
Series C redeemable preferred
stock........................ 92,308 923 149,077
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
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
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
Issuance of common stock in
exchange for commission on
private placement
offerings.................... 387,500 3,875 383,626
Issuance of common stock in
exchange for consulting
services..................... 33,500 335 33,165
Warrants granted to
consultants.................. 76,158
Net loss for the 10 month
period ended December 31,
1997.........................
---------- -------- -------- ---------- ------- ---------- -----------
Balance at December 31, 1997..... 19,513,496 195,135 325,483 1,126,932 146,695 1,466,954 43,076,603
Sale of Stock pursuant to
Regulation D private
offerings, net of issuance
costs........................ 1,868,900 18,689 1,264,262
Warrants granted for lease
extension.................... 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............
---------- -------- -------- ---------- ------- ---------- -----------
Balance at December 31, 1998..... 21,495,621 $214,956 212,258 $ 674,032 146,695 $1,466,954 $44,912,833
========== ======== ======== ========== ======= ========== ===========
<CAPTION>
ACCUMU-
LATED
DEFICIT TOTAL
------------ ------------
<S> <C> <C>
Balance at February 23, 1996..... (16,646,989) 19,768,971
Sale of common stock pursuant
to Regulation S and
Regulation D private
placement offerings, net of
issuance costs............... 2,206,868
Sale of common and preferred
stock pursuant to partial
exercise of underwriter's
warrants from prior public
offerings, net of issuance
costs........................ 1,080,050
Conversion of Series A
convertible preferred stock
to common stock.............. --
Sale of common stock pursuant
to exercise of class B
warrants from the Company's
third public offering, net of
issuance costs............... 1,097,917
Issuance of common stock based
on RC America's FY96
results...................... 5,100
Issuance of 92,308 Regulation S
common shares in exchange for
Series C redeemable preferred
stock........................ 150,000
Net loss for the year ended
February 28, 1997............
------------ ------------
Balance at February 28, 1997..... (29,411,220) 11,544,675
Conversion of Series A
convertible preferred stock
to common stock.............. --
Issuance of common stock based
on RC America FY 97
results...................... 8,579
Sale of common stock pursuant
to Regulation S and
Regulation D private
placement offerings, net of
issuance costs............... 4,403,991
Issuance of common stock in
exchange for commission on
private placement
offerings.................... 387,501
Issuance of common stock in
exchange for consulting
services..................... 33,500
Warrants granted to
consultants.................. 76,158
Net loss for the 10 month
period ended December 31,
1997......................... (11,338,869) (11,338,869)
------------ ------------
Balance at December 31, 1997..... (40,750,089) 5,115,535
Sale of Stock pursuant to
Regulation D private
offerings, net of issuance
costs........................ 1,282,951
Warrants granted for lease
extension.................... 120,200
Conversion of Series A
Convertible Preferred........ --
Net loss for the year ended
December 31, 1998............ (3,239,213) (3,239,213)
------------ ------------
Balance at December 31, 1998..... $(43,989,302) $ 3,279,473
============ ============
</TABLE>
The accompanying notes are an integral part of consolidated financial
statements.
F-17
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
10 MONTH
FISCAL YEAR ENDED PERIOD ENDED FISCAL YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997 FEBRUARY 28, 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-18
<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-19
<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-20
<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-21
<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
F-22
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: GOING CONCERN AND MANAGEMENT'S PLAN (CONTINUED)
$1,731,762 was recorded as extraordinary income amounting to $0.08 per share.
The tax effect of this 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-23
<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-24
<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-25
<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-26
<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-27
<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-28
<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.
F-29
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14: WARRANTS TO PURCHASE SECURITIES OF THE COMPANY (CONTINUED)
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.
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
F-30
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15: INCOME TAXES (CONTINUED)
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.
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.
F-31
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17: RELATED PARTY TRANSACTIONS (CONTINUED)
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 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.
F-32
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19: OPERATING LEASES AND COMMITMENTS (CONTINUED)
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>
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
F-33
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20: STOCK OPTION PLANS (CONTINUED)
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>
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.
F-34
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20: STOCK OPTION PLANS (CONTINUED)
The following table summarizes information about employee options
outstanding at December 31, 1998:
OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
RANGE OF NUMBER OUTSTANDING AT REMAINING WEIGHTED AVERAGE
EXERCISE 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 NUMBER EXERCISABLE AT WEIGHTED AVERAGE
EXERCISE 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>
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
F-35
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20: STOCK OPTION PLANS (CONTINUED)
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.
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-36
<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 A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- ---------- ---------- ----------- --------------
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 A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- ---------- ---------- ----------- --------------
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
---------------------
15,000,000 SHARES OF COMMON STOCK
$0.01 PAR VALUE
DECEMBER , 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 shares of common stock, 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..................................... $20,000
Accounting fees and expenses................................ $ 6,000
Blue Sky fees and expenses (including legal fees)........... $15,000
Miscellaneous............................................... $ 3,800
-------
TOTAL..................................................... $75,000
=======
</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;
- 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 were registered under the
Securities Act on October 28, 1999.
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(17).
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.
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(17).
10.43 Revolving Note from the Company to LaSalle, dated
August 19, 1999(17).
10.44 Intercreditor Agreement between DGJ and LaSalle, dated
August 19, 1999(17).
10.45 Amended and Restated Promissory Note issued by the Company
to DGJ, dated August 19, 1999(17).
10.46 Amended and Restated Equipment Lease between the Company and
DGJ(17).
16 Letter from PricewaterhouseCoopers LLP to the Securities and
Exchange Commission(11).
21 Subsidiaries of the Company(4).
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
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).
99.2 Form of Subscription Certificate.
99.3 Form of Notice of Guaranteed Delivery for Subscription
Certificate.
99.4 Form of Subscription Agent Agreement by and between the
Company and American Stock Transfer and Trust Company, as
Subscription Agent.
99.5 Form of letter to stockholders from the Company.
99.6 Form of letter to brokers, dealers, commercial banks, trust
companies and other nominees from American Stock Transfer
and Trust Company.
99.7 Form of letter to clients of brokers, dealers, commercial
banks, trust companies and other nominees.
99.8 Nominee Holder Oversubscription Exercise Form.
</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.
II-5
<PAGE>
(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.
(17) Incorporated by reference from our Form S-1 Registration Statement (No.
333-89137) declared effective by the SEC on October 28, 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.
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 December 3, 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 December 3, 1999
Ivan J. Hughes Directors
/s/ HANSPETER SCHULZ
------------------------------------------- President and Director December 3, 1999
Hanspeter Schulz
/s/ JAMES F. KOEHLINGER
------------------------------------------- Chief Financial Officer December 3, 1999
James F. Koehlinger
/s/ GARY R. EDIDIN
------------------------------------------- Director December 3, 1999
Gary R. Edidin
/s/ BRUCE M. FLEISHER
------------------------------------------- Director December 3, 1999
Bruce M. Fleisher
/s/ ALLEN S. GERRARD
------------------------------------------- Director December 3, 1999
Allen S. Gerrard
/s/ THEODORE L. KOENIG
------------------------------------------- Director December 3, 1999
Theodore L. Koenig
/s/ DAVID N. LAUX
------------------------------------------- Director December 3, 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(17).
