EarthShell files for bankruptcy
Baltimore firm lost more than $331M in 14 years
Baltimore Business Journal - by Rachel Sams,
Staff Date: Monday, January 29, 2007, 12:00am EST - Last Modified: Thursday, January 25, 2007, 3:20pm EST
Related:Bankruptcies
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After losing more than $331 million during its 14 years of operations, EarthShell Corp. has filed for Chapter 11 bankruptcy protection.
EarthShell, a Baltimore-based maker of biodegradable food packaging, had struck several promising distribution deals. It reached an agreement last year with well-known upscale grocery store Wegmans Food Markets Wegmans Food Markets
Sale of Owings Mills Solo Cup plant pending
.
But EarthShell struggled with funding crunches and repeatedly relied on shareholders and executives to defer pay or loan the company money to keep going. On Dec. 13, EarthShell said it could not guarantee that it would be able to meet payroll or other financial obligations after Dec. 15.
EarthShell listed assets of $16,000 and liabilities of $12 million in its bankruptcy petition filed Jan. 19 in U.S. District Court in Delaware, where the company is incorporated.
EarthShell has reached a deal to sell its assets for $1 million to EarthShell Acquisition Corp., which is controlled by affiliates of Renewable Products Inc., according to Securities and Exchange Commission documents.
Bankruptcy court documents show that EarthShell Acquisition has agreed to be a "stalking horse" bidder in a process that triggers an auction if competing bids are received. Some companies liquidating assets do so under the reorganization provisions of Chapter 11 of the bankruptcy code, rather than the Chapter 7 section designed for liquidation, in hopes of a smoother sale -- and potentially, a higher price.
EarthShell reached the sale agreement "after exhaustive, but unsuccessful, efforts to secure commitments for additional funding," it said in SEC documents. EarthShell had never landed secure long-term funding, and was in default on financing agreements with Cornell Capital Partners, according to SEC filings.
EarthShell licensed technology for making its products to Missouri-based Renewable Products Inc. in 2005. Renewable Products, funded by and affiliated with Thomson Street Capital Partners, had agreed to merge its operations with EarthShell if their venture met certain goals. The companies ended that agreement this month, SEC documents show.
Renewable Products has agreed to provide EarthShell with funding while the sale is pending, according to court documents. The sale agreement provides that EarthShell will pay a $300,000 breakup fee to Renewable Products if it is acquired by another company, court documents show.
Renewable Products says it will continue to produce and deliver EarthShell products despite the bankruptcy. Renewable has lined up several new customers for EarthShell, said Bob Pondo, Renewable's vice president of sales.
But many retailers do not make changes to their shelf selection until after the first of the year, and "I think that pushed it a little too far for EarthShell's situation," said Pondo.
EarthShell products will be in limited distribution at retail giants Target and Wal-Mart
Pondo doesn't think EarthShell's bankruptcy will deter customers, since they will continue to deal with the same players at Renewable who have been handling sales, marketing and billing for EarthShell.
To conserve expenses during the bankruptcy, EarthShell has pared down to one full-time paid employee, according to court documents.
Derek C. Abbott, a bankruptcy attorney representing EarthShell, referred specific questions about the case to the company. EarthShell officials could not be reached for comment.
In the past, EarthShell's technology has been used in McDonald's Big Mac boxes. EarthShell also had a licensing agreement with Sweetheart Cup Co., but that agreement ended in 2004 after Solo Cup Co. Solo Cup Co. |