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.
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(17).
10.43 Revolving Note from the Company to LaSalle, dated
August 19, 1999(17).
10.44 Intercreditor Agreement between DGJ and LaSalle, dated
August 19, 1999(17).
10.45 Amended and Restated Promissory Note issued by the Company
to DGJ, dated August 19, 1999(17).
10.46 Amended and Restated Equipment Lease between the Company and
DGJ(17).
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).
99.2 Form of Subscription Certificate.
99.3 Form of Notice of Guaranteed Delivery for Subscription
Certificate.
99.4 Form of Subscription Agent Agreement by and between the
Company and American Stock Transfer and Trust Company, as
Subscription Agent.
99.5 Form of letter to stockholders from the Company.
99.6 Form of letter to brokers, dealers, commercial banks, trust
companies and other nominees from American Stock Transfer
and Trust Company.
99.7 Form of letter to clients of brokers, dealers, commercial
banks, trust companies and other nominees.
99.8 Nominee Holder Oversubscription Exercise Form.
</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.
II-11
<PAGE>
(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.
(17) Incorporated by reference from our Form S-1 Registration Statement (No.
333-89137) declared effective by the SEC on October 28, 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-12
<PAGE>
EXHIBIT 5.1
HOLLEB & COFF
ATTORNEYS AT LAW
55 EAST MONROE STREET
SUITE 4000
CHICAGO, ILLINOIS 60603-5896
(312) 807-4600
TELECOPIER (312) 807-3900
OPINION OF HOLLEB & COFF
December 3, 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
15,000,000 shares of the Company's common stock, par value $0.01 per share (the
"Shares"), which may be purchased by the stockholders of the Company who receive
rights as described 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; 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 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.
<PAGE>
BPI Packaging Technologies, Inc.
December 3, 1999
Page 2
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 23.1
CONSENT OF LIVINGSTON & HAYNES, P.C., INDEPENDENT ACCOUNTANTS
The Board of Directors
BPI Technologies, Inc.
We consent to the use in this Registration Statement of BPI Packaging
Technologies, Inc. on Forms S-1 for registration of 15,000,000 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, Massachusetts
November 30, 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 appears in such Registration Statement. We
also consent to the reference to us under the heading "Experts" in such
Registration Statement.
/s/ Pricewaterhouse Coopers LLP
Boston, MA
November 30, 1999
<PAGE>
EXHIBIT 99.2
Registered Owner(s):
------------
SUBSCRIPTION CERTIFICATE
(Front Side of Subscription Certificate)
BPI PACKAGING TECHNOLOGIES, INC.
SUBSCRIPTION CERTIFICATE FOR COMMON SHARES. VOID IF NOT EXERCISED
AT OR BEFORE 5:00 P.M. (EASTERN TIME) ON _______________, 1999, UNLESS
EXTENDED, THE EXPIRATION DATE. THIS SUBSCRIPTION CERTIFICATE IS NOT
TRANSFERABLE.
Expiration Date: , 1999 Number of Rights:
------------------ -------
(Unless Extended)
THIS SUBSCRIPTION CERTIFICATE MAY BE USED TO SUBSCRIBE FOR COMMON
SHARES. FULL INSTRUCTIONS APPEAR IN THE PROSPECTUS AND ON THE BACK OF THE
SUBSCRIPTION CERTIFICATE.
Subscriptions pursuant hereto are subject to the terms and
conditions set forth in the Prospectus. Subscription payments pursuant to the
exercise of basic rights and oversubscription rights shall be made by: (i)
bank draft drawn upon a United States bank or a postal, telegraphic or
express money order payable to "American Stock Transfer and Trust Company, as
Subscription Agent"; (ii) wire transfer of funds to the account maintained by
the Subscription Agent for such purpose (see reverse for instructions); or
(iii) notice of guaranteed delivery of payment (as described in the
Prospectus). The subscription form on the reverse side hereof must be
properly completed and executed and this Subscription Certificate must be
surrendered, along with the applicable subscription payment, to the
Subscription Agent prior to the Expiration Date.
This Subscription Certificate and the right to subscribe for common
shares may not be transferred or assigned. The Subscription Certificate, when
surrendered at the office of the Subscription Agent by the registered owner
hereof in person or by attorney duly authorized in writing, may be exchanged
for Subscription Certificates of different denominations of like tenor and
representing in the aggregate the number of Rights indicated above.
<PAGE>
This Subscription Certificate shall be delivered to the Subscription
Agent on or prior to _____________________, 1999.
IMPORTANT: Complete appropriate form on reverse.
BPI PACKAGING TECHNOLOGIES, INC.
- --------------------------------
- --------------------------------
AMERICAN STOCK TRANSFER AND TRUST COMPANY,
as Subscription Agent
- ------------------------------------------
- ------------------------------------------
<PAGE>
(Reverse Side of Subscription Certificate)
BY MAIL:
American Stock Transfer and Trust Company
40 Wall Street
46th Floor
New York, New York 10005
BY HAND DELIVERY:
American Stock Transfer and Trust Company
40 Wall Street
46th Floor
New York, New York 10005
BY OVERNIGHT COURIER:
American Stock Transfer and Trust Company
Exchanges and Tenders
40 Wall Street
46th Floor
New York, New York 10005
The undersigned acknowledges receipt of the Prospectus, dated _______,
1999 relating to the Shares issuable upon exercise of Rights. Any
certificates for the Shares issued in connection with this subscription
should be issued in the name(s) set forth on the face hereof and
delivered to the address stated below.
TO SUBSCRIBE FOR SHARES: Upon the terms and conditions set forth herein
and in the Prospectus, I hereby irrevocably subscribe for Shares as set
forth below and herewith tender subscription payments as calculated
below. I understand that my subscription is subject to acceptance by
the Company.
I. A. Number of shares subscribed for ___________________
pursuant to basic rights.
(NOTE: You may subscribe
for any number of shares equal to or
less than the number of Rights
evidenced by this Subscription
Certificate. You may not subscribe
under this Item I(A) for a number of
shares greater than the number of
such Rights.)
B. Subscription price $0.04 per share
C. Payment for shares pursuant to basic I(A) x I(B) ___________________
rights
II. A. Number of shares subscribed for ___________________
pursuant to oversubscription rights.
(NOTE: You may subscribe under
this Item II(A) for any number of
shares, provided you have subscribed
under Item I(A) for the maximum number
of Shares you are entitled to
subscribe to thereunder.)
B. Subscription price $0.04 per share
<PAGE>
C. Payment for shares pursuant to II(A) x II(B) ___________________
oversubscription rights
Total payment for shares (total of I(C) and II(C)): ___________________
If payment is made by wire transfer, the instructions are as follows:
Chase Manhattan Bank, ABA No. 021-000021, A/C 323062547.
/ / Check here if rights are being issued pursuant to a Notice of
Guaranteed Delivery delivered to the Subscription Agent prior to the
date hereof and complete the following:
Name(s) of Registered Holder(s):
------------------------------------
Window Ticket Number (if any):
------------------------------------
Date of execution of Notice of
Guaranteed Delivery:
------------------------------------
Name of institution which
guaranteed delivery:
------------------------------------
Signature(s)
-----------------------------------
-----------------------------------
(if jointly owned, both must sign)
(NOTE: The above signature(s) must
correspond with the name(s) written
upon the face of this Subscription
Certificate in every particular,
without alteration.)
Social Security or Other
Tax Identification Number
----------------------
Address
----------------------------------------
----------------------------------------
Telephone Number
-------------------------------
Dated ________________________, 1999
Signature
Guarantee
-------------------------------------
(if applicable) Eligible Guarantor
Institution:
By:
---------------------------
Its:--------------------------
THIS SUBSCRIPTION CERTIFICATE IS IRREVOCABLE AND SUBJECT TO
ACCEPTANCE BY THE COMPANY. PAYMENT IN FULL MUST
ACCOMPANY THIS SUBSCRIPTION CERTIFICATE, UNLESS THE
REGISTERED HOLDER(S) PREVIOUSLY FILED A NOTICE OF GUARANTEED DELIVERY.
<PAGE>
EXHIBIT 99.3
Name(s) of Registered Holder(s): ____________________________
FORM OF NOTICE OF GUARANTEED DELIVERY
FOR SHARES OF COMMON STOCK
OF BPI PACKAGING TECHNOLOGIES, INC.
As set forth in the Prospectus dated December , 1999 under "The Rights
Offering--Guaranteed Delivery Procedures," this form may be used as a means of
effecting subscription and payment for all shares of common stock of BPI
Packaging Technologies, Inc. for which you subscribed. This completed form shall
be delivered to the Subscription Agent by mail, hand delivery, facsimile or
overnight courier on or prior to , 1999.
THE SUBSCRIPTION AGENT IS:
American Stock Transfer and Trust Company
BY MAIL OR HAND DELIVERY:
American Stock Transfer and Trust Company
40 Wall Street, 46th Floor
New York, NY 10005
BY FACSIMILE:
(718) 234-5001
CONFIRM BY TELEPHONE:
(718) 234-2700
BY OVERNIGHT COURIER:
American Stock Transfer and Trust Company
Exchanges & Tenders
40 Wall Street, 46th Floor
New York, NY 10005
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE, OTHER THAN
AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
The member firm of a registered national securities exchange or a member of
the National Association of Securities Dealers, Inc., or a commercial bank or
trust company, having an office or correspondent in the United States which
completes this form must communicate the guarantee and the number of shares
subscribed for to the Subscription Agent and must deliver this Notice of
Guaranteed Delivery, guaranteeing delivery of: (i) payment in full for all
subscribed shares at a price of $0.04 per share; and (ii) a properly completed
and signed copy of the Subscription Certificate, to the Subscription Agent
within three NASDAQ trading days following the date of this Notice of Guaranteed
Delivery. Failure to do so will result in a forfeiture of the Rights.
<PAGE>
GUARANTEE
The undersigned, a member firm of a registered national securities exchange
or a member of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company, having an office or correspondent in the
United States, guarantees delivery to the Subscription Agent within three NASDAQ
trading days following the date of this Notice of Guaranteed Delivery of: (A) a
properly completed and executed Subscription Certificate; and (B) payment in
full for all subscribed shares at a price of $0.04 per share.
No of rights you hold: ________________________
No. of shares of common stock for which you subscribed pursuant to the basic
rights: ______________ X $0.04 = Payment due: $______________
No. of shares of common stock for which you subscribed pursuant to the
oversubscription rights: ______________ X $0.04 = Payment due: $______________
Total payment due: $______________
METHOD OF DELIVERY (CIRCLE ONE)
A. Through the Depository Trust Company ("DTC"); or
B. Direct to the Subscription Agent.
Please note that if you are guaranteeing for the exercise of
oversubscription rights, and are a DTC participant, you must also execute and
forward to American Stock Transfer and Trust Company a Nominee Holder
Oversubscription Exercise Form.
Please assign below a unique control number for each guarantee submitted.
This number should be referenced on any direct delivery or any delivery through
DTC.
<TABLE>
<S> <C>
- ------------------------------------------- -------------------------------------------
Name of Firm Authorized Signature
- ------------------------------------------- -------------------------------------------
Address Title
- ------------------------------------------- -------------------------------------------
Zip Code Name(s) (Please Type or Print)
- ------------------------------------------- -------------------------------------------
Telephone Number Date
- -------------------------------------------
DTC Participant Number
</TABLE>
<PAGE>
EXHIBIT 99.4
SUBSCRIPTION AGENT AGREEMENT
THIS AGREEMENT is entered into as of , 1999 by and between BPI
Packaging Technologies, Inc., a Delaware corporation (the "Company") and
American Stock Transfer and Trust Company as the "Subscription Agent."
WHEREAS, the Company intends to issue to the holders of its common shares,
$0.01 par value ("Common Shares"), as of a certain record date rights to
purchase up to an aggregate of 15,000,000 Common Shares (the "Rights"); and
WHEREAS, the Company desires the Subscription Agent to act on the Company's
behalf, and the Subscription Agent is willing so to act, in connection with the
issuance, distribution and transfer of the Rights, collection of funds from
Rights holders exercising Rights, sale of Rights, and collection and delivery of
funds from certain shareholders selling Rights, and issuance and delivery of
Common Shares upon the exercise of the Rights.
NOW THEREFORE, in consideration of the promises and mutual covenants set
forth herein, the parties agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms have the
following terms have the following meanings:
(a) "Basic Rights" means the right of Registered Holders to subscribe
for and purchase Common Shares through the exercise of Rights at the rate of
0.7 Common Shares for each Right held.
(b) "Common Shares" means the common shares, $0.01 par value, of the
Company.
(c) "Company" means BPI Packaging Technologies, Inc., a Delaware
corporation.
(d) "Expiration Date" means , 1999 or such other date as the
Company may determine.
(e) "Initial Issue Date" means , 1999.
(f) "Offering Period" means the period commencing on , 1999
and ending at 5:00 p.m. eastern time on the Expiration Date.
(g) "Oversubscription Rights" means the right of Record Date
Stockholders who fully exercise their Basic Rights to subscribe for and
purchase, subject to certain limitations and subject to allocation, any
Common Shares not acquired by other holders of Rights through the exercise
of such Basic Rights.
(h) "Prospectus" means the Company's prospectus, dated December ,
1999, pertaining to the Rights and Common Shares, as the same may from time
to time be supplemented or amended.
(i) "Record Date" means December 2, 1999.
(j) "Record Date Stockholder" means a holder of record of Common Shares
on the Record Date, as determined by the stock transfer books maintained by
the Subscription Agent in its capacity as Transfer Agent and Registrar of
the Common Shares.
(k) "Registered Holder" means each person in whose name a Subscription
Certificate shall be registered on the books maintained by the Subscription
Agent.
(l) "Rights "means the subscription rights issued by the Company
entitling Registered Holders to subscribe for and purchase Common Shares, at
the ratio of 0.7 Common Shares for each Right, and at a Subscription Price
of $0.04 per share.
1
<PAGE>
(m) "Subscription Agent" means American Stock Transfer and Trust
Company.
(n) "Subscription Certificate" means the certificate evidencing the
Rights.
(o) "Subscription Price" means $0.04 per share.
2. FORM OF SUBSCRIPTION CERTIFICATES. Each Subscription Certificate shall
be signed by duly authorized officers of the Company, dated the date of issue
(whether upon original issuance or in lieu of transferred, exchanged, mutilated,
destroyed, lost or stolen Subscription Certificates) and countersigned by the
Subscription Agent. All signatures may be facsimile signatures.
3. ISSUANCE OF SUBSCRIPTION CERTIFICATES. The Subscription Agent shall
issue and deliver (by first class United States mail, postage prepaid) to each
Record Date Stockholder a Subscription Certificate evidencing one Right per
Common Share owned of record by such Record Date Stockholder on the Record Date.
No Subscription Certificates shall be issued before or after the Offering
Period. All Subscription Certificates surrendered to the Subscription Agent for
transfer or upon exercise shall be canceled by the Subscription Agent and
thereafter shall be retained by the Subscription Agent for a period of not less
than seven years or such shorter period of time as the Company may permit. Upon
expiration of the retention period, the canceled Subscription Certificates shall
be delivered to the Company or destroyed by the Subscription Agent, as directed
by the Company.
4. DELIVERY OF PROSPECTUS AND OTHER DOCUMENTS. The Subscription Agent
shall deliver, along with originally issued Subscription Certificates and
Subscription Certificates issued upon transfer, a Prospectus, a letter from the
President of the Company to its shareholders, a return envelope Addressed to the
Subscription Agent, and such other documents and information as the Company may
provide. The Subscription Agent shall also provide copies of the Prospectus and
other documents prepared by the Company to Registered Holders, holders of Common
Shares and other persons upon request.
(a) The Company will provide the Subscription Agent with a sufficient
number of Prospectuses as the Subscription Agent may require.
(b) The Subscription Agent shall provide (at no additional expense to
the Company) a sufficient number of Subscription Certificates as required to
distribute to Record Date Stockholders, and to replace lost, destroyed,
mutilated or stolen Subscription Certificates.
(c) The Company has provided to the Subscription Agent the following
documents that the Subscription Agent shall deliver to brokers, dealers,
commercial banks, trust companies and other nominee holders of Subscription
Certificates: (i) a letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees; (ii) a letter to the clients of nominee
holders described in clause (i); and (iii) a Notice of Guarantee Delivery.
5. TRANSFERS. Subscription Certificates may be split-up, combined, or
exchanged at any time during the Offering Period for other Subscription
Certificates evidencing a like number of Rights to be issued to the Registered
Holder. No fractional Rights will be issued. Any Registered Holder desiring to
split-up, combine, or exchange one or more Subscription Certificates shall make
such request in writing delivered to the Subscription Agent and shall surrender
with such written request properly endorsed Subscription Certificates to be so
split-up, combined or exchanged. If required by the Prospectus, all signatures
on Subscription Certificates must be guaranteed by a financial institution that
is a participant in a recognized signature guarantee program. Upon any such
split-up, combination or exchange of a Subscription Certificate, the
Subscription Agent shall countersign and deliver to the Registered Holder a
Subscription Certificate or Subscription Certificates as so requested.
2
<PAGE>
6. EXERCISE. Rights may be exercised at any time during the Offering
Period upon the terms and conditions set forth in the Prospectus and in this
Agreement.
(a) Rights may be exercised by completing and executing the exercise
portion of the Subscription Certificate and delivering it to the
Subscription Agent along with payment of the Subscription Price for the
aggregate number of Common Shares subscribed prior to 5:00 p.m. time on the
Expiration Date.
(b) A subscription will be accepted by the Subscription Agent if, prior
to 5:00 p.m. eastern time on the Expiration Date, the Subscription Agent has
received a notice of guaranteed delivery of payment guaranteeing delivery
of: (i) payment of the full Subscription Price for the Common Shares
subscribed for in connection with the Basic Rights and any additional Common
Shares subscribed for pursuant to Oversubscription Rights (for Record Date
Stockholders)l and (ii) a properly completed and executed Subscription
Certificate. The Subscription Agent will not honor a notice of guaranteed
delivery of payment unless a properly completed and executed Subscription
Certificate and full payment for the Common Shares is received by the
Subscription Agent by the close of business on the third NASDAQ trading day
after the Expiration Date (the "Protect Period").
(c) The Subscription Price shall be paid in United States dollars, by:
(i) bank draft drawn upon a United States bank or a postal, telegraphic or
express money order payable to the Subscription Agent; (ii) wire transfer of
funds to the account maintained by the Subscription Agent for such purpose:
Chase Manhattan Bank, ABA No. 021-000021, A/C 323062547; or (iii) notice of
guaranteed delivery of payment, as discussed above.
(d) Once a Registered Holder has exercised Rights, such exercise may not
be revoked or rescinded.
(e) If a Registered Holder does not specify the number of Rights being
exercised on the Subscription Certificate, or if the payment by the
Registered Holder is not sufficient to pay the total purchase price for all
of the Common Shares that the Registered Holder indicated on the
Subscription Certificate, the Registered Holder will be deemed to have
exercised the maximum number of Rights that could be exercised for the
amount of the payment that it delivered to the Subscription Agent.
(f) If the Registered Holder's payment exceeds the Subscription Price
for all the Rights shown on its Subscription Certificate, its payment will
be applied, until depleted, to subscribe for Common Shares in the following
order: (i) to subscribe for the number of Common Shares, if any, that such
Registered Holder indicated on the Subscription Certificate that it wished
to purchase through its Basic Rights; and (ii) to subscribe for Common
Shares until its Basic Rights have been fully exercised. Any excess payment
remaining after the foregoing allocation will be returned to the Registered
Holder as soon as practicable by mail, without interest or deduction.
7. OVERSUBSCRIPTION RIGHTS. Common Shares not sold by the Company through
the exercise of Basic Rights will be offered, by means of Oversubscription
Rights, to the Record Date Stockholders who have exercised all of their Basic
Rights. Record Date Stockholders such as broker-dealers, banks, and other
professional intermediaries who hold shares on behalf of clients, may
participate in exercising the Oversubscription Rights for the client if the
client fully exercises all Basic Rights.
All subscriptions pursuant to the exercise of Oversubscription Rights will
be fulfilled out of the Common Shares not required to satisfy the Basic Rights
which are exercised. If the Common Shares are not sufficient to satisfy all
subscriptions pursuant to the Oversubscription Rights, the available Common
Shares will be allotted pro rata among those Registered Holders who exercised
the Oversubscription Rights, based on the number of Common Shares for which each
Registered Holder oversubscribed.
8. POWER OF ATTORNEY. The Company hereby constitutes and appoints the
Subscription Agent as the Company's true and lawful attorney in-fact, with full
power in such capacity to endorse, deposit, negotiate,
3
<PAGE>
and invest on behalf and for the account of the Company any checks, draft, wire
transfers or other payments received by the Subscription Agent as a payment of
the Subscription Price upon the exercise of Basic Rights and Oversubscription
Rights.
9. ESCROW AND INVESTMENT FUNDS. The Subscription Agent shall:
(a) Maintain a record of the date, amount of each of the Subscription
Price received upon the exercise, of Rights and the name and address of the
Registered Holder by whom or on whose behalf such payment was made.
(b) Aggregate all payments received upon the exercise of Basic Rights
and deposit such payments in one or more bank accounts, or invest such
payments in Treasury bills or other investments designated by the Company,
as soon as practicable after receipt of such payments.
(c) Aggregate all payments received upon the exercise of
Oversubscription Rights and deposit such payments in one or more bank
accounts, or invest such payments in Treasury bills or other investments
designated by the Company, as soon as practicable after receipt of such
payments.
(d) Keep payments received upon the exercise of Basic Rights from
payments received upon the exercise of the Oversubscription Rights.
(e) Keep all funds deposited and invested in accounts in the name of the
Company.
(f) Return as promptly as practicable to the Registered Holder who made
such payment, any payment of the Subscription Price not accepted by the
Company for any reason.
10. PAYMENT OF FUNDS TO THE COMPANY. Funds representing payment of the
Subscription Price for the exercise of Basic Rights shall be paid to the Company
by wire transfer to such account and according to such instructions as the
Company may deliver to the Subscription Agent in writing. Unless changed by
subsequent written instructions, the Subscription Agent shall follow the wiring
instructions attached to this Agreement as APPENDIX A. Such wire transfers of
funds to the Company shall be made from time to time at the request of the
Company, or if no request is made, each Friday during the Offering Period.
11. REPORTS. The Subscription Agent shall deliver daily to the Company a
written report showing the following: (i) the number of Basic Rights exercised
on such day, and the aggregate number of Oversubscription Rights exercised
through such date; (ii) the amount of funds received such day in payment of the
Subscription Price for the exercise of Basic Rights, and the aggregate amount of
funds on deposit or invested for the account of the Company from payment of the
Subscription Price for the exercise of the Oversubscription Rights through such
date; (iii) the number of Common Shares subscribed such day pursuant to the
Basic Rights, and the aggregate number of Common Shares subscribed through such
date pursuant to the Oversubscription Rights; and (iv) the aggregate amount of
funds received such day in payment of the Subscription Price and the aggregate
amount of funds on deposit or invested for the account of the Company from
payment of the Subscription Price for the exercise of the Oversubscription
Rights through such date.
12. ISSUANCE OF COMMON SHARES. Certificates for Common Shares subscribed
for pursuant to the Basic Rights will be delivered to the Registered Holders as
soon as practicable after receipt by the Subscription Agent of a duly completed
and exercised Subscription Certificate and payment in full for the Common Shares
pursuant to the Basic Rights. As soon as practicable after the Expiration Date
of the Rights, the Company will determine the number of Common Shares, if any,
which have been purchased by Registered Holders who have exercised their
Oversubscription Rights, and certificates representing the Common Shares so
purchased will be sent to the Registered Holders. If it is necessary to allocate
any available Common Shares among those Registered Holders exercising
Oversubscription Rights, overpayments for Common Shares not issued to such
Registered Holders will be promptly refunded, without interest.
4
<PAGE>
13. VALIDITY AND FORM OF SUBSCRIPTIONS. All questions concerning the
timeliness, validity, form and eligibility of any exercise of Rights will be
determined by the Company whose determination will be final and binding the
Company in its sole discretion may waive any defect or irregularity, or may
permit any defect or irregularity to be corrected, within such time as the
Company may determine, or the Company may reject, in whole or in part, the
purported exercise of any Right. Neither the Company nor the Subscription Agent
will be under any duty or obligation to give any notification or to permit the
cure of any defect or irregularity in connection with the submission of any
Subscription Certificate, the exercise or attempt to exercise any Right, or the
payment of the Subscription Price. Subscriptions through the exercise of Rights
will not be deemed to have been received or accepted by the Company until all
irregularities or defects have been waived by the Company or cured to the
satisfaction of, and within the time allotted by, the Company in its sole
discretion. The Subscription Agent will promptly notify the Company in writing
of all defects in the exercise of any Rights. Subscription Certificates and
funds received by the Subscription Agent that are not properly executed or
submitted, and as to which all irregularities have not been timely waived or
cured, shall be returned by the Subscription Agent to the Registered Holder who
submitted such Subscription Certificate and/or payment.
14. AMENDMENT, EXTENSION OR TERMINATION OF THE RIGHTS OFFER. The Company
reserves the right, in its sole discretion, to: (a) terminate the offer of
Common Shares through the Rights prior to delivery of the Common Shares for
which Registered Holders have subscribed pursuant to the exercise of Rights;
(b) extend the Expiration Date to a later date; or (c) amend or modify the terms
of the Rights. If the Company amends the terms of the Rights, an amended
Prospectus will be distributed to holders of record of Rights and to holders of
Rights who have previously exercised Rights. All holders of Rights who exercised
their Rights prior to such amendment or within four business days after the
mailing of the amended Prospectus will be given the opportunity to confirm the
exercise of their Rights by executing and delivering a consent form.
15. LOSS OR MUTILATION. Upon receipt by the Company and the Subscription
Agent of evidence, satisfactory to them, of the ownership and loss, theft,
destruction or mutilation of any Subscription Certificate, and in the case of
loss, theft or destruction, receipt of indemnity satisfactory to the Company and
the Subscription Agent, and in the case of mutilation upon surrender and
cancellation of the mutilated Subscription Certificate, the Subscription Agent
shaft deliver in place of such lost, stolen, destroyed or mutilated Subscription
Certificate a new Subscription Certificate representing an equal aggregate
number of Rights. Registered Holders requesting such substitute Subscription
Certificates shall also comply with such other reasonable regulations,
requirements or requests, and shall pay such reasonable charges, as the Company
or the Subscription Agent may prescribe.
16. LIABILITY OF SUBSCRIPTION AGENT. The Subscription Agent shall not, by
issuing and delivering Subscription Certificates or stock certificates
evidencing Common Shares, or receiving or holding funds for the benefit of the
Company, or by any other act under this Agreement, be deemed to make any
representations as to the validity or value or authorization of the Subscription
Certificates or the Rights represented thereby or the Common Shares issued upon
the exercise of Rights, or whether the Common Shares issued upon the exercise of
Rights are fully paid and nonassessable. The Subscription Agent shall not be:
(i) liable for any statement of fact made or contained in this Agreement or in
the Prospectus or in any documents prepared by the Company in connection with
the offer of Common Shares through the Rights; (ii) liable for any action taken,
suffered or omitted by it in reliance upon any Subscription Certificate or other
document or instrument believed by it in good faith to be genuine and to have
been signed or presented by the proper party or parties; (iii) responsible for
any failure on the part of the Company to comply with any of its covenants and
obligations contained in this Agreement or in the Subscription Certificates; or
(iv) liable for any act or omission in connection with the performance of its
duties, obligations, covenants and agreements under this Agreement, except for
the Subscription Agent's own negligence, willful breach or misconduct.
5
<PAGE>
17. INDEMNIFICATION. The Company agrees to indemnify and hold harmless the
Subscription Agent from and against any and all losses, expenses and
liabilities, including judgments, costs and reasonable attorneys' fees, arising
out of any act or omission of the Subscription Agent in the execution or
performance of its duties, obligations, covenants and agreements under this
Agreement, except for the Subscription Agent's own negligence, willful breach or
misconduct.
18. COMPENSATION FOR SERVICES. The Company agrees to pay the Subscription
Agent a fee of $15,000 for all services rendered by the Subscription Agent under
this Agreement, and to reimburse the Subscription Agent for all reasonable
out-of-pocket expenses incurred in performing its duties under this Agreement.
19. AMENDMENT; MODIFICATION; WAIVER. This Agreement may be amended,
waived, discharged or terminated in whole or in part only by a written
instrument signed by the party against whom enforcement of such amendment,
waiver, discharge or termination is sought. Notwithstanding the immediately
preceding sentence, the parties shall supplement or amend this Agreement to
conform to any amendments or changes that the Company may make to the terms and
conditions of the Rights and the offer of the Common Shares through the Rights.
20. NOTICES. All notices under this Agreement shall be in writing and
shall be sent by telecopier with a confirming copy sent by United States mail,
first class postage prepaid, or by air courier, delivery charges prepaid, to a
Registered Holder at the address shown on the registry books maintained by the
Subscription Agent, or to the parties at the following telecopier numbers and
addresses:
<TABLE>
<S> <C>
To the Company: BPI Packaging Technologies, Inc.
455 Somerset Avenue
Building No. 3
North Dighton, MA 02764
Telecopier (508) 822-6872
Attention: James F. Koehlinger, Chief Financial
Officer
To the Subscription Agent: American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Telecopier (718) 236-4588
Attention:
</TABLE>
A notice sent by mail shall be deemed delivered on the fourth day after deposit
in the United States mail, postage prepaid and addressed as aforesaid. Any party
may change its address or telecopier number for notice by giving notice to the
other party in the manner provided in this Section.
21. DELAYS OR OMISSIONS. No delay or omission to exercise any right, power
or remedy accruing to any party to this Agreement, upon any breach or default of
any other party under this Agreement, shall impair any such right, power or
remedy; nor shall it be construed to be a waiver of, or an acquiescence in, any
such breach or default or any similar breach or default thereafter occurring;
nor shall any waiver of any single breach or default be deemed a waiver of any
other breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character, on the part of any party, of any
breach or default under this Agreement, or any waiver, on the part of any party,
of any provisions or conditions of this Agreement, must be made in writing and
shall be effective only to the extent specifically set forth in such writing.
All remedies, either under this Agreement or by law and otherwise afforded to
any party, shall be cumulative and not alternative.
22. UNENFORCEABLE PROVISIONS. If all or part of any one or more of the
provisions contained in this Agreement is for any reason held to be invalid,
illegal or unenforceable in any respect, the invalidity,
6
<PAGE>
illegality or unenforceability shall not affect any other provisions, and this
Agreement shall be equitably construed as if it did not contain the invalid,
illegal or unenforceable provision.
23. GENDER. Whenever appropriate in this Agreement, terms in the singular
form shall include the plural (and vice versa) and any gender form shall include
all others.
24. SECTION HEADINGS. Section headings are for the convenience of the
parties and do not form a part of this Agreement.
25. BINDING EFFECT; PARTIES. This Agreement shall be binding on the
Company, the Subscription Agent and their respective successors and assigns; and
nothing in this Agreement shall confer upon any other person or entity any
right, remedy or claim, or impose upon any other person any duty, liability or
obligation.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
BPI PACKAGING TECHNOLOGIES, INC.
By:
-----------------------------------
Its:
-----------------------------------
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By:
-----------------------------------
Its:
-----------------------------------
7
<PAGE>
APPENDIX A
Fleet Bank
Account No.: 9395351753
ABA No.: 011500010
Account Name: BPI Packaging Technologies, Inc.
8
<PAGE>
EXHIBIT 99.5
[LETTERHEAD]
, 1999
Dear Stockholder:
BPI Packaging Technologies, Inc. (the "Company") is today commencing a
rights offering under which it will offer 15,000,000 common shares, $0.01 par
value, to its non-affiliated stockholders. Stockholders will receive one right
for each common share owned. The rights entitle the holders to purchase 0.7
common shares for every right owned at a subscription price of $0.04 per share.
Stockholders who exercise all of their rights in full will be entitled to the
additional privilege of subscribing for and purchasing, subject to certain
limitations and subject to allocation, any common shares not acquired by other
holders of rights.
The rights offering will expire at 5:00 p.m. eastern time on , 1999.
The record date for determining the Company's stockholders entitled to receive
the rights is December 2, 1999. American Stock Transfer & Trust Company will act
as the subscription agent for the rights offering. The rights offering is more
fully described in the enclosed Prospectus, dated December , 1999, which I
urge you to read carefully.
The rights offering provides the Company with the opportunity to raise
additional capital without diluting the ownership interests of existing
stockholders who exercise their rights, and without paying underwriting
commissions and expenses. Stockholders who exercise their rights will be able to
purchase shares at a price below market, without incurring broker's commissions,
and will be able to maintain their pro rata share of the Company's equity.
Stockholders of record on the record date who fully exercise their rights will
be entitled to the additional privilege of subscribing for and purchasing,
subject to certain limitations and subject to allocation, any common shares left
over by stockholders who fail to exercise their rights.
We would like to thank all of our stockholders for their support.
On behalf of the Board of Directors,
[SIGNATURE]
Ivan J. Hughes
Chairman of the Board of Directors
<PAGE>
EXHIBIT 99.6
BPI PACKAGING TECHNOLOGIES, INC.
15,000,000 COMMON SHARES
ISSUABLE UPON THE EXERCISE OF RIGHTS
SUBSCRIPTION PRICE $0.04 PER SHARE
TO BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES
AND OTHER NOMINEES:
We have been appointed by BPI Packaging Technologies, Inc. (the "Company")
to act as Subscription Agent in connection with the Company's rights offering
under which it is distributing to stockholders of record on December 2, 1999
rights to subscribe for and purchase up to an aggregate of 15,000,000 common
shares, $0.01 par value, at a price of $0.04 per share. Stockholders will
receive one right for each common share owned and will be entitled to purchase
0.7 common shares for every right held under the terms and conditions set forth
in the Company's Prospectus dated December , 1999. Stockholders who exercise
all of their rights in full will be entitled to the additional privilege of
subscribing for and purchasing, subject to certain limitations and subject to
allocation, any common shares not acquired by other holders of rights through
the exercise of their rights. The rights offering will expire at 5:00 p.m.
eastern time on , 1999.
We are asking you to contact your clients for whom you hold subscription
certificates registered in your name or in the name of your nominee.
Enclosed herewith are copies of the following documents:
1. Letter dated , 1999 from Ivan J. Hughes, Chairman of the
Board of Directors of the Company to the stockholders;
2. Prospectus dated December , 1999;
3. A letter which may be sent to your clients for whose accounts you
hold shares in your name or in the name of your nominee;
4. A Notice of Guaranteed Delivery;
5. A Nominee Holder Oversubscription Exercise Form; and
6. Return Envelope to American Stock Transfer & Trust Company, the
Subscription Agent.
The Company will not pay any fees or commissions to any broker, dealer,
salesman or other person in connection with the solicitation of the exercise of
the rights in the rights offering. You will be reimbursed for customary mailing
and handling expenses incurred by you in forwarding the enclosed materials to
your clients.
If any of your clients for whom you hold rights registered in your name or
in the name of your nominee exercise their oversubscription rights, you will
need to complete and execute the Beneficial Owner Certification. To exercise the
oversubscription rights, a beneficial owner of rights must have exercised their
basic rights in full.
If you are a Depository Trust Company participant and you are exercising the
oversubscription rights, you must utilize both the Nominee Holder
Oversubscription Exercise Form and the Beneficial Owner Certification.
<PAGE>
Additional copies of the enclosed materials may be obtained from the
Subscription Agent, American Stock Transfer & Trust Company, 40 Wall Street,
46th Floor, New York, New York 10005, (718) 921-8200.
Very truly yours,
AMERICAN STOCK TRANSFER & TRUST
COMPANY
NOTHING CONTAINED HEREIN SHALL CONSTITUTE YOU OR ANY PERSON THE AGENT OF THE
COMPANY OR THE SUBSCRIPTION AGENT, OR AUTHORIZE YOU OR ANY OTHER PERSON TO GIVE
ANY INFORMATION OR MAKE ANY REPRESENTATION ON BEHALF OF ANY OF THEM WITH RESPECT
TO THE RIGHTS OFFERING NOT CONTAINED IN THE PROSPECTUS.
2
<PAGE>
EXHIBIT 99.7
BPI PACKAGING TECHNOLOGIES, INC.
15,000,000 COMMON SHARES
ISSUABLE UPON THE EXERCISE OF RIGHTS
SUBSCRIPTION PRICE $0.04 PER SHARE
TO OUR CLIENTS:
Enclosed for your consideration is a Prospectus, dated December , 1999,
relating to a rights offering by BPI Packaging Technologies, Inc. (the
"Company") under which the Company is distributing to stockholders of record on
December 2, 1999 (the "record date") rights entitling the holders to subscribe
for and purchase up to an aggregate of 15,000,000 common shares, $0.01 par
value, at a price of $0.04 per share. Stockholders will receive one right for
each share owned on the record date and will be entitled to purchase 0.7 common
shares for every right held, under the terms and conditions set forth in the
Prospectus. If you exercise all of your rights in full, you will be entitled to
the additional privilege of subscribing for and purchasing, subject to certain
limitations and subject to allocation, any shares not acquired by other holders
of rights through the exercise of their rights (the "oversubscription rights").
The rights offering will expire at 5:00 p.m. eastern time on , 1999.
The rights are not transferable.
The Prospectus is being forwarded to you as the beneficial owner of rights
held by us in your account but not registered in your name. Those rights can be
exercised only by us as the registered holder and pursuant to your instructions
and the terms and conditions of the rights offering. Accordingly, you should
complete the Beneficial Owner Instructions to indicate whether you wish us to
subscribe for any common shares to which you are entitled pursuant to the rights
offering, or whether you wish us to sell some or all of the rights that we hold
for your account.
You should complete the Beneficial Owner Instructions on the back hereof and
forward it to us as promptly as possible to permit us to exercise rights on your
behalf. If we do not receive complete Beneficial Owner Instructions, we will not
exercise your rights and your rights will expire on , 1999. You must
also make arrangement for the payment of the subscription price for the common
shares you wish to purchase through the exercise of your rights. Your attention
is called to the following:
1. The subscription price of the rights is $0.04 per share.
2. The expiration date of the rights is , 1999. The rights may
not be exercised after the expiration date.
3. You may not rescind a purchase of common shares after exercising
your rights.
4. The rights are not transferable.
If you do not specify the number of rights being exercised, or if your
payment is not sufficient to pay the total subscription price for all of the
shares that you indicated you wished to purchase, you will be deemed to have
exercised the maximum number of rights that could be exercised for the amount of
your payment.
If your payment exceeds the total subscription price for all of your rights,
your payment will be applied, until depleted, to subscribe for shares in the
following order:
(1) To subscribe for the number of shares, if any, that you indicated
you wished to purchase through your basic rights; and
(2) to subscribe for shares until your basic rights have been fully
exercised.
Any excess payment remaining after the foregoing allocation will be returned
to you as soon as practicable by mail, without interest or deduction.
<PAGE>
BENEFICIAL OWNER INSTRUCTIONS
The undersigned acknowledges receipt of the Prospectus, dated December ,
1999 relating to the common shares issuable upon exercise of rights.
TO SUBSCRIBE FOR SHARES: Upon the terms and conditions set forth in the
Prospectus, I hereby irrevocably instruct you to exercise rights held by you for
my account to purchase common shares as calculated below. I understand that my
subscription is subject to acceptance by the Company.
<TABLE>
<S> <C> <C> <C> <C>
I. A. Number of common shares subscribed for ----------------------------
pursuant to basic rights. (NOTE: You may
subscribe for any number of common
shares equal to or less than the number
of your rights. You may not subscribe
under this Item I(A) for a number of
common shares greater than the number of
such rights.)
B. Subscription price $0.04 per share
C. Payment for common shares pursuant to I(A) X I(B) ----------------------------
basic subscription rights
II. A. Number of common shares subscribed for ----------------------------
pursuant to oversubscription rights.
(NOTE: You may subscribe under this Item
II(A) for any number of common shares,
provided you have subscribed under Item
I(A) for the maximum number of common
shares you are entitled to subscribe to
thereunder.)
B. Subscription price $0.04 per share
C. Payment for common shares pursuant to II(A) X II(B) ----------------------------
oversubscription rights
</TABLE>
Payment in the following amount is enclosed: $__________________
Please deduct payment from the following account maintained by you:
<TABLE>
<S> <C>
Type of Account: ---------------- Account Number: ----------------
Date: ----------------, 1999
- ------------------------------------------- -------------------------------------------
(Signature) (Signature)
- ------------------------------------------- -------------------------------------------
(Please Print Name) (Please Print Name)
</TABLE>
2
<PAGE>
EXHIBIT 99.8
BPI PACKAGING TECHNOLOGIES, INC.
RIGHTS OFFERING
NOMINEE HOLDER OVERSUBSCRIPTION EXERCISE FORM
PLEASE COMPLETE ALL APPLICABLE INFORMATION
<TABLE>
<S> <C>
BY MAIL OR HAND DELIVERY: BY: OVERNIGHT COURIER:
To: American Stock To: American Stock
Transfer & Trust Company Transfer & Trust Company
40 Wall Street, 46th Floor Exchanges & Tenders
New York, New York 10005 40 Wall Street, 46th Floor
New York, New York 10005
</TABLE>
THIS FORM IS TO BE USED ONLY BY NOMINEE HOLDERS TO EXERCISE THE
OVERSUBSCRIPTION RIGHTS IN RESPECT OF RIGHTS THAT WERE EXERCISED AND DELIVERED
THROUGH THE FACILITIES OF A COMMON DEPOSITORY. ALL OTHER EXERCISES OF
OVERSUBSCRIPTION RIGHTS MUST BE EFFECTED BY THE DELIVERY OF THE SUBSCRIPTION
CERTIFICATES.
------------------------
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE
PROSPECTUS OF BPI PACKAGING TECHNOLOGIES, INC. (THE "COMPANY") DATED
DECEMBER , 1999 (THE "PROSPECTUS") AND ARE INCORPORATED HEREIN BY REFERENCE.
COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM THE COMPANY.
------------------------
VOID UNLESS RECEIVED BY THE SUBSCRIPTION AGENT WITH PAYMENT IN FULL BY
5:00 P.M., EASTERN TIME, ON , 1999, UNLESS EXTENDED BY THE COMPANY
(THE "EXPIRATION DATE").
1. The undersigned hereby certifies to the Subscription Agent that it is a
participant in [Name of Depository] (the "Depository") and that it
has either: (i) exercised all of the rights and delivered such exercised
rights to the Subscription Agent by means of transfer to the Depository
Account of the Company; or (ii) delivered to the Subscription Agent a Notice
of Guaranteed Delivery in respect of the exercise of the rights and will
deliver the rights called for in such Notice of Guaranteed Delivery to the
Subscription Agent by means of transfer to such Depository Account of the
Company.
2. The undersigned hereby exercises the oversubscription rights to purchase, to
the extent available, common shares and certifies to the Subscription Agent
that such oversubscription rights are being exercised for the account or
accounts of persons (which may include the undersigned) on whose behalf all
rights have been exercised.(*)
- ------------------------
* PLEASE COMPLETE THE BENEFICIAL OWNER CERTIFICATION ON THE BACK HEREOF
CONTAINING THE RECORD DATE POSITION OF RIGHTS OWNED, THE NUMBER OF SHARES
SUBSCRIBED FOR IN CONNECTION WITH THE EXERCISE OF BASIC RIGHTS AND THE NUMBER
OF OVERSUBSCRIPTION RIGHTS THAT WILL BE EXERCISED BY EACH SUCH OWNER, IF
APPLICABLE.
<PAGE>
3. The undersigned understands that payment of the subscription price of $0.04
per share for each common share subscribed for pursuant to the
oversubscription rights must be received by the Subscription Agent on or
before 5:00 p.m., eastern time, on the Expiration Date, and represents that
such payment, in the aggregate amount of $ either (check appropriate
box):
/ / has been or is being delivered to the Subscription Agent pursuant to
the Notice of Guaranteed Delivery referred to above, or
/ / is being delivered to the Subscription Agent herewith, or
/ / has been delivered separately to the Subscription Agent in the manner
set forth below (check appropriate box and complete information relating
thereto):
/ / uncertified check
/ / certified check
/ / bank draft
/ / money order
/ / wire transfer
________________________________________________________________________________
Depository Subscription Confirmation Number
________________________________________________________________________________
Depository Participant Number
Contact Name ___________________________________________________________________
Phone Number ___________________________________________________________________
Dated: ______________________, 1999
________________________________________________________________________________
Name of Nominee Holder
________________________________________________________________________________
Address
________________________________________________________________________________
City State Zip Code
By: ____________________________________________________________________________
Name: __________________________________________________________________________
Title: _________________________________________________________________________
2
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
BENEFICIAL OWNER CERTIFICATION
The undersigned, a bank, broker or other nominee holder of rights to
purchase common shares, $0.01 par value ("Common Shares"), of BPI Packaging
Technologies, Inc. (the "Company") pursuant to the rights offering described and
provided for in the Company's Prospectus dated December , 1999 hereby
certifies to the Company and to American Stock Transfer & Trust Company, as
Subscription Agent for such rights offering, that for each numbered line filled
in below the undersigned has exercised, on behalf of the beneficial owner
thereof (which may be the undersigned), the number of basic rights specified on
such line, and such beneficial owner wishes to subscribe for the purchase of
additional Common Shares pursuant to the oversubscription rights, in the amount
set forth in the third column of such line:
<TABLE>
<CAPTION>
NUMBER OF SHARES
REQUESTED PURSUANT TO THE
RECORD DATE SHARES NUMBER OF BASIC RIGHTS EXERCISED OVERSUBSCRIPTION RIGHTS
---------------------------- -------------------------------- ----------------------------
<C> <S> <C> <C>
1)
---------------------------- ---------------------------- ----------------------------
2)
---------------------------- ---------------------------- ----------------------------
3)
---------------------------- ---------------------------- ----------------------------
4)
---------------------------- ---------------------------- ----------------------------
5)
---------------------------- ---------------------------- ----------------------------
6)
---------------------------- ---------------------------- ----------------------------
7)
---------------------------- ---------------------------- ----------------------------
8)
---------------------------- ---------------------------- ----------------------------
9)
---------------------------- ---------------------------- ----------------------------
10)
---------------------------- ---------------------------- ----------------------------
</TABLE>
<TABLE>
<S> <C>
- ------------------------------------------- -------------------------------------------
Name of Nominee Holder Depository Participant Number
- ------------------------------------------- -------------------------------------------
Name: Depository Primary Subscription
Title: Confirmation Numbers(s)
Date: ---------------------, 1999
</TABLE>
3
